Possibility. We have never had a decline of house prices on a nationwide basis. We have also said that there not printing money, but they do. Now she will be in charge. The number one most important economic decision i will make. John probably the most second powerful job in the world, yet people dont know what it is. The fed. I dont know. John a small group of old, white people who get to spend trillions of your dollars in secret. No secret to ball of government officials should have the authority to create money out of thin air. John are you fed up with the fed . Thats our show tonight. And now john stossel. John i have done hundreds of tv shows, but there is one topic i have always avoided, the fed. I know is important, more so than most of what i cover, but it is so complex injury. People in charge even work at being tall. Alan greenspan called it fed speech and tried to be obscure because he did not want to spook the market. Bernanke and janet yellen, but the fed is crucially important. It can destroy your savings, affect whether you have a job or a future. I wish there were a simple way to explain what it does which is why am thankful their is a new film out about the fed called money for nothing. Jim bruce made the film, and before we get your movie of want to play a part of the video made by the Federal Reserve. The fed is important because it keeps americas Monetary System stable and growing with low inflation was fosters further growth and helps keep the economy growing in the right direction. John it sounds good. The economy going in the right direction. You could argue the intentions may be good, but the results are not always. John you interviewed janet yellen for this film. I chose not to show any of her interview bids because she was even more boring than everybody else. You get the feeling they were get this . You know, i think since greenspan there has been a tradition of the fed trying to operate, you know, outside of the limelight, behind the curtains a little bit and not give a late its policies. John what i especially like about your film is it covers the rationale, the good intentions behind it and how they sometimes make things worse. The current fed was created to reassure people when a bank fails. Bank customers would become suspicious and they would want to pull their money out of the bank. Then some other people would be afraid that their bank would go, so people would want to pull their money out of deposits and withdraw the money as currency. The banks would not have the currency to pay out. They would close their doors. Something has to get done here. Senator nelson aldrich, a center of new yorks most powerful bankers to an island off the coast of georgia to secretly negotiate plans for american central bank. Traveling under false names and a private railroad car, the great secrecy of this expedition with foster conspiracy theories for decades to come. John why would they used false names . You know, it was done at that time that they were worried about we had to Central Banks in the country 100 years ago, 17911816. We get rid of them because there was a sense that they would favor the wealthy and politically connected. John your documentary says about ten years after the fed was created its leaders decided to sit stimulate the economy. The roaring 20s, the fed induced boom and bust. At first the low rates unintentionally helped boost stock market and debt bubbles. Alarmed fed men clamped down setting the stage for a recession in stockmarket crash. Current Federal Reserve chairman ben bernanke, as we did it, we being the Federal Reserve, calls the Great Depression. John they have wised up and learned their lesson. The lesson that they need to line is that it needs to back out of markets. Allow markets to operate more freely. John know, we can manage if we learn from the depression, the inflation. We will manage it. Not that could lead managing the economy. A more positive role. It is side it did not create enough money. Forty years later they proclaimed that the feds should also fight unemployment which cause the next crisis because they printed a lot of money. The extra money cause inflation. The u. S. Promised to be the worlds reserve currency currency. The fed created far more dollars than it could ever redeem, and now the u. S. Could no longer keep that promise. I have elected that secretary of the treasury to suspend the convertibility of the dollar into gold. For the first time in history the dollar was just a piece of paper. What does this mean for you . Your dollar will be worth just as much tomorrow as it is today. Of the next decade the cost of living more than doubled. The dollar lost more than half of its value. John nixon was wrong. Imagine that to my politician be wrong. We got inflation which rose up to 13 . The fed keeps making the same mistake over and over again. In the 1970s it was printing too much money. The dollar lost more than half its value. Right after nixon made that promise. Inflation is low today, and recently they had the confidence to do what they have done of the past few years contract to stimulate the economy by printing lots of money to buy Treasury Bonds on dubious bank paper. In total they have spent almost 4 trillion. A dozen people decide to create 4 trillion. They did most of this after the stimulus failed to stimulate. The fed upped the ante. With Interest Rates already at zero the fed only way to choose the economy was to print more money. A technique called quantitative easing or qe. You have what degree of confidence in your ability to control this . 100 . John 100 confidence. Japan has been doing quantitative easing for the past 16 years. John not going well. It has not worked. The problem is engaging in experiments. You know, theyre not really watching on to that. John and they get stuff from all the time. Here is what ben bernanke said before the house and bubble burst. The problem with the sub prime market seems likely to be contained. John and they denied that they basically print money. Is sounds like they are printing money. One myth that is out there is that what we are doing is printing money. We are not. Tax money that the fed is spending. It is much more akin to printing money and it is to borrowing. You have been printing money. Effectively. John getting that one right. Why why . Treating a trillion dollars of new currency each year digitally cannot print to get anywhere. And john not exactly printing, but they are creating. Creating an affair which shocks a lot of people, but that is the fact. John the line in the movie that most test me was when you say that these two fed chairman appointed by republicans and democrats have increased Central Planning in our economy more than ever in history in secret more than 500 billion a mortgage is. A 2 trillion more of government debt, they almost have twice john Central Planning. If it worked in communist countries. The rock history we have seen that market economies to better than centrally planned ones. The question is knowing that lie in the wake of the crisis were choosing to give the fed more power and influence. In the film we argue they should start handing the power back to the markets. John thank you. Your film is great, and people can simply go to my website and find out how to see it. We will plan more throughout the show. Now, when the housing bubble burst about five years ago, the fed Committee Even more of our money to keeping wall street flow. Stocks crest today. Bank of america down. The worst day ever on wall street. A Market Driven by fear involving not just the banks the fed was traded to protect but the hedge funds, investment banks, and insurance conglomerate. John are you committing in this interview that youre not going to let any of these banks fail. The matter what theiks like thet going to fail. Theyre not going to fail. John we have the doctrine too big to fail. Implied before, but now it was real. It was believed that the fed saved us from another depression an economist from the university of georgia cities this. They say this to mind told. They did not save us. First of all, we have had a recession, and a really bad one. It is now over five years since the crash. It would have been worse if they did not bail on these banks and print all this money. As a matter of fact it would have been a lot better if they had not bail out bear stear. That got the ball rolling or all the other Financial Firms started to take greater risks, the big ones, thinking they would be bailed out. John and now too big to fail, we are stuck with that because they get to borrow money more cheaply because people assume theyre too big to fail. There is no lanes to this process unless something is done to cut the powers of the Federal Reserve. John would you abolish the fed . I would abolish it as the kind of institution it yesterday. We have a paper dollar. Something has to keep it scarce. It is not naturally so. That could be done by computer regulating the supply of the stuff according to a simple rule john like pitch. In essence. There may be a better rule, but the point is, what we have now is a fait with Unlimited Power and discretion which means that power and discretion to make huge mistakes and it shows no sign of improving overtime. John the alternative, something called free banking. Thats right. Several nations prospered and have Financial Stability without any banks. Canada had no central bank can sell some years into the depression and it did not degraded because of the depression. John a copy of america. The partly copied america. Thats right. But prior to 1914 when we established the fed, the Canadian Free currency system with a bunch of private banks supplying currency john i just need to be clear, each bank could make its own currency and you contrast it are not. Thats right. Different banks for their ious and their reputation. And there were nationally branched banks because canada allowed it and the u. S. Did not. They had a remarkably superior record to the u. S. John fewer banks failed. Many fewer banks failed. In the Great Depression it is a notorious fact that while we have the fed that was supposed to prevent bank failures, thousands of u. S. Banks failed. In canada not even one bank failed. John but people around me who say, a few marbles would have prevented the housing crash in the banking crash. You know, that is why we need this, doddfrank, all of these pages. But this is absurd. Why would bureaucrats who are supposed to enforce this have the wisdom to prevent the housing bubble when their boss had no clue it was coming . Before the crash bernanke was asked, might the Housing Market crash . What is the worstcase scenario if, in fact a much we were to see prices come down substantially . I dont buy your premise. It is a pretty unlikely possibility. We have never had a defined crisis. The fed was the last to see the crisis coming, and yet at the same time they were helping to fuel the housing boom. John now we will get janet yellen. She will not be much different than ben bernanke. If anything she might air even more on the side of easy money and he did. John that is what everybody says. Thank you. Coming up, so far the fed bond buying has not cost that much inflation, but might that change . Will we soon have to go to the Grocery Store with this . It will be awful of money . It has happened in other countries. Will it happen here . Next. Next. Coming out. This is the quicksilver cash back card from capital one. Its not the juggle a bunch of rotating categories card. Its not the sign up for rewards each quarter card. Its the nogames, nomessinground, noearninglimithaving, doilooklikeimjoking, turboboosting, heavyweightchampion oftheworld cash back card. This is the quicksilver cash back card from capital one. Unlimited 1. 5 cash ba on every purchase, everywhere, every damn day. Now, tell me, whats in your wallet . Help the gulf when we made recover and learn the gulf, bp from what happened so we could be a better, safer energy company. I can tell you safety is at the heart of everything we do. Weve added cuttingedge technology, like a new deepwater well cap and a stateoftheart monitoring center, whe experts watch over all drilling activity twentyfourseven. And were sharing what weve learned, so we can all produce energy more safely. Our commitment has never been stronger. John do you trust these . Inflation is about 2 percent per year. Not bad. That means the dollar will be worth almost a dollar next year. 2 percent adds up. Earlier in the show we pointed out that the dollar has lost 90 96 of its value since the fed started. That means it takes 23 to buy what 1 bought 100 years ago. It could be much worse. Inflation was 10 percent when i started reporting. If that kept up for a century it will take 12,000 to buy about 1 bought. And if you think that is bad, this is a 100 trillion bill from zimbabwe. Indeed rulers printed money like crazy and eventually even this 100 trillion became worthless. But probably the most famous example of destructive inflation happened in germany after world war two. Germany lost the war, victors including the United States demanded reparations. Germany did not have any money, so the German Central Bank started printing german bonds. The fund reparations and other spending. Some familiar . Chair remarks became worthless unless. So much so that companies brought real wheel barrows to the bank to estimate their weekly payroll. Soon afterward as inflation continued individual shoppers would have to show up with wheelbarrows to carry cash to the store to buy groceries. Finally, money was a worthless people use it for wallpaper. Now, america is not opposed or germany, but might we suffered horrible inflation . May be says the author of currency wars, the making of the next global crisis. That is james richards. I assume we are smarter and different. Well, we are not, john. The crisis would blow over. The central bank getting things wrong time after time. The fed has one of the worst forecasting records in economics. Its hard to find no worse record. John fed inflation is low. Inflation is low as measured by the government, but were waiting for the spark. They think theyre playing with the thermostat. The house is to cool you die lit up. If it is hot the data down. Once they dont understand, once the behavior changes is gets out of control very quickly. The 70s. That is the part that the fed does not understand. John it got so bad that you have a bill that illustrates part of a problem. 100,000 mark note, printing so much money they ran out of ink and paper and only printed it on one side. They did not want to use the meat. That is how bad it was. They came up with the worker rounds. John people would go out to eat and pay at the beginning of the meal. It would cost three times more by the end even know over the course of an hour to. You negotiate your bit in a bill without paying in up front. People from the city. There was a lot worse than some of the anecdotes would lead you to believe. John is led to the a year and a rise of hitler. It led directly to that. The thing is that with inflation , the height of inflation which is what you get all winners and losers. The winners are people who can see it coming, hard assets. Warren buffett is a good example the railroad is all hard assets, land, money rights tomorrow, at center. He was dumping dollars. John the industrialist was okay because he still have a factory. For them dollars of liabilities, not just assets. Speculative to okay. People who buy gold. People with insurance policies, annuities, retirement income. The everyday american gets crushed. First of all, 2 , cuts the government in half and 35 years. An average lifetime it will only be worth a quarter of that. It is 2 for the time being. It sucks that way. The. Coming up we will talk to a close advisor of president obamas says many the fed. First, ron paul this year and says, abolish the fed. Which is is . It is long overdue. We need to audit the better reserve. Is past time taught at the Federal Reserve. We have a much more destructive Business Cycle than we ever had before the Federal Reserve. John politicians criticizing the fed. We never use to hear that. Maybe if you understood the fed or even economics, but whatever the reason this new interest is a good thing. That think it happened mostly because one president s of candid it talked about the fed. For decades he was the only politician talking about it. He, of course, the author of and the fed. Ron paul. So those two democrats and your son want to audit the fed. You want to end it. How can you be so short when so many smart people say we need the fed for stability. The mess that we are in now is consequence of the fed. They have been getting away too long. They create the artificial baubles and get a lot of credit for that. The crash comes, the correction comes. Then they claim printing money faster will keep you out of it. No secret to balt of bankers were government officials should have the authority to create money out of thin air. They will destroy the money. It has been known for a long time, way back through ancient chinese history. They tried it and it does not work. This is what the constitution said, nothing but silver and gold could be legal tender. Maybe the best transition would be to legalize competition. The book is written john currency competition. Currency competition when the market, you know, maybe between offers competition, which is legal. But the government does not like it. We have to see what they do about it. John when you say attach it to gold, i look at gold prices commanded asthma and a stable currency. If you want to look at purchasing power, like get it over 500 years. An ounce of gold has maintained a fairly steady purchasing power john this group of men has created 4 trillion. People seem fine with it. If you have a problem, you just print more. A problem with that, you spend more. Any type of slow down, you are supposed to spend more money. People do it, the government has to do it. They try to borrow. If there is no money tomorrow, they printed out of thin air. John this will lead to up rampant on inflation. We have not had it yet. We have not had rapid inflation but a lot more than they will admit to. A lot of the nation now. The whole weight of austrian economics is when you destroy the currency of printing a lot of money youre in the middle clas