Lets hear it. [applause] hello everyone how are you ladies and gentlemen we are gathered here in this great sovereign state to talk about the faith of the countrys banks, the Federal Reserve. We hope to discover whether the Federal Reserve kept its promise to provide a healthy economy system, full employment, stable and a lender of last resort or is it responsible for the series of the banking crisis and loss of purchasing power of the inflation in average citizen is this economy more stable or is it less stable because of the existence and did and did the fed exacerbate the crisis of 2008 or keep it from getting worse . Are we better off without the fed and if so what shall we replace it with, shall we go back to the classical standard of gold, and can i have been a plus for the classical Gold Standard . [applause] we hope to find out the answers to this most important issue and representing the defense today professor is the cofounder and coeditor of the american prospect magazine and professor. [applause] that said hes the professor of social policy at brandeis university. He was a longtime columnist of course for the business week and continues to write columns for huffingtonpost, the boston globe and the New York TimesInternational Edition and was a founder of the Economic Policy institute and serves on the board and executive committee. Hes the author he is the author of ten books including everything for sale the limit of markets and it was a fair and the 2008 bestseller the challenge of americas economic crisis and the cover of a transformative presidency. His latest book is the politics of austerity. Its available right here at the freedom fest bookstore. I hope you visit early and often please remain standing. A very very good. The longstanding central bank and Monetary Institution into the Obama Administration since the financial crisis of 2008 eight using other establishment economists have been accused of supporting a Monetary System that field the fragile Banking System and the financial crisis inevitable fix credit policies, bailed out wall street with its quantitative easing so that the National Debt now exceeds 17 trillion has manipulated Interest Rates too long for the American Economy to recover. How do you plead . Not guilty. Ive heard that one before. We will begin with fiveminute Opening Statements first by the prosecuting attorney robert murphy. [applause] put your hands together for the Research Fellow at the institute of the acclaimed new Book Enterprise and human action. My favorite kind of action. He is president of consulting, senior economist with the institute for Energy Research and hes got so much energy he could be his own can of red bull. He received his phd from New York University and has taught economics at Hillsdale College and nyu, he has offered a dozen books and they include politically incorrect guide to capitalism, has been a longtime critic of the fed and each of our extraordinary is will be subject to crossexamination. Then each site is going to make closing statements and we will have time for table tennis and it will be quite fun. After with this handsome collection. [applause] they will rule on the case if the defendant is found guilty i will impose a very harsh punishment. So so let me give the jury a few instructions. You will listen very carefully to the Opening Statements into and to the witnesses and at the end of the hearing you will be required to determine whether there is sufficient evidence beyond a reasonable doubt that the professor and the defendants are guilty of public malfeasance the decision will be based on the majority vote by the jury. It doesnt have to be unanimous although unanimity is so much fun. Is that understood . Very good. Thank you. You are very welcome. Ladies and gentlemen of the jury, distinguished guests, i stand here against the Federal Reserve the federal judge has outlined. Im going to present expert witnesses stepbystep that has been exacerbated by the Federal Reserve and how the recovery was repressed by the Federal Reserve for that lets look at the 1977 categories are a fact when it was amended at that point of course the fed was more of the 1913 to 1977 it was amended that it should be to promote the goals of the maximum employment and the longterm Interest Rates. Lets look at them and see as the fed fulfilled his duty is fulfilled by the statute. I think that we can see that they have failed miserably in that regard and we know that there is constant Price Inflation since 1913 that what you dont know is that this isnt simply a fact of nature it is a fact of the Federal Reserve policies from 1790 through 1913 its hard to estimate these things but back in 1790 if you have a consumer basket that was priced worth 100 at the time in 1913 the same basket of consumer goods would be given hundred 8 so thats an accumulative 8 Price Inflation over the entire span so the point is money used to be stable in purchasing power and the plaintiffs since 1913 of course i dont need to incorporate the statistics that the dollar has lost 95 to 99 of its purchasing power since that time. Some people will say yes of course when we see stable prices we dont been stable prices. What we mean is the stable fall in purchasing cover but even that criteria field. If criteria field. There hasnt been protectable study is inflation since 1913. Thereve been periods of relative moderate inflation. Im sure all of us are familiar with the high inflation in the night late 1970s and also but also from 1917 to 1920 each year the Consumer Price price index grows between 15 to 18 said they failed when it comes to the prices were stable following purchasing cover of the dollar. Lets move on to the maximum employment. You could say has the fact that a good job stabilizing the economy preventing the crisis . Theres the Great Depression thats kind of a strike against it. Theres the Great Recession thats a strike against it as well so the two calamities have been on the watch. Some defenders will go further and they would say okay if you throw out the Great Depression everyone gets the ball again. I love golf. Im glad someone got the joke. If youve heard about and look at the recession and the postworld war ii utility, just on that focus some people will say okay it was more stable but actually there is a 2012 paper that shows using mainstream economists including Christina Roemer has said a lot of the criticisms of the pre 1913 area is based on faulty statistics and they were looking more generally if you look at the output as a whole just focusing from the world war ii period and on the economy has been less stable. This is your one minute warning. They teach that in law school. [laughter] so looking at the statistics this is the statistics as published by other economists that say there is a very plausible case even from world war ii on their less stable than they were there for before the establishment so in terms of its major policy objectives, stable prices and a stable economy theyve clearly failed. Finally, let me just point out that its ironic in a meeting like this that we are arguing over do we need Central Planning when it comes to money if we are picking any other topic i wont mention his name but when he alluded for the name of the government to run healthcare they were booing and yet for some reason even freemarket economists many of them think the one area politicians are necessary and we can trust the market is money that doesnt make any sense. The Federal Reserve is an unnecessary institution by expert testimony witnesses will show that it exacerbates the cause of the financial panic and clearly they do not have the case to stand. Thank you. [applause] well done. Thank you. Now we are going to hear from the professor the defending attorney in the case. You have five minutes. Will you give your Opening Statement please. To make your head spin like youre in the exorcist. You will be spending soup in no time. Ladies and gentlemen of the jury i am not here to argue everything that the Federal Reserve does is a sound policy only that we are much better off in the central bank than without it and to demonstrate why he let me take you back to the period when we had no central bank no currency only the Gold Standard and the money supply dictated by the actions of the gold discoveries. They determined the availability of credit and this was the period when hard money was scarce and banks issued notes of the varying reliability and the money tended to call into loans when farmers needed. The quantity and the cost of credit for the relationship to the economies needs. As roger recounts in the new book Americas Bank of the economy oscillated between the credit booms and busts and fullscale financial panics broke out every couple of decades with severe crashes and in each and 73 in 1893 and the most serious depression of all 1907. They lasted four to five years all driven by monetary volatility in volatility and credit crunches and it was after the panic of 1907 at the populist world interest Business Leaders and wall street bankers who distrusted and even the test test of each other agree to some sort of central bank was necessary and so for the First Time SinceAndrew Jackson had killed a second bank the second bank of the United States, we got a compromise central Banking System that was federated and based on the model of the federalism of the United States. They have three indispensable functions that markets cannot perform for themselves. First it regulates the volume at the price of credit something money markets cannot do for themselves because of their tendency to overshoot or to undershoot. This is a balancing act of providing the credit the economy needs but also taking away the punch bowl in our famous metaphor when the economy becomes overheated. Second and even more important, they function as a lender of last resort in a crisis such as the collapse of 2008 and the lesser crisis that might have blossomed into fullblown depressions such as the flash crash, the latin the latin american asian crisis, the collapse of longterm capital management, the october 1987 stock market crash. It didnt do the lender of last resort job so after 1929 at the end of the current tools but it has an institutional memory. Third the senate is one of several regulatory agencies that seeks to limit the unfortunate habits of conflict of interest for the financial engineers who often create products for their own enrichment and to see investors create bubbles and then crash. The better fed does the that job of keeping Financial Markets honest the more it can keep Interest Rates moderate to make the capital available so the real economy needs without setting off bubbles and finally since the act of 1977, 1978 theyve also had a mandate to try to promote both high employment and price stability. Im happy to report that janet yellin is doing that job better than her predecessors. Despite the technologies many markets cannot regulate themselves on the contrary the ability of the financial engineers to create everything from credit defaults to exporting subprime mortgages to the products so they can bet against them at the expense of their customers such techniques require a central bank to govern both Monetary Policy and financial regulatory. I say this in full knowledge of the fact that human beings and officials are fallible and can be captured and indeed ive been a critic of the fed. Theyve often been too close to wall street that history shows repeatedly and vividly that in the case of money creation and the perils of Market Access are more extreme than the risk of regulatory. Thank you very much. If you had to choose between janet and your own report. [applause] [applause] please raise your right hand and place your left hand on that copy of your favorite book. I am the reason and before that i was the chairman and ceo. I read a book on the financial crisis which is the wall street journal. They take this crisis as given so do you agree with the fact that the crisis is handled to the situation. The cycles are good. But in the last financial crisis it played a primary role. It is called the maestro and we had a little economic collection that we needed that they created negative Interest Rates which means that you could lessen the inflation rate that created a huge incentive for people to leverage. So the fed provided the money to create a bubble and it wasnt just in the Housing Market that was in the commodities market in the stock market or the monies come from it was created. As for the policies encouraging subprime to be a co subprime lending to get mortgages to people who otherwise might not have qualified. Was the. It was the on the Housing Market and it is mathematically impossible without creating the money to make it happen. Given that the housing was clearly needing to come down shortly they did a good job. This was under the administration it was the rule of law the fed for the reasons that were absolutely unclear to anybody in the market that chose to save bear stearns. But they decided to pay off the deposit into the law was gone. We needed a correction but a lot of the damage was done by the panic which is absolutely unnecessary. There was no rule of law and the beginning was as bad as the early 80s and argumentative leaders in the early 90s and yet again we have this panic. Theres a lot of big banks that made the mistake that i would have let them fail but there was a secondary effect of the crisis i wonder could you briefly comment on the notion that perhaps the banking was deregulated and that might have contributed and we are told that it was interventionist but kept the handsoff policy do you agree with that . It was a massive increase. We have the privacy act, the patriot act. It was a massive increase in regulation. Banks were not deregulated in the federal register and the maps increased regulation. The banks were less regulated not deregulated. A lot of people plans to glasssteagall and they played no role in the crisis. Washington mutual and countrywide may be citigroup was a little worse. So the industry was not deregulated. The last question that i have for you is obviously you are very familiar with the work of ayn rand. Do you think that it lives up to her idea that she expresses in her work . No. [laughter] i would go beyond that. Ive had the opportunity to talk about the reserves in the open Market Committee and ive asked them a simple question i said to you believe and price controls a group of experts in washington, d. C. Said the right price for that automobile. They say absolutely not that crazy and i say even setting the price is a group of experts in washington, d. C. No more than billions of competitors in the Global Market and is it that the most important part and the most complex price that was sent wrong tax and they had no answer. I have no further questions for this witness. Very good. [applause] you referenced countrywide and washington mutual. These were Financial Institutions that that originated in the subprime mortgages and then securitized the paper and turned it in and sliced and diced the securities that were then sold off. Would you say those securities were priced accurately by the Financial Markets klaxon i would say they were underpriced in general but primarily when you have one competitor that has 50 or 60 market share they are driving the price of the market. They were under the pressure to have the least they have to keep biting deeper and deeper to reach the politically imposed standards so that was bringing down the pricing on the whole marketplace. What you see that they were priced accurately before they collapsed or after they collapsed they were only priced accurately after the crisis was over into the market cleared. When the rule of law was suspended the price fell and they would have in the free market they were too high going into the crisis. Can you describe what occurs in the credit crunch when one institution is so uncertain of the ability of another institution to pay back its debt that things freeze up what is that like . What actually happens quite ive never been through that. We certainly didnt have it in 2008. Its a huge flow of money. There is theres not a quality going on at the Bank Deposits went off when you look at the numbers. What was happening to allow the institutions to discredit the market and they were getting ready to fail how much damage would have been done its a hard thing for me to know that if we had created this letting bear bear stearns fail when they should have im fairly confident we would have had it worst of year short term correct