exclusive transcript of an interview Robert Scully did with Baron Rothschild a short while before the good Baron departed this World for the Forever land.
Here it goes:
Q.- Well, Baron Rothschild, I welcome your wisdom on that, and with your permission, sir, in the next half of the show, Iâ€™d like to tap your wisdom on moneyâ€¦ on public debt, on Wall Street, on excesses, recovery, recession, depressionâ€¦ all these things that are assaultingâ€¦ that are assaulting our senses these daysâ€¦ thatâ€™s all we read about in the papers, and Iâ€™m sure youâ€™ve got a lot to say about that. So Iâ€™ll be right back to this chat with Baron Guy de Rothschild, talking to us from Paris. Be right back.
Q.- Hi, welcome back. This is Bob Scully, and Iâ€™m speaking with a guest whoâ€™s sitting in Paris, but he could have been sitting in London or any number of cities, because his family, as we mentioned earlier, was one of the first multinational families, one of the first to succeed in various countries at the same time. Heâ€™s Baron Rothschild. Guy de Rothschildâ€¦ heâ€™s of the French branch, but speaks excellent English. But , Baron, as I mentioned, just before we left for the break, you were a banker for a number of years, and now retired from business, but your family, as we were discussing, created so many instruments in the financial world, like letters of credit, like transportation of valuables that didnâ€™t involve physical means. When someone like you saw all the leverage on Wall Street a few years ago, you must have thought it was the same vision gone wildâ€¦ I mean people buying companies with 1% equity. You must have shaken your head and thought it would never work. How did you react to that?
R.- Well, first of all, there was some really absurd behaviorâ€¦ absurd behavior happening, whichâ€¦ the absurdity being that it was accepted. Iâ€™m not talking about the illegalâ€¦ the cheating. Thatâ€™s a segment of its own. But the fact of people accepting to lend banks or individualsâ€¦ to lend money on what? PayPal, hopes, good looksâ€¦ I donâ€™t know anythingâ€¦ itâ€™s totally absurd. I donâ€™t think that the inflation of those particular things we are referring to really upset the economy. But obviously it didnâ€™t helpâ€¦ it didnâ€™t help. I donâ€™t think thatâ€¦ really it was too small in comparison to the whole world economy, which is always in play in any of these things, to have a world effect. It has certainly had a very bad moral effect. You know, when I think back on a time whenâ€¦ I believe you were still only a promise, in the middle of the 1920s, and when I became little by little conscious a little later of what had taken place in the huge slump, the famous October 29 collapse of Wall Street, you know, when the theatrical newspaper, Iâ€™ve forgotten its name, magazineâ€¦
R.- Variety came out with the big title â€śWall Street Lays an Eggâ€ť, which has become famous. Umâ€¦ and in the early thirties, no one understood whyâ€¦ whatâ€™s wrong, whatâ€™s different between 32 and 28 if you like, because the mechanisms of inflation, creation of money or destruction of money, were not understood or had not been analyzedâ€¦ I mean, it was a science that didnâ€™t exist. But a little later, when it started being understood, it became obvious to even an amateur like myself that what had happened in Europe, and in Americaâ€¦ more in America than in Europe was there really a fabulous inflation between 1922, 24 and 29. Speculation, creation of money, everyone was borrowingâ€¦ everyone was speculating on anything, so therefore there was a real creation of money. Really a fabulous inflation that took place, and as things donâ€™t go to the sky, there was one moment that trips on anythingâ€¦ the detail, whatever it is, someone asks to be reimbursed, and the whole thing, which is a bubble, bursts. Andâ€¦ and it bursts in the most dramatic way, naturally in the end, as you know.
Q.- Yes, and nowâ€¦ now weâ€™re worried about something elseâ€¦ another kind of bubble, something relatively new in the world economyâ€¦ itâ€™s not the stock market that has the biggest bubble or the most worrisome one. Itâ€™s rich western governments, and it hasnâ€™t been for capital expenditure like after the warâ€¦ itâ€™s for operating expenses. Itâ€™s not Latin America. Itâ€™s Europe, North America, and itâ€™s just to pay the grocery bills. Thatâ€™s a bubbleâ€¦ thatâ€™s very scary. What do you think of it?
R.- I believe that money owed by one country to another, or one country to banks, or whatever it isâ€¦ it will never be paid back. It could only be paid back by borrowing more, which is the same thingâ€¦ it wonâ€™t be paid back. The situation is what it is. Loans wereâ€¦ loans were made to South Americaâ€¦ practical none have or will be reimbursed. The countries were broke. Soâ€¦ or to Africa, so it has to be consolidatedâ€¦ if itâ€™s done by banks, it has to be consolidated by governments.
Q.- But is there a risk of massive deflation? Will, for instance, Canada and the United States that owe a lot of their money to foreign banks in Japan or elsewhereâ€¦ can they go broke?
R.- Noâ€¦ it doesnâ€™t work that way. If you look historically, you realize that borrowing and at the later stage government borrowing, or borrowing from one country to another on the virtual governmental level, something that has always existed that has grown ever since, I donâ€™t knowâ€¦ King Solomon, with his silver mines in Israel or in Palestine. And it has never been reducedâ€¦ the total volume of indebtedness has grown faster or slower, depending on time, but it has never disappearedâ€¦ it has never been contracted. Impossible. What happens isâ€¦ as time goes on, currencies go down. Now Iâ€™m not talking about the currency of one versus the other. Iâ€™m talking ofâ€¦ theâ€¦
Q.- Buying power.
R.- Exactly. The buying power of evenâ€¦ leaving out all form of voluntary evaluation, of floating or whatever it is in the currencyâ€¦ the buying power of currencies goes on foreverâ€¦ and goes down. I mean, the buying powerâ€¦ the demolition or the erosion goes on forever, and thatâ€™s whyâ€¦ I mean, world indebtedness is bearable, because actually the more erosion of the buying power is against the creditor, the chief creditor in fixed terms, and the power that he has, the buying power that he has acquired goes down and down and down and downâ€¦
Q- But that takes us away from deflation andâ€¦ Baron, and brings us back to the psychology of inflation, which encourages the borrowing in the first place, and thatâ€™s why, I guess, some people in North America are starting to say, well, letâ€™s print some money and get out of the mess the easy way.
R- Yes. But now thatâ€™s a different aspectâ€¦ itâ€™s a different aspect because, in one case, I thought you were asking about what I call global indebtedness, that includingâ€¦ including the case of Canada and America, which is not an important one, because you are so much part of the same community. The same economic community. But therefore thatâ€™s one thing. Now the other thing is that people fear that right now the slump, the depressionâ€¦ call it as you like, is due to disinflation, which is the opposite. I donâ€™t know if it is or not. Itâ€™s extremely difficult and only very, very, very clever specialists can give you the answerâ€¦ theyâ€™re usually wrong. So we leave that outâ€¦ but if there is this inflation, or, if you like, an equilibrium, which is neither disinflation or inflation, maybe a very, very small amount of inflation would help it. Or at least fighting potential disinflationâ€¦ it could only be worthwhile if itâ€™s done on a world scaleâ€¦ world being the whole developedâ€¦ developed economy of the world. And then in a very, very, very controlled way. Inflation as such is morphineâ€¦ itâ€™s morphine when you have a pain, and then you kill the pain for a time, and then you die, because of the medicineâ€¦ soâ€¦
Q- Because youâ€™re addicted.
R- Yeahâ€¦ well, because it kills you. You know what I meanâ€¦ some people want a painkiller, people who are very sickâ€¦ and I tell you, well, you might get well, but if you use that painkiller, it will finish you off. Andâ€¦ so that inflation is a painkiller, and, in most cases than others, itâ€™s a lethal painkiller. So therefore one has to resist itâ€¦ whatever is the urge. But a very limited amount of reflationâ€¦ is one of the words used in my countryâ€¦ worldwide, highly controlled, strictly controlled, maybe would be helpful, but it has to be universal, because otherwise, ifâ€¦ letâ€™s say France alone gets some inflation, the benefit of the inflation will be immediately outside of France, and not for the benefit of the French. And it will go, I donâ€™t know, to Japan, to Germany, to wherever, to be now used, and the damage will remain for the French later.
Q.- Well, Baron, youâ€™ve had plenty of wisdom for usâ€¦and youâ€™ve given us good medicine for the world economy, and food for thought, and none of that will finish us off Iâ€™m sureâ€¦ and I wish you, sir, good luck and good health.
R- Thank you very much indeed. I appreciate doing this very much.
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