Introduction: Dr. Parks has studied the money issue for more than 30 years and was a student of the free-market economist Murray Rothbard. He is a frequent speaker on what he calls "The Fight for Honest Monetary Weights and Measures." He is the author of What Does Mr. Greenspan Really Think?- an easy-to-read book about how our monetary system works. His writings have appeared in Pensions & Investments, The Economist, The Washington Times, The Freeman, The Free Market, American Outlook, The United States Congressional Record, National Review, and others. He has broad experience in academia, in business, and in finance. He holds a Ph.D. in Operations Research from the Polytechnic University. Additionally, he is an active member of many civic and social organizations including The United Association for Labor Education, The National Writer's Union, UAW 1981, AFL-CIO.
Daily Bell: Thank you for taking the time from your busy schedule to share your views with readers of the Daily Bell.
Dr. Parks: I'm delighted to have the opportunity.
Daily Bell: We hear an awful lot of confusing mainstream commentary surrounding the current financial crisis. Generally speaking, we are of the opinion that most of what is reported are symptoms of a deeper crisis. What do you think is the ultimate cause of the economic crisis worldwide?
Dr. Parks: The ultimate cause of the current worldwide economic crisis is the flat-out dishonesty in the world's monetary system, from the definition of what constitutes money, to the misrepresentations and non-disclosure of material information about what passes for money in every country. Several of the American Founders foreshadowed this in their strong moral condemnation of paper money. The world has by circumstance, not rational debate, been defacto forced into adopting legal tender irredeemable paper-ticket-electronic monetary systems that are inherently fraudulent, coercive, and unstable. With gold-as-money, not the so-called "Gold Standard," which itself is an invitation to fraud, on the other hand, none of the excesses would have been possible.
Daily Bell: Is there really any difference between the results of the Madoff fraud and what the central bankers are doing? Doesn't the current fiat monetary system actually encourage similar behavior?
Dr. Parks: I see the Madoff fraud as one type of a genre I call timing frauds. A timing fraud is one that generates profits for the perpetrator because someone is expecting to be paid later, while the perpetrator steals the money now. The first type is the simple Ponzi, whereby early entrants are paid off with money that comes from later entrants. The second type has all the characteristics of the first, except that it has the additional patina of being regulated, e.g., Madoff, or the fraud perpetrated by Martin Frankel some years back. Frankel got control of two insurance companies in Tennessee and proceeded to take their assets into his money management firm. But, instead of managing their assets, he stole them. He bought a big house in Greenwich, Ct., filled it with hookers, etc. His victims, like Madoff's victims, were gulled in large part because his entity was regulated, i.e., folks took comfort that the authorities were supposedly watching. Since the government was involved, in the cases of Madoff and Frankel, the fraud grew much larger than it would otherwise. The third type is one whereby the government not only putatively regulates the fraudster, but also passes laws that legitimatize the fraud. Legal tender laws in the U.S. that compel people to use as money "dollars" that they would otherwise reject, are not authorized by the U.S. Constitution, and neither is paper money. The line I like best is that in the 1980s the French Government took over the banks. In 21st Century America, the banks took over the government. There's a lot more to this, but bottom line is that the current system is dishonest, and no amount of regulation or oversight will cure that defect.
Daily Bell: If it is fiat money and central banks that are the real problem here, then why do you suppose financial gurus like George Soros are supporting a ‘beefed up' IMF that would act as a global financial markets regulator and controller of a global currency?
Dr. Parks: Soros believes, or at least he says he believes, that financial markets are "inherently unstable," i.e., from time-to-time they blow up. Keynes made the same claim. He blamed the alleged instability on what he called "animal spirits" taking over the actions of otherwise rational men. Soros, and others, too, reason that since financial markets are prone to blowing up, there needs to be a safety net, e.g., the "lender-of-last-resort" at the Federal Reserve. Thus, unless the monetary authority can create unlimited amounts of new money to bail the system, the system will at some point collapse. It's hard for me to believe that Soros, or anyone else, really believes this "inherent instability" nonsense. Nobel Laureate Robert Mundell told me that he doesn't believe it. More likely, in my view, the financial sector wants to continue with our legal tender irredeemable paper-ticket-electronic money system so that participants may continue to profit.
Daily Bell: Do you think it matters who is President of the United States at this point? Specifically, are the political parties under the control of private banking interests that have little to no desire to see a return to honest money?
Dr. Parks: It always matters who is president. That is not to say that the president is necessarily in a position to do anything about this. In Obama's case, he is surrounded by folks, e.g., Larry Summers, who have spent their entire lives legitimatizing our dishonest system. Do you suppose that any of them will say, as former Secretary of Defense Robert McNamara said about Vietnam, that it was all a mistake?
Daily Bell: The US government reported unemployment has hit 8.5%. Many suspect it actually is quite a bit higher than that. What do you see happening over the next several years with respect to the US economy and, by extension, the global economy and how will this likely have an impact on the civil order?
Dr. Parks: It's hard for me to imagine what might drive employment in the U.S. The major employment-intensive industries, at least for the past 50 years, have included real estate, construction and automobiles. The demographics in the U.S. are gearing toward a graying society. Roughly 60 million baby boomers are about to retire. How many cars, houses, etc. do they need? Plus, overall, consumers in the U.S. are up to their eyeballs in debt. None of this is bullish for job creation. Also, one should be mindful that the U.S. differs from almost all other countries in that a significant number of its citizens are armed: there are roughly 250 million guns in the hands of the public. In the event that people lose their jobs, savings, pensions, annuities, and other promised benefits, there is potential for serious social unrest. The General Government will be discredited. Who knows how this might play out? The only preparation, if one can call it that, are the so-called Emergency Powers (see: United States Senate Report # 93-549 War and Emergency Powers Acts), a.k.a., martial law.
Daily Bell: If government leaders and their central backers are not willing to bring about positive ‘change', but often make the problems worse, then who can and how?
Dr. Parks: The most important task is to spread knowledge about how dishonest the world's monetary system is and what needs to be done to remedy it. As long as the financial folk are in charge, they will drive us all into oblivion. There is precedent for those in charge continuing to do the exact wrong thing, even though they know it is wrong and will lead to disaster. Barbara Tuchman wrote a sensational book dealing with four such instances: The March to Folly. The example that I like best was the outrageous selling of indulgences that got Martin Luther (and many others) fired up. That led to the Protestant Reformation, the Religious Wars, and terrible hardship. Without taking too much of your readers' time, eventually the Church sold indulgences for sins "yet-to-be-committed!" Of course, the Church leaders wanted the money. Just like the financial folk today must surely understand that legal tender irredeemable paper-ticket-electronic money is in essence thievery, but they want their fees!
Daily Bell: On March 12th, you testified before the Montana state legislature regarding something called the Montana Sound Money Bill HB 639. What is the nature of this Bill and what will Washington's response likely be?
Dr. Parks: The Montana Sound Money Bill is an effort to begin to reassert Article I Section 10 of the U.S. Constitution. That's the part that says that the states may make payments only in gold and silver. So far, the bill is bottled up in committee. If by some miracle it should pass, my guess is that the response from Washington will be one of derision. Parenthetically, a volunteer made a video of my testimony and posted it to the Internet at MontanaSoundMoney.org. It is very entertaining and informative.
Daily Bell: Do you think that the growing tide of awareness about money power is jeopardizing the plans of those who benefit from the current monetary system, including those directly involved in central banking? Do you see mounting regulations and forms of taxation instituted as an attempt to control this growing ‘Net-based awareness?
Dr. Parks: Sad to say, the awareness level, on a scale of 1 to 100 is pretty close to 1. There is no awareness to speak of. The major media doesn't even mention the word "gold" in a monetary context, sans some OpEds by Judy Shelton and some others. On the other hand, we do have the intellectual ammunition and a team we could call on that would absolutely put this issue to bed, but someone is going to have to fund that effort. So far, no one has stepped up to the plate.
Daily Bell: Tell us about your work for the Foundation for the Advancement of Monetary Education (FAME) and what its purpose is?
Dr. Parks: I formed FAME in 1995 as a 501c3 public charity to educate folks about the benefits of an honest monetary system and the perils of legal tender irredeemable paper-ticket-electronic money. For the past several years, I have done a weekly television program in New York, also streamed over the Internet at www.MNN.org every Thursday evening at 7pm Eastern Time. It is broadcast on two channels in New York City: Time Warner #56 and RCN #83. In addition, I give talks almost every week, and FAME has recruited hundreds of volunteers all over the planet to help spread our message. So far, I don't see any material progress. Again, there is a whole story to this. The bottom line is that to change the system someone is going to have to fund our work. Who might that be?
Daily Bell: You were a friend of the late Murray Rothbard and many of his followers are ardently opposed to free-banking, especially private fractional reserve banking? It is obviously a hotly debated concept. How would you define free-banking? Do you believe it has proven historically valid as a marketplace response – and are you generally in favor of it?
Dr. Parks: I am very much in favor of free banking. Banks should be able to operate just like any other business and they should be governed by the same laws against fraud as everyone else is. Provided banks make no misrepresentations (especially no unconditional promise to pay money on demand for their promissory notes, when the promise should be conditional) and do full disclosure to their counterparties and investors, as far as I am concerned, they may do as they like. As for regulation, this is a canard. What we really need is personal liability, i.e., bank officers and directors should be personally liable for bank liabilities. In that case, banks will be very careful about how they operate.
Daily Bell: In 2001, FAME published a book by a prominent Swiss banker, Ferdinand Lips, titled Gold Wars, The Battle Against Sound Money as Seen From a Swiss Perspective. Inside, Lips was very outspoken about the destructive policies infecting the Swiss monetary and banking system. And on page 203, he prophetically stated, "The big Swiss banks are active in every part of the world and, therefore, exposed to increased risk and are vulnerable … Switzerland's role in international banking will not be the same." Of course, no one was better at inviting regulatory agencies to crawl into Switzerland than UBS. Do you think the Swiss banking industry can survive and continue to provide private banking services? And what do you say to folks who equate private banking with fraud and money laundering? Why should private banking exist in the first place?
Dr. Parks: Private banking in Switzerland definitely has a future. The UBS model, in my view, which attempted to copy the money center bank model in the U.S., is not sustainable. It is unconscionable for banks to have their balance sheets defacto guaranteed by taxpayers. The net result is that they will always, under that circumstance, over-leverage. Why not? In the U.S., the money center banks behaved as hedge funds, gambling, a.k.a. "trading," in the currency and interest rate markets, taking on unfathomable risks with derivatives, engaging in prima facie phony accounting, e.g., with undisclosed off-balance-sheet liabilities in the trillions (even though such practices may have passed muster with their accountants, who prostituted themselves). The Swiss model of private banking definitely adds value and will continue to serve the legitimate needs of clients worldwide.
Daily Bell: What can individuals concerned about the devaluation of their wealth do to protect themselves?
Dr. Parks: The most efficient way for one to protect oneself is to allocate a material portion of one's assets to gold, and take delivery. The reason why gold is the most efficient protection is that, among all the asset classes one may allocate to, gold has the smallest buy/sell spread. Further, there is a worldwide 24/7 market for gold and a 5,000 year history of people wanting it. No other commodity meets these criteria.
Daily Bell: One final question. Many financial commentators are now predicting that gold will have a fairly substantial increase over the coming months. In fact, in recent guest interviews here at the Daily Bell, G. Edward Griffin and John Browne both suggested that the price of gold could rise to US$2,000 an ounce, perhaps even more. Are you willing to make a price prediction for a gold top?
Dr. Parks: Because there is no longer any market-based self correcting mechanism for increasing financial leverage, increasing debt, and increasing money supply, legal tender irredeemable paper-ticket-electronic money will absolutely collapse. That is, the so-called "dollar," which is not a real dollar as mentioned in the U.S. Constitution, will go away. Gold will be left standing. So, readers should recognize that there is no amount of Zimbabwe money that will buy any gold. The same will be true for the U.S. dollar and all the other paper monies.
Daily Bell: Larry, on behalf of all of our readers we thank you for sharing your views with us and hope to hear from you again soon. And we encourage all readers to visit www.fame.org and consider learning more about this excellent non-profit organization – and perhaps making a donation to help spread the word about what an honest monetary system would look like.
Dr. Parks: I think the best overview is the video of the testimony I gave to the State of Montana a few weeks ago.
This was a really terrific interview in my opinion given the controversies surrounding some of the issues that Dr. Parks takes on. Chief among these issues is whether or not free-banking is a criminal activity. It has always been my opinion that anything done openly and revealed honestly is not criminal and cannot be. Thus we have never been proponents of the idea that fractional reserve banking must be a de facto crime no matter where or how it is practiced.
I want to add here that Dr. Parks has not seen these "after thoughts" and may or may not agree with them. The only material attributed to Dr. Parks is that which is obviously provided by him in response to the questions above. Dr. Parks is a stickler for accuracy and as a well-respected academic reserves the right to speak for himself. Thus, what is contained below is, as I have already indicated, my own response to Dr. Parks' thoughtful answers above.
Nonetheless, the issue of fractional reserve banking is a most important one within the Austrian economic community. It has not been resolved despite various attempts to declare it so. The problem with fractional reserve banking is that it allows banks to create additional capital that can then presumably distort lending and create monetary bubbles. But proponents of "free banking" would argue that there is a big distinction between fractional reserve banking in a free-market environment and fractional reserve banking in a central banking environment. One is subject to the discipline of free-market forces and the other is not.
Certainly we are aware that there are those in the Austrian community who believe that fractional reserve banking is never to be allowed – no matter who or what practices it. In my opinion this disagreement cuts to the heart of the argument that the American wing of the Austrian school has adopted. In almost all things the Austrian wing argues for freedom, but not when it comes to banking. The idea of the Austrian school in America anyway, and chiefly of the recently departed Murray Rothbard was that banks could NOT offer fractional reserve commerce no matter their relationship to the larger society.
According to Rothbard anyway, the only money that a bank could lend out would narrow the yield that the bank received as interest on storing gold and silver. Yet historically, this does not appear to be accurate as big Scottish banks practiced fractional reserve banking for some 300 years without default. During this time, the average amount of gold held in their coffers was perhaps six percent.
When this argument raged, not so long ago, a faction of American Austrians liked to make the point that the Scottish banks had an implicit guarantee of solvency provided by the British central bank, the Bank of England. It was only this implicit guarantee that allowed the Scottish banks to function.
We were never convinced by this argument, believing as we still do that the market itself should determine how businesses operate. If banks wish to offer fractional reserve lending on a private basis and reveal that practice openly, then those who deposit with them are aware of that risk and may even receive a reward for it in terms of higher interest payments on their deposits. But let the market decide. Dr. Parks seems to agree. We are heartened by a point of view we find both logical and fair.