>> it was a single party state and so it was democrats are nothing and, in fact, they entertained, local folks entertain the idea of joining the democratic party and voting democratic, but as soon as they begin to register in mass when the voting rights act is signed in 1965 and federal registrars come in and african-americans for the precise because of the pressure putting on the federal government and local people are able to register in mass. the democratic party says we are going to raise a filing fee from $5 to $500 and a thousand dollars, said the average african-american in lowndes county at that time was making $900 which was well below the poverty level year. so democratic party purposely at the county level and this is the party of george wallace, the state party symbol of the time

is white supremacy for the rights. and so they were perfectly try to exclude them and that was part of the political education process that local people were going through and weighing their options. so the republican party was nonexistent at the local level and when the democrats are nothing and they said there is no room for us in the democratic party. >> hasan kwame jeffries, tell us about lowndes county alabama today. >> well, lowndes county today has come a long way politically. african americans by 1980 had gained control of the county courthouse. ever sitting in a majority of the seats in public office, but although the politics change in terms of black representation, very little else changed so african-americans in the political power but they didn't gain economic power and as a

result of that poverty is still extremely high, one of the poorest counties not only in alabama but in a the same as a whole so political power didn't translate into economic power and it was also the question, one of the things that happens in this moment is a they create in this really radically democratic new kind of politics what i call freedom politics mix in the democratic organizers philosopher been with these human-rights all rights goals and that was the core of it the freedom of in a been a party but after a while once in office even though that was really the political inspiration to the for gaining political power those black elected officials including culet begin to move away from those freedom policies that was at lowell the core of the movement into more

traditional american politics so not only is their economic change people had hoped for but even in the political realm. carmichael who coined the phrase black power said it visibility isn't necessarily black power because it doesn't translate into african-american empowerment of the people and sadly you didn't have that as well in lowndes county today. >> hello to john cotulla server as sherrif? >> 24 years. he really becomes the center of black politics and eventually develops an opposition of the african-american assigned of people looking at him as a political boss and contesting and say what happened to the freedom politics that you were so instrumental in it and so the decisions that he makes in 1994 he leaves the shares office of becomes probate judge thomas is in office until 2000 and then hands out to his son john hewitt

jr. remains probate judge today and hewitt actually just passed away recently three years ago in 1996 but his legacy remains politically not only the movement legacy but politically through his son as probate judge. >> "bloody lowndes", hasan kwame jeffries, what is your day job? >> assistant prof. of history at the ohio state university. african-american history, a civil-rights movement, black power and also u.s. history. >> this is your first book? >> guest: published by new york university press. >> absolutely from freedomfest 2009 in las vegas a debate on the federal

reserve. participating in the debate are economist warren coats, wall street journal columnist john fund, economics editor gene epstein, and miltown author thomas would. is an hour. >> i am joe bradley, for those of you who just joined us, we have a number of exciting panel is scheduled, you have already heard one. in a previous life i recently retired from publishing an investors' hot line in in that role and had the opportunity to interview many of the top three market analysts, financial experts, economists that you are hearing at this conference. i want to congratulate marked for pulling together this freedom fest. it certainly is of the world's largest gathering of people that are really interested in the retain data seven traded. and a sand bar around 1500 people here now and when ron

paul script to get to it this afternoon is going to swell between two to 3,000. [applause] i want investors hotline a question for the economic truths that brought our capitalistic economy as well as from a practical standpoint how it is going to impact all of us as investors. so one of the overriding themes here at this conference as you have heard virtually everybody is unanimous in agreeing that the primary catalyst of a meltdown in 2008 as well as the ongoing problems that we are experiencing is due to the government, the very antique -- the various entities. so one of the primary government

entities, of course, that has been blamed it is to the federal reserve system. the purpose of this debate this afternoon is to determine is speenine -- the fed so broken that is to be totally abolished or can it be modified or fine-tuned, whatever and still continue? so on my left here to vote for defending the fed in some way we have a john fund, john is an american political journalist and columnist for the wall street journal. he is the senior editor and columnist for the american spectator and he is author of the "stealing elections: how voter fraud threatens our democracy". and next to john is warren coats, he is an adviser to a

number of central banks and retired from the international monetary fund in 2003, he led missions to who over 20 different countries, he is a visiting economist for the federal reserve, and at the world bank, he is currently director of the cayman islands monetary authority, and he has also been an adviser to the central banks of iraq as well as i am a consultant to the central banks of afghanistan, kenya and zimbabwe. it's zimbabwe -- obviously they were not listening to you. [laughter] >> they are now. >> for abolishing the fed our next panelist gene epstein is an economic editor, and was also a former chief economist for the new york stock exchange. he writes a regular column in he

writes it from the perspective of the philosophical view of austrian economics, the school of lou would on meese's. and then --. [applause] and finally we have thomas wood. he is senior fellow at the ludwig von mesa institute. he holds a bachelor's degree in institute from harvard as well as a ph.d. degree from columbia university and is author of nine different books. the primary book that is very appropriate to this discussion is "meltdown". a free market look at why the stock market collapsed, the economy taint, ended the government bailouts will make things work. so i will have each of our panelists start out with a two to five minute opening statement

and then will lead to the fireworks began and hopefully we will come up with some practical suggestions on what we should do going forward and, both governmentally and our economy but also for us as investors. tom, why don't you leave it off? >> [inaudible] >> can we get some liquidity appear in terms of water? [laughter] >> thank you. in this will probably go right up to five, i promise i won't go beyond that. okay. a lot of people seem to believe that although the market economy is a small system it requires an equivalent of a soviet, to be in charge of money in interest rates. this belief is altogether misplaced. the federal reserve system are simply the fed is both possible and necessary. since the fed creation in 1913 the dollar has lost at least 95% of its value. if the much maligned gold

standard have produced such a result we would never hear the end of it. but in our system the fed is for whatever reason curiously exempt from criticism. under the fed people have lost an option they once had. namely accumulating savings in cash. under a commodity standard people could say for the future simply by accumulating precious metal coins which it back when they function as money the health and even increase their value. no one has that option any longer. in other words, only a fool would try to say by piling up dollar bills. instead everyone is forced to become a speculator and to invest in securities markets they know little about and then wipe them out entirely if times turn bad. as early as the 18th-century richard kantian and of a distribution of faxes and other way inflation harm the general public, the newly created money is injected at particular points whoever receives them first another risk people who happen to be politically well-connected it to spend before prices have

commensurately prison and they thereby enjoy a windfall by the time it trickles down to the general public, those people have been paying the higher prices to which the new money gives rise all that time private and public debt have exploded under the system especially since the collapse of bretton woods in 1971. now has a right to be surprised when it did in the skyrockets and a system of its credit can be traded at of thin air. the very existence of a the fed central bank institutionalizes the problem of moral hazards. moral hazard involved actors willingness to be hit with an artificially elevated level of risk because he believes any losses he may incur will be borne by someone else. since there is no physical limitation on paper money creation, market actors know the paper money producer can bill them out of things go terribly wrong, they have been vindicated in this belief time and again. they will therefore be more reckless and their investment activity and speculation that would otherwise be the case. we were was told that the boom

bust business cycles were a thing of the past because banks to the fed had scientific management of the money supply. if anyone believes that today at like to meet him. but unofficially low interest eckersley two not, in fact, feel a utopia of sunshine and kittens. to the contrary, artificially, that artificially stimulate capital goods production and long-term investment. they thereby the form the structure of production into a configuration at the public's feelings expressed pattern of city and consumption not been able to sustain. when this phony boom inevitably collapse as it is capitalism that is stupidly blamed, when, in fact, the fed in nonmarket institution is the culprit. i'm interested in either this akron promises of the technical details of the alleged superiority of monopoly fee of money system. the fed is the lifeblood of the empire, the great in a blur of a perversion of their original american republic into the

world's largest and most powerful government. even if the fed did confer in net economic benefit, contention to the greater austin economist strenuously denied in prior two when the nobel prize in the process of the nine even even the fed de converter it benefits the alleged benefits could not possibly be worth the destruction of the american soul. as it turns out we don't have to make that choice when it comes to the fed justice, economic prosperity and the values of their original american republic are joined together. the fed, it's academic apologists and at the drones and are supposedly free press to demonize all descend from the monetary status quo have done our economy enough damage. for the sake of american freedom and prosperity is long past time that in the spirits of andrew jackson we killed the monster. thank you. [applause]

>> john, do you want to go next? warren. >> thank you very much, it's a pleasure to be here again. i want to know that my first trip to zimbabwe was just a month ago after the collapse of their currency and our strongest allies to them, they it dollar rise and are literally using the u.s. dollar was two continue that regime and not to reintroduce there on currency anytime soon. so i would have to defend the the fed today having endorsed zimbabwe's embrace of the u.s. dollar. our topic is put up with the fed.com should we abolish? this is not a topic about

whether the fed should adopt a different policy regime such as the gold standard. but whether we should have a central bank at all. i can't resist noting gene and i debated the topic of the gold standard last year at which time the price of gold was $970 per ounce, this morning in was $912. i just thought you would like that market update. so the first half of the topic, fed up with a head, calls for review of fed policy. has it been good, has been bad, but what is the scorecard? and i don't want to go back to the entire history of the central bank. central banks generally don't have a very good history and track record and the fed this certainly has its black marks over its history as well, but let's look at where the world has come in the last several

decades because a lot has been learned. and monetary policy has been dramatically better around will including in the united states. so let's start with paul volcker the fed that killed the ablation of the late 1970's. when the inflation rate in the u.s. got up to 14% or so. and since that time its average since two years after that to as he brought the money supply back under control inflation has averaged about 3% but that several decades, real gdp has averaged about 3.2% which is average for the last several years in the united states up to the first quarter of this year peridot and over this decade and through 2006 leaving out the recession

that we are now in an average 3 percent per annum. over this time we had about half the number of recessions in this last 30 years, we've had about half the number of recessions that we didn't put out to our previous history. the fed's record in the last several decades is not all roses however as you know. the fed did keep interest rates too low for too long between 2002 through 2004 contributing to the housing price level -- bubble. this is true. but low interest rates and other markets forces contributing to the low interest rates as well and overvalued u.s. dollar produced a large and growing trade deficits that sucked dollars in from china and other countries, keeping interest rates low. but the gold standard interest rates would have been even lower until the trade deficit was

reduced as all adjustments would have been made, would have to have been made to domestic prices. markets are the best way of reconciling conflicting forces and moving the economy forward, but because it is the best system doesn't mean is without its challenges and difficulties and hardships. how has the fed performed in the last two years? the fed responded to the national crisis emanating from the collapse of the real-estate bubble in several ways. first on the monetary policy front, and reduced interest rates in the case of a collapse of the aggregate demand to soften the impact of the holland housing and other asset prices and preventing a collapse in the

money supply after september 2008, september of this last year by doubling based money. these traditional central bank functions help to restore confidence in the financial sector and a moderate the inevitable recession as an economy dean beverages and adjusts to new realities and in this area the fed has performed very well. not and repeating the mistakes that i made during the great depression and that contributed to the great depression began what was. on the credit policy front the flow of the credit rose up as financial markets began to realize the extent of potential real-estate losses and started to do leverage. the fed introduce new facilities to help specific credit markets, buying mortgage-backed securities and commercial paper to name to. this is not a traditional central bank function.

the fed should have had a greater faith in the market's ability to develop new credit channels and to read direct credits to the most productive uses. in this area of the fed performance was helpful in the short run but harmful in the long run. it was inappropriate and the fed should online these activities as soon as possible. on the failing institution resolution front, the fed and joined the treasury in ill advised damaging and four the fed in the program and possibly illegal market interventions to say that investment banks and insurance company. this was motivated by the lack of legal tools with which two resolve ailing nonbanks in the ways banks may be resolved, but it was an end run about the lawn at a time of panic. is also hard not to wonder

whether personal treasury relationships and past and potential of future employment on wall street clotted the judgment of treasury and to a lesser extent the fed officials. one way or the other, the rules of the game have been changed and are now unclear. the long run damage will be difficult to repair. so should we get rid of the fed? the answer i will provide mind and you can come back with two words --. [laughter] the answer depends on whether we believe not having a central bank would be better. in time alternative arrangements could be developed to clear and settle payments across separate banks or different institutions of payment and printing incriminating the value in the market a private currency. >> can you wrap it up?

>> okay, the benefit would be purely private monetary system would be clear rules with very strong market discipline and private behavior. these are important benefits, the cost would be periodic financial panics and crises that would very likely overturn a system with massive government intervention. let's nods for rollout the workable for an imaginary utopian best solution and i will leave that to my partner to level. >> jean, do you want to give your point of view from the abolishing the fed standpoint? >> it is fun to be appearing in opposition to john fund, we both work for rupert murdoch, he acquired "the wall street journal" indicates to you that maybe murdoch's world and that mansion of many rooms although

hand people that murdoch's publishing arm also puts out how left-wing people's history of the united states. and that the man puts profits before politics and, indeed, in that fundamental reason why i am pro capitalist is because freedom of the press is something i hold dear and private ownership of the means of production is a necessary condition to the maintenance of prepress and free-speech. similarly --. [applause] similarly abolition of the federal reserve is necessary in order to bring bad government accountability to the people. it is fairly simple what has happened over the last two centuries. even before the federal reserve was created. the kings wanted to fight their wars, they couldn't bahrain up, they could not tax enough so they started to be printing money. that is why the government began

to control and get interested in controlling the money supply. in the more recent times under bismarck, under fdr, it became apparent that the welfare, welfare state cannot be answerable to the people here it's got to depend on the mechanism of printing money and the federal reserve is essential two that. the only way to get back to our republic, the only way for the government to be answerable to the people not to propose programs before in knows how to fund the programs is that we abolish any means by which the government can control the money supply. nano this i haven't said anything about economics yet, i'm talking about fundamental political values that are vital to the maintenance of freedom. that is the fundamental reason my we have to abolish the federal reserve and, indeed, not just abolish the federal reserve and understand that any government control of the money supply because control of the money supply by the government has been ubiquitous for

centuries. it was very apparent in the 19th century before the federal reserve was created and that is also why we have monetary instability and corruption and, indeed, the war of 1812 was financed through the printing of money by the new england banks and protection of those banks by the government. all of that sorry history depends on government control of the money supply. no one else would i abolish this be? because it -- warren coats spoke on the opposition about what the fed did and didn't do right after the collapse of the economy over the last couple of years here and let me give you alone in a bill that doesn't even require an understanding of the auction business cycle theory. the driving force of the real-estate bubble was something known as an adjustable-rate mortgage -- arm. they were disproportionately

where the mortgages were coming from where the bad debt was being created. adjustable-rate mortgages are directly tied to the one-year rate and the one-year rate directly dependent on the federal funds interest rate set by the federal reserve. the federal reserve wasn't directly in that sense financing in the housing bobble and, indeed, on top of everything else the crowning irony is that alan greenspan himself got up at front of a bunch of realtors and said that they are and is wonderful, adjustable rate mortgages a great deal. you want to sell them more aggressively to your customers. that is one simple and it showed i suggest warren coats embrace, understand in order to appreciate the fact the federal reserve was part of problem. created the bubble and that is after words the drug pusher and afterwards gets to run the methadone clinic and claimed it did not push the drugs in the first place. so simply put, in order to have a political freedom, and honor to have economic stability we

need not just abolished the federal reserve, we need to declare that the money in interest rates are the free market product. when congressman ron paul and ben bernanke and i do ever get the interest rate wrong, ben bernanke said, yes, we do occasionally get wrong, we try but we get wrong. and ron paul sent to bernanke, well then, why not occasionally internally leave the interest rate setting to the market? because you get the wrong, maybe the market will get right a little bit more often than you do. [applause] >> nawaz and now lastly we will have a john fund give his view brown and a pro standpoint and then and will get the ball

rolling on the debate with any question to all of you. john. >> i am not going to where the pro the fed had to paraphrase shakespeare is mark antony, i come neither tiberi -- barry the fed are to praise it. i come to be realistic. and what we have is clearly a deepen a lot of institution. but i would remind you that while this certainly i think the fed can be said to have exacerbated some of the business cycles and perhaps prolong the time by which we will shambala investment, there were panics and there was market instability that led to the creation of the fed, the famous panic of 1907 being an example the one that jpmorgan had to step in and ameliorate and the last minute. ..

exactly what structure, what mechanisms, how do we get from there to here and i will return to that theme. the fed has taken on far more than a central bank even should take on. it has taken on responsibilities regarding employment, protecting imposters through an insurance system. many other things as richard wan

points out the fed has taken on so many responsibilities it's become like a large fire department as it gets bigger there are always more fires. i propose there is another course. we have a fed that is targeted, simplified, streamed down and focus on its mission which is preserving the integrity of our monetary value. new zealand had the same problems in many respect in the 1980's. they have a financial meltdown. they didn't become a banana republic, they became a key week republic because even kiwis were in short supply. what did they do in response? they created a sealed off bank, they appointed a board of governors tasked with one job only and that was to keep the rate of inflation within certain targets and the head of the central bank was rewarded financially if he meant those targets and he was penalized if he failed to meet those targets

a simple mission, a simple set of clear rules and a simple set of incentives to put those in place, and new england has prospered ever since. now i'm not saying this is either but neither is sleeping the monster without an idea where you're going to replace it with. now, ronald reagan, who was a follower of the school of economics, how interesting debates when he was in the white house with his advisers about the fed and he always look into these discussions with well, show me how to get from their to hear and we can talk about it and until then we should recognize why the fed creates uncertainty having a debate about abolishing fed without an idea what's going to replace it creates further uncertainty. from the business of entrepreneurs during that pergola of time of turbulence which we debate the role of the fed without an idea where we are going we are not going to have

economic growth. we are going to have perhaps more instability. so, i submit to my worthy opponents and i share some of your critique. i share perhaps some of your values but i also understand we live in a practical world. in conclusion i always liked the unicorn when i was growing up. the unicorn is a wonderful creature to behold. i love the uniform but i have yet to find one and i don't believe in all of my time searching for the unicorn thinking i will find it because so far i haven't. the same thing for a world in which we have abolished the fed without a clear idea what to replace it is a search for the unicorn which we have yet to find on this earth. thank you. [applause] >> thank you, john. you mentioned president reagan, and one of the most interesting interviews that i had was with

president reagan and at that time i remember the discussion that had one of the things we were talking about was the tremendous power that the trilateral commission and council for foreign relations had and influencing what goes on in government, and even at that time they had an espoused view of creating a global currency and what they called new world order. ironically, after the g20 meeting the financial times heralded that discussions were so wonderful because headlines they created a new world order. so my question is what do you all think practically is going to happen? jim st. clair says that china already wants a super sovereign reserve currency to replace the

dollar and it is going to be a critical part of central bank's reserves. do you all think that's the direction we are going, and if not, what do you think is going to have an? >> i will simply say that the fed could use some competition and if it comes from the chinese communists of all people that may not be the worst thing in the world. by the way, i think we are on the verge of having finally a real debate about the fed because it's been one of the most secretive and least transparent organizations of ron paul skill to audit the fed now has a majority of members in congress behind it. [applause] the [cheering] as much as i don't want the chinese running a separate reserve currency, the threat of the chinese setting up such a thing may actually force members of congress to ask more probing questions as congressman paul wants to do and questioning their role. because if the fed is through its competence and bungling manages to lose all were being

the major reserve currency in the world there should be some accountability even ought to some members of congress may demand that. >> yes, go ahead, respond. >> 1985 we were discussing the future -- >> can you move the microphone closer? >> if this were 1985 and we were discussing the future of the soviet union, i would hope that john fun or others might say you know, ronald reagan has suggested that maybe the soviet union should come to an end. no, what will happen? nobody would have suggested that it was going to just collapse. it was going to implode. john fund, if someone were to ask him what are we going to replace those systems with? what are we going to do with collectivized agriculture? i believe in unicorns, but after all what is the market going to do? well, the nature of the market is a certain amount of entrepreneurial discovery. however, there is an enormous

body of literature on the free market and banking. he mentioned ron paul. ron paul has written about this, about competitive banking. it's not rocket science. there's a great deal of insight with the market will do. so the question about where are we going. well, the more we try to understand the spirit of ronald reagan who thought the solution is for the soviet union to unravel for the berlin wall to come down the more we will appreciate the idea that maybe the solution is to abolish the fed and then understand a little bit more about the nature of the free market so we can appreciate how a free market and banking will work about which there is a fast and very full of literature. [applause] >> i can't, as someone who covered ronald reagan reagan for his presidency i must remind you the soviet union collapsed surprised almost everyone in this room. it could have happened in a different way with many

casualties and much destruction. so, while ronald reagan wanted the soviet union to disappear and he also recognized it had to be done in such a way there could be the least possible casualties. >> quite right -- >> and i think it's incumbent upon you not just to say the market will provide but to provide us with a road map, gps system by which you will trace how we can get to hear from their with least possible damage you have not done so. you have not carried the burden of proof and therefore your position fails. is it enough to say abolish the fed. you have to say how and with such ability that you will not increase market in security and economic conditions in the short term that will make it harder to return to economic growth. >> tom? >> is this working? >> all right, gene.

some kind of racket with the microphones. i sure there's an explanation. >> it's the fed's kendal. [laughter] >> the reason we didn't into a blueprint, as it is i could barely get five minutes and, but i have got on my blog right now, tomwoods.com called how to return to gold and it maria rauf part's book out on banking which is in a second edition in 2008 explains exactly what he would do. his plan explains in part requiring the fed to disgorge its gold holdings and then distribute those gold holdings to the commercial banks in proportion to the dollars that they have and then redefine the dollar value such that it could absorber gold and vice versa. there have been shall we say adjustments to that since. but so that is rauf part.

henry haslet from which many of us learned economics i went to him as well. probably the best person to go to is a spanish economist. i think one of the best economists in the world who has a treatise that if people read it would revolutionize the world and it's called mauney, bank credit and economic cycles and the author is jesus deshuerto in which he explains how a free-market system and banking which no government special privileges, no special sugar daddy but where banking operates according to the same rules as the shellfish industry or anybody else and it's no special privileges, how exactly that would work. >> i understand that -- thank >> before you go to another question? i certainly support greater accountability and transparency of the fed. >> can you hold the speed of a little closer?

>> i would support it. the question was about a world currency. gold was the last world currency the we had. it had many virtues work well for quite a long period of time. it was overly rigid and as a result of that ultimately collapsed. any enduring system and the goal of the world currency i think is worthy needs to be pragmatic. with the governors bank of people china was proposing and referring to was the special drawing right at the spr of international monetary fund and i think that is back into the debate and deserves some serious consideration not as a replacement but as a competitor with dollar and the euro which are the two primary reserve currencies in the world today. >> well, listen the dishonesty

though that we went off the gold standard? that's a political decision. >> i suppose i'm the one that's answer that. it was dishonest to enter the gold walls and thereby no wind void contract people entered into. that's a different proposition from going off the gold standard as the basis for the peg to which the dollar is fixed and that is a long and complicated -- >> her firmly understand and correct me if i'm wrong, isn't it being proposed that just the opposite of the fed having less power that the government is proposing the fed will have the authority to bypass congress and bailout virtually any entity that deems to pose a systemic risk? i understand there are like 500

banks on a list that are allegedly too big to fail. somebody want to comment? >> the basic been involved their starts with perhaps reading a brief essay that alan greenspan wrote when he was 40-years-old, a golden economic freedom. the world went off the gold standard because the rise of state is some, the rise of the welfare, were fair state and the economists unfortunately were behind that. [applause] the great trajectory of greenspan's career is really the whole story. he caught potomac fever at the age of 48 and he himself became a statist. it's great fun running the federal reserve. the federal reserve gives the economist a seat at the table of power. they don't have to be just economists and journalists. they can actually call the shots. it's very heavy. it's very invigorating. but beyond that, what is happening right now publicly? the obama administration,

obamanomics is basically still in the country from the american people and it's doing it through the printing of money. the deficits don't matter, of course that is what cheney said and cheney was a part of the same problem. deficits don't matter. we can print the money. we don't have to ask the people to pay for the taxes. we can simply print and oppose it on them and allocate resources to ourselves and then we don't have to worry. that's the nature of why this is all about politics and indeed alan greenspan wrote about that very succinctly in gold and economic freedom. that's what it's all about. >> john, gene and i agree on things that will happen the next couple of years which will be vastly increased inflation by traditional standards, and of course value reason of the dollar and other financial problems. that will trigger i hope a robust debate about the mistakes that got us here and how to get out of them. part of that debate should include what my worthy opponents

are proposing but we also need another proposal. we need a proposal for people who are not going to buy debt package and a proposal for a slim down streamlined fed along the new zealand model and other countries have adopted since then and why not saying that it's politically easy but it's certainly more politically easy than what they are proposing and has worked. >> tom? >> okay, but if we are going to talk here about what's right and what's wrong, what's the best outcome we can and that, then it seems to me that this solution whereby we should have just a meister said that isn't going to do as crazy things, i mean this is like should i have a door with a lock or should i have a door that has a piece of paper that says the store is locked? [laughter] [applause] why would i support that? but beyond that it seems to me there is no moral or economic reason to have this money monopoly system and i think people who favor a system like this that as i showed in my remarks actually does harm

people and i believe causes fared worse financial problems the in any other system. it shouldn't be people who favor a free market to have to be on the defense. it should be people who support this monopoly system. now if a hayek who won the nobel prize in 74 in the late 70's began to argue there is no reason to want to be a non-utopian to believe to expect government to give you good money. especially governments with ambition of the united states. you have no reason other than superstition to believe this and he says historic cui it is mere accident governments have been in charge of the money monopoly and why do you think that is? because they are just looking out for the common good. they want to give a good medium of exchange. of course not because they want to be close to the source of production of money. it seems to me if we believe in the free-market all of this nonsense about special drawing rights is utterly superfluous. was to prevent the free market from producing money the same way it produces any other good?

money is a good. what's the problem? [applause] >> warren? >> there is no problem with market provided money and most of the money that any of office use is privately produced in the private sector. but the government has a monopoly on, and what a monopoly is needed for or at least highly helpful is the unit of account. all of the private money is coming your visa credit card and debit card and mobile phone payments which are very popular in kenya and other african countries all kinds of ways of paying things, not just the old-fashioned check which is also privately produced by banks , all have their value denominated in a monopoly unit of account. the u.s. dollar. we cannot easily give that up.

you mentioned to big to fail, and a list of 500 banks. that's a fiction. there is no list of banks to big to fail giving the fed -- and ivory much agree with john's points -- giving the fed added power to deal with systematically important to take to fill the institutions would be a very big mistake. we certainly need more transparency and information about what non-bank financial institutions are actually doing. the aig debacle was a big surprise to everyone but i favor as john does stripping the fed of its advisory powers, sharply narrowing its focus on monetary policy and preserving the value

and integrity of that unit of account and again, virtually all money is privately produced, so let's not raise fiction psp mick let me pos -- >> meal i just speak to warren's point of account. brief economics lesson, they are very, very powerful market forces that produce it and in fact its government and the yen, the dollar, all of those various competing units of account or bad for the economic system and indeed world traders only use one unit of account because those are market forces. the tend to use the dollar. so indeed i only suggest to you then you go on my colleagues reading list and try to understand that the single unit of account is the one thing that happens when a gold standard happens. everybody wants gold. the world wants gold.

[applause] >> one tiny, i promise a to sentence point. it's misleading to say the money is all privately produced. it is a great private system. yes with a gigantic privilege of legal tender so of course people are going to accept this. the type of system we have now, fiat paper money convertible into nothing has never in history emerged spontaneously as the result of people rationally observing the good consequences it has to the contrary it has always been imposed by violence and thermopylae force and the police prohibiting alternatives so why don't we let people instead of using other things let them use gold and silver and let them take the privileges of of the dollar. [applause] >> i would like to pose -- >> one of gold and silver. anyone can own it. you can transact in it until your heart is content but the market has revealed its preference not to make gold the

center of the system. i'm not trying to say something against gold, i'm just talking about the market's revealed preference which is for the u.s. dollar, not for gold. >> we have them all on a level playing field for a change and people could make voluntary choices and they could actually make contracts and they could require a payment something other than the dollar. that's the problem. the reason we can't have genuine competing currencies as everyone is required by law that they've got to accept the crummy greenback. >> not true. [laughter] >> it's not true. >> well, i have to add one of the of the things president reagan said to me was that he believed that individuals should make their own contract in gold if they want to protect themselves. and he acknowledged that there was no country that ever survived when they dropped the metallic backing although he

stopped short of saying that we needed to go back on a gold standard. >> people make such contracts today. >> look, guys, the simple solution there's got to be -- you and i can contract on onions if we want to. we can contract apples but there are legal tender laws that require if there's a contract that's going to hold up in the court it's got to be paid legal tender therefore if only two parties of the contract agreed to it can survive, that's why it's not as level playing field. it is a simple enough point. >> and the taxes on gold and silver, too. >> that's right. we are running out of time. i would like to pose one very practical question we've been talking about ury but what has happened is that the entire global financial system has meltdown and virtually every asset has been plundered, and as a result we have had a deflationary in terms if he

would define it as far as falling prices. and over the years of course there has been a debate even prior to this meltdown that we might reach a point where the federal reserve would be pushing on a string so that no matter how much credit they wanted to create in the economy it just didn't happen. so obviously to this point, that is what we are experiencing. now, the question is bertelsmann points out in the number of the inflationists say okay, let's say hypothetically that the fed's expanded up to 11, 12 trillion, what ever, just petroleum come here and there and bought conversely there's been 50 trillion that has just a price to globally. it's gone to money have been --

heaven so he thinks that with the fed is going to do we are not going to get out of this and the dollar is not going to go into hyperinflation so i guess what i am really asking is a timing issue but that affects all of us as investors and so i was wondering if you all would comment do you think deflationary is going to continue for a long period of time and then convert to hyperinflation or what? where do we stand on this cycle? >> i think one fundamental conclusion that should be cleared up is that the basic process and we are talking about is a process whereby the government finances its operations not through taxes, not through legitimate borrowing which would be very limited by the way if it ultimately have to be paid for by taxes but through the printing of money. that's what's happening now. now the secondary effects of the printing of money are with the question addresses. but the fundamental problem is that that power is slipping from

our hands even more than ever because of the ability of the government to finance these huge deficits and huge deficits by the way that they're going to charge for the printing of money. the secondary effects are somewhat debatable. i personally believe that price inflation, which is what the mainstream normally confuses with inflation is not going to occur in the next two, three years because we have such lack of resources and higher unemployment rate. it's almost never occurred that you could have that kind of acceleration of inflation with those kind of resources. so very possibly we will not have severe price inflation. we will however have the other fundamental insidious evil of government deficits, looming in government deficits financed increasingly to the printing of money as the obama administration decides to spend money on what it wants to and allocate human resources in whatever way it wants to. >> yes, warren.

>> i'm sure that gene is a better forecasted and i am, so i am going to make a different comment in your question. a big confusion that we have heard appear is the fed determines interest rates, completely false. the market determines interest rates. the interest rates we see are determined. the fed uses the federal fund rate over night in interest rates as a mechanism for doing what it does which is control the money supply. the swede gauges how much money is printed in the system so don't think the fed determines interest rates more than they determined interest rates even during the criticized period of 2002, 2004. markets determined as interest rates. there's a global glut of savings in the world and much of it flooded to the united states and kept interest rates very low. >> tom? >> on the global savings glut i will leave to gene but in terms

of the market's interest rates we are not saying the fed goes to a local bank and says you should charge x% on this one. i am not making a trivial clean like that. we are instead sitting when the fed increases the money supply for the banking system the banks now have more to land and so something has to give here if they're going to win but they either have to lower their own lending standards for the interest rate which is offered so indirectly the fed does determine interest rates. >> that is the key point it does it through the expansion of the money supply but that's the reason i offered the simple anecdote with truly happen to over the last several years as the bubble was happening the federal reserve said the overnight interest rate at 1%. that is possible for a market to believe in because it was beneath the rate of inflation. that wouldn't be a market determine the interest rate. that interest rate was moving the one-year rate and the one-year rate was setting the very low adjustable rate mortgage rate. so in that sense sometimes it does control interest rates at

the short end of the yield income but more importantly as my colleague pointed out it basically affect interest rates all along because of its ability to expand the money supply because those funds way on the interest rate. >> to sum up i would simply say my my colleague in the treasure department says they are printing money 24/so some of that we are going to see short in the economy. i will give you an opportunity to have a great debate about the fed's role and its mistakes. you should have to plans when that debate happens. plan a is what you may really want and plan b is where you can get, and it is prudent and rational for all of you to what your plan a if you wish it, but also have plan be in your pocket and we tried to provide both for you today. >> well, the tire has been flashing indicating our time is

up, so i would like to thank the panel very much for participating and i think it has been a very formative and lively debate. thank you very much. >> warren served with the monetary fund before retiring in 2003 and he is currently the director of the cayman islands monetary authority and adviser to the central bank of iraq. john fund was a member of "the wall street journal" editorial board from 1995 to 2001 and writes a weekly column for opinion journal. gene epstein has been economic editor and columnist barron's since 1993. he is the author of how to read between the lines when the media manipulates the number. thomas woods is the author of nine books including the church and the market, and the politically incorrect guide to american history. this event was part of freedom fest 2009 held in las vegas. for more information, visit