them for as long as they are talking and thinking and so i don't know. i mean, i guess i would say lieutenant dan 'cause forrest gump was an idiot. [laughter] >> what time do we got? 9:00? one more good question.

>> first of all, this is the first time i've ever been to something like this and i'm here because of you. your books -- i love reading your books. >> thank you. >> the question i have is, you've written about so many different battles and different wars so i have to assume you're a research junkie of some kind. [laughter] >> how do you go from different wars in your books, they're all compelling, they're all well-told, they're all full of detail and i'm just kind of curious, how do you do that? >> that's a good question. all i know is that i do it. whether i do it well or not is up to readers to tell me. you know, when i wrote forrest gump, i wrote one nonfiction -- i mean, one novel after that and i discovered very quickly, everybody wanted me to keep

writing the same book over and over again. like some people do. and they make a lot of money, i guarantee you, but they could take a computer and change the names and places and dates and same story. i don't write that. i mean, i like a new adventure when i go into writing. i like research because research is learning. it's a new -- like on star trek and it's a whole new thing to say, gosh, i'm going to learn all this. i'm not just going over well-plowed ground. and so i think i'd do it. i never even thought why i do it because i think -- i don't like to keep writing over and over like -- if i was an expert on

something, many historians are, they're experts on some field, and i'm kind of -- what do you call it a jack of all trades -- and i don't know any of them well but i can do a measurable job, i hope, as long as people keep, like you, coming here and being interested in these things and i can keep it fresh. when i do the writing, i don't assume that the reader knows these things. i write assuming that the reader doesn't know these things. not elementary -- elemental things. so that in itself is a reason is refreshing. it's like teaching -- i was talking last night to a friend and we went out to this bones place and we were talking about

this with wade mitchell down here. i said, you know, i do it because it's a form of teaching. he said you don't have to go to class you. don't have to go to, you know, stand in front of students and all that. they can read it or cannot read it, i don't care. but the ones that read it and want to read it, that they go away just with one or two things that they didn't know before that make a difference in their lives. i'm a happy camper. and on that happy note, let's go sign some books. thank you. [applause] >> winston groom is the author of 14 books including forrest gump, patriotic fire and conversations with the enemy that he cowrote with duncan spencer and was a finalist for pulitzer prize. this event was hosted by the atlanta history center. to find out more contact

atlantahistorycenter.com. >> join the conversation on civil rights and race relations with npr and fox news analyst juan williams live at noon eastern on book tv's in depth on c-span2. >> from freedomfest 2009 held in las vegas, a debate on the federal reserve, participating in the debate are economist warren coats, "wall street journal" john fund and thomas woods. it's an hour. >> i'm joe bradley. for those of you who just joined us, we have a number of exciting panels scheduled. you've already heard one. in a previous life, i recently retired from publishing investors hotline and in that role i had the opportunity to interview many of the top free market analysts, final experts,

economists that you're hearing here at this conference. i want to congratulate mark for pulling together this freedomfest. it's certainly the world's largest gathering of people that are really interested in liberty that's ever been created. i understand there were around 1500 people here now and when ron paul's group gets here later this afternoon it's going to swell between 2 to 3,000. [applause] on investors hotline it was always a quest for truths, the economic truths that run our capitalistic economy as well as from a practical standpoint how it's going to impact us all as investors. so one of the -- one of the overriding themes here at this conference, as you've heard, virtually everybody is unanimous in agreeing that the primary

catalyst to the meltdown in 2008 as well as the ongoing problems that we're experiencing is due to the government, its various entities. so one of the primary government entities, of course, that has been blamed is the federal reserve system. now, the purpose of this debate this afternoon is to determine, is the fed so broken that it should be totally abolished? or can it be modified and fine-tuned, whatever, and still continue? so on my left here to vote for defending the fed in some way we have john fund, first of all. john is an american political journalist and columnist for

"the wall street journal." he's the senior editor and columnist for the person is spectator. and he's author of stealing elections, how voter fraud threatens our democracy. and next to john is warren coats. warren coats is an advisor to a number of central banks. he retired from the international monetary fund in 2003. he led missions to over 20 different countries. he's a visiting economist for the federal reserve and the world bank. he's currently director of the cayman islands monetary authority. and he's also been an advisor to the central banks of iraq as well as imf consultant to the central banks of afghanistan, kenya, and zimbabwe. oh, zimbabwe, obviously, they weren't listening to you, warren. [laughter] >> they are now.

[laughter] >> and then for abolishing the fed, our next panelist, gene epstein is baron's economic advisor and former chief economist for the new york stock change. he writes a regular column in barrons and he write it from the philosophical view of austrian economics, the school of ludwig von nesis. [applause] >> and finally, we have tom woods. tom woods is senior fellow at the ludwig institute. he holds a bachelor degree in history from harvard as well as a ph.d. degree from columbia university. and he's 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 tanked and the government bailouts will make things worse. so i'll have each of our panelists start out with a 2 to 5-minute opening statement and then we'll let the fireworks begin and hopefully we'll come up with some practical suggestions on what we should do going forward both governmentally in our economy but also for us as investors. so tom, why don't you lead it off. >> anything we can do to get the water. >> can we get some liquidity up here in terms of water. [laughter] >> the good kind. thank you. thank you. this will probably go right up to 5 and i promise i won't go beyond that. okay. a lot of people seem to believe that although the market economy is a swell system, it requires

the equivalent of a soviet commissar to be in charge of money and interest rates. this belief is all together must placed. the federal reserve system or simply the fed is both harmful and unnecessary. since the fed's creation in 1913, the dollar has lost at least 95% of its value. if the much-maligned gold standard had produced such a result we'd never heard the end of it but in our system the fed is, for whatever reason, curiously exempt from criticism. under the fed, therefore, people have lost an option they once had, namely accumulating savings and cash. back when coins functioned as money held or even increased their value. no one has that option any longer. in other words, only a fool would try to save by piling up dollar bills. instead, everyone is forced to become a speculator and to invest in securities markets they know little about and that can wipe them out entirely if

times turn bad. as early as the 18th century, richard cantion eyed distribution affects. the newly created money is injected at particular points. whoever receives it first, in other words, people who happen to be politically well-connected get to spend it before prices have risen 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 this system especially since the collapse of breton woods in 1971. no one has a right to be surprised when indebtedness skirockets under a system in which credit can be created out of thin air. the very existence of the fed institutionalizes the problem of moral hazard. moral hazards involves an actor willingness to behave with an artificially elevated risk because he believes any losses

he incur will be bourne by someone else. since there is no physical limitation on paper money creation, market actors know the paper money producer can bail them out if things go wrong and they've been vindicated in this belief time and again. they will be reckless in their investment activity and speculation than otherwise would be the case. we were once told that boom/bust business cycles were a thing of the past because thanks to the fed we now had scientific management of the money supply. if anyone believes that today, i'd like to meet them. artificially low interest rates courtesy of the fed do not, in fact, yield us is utopia of sunshine and kittens. to the contrary, artificially -- they artificially stimulate capital goods production and long-term investment. they thereby deform the structure of production into a configuration that the public's freely expressed saving and consumption will not be able to sustain. when this phony boom inevitably

collapses it is capitalism that is stupidly blamed when, in fact, the fed, a nonmarket institution is the culprit. i'm interested in neither the saccharine promises nor the technical details of the alleged superiority of a monopoly fiat money system. the fed is the life blood of the empire. the great enabler of the perversion of the original american republic into the world's largest and most powerful government. even if the fed did confer a net economic benefit, a contention the great austrian economists said, even if the fed did confer an economic benefit, the alleged benefit 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 the original american republic are joined together. the fed, its academic apologists and the drones in our supposedly free press who demonize all

dissent from the monetary status quo have done our economy enough damage. for the sake of american freedom and prosperity, it is long past time that in the spirit of andrew jackson, we killed the monster. thank you. [applause] >> all right. john, you want to go next? you want to go next, warren? okay, warren. >> thank you very much. it's a pleasure to be here again. i want to note that my first trip to zimbabwe was just a month ago after the collapse of their currency and our strongest advice to them -- they've dollarized and are literally using the u.s. dollar was to continue to that regime and not

to reintroduce their own currency anytime soon. so i would have to defend the fed today having endorsed zimbabwe's embrace of the u.s. dollar. our topic is fed up with the fed, 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 and now it's $920. i thought you would like that first topic. the first part of the topic, fed up with the fed calls for a review of fed policy. has it been good?

has it been bad? what's the score guard? -- score card? central banks generally don't have a very good history and track record and the fed certainly has it's 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 the world including here in the united states. so let's start with paul volcker's fed that killed the inflation of the late 1970s. when the inflation rate in the u.s. got up to 14% or so. since that time, it's averaged about -- since two years after that, as he brought the money supply back under control, inflation has averaged 3% per anum for that several-decade period. real g.d.p. has averaged about

3.2% which is its average for the last several hundred years in the united states. up through the first quarter of this year. and over the -- this decade, through 2006, leaving out the recession that we are now-i[in,t averaged 3% per annum we had the half of number! of recessions that uqr" throughout our previous history. the fed's record in these 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 bubble. this is true.

but low interest rates had other market forces contributing to the low interest rates as well. and overvalued u.s. dollar produced large and growing trade deficits that sucked dollars in from china and other countries keeping interest rates low. with a gold standard interest rates would have been even lower until the trade deficit was reduced as all adjustments would have been -- would had to have been made through domestic prices. markets are the best way of reconciling conflicting forces and moving the economy forward, but because it's the best system doesn't mean it's without its challenges and difficulties and hardships. how has the fed performed in the last two years? the fed responded to the

financial crisis emanating from the collapsed of the real estate bubble in several ways. first on the monetary policy front, it reduced interest rates in the face of a collapse of aggregate demand to soften the impact of the fall in housing and other asset prices and prevented a collapse in the money supply after september, 2008, september of this last year, by doubling base money. these traditional central bank functions helped restore confidence in the financial sector and moderate the inevitable recession as the economy deleverages and adjusts to new realities. in this area the fed has performed very well. not repeating the mistakes that it made during the great depression that contributed to the great depression being what it was. on the credit policy front, the flow of credit froze up as

financial markets began to realize the extent of potential real estate losses and started to deleverage. the fed introduced new facilities to help specific credit markets buying mortgage-backed securities and commercial paper to name two. this is not a traditional central bank function. the fed should have had greater faith in the market's ability to develop new credit channels and to redirect credit to the most productive uses. in this area, fed performance was helpful in the short run but unhelpful in the long run. on the failing institution resolution front, the fed joined the treasury in ill-advised damaging and for the fed inappropriate and possibly illegal market interventions to

save investment banks and an insurance company. this was motivated by the lack of legal tools with which to resolve failing nonbanks in the ways banks may be resolved but it was an end run-around the law at a time of panic. it is also hard not to wonder whether personal treasury relationships and past and potentially future employment on wall street clouded the judgment of treasury and to a lesser extent fed officials. one way or

in time, alternative arrangements could be developed to clear and settle payments across different banks or different institutions of payment and to print and coordinate the value in the market of private currencies. >> can you wrap it up. >> yeah, okay. okay. the benefit would be clear -- the benefit of purely private monetary system would be clear rules with very market discipline and private behavior. these are important benefits. the costs would be periodic financial panics and crises that would very likely overturn the system with massive government intervention. let's not throw out the workable for an imaginary utopian best solution. and i will leave that to my partner to elaborate. >> all right, gene, you want to

give your point of view from the abolish from the fed's standpoint? >> it's fun to be appearing in opposition to john fund. we both work for rupert murdoch. he acquired barrons and the "wall street journal" but in the killer act i would like to hand people is that murdoch's publishing arm put out howard zinn's left wing people's history of the united states. the man puts profits before politics and indeed the fundamental reason why i am procapitalist is because free speech, 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 free press and free speech. [applause] >> similarly, similarly, the abolition of the federal reserve is necessary in order to bring back government accountability

to the people. it's fairly simple what has happened over the last few centuries. even before the federal reserve was created. the kings wanted to fight their wars. they couldn't borrow enough. they couldn't tax enough. so they started to prohibit money. -- print money. that's why the government began to control and get interested in controlling the money supply. in the most recent period under bismarck, under fdr, it became apparent that the welfare warfare state cannot be answerable to the people. it's got to depend on the mechanism of printing money and the federal reserve is central to 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 it knows how to fund those programs is that we abolish any means by which the government can control the money supply. now, notice i haven't said anything about economics yet.

i'm talking about fundamental political values that are vital to the maintenance of freedom. that's the fundamental reason why we have to abolish the federal reserve. and indeed, not just abolish the federal reserve but 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, very apparent in the 19th century before the federal reserve was created. that's also why we had monetary instability and corruption or indeed the war of 1812 was financed through the printing of money by the new england banks and then the protection of those new england banks by the government. all of that sorry history depends on government control of the money supply. now, why else would i abolish the federal reserve? because it causes business cycles. warren just spoke -- warren coats on the opposition just spoke on what the fed did and didn't do right after the

collapse of the economy over the last couple of years. well, let me give you a little anecdote that does not even require an understanding of the austrian business cycle theory. the driving force of the real estate bubble was something called adjustable mortgages arms. they were disproportionately where the mortgages was coming from. where the bad debt was coming in. they were tied to the one-year rate and it's directly dependent on the federal funds interest rate set by the freefb. -- federal reserve. it was directly in that sense financing the housing bubble and indeed on top of everything else, the crowning irony is that alan greenspan himself got up in front of a bunch of realtors. adjustable rate mortgages are great. that's something warren coats

embraced understand in order to appreciate the fact that the federal reserve was part of the problem. it created the bubble. and then afterwards, if the drug pushers and it gets to run the methadone clinic and claim it didn't push the drugs in the first place. so simply put, in order to have political freedom, in order to have economic stability, we need not just to abolish the federal reserve. we need to declare that money and interest rates are the province of the free market. when congressman ron paul asked ben bernanke, do you ever get the interest rate wrong? ben bernanke said yeah, yeah we do occasionally get it wrong. we try but we get it wrong and ron paul said to bernanke, well, then why not occasionally -- why not eternally leave the interest rate setting to the market? because you get it wrong, maybe the market will get it right a little bit more often than you do. is my time up? [applause]

>> i'm through. okay. >> all right. and now lastly, we'll have john fund give his view from a -- i mean, a profed standpoint and then i'll get the ball rolling on the debate with a question to all of you. so, john? >> i'm not going to wear the profed hat to paraphrase shakespeare's mark anthony i come not to carrying the fed or to praise it. i come here to be realistic and what we have is clearly a deeply flawed institution. but i would remind you that while certainly i think the fed could be said to exacerbate some of the business cycles and the period we out mal-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 jp morgan had to step in and ameliorate at the last minute. the fed exists for a reason of providing short-term financing during periods of financial panic. i would remind you the 30-day commercial paper market dried up completely last fall. there was a panic. there was a sense not just in the government but in the business community that something had to be injected into the business community promptly. the uncertainty the fed causes is a real cost. on the other hand, my worthy opponents have spent 10 minutes bashing the fed without giving you any sense that there's an agreement on their side as to what should replace it. and, of course, yes, the market they say should replace it but exactly what structure, what mechanisms, how do we get from

there to here and i'll 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 full employment, protecting depositors through an insurance system, many other things as richard ron points out, the fed has taken on so many responsibilities it's become like a large fire department that has a fixed percentage of its employees are arsonists. we have a fed that is targeted, simplified, streamed down and focused on its mission which is preserving the integrity of our monetary value. new zealand had the same problems in many respects in the 1980s. they had a financial meltdown. they didn't become a banana republic they became a kiwi republic because kiwis were in short supply. they created a completely sealed

off federal bank and a group of advisors who were tasked with one job only which is to keep the rate of inflations within certain targets and the head of the central bank was rewarded financially if he met those targets and he was penalized if he failed to meet those targets. a simple, simple mission, a simple set of rules and a simple set of inflations to put those in place in and new zealand has procespered as well. i'm not saying it's a monster but what are you going to replace it with. now, ronald reagan who was a follower of the austrian school of economics had some interesting debates when he was in the white house with his private advisors about the fed and he always would end these discussions with, well, show me how to get from here to there and we can talk about it. until then, i think we should recognize that while the fed creates uncertainty, having a

debate about abolishing the fed without having a clear idea of what's going to replace it creates further uncertainty and i would submit to you at least from the point of view of the business community and from entrepreneurs, during that period of time of turbulence in which we debate the role of the fed without a clear idea of where we're going, we're not going to have economic growth. we're going to have perhaps more instability. so i submit to my worthy opponents, i share some of your critique, i share perhaps some of your values, but i also understand we live in a practical world. i always loved the unicorn when i was growing up. it's a wonderful creature to behold. i'm prounicorn but i've yet to find one and i don't believe believe spending all my time searching for the unicorn so i will find it. and this is a search of a

unicorn for 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 we had -- one of the things that we were talking about was the tremendous power that the trilateral commission and the council for foreign relations have in 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 herald that the 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 sinclair says china already wants a super sovereign reserve currency to replace the dollar. and it's supposed to be a critical part of central bank's reserves. do you all think that's the direction we're going and if not, what do you think is going to happen? >> i would 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. i think we're on the verge of having a debate of the fed because it's been one of the secretive and least transparent organizations. ron paul's bill to audit the fed now has a majority of members of congress in the house behind it. [applause]

>> as much as i do want the chinese running a separate reserve currency, the threat of the chinese setting up such a thing may force members of congress to ask more probing questions as congressman paul wants to do and question its role. because if the fed through its incompetence and through its bungling manages to lose the status of the dollar being the major reserve currency in the world, there should be some accountability and even obtuse members of congress may demand that. >> yes, go ahead and respond. >> if there were 1985 and we were discussing the future of the -- >> can you move the mic closer? >> if there were 1985 and we were discussing the future of the soviet union, i would hope that john fund or others might say, you know, ronald reagan has suggested that maybe the soviet union should come to an end. no, what will happen, well, nobody would have suggested that it was going to just collapse. it was going to implode. john fund, if someone were to

ask him well, what are we going to replace those systems with? how are we going to replace -- what are we going to do with collectivized agriculture. i believe in unicorns but what is the market going to do? well, the nature of the market is a certain amount of entrepreneurial discovery but there's an enormous body of literature on banking. ron paul has written about this, about competitive banking. it's not rocket science. there's a great deal of insight about what the free market in banking 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 free market so we can appreciate how a free market in banking will work about which there is a vast and very well-informed

literature. [applause] >> i can't as someone who covered ronald reagan throughout his presidency, i must remind you that the soviet union collapsed to the surprise of everyone almost in this room. it could have happened in an entirely different way with many casualties and much destruction. so while reagan wanted the soviet union to disappear, he also recognized that it had to be done in such a way that there could be the least possible casualties. and i think it's incumbent upon you not just to say the market will provide. but to provide us with a roadmap, a gps system, by which you will trace how we can get from here to there with the least possible damage. you have not done so. you have not carried the burden of proof and, therefore, your position fails. it is not enough to say abolish the fed. you have to say how and you have to say with such ability that

you will not increase market insecurity and you will not create economic conditions in the short term that will make it even harder for us to return to economic growth. >> tom? >> well, a different part -- is this working? >> no. >> gene's mic. >> all right, gene. there's some kind of racket with the microphones going on here. >> it's the fed. [laughter] >> i think the reason we probably didn't get into a blueprint is that -- i mean, as it is i could beryl get 5 minutes in. i've actually got right on my blog tomwoods.com how to return to gold and it links to the most important free market economists who have looked at this subject. murray's book the mystery of banking which is out in a second edition in 2008 explains exactly what he would do. now, his plan involves 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's value such that it could absorb the gold and vice versa. there have been, shall we say, adjustments to that since. but henry haslet who has written a book on economics, i link to him as well. i think probably the best person to go to, though, is a spanish economist, i think one of the best economists in the world who has a treatis that if people read it would revolutionize the world it's called money, bank credit and economic cycles and the author is jesus huerto de sousa and he explains how a free market system in banking with no government special privileges, no special sugar daddy, but where banking operates according to the same rules as the shell fish industry or anything else and get no special privileges, how exactly that would -- that would work.

>> i understand that -- >> before you go to another question -- >> go ahead, warren. >> i certainly support greater accountability and transparency of the fed. >> can you hold the mic a little closer. >> and, therefore, probably ron paul's legislation. i haven't read it but i would support it. your question was about a world currency. >> uh-huh. >> gold was the last world currency that we had. it had many virtues. worked well for quite a period of time. and it was overly rigid and as a result of that ultimately collapsed. in the enduring system and the goal of a world currency, i think, is worthy, needs to be pragmatic if it's going to survive. what the governor the people's bank of china was proposing i'm referring to is the special drawing right, the sdr of the international monetary fund and i think that's back into the

debate. and deserves some serious consideration, not as a replacement but as a competitor with the dollar and with the euro, which are the two primary reserve currencies in the world. >> well, wasn't that dishonesty, though, that we went off the gold standard? it was a political decision. >>, i suppos i suppose i'm the answer. i suppose, it was dishonest to abrogate the gold clause and null and void contracts people had entered into. that's a different proposition from going off the gold standard as the basis -- as the peg to which the dollar is fixed. and that's a long, complicated topic that you're not going to give me the time for. >> from what i understand, and correct me if i'm wrong, isn't it being proposed that just the opposite of the fed having less

powers, that the government is proposing that the fed will have the authority to bypass congress and bail out virtually any entity that deems to pose a systemic risk? and i understand that there are like 500 banks that are on the list that are allegedly too big to fail. somebody want to comment on that? >> well, the basic theme involved there is -- starts with perhaps reading a brief essay that alan greenspan wrote when he was 40 years old called gold and economic freedom. the world went off the gold standard because of the rise of stateism and warfare state and the economists, unfortunately, were behind. [applause] >> and the trajectory of greenspan's career is really the whole story. he caught potomac fever at the age of 48 and he himself became a stateist.

it's fun running the federal reserve. it gives the economists a seat at the table of power. they don't have to be economists or journalists. they can actually call the shots. it's very heavy, heady and very invigorating but beyond that, what is happening right now politically, the obama administration, obamanomics is basically stealing the country from the american people and it's doing it through the printing of money. deficits don't matter 'cause that's what dick cheney said and he was part of that same problem. deficits don't matter. we can print the money. we don't have to ask the people to pay for it in taxes. we can simply print it impose it on them. arrogate the 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, very succinctly in gold and economic freedom. that's what it's all about. >> gene and i agree on many of the things that may happen in

the next couple of years which would mean vastly increased inflation by traditional standards and, of course, a devaluation 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 the whole -- that package and we need a proposal for a slimmed down streamlined fed. and i'm not saying it's politically easy but it's certainly more politically easy than what they're proposing and it has worked. >> tom? >> okay. but if we want to talk here about what's wrong and what's wrong, what's the best outcome we can aim at, then it seems to me that this solution whereby we should have a nicer fed that's not going to do as crazy things -- i mean, this is like should i have a door with a lock on it or should i have a door that has a piece of paper that

says this door is locked? why would -- 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 actually believe causes far, far worse financial problems than any other system. i think we need to -- it shouldn't be a people who favor a free market who have to be on the defense. it should be people who support this system. f.l. hayek began to argue that there is no reason if you want to be a nonutopian to believe, to expect governments to give you good money, especially, governments with the ambitions of the united states. you have no reason other than mere superstition and it's mere accident that governments have been in charge of the money no-knop -- monopoly. they are looking out for the common good and give us a good

medium of exchange we can use for our transactions. of course not. they want to be close to the source of the production of money. it seems to me if we believe in the free market, then all this goldberg nonsense is superfluous. what will prevent the free market from producing money than any other good. money is a good. what's the problem here? >> warren? [applause] >> there is no problem with market-provided money and most of the money that any of us use is privately produced in the private sector. what 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 monies 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 account, the u.s. dollar. you mentioned too big to fail and a list of 500 banks, that's a fiction. there is no list of banks that are too big to fail and it's certainly nothing like 500. but i think giving the fed -- i very much agree with john's points, giving the fed added powers to deal with systemically important too big to fail  we certainly need more transparency and information about what nonbank financial institutions arerdoing.

the aig debacle was a big surprise to everyone, but i favor, as nondoes, stripping the fed of its supervisory powers sharply narrowing its focus on monetary policy, preserving the value and integrity of that unit of account and again, virtually all money is privately produced so let's not raise fixes. -- fictions here. >> let me speak to one's account of the unity account. a brief economics lesson, the market prefers a single unitive account. there are very, very market forces that produce it. in fact, its government with its many currencies, the yen, the shekell and the dollar -- all of those various competing units of account are bad for the economic system and indeed world traders

use only one unit of accounts. they tend to use the dollar. so indeed i only suggest to you that you go on my colleague's reading list and try to understand that the single unitive account is the one thing that happens when a gold standard happens. everybody wants gold. the world wants gold. there would be a single unit of account globally. >> just one tiny, tiny -- i promise two-sentence point. i think it's misleading to say, you know, the money is all privately produced. this is like a great private system. with the gigantic monopoly privilege of legal tender. people are going to accept this. the type of system we have now of fiat paper money being that was convertible into nothing has never in history emerged spontaneously as the result of people rationally observing the good consequences. it has always been imposed by violence and through monopoly force and through the police-prohibiting alternatives. why don't we let people, you know, other things let them use gold and silver and take the

privileges off the dollar. >> i'd like to pose -- >> a quickie. >> just real quick. >> there's no prohibition on gold or silver. anyone can own it. you can transact in it to your heart's 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 markets-revealed preference that is for the u.s. dollar, not for gold. >> if we had 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 -- and they could require payment in something other than the dollar, that's the problem. the reason we can't have genuine competing currencies is everyone is required by law they've got to accept the crummy greenback. >> it's not true. >> well, i have to add in that one of the other things that president reagan said to me was

that he believed that individuals should make their own contracts 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. >> and people make such contracts today. >> right. >> but it's got -- look, guys, the simple confusion there's -- you and i can contract onions if we want to. we can contract in apples. but there are legal tender laws that require if there's a contract that's going to hold up in the courts, it's got to be paid in legal tender, therefore, only if two parties of the contract agree to it can it survive. that's why it's not a level playing field. the legal tender laws, it's a simple-enough point. >> and the taxes on gold and silver, too. >> that's right. we're running out of time. i'd like to pose one very practical question.

we've been talking about theory. but what has happened is that the entire global financial system has melted down. and virtually every asset has been plundered and as a result we've had a deflation in terms of -- if you would define it as far as falling prices. and over the years, of course, there's 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's what we're experiencing. now, the question is, burt dolman points out in the number of deflation, okay, let's say hypothetically the fed expanded

a 11 or 12 trillion, just a trillion here or there, but conversely, there's been 50 trillion that has just vaporized glob globally, that's gone to money heaven and he thinks in spite of the inflation in terms of monetary expansion that the fed's going to do that we're not going to get out of this and that the dollar is not going to go into hyperinflation. so i guess what i'm 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 deflation is going to continue for a -- a long period of time? and then convert to hyperinflation? or what, where do we stand in this cycle? >> i think one fundamental confusion that should be cleared up is that the basic process that we're talkingajz a process whereby the government finances its operations, not through taxes, not through

legitimate borrowing, which would be very limited by the way 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 what the question addresses. but the fundamental problem is that that power is slipping from our hands even more than ever because the ability of the government to finance these huge deficits and the huge deficits by the way that they will charge us for the printing of money. the secondary effects are somewhat debatable. i personally believe that price inflation which is what the mainstream normally confuse with inflation is not going to occur in the next two, three years because we have such slack resources. we have such high unemployment rate. it's almost never occurred that you've had -- that you could have that kind of acceleration of inflation with those kinds of slap resources. so very possibly we will not have severe price inflation. we will, however, have the other

fundamental insidious evil of government deficits looming government deficits financed increasingly through the printing of money as the obama administration decides to spend money on whatever it wants to and arrogate human resources in whatever way it wants to. >> yes, warren. >> i'm sure gene is a better forecaster than i am -- i'm going to make a different comment than your question. a big confusion that we've heard up here is that the fed determines interest rates, completely false. the market determines the interest rates. the interest rates we see are market-determined. the fed uses the federal funds rate overnight interest rates for the federal mechanism which is what it does do is gauge the federal supply and gauge how much money it will put in the system. so don't think that the fed determines interest rates nor that they determine interest

rates even during the criticized period of 2002/2004. markets determine those interest rates. there was a global glut of savings in the world, much of it flooded into the united states and kept interest rates very low. >> well, on the global savings glut, i'll leave to gene. but in terms of the markets setting interest rates, we're not saying that the fed goes to a local bank and says you should charge x percent on this loan. we're not making a trivial claim like that. we're instead saying when the fed increases the money supply through the banking system, the banks now have more to lend and so something has got to give here if they're going to lend it, they're either going to have to lower their lending standards and the interest rate it's offered indirectly the fed does determine interest rates. >> well, that's the key point. that it does it through the expansion of the money supply and that's the reason why i offered to warren the simple anecdote what happened over the last several years as the bubble was happening. the federal reserve set the overnight interest rate at 1%.

that's impossible for a market to ever believe in because it was beneath the rate of inflation. that would not be a market-determined interest rate. that interest rate was moving -- the one-year rate and the one-year rate was setting the very, very low adjustable rate market rate so in that sense sometimes it does control interest rates at the short end of the yield card but more importantly as my colleague pointed out, it basically affects interest rates all along the yield because of its ability to expand the money supply. those loanable funds weigh on the interest rate. >> to sum up, i would simply say my colleague, steve moore, at the "wall street journal" reports the source of the treasury department says they're printing money 24/7 literally 24 hours a day they're printing money so somewhere we're going to see that show up in the economy. that will give you an opportunity to have a great debate about the fed's role and its mistakes. you should have two plans when that debate happens. plan a is what you may really want and plan b is what you can

get. and it's prudent to have a plan a and a plan b in your pocket and we tried to provide both of you today. >> well, the timer has been flashing indicating that our time is up. so i'd like to thank our panel very much for participating and i think it's been a very informative and lively debate. thank you very much. warren coats served with the international monetary fund for 26 years before retiring in 2003. he's currently director of the cayman islands monetary authority and an advisor to the central bank of iraq. john fund was a member of the "wall street journal"'s editorial board from 1995 to 2001. and writes a weekly column for opinion journal. gene epstein has been the economics editor and a columnist for barron's since 1993. he's the author of econo spinning how to read between