Glenn’s must read of the day

Meltdown
By Thomas E Woods Jr

GLENN: All right. So Thomas Woods is the author of Meltdown. Is he on the phone with me?

WOODS: Sure am.

GLENN: Tom? How are you, sir?

WOODS: I saw Taken this weekend, too. I’m great.

GLENN: Do you have daughters?

WOODS: I have three daughters. The oldest is 5. Yeah, they are not leaving the house.

GLENN: Oh, my gosh. I mean, it just wouldn’t let up. Now, I mean, I just don’t go to a lot of movies lately. I get my thrills from reading books like yours.

WOODS: Oh, thanks.

GLENN: I just, I mean, I thought I was going to have a heart attack by the end of that darn thing.

WOODS: Yeah, it’s excellent, excellent. I want William Neeson defending me.

GLENN: I’m sorry for anybody who didn’t see this movie but were you a little pissed at his crappy friends? His friends come over, they have beers, "Yeah, we were in the CIA." Okay, you’re on your own, you got 96 hours to find your daughter. How about a little love. Jeez.

Okay. So all right, so Tom, here’s — I thought of you this morning and this is why we called you. I thought of you this morning. After reading your book this weekend, I turn on the news and I heard three talking heads all say the same thing: We’ve got to do something. And I’m trying to make the case that, no, sometimes the best thing to do is nothing. And I had never heard of the Depression of 1920 until I read your book. Could you teach the Depression of 1920 to America?

WOODS: Oh, could I? I’d be thrilled to.

GLENN: Go ahead.

WOODS: Yeah, no one’s ever heard of the Depression of 1920 and the reason is congress didn’t try to get us out of it. It was far worse, if you actually look at employment, it was actually far worse than the Depression of 1929 that everybody has heard of. What did we have? A fiscal stimulus? To the contrary the government did everything that’s fashionable economics shouldn’t do and they actually cut the budget. So you actually had a negative stimulus according to them but to me that’s a wonderful thing to do. You reduce the power of the parasitic sector effort rest of the economy. That’s great. The Federal Reserve system inflate the money supply? They hardly did anything. They didn’t know what to do. The president at the time was Warren harding, sort of an aim I can’t believe guy but by the time it occurred to him to do something, the depression was over and the U.S. was back to setting production records. So I think there is a lesson here when you compare it to what did they do in the year 1929. The book you talk about by Bert Folsom, I love Bert Folsom.

GLENN: Have you read this?

WOODS: I haven’t yet, no, but I’m sure it’s good.

GLENN: I mean, you should read it. I mean, he’s probably not going to check. You should plagiarize some of this stuff and just put it in.

WOODS: Well, I got some stuff in Meltdown about the Great Depression.

GLENN: I know you do.

WOODS: When you look at the year 1929 and thereafter, it’s exactly the opposite. They say we’re going to roll up our sleeves and fix this thing. Gee, what an interesting coincidence. It goes on for year after year after year. And today we’re being told that Hoover is like Bush and Obama’s like FDR. Look, let’s make clear. I mean, Hoover was not a free market guy. He was — that was a problem. He wouldn’t let the market adjust.

GLENN: But wait. Hang on just a second because one thing I do like in your book is you said at one point, you know, the conservatives are now blaming the Community Reinvestment Act and they’re blaming the Democrats, and that’s not going to get us anywhere because that’s just only part of it. It’s only part of the story. You can’t tell me that Bush — I think Bush is very much Hoover because he did about as much, if I’m not mistaken, as Hoover did. He got in there and rolled up his sleeves and said, "We’re going to take this thing on, I’m going to dismantle the system to clean the system up." You’re like, what are you talking about

WOODS: No, you are right. I couldn’t agree more. My point is the way the analogy’s being made is the ideas that Bush and Hoover sat back and did nothing whereas the saviors, FDR and Obama are going to come rescue us whereas to the contrary if only Bush and Hoover had sat back and done nothing, we would be in far better shape. Now, I know you’re right, it’s hard to argue we should quote/unquote do nothing because then it seems like, well, you have nothing to recommend. So I mean, my version of doing nothing would be just start cutting everything you can possibly cut. Just cut like crazy. If the American people have to cut back, you know, why should the government be getting new ones in the name of stimulus.

GLENN: Can I tell you something? This makes me so mad, Thomas, because if you look at it, if you look at what’s going on, you are exactly right. Every business in America is cutting back. Every business in America is laying people off. Everybody is reevaluating, et cetera, et cetera. The government is expanding and building new offices and building new ships and everything else and you’re thinking to yourself, "Well, wait a minute. Why do the economics of my level not somehow magically work at the government level." What makes us think that it’s different in the White House than it is in our house?

WOODS: Yeah, that’s exactly right. And, of course, this stimulus package is mainly just, you know, a way to buy votes and stuff. It doesn’t actually work. If it worked, Japan would be doing great but it’s been in the dumps for 18 years because it’s government created a housing bubble over there and then when it burst, it tried to fight against reality, propping up prices, and the result was, you know, they tried every stimulus you could imagine, they lowered interest rates to zero, they flooded the economy with money, they almost nationalized their banks. And what’s the result? A lot more debt, the economy’s still in the tank, the real estate market is where it was in 1975. So what they’re going to do in America is the same thing they are going to try to fight against reality. When prices are trying to come down, they are going to try and keep them up. It’s not going to work and all we’ll have is a whole lot more debt on our shoulders.

GLENN: So I want to go — we have to take a break and I want to go here to then what should we be doing today and what is the real culprit that no one will talk about. Everyone will talk about the rich, everyone will talk about corporate America being greedy, everybody will talk about Bernie Madoff, but what is the elephant in the room? More in a second.

[Break]

GLENN: We have Tom Woods on the phone. He’s got a new book out called Meltdown. This explains how we got here and then explains what do we do from here, and I was just talking to Tom on the phone. You’re a professor, right? Are you a professor?

WOODS: I’ve been a professor but now I’m a fellow at the Ludwig Von Mises Institute. I just write all the time.

GLENN: Oh, I love the Ludwig Von Mises Institute. What the hell is the Ludwig –

WOODS: The Ludwig Von Mises Institute is pretty much the oasis of sanity in the lunacy going on because we promote United States of America in economics. All those who predicted this cycle, Hayek won the Nobel Prize for it and of course we’re the economists who are ignored now even though we called it. They say no one could have seen this coming. We saw it.

GLENN: I mean, you know what? This is crazy, Tom. I saw it and I don’t have any — I don’t even know who Ludwig whatever is. It just takes somebody with some common sense to be able to see this. And I have to tell you, and I’m reading your book and the elephant in the room that nobody will talk about is the Fed.

WOODS: Yeah.

GLENN: And I know as soon as you start talking about the Fed, people’s eyes glaze over. Beyond that, they also immediately start to think of Ron Paul who is painted as an absolute crazy man and I don’t agree with Ron Paul on everything but when it comes to the economy, he’s right on it.

WOODS: Exactly right. No, you are right, Glenn. I mean, talking about the Fed, most Americans probably don’t even know much about it. They’re led to believe that they can never figure it out. And basically now is the time we don’t have that luxury. You’ve got to figure it out. It’s not that hard. Part of the reason I wrote Meltdown is so the people could understand what the Fed is, what it does because the destructive consequences of what the Fed does are always blamed on the free market and that’s not fair and it’s got to stop. And so yes, we had the Community Reinvestment Act but if you hadn’t had the Federal Reserve system lowering interest rates to insane levels, you would not have launched this boom in the first plays and what Hayek said, won the Nobel Prize for, and he’s obviously not a nut although some nuts have won a Nobel Prize. I mean, look at Paul Krugman, we won’t mention any names but he said –

GLENN: Yeah. Well, that was the one that came to mind, sure was Paul Krugman.

WOODS: Of course. The prize has been debased over the years like central currency. But if the central banks pushes money to these low levels, the result is the economy starts doing irrational things and making irrational investments that aren’t going to pan out, there aren’t enough resources to sustain them all.

GLENN: It’s exactly what happened with the housing.

WOODS: Exactly.

GLENN: The housing, they pushed this low rate, people went, oh, my gosh, look at this. It started this ball rolling where everybody was like, oh, my gosh, look at how fast everything is increasing in value, I’ve got to buy, buy, buy, buy, buy, it was a bubble.

WOODS: Exactly. And therefore there’s inevitably a bust. It cannot go on forever. It’s like a heroin addict thinking that he can increase, just keep increasing his intake of heroin, that will solve his problems because the central bank is the same way. You know, we get on this artificial boom and what’s the only solution they can think of is just more. More, more, more, whereas we know we need to go cold turkey when you are a drug addict and we have gone on this artificial credit binge for so long and so it distorts the economy. It makes people go into businesses that really they shouldn’t go into. I mean, Peter Schiff is a common, frequent guest on your program. Schiff said it’s like when the circus comes to town and everybody comes to see the circus and they start going to restaurants in the area. The local restaurant owner said, well, I better build an addition to accommodate all these people because they are not going to be there forever, they are going to leave when the circus leaves. That’s what the Fed does. It makes businesses start up that don’t really make any sense in the long run and so you’ve got all these sort of phony baloney zombie businesses and all these stimulus packages are intended to keep them going. We need to liquidate them and get sound businesses going in their place.

GLENN: So how do we get rid of the Fed?

WOODS: I’m happy to say Jim Rogers, that great investment guy, he actually predicts there will be no Fed in 10 years. Now, that’s a –

GLENN: May I say — now, Jim Rogers was a brilliant guy. He’s a brilliant man.

WOODS: Yeah.

GLENN: He was a partner of Soros for a while and a really smart guy. But if I’m not mistaken, he also has moved to Singapore because he’s not to sure we’ll be around.

WOODS: Yeah, he decided in 2007 at the height to sell his house and move to where he feels the future is in Asia because I think he feels in the West we’re going to see the dead hand of government, we’re going to see those few profitable firms that are left are going to be saddled with the responsibility for taking care of all the losers in the economy in terms of all the businesses that should go out of business. They are going to stay artificially propped up. You know, you can’t have a successful economy like that. So he saw the writing on the wall. He wants his kids to grow up in a prosperous environment and what a shame, you know. What a shame that you have to — I mean, I just can’t imagine living anywhere else. But what a shame he was put in that position. But how do we end, how do we put a stop to this, doing what you’re doing and writing books and just telling the population, this is not, you know, a faded existence, that we have to have a central bank that is a lender of last resort and can bail out all the losers.

GLENN: But Tom, nobody, there is — I mean, I can’t believe it. You’ll be called a kook. I’m having you on and I believe Burton is going to be on tonight with you along with Steve Forbes, and I’m going to have you guys on. We’re going to talk about this stuff, and I guarantee you, oh, it’s a crazy show. It’s nothing but kooks getting rid of the Fed. There’s nobody that will actually say these things in enough frequency to be able to get this thing to move. And now you’ve got the government literally in bed with these banks and they are — I mean, we’re seeing mob style tactics. How do you release the death grip? How do you get that death grip from around our neck?

WOODS: Well, partly with humor, partly with reminding people that the very same people who say we’re cranks are the ones who have no idea this crisis is coming, who have absolutely no idea what to do about it, who at a time when the Fed was creating more dollars between 2000 and 2007 than had been created in the whole history of the republic, these people thought that’s just perfectly normal, there will be no negative consequences to that. We’ve got the Fed chairman, Ben Bernanke said that by the end of 2008 the housing market should rebound. We got record foreclosures. We’ve got these people saying that the economy is in great shape. Alan Greenspan said you should take out adjustable rate mortgages. And he and Bernanke said there is no housing bubble. And Bernanke even said, "My regulators investigated the mortgage market in 2006 and ’07 and we found that it’s better than ever." Those are the cranks because they have been wrong on everything. We at least have the merit of having been right. We’ve called this and we’ve consistently been right. And the reason I wrote Meltdown was to go after people who themselves didn’t see this coming and have the nerve to blame this downturn on the free market as if it’s the free market’s fault that rates were pushed down by the government’s crummy central bank.

GLENN: Okay, let me ask you quick and then I’ve got to take a break. How long do you think we have before this thing really comes crashing down?

WOODS: Oh, it’s — you know, I don’t know. I know that seems like a copout but the timing, you can’t ever really know. Ludwig Von Mises was a great economist of the 20th century. He predicted the Great Depression in 1928 at a time when everybody else says we’re going to be prosperous, the business cycle has been tamed. He said not so fast, I can’t know when but I can know that if you flood the economy with all this phony money and you drive interest rates down, you are starting off a boom that’s going to end in a bust, I’m telling you it’s going to be a bust. And it came the next year and he was almost — he and Hayek were almost the only ones who called it.

GLENN: Okay.

WOODS: So it’s very, very hard to get the timing right but you know it.

GLENN: Tom, if you don’t mind, I’m going to see if we can’t arrange to have you on the radio show a couple of times this week and I’d like you to write something for our newsletter because I think you’ve got it down.

WOODS: It would be my pleasure.

GLENN: Yeah, so we’ll arrange all of that and we’ll see you tonight at 5:00 on the Fox News Channel.

WOODS: Great, look forward to it.

GLENN: Thank you, sir.