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Demetri Kofinas: 00:00:00 Today's episode of Hidden Forces is made possible by listeners like you. For more information about this week's episode or for easy access to related programming, visit our website at hiddenforces.io and subscribe to our free email list. If you listen to the show on your Apple podcast app, remember you can give us a review. Each review helps more people find the show, and join our amazing community. With that, please enjoy this week's episode.

Demetri Kofinas: 00:00:48 What's up everybody? My episode today is with a dear old friend, who many of you already know from his Hidden Secrets of Money documentaries, which have graced the internet with millions and millions of views each, and in which I've actually made a few appearances in episodes two and eight. There are actually 10 installments so far. It's really an ongoing series, so I'm sure at some point there'll be an episode 11, probably a 12 and so on. This really is a unique kind of episode because Mike, as I said, is a very good friend and someone I have a lot of history with, both personally and professionally as well as with his producer, editor, director Dan Roebuck, who actually started the YouTube channel for Mike on a handshake and pretty much worked with him on a handshake for the first few years, which tells you a lot about how Mike does business. It's really one of the things I love most about him.

Demetri Kofinas: 00:01:47 So I actually wanted to use this as an opportunity for listeners who may already be familiar with Mike, to learn about parts of his life, specifically his childhood, his struggles with dyslexia. Most people don't know that Mike hasn't completed high school, that he actually left after the ninth grade and eventually became a traveling salesman driving all over the Southwest and as far North as Oregon with a van full of samples and catalogs of automotive parts and accessories. Then he started a company that manufactured high-end stereo equipment. Again, even fewer people know this, but one of Mike's own designs is on permanent display at the Victoria and Albert Museum in London. I've actually provided a link to the pictures of those designs in the description. So that's just the first chapter of his life.

Demetri Kofinas: 00:02:34 He is the archetypal American entrepreneur and that's reflected in his management style and I think in his approach to economics, which we also discuss. Mike is a libertarian, an advocate of sound money. So that part of the conversation focuses on his immersion in Austrian economics, why he got into it and stuff like that. I don't want to say too much. It's a great conversation, so please enjoy.

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Demetri Kofinas: 00:03:04 Mr. Mike Maloney, welcome to Hidden Forces.

Michael Maloney: 00:03:08 Thank you very much. It's great to be here.

Demetri Kofinas: 00:03:10 This is your inaugural Hidden Forces episode.

Michael Maloney: 00:03:13 Yes, but we've known each other for several years now.

Demetri Kofinas: 00:03:16 Yes, a long time. So Mike, do you have your phone turned off by the way? I didn't ask you. This is going to be super informal, which I think is actually part of what's going to be fun about it. It's going to be unusual in that way. I haven't even prepared a rundown for our conversation, because I thought this is like two old friends getting together. We have known each other for going back to, is it 2011 or beginning of 2012?

Michael Maloney: 00:03:40 It's right around that time frame.

Demetri Kofinas: 00:03:42 How did we first meet? Do you remember?

Michael Maloney: 00:03:43 Capital Account.

Demetri Kofinas: 00:03:44 For sure, but do you remember if it was me just reaching out to you?

Michael Maloney: 00:03:47 Yes. I think it was, yeah.

Demetri Kofinas: 00:03:49 Yeah. I was like, "You're the guy with millions of views online." I remember the first interview you did with us was remotely from the LA studio. It was from RT's LA studio for sure. I remember because I had that beautiful background. Ramon used to-

Michael Maloney: 00:04:08 Yeah, I flew into Washington though once or twice.

Demetri Kofinas: 00:04:10 You did, the second time. The second time. Maybe twice, but I remember for sure you came in once where you gave Lauren and I giant silver coins.

Michael Maloney: 00:04:18 Yeah, so that would have been probably in 2013.

Demetri Kofinas: 00:04:22 Yeah, that might've been in New York, because we've known each other for a while.

Michael Maloney: 00:04:25 New York, I'm sorry.

Demetri Kofinas: 00:04:25 Yeah. It's why I consider you a good friend.

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Michael Maloney: 00:04:26 The first time I was there, I was in Washington.

Demetri Kofinas: 00:04:28 Are you sure about that? I don't think so. I think, well we'll see.

Michael Maloney: 00:04:33 You didn't do it from Washington? I'm sorry.

Demetri Kofinas: 00:04:34 No, we did. No, no, no. The Capital Account was from Washington. That was where our studio was, but we had our remote studio in LA and the first time we had you on the program, I'm pretty sure it was from the LA studio. In any case, yes, you were definitely in Washington, D.C. We probably went for drinks me, you and Lauren down to the Brazilian place downstairs probably.

Michael Maloney: 00:04:52 Yes, and it seemed like everybody in the place was in politics, or they were a lobbyist or something. There wasn't anybody in there walking past any table that you didn't hear them talking about politics.

Demetri Kofinas: 00:05:02 You noticed that. Your kind of place.

Michael Maloney: 00:05:05 Yes.

Demetri Kofinas: 00:05:06 So Mike, to give the audience a sense of what we're going to discuss, I told you that I'd like to try and explore your background to the extent that we can and give people a more intimate sense of who you are. Then there are of course really interesting things that we'll be able to discuss. Obviously we'll discuss economics in the markets. I think from an economic, political philosophy standpoint, we might have a very interesting conversation because I think that, you have a very clear set of ideas there and you've done a lot of work in that area. I know you're working on a book, you can't talk too much about it, but we'll see what we can pry out of you. Also, we'll talk about Tesla, because you're a dear friend who owns many Tesla's.

Demetri Kofinas: 00:05:50 In fact, Tesla has saved your life, if I remember correctly and you have taken some issue with some of the coverage that we've done. So I look forward to giving our audience the views of someone who is an owner, and someone who I deeply respect. Mike, a lot of people know you online. Maybe you can give, for those who don't know you, maybe you can give us a sense of what you're best known for and what you do now. Then maybe we can try to unpack your career and life, because it's so interesting. So maybe you could start us off there.

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Michael Maloney: 00:06:25 Well, I was born in Salem, Oregon. Moved to California when I was four years old, and had a lot of trouble with school and was always lagging behind. After a while, I was in all of the remedial classes and my teachers would say things like, "You're the smartest kid in the class. Why can't you learn anything?" Then another-

Demetri Kofinas: 00:06:44 How old? How old were you when this started?

Michael Maloney: 00:06:46 That started when I was like seven, eight, nine. Other teachers would actually tell me that I was dumb.

Demetri Kofinas: 00:06:55 They actually did say that?

Michael Maloney: 00:06:56 Yeah, yeah. One teacher said that to my face, that I was stupid.

Demetri Kofinas: 00:06:59 Really?

Michael Maloney: 00:07:00 Yeah.

Demetri Kofinas: 00:07:00 Wow. How did that make you feel?

Michael Maloney: 00:07:03 Pretty bad, but what was going on was I was dyslexic and they just couldn't teach me in a method where I could learn. So they were wasting my time, I was wasting theirs. This was before scientists already knew what dyslexia was, but teachers were not trained to look for it.

Demetri Kofinas: 00:07:21 What time frame are we talking about here? What years?

Michael Maloney: 00:07:24 This would have been back in the 60s.

Demetri Kofinas: 00:07:24 In the 60s.

Michael Maloney: 00:07:26 Then the early 70s. Then so third month of 10th grade I left school, and I've never been back. So I'm pretty much self-educated. Most school teaches you stuff that you don't use during your lifetime anyway.

Demetri Kofinas: 00:07:39 Well have you seen Father Guido skit on SNL?

Michael Maloney: 00:07:43 No, I haven't.

Demetri Kofinas: 00:07:44 I'm not gonna be able to do it justice, but he has a five minute thing for the all you learn in high school. It's a funny thing, and he has a bit there in economics about supply equals demand or something like that.

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Michael Maloney: 00:07:55 Is it on a YouTube? I'll have to look it up.

Demetri Kofinas: 00:07:56 Yeah, I'll show it to you afterwards. It's super funny. If I remember, I'll put a link in the description for our listeners, but obviously it was a different time then, right? I mean people-

Michael Maloney: 00:08:07 It was.

Demetri Kofinas: 00:08:08 It was a different time. What part of California was it?

Michael Maloney: 00:08:11 Well, I lived in Los Angeles right near the Coast, near where Los Angeles airport is. Playa del Rey, Culver city, Santa Monica. Then the last three years I lived there was in the Malibu mountains, and that was just beautiful.

Demetri Kofinas: 00:08:24 Wow.

Michael Maloney: 00:08:24 Yeah.

Demetri Kofinas: 00:08:25 That's not far from where you used to live.

Michael Maloney: 00:08:27 Right. I took you through there when I flew you out there to drive my Tesla.

Demetri Kofinas: 00:08:31 Yeah, yeah. High tech, exactly. Absolutely. Yeah, that's a whole other story. We should probably get into that one. That's also great, but before we do, two questions I came up while you were talking I don't want to forget them. One is, did you have a conversation with your parents about leaving school? I mean, what was that like? I imagine there must've been some friction there. Then also, what is it like to have dyslexia?

Michael Maloney: 00:08:54 Well, it's a curse and a gift. Both. The curse part of it came with trying to get through school where when teachers would say, "Open up your books to page so-and-so and read from page this to page that, and then we'll have a test at the end." I was just an F student for those teachers.

Demetri Kofinas: 00:09:12 You just couldn't read?

Michael Maloney: 00:09:12 Then I would... Well, words get scrambled and then the more pressure you're under reading out loud was the most embarrassing thing, because my mind will actually make up a sentence that makes sense the way it works for me in my head, but it's actually not on the page. I'll go along and read and get through a couple of sentences. Then the first word that I would misinterpret, the class would laugh. From then on, it was just

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like a total train wreck. So it was pretty embarrassing. I pick up things very quickly when I got a teacher that just lectured all the time. In seventh grade I had this teacher, Mr. McCormick that had been around the world seven times. He was fascinating, and he would just lecture all the time. I suddenly went from a D and F student to the top scoring kid in seven periods of 45 students per class. I was the top scoring and because-

Demetri Kofinas: 00:10:11 This was in high school?

Michael Maloney: 00:10:11 I just listened and then he read all of the questions, and back then we had these computer cards with these little bubbles that you'd fill in with a pencil that had some real lead in the pencil lead. Then they'd scan them and it would go into the computer, and you'd get your results. So I didn't actually have to read anything or write anything, and suddenly I became the smartest kid instead of the dumbest kid. That should have been a tip off to them that there was something wrong.

Demetri Kofinas: 00:10:38 Well, I'm curious about that. When did you have Mr. McCormick?

Michael Maloney: 00:10:43 Seventh grade.

Demetri Kofinas: 00:10:43 Seventh grade.

Michael Maloney: 00:10:44 Yeah.

Demetri Kofinas: 00:10:44 So I mean, wasn't that something that... First of all, did that inspire you to question what's the deal here? Why did I do so well in this class?

Michael Maloney: 00:10:54 Well, no, I didn't really think about it then, but when I went into 10th grade for the first month, the remedial teacher for Math was out. So we got the teacher that taught calculus in all the remedial kids. He had a couple of periods that he had free, and so all of the remedial kids and in his class, and he did the same thing. He just lectured all the time and he taught us all of these shortcuts and stuff, and suddenly Math went from something that was just excruciating for me to the most fascinating subject. It was just, and I learned more in that one month than I had in the other nine years about Math.

Demetri Kofinas: 00:11:33 Did geometry come easier to you than arithmetic?

Michael Maloney: 00:11:36 Yes. Yeah, I was always really good at fractions and things.

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Demetri Kofinas: 00:11:40 Okay, so you had a conversation with your parents. I don't know how that went.

Michael Maloney: 00:11:44 My father was actually quite supportive, because he only made it to sixth grade, but he was a very successful businessman. So he was supportive, but then when I did leave school, he said, "Well, you're not going to sit around here on the couch." So for my 17th birthday, I got a Chevy van full of samples and a bunch of catalogs and he said, "Congratulations kid, you're a traveling salesman. Hit the road."

Demetri Kofinas: 00:12:08 Wow. This is where the story begins. That's really cool. I didn't know that.

Michael Maloney: 00:12:13 Yeah, So I've been working since I was 17.

Demetri Kofinas: 00:12:15 Samples of what?

Michael Maloney: 00:12:16 I had minibikes and go-kart, and we were a manufacturer's representative firm for performance goodies.

Demetri Kofinas: 00:12:24 Your father's company?

Michael Maloney: 00:12:25 Yeah. So all this hot rod equipment and Chrome accessories, and my job as a 17 year-old kid was to cover all the territories that all of the real salesman didn't have, that they didn't want. So I got all the small towns, but it was great. I drove almost 100,000 miles the first year that I was driving.

Demetri Kofinas: 00:12:42 Where did you go?

Michael Maloney: 00:12:43 I covered California, Nevada, and Arizona. When you got to Santa Barbara, the highway used to, the freeway used to drop down and you had a series of traffic lights that went for about a mile and a half, two miles and all of the hitchhikers got dropped off there. I would go through and just clean off the whole North, whichever direction I was going. Clean off the whole north bound side of the street. Twice I picked up 13 hitchhikers, and once I took four of them all the way to Medford, Oregon. Another time, two of them.

Demetri Kofinas: 00:13:14 From California? You took-

Michael Maloney: 00:13:15 From Santa Barbara, from Southern California to Medford, Oregon doing things like... I only got paid like 100 bucks a week.

Demetri Kofinas: 00:13:23 Did you have to cover your own gas?

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Michael Maloney: 00:13:25 No, I had an expense account. So the first thing I would do is take everybody out for beer and pizza. It was great.

Demetri Kofinas: 00:13:33 That sounds like so much fun.

Michael Maloney: 00:13:34 It was fun. I just had to stop at all small towns, the motorcycle shops, the auto accessory stores and all of that stuff and give them catalogs. Then I became the one in the company that when there was a question that any salesman had, I was the guy that everybody asked. If they had an account that was real technical, they would bring me in to explain all of the performance equipment, how it worked and why it was better than the competition.

Demetri Kofinas: 00:14:02 So what do you think made you so successful? I mean it's one thing to understand the equipment, to understand the technology and it's another thing to be able to sell it, right?

Michael Maloney: 00:14:11 Because of the dyslexia, one of the things that dyslexia also did for me is I can look at charts and see things in them that everybody else misses. I also know how it relates to another chart that I saw three years ago, but it gave me the ability to explain things to people that are complex subjects in a very simple manner. This training of trying to explain superchargers and limited slip differentials and things like... We represented Hurst shifters and XL plug wires and general electric silicons, and just this huge range of products. I had to explain how they worked, why they were better than the competition and why they should buy them.

Demetri Kofinas: 00:14:53 So how did you go from auto engineering to audio engineering?

Michael Maloney: 00:14:57 Well, the audio engineering was like a hobby. I built a set of speakers when I was about 18, then people would want their car stereos upgraded or for me to build them as a set of speakers. I really didn't enjoy doing the manufacturer's representative stuff. By that point, I had my own manufacturer's representative firm covering California, Nevada, Arizona and I had four other people working for me. I had offices in Phoenix and San Diego.

Demetri Kofinas: 00:15:24 Did you branch off, or were you still working under your father's company?

Michael Maloney: 00:15:26 I had branched off. My father had sold his company, and I started my own in the same sector. I was in my 20s then, and I had been doing the stereo equipment as a hobby and I ended

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up starting a legitimate stereo manufacturing company. I made some designs that when in the, I think 1989, 1990, the curator from the Queen Victoria, Prince Albert Museum in London, which is one of the finest design museums in the world, saw my amplifiers on the cover of International Design Magazine and wrote me asking me to donate a pair. I told them, "We're a tiny little company. I can't really afford to do that, but they can have them at cost." So they bought a set, and they picked five examples from around the world industrial design, and I was one of the five artists that they picked for permanent display. My stuff never gets rotated down into the basement, so it was quite an honor.

Demetri Kofinas: 00:16:27 That's so amazing.

Michael Maloney: 00:16:27 I won a lot of awards-

Demetri Kofinas: 00:16:27 Can people see that online?

Michael Maloney: 00:16:28 Yeah.

Demetri Kofinas: 00:16:28 Is there a link to that?

Michael Maloney: 00:16:30 I'm going to have to put them on the-

Demetri Kofinas: 00:16:32 Try and find me one, I'll put one in the description.

Michael Maloney: 00:16:33 I'll put them on the, about me page on the GoldSilver.com websites. Yeah, I'll get those pictures up there.

Demetri Kofinas: 00:16:39 Yeah. Yeah. Cool. How did you learn to do that?

Michael Maloney: 00:16:43 I just had friends that were into it, and I had been designing speakers. Like I said, the dyslexia actually helps me. It helps me picture electric... I can visualize electrical flow on a circuit board, or in a loudspeaker crossover and such. I got really good at doing crossovers on speakers that have tweeters, mid ranges and woofers, when you want to separate the different frequencies of sound. I got very intuitive on that. I actually had competitions with friends that would do them with all the computer programs, and I had just started going and clipping on coils and capacitors and resistors and come up with something that actually measured better than what they came out with, and sounded better.

Demetri Kofinas: 00:17:25 So you didn't stick with that for very long. I mean how long did you stick with that?

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Michael Maloney: 00:17:30 I did it in the 80s and early 90s, and then the Consumer Electronics Show in Las Vegas, the CES, some people may know it as. When it came to the high-end audios portion, which is really what started the Consumer Electronics Show, they were paying less and less attention to it and it was getting more and more expensive with a lower and lower level of service. So I started with a competing show called the Home Entertainment Show, and that was actually more successful than my stereo company.

Demetri Kofinas: 00:17:58 Was it TV?

Michael Maloney: 00:18:00 No, this was a trade show in Las Vegas. The same hours as the Consumer Electronics Show, the same day.

Demetri Kofinas: 00:18:06 Get out of here. I didn't know that.

Michael Maloney: 00:18:07 I started stealing away a whole lot of their business.

Demetri Kofinas: 00:18:11 How big was that?

Michael Maloney: 00:18:11 We had about 300 manufacturers. What I would do is buy an entire hotel for 10 days, and have them remove the beds and some of the furnishings from all the rooms, and then the rooms were sold as exhibits. Manufacturers would come in from all over the world and set up their stereo systems, and their home theater systems.

Demetri Kofinas: 00:18:30 In the rooms, because the rooms were replicas basically of their homes.

Michael Maloney: 00:18:34 Yes, and it's separate. It wasn't like trying to demonstrate something on a convention center floor where you've got all the noise from all the other booths.

Demetri Kofinas: 00:18:40 Have you seen that done anywhere else, or you just think-

Michael Maloney: 00:18:42 Well, CES had done that for their high-end audio section, but they had really ignored. It became like an appendage, that something they really didn't care about.

Demetri Kofinas: 00:18:51 How long did you do that for?

Michael Maloney: 00:18:53 From 1999, and I gave my shares to my business partner in 2005 when I started up GoldSilver.com, but the show kept on going until, I believe last year. I think they've closed it down now I'm not sure.

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Demetri Kofinas: 00:19:08 That's fascinating. So you had this whole career. You started as a traveling salesman?

Michael Maloney: 00:19:13 Yeah. Traveling salesman, electronics engineer and... When I was doing scientific fidelity, Sci Fi for short, there I was the engineer, production manager. When you start, I was pretty much-

Demetri Kofinas: 00:19:26 That was the name of the company? Sci Fi was the name of the company?

Michael Maloney: 00:19:28 Yeah.

Demetri Kofinas: 00:19:29 Really?

Michael Maloney: 00:19:29 Yeah, and you've seen my designs. Actually-

Demetri Kofinas: 00:19:32 Your designs are beautiful, that's why I want people to see them.

Michael Maloney: 00:19:35 That was 1984, and I just won awards all over the place. I was the very first one to take... We had vacuum tube amplifiers and back then, high-end audio equipment if it was electronic, it had a rack mount plate on it. You've got some rack mount equipment here in the studio. That system was developed for American Telegraph company. So this is really for the Telegraph system, this standardized rack mount system, and it worked its way into the scientific community. One day back in the 40s, somebody took a scientific amplifier out of the rack, put it on the floor in their living room and hooked it up to a loud speaker and it sounded good. That became high-end audio. Even today, a whole lot of high-end audio looks like rack mount equipment. So it was just, people develop a sense of design.

Michael Maloney: 00:20:28 They develop eyes that see things as beautiful, because they're used to seeing that for instance, I don't like Rolex. I think they look industrial. I've never liked them. I have this unreasonable hatred of SUVs. Everybody loves SUVs, but I always like to pretend that I just landed here from another planet and I'm looking at things for the first time, and see whether the design aesthetics-

Demetri Kofinas: 00:20:56 That's so true by you.

Michael Maloney: 00:20:57 Yeah, vacuum tube amps back then were in this perforated cage of metal, and they had speaker cables connected to the back of them, and the input cables connected to the front. So you had

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this thing on the floor that looked like a heater with cables going to it, and I took the vacuum tubes, which are beautiful by the way. Vacuum tubes, they've got these heaters in them that glow these orange colors. Then if the tube is slightly gassy, it develops a corona that sticks to the glass and that corona flickers with the base note. It'll shrink when there's a heavy current draw from the amp. So I took them out of the cage and held them out like art, and now everybody does that. So I set a standard-

Demetri Kofinas: 00:21:44 An aesthetic, that was an aesthetic decision.

Michael Maloney: 00:21:45 An aesthetic design standard back then.

Demetri Kofinas: 00:21:46 You're making me want to learn about this stuff and do an episode on it, because I remember growing up that my dad was a huge audio file. I know from him that it was, I believe this was generally true. It was audio equipment, like you said was a big deal in the 70s and 80s, but then it began to fall off in the 90s I guess maybe with home theater systems where everyone started watching big plasma TVs and there was a shift.

Michael Maloney: 00:22:10 That's part of it, and it's also a shift from-

Demetri Kofinas: 00:22:12 Records?

Michael Maloney: 00:22:13 Well, yeah, it's going from like LPs were this experience where you'd open up this LP, and there's all this real estate. They would print the words on it and print images, and there were booklets in them and stuff, to CDs. Then as we went to iPods and stuff, and ear phones.

Demetri Kofinas: 00:22:29 Yeah, the Walkman too.

Michael Maloney: 00:22:30 It became much less of... When I was a kid, we'd have a party and sit in the dark and play The Beatles Revolution number 9 Backwards stuff on a turntable, trying to hear. The Beatles back then buried all these clues. There was this big hoax that Paul was dead. It was a great publicity stuff, because the stones had become very popular and they did this over a period of years. They planted all these clues, and then people started discovering them. In the meantime, Paul had married Linda Eastman and they were living in a castle somewhere. When they discovered that Paul wasn't dead, I mean it made the cover of Life Magazine.

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Demetri Kofinas: 00:23:13 This would make a really interesting episode. I did one episode early on, episode four on the history of American television, and the history of America through television. I'm fascinated by this sort of stuff. I mean you're talking about something where the experience was communal, the technology was compatible with communal experiences and then you had the shift to things like the Walkman, where people began to have private experiences. It's fascinating to consider how technology inter-operates with culture, and how it changes society, right? Now we see everyone walking around-

Michael Maloney: 00:23:47 Yeah, because music is changing right now because of Spotify. They've got to hook the listener in the first 20 seconds, and then the music has to be a minute and a half to three minutes is what they're looking for. So people are like in a competition to try and get their stuff on Spotify and popular, and so economics has so much to do with our tastes. Classical music came from an era where a king of one country was trying to outdo a king of another country, and the symphonies were basically command performances. They would try and get the best musicians and the best composers, and they were basically on the payroll of the government. So that's how you were able to pay 120 musicians. As time progressed, you get into like Big Band Swing. When Dixie jazz came about, there you're talking about a small combo in a bar, but as dance halls developed and you were trying to fill a place that had 1,000 or 2,000 people, how do you fill that?

Michael Maloney: 00:24:49 Well, you have to have five saxophones, four trombones and five trumpets. The drums are plenty loud, you don't have to worry about them. Now you can play chords, so now you get this richness that goes along with it, but then how many more drinks does a place have to sell to make the profit, to pay all those musicians? It's a really tough deal. So then you get the smaller jazz combos and then rock and roll combos, and it's much easier for a bar to play a three piece jazz or blues combo. Then rock and roll came in, and now we have DJs. So it's very rare to actually see live music, and so the economics of the situation, how many more drinks does a place have to sell to cover the band, is what determines what your taste is going to be.

Demetri Kofinas: 00:25:38 That's fascinating. That's a really great point, and that's actually something for the television episode we discussed the economics of television, and how the economics is the reason why there were 30 minute shows because they could go into syndication for example. The syndication of programming influenced what type of programming or the dimensions of the

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program. So how did all this, so here you are, you were traveling sales... You're an entrepreneur basically. You're a guy who-

Michael Maloney: 00:26:05 Yeah, I've had numerous businesses.

Demetri Kofinas: 00:26:07 You were successful in audio engineering. How did you go from that life to starting GoldSilver? What was that connection?

Michael Maloney: 00:26:14 When my father died, he left an estate that should have taken care of my mother for the rest of her life, but in 1999, the broker that my father had always used that we were still with was saying, "I just don't understand these markets these days." Now that made us worry that he didn't understand it. In hindsight, I realized the NASDAQ is going to a blow off top. Everything has gotten crazy. He was saying that nobody is buying-

Demetri Kofinas: 00:26:42 Are you saying I don't want to buy.

Michael Maloney: 00:26:43 Right. PE ratios, all of the things there was no value. If anything, they were just insane prices and everything was going north at this incredible rate, and that's what he didn't understand. We just took it as he didn't really understand what he was doing anymore, and so we found a financial planner and interviewed a whole bunch of them, like a dozen. Picked the one with the best testimonials and stuff, gave him control of the estate and he lost more than half of it in the next couple of years. Every six months we'd have a meeting, and he'd come smiling over to my mother's house and say, "Well we did really well. The SNP lost 24% and you only lost 18.

Demetri Kofinas: 00:27:24 Because she was more heavily invested in bonds because of her age?

Michael Maloney: 00:27:27 He had her in these low risk stocks, and so low beta.

Demetri Kofinas: 00:27:31 Low beta exposure.

Michael Maloney: 00:27:34 Yeah, and when he had lost more than half her portfolio, I ripped the thing away from him. Moved everything to cash and started studying the markets. You can't study the markets without studying the economy, because they affect each other very heavily. When you start studying the economy, you can't study the U.S. economy in isolation. You have to study the global economy. When you study the global economy, you find that there's a certain crowd out there that's very concerned with international trade flows and deficits and so on. That tends

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to be the hard money advocates, the precious metals community. When you study the precious metals community, now you go down this rabbit hole of monetary history and how it all always repeats. I was just absolutely fascinated with this. I would study it every single day after work, and then all day long on Saturdays and Sundays. I'd just do nothing but.

Demetri Kofinas: 00:28:30 What fascinated you about it?

Michael Maloney: 00:28:32 Well when I saw monetary history and how it repeats, but with little twists, it's never the same, but it's-

Demetri Kofinas: 00:28:40 You were reading books on audio book. How were you digesting this material?

Michael Maloney: 00:28:44 Well, in about the year 2000 when Steve Jobs came out with OS 10, built in the operating system was text to speech software. Then a couple of years later, I found out that they had dictation software built into the operating system also. So the world of books opened up to me suddenly just when I needed it. Then I would have my assistant or somebody at the company, I bought a duplexing scanner. I'd buy Milton Friedman's monetary history of the United States and have them take it down the bookstore. Slice the binding off, run it through the duplexing scanner, run it through optical character recognition to text software and print out PDFs of the book for me so that I could have the Mac reader.

Demetri Kofinas: 00:29:26 Crazy. What books did you read during this time? So you read Friedman and Schwartz. You read what else?

Michael Maloney: 00:29:32 Well for instance, there's like 18 pages of The Great Depression in my book, The Guide To Investing in Gold and Silver. To write that I read Milton Friedman's monetary history of the United States, because he's a monetarist. I wanted points of view-

Demetri Kofinas: 00:29:48 It's also a great book.

Michael Maloney: 00:29:48 ... for each different major sector of economic thought. So that book, which is like what is that? It's close to 2,000 pages, isn't it?

Demetri Kofinas: 00:29:57 I think it's 1,000 pages.

Michael Maloney: 00:30:01 It's thicker than that Atlas Shrugged. Maybe it's like 1,200 pages or something like that.

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Demetri Kofinas: 00:30:07 Yeah, actually I think it's 1,400, but there's a lot of citation.

Michael Maloney: 00:30:10 Then I read a Murray Rothbard's America's Great Depression. So there you get the Austrian perspective, which by the way is a great book. Then I read Ben Bernanke's essays on the Great Depression, so that I had a Keynesian perspective. So Monetarist, Austrian and Keynesian perspective and it was fascinating. Ben Bernanke is a really bad author, and just gives you a headache. So if you ever get the opportunity to read it, don't.

Demetri Kofinas: 00:30:37 So what were the three different theses? What was Milton Friedman's thesis on why we had the Great Depression, what was-

Michael Maloney: 00:30:42 That it was the Federal Reserve's fault, and it would have just been nothing but a deep recession that would've lasted a year or two had we let the free market work. What's really interesting, Milton Friedman, he was writing the monetary history of the United States, so he covered it all. Murray Rothbard, America's Great Depression, he covers the 20s and he goes up to 1930 when the depression starts. Then he builds his case that the depression was the total result of the Federal Reserve manipulating the free market throughout the 20s, and causing the bubble that then caused the crash. Then Hoover actually started all of the economic policies that Roosevelt institutionalized that became ingrained in our society, that actually extended the cause of the great recession to become the great depression by redistributing wealth.

Michael Maloney: 00:31:34 My favorite hotel in the world probably is the Timberline Lodge up on Mount Hood, Oregon. This lodge that was built by one of the programs that Roosevelt started in the great depression, and the WPA or whatever it is. Roosevelt was there to inaugurate it, and what they did was they're taxing productive businesses and then they take a bunch of, basically they called them hobos then, but homeless people off the streets, put them up on this mountain up at 5,000 feet, 6,000 feet up, and they're doing things like weaving their own cloth, hand pounding their own nails, and they build this beautiful thing with all these carvings in it and say it's just a wonderful place. But they're taxing a business that makes nails efficiently to pay somebody that makes nails inefficiently, just to give them a job and some of those businesses that they taxed ended up going out of business.

Michael Maloney: 00:32:33 I took these three books, put them in a timeline, but what's interesting is Murray Rothbard proved his case that this is what

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caused the Great Depression. Ben Bernanke ignores all of that, and starts his book in the midst of The Great Depression in 1930 and goes on from there. He doesn't deal with any of what caused it to happen in the first place, and this is his big thesis that got him nominated for the chairman of the Federal Reserve.

Demetri Kofinas: 00:33:01 Well, one of the common views that emerged from the end of the Great Depression was that it was a crisis of demand. That there was insufficient demand, and the theories were that the government needed to enact fiscal spending in order to generate the demand required to get the economy restarted again.

Michael Maloney: 00:33:18 Right, but the government doesn't produce anything, so you have to take it from somewhere else in the real economy, run it through the government, which is frictional because you've got a bunch of government employees that need to be paid, and then you put it back into the economy, but you're always putting less into the economy than you took out. No matter what you do, there is no way that you can look at it. It's not a perpetual motion machine.

Demetri Kofinas: 00:33:38 Yeah. Well, I don't remember what the theory was exactly. Now I'm blanking on it, that we were taught in school, but it wasn't focused on the textbooks that we had, that we used to learn economics in college. None of them talked about the Great Depression in terms of debt. In fact, liabilities, monetary policy, money, credit, that was totally absent from my macroeconomic courses. The Great Depression was explained simply in terms of this paradox of thrift. That was the term. It was the paradox of thrift. It was that all of a sudden the economy tips into a place where everyone wants to save, no one wants to spend. So the government has to step in, in order to be the spender of last resort. It misses this whole other part of the equation, which of course Rothbard talked about, and which Friedman was dealing with to some degree with his point around monetary policy. So you read these three books and-

Michael Maloney: 00:34:32 Well these three books, when you stack them up there, it's about six inches I guess.

Demetri Kofinas: 00:34:36 It's like three-

Michael Maloney: 00:34:38 That became 18 pages of my book. So I suppose when it comes to economics, I've read a stack of books that's at least four feet high.

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Demetri Kofinas: 00:34:49 The first book you wrote was what? Was that the-

Michael Maloney: 00:34:52 Guide to Investing in Gold and Silver, the Rich Dad Book.

Demetri Kofinas: 00:34:54 Right. When did that come out?

Michael Maloney: 00:34:56 That was actually in July of 2008 that it hit Amazon.

Demetri Kofinas: 00:34:59 So you started buying gold and silver, precious metals when?

Michael Maloney: 00:35:02 It predicted the crisis of 2008 in the book, which happened just like a couple of months after the book was available.

Demetri Kofinas: 00:35:10 If you were reading Austrian... I mean, I think our views, well I'm not sure, maybe our views are very closely aligned. I think they may diverge a little bit in that. I definitely think Austrian theory is invaluable, as I'm about to explain, but I think I have a more nuanced view than I used to have. I used to have a much more total view. A purist view.

Michael Maloney: 00:35:29 More macro view.

Demetri Kofinas: 00:35:30 Purist view. No purist view on everything and I can explain, because I see things now with more of a political lens. I mean anyone that was studying Austrian theory during that period, would have been able to foresee the credit crisis. Not all the specifics of it, but on the macro level they'd been able to, and I think that was a big reason for the popularity of Austrian economics coming out of the crisis. So many of the Austrians got that part of it right. Now a lot of them got a big part of it wrong, which was the hyperinflation.

Michael Maloney: 00:36:01 That is really where Keynesian economics was launched in the midst of the Great Depression. John Maynard Keynes' great paper, was it 32 or 34 that he wrote?

Demetri Kofinas: 00:36:15 Well, I think though... So why I was saying that during the financial crisis of 2008 after that, a lot of these Austrian theory has got a lot of popularity. What-

Michael Maloney: 00:36:23 Yes, I'm sorry. 2008, okay.

Demetri Kofinas: 00:36:24 I would suggest though that I think there is, this brings it to the nuance. I think that there was a political crisis in the country during the 1930s, and I think that a lot of times Austrians when they think about things purely in terms of what is the most efficient way to get from point A to point B, which is let's say

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have a liquidation, have a full liquidation, let the market clear and then start anew. I think that what's often missed in those types of situations is the political instability that that can generate, and that can be overall detrimental to the economy more so than the inefficiencies that are born out of trying to manage the deflation, trying to manage the contraction, right? A managed de-leveraging. Do you ever think about that? Like the political consequences?

Michael Maloney: 00:37:07 Whenever we've let them manage it though, they cause a bubble that then pops and we have this sudden at least it's trying to deflate the economy is. You mentioned people getting scared and pulling back on spending. That cycle is the velocity of currency. The how many times a unit of currency changes hands in a year, and that's always going to be with us. I call it cycle-logical. It happens in waves and cycles, and it's logical that it does this. People get scared, they start some event, trigger event will cause people to spend less and then suddenly the economy takes a downturn. If you leave it alone, it comes back and then these cycles used to happen on a very regular basis, and they weren't as deep as they are now.

Michael Maloney: 00:38:02 Now we have the Federal Reserve comes to the rescue and their manipulations that they create set us up for the next big crash, and the more they manipulate, the bigger the crash gets. That's what we've been seeing, especially this century. Alan Greenspan manipulated things. He was afraid of the Y2K bug. Remember that? He added a bunch of liquidity to the market, and coincidentally the NASDAQ went vertical those same months that he was adding all that liquidity. Then when they pulled out that liquidity, the markets crashed and then he lowers interest rates down to 1% to levitate the markets again and off to the side, out of his peripheral vision, he didn't see it, but he created this giant real estate bubble.

Demetri Kofinas: 00:38:46 Well, how much do you think is the actual open market operations, and the liquidity that's created by purchasing securities in the open market by the Fed? How much of it is all the other factors, including the way in which central bankers try and manage confidence? So you're talking about the 2001 period. There was also the Bush administration coming out and saying, "Go ahead and spend, everything's going to be okay." The same thing also, I think with forward guidance today how much of it is the psychological management that Central Banks do?

Michael Maloney: 00:39:20 I think it used to be that recessions would happen about every four years, and it's better to have a small recession every four

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years than this giant crisis every 10, because with the smaller recessions, people just go, they know that we're going to come out of it. They remember one just a few years back, but when you have these giant economic crisis, they want somebody to do something about it. The next crisis that we have is going to be their Bernanke burst. It will be something that is direct result of the energy that is stored by Ben Bernanke warping the economy, when he took interest rates down to zero and-

Demetri Kofinas: 00:39:58 Central Bank around the world too, yeah.

Michael Maloney: 00:39:59 We went from 0.83 trillion, 830 billion to 4.4 trillion was where base currency picked at.

Demetri Kofinas: 00:40:10 Yeah, that was crazy.

Michael Maloney: 00:40:11 Right. So we're talking about-

Demetri Kofinas: 00:40:12 That's actually one of the scariest graphs in the world when you look at base money.

Michael Maloney: 00:40:16 It is. Now most of that is sitting on banks' balance sheets as excess reserves, but here's something, people are screaming about wealth, income inequality, wealth disparity. These are the big words of the day. When I look at it, what I see as I did a study on this and it's in my upcoming book. I can disclose it because I've already shown this to people many times in videos and stuff. I've been showing it actually since shortly after QE1. So it goes back to 2009, 2010 I think, that I've been showing the correlation between the growth of the base currency supply and the value of the stock market. The Wilshire 5000 Total Market Cap Index. From December of 2008 to December of 2015, there is a 0.976 correlation. That means that it was uncorrelated only 2.4, so it's a 97.6% probability that these two are connected somehow, that the growth of base currency caused the stock market to rise. 2.4% probability that it's an accident, that it's just a coincidence.

Michael Maloney: 00:41:33 Now, let me finish this though. If you tax people or indebt them in the future by issuing bonds, and the Federal Reserve buys them to create currency and they buy them from the big brokerage houses, that's the primary dealers. They get to show up at the treasury auctions that are sitting on bonds. The Fed never buys them directly from the treasury. They buy them from the primary dealers. So it's Merrill Lynch and Goldman Sachs and entities like that, that end up with this brand new currency that was just created to purchase that asset. So that

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goes on their books as excess reserves, and there's a direct correlation to how much currency the Federal Reserve creates and gives them as far as the rise of the stock market. This is 97.6% correlation. Now, if you cause the stock markets to rise and it's the big tech stocks and some of the FANGs, Facebook, Amazon, Google, Netflix, Apple that have had most of the rise in the stock market.

Michael Maloney: 00:42:34 So Jeff Bezos, who has 16% of Amazon, goes from having $50 billion to having $130 billion. So it's a direct gift of taxing Main Street, it's a reverse Robin Hood. The Federal Reserve is taxing Main Street and bestowing that wealth on the richest people on the planet, and now everybody's up in arms against this wealth disparity, and they don't realize it's not capitalism that's causing it. It's not the free market that's causing it. It's this manipulation by the Federal Reserve doing this reverse Robin Hood, stealing from the poor and giving to the rich. Then it's also cronyism in Washington. All of the lobbyists being able to get special laws passed for their industries that they're protected.

Demetri Kofinas: 00:43:18 It's a lot of things though, Mike. I mean, definitely the monetary policy is a huge part of it, but so for example is globalization, and so is the information revolution. The fact that companies like Instagram get bought out for X number of billions, the same year that Kodak goes bankrupt. Kodak had way many more employees than Instagram had, right?

Michael Maloney: 00:43:37 Yeah, it's unbelievable, isn't it?

Demetri Kofinas: 00:43:39 Yeah, it is, but it's the nature of the system. Are you familiar with a book called The Storm Before the Storm?

Michael Maloney: 00:43:47 No.

Demetri Kofinas: 00:43:47 I'm reading it now on someone's recommendation, and it is really fascinating. It's a history of the Roman Republic before the official period where the Republic began to fall.

Michael Maloney: 00:44:00 It was the Republic, not the empire.

Demetri Kofinas: 00:44:03 It's the Republic.

Michael Maloney: 00:44:03 So it's the early days of Rome, yeah.

Demetri Kofinas: 00:44:07 The subtitle I think is the beginning of the Fall of the Roman Republic. I'm just early on in reading the book, but it's really fascinating because you can see so many parallels. I think one of

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the big parallel is this phenomenon where, and part of this is also because of how we measure success in America in particular. America's particularly prone to this. We measure it in terms of gross domestic product, right? We measure it in terms of GDP primarily, but what that doesn't capture among other things is it doesn't capture the gross structural inequalities of wealth distribution, and how does that impact politics, right? Our democratic Republic is set up, it's a democracy, right? So if the-

Michael Maloney: 00:44:48 Well, we're supposed to have a-

Demetri Kofinas: 00:44:49 It's a representative democracy, right. What I'm saying is though there is a place for the-

Michael Maloney: 00:44:52 For the public, yeah.

Demetri Kofinas: 00:44:52 Right, but there is a place for the demos, and the demos is becoming increasingly disenfranchised, and I think it's not a coincidence that you're seeing a rise of populism, because populism is basically, what is it? It's when politicians appeal directly to the masses, right? I think the masses in this case are increasingly disenfranchised.

Michael Maloney: 00:45:15 This is what scares me, because the masses aren't analyzing the economics of the situation, and politicians will always promise more free stuff than their competitor.

Demetri Kofinas: 00:45:25 How do we deal with this thing though? There's a real problem here, because let's say guys like you and me work honestly, we work hard and we've played by the rules and we've earned according to the rules what we are owed. How do we disentangle the fact that there are folks like you and me, but then there are lots of other people that have made billions of dollars and benefited from these programs and everything else from regulations or whatever else. How do we fix this problem of inequality, which in my contingent is it's unworkable? We're going to hit a wall. How do we fix that with doing the minimum amount of damage to people that have worked and play by the rules, and then those who have basically stolen, whether directly or indirectly, or benefited from lobbyists and regulations that that work in their favor from decades of accumulating billions of dollars?

Demetri Kofinas: 00:46:16 I mean nowhere was this more obvious than on Wall Street, where so much of it was extractive. How do you disentangle that? I feel like there's no clear way to do it and there are going

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to be so many people, let's say, who get punished, who don't deserve to get punished and so many people that get away with it.

Michael Maloney: 00:46:32 I think there's two ways of doing it. One is not going to happen, and that is to start dismantling laws and regulations one after another as quickly as possible and doing away. One of the things that causes the big wealth disparity is fractional reserve lending and central banking. Creating currency from nothing is one of the methods of transferring wealth from one group of people to another, and it's almost invisible. It's very difficult. The average person... One of the things that we do with our video series, Hidden Secrets Of Money, which is free on YouTube. There's 10 of them now, is to try and explain complex economic processes with animations, and make it so that people can understand it. By the way, episodes nine and 10 were all shot in Rome, and they're all the parallels of the Roman Republic and the Roman Empire to the United States today. It is fascinating. So if you haven't seen that one yet, those two episodes, I've got two animators and these guys worked for probably a year and a half on-

Demetri Kofinas: 00:47:36 Aden is one of them, right?

Michael Maloney: 00:47:37 Aden and Lincoln, yeah and Dan is the producer, director. He does the scoring and the sound and lighting and everything basically. He even does some of the storyline, but that one is worth big screen TV and a bowl of popcorn. You were going onto the politics, how do we unwind? You can get rid of regulation or the other one, it goes the direction it goes-

Demetri Kofinas: 00:48:06 That's not going to solve the... What I'm saying though, Mike, is-

Michael Maloney: 00:48:09 It will eventually solve, but if you don't have these wealth transfers, you won't have the income inequality that you have to the extremes that it exists today.

Demetri Kofinas: 00:48:18 Right, but what I'm saying is that for the foreseeable future, it's not going to resolve the problem, right? Like this is a long-

Michael Maloney: 00:48:24 It's not going to happen. We're just not going to vote for that.

Demetri Kofinas: 00:48:27 What do you mean? You're saying politically it's not palpable.

Michael Maloney: 00:48:29 Politically, it's not palpable. So what's going to happen is it goes on the course that it's on until things... You do have a reset eventually. The USSR collapsed, it reset and it came out of it a

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much more free market capitalist society, even though they do have, it's all being run in-

Demetri Kofinas: 00:48:46 It's super corrupt, it's super corrupt.

Michael Maloney: 00:48:48 It's super corrupt, but if you're there talking, it's like in China. That's also corrupt, but if you're there talking to a small businessman, that is the Wild, Wild West of capitalism in China.

Demetri Kofinas: 00:48:59 Okay, but I would say that anecdotes of I'm thinking of this woman named Svetlana Alexievich. I read pieces of a book that she wrote, which was an oral history of people living in the post USSR. I've read some stuff by Andrew Solomon as well about his time in the Soviet Union during Glasnost and during the collapse, where he was spending a lot of time with local artists. It was a really fascinating story, because the Soviet artists were somewhat shocked by the pricing of their art. Where the works in certain instances of artists who were revered sold for practically nothing, while what were essentially decorative paintings by okay artists reached astronomical prices.

Demetri Kofinas: 00:49:41 So they were in effect traumatized by the pricing of their art. They had never had their art priced before. It's fascinating, because in America, and there's another for listeners, there's a really great documentary on this called The Price of Everything, which is-

Michael Maloney: 00:49:53 Right, where under the communist system, the government was their only customer.

Demetri Kofinas: 00:49:57 Well no, they had, I don't know exactly how it worked exactly, but the point is that there was a different system by which art was valued. It may not even have been bit about pricing. It might not have even been about like governments or sales or anything. It's just that they had a different way of valuing it. I think the USSR, the collapse of the USSR and I'm not the best to speak about this, is an interesting place to study. What happens when a country goes from being highly repressed, it's economy repressed and with a very authoritarian government, to basically having those walls just torn down and having markets introduced rather violently into the country. I think that was this-

Michael Maloney: 00:50:37 It's going to happen in Venezuela very soon too. Anytime a government promises to take care of every need of everybody, the end result is a lot of poverty and death and then a revolution. The whole thing falls apart.

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Demetri Kofinas: 00:50:48 What is your view about the role of government? What do you think the ideal government would be?

Michael Maloney: 00:50:56 Well Milton Friedman said it, the government's job is basically to protect us and set a fair set of playing rules for the game. So you can prove with data, if you go to the Fraser Institute in Canada, there's other think tanks that come to the same conclusions. I don't like to use them, because they tend to be U.S. conservative think tanks. If I say their name, then people, "Well that's just a conservative."

Demetri Kofinas: 00:51:20 Cato Institute.

Michael Maloney: 00:51:22 Yeah, Cato Heritage Foundation and stuff like that. If you use Fraser Institute up in Canada, and now you're talking about a moderate Canadian thing, but they have the freedom of the world report annually. They've been auditing any country that produces reliable economic data since I believe 1966. It started out with 16 or 18 countries, but now it's 157 countries that they collect data on. They're measuring things like the size of the government compared to the GDP, the levels of the taxation, the court system, the lack of corruption and the amount of property rights. Do they have really strong property rights? That's a key factor in prosperity in a country. The soundness of their currency, do they debase the currency or do they keep it sound? The economic freedom, the ability to go anywhere in the world, import, export, buy, sell, invest in and bring home the proceeds of anything without the government charging big duties or putting in trade barriers or things like this.

Michael Maloney: 00:52:25 Then regulation of the financial markets, the labor markets, but especially small business. If you over-regulate small business, you just crush prosperity. They put all these things in a spreadsheet. Now some of them are subjective where you have to sort of give it a rating, but when you're measuring 157 countries, it's pretty easy to say, "Well, this one's a six out of 10, this one's an eight out of 10. North Korea is zero out of 10." You can give those a rating. Others, it's really hard data. You put these things into a spreadsheet and you hit sort, and an amazing thing happens. The countries that go to the top of the list, the people live almost 20 years longer. They're happier. They live in cleaner environments. There's no pollution or child labor laws, child labor problems. It just goes on and on and on. They have better lives, the freer that they are.

Michael Maloney: 00:53:15 Then the more vehemently the court system protects their property rights, but without the government guaranteeing that we're going to take care of everybody, and they just have to

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make everything fair. Then once they've made it fair and they've said, "We're going to protect you from bodily harm with the police, we're going to protect you from foreign invasion with the armed forces, and we're going to protect you from fraud and other things with the court system." Once they do that and then they just say, "Okay, have at it. You can all compete." Then you end up with the society that is the most prosperous. When you look at this, Hong Kong and Singapore have been at the top of the list for many years.

Michael Maloney: 00:53:55 We hit number two, the United States, I believe back in 2000 and then we passed the Patriot Act and started falling very rapidly, which is very concerning because the lower down in this list, the chances are that you're not going to live as long and your children definitely won't live as long. So if you want your children to have longer, happier lives, what you want is maximum freedom and the fairest playing field. The fairest set of laws.

Demetri Kofinas: 00:54:25 Singapore is not a very free country, but before you even comment on that-

Michael Maloney: 00:54:28 Economically, they're the most free now. They have more millionaires per capita adjusted for purchasing power parity than any other society on the planet.

Demetri Kofinas: 00:54:37 Yeah, so let me play devil's advocate on the regulatory front, specifically with pollution. You said pollution goes down, but you could argue that the late 1800s were a much freer periods in America, I mean in that case we didn't have any type of environmental regulations. How was the market supposed to regulate economic externalities, or the let's say it is in the economic interest of a company to pollute an estuary. It's in its own personal self-interest, it's in the self-interest of every single company to do that. How do you prevent that from happening without regulation?

Michael Maloney: 00:55:10 I don't have all of the answers for everything. I don't pretend to, and I don't want to be the one to try and come up with solutions.

Demetri Kofinas: 00:55:16 Do you think there is nuance there?

Michael Maloney: 00:55:18 Well, I do think that today with social media and stuff, if a company is found to be a bad citizen and it gets publicized, people avoid their products. It doesn't require the government nearly as much to punish a company. I mean when I do a search

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for restaurants on just Google maps, I do restaurants and upcoming restaurants in my area and you click on them and you see what their star rating is.

Demetri Kofinas: 00:55:45 That's a perfect example though, because these are highly manipulated. Google and Yelp, highly manipulate the curation of ratings.

Michael Maloney: 00:55:52 Okay, well that's one of the things that blockchain... Do you know much about EOS?

Demetri Kofinas: 00:55:58 No, I don't. Dan keeps telling me about it.

Michael Maloney: 00:56:00 Okay, well they're launching things like Voice, which will be a direct competition to YouTube, Facebook. And as blockchain starts taking over this space and we end up with alternatives to Google and Facebook, that can't be manipulated. It's an algorithm that is controlled by the users. So this is all going to happen within the next few years. You've been doing episodes on Hashgraph. Hashgraph and EOS have the possibility of becoming the rails of the internet. The thing that the internet runs on. These are the only two cryptos that I've seen that could actually do things like run the power grid, run the traffic light system. To time things and get traffic moving better, run all of the power plants, the dams and do things like secure email and all of your interactions with websites and so on. So I think we've got a good future coming that way.

Michael Maloney: 00:57:06 Getting back to the question, the problem of the commons has always been the tragedy of the commons where when you've got something that everybody can use, people will try and use as much of it as they can, and not take care of it and maintain it in a sustainable way. That can be solved by all of the end users, the people that get to do ratings and be able to write articles and say things about the company swaying people's opinions. I don't know about you, but advertising doesn't hold much sway for me anymore. It's reviews and YouTube and-

Demetri Kofinas: 00:57:46 See the thing though, I think just generally speaking, I think I have a more nuanced view of this and it's evolved over the years. After the 2008 crisis, I became a strident. I mean I was already radicalizing before the crisis. I've talked about this often. There was one Austrian in particular, Kurt Richebächer, Agora Financial used to publish his newsletters and I learned so much from reading him. Then when the crisis happened and seeing how the government basically just used that as an opportunity to raid the treasury and redistribute wealth, it radicalized-

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Michael Maloney: 00:58:21 That's what happened.

Demetri Kofinas: 00:58:21 So that's super true, and that's just the reality. It radicalized me, and as was on full display with Capital Account. I think the way that we approached the subject, we really skewered a lot of the bankers by name. In some cases we were very critical of Central Banks. I had even brought on the vice chairman of the Fed, Alan Blinder under Greenspan and among other things asked him point blank, why do we need a Central Bank? In fact, I asked this question of Claudio Borio recently, the Head of the Monetary and Economic Department of the BIS. I got a similarly unsatisfying answer to that question. I think the reason, although he was more direct in his response than Alan Blinder was. Alan Blinder said that you guys said, why can't we have what we had during the free banking era? He said, "Well, it was called Wildcat banking because wild cats are wild." That was his answer stuck with me always, but-

Michael Maloney: 00:59:16 That doesn't say much.

Demetri Kofinas: 00:59:18 No, it doesn't say much. Borio's response was, "It's largely conventional." I think that that's a much more honest, fair response, but my views have become more-

Michael Maloney: 00:59:28 What does that mean? It's largely conventional.

Demetri Kofinas: 00:59:29 I think what it means is-

Michael Maloney: 00:59:30 It's just is, so it is.

Demetri Kofinas: 00:59:32 Exactly. I think there's a convention of policy makers, of technocrats, of people who have high degrees and have studied this stuff. We know what's best, and it's safer to let us-

Michael Maloney: 00:59:43 Right, as if they know how to run your life better than you do.

Demetri Kofinas: 00:59:45 Yeah, well that's a different story, but in terms of setting monetary policy, I happen to think, Mike, that there is a case to be made for having Central Banks managing periods of seasonal illiquidity and acting as a backstop. Granted, we can debate that because there are inherent risks to that. The point about setting the price of money has never made sense to me, and I think that was my question to Claudio. In any case, I think my larger point here is that I have a more nuanced view of this stuff today than I did, but just to bring it back to something you were saying about blockchain and Hashgraph. Again, even there I think when the internet began, the visions of it were very utopian,

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but the societies evolve. The economy has changed. Things that we couldn't foresee occur and the internet has centralized. It's centralized primarily on the software side.

Demetri Kofinas: 01:00:40 Net neutrality is an attempt to address what's going on on the telecommunications layer, but the actual software is a place where there's been tremendous amounts of centralization. So companies like Google have a huge amount of power, right? So here we have the government, and we're used to thinking about the government as being a source of evil, which is enshrined in our constitution. It was the subject of the Federalist papers of the back and forth between the founding fathers and the conversations they had, but they could not have foreseen where we are today. I think that corporations, these enormous multinational corporations represent just as serious of a threat to liberty as the government does.

Michael Maloney: 01:01:20 Absolutely.

Demetri Kofinas: 01:01:21 Okay. So here's a question for you. The world that I think you and I would like to live in, is a libertarian utopia that maybe was possible during the late 1700s, early 1800s. Since we've gone through multiple industrial revolutions, there's way more population, technology has empowered the individual to such an extent that an individual terrorist acting alone can attack a hospital, which has very shitty, crappy security and kill people. Increasingly, there are people that could argue that we could get to a place where a handful of engineers could create artificial intelligence that could destroy the world. So how do we manage that reality? We live in a new world where individuals that are so powerful, that allowing for the kind of individual liberties that I know that you and I both value can lead to the destruction of the human race. I don't know if you even agree with that, so I'm putting it out.

Michael Maloney: 01:02:23 I absolutely do. Since 2009, I've been giving presentations of the death of the global dollar standard. The world has had a new monetary system every so often. I mean before World War I, we had the classical gold standard. Then we had the gold exchange standard between the wars, and then the Bretton Woods system from 44 to 71. This is the most poorly designed system that we're on right now, the global dollar standard, and it's the longest lived of these systems. I was showing the cracks that were developing in the global dollar standard, and it began with Saddam Hussein selling oil in euros, but it's speeding up and speeding up and speeding up. When I saw the announcement of Libra on Facebook, now there is like a plot to rule the world by one guy.

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Michael Maloney: 01:03:14 If you have about half the world's population as customers, the U.S. has 330 million people, and here you're talking about 3.3 billion people that could adopt the Libra currency and then you've got control over that currency. This is one of the... I just don't like Fiat currencies because it does give governments control over us.

Demetri Kofinas: 01:03:36 Also in this case, a government isn't the only one that theoretically could issue a Fiat currency. Obviously the whole, traditionally it is a government, but is that where you're going? You're saying that Libra would be a Fiat currency, because it wouldn't be a cryptocurrency. At least not at the beginning.

Michael Maloney: 01:03:52 I don't know, I didn't read their whole paper.

Demetri Kofinas: 01:03:54 They didn't really have, doesn't sound like-

Michael Maloney: 01:03:55 What I read was the senate's request for them to have a more auditorium on development, because the U.S. government is for the first time shaking in their boots over a privately developed currency. I didn't know what the death of the global dollar standard would look like, but we've been weaponizing the dollar and using it to bash other countries over the head with. I mean to use it against North Korea or one country or another, that's okay, but when you start doing this on a regular basis, then other countries want to abandon the dollar. Now we've got Europe being able to deal directly with, they've developed a payment system for the Euro that bypasses Swift, which uses U.S. dollars so they can deal directly with Iran if they want to.

Michael Maloney: 01:04:44 Russia has developed a payment system with China and there's now futures for yuan and rubles in China and Russia. So you can hedge contracts, and be able to make a purchase today of something that you won't have to pay for, for six months and know what the price is going to be by neutralizing the exchange rates. So one after another after another, and today the nails in the coffin are coming at the rate of several per week. It used to be that there'd be something and I would comment on it, and then six months later there would be something else, but now it's like I read the news and I go, "Oh my God. People just don't realize how quickly this is falling apart." With the next crisis, the next crisis should be something absolutely enormous, because one of the things, there's a term that I helped to spread initially where I called this the everything bubble. That's actually incorrect.

Michael Maloney: 01:05:39 We're not in the everything bubble. In my new book, I call it the almost everything bubble. Bubble is when something runs

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ahead of the rest of the economy, and the economy becomes warped. If the entire economy is growing at the same pace, nothing is in a bubble. It's all balanced. If wages and real estate and asset prices and the price of food and gasoline and everything goes up at the same rate, that's just the value of the currency going down.

Demetri Kofinas: 01:06:06 Well that's hyperinflation. That's what you're describing.

Michael Maloney: 01:06:10 Well, no, not necessarily. Whenever an economy grows, things growing at the same rate. When it's growth that introduces instability, that's one sector growing faster than the others. It's warped and that sector, the stock market or real estate, usually it's an asset where if you lower interest rates real low, you push real estate into an asset because it's a real estate, interest rate sensitive. If you create a bunch of currency and give it to the big brokerage houses like Ben Bernanke did, you create a stock market bubble. When something grows a whole lot faster than the economy over a period of time, now you've got a warped economy where once in the market is always trying to set these things in balance. So sometime or another, some event will cause this thing to break. They say that it's a crisis, that the free market isn't working. No, the free market is working.

Michael Maloney: 01:07:02 It's overwhelming their manipulations, and the greatest manipulations in history took place with the crisis of 2008. Now we're still pushing on this string trying to get the economy to go, and we're starting to cut interest rates ahead of a crisis here and stave it off. We started this administration with tax cuts at the end of the longest economic expansion now in history. We're doing tax cuts when there's something inevitable, which means you have less emo once it does happen. So I think we're in for one huge crisis here. It's going to be bigger than 2008, because the greater the manipulation, the greater the release of energy when the crisis finally arrives. So this isn't the everything bubble, it's the almost everything bubble, because they have pushed stocks back into a huge bubble. They've pushed real estate into a bubble only in the areas that are effected by those stocks.

Michael Maloney: 01:08:01 When they raised the stock market and caused this wealth transfer to the FANG stocks, Seattle real estate, where Amazon is and all of Silicon Valley. Any area that is heavily affected by the stock market is where the real estate bubbles are. So that's going to be crashing, and so will bonds because we're in the longest bull market in history with bonds, and they've pushed that into a bubble by cutting rates down. That's a manipulated bubble-

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Demetri Kofinas: 01:08:27 So we do live, there's no-

Michael Maloney: 01:08:28 By the way, doesn't 0% interest rates and negative interest rates something that was not a concept until 2008? Negative interest rates weren't a concept, and we've had them now since 2008. Doesn't that say to you that the emergency never ended?

Demetri Kofinas: 01:08:44 You're saying we have them in the United States in real terms?

Michael Maloney: 01:08:47 In real terms, but in Europe. About a quarter of all the world's sovereign debt is negative right now. So doesn't that say that if any country anywhere on the planet is still issuing negative yielding bonds, doesn't that say to you that there's still an emergency?

Demetri Kofinas: 01:09:03 I think first of all, I don't know what it says to me anymore. The real answer is I don't know anymore. I've lost my compass. I think --

Michael Maloney: 01:09:12 I think all of it is caused by the Keynesians though. If the market was doing this, the market could never set a negative interest rate, it just won't happen.

Demetri Kofinas: 01:09:20 Right. Well, I mean I think for example, the point about negative interest rates also though reflects this gross wealth distribution, because you've got a very small number of people that own a huge amount of the liabilities. So for them to get a return on their investment, first of all, they're out competing each other. So they're driving yields down, and also yield need to be low enough to maintain the crop yield. In other words, to maintain the crop. In other words, my point is that they've managed this enormous wealth transfer in part by generating so much debt, and the accommodative monetary policy is part of that process. So I guess what I'm trying to come back to again is that I don't view it as just an issue of monetary policy like I used to. I don't see it as simply monetary policy.

Demetri Kofinas: 01:10:09 I see it as part of much larger story, and I think what's at the center of it is the private sector debt and the private sector debt as a mechanism for transferring wealth. That's not sustainable, that we don't have an ownership economy anymore. There there's a huge chunk of America that doesn't have a piece of the country, and how is that supposed to work basically? I mean, you grew up in a different world. The world that you grew up in, there was a middle-class. There is not a middle-class today, and I just think we've gotten so used to it that we don't-

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Michael Maloney: 01:10:41 I think we do have a middle class, but the most of the middle class has a negative net worth. When I walk the streets of New York here, I see a whole lot of people driving BMWs and Mercedes, and they're on their cell phones and all that kind of stuff. It's interesting people talk about the poor and that when anybody says the rich get richer and the poor get poorer, that's not true. Around the world, people are coming out of poverty quicker than at any time in history, and this is just data. When you adjust things for inflation, the people that living on a dollar a day for instance, or $10 a day, there's fewer and fewer of those people every year at a rate that has, we're reducing poverty around the world. A poor person today is poor, but they have cable TV and a cell phone, possibly an iPad.

Demetri Kofinas: 01:11:36 We're running up against the hour, Mike. I want to shift and make sure we get to cover Tesla, because I know that you and I don't share the same views on Tesla or Elon, and this would be a good opportunity for listeners to get an alternate take. We're going to move it now to the overtime for regular listeners, you know the drill. If you're new to the program or if you haven't subscribed yet to one of our three Patreon subscriptions, you can do so now by going into the description section of this podcast, and clicking on the Patreon link which will send you to patreon.com/hiddenforces, where you can sign up to one of our three subscription tiers. The audio file gives you access to the overtime, every overtime we've ever done as well as a RSS link that you can include in your favorite podcasting application, so you can hear the overtime just like you hear the regular podcast.

Demetri Kofinas: 01:12:27 Autodidact subscribers get access to that, plus all of our transcripts going back to episode one. And super nerd subscribers get access to our rundowns, which are these multi-page beautiful documents, full of links, pictures and reference material that I use in preparation for the episode. This week's episode doesn't have a rundown, but all our prior episodes do. You can sign up to that again at patreon.com/hidden forces. Mike, stick around. We'll be right back.

Demetri Kofinas: 01:13:00 Today's episode of Hidden Forces was recorded at Creative Media Design Studio in New York city. For more information about this week's episode, or if you want easy access to related programming, visit our website at hiddenforces.io and subscribe to our free email list. If you want access to overtime segments, episode transcripts, and show rundowns full of links and detailed information related to each and every episode, check out our premium subscription available through the Hidden

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Forces website, or through our Patreon page at patreon.com/hidden forces.

Demetri Kofinas: 01:13:39 Today's episode was produced by me, and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. Join the conversation at Facebook, Twitter, and Instagram at @HiddenForcesPod, or send me an email. As always, thanks for listening. We'll see you next week.