Freedom Watch: 5/13

" At the time Peter brings up a good point I know it's something that you've written and spoken about extensively and that's protectionism. I mean we we we heard Gordon Brown the prime minister of Great Britain -- at this moment who knows for how much longer. Say British jobs for British folks. And we hear the president say by Chrysler. He even though Chrysler may be on by an Italian company. In the next a couple of months. And what we who I don't radio as a protectionist politicians. What worries aside from the fact that they're politicians they're motivated by the political winds where you see protectionism going. In the Obama administration. With huge democratic majorities in both houses of the congress."

" I'm very very worried about the possibility of protectionism it is to mean very frightening that we could repeat the 1930s. The Smoot Hawley tariff help to crash the world economy. It caused the collapse in US exports about 50% within one year. World trade collapse by 70% within two years because of a wave of protectionism around the world. The question this administration he is well the decision be made on the basis of sound economics or just pure party politics. I hope that we made on the basis of sound economics. But I am frightened about the possibility. The labor unions getting their hands into this Chrysler is an example of this. What they're doing also strangling productive American car manufacturers in Ohio and South Carolina and Tennessee and Alabama. Who are producing cars for the market in order to save at Chrysler which essentially failed the market test. Protectionism is the worst possible response. Chapter eleven bankruptcy is a lot smarter way to go for Chrysler. What is your greatest fear. If the government starts engaging in protectionism what what do you think they'll do and what will happen."

" I don't really think there's going to be a lot of protectionism because quite frankly there's not much industry left to put back. I mean it's already been destroyed -- it now like. You know if we have. Duties and tariffs on foreign made product that Americans will simply buy American made product that those products don't exist I mean that there's a problem. Yeah I suppose that they rate -- I doubt on imported cars would be forced by some of the more expensive let -- pick the model. Manufactured. -- United States but promote industries protectionism. Is an issue that I think give it anything you release speak about it. But it's not gonna happen what really that this threat to our economy. Is that they can -- you with the stimulus is that they can that he was the bailout of the government continues. That that the cheap money policies. Of Green Bay you know -- you -- he -- interviewed the other."

" What do you say the other day that got you so riled up."

" Well he he had he had that all. This day visit the low interest rate policy that the person who had nothing to do the housing bubble and I'm not gonna do it subplot. He said he is 1% interest rate. Pat no in fact. On mortgage rate cut that guy's crazy. Maybe interest mortgage rates went directly affected by the Fed funds rate because that -- teaser rates were back. To operate mortgages were based on the Fed fund rate worked on short term interest rate. That was. In effect it like that font. I think maybe that thirty year out fixed rate mortgages weren't effective. But the thirty year fixed rate mortgages are why we have that they bubble it was the -- arm that was the human interest only with the easily. These -- the product that would directly affected by -- 1% interest rate. And Italy claimed qualities that later I tried to raise interest rate and but long term -- well look because if you leave them in point instrument in increments he has that major reason spot. It's even been more aggressive if you -- great chapter in my bigger amount. Then he would have had a desired effect along or blue that guy immediately blew up the entire bubble people what -- it it really was out of whack."

" Tom Palmer is Greenspan pretty much discredited. Amongst economists are there still people who think that. This is the private sector that caused the recession and -- and kept it from getting worse. I think the Greenspan put is it was known of this willingness to lower interest rates to make you know business goes out of business with a colossal mistake. Look at interest rates June 20032. June 2004 were an actual real interest -- to negative territory in other words you were being paid to borrow what to expect is gonna happen. I would disagree with half of what Peter said there that part about. Flooding the market with cheap credit I think was exactly spot on. But indeed protectionism is very serious the US is a gigantic export leader a wide range of different industries and services. And the point is if you make it more expensive to import. At the same time you make it more expensive to export. Tax and imports has an aggregate the same impact -- attacks on exports. Our export industries that are furious risk if you that's moves in the protectionist direction. And make no mistake about it the US exports and huge amount of both commodities manufacture of commodities manufactured goods and services. Those industries would be very negative and."

" On protected and not that you have protective order all you lonely yeah."

" You know you're you know right about that go ahead if you make it if you diminish the amount it imports that we're doing it means in effect. Foreigners are selling less to us they have less money with which to buy our products."

" Well that's not an -- do you think that that I -- Bob Bob about that. Well -- American Idol importing fewer product we can't afford to import all these products were well."

" I think you're wrong about that. That the problem with regard to the deficit with our budget deficit meant that our government was selling treasuries. Around the world. That's unrelated to the trade deficit percent which is the will."

" Yeah. Yeah one of the reasons we're able to you want me she claims that he hit it because the other but that built around the world. Is recycling. That into the end and letting up by the byproduct and and then buying treasury bond. You know that they're not they're not in that they're not unrelated. But ultimately. Well. But we can't they have forget about the budget debt that we can't go on with trade gap between the export import weak it can't print money import. We need to act -- as much as we import we need to balance the -- we just can't keep importing more that we export and then ended you know put the rap on credit card."

" Why why are you Tom. Not critical of the artificially cheap credit in the Greenspan years knowing. -- knowing as you do. That at some point bad credit had to rise to its natural rate and when it did. A lot of folks couldn't afford to meet that naturally. No you're right. However make very clear I disagreed with half of what -- the second have a artificially cheap credit he was spot on. My point was when you lower interest rates to negative territory. What do you think is gonna happen you're paying people to borrow. And we got asset bubbles showed up in a number of places most notably the housing market but with a huge housing bubble was created. By combination cheap easy credit and these government sponsored enterprises Fannie Mae and Freddie Mac. Who are buying the mortgages from banks if -- go here if that is exactly the problem is Tim Geithner called you up this afternoon and said. We're going to make it impossible. For Americans to buy. Foreign goods by imposing tariffs so high that only the super rich would would pay them. What would you tell him from -- on 101. And from the past seven years of American history. That number one you can't create wealth by stopping people from trading trading itself creates wealth. I exchange have been worth less to me that when I get the other person does this thing. We create wealth through exchange and trade second matter historically. This is the easiest way to crash in economy. The American economy with the world economy and the experience to the Smoot Hawley tariff is. Very powerful evidence you want to find."

" Way to discourage Americans from buying more imported goods. Is. For the Fed to leave interest rates and that was it guard them from buying all of -- the good because the problem is Americans are buying good. Both foreign and domestic we borrow money and they shouldn't be doing that. But ultimately we're not then need the US government the -- the price the American -- the market. Ultimately the dollar's -- clap. Countries like China that artificially propping up our country are going to stop doing it and then when I can go to buy imported good significantly too expensive that I have. Happen eventually yeah I think it could happen relatively soon."