The Fed & Friends A transcript of the Lew Rockwell Show episode 001 with Lew Rockwell

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Published : January 08th, 2018
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Category : Editorials

by Llewellyn H. Rockwell, Jr.

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ANNOUNCER: This is the Lew Rockwell Show.

ROCKWELL: Welcome to the first LRC podcast. I want to thank producer, Chris Brunner, and announcer, Harvey Gold, for helping get this enterprise on the road.

Today, I’m not going to talk about Bush’s and Cheney’s rotten wars of aggression already going on in Iraq and Afghanistan, covertly going on against Iran. And they, of course, want to start a full-fledged open war against Iran. I’m not going to talk about their police-state measures, although all these things are, of course, very much worth talking about, and I will be talking about exactly these kinds of issues in future podcasts. And by the way, it won’t just be me talking all the time. I want to have interviews. Eventually, we’re going to be able to have phone calls, and I very much welcome your phone calls and, of course, welcome your e-mails as to things you’d like to hear discussed or you don’t want to hear discussed. Just drop me a note at

But today, I’m going to talk about, I’m sure, the thing that’s on your mind, like it’s on my mind, the economy. What exactly has the Federal Reserve, the Treasury, the entire power elite in Washington, D.C., in profiting from our monstrous-sized government, what the heck, exactly, have they done to us? Are we in a slow down, a slight hiccup, as some of the establishment would like you to believe? Are we in a recession? Are we in the beginning of a depression?

Murray Rothbard always used to point out that, in the 19th century, these downturns like this, which are the result of government action, always and everywhere, called panics and crashes — that came to be considered too alarming and so they came up with the word “depression” as a euphemism, if you can believe it. You know, “depression” implying just a slight — if you think of a table and maybe a slight depression in the table, just a little something wrong. Then, of course, “depression” became too hot a word after Herbert Hoover’s and Franklin Roosevelt’s monstrous ’30s and ’40s destruction of American freedom and American prosperity, so then they adopted the word “recession.” That, of course, became too hot again. But we’re definitely in a recession, a very deep and long recession, I’m sorry to say. Probably a depression; certainly what — we may even be facing something worse than the Great Depression.

Let’s think about the Great Depression for a moment. It was the result of what the Federal Reserve did, pumping up the money supply during the 1920s. The Fed was established in the evil year of 1913, which we also had the income and the direct election of senators, which was a terrible blow to the decentralization and the divided sovereignty that Jefferson and the framers had designed, and it moved towards centralization of government. And, of course, we all know — (laughing) — how bad the income tax is.

But the worst thing that those guys did in 1913, Woodrow Wilson and Taft and the Republicans, too — if wasn’t just the Democrats. This was a bipartisan monstrosity. Like all the monstrosities today, both parties cooperate in oppressing us. So the Federal Reserve was set up to inflate. Sometimes you’ll hear the Federal Reserve — I heard Ben Bernanke today talking about concerns about inflation, “We have to be concerned about inflation,” as if it were some extraneous force of nature. Inflation is caused only by the central bank. Only the central bank can increase the money supply. Think of the Federal Reserve in shorthand in terms of a giant counterfeiting machine. They’re able to dilute the value of all the existing dollars for the benefit of the government, for the benefit of the government contractors, the big banks and other institutions who are the closest to the federal government.

So the Federal Reserve financed World War I with massive inflation. There was a bust after that. That took place in the 1920s. But because Warren G. Harding — one of my favorite presidents because he was pretty much a do-nothing president. Although, he did some great things, too. He pulled the U.S. troops out of Haiti. He freed Eugene Debs, the Socialist leader who had been monstrously put in jail, and his life, his health destroyed by Woodrow Wilson for the fact that he opposed the draft in World War I. That was a crime. He was jailed. And so Harding let him out. But most of the time Harding spent drinking, gambling, having a great time, having a party; exactly the sort of thing a president ought to be doing rather than regulating the economy, running our lives or attempting to run the world.

Because Harding was president, because the Federal Reserve had not set up quite the monstrous structure that it was later to have, they didn’t intervene in the economy. Also, the Congress tended to be a more conservative bunch in the sense of reluctance to intervene, and so there was a very short, sharp depression after World War I. Unfortunately, one of the effects of this — and by the way, this shows what happens in a free, a mostly free economy. If the government doesn’t try to intervene to fix the depression, it’s over with very quickly and there’s a basis for new growth and for new prosperity.

But in the 1920s, after that short depression, the Federal Reserve started turning the printing presses. And when this happens, when they inflate through the banking system, they lower the interest rate below the market rate. And as a result of this, entrepreneurs borrow all sorts of money; engage in all kinds of projects that seem to be — just to make them very profitable and to make terrific economic sense. It’s all an illusion though because once the artificial boom is over, these things turn out to have been disasters.

So during the 1920s, we had not a general increase in the level of prices, as Murray Rothbard showed in his book, America’s Great Depression — by the way, just a quick mention, if you are interested in learning about economics or, for that matter, the cause of liberty, you can’t do better than reading Murray Rothbard. What a wonderful writer he was, what a great genius, what a great economist, a political philosopher and a man of letters. I mean, just an extraordinary person. On the left-hand side of, on the left-hand side of the front page, you’ll see a link to the Rothbard collection. Click on that and you’ll see America’s Great Depression, his other economic books, The History of American Banking and Money. Another great book of his about how the — The Case Against the Fed, What Government Has Done to Our Money — all of these books can help you understand what the heck is happening to us today.

So the Federal Reserve, as he showed, massively increased the money supply in the 1920s, just like this most recent boom, again, caused by the Federal Reserve. We did not see an increase, a big increase in consumer prices. In the 1920s, there was, of course, a vast stock market boom, also some commercial real estate booms, Florida land booms and others. And it all came to the end, of course, starting with Black Monday in 1929, the big stock market crash.

And Herbert Hoover, who was the president, a Republican, it was almost as if he had said, “How can I make this depression last as long and be as deep and as damaging and as horrible as possible.” Franklin Roosevelt did the same thing. And one of the things they did was artificially attempt to keep prices up. It’s necessary for prices to fall during one of these busts because, when you think of what’s happened since 9/11, we’ve seen housing — houses go up at a tremendous rate, at a tremendously unsustainable rate. It’s necessary for housing prices to come down. In the 1930s, it was necessary for wages to fall, for prices to fall. And yet, the government did everything possible to keep prices up. This had the effect of lengthening and worsening the Depression. The Depression wasn’t over, by the way, until 1946. Stock prices didn’t regain their 1929 levels until 1954, 25 years later. So no telling how long this particular recession is going to be. Or is it a depression? Is it a panic? Is it a crash? It’s trouble, whatever word we put on it.

Now, of course, the government is telling us don’t worry, everything is fine; why, all they have to do is just print more money and use it to bail out the two giant mortgage resellers, Fannie Mae and Freddie Mac. These were institutions, ironically, created by Franklin Roosevelt as state institutions in the 1930s. Under Richard Nixon, the horrible Nixon, he privatized them. But they only really became massive players in the market in the last 10 or 11 years. They purchase mortgages from banks and then resell them as securities. Of course, it turns out that because of federal regulations as well as the general insanity of a boom period that all kinds of people, who should not have been getting mortgages or should not have been getting as large of mortgages or should not have been getting mortgages under the terms that they got them, got the mortgages. And as a result, once the bust comes, they can’t pay. They walk away. We have all the foreclosures.

So what does the government try to do? Rather than let the housing prices fall, which may be bad news for those of us who currently own houses — but it’s very good news for those who would like to own a house. But regardless, it has to happen in order for the economy to cure itself, first, to get back on a sound footing. But instead, they’re massively taxing the rest of us. They’re increasing prices at a horrendous rate. We already have terrible inflation, price inflation. As of today, I noticed that the producer price index, according even to the government’s figures, is up more than 9 percent in the last calendar year. Now since the government’s statistics always underplay these events for political reasons, we can know for sure that really producer prices, and consumer prices for that matter, are already running in double digits. So we have that problem. We have the depression that they put us into. There are going to be job losses, more bankruptcies.

And what is the government doing? What is President Bush doing? Well, they’re trying all kinds of really fundamentally totalitarian things. They plan, for example, to abolish short selling in the stock of Fannie Mae and Freddie Mac, and there’s talk about abolishing short selling all together. Now, this is, you know, a crazy, populist, statist idea, typical of — Communists and Nazis always hated speculators, too. And so does the present regime in Washington. Short selling does not cause the market to go down. In fact, short selling actually helps even out some of the volatility in the stock market, both on the up side and the down side. So by getting rid of it, not only is it a violation of the rights of investors but it makes the economy worse. It makes the stock market even more volatile.

But we can expect to see stocks go down. We can expect to see other asset prices fall that have been pumped up. On the other hand, many other things are going up in prices as we know — energy, gasoline. That’s even without another war in Iran. So they really have put us in a pickle or, as the late Alfred Kahn put it, a banana. Alfred Kahn, a very funny economist from Cornell, who was chairman of the Civil Aeronautics Board under Jimmy Carter — and by the way, Jimmy Carter abolished two government agencies, the Interstate Commerce Commission and the Civil Aeronautics Board. Very tough to think of Republicans doing that, who, of course, would rather add to the federal government with all kinds of new agencies. So Kahn, during the very real recession under Carter, referred to it as a recession and he was called to the White House to be scolded over that. And he came out afterwards and he said to the assembled press that he had been taken to the woodshed, was told not to say that word. So he wasn’t going to say that word anymore. He was going to refer to it as a “banana.” He said, “Folks, we’re in a banana.”

We’re in a banana right now and maybe a banana split. We’ve got very serious economic troubles. We’ve got a crew in Washington who are doing everything possible to make it worse. We’ve got a media that sees absolutely nothing wrong with more socialism, more inflation; never sees a down side to something like the vast bailout they’re talking about for Fannie Mae and Freddie Mac. The federal government is, in effect, taking on the $5 trillion in debt that these two Fascist-state institutions, corporate-state institutions are responsible for, and added that to the federal debt.

There’s no telling what’s ahead. Franklin Roosevelt wanted a war, in part, because, as a Keynesian, he thought that would help with the economy. The funny thing about Keynesians is they tend to think that things like mass murder and property destruction are good for the economy. Of course, they’re not good — (laughing) — for the economy, although they may be good for the Military-Industrial Complex. Maybe that’s all Mr. Bush, Mr. Cheney and the rest of the crew in Washington care about. But they’ve put us in very bad economic times. I’m going to talk in future podcasts about maybe some things that we can do as individuals to try to protect ourselves in this time.

But one thing we have to do is educate ourselves about what they’ve done to us, why it’s happened, and how we can hope to prevent something similar in the future. So I would say to you, the first thing to do, read Rothbard, any of Rothbard’s books on economics. Start with a short one. Start with What Has Government Done to Our Money? He probably is the best writer among serious economists in all of history. Look at his little book on The Case Against the Fed. There couldn’t be a more appropriate book these days. The Mises Institute is bringing out very shortly his wonderful book on fractional reserve banking, The Mystery of Banking. And that’s online in PDF. If you go to,, you can read that book.

And that brings me to the final topic today, the banking system. It’s not coincidence that we’re having runs on banks — IndyMac in Pasadena, California. No large American bank or large regional bank is stable. In fact, all banks are fundamentally bankrupt because of the fact that they’re allowed to hold fractional reserves and they’re allowed to, in effect, commit fraud. They get this special permission from the government in return for the aid they give the government in financing the government with the central bank. But no bank is actually fundamentally sound, but the big banks, the big regional banks, the big national banks, Citibank, and the big thrifts, Washington Mutual, and so forth, they’re all in trouble.

And, again, we’ve got very serious trouble ahead so we need to read, educate ourselves about why we’re in this situation, what we can do about it. And I would also argue that we need to get angry at the people who have done this to us. This is not a matter of error. These are not people who have made an error and they didn’t really mean it and by mistake and put us into the situation. These are people who have ripped us off. They have ripped off the average American with their inflation, their spending, their wars, their regulation, all for the benefit of the government itself and the special interests connected to the government, which, folks, does not include you and me.

So tune back in to the podcasts. I think and hope we’re going to have some things to say that will interest you. If you have comments, suggestions, criticisms, I want to hear them. E-mail me at

And until next time, thanks for listening.

ANNOUNCER: You’ve been listening to the Lew Rockwell Show, produced by, the best-read Libertarian website in the world. Thanks for listening.

ROCKWELL: Well, thanks so much for listening to the Lew Rockwell Show today. Take a look at all the podcasts. There have been hundreds of them. There’s a link on the upper right-hand corner of the LRC front page. Thank you.

Podcast date, July 23, 2008

Llewellyn H. Rockwell, Jr. [send him mail], former editorial assistant to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute, executor for the estate of Murray N. Rothbard, and editor of See his books.

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Llewellyn H. Rockwell, Jr. is founder and president of the Ludwig von Mises Institute in Auburn, Alabama, editor of, and author of Speaking of Liberty.
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