Must Read Interview of Parks by Puplava
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JIM: In the preface to your book, you quote Ferdinand Lips, a Swiss banker, who wrote: “France’s experience with John Law is being repeated on a worldwide basis.”
DR. PARKS: I am glad you mentioned Mr. Lips. This is a gentleman who is super-establishment Swiss. He can trace his family on both sides back to the 13th century. His career has been in banking. He was one of the founders of the Rothschild bank in Switzerland and was a managing director of the Rothschild Bank for more than 20 years before founding his own bank. He has also written a book. It is called, The Gold Wars: The Battle Against Sound Money from a Swiss Perspective.
One of the points that he makes is that, by having fiat money, one enables governments to engage in what he calls “wars of adventure.” The First World War, in Mr. Lips’ view, would have been over in a couple of months had the world stayed on the gold standard. Gold, by the way, is the free market choice for money. The fact that the world went off the gold standard and into paper money enabled the governments to prolong that war for four years and kill millions. If you think about it, what was World War I about anyway?
JIM: In your book, What Does Mr. Greenspan Really Think?, you talk about the language Mr. Greenspan uses. You say that he is very careful with the words that he chooses. Some of his statements are very direct; while others have qualifiers appended. Explain that.
DR. PARKS: That’s right. Many times, he will say something and then say, “presumably this is so,” or “arguably this is so.” If he thought it was so, then he would just say “this is so.” In my view, when he puts in those kinds of qualifiers, he is hedging. He is signaling that it may not be this way.
I think the most important topic in this book is the issue of financial collapse. In essence, because we guarantee the balance sheets of the banks, and nobody gets the special privileges that the banks get — we guarantee their assets with the “lender of last resort facility” at the Federal Reserve, and we guarantee their liabilities with Federal Deposit Insurance, i.e., their whole balance sheet is protected — what stops them from making crazy bets?
The metaphor that I like to use is this: It is as if you sat down at a poker game. You play the game. If you win, you keep the winnings. If you lose, taxpayers replenish your stake. Who wouldn’t play in a game like that? The answer that Mr. Greenspan comes up with is we are going to regulate the banks. We are going to watch what they do. Coming back to my metaphor, it is like someone standing over your shoulder saying, “You know, Jim, you don’t want to pull to an inside straight against three showing.” The problem is that the banks make off-table bets. So in the case of banks worldwide, they have roughly $110 trillion worth of derivative bets. If they win those bets, they keep the winnings. If they lose those bets systemically, taxpayers will bail them out.
Mr. Greenspan is very explicit about this. He says we are subsidizing the banks. Part of the subsidy, and he repeats this five times — I take it as a warning — is that the Federal Reserve stands ready to create money “without limit” to bail the banks if the need arises. He repeats that five times in different places in the lecture, creating money — flat out of nothing — “without limit.”
What that means to ordinary people is that your careful savings of a lifetime and your pensions could be wiped out in an eyeblink. Why should you have that kind of risk exposure? He goes on to say that, if we had gold as money, the possibility of this kind of collapse would be virtually eliminated. You know, Jim, that is what I want. I want a monetary system where this kind of collapse is virtually eliminated.
JIM: You know most people, as you speak of this kind of risk or danger, say this can’t happen with government guarantees. We have the FDIC. I was wondering if you could address some of the recent issues of the people in Argentina. What happened to them and their banking system?
DR. PARKS: The way things stand now, Argentina is our future. The collapses of paper-ticket fiat monies have been happening all over the world. On our website we have a currency destruction chart that depicts the change in purchasing power of the major currencies from 1950 to 1990. Many, maybe most of them, have lost almost all their value. Some of them, like the Argentine peso, have had multiple currency collapses in recent memory. These people just don’t learn. As I mentioned earlier, the free market choice for money is gold. Interestingly, the IMF, which is under the de facto control of the financial sector here in America, in its Articles of Agreement, Section 4-2b, prohibits member countries from linking their currencies to gold and only to gold.
As far as the IMF is concerned, if the Argentines, who are desperate to have a stable currency, want to link their currency to sour pickles, that would be okay. But to link it to gold, that is prohibited. What possible public policy justifies prohibiting all these countries around the world from linking their currencies to gold? You don’t have an answer to that because there is no possible public policy justification. What the IMF is doing is getting rid of the competition. Here in America, we had one of these crises in the 1930s. One of the first things Franklin Roosevelt did, as did Hitler, as did Mussolini, was to seize the gold. For 40 years in America, it was a felony for Americans to own monetary gold. Again, what possible public policy justifies making gold ownership a felony? How can that possibly be explained?
JIM: Let’s talk about some of the key issues raised by the Fed Chairman, because he does warn about this. He states that you and I, as ordinary taxpayers, are subsidizing banks and that government guarantees induce banks to increase risk, as you just mentioned. In other words, that the Fed, as an institution, harms ordinary working people. I think that is one thing people would find hard to understand. The reaction for example, on the day you and I are talking, when the Fed cut interest rates ½ point, Wall Street was jubilant and so were investors. The Fed puts the entire economy at risk. Mr. Greenspan concedes he lacks knowledge. Gold is the only medium of money that can solve these problems. The fiat money system is doomed. He spells out all these dangers.
DR. PARKS: He spells this out. You know he wrote an essay in 1966 entitled “Gold and Economic Freedom.” He took the position that the only way you can possibly protect yourself is with gold. He wrote in that essay that is why there is hostility from politicians and from the financial sector against gold; they don’t want people to protect themselves. Recently, around 1993, I asked him if he still agreed with the reasoning and the conclusions he drew in that article. He looked me right in the face and said, “Absolutely!” I have this in the book.
There is a fellow on FAME’s board of advisors — I call him Our Hero in the Congress — whose name is Dr. Ron Paul. He is a Congressman from the 14th district in Texas and just yesterday he was re-elected with 68% of the vote. Ron is on the House Banking Committee. He gets to interview Mr. Greenspan twice a year during the Humphrey-Hawkins testimony.
He was at a reception for Mr. Greenspan a few months ago and he had a copy of this article with him. He asked Mr. Greenspan to autograph it and asked him if he would change anything. Mr. Greenspan said, “Not a word!” So, Mr. Greenspan still believes. He doesn’t say this in Congress, he doesn’t make speeches about it, but he still believes that only the way you can protect yourself is with gold. That is a fact. That partially explains the hostility you see to gold from the financial sector because, in the event that people were to use gold as money, a lot of the money the financial sector makes, maybe 95% of it, they wouldn’t make.
As to today’s rate cut, when Mr. Greenspan cuts rates, there are winners and there are losers. Some of the losers are seniors, the elderly who have carefully saved their whole lifetime and have invested in what they believe is the safest possible investment, U.S. Treasury Bills. When the Federal Reserve lowers interest rates, interest that ought to go to these seniors does not go to them. In effect, people who borrow money — typically people who refinance mortgages — but mainly very large borrowers, get a break.
In effect, the Fed is transferring wealth from these seniors, who have saved all their lives, to other people. These decisions, by the way, that the Federal Reserve makes, are not reviewable by the President, not by the Congress, and not by the Supreme Court. What does that say to the notion of representative government or democracy?
JIM: We don’t have much of a democracy. In your book, you quote Paul Volcker, former Fed Chairman who warned: “The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.” If the central bank has unlimited power to create money, it has the power to destroy the very savings you and I have been talking about.
DR. PARKS: Right! That is exactly right. And the Federal Reserve is pledged to do that in the event that it determines, in its sole discretion, the need to bail out the banking system. Parenthetically, on July 10th of this year, I got to interview Paul Volcker for 45 minutes. One of the lines that Mr. Volcker uses — it’s on our website at FAME.org — is, “A global economy requires a global currency.” Well, what is that global currency going to be? Some paper-ticket, arbitrary electronic money created out of nothing by the banks? Or are we going to have the free-market choice, again, which is gold? Do you see the problem?
JIM: I sure do. I want to get to this problem as it relates to our fiat money system. Before we get to the U.S., let’s talk about how the financial system imploded in Asia. If we look at what happened in Asia in 1997, they had allowed their economies to overheat in the 1990s. They borrowed too much money from abroad, and their banks lent badly. This all imploded in a single year.
DR. PARKS: You know, that is spin that came after the fact. While they were doing what they were doing, they were lauded as the “Asian Tigers,” as examples to the rest of the world, with no inflation and with rising standards of living. They were like the poster child for the New Age. And all of a sudden, nobody can explain why, the whole thing collapsed around their ears. Then it turned out they had “crony capitalism” and the banking system had overreached.
We have the same thing here. We have the banking system overreaching. We have all kinds of deals between government and the banks. What is the difference? We have a huge trade deficit — more than $450 billion for this year. We’ve got $30 trillion worth of debt, unserviceable. How can this have a happy ending? Again, the only way people can protect themselves is with gold. What I have done with this book is to show that Mr. Greenspan is the guy who is driving the bus. If you can’t rely on his words, who can you believe?
Another way to look at this, especially the issue of financial collapse, is to consider some of the things that don’t make it into the press. For example, the Bank for International Settlements (the “BIS”), which is the central bank for all central banks, recently formed something called the Financial Stability Institute. They didn’t form that Financial Stability Institute because everything is okay. They have a problem.
The Council on Foreign Relations here in New York is running simulation games on financial collapse. What is really interesting about these games is not the games themselves, but the participants. I have passed many of these people and it’s like Who’s Who in the financial world. I can promise you, these people have better things to do with themselves on a Saturday afternoon than to hang out on East 68th Street playing games. They have a problem.
The Kansas City Fed recently had a whole conference on financial collapse. These things don’t make the press. The day after I interviewed Paul Volcker, on July 11, Mr. Kohler, the head of the IMF, said the probability of a complete worldwide financial meltdown was one in five. One in five! This did not make The Wall Street Journal. This did not make The New York Times. This did not make any television show. The BBC picked it up and I clipped it off the BBC, the British Broadcasting Corporation.
JIM: We have a system where, at least at one time in the 1970s, Wall Street would have questioned the unrestrained creation of money. I can remember a time when we were following M3, the “m&m’s” I used to call them. With every single week when the figures came out, everyone would look at them. Interest rates rose. Today, anytime there is a problem, Wall Streets salivates. I thought they were going to don tuxedos and pop the champagne today when the Fed announced that it would cut interest rates ½ a point rather than ¼ of a point.
DR. PARKS: Low interest rates allow banks to increase leverage. It’s the leverage, by the way, that makes the whole structure unstable. Mr. Greenspan says that to signal banks that the leverage is getting out of hand, interest rates must be allowed to rise. He has a problem now. If interest rates rise, a lot of the leverage starts to unwind. Once the leverage starts to unwind, you get bank defaults. As soon as you start getting systemic bank defaults, then the Federal Reserve has to play the lender-of-last-resort card. And, as he says, and he is absolutely correct, that is highly inflationary.
Furthermore, he is very astute, this fellow. He recognizes he can only play this card once or twice a century. If they keep bailing out the banks, like they have done all over the world, people are going to object. However, again, they only get to object after the fact. That is after you have lost your savings; after your have lost your pension; and after you have lost your job. Then you get to object. But as they say, the horse has left the barn, now what?
JIM: You know he warned about this happening only two or three times a century, but if you look at 1987 we had the stock market crash bailed out with money. We had the savings and loan crisis in 1990 and 1991 bailed out with money. A couple of years later, we had the peso crisis. A couple of years later, we had Asia. The next year we had Russia and Long Term Capital Management. We had Y2K. We had a recession. And then we had 9/11. Now we are back into recessionary problems.
What surprises me, Dr. Parks, despite all of this, people see nothing wrong with aggregate U.S. borrowing increasing by $2 trillion a year — almost twenty percent GDP. And this bubble has been created in a recession, in my mind. In the mortgage market and the re-fi game that consumers are playing, they are going deeper into debt. All of this is being looked upon by the financial community and those in Washington as healthy. In fact we have created multiple bubbles. In my opinion, these bubbles are going to make the possibility of a major crash more likely and more devastating when it occurs.
DR. PARKS: You have this exactly right. You put you finger right on it. One of the reasons, by the way, this doesn’t make the press is that the financial guys, in effect either own or control the press [editor: by financing their debt]. The Wall Street Journal — take a look at who their advertisers are. When publishers meet with advertisers, the media is not going to say things that will damage their own constituency. Furthermore, one of the things the financial guys have done, which is very clever, is that they have compromised the academy. They buy off these monetary academics with honorariums, with consulting assignments, with prizes, with endowed chairs, with research grants, and so on.
Consider someone like John Kenneth Galbraith. He holds the Paul M. Warburg Chair in Economics Emeritus at Harvard. Who was Paul Warburg? He was the one who provided the intellectual ammunition for starting the Federal Reserve. What is John Kenneth Galbraith supposed to say? By the way, he has opened his mouth.
He wrote a book in 1975 entitled Money: Whence it came, where it went. In this book, he wrote: “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.” Now, we have a word in the English language for evading and disguising the truth. It’s called lying. What Galbraith is saying, in other words, is that when it comes to money, economists lie! Why do they lie? They have tenure. Why don’t they tell us the truth?
The answer is that the monetary economists, for the last fifty years or more, have been bought off. I just found out last year, for example, that the so-called Nobel Prize in Economics is not one of the prizes that Alfred Nobel endowed in 1901. No. This prize came in 1968. The endower is the Central Bank of Sweden. It is a bank prize, and the real name of the prize is the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. So it is as if we gave you, Jim, a million dollar prize, worldwide publicity and we come to you and say, “Tell us, what is the story about fiat money?” What are you supposed to say? Not what I am saying. You see?
JIM: You talk about Galbraith and many of those who have been bought off. I have seen my son’s college economic textbooks. A couple of years ago I was going to pursue the CFA program. I got my books and as I looked through them, I thought that if I study this stuff, I am going to get myself messed up in the way I think.
DR. PARKS: That is right. It is just a bunch of nonsense. The key concepts about money, which used to appear in the textbooks at the turn of the 20th century, no longer appear. They are gone. By the way, the concept of printing money is really a misnomer. Almost all of the money in our society today is created electronically by the banks. It is not printed. The amount of currency is on the order of $600 hundred billion. Half or more is out of the country. Almost all the money is electronic.
To give you some numbers and to show you the magnitude of the problem, in 1950, the amount of money we had in this country was about $150 billion, according to the Federal Reserve. As we talk, it is about $8.3 trillion. It went from $150 billion to $8.3 trillion — all created out of nothing and without work. Of that $8.3 trillion, the Federal Reserve created roughly $600 billion. The other $7.6 trillion was created flat out of nothing by the banks. By the banks! It’s the banks that create money, not the government. The Congress has delegated to the banking system a power that our Congress does not have under our constitution, the power to create money out of nothing. How is that for special privilege?
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