Swift, uber and robots tell us about money, credit and why we should abolish american central bank. This is live coverage from the book festival in georgia, starting now. Good morning. Woefully everything is working. My name is linda. At the savannah about festival we are blessed to bles post such celebrated authors that has been made possible from the generosity we would like to extend the special thanks to our member and individuals to of made and continue to make saturdays festival free. Immediately following the presentation john will be signing festival book purchased copies of his book is slightly different today he has a short interview with cspan immediately following so you have time to get to the tent before him we have a new policy this year if youre planning for the next of their presentation to stay here please move forward so that then you empties and the eschers can determine how many seats for people coming in. Please take this moment to turn off your cellularse phones and ask you do not use flash photography. For the question and answer portion this year we are passing microphone so there is no lining up in the center aisle like we have in the past. Ve and he is happy to take questions. John tammy is with us today and is the senior fellow of the Reason Foundation the senior Economic Advisor and editor of real clear markets. Com. He frequently writes about the Securities Markets along with trade and Monetary Policy issues that impact those markets for a variety of publications including the wall street journal and investors business daily, a financial times, National Review and the london daily telegraph. Please give a welcome to john tyranny. [applause]. A gracious introduction and thanks to all of you being here today iss passionate people like you that what mead do what i love so i cannot express my gratitude enough. Also to the savannah book festival for including me as a lookout at the other authors to be featured this weekend i cannot believe i am in such good company berger these are authors i have read for years and i am clicking my heels like to be a part of this. Excellent t word kim did all the workd to for me to be here also i believe to somebody moved mountains to get me in the position to be here today quite simply there would not be a book called who needs the fed except what paul knows about banking and credit could fill many books over the last 13 years he taught me enormous amounts and has been so patient in discussions and by email and over the phone aboutut these issues and if i had not discussed this or have learned so much there never would have better reason to write who needs the fed in the first place. First will talk about my background i was born in charleston south carolinaa not too far from here. My dad was in the nuclear deaver navy once he got out of the navy lived in dallas and atlanta uh then boston and then move to los angeles i grew up in it wdena. During grade school i discovered not knowing at that time what i would be doing in terms of writing about economics and Economic Policy there were childrens books in grade school about president s meet George Washington and meet c jefferson i would read them b over and over i would be off to the side reading these books in class and i said i am worried by an untroubled at school i am not participating so the teacher said we are thrilled he is interested in these bookste please have him continue. That probably signaled something ahead. For College University ofhe texas major in Political Science just because it seemed like the most interesting major at the time. I cannot say l. Learned whatmost as their focus is elsewhere that i worked in sales fors years then went to Vanderbilt School of management to get my mba. While there i decided to get into equities with the bull market into a good job at goldman sachs. That is what began my future career took shape so while other people were on the Trading Floor talking about equities five would watch cnbc my focus was on the economist talking about the economy and really had my interest there was a constant stream ofe commentary to say if they t grew too much or if people prospered to much the there is the negative downside. I thought about growing up in the 70s i know inflation. the treasury shrinks the value of the dollar that is something that occurs exclusive when economies are growing investment surges so the prices of everything drop a remember the first mobile phone in the early 80s with a halfhour battery life the size of a brick and i thought now you can get mobile phones for a fraction of the price. Venue for history offersat computer created by i am cost over 1 million in the late nineties. So then i thought that is another example of a persistent drop ofer investment. Looked everything rejected the common view that the fed and the Central Banks have tos plan that. Culdesacs was full of talented people very specific that they secretly started to write for clients to say but you hear on cnbcpers is for a basic economic history and common sense and started to think this is what i really wanted to do but then the stock market started to dive let people to ae wafer to as the internet bubble began to pop. That run up of stocks was beautiful and a sign of economic progress that you need that constant experimentation to get you to a better place. Place to live look at it as a time looket transformetterly transform and the downside to the big drop in equity prices and that it was not as interested in my services as they were a few years ago. [laughter] that was devastating at thee time we start to question him a my doom for failure . So i already cannot an economist i am not a journalist either it would pain me not to be in the field so that forced me to figure out what i really wanted to do as a fundraiser for the Cato Institute paid the bills during the day meeting donors that is hell i met all mcadams to transform how i view the world to be even more determined as the economic commentator but my initial online columns make a possible for me to have a voice nobody wanted to have the association but my reputation was working against or contradicting that wisdom of economics and felt the profession have lost its way about percentages rather than a beautiful story of human action and people dont dislike economics but how has been explained to them if they could understand sports or movies or television or famous people they could understand what they need about economics so my first book Popular Economics you should buy several copies of laughie laugh explain Economic Growth and got rid of the graphs of what is informative and is central the mia today talks about credit and money through things people can understand that economics is fun people take the fun out of it so that led to the book who needs the fed . Would want to stress upfronttitr mrs. Day very optimistic book that was never nearly as powerful or influential and even better that Market Forces so what can to be stressed enough and has the resources it cannot shrink credit that we have already created the fed is large but it is not active in the markets because of there specific skill the central bankers stalled have remember their Central Banks in nigeria, barbados. They are everywhere we have a large one because the American People have the swagger that is not its own. I think they are full of information. The same i think the electric is full of information. Theres a lot of skepticism thin about centralbank. E is some i think its based on aon a mise misperception and iver really misunderstanding that it is not reality. N the misperception is that money and credit is one of the same. In fact, money and credit cannot be more different. If they were the same, haiti and honduras would have every bit as much credit flowing through their economy as we do in the united states. That would mean counterfeiting would not only be legal, but probably encouraged. Credit is a real economicis ream resources. To paraphrase, when you borrow dollars your borrowing access to computers, trucks, tractors, desks, chairs, buildings. T of al most of all labor. We are the credit in the economy, the producers of the resources. That when people seek to borrow dollars theyre tried to obtain. The fed has no private stash of resources that i can release to the economy. We are the creators of it. Now their frustration with the fed is somewhat separate. People read and they watch the pundits on tv. They watch the newspapers, will they tighten credit . Will they keep money easy at zero percent . I think the electric probably looks at that says something is wrong with this picture. That does not reflect the reality that we know. Apple computers must the boat company in the world but it pays 3 to borrow. Anyone who is ever started a Small Business knows i to obtain credit or cost a bit more than zero percent. Its much higher than 3 , higher and higher all of the time. That is the broad points of the first point of my book. While the feds do you cry easy access to credit and easy money, and the real economy we act as though the fed doesnt exist. Thats very positive statement about where we are. Thinking about hollywood. Brian grazer is easily the most talented movie producer in the history of the industry. Ollo 13. Were talking about splash, parenthood, a beautiful nine, apollo 13. Were talking about Television Shows like empire, 24, and arrested development. But as he freely acknowledges, his attempt to fund his movie and tv ideas failed 90 of the time. This person with a nearperfect tract record, hollywood is the land of, no. What is what about silicon valley. At if they said that if you have a startup idea in the valley that money sources will be the path to your door trying to invest with you. As evidenced by the billionaire venture capitalist in silicon valley, we know that credit is expensive out there. If you want to fund your startup idea youll give up a big portion of your business to a venture capitalist. Then you will give up more of it in the form of Stock Options to lure potential employees. E what about Investment Banking . One of the things that offends me the most of modern times is how media members have made wall street the majority of. They create did perception that Investment Bankers are somehow better people. I cannot think of a more important profession than Investment Banking. One of the reasons theyre paid so well has to do with the basid truth that in a real economy the price of credit is expensive. Its one thing to come up with an idea for a business or come up with that idea to expand your business. Its another thing to attain the resources and credit necessary to build on your vision. Investment bankers are paid well, properly so because they could do for businesses what they businesses cannot do for themselves. Many of you remember the name michael malcolm. The media demonized him. He spent time in prison for charges that had never been prosecuted on anyone before. I would argue that he was one of the greatest capitalists who ever lived. His insight back in the 1960s and 70s was that unless you are the blues to the bluechipp business you were largelys shut out of the credit markets. The traditional banks do banks did not regard you as a reasonable credit risk. Se so to his genius come the source of his fortune was the highyield bond. And it was his way of finding more expensive credit for promising businesses, time warner, time warner, cnn, the Golden Nugget hotels, the list is long of the great businesses he attained credit for. The point is his fortune was a function of the fact that while the feds were often never never land he found it for very difficult credit sources. Unless youre bluechip its hard to attain credit in the real economy. This brings us us to our 45th president , donald trump. P. I like to sell books i like to have stories about people who are famous. Ks i feel like that will drive more people to buy it, as all of youl should. Thinking about donald trump and let me stress that this is not a political statement, many of you remember he reached inside is a real estate mogul in the 1980s. Thats when he was viewed as the developer who could do no wrong, the man who had the vision for what the future of Tall Buildings would be. Whats interesting is that as early as 1990 he was already viewed as a major credit risk by u. S. Banks. In 1990 until the story in the book he flew out of los angeles to visit was Security Pacific Bank which was the fifth largest bank at the time. He wanted to borrow 50,000,000 dollars to to fund the revitalization of the ambassador hotel. Largestst as you can imagine for modern times he arrived full of confidence and swagger about his amazing Balance Sheet of assets, full of some of the best properties honor that were easily highly liquid. W he was the best best lending option out there, you should probably give me hundred million dollars. While the bankers had a different view of his assets. They assets. They did not trust them. They looked at them as highly illiquid. That if you ran into difficulty paying off his debt, these were not be easily sold. So they refuse his request for 50,000,000 dollar loan and they ultimately loaned him timely. May they wanted to be associated with his celebrity. Ultimately they live to regret that decision two years later. Y l they wrote down the loan in total. He did not pay a dime back. It has been well known ever since early 90s that u. S. Banks generally have not touched donald trump. He was viewed as toxic. Hit a bad credit reputation. Thats not a political statement. Not a political statement. But it is a statement about credit. H while the fed is once again oves here decreeing zero rates of interest, in the real economy Interest Rates float up and down as low the fed doesnt exist. Inte thats a hugely positive statement about the u. S. And Global Economy that i would add. If the fed were fraction as powerful as a commonly assumed we would not be the richest nation on earth. The fact factct that the fed is not that consequential is a signal that were in a credible rich nation. It doesnt influence the flow of credit as much as people think. Only among academics and economists untouched by reality and by the real world is are such a thing as easy credit. In the real economy the prices set by Market Forces thats a positive thing. So the question becomes, do web, need a Federal Reserve . Do we need a central bank . As you can probably guess, my take is that we dont need one. E that the if the fed were shut down tomorrow, few would would notice. The fed began 100 years ago in 1913 as a lender of last resortu to solvent banks. If you were a well run bank with Excellent Assets on your book and you ran into a nearterm cash crunch, the fed existed at a source of a loan to tide you over until some of the cash came back inches as we have have seen over the last 100 plus years, its unheard of for a solvent bank to go to thev fed for a loan. To do so is an admission of bankruptcy. Because theres nonfat sources of credit always willing to lead to a wellrun bank. What this meant for the bankingg system overall is that the fed existed to weaken it. The fed has become a lender of last resort to insolvent banks that did not rate alone alone in real economy. Si mentioned that silicon valley. Theres always a Central Authority that could bail out your weakest companies. That means that france sure, the globe. Com and etoys would still exist. Silicon valley would be a very run down impoverished place. Its wealth is affection is that bad business is regularly died. The fed has weaken the Banking System by virtue of it propping up over the years the weakest at the expense of the most successful banks. The fed is also a bank regulator. My argument and this will offend at,wi few, what a laughable presumption. If youre working with the fed thats a signal he could not get a job at at the bank in the first place. And if you asking those of lesser talent to place those with much more talent. I would add that with regulators and regulations for asking thehei w impossible. Raskin something that even the smartest bankers in the world could not do. Were asking them to see into the future to detect trouble spots within banks well before problems arise. G billions but they could do that they would be earning billions in private sector and would be the richest investors in the world. Even the the smartest investors in the world fully admit the majority of time there late to a problem. So were asking the impossible meaning is very expensive but it achieves less than nothing. It weakens the Banking System. And the feds famously targets the rate at which banks lend to one another. But you dont need the Federal Reserve for that banks could easily set the price and do on their own. The feds do not said anything. An so my argument is that we should and what serves no useful purpose. If we ended the fed pew would notice. I accept that that my view is a bit on the outside. If you talk to most economists they cannot function without a central bank. We would be in a nonstop depression mode if not for thesi Federal Reserve. I. Out that John D Rockefeller became the richest man of therlo world before the fed but its constantly rejected, the very idea that i would say we dont need a central bank. The arguments are many, the school of economics makes the broad point about the fed that we needed to increase credit in the economy during recession periods to prop up an economyri that is weakening or in in freefall. One, it ca the theory fails in two ways. One, it cannot be forgotten that the recession