Charles Goyette Interview

Right after I wrote a blog post about government spending and unemployment, I read an interview (linked from of Charles Goyette.  When I wrote my blog post, I was going after Keynesians, who think that government spending actually helps an economy and helps unemployment. Perhaps, unknowingly at the time, it was also attacking some libertarians, or hopefully setting them straight.

I greatly admire the writings of Charles Goyette.  His book, The Dollar Meltdown, is the one book that I have had permanently linked on my homepage.  Yet, reading this interview today, I felt like a child going to a football game to watch his favorite receiver, only to see him drop several passes while he was wide open in the end zone.

This interview, conducted by Martin Weiss, is a long read.  There are certainly several things that Goyette said in which I agree.  For this post today, I am just going to focus on a few of the things where I found myself vehemently disagreeing.

First, they talk about the coming fiscal cliff in 2013.  I discussed this yesterday.  I said that the media and politicians and even some conservative hosts are lumping together tax hikes and spending cuts.  Well, I guess I should have included Goyette and Weiss (the interviewer).  I don't really consider them as part of the mainstream media.

Goyette starts off talking about the huge debts that the federal government has run up.  He partially blames our current situation on this and rightly so.  But then he talks about the Budget Control Act of 2011.  He talks about the cuts that will be imposed on defense, Health and Human Services, Medicare, and other entitlements.  He says, "Total: $109.5 billion pulled out of the economy and out of people's pockets, starting this coming New Year's Day and every year thereafter."  The problem here is that Goyette is not talking about the tax hikes.  He is talking about spending cuts.  He has it completely backwards.  If the governments isn't spending this money, then it will be in the people's pockets who actually earned it.  This is what we need.  And this money will not be "pulled out of the economy".  It just won't be spent (misallocated) by government bureaucrats.

Goyette then says, "According to a recent university study, these and other cuts will destroy more than two million jobs throughout the economy."

Goyette goes on about how the U.S. defense industry (as if most of it is really defensive spending) will be the hardest hit.  Then Weiss, the interviewer, adds to my misery and says, "after the Great Depression, it was thanks to massive increases in defense spending, for World War II, that the unemployment rate finally dropped."

This is complete ignorance.  It could be spoken by Obama or Paul Krugman and I wouldn't know the difference.  While unemployment dropped during WWII, much of it due to millions of young men going off to war, there was no recovery until after the war.  The recovery came in 1946 after federal spending was dramatically cut.  It was one of those rare times in American history when government actually scaled back dramatically.

If that isn't enough, then Goyette discusses the bailouts and stimulus.  He says they are ending and that "we will NOT have that stimulus to fuel the economy or the stock market - and the impact could be severe."

I might buy his argument about the stock market, as it seems highly dependent on government debt and money creation by the Fed.  He may even be right that it will expose the fragile economy.  But he needs to be clear that this is what needs to happen.  There should be major cuts in government spending far beyond what he is talking about.  Only then will we correct at least some of the major misallocations from the past.  We need a dramatic scaling back of government so that we can one day have a real recovery.

Lastly (as far as my major criticisms), Goyette talks about some of the ramifications and the appropriate investments.  He says that interest rates are going up.  He says to invest in an exchange traded fund (ETF) that bets on higher interest rates.  He thinks the Fed is suppressing interest rates.

I hate to break it to him, but the market has some say in all of this.  There is no doubt that the Fed's buying of government debt affects rates and helps keep them down.  But the horrible economy and the fear people have of spending too much and borrowing too much is playing a major role in keeping interest rates down.

Why does he think higher rates are imminent now?  He thinks the Fed will do more money creation.  He thinks the economy is headed for a major downturn in 2013.  Wouldn't these things keep interest rates low in the short term?

In his book The Dollar Meltdown, I disagreed with one piece of advice he offered.  At that time, he suggested shorting bonds (betting on higher interest rates), just as he is doing now.  I disagreed.  He was wrong on that point several years ago.  How can he be so sure he is right now?  That book is about three years old and rates are just as low or lower than they were then.

I still like Charles Goyette and his writings and I am thankful he is part of the libertarian movement.  With that said, he dropped a few too many passes in this interview and it was rather disappointing.  I hope to see some touchdowns the next time I read or listen to him.