Transcript: Thom Hartmann discusses "Inflated: How Money and Debt Built the American Dream" with Christopher Whalen, 10 Nov '10

Thom Hartmann: So what’s going on here. We’ve got this mess with the banks, this meltdown, the overall disaster that’s going on. The report that came out yesterday, yesterday afternoon. For every one job out there, and there are a couple, there’s a couple million jobs, there’s a couple, you know, if you look at the listings, there are people looking for work. For every job out there there’s five people looking for a job. Which means four of them will never find a job. That’s how bad it is. Brought to you courtesy of the banksters.

Christopher Whalen is with us. He’s an investment banker, risk analyst, co-founder of Institutional Risk Analytics, a business indistry columnist, he’s got a new book, “Inflated: How Money and Debt Built the American Dream." His website, and Christopher welcome to the program.

Christopher Whalen: Thank you Thom.

Thom Hartmann: You describe yourself as a progressive conservative republican.

Christopher Whalen: Yep. Years ago Billy Greider signed a copy of his book for me, he said, “To a small r republican and a small d democrat and that’s just fine with me.

Thom Hartmann: William Greider is a great credential.

Christopher Whalen: Well yeah but he was really republican who migrated to the left because he didn’t like what he saw happening to American workers. And I think republicans have to start to focus on that. We might even start becoming a little protectionist again. Republicans were…

Thom Hartmann: Well that was right up until Reagan. That was the song of the Republican party, was protect American business with tariffs.

Christopher Whalen: Precisely. Going back to the earliest days of…

Thom Hartmann: Going back to 1791! When Alexander Hamilton, a federalist, who was the, you know the great grandfather of the republican party, put it out!

Christopher Whalen: That’s right. Chief source of revenue until World War I.

Thom Hartmann: That’s right. It was 100% of federal revenue, tariffs, until the Civil War.

Christopher Whalen: Yep.

Thom Hartmann: It was 2/3 of federal revenue until World War I and it was 1/3 of federal revenue until World War II.

Christopher Whalen: That’s right.

Thom Hartmann: So, you’re hoping that the republican party will embrace this. I’m hoping that the democratic party will embrace this. I suspect we’re both a little cynical that both parties are too captive of what Christopher Hitchens refers to as the corporate state to actually do it.

Christopher Whalen: Yes, very much. Well I think that is the issue that confronts all Americans. It’s not left and right anymore. It is the individual and our individual focused society against a corporate state. And of course, where does the corporate model come from? Europe.

Thom Hartmann: Well it came, by Europe you’re not talking about today’s Sweden you’re talking about 1935’s Italy.

Christopher Whalen: Yes, and even before. Going back into the previous century. If you look at what’s happening in Europe today, the elites are pushing down austerity to the people. In the US it’s the opposite. The grass roots are saying no, cut spending, restore fiscal disciplines.

Thom Hartmann: The grass roots are pushing austerity on themselves.

Christopher Whalen: Well essentially yes, nothing has changed. Despite all the neo-Keynesian nonsense. When people see adversity, they react conservatively. That’s just the way it is.

Thom Hartmann: Well they react politically conservatively but do you really think that all of the people who are, the two million people who are going to lose their unemployment benefits in November if the democrats don’t get this through the lame duck session, who voted republicans into office because they hate big government.

Christopher Whalen: Right.

Thom Hartmann: And I’ll bet the majority of those two million people who are going to lose their benefits voted republican. Because that tends to be the demographic.

Christopher Whalen: Mhm.

Thom Hartmann: In much of the United States anyway. DO you really think that when the republicans block that those people are not going to have a come to Jesus moment?

Christopher Whalen: No of course they are. But this is a long term problem. Since World War II we first used the Cold War and then we used housing as the engine of growth while we let our industries, while we let our competitiveness globally fade away. We rebuilt our allies, we rebuilt our enemies, including the Chinese. So here we are today, and I think we’ve got to rebalance the equation and go the opposite way but we have a very spoiled population who feel entitled. And when you tell them that things are not going to be as good as they were, I don’t know where they’re going to go. That’s how I end my book. I think it’s an open question. Does America embrace globalism and become more competitive or do we turn our backs on the rest of the world as Teddy Roosevelt wanted to.

Thom Hartmann: Yeah.

Christopher Whalen: We could be self-sufficient in this country.

Thom Hartmann: We could be and frankly I think we should be. And I think we should encourage every other country to become self-sufficient.

Christopher Whalen: Absolutely. Look, I’ve got a use for a trillion dollars. You fund T. Boone Pickens' plan to put all heavy vehicles …

Thom Hartmann: Yeah he’s been on this program. Turn them all into natural gas and…

Christopher Whalen: My friend, Kyle Bass, I was just down at the University of Virginia last week at the Darden school and Kyle gave a great presentation. He said I know what to do with a trillion dollars, that funds that entire program. And you may have noticed by the way that GE is starting to advertise these little stations to plug in your car, that’s the future.

Thom Hartmann: Yeah they’re getting ready for the leafs on the Volt. .

Christopher Whalen: In fact I have a whole book on Ford that’s almost finished I’m going to get out next year and I’m going to focus a lot on the conversation between Henry Ford and Thomas Edison. Henry wanted to build an electric car because he saw Marconi and all of these other exponents but it wasn’t time yet. We didn’t have the storage technology.

Thom Hartmann: They didn’t have the batteries.

Christopher Whalen: But we’ve got it now. There’s no reason why all urban vehicles couldn’t be electric.

Thom Hartmann: Well beyond that, Henry’s first car ran on ethanol. You know and John Rockefeller didn’t like that at all.

Christopher Whalen: Well, a little dangerous. No but in Europe they were building cars the size of houses with lead acid batteries. And that was their first choice.

Thom Hartmann: At that time.

Christopher Whalen: Yeah, that was their first choice, was electricity, but it was very impractical.

Thom Hartmann: Yeah because they ran their street cars that way and it worked just fine.

Christopher Whalen: Exactly. So I think that’s the future and that’s the good news. The rest of the world’s not ready for this, of course, because we’ve been subsidizing them with our debt. And I think the Chinese are in terrible trouble. People say oh well they’re going to shift to domestic consumption, nonsense. There’s still 800 million people in that country that are living at subsistence levels.

Thom Hartmann: Right, or below.

Christopher Whalen: Or below, exactly.

Thom Hartmann: And especially as climate change starts whacking China, and we’re seeing that right now, massive crop failures. This morning’s Financial Times, “US estimates of food production are down," as I recall 6%. And so all these prices are popping up.

Christopher Whalen: The middle of the country, yeah. We had a terrible drought this summer, it even impacted New York, but in the middle, in Indiana, Iowa, they really had a hard time.

Thom Hartmann: Yeah. And therefore, now, the banksters are coming in and going, oh boy, another commodity we can turn into a bubble!

Christopher Whalen: Well, yes. But…

Thom Hartmann: I am predicting that you’re going to, just like the oil, 140 dollar a barrel bubble that was brought to you courtesy of Goldman Sachs, I’m predicting you’re going to see a corn at, whatever, I don’t know commodity prices well enough but…

Christopher Whalen: Well I think that’s true, I think that’s absolutely right.

Thom Hartmann: There’s a bunch of people jumping in on this and they’re going to, and they did it two years ago and you had food riots and famine around the world.

Christopher Whalen: Well look, you know, everybody always goes on about Goldman. You know what, those guys are surviving in a sea of paper dollars just like everybody else. They’re smarter than everyone else.

Thom Hartmann: Well they’ve gamed the system. You could argue they’ve rigged the system by buying enough politicians.

Christopher Whalen: Oh very much. Look, they started off, remember that firm started off when Jews couldn’t walk on the pavement in lower Manhattan, okay? So they had to be smarter than everyone else for defensive reasons. They’ve turned that skill set into an offensive weapon, so they front run clients, they do all these things that are supposed to be illegal, but they get away with it because they spend so much money in Washington.

Thom Hartmann: That sounds pretty anti-Semetic.

Christopher Whalen: No, it’s not. I actually have done a lot of research on this, I worked at Bear Sterns twice, I’ve talked to people. I’ll give you an example. When Henry Ford…

Thom Hartmann: No but what does this have to do with Judaism?

Christopher Whalen: Well no it’s not that, it’s just that in the pecking order of US banks in the early mid 1800s, there was a protestant white shoe environment. If you were Italian, Irish, Jewish, whatever you were, you were down at the lower end of the totem pole.

Thom Hartmann: Sure. Right.

Christopher Whalen: You know I’m a distant relative of Grover Whalen. When the Irish finally got to the point where they were starting to get into the political office, they were starting to get into professional lines of careers in New York, that was when they started to really make it.

Thom Hartmann: Yeah but…

Christopher Whalen: But I went to work at the Fed in New York, the whole place was run by children of Irish policemen. Except for the audit function at the bank which was very different so…

Thom Hartmann: Well I guess what set off my thing was you know that, those smarts, and that. These stereotypes I have a real problem with.

Christopher Whalen: Believe me, I don’t subscribe to that either. I’m just saying, socially, in New York.

Thom Hartmann: Okay, let’s move beyond that part of the conversation. I just, it’s, the, and we just have a minute left. We’re talking with Christopher Whalen. His book, “Inflated: How Money and Debt Built the American Dream." We are now, I mean Ireland is approaching 100% of GDP in their debt.

Christopher Whalen: Yes.

Thom Hartmann: Greece is over 100% of GDP. We’re at what, 60%, more or less?

Christopher Whalen: And Japan. Japan’s the worst.

Thom Hartmann: Yeah. So what do we do, in America?

Christopher Whalen: We restructure. That’s the solution to our problems here in the US with the big banks.

Thom Hartmann: Do we do it the way Volcker did and try to inflate our way out of it? Reduce the value of our currency so that we can pay off our debt with cheaper dollars?

Christopher Whalen: Well, we’re going to do that anyway. That’s what the Fed is doing now.

Thom Hartmann: That’s where quantitative easing …

Christopher Whalen: But I don’t think you get much bang for the buck now. The return in terms of nominal GDP for every dollar you spend is very small. We got a lot more return 20 years ago, when we did this. The demographics are against you too. You have a demographic where the largest part of the population wants to be sellers instead of buyers. They’re not buying homes and having families, they’re going into retirement.

Thom Hartmann: Right.

Christopher Whalen: So in terms of how you manage asset prices in a nominal sense, if you’re the chairman of the Fed, you have a problem. Because the wind is in your face now instead of at your back.

Thom Hartmann: Well the republicans are now coming out against Bernanke, loudly, is that going to work for them?

Christopher Whalen: Well I wish they had been more aggressive on this growth and fiscal responsibility issue earlier, I think they’d have more credibility.

Thom Hartmann: Yeah. Yes. Maybe if they put a few bankers in jail instead of Hank Paulson saying yeah, let’s give them a trillion bucks.

Christopher Whalen: Well yes that would help.

Thom Hartmann: We have to wrap it up, Chris, I’m sorry, but just the tyranny of the clock. Christopher Whalen, his website. His new book, “Inflated: How Money and Debt Built the American Dream." We’ll be right back.

Transcribed by Suzanne Roberts, Portland Psychology Clinic.

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