Todd Sheets and the Financial History of the US

I spoke to Todd Sheets, author of 2008: What Really Happened and the Substack On Wealth and Progress.
We were going to talk about his book and we never got around to it!

We talked about the financial history of the US.

https://substack.com/@toddsheets?

Your American Heritage 4 26 2025a Todd Sheets

Transcript below the box.

Ed Bonderenka (01:02):

Well, good afternoon. Welcome back to your American Heritage baby. My name is Ed Bonderenka. I am a white Christian, cisgender male.

Yeah. And producing the show is the guy that asks the phones, warns me commercials are coming, puts the guests online and finds answers to questions that we ask. Warns me again that the commercials are coming. And that's Derek Stone, that's the Swiss Army knife of radio and he also host his own show, stone Cold Sports Truth. Sunday's at noon 30, right after my friend Sean Todd hosts the intersection at noon. Of course, the intersection is not your normal fluffy Christian show, so listen to both of those before Operation Freedom with Dr. Dave Jana too. And then this is a whole Saturday, Saturday lineup of Abolitionist Roundtable Trigger Talk. This show then to calm down a bit, speaking of art with my friend at Hoffman at three. And then stay tuned for the Bone Conduction Music Show. Eddie's Caravan, the Greasy Skillet, Chef Chris Boogie Woogie BBQ. Just leave the knob on WAAM. That's all you got to do. And then this show Your American Heritage is on Spotify and Apple Podcasts and you can and should subscribe, boost the Signal be a Paul Revere. Get the word out because there's a war going on for control of America and you and it's spiritual warfare. So get involved. You’ve got to fight back, you’ve got to get organized. Preferably a good church.

Then we’ve got to go to court. We’ve got to educate our neighbors. There's so much we have to do and we have to support those who take the battle to the enemy, support those who are running for office, those that support Godly values and then hold their feet to the fire. Make sure they do.

We arm ourselves.

 

We arm ourselves intellectually. We learn the facts for ourselves so we can make wise decisions and explain those decisions to others so they can make wise decisions. That's part of what this shows about.

And then arm yourselves, physically get a gun, learn to use it. Be prepared to defend yourself, your family, and your nation. That's what a guy does. Gals too.

And then army yourselves spiritually. Once again, find a good church, join with others in prayer for our nation.

So in fact, Psalm 1 44 says, blessed be the Lord my rock, who trains my hands for war and my fingers for battle.

Let's go to war.

Father, please lead us and guide us as we seek to protect this nation. Please help us protect our heritage and the rights that you have given us from evil, conspirators, thieves, traitors and tyrants. And please bring these enemies of good and sound morals to a place of repentance. And if they will not repent, please remove them from positions of power and authority. Amen.

 

(03:41):

Joining me today is Todd Sheets.

Todd's the author of the Substack newsletter On Wealth and Progress. Boy, that sounds promising, doesn't it? On Wealth and Progress that's currently available free of charge on Substack. Just look it up. Todd Sheets. I did On Wealth and Progress, pretty easy. You can do it and then avail yourself.

It's free. I was telling Todd earlier, it's free for a while, like what I did when I  sold drugs. The first one's free, get you hooked on the good stuff. And it's the good stuff. This is the good stuff. And then he's the author of a book, 2008: What Really Happened? Now that sounds conspiratorial and we're going to get into that, what really happened in 2008, because if you remember, 2008 was like the not so great depression.

So, Todd, welcome to the show. I could read your bio as an intro, but I like to have guests introduce themselves and usually by this time I'm talked out. So tell us something about yourself.

Todd Sheets(04:35):

Yeah, well I'll try and keep it short. I grew up in a very, it doesn't have to be, if I see you guys nodding off, I'll know it's time to curtail it. Yeah, exactly. No, I grew up in Iowa working class family.

Ed Bonderenka (04:51):

I just drove six hours from Iowa wondering if I was going to make this show or not. That's why I'm so ill prepared. But please continue.

Todd Sheets(05:00):

Well lucky you. So I grew up in Iowa. My dad was a football coach, a high school teacher along with that. So very middle class family kind of background. Went to school at the University of Iowa, became a CPA after a few years, became an investment banker, moved down to Florida, and joined Raymond James. Was fortunate to have a fantastic and successful career with Raymond James, mostly focused in the real estate area. Left quite a while ago thinking I wanted to go out and start an investment management business. But then after a period of time what I really realized, and it took a while for this to sink in, I had never even kind of thought about these possibilities. I realized what I really wanted to do was kind of go down and pursue some channels that really hadn't been available to me earlier in life. And those things included getting deeper into economic history and studying what had happened in this country since its founding.

Ed Bonderenka (06:01):

Oh wow. Yeah, yeah. That's what we want. Yeah,

Todd Sheets(06:03):

Exactly. Writing. I became very involved as a private investor. I had been investing for myself all the way along at Raymond James. It included music and a number of things like that. And eventually it evolved to the point where with the 2008 financial crisis, I can distinctly remember driving one of my children to school and just kind of talking about what was going on. And I said to him, this is totally upsetting everything I thought about the way business and government kind of stayed away from each other or were supposed to work in our country. And it's kind of thrown me for a loop. It made me realize that a lot of things I had taken for granted throughout my lifetime and my career, which started in the early eighties and then went up through the early two thousands, were being challenged and thrown into the wind.

(07:06):

And I thought, you know what? I've got to dig into this very deeply. And so I spent several years basically going back and back and back and further and further into the depth of American history. And I became so fascinated and enthralled with the whole thing. I decided this is going to be a writing project. I was describing it to a friend from Iowa, actually lives in Kansas City now, and I was just talking about a few of the things I was learning and he said, this should be an editorial or something, you need to write it up. And I can remember hanging up the phone and thinking, I think this should be a book. And so I started down the process of writing an economic history of the United States. And as I got into it, I thought, I need to narrow the focus for the first book and I'm going to focus in on the 2008 crisis and get that one work through that, get it published, and then from there I'll expand it. And so that's kind of the background as to how we got here.

Ed Bonderenka (08:06):

Oh, that's great because we have a lot of, well, Your American heritage. We have a lot of historians on this show, political history, cultural history, art history with my friend Ed Hoffman. And we have a heritage here in the United States and part of that is our financial heritage. How did we get this system that we're in a market capitalist, supposedly market capitalist system and where we can do transactions with each other and it gets more and more infringed on by the state. And certain regulations that just seem like they're brought on by intellectual left wing tyrants at times. That's a little bit over the top, but that's where it seems to be going socialist, communist, that's not your money. It's our money by the way. Those aren't your kids. Those are our kids. That kind of thinking going on. And so it is good to have you here and I believe we'll have you back.

(09:07):

We can talk about different segments of American history as you like, but I think you screwed up. I think you wrote the book and you should have done, Dickens would've done or Mark Twain and serialized it and then people go and then what happened? And then what happened? And that's when you charge. Now all of a sudden it becomes for fee Substack, but what's done is done. You can just sell the book. And the book is of course 2008: What Really Happened? And we're going to get into that because I'm very curious about it. Obviously it upset a lot of lives. I've never been so sustained scared in my life.
Going through that time period economically I thought I might never work again. I remembered my dad talking about the Great Depression. And so I didn't want to see that happening again.
But I, like I told you earlier, and I alluded to, I've worked like 11 hour days in Iowa all week.

I just couldn't go back to the room and read your book. I just couldn't. No, reading on the drive back. That was a no-go. There's no audio version of it. And so I did listen to a good interview that you did on a podcast called Core Principles, and I hope this turns out as well. I have high hopes and one of the things, it's the way I would've liked to have gone too. You started talking about Smoot-Hawley and I was just jumping up and down in my seat and the only thing restraining me was the seatbelt because I have been of the opinion that Smoot Hawley was a bill of goods. We'd been sold in school as the big boogie, but I have been saying that Smoot Hawley was legislation that was like, oh, they made a law and it's hard to change a law. And if it was having a bad effect during the Great Depression, there wasn't any swinging it around quickly as opposed to Trump who just on a whim says 25% for you, 10% for you. Oh, wait a minute. We'll give you 90 days free of charge. And so I'd like you to talk about perhaps even the Fed to start with very quickly and then maybe get into Smoot Hawley and the Great Depression. You think we could do that?

Todd Sheets(11:31):

Yeah, sure. I'd be happy to. Actually, I'm about to release probably Monday morning a new piece on the Federal Reserve and I'll try and wrap a couple of things in that you've brought up here. One of them is the thing that is far too easy for us to take for granted, which is how fortunate we are to be in this country at this time in the world. And how unique what has happened in this country is if you go back and look at even Western civilization prior to the 18 hundreds, what you find is centuries of time with virtually no upward economic mobility or growth. GDP growth through those periods was a fraction of 1%, which basically meant that the wealthy and the politically privileged continued to do well and nobody else did. Everybody else stayed in place. And then as we got into the enlightenment and Adam Smith's ideas about capitalism and free markets and those kinds of things, for the first time in the history of the world, things started to change and nowhere did they change more rapidly than in the United States, which adapted those ideas and principles at the most completely.

(12:59):

And so from 1800 until 1913, we operated under a gold standard, which limited the amount of money that could be printed as did Great Britain who actually implemented the gold standard in Europe also for this very reason because there was a history of central banks printing too much money to fund deficits during wars. And then they inflated the currency to the point where people who owned it lost confidence in the government and they wouldn't lend the government's money anymore. Britain finally realized we need to bring this cycle to an end. We operated under a gold standard and with very minimalist levels of government throughout the 18 hundreds into the early 19 hundreds. And we grew at a real rate, which means over the rate of inflation. And there was virtually no inflation then because of the gold standard.

Ed Bonderenka (13:54):

Yeah, exactly.

Todd Sheets(13:57):

Yeah. 4% a year, which may or may not sound big to people, but in the context of what had happened before then and after, it was unlike anything that had ever occurred. And to put some numbers around it, there were like four or 5 million people in the country in 1800. By the early 19 hundreds we were up around 80 million. And by the time of the depression, when things started to go the other way with respect to government, I think we were up around 120 million. We had gone from an irrelevant isolated colonial outpost at 1800 to by the early 19 hundreds, we were the largest and most dominant economic country in the world. And for that to have happened in a hundred years was just unprecedented. So the Fed gets created in 1913, coincidentally it was on the verge or on the brink of World War I breaking out.

(14:59):

And the original idea for the Fed was very limited and very local banking was dispersed throughout the country at that point in time. And the idea with the Fed was if a bank in a certain market makes bad loans goes under, there's always a risk that will scare depositors and create a panic. And in a panic it's possible that good banks that are otherwise sound will go down with the bad. Just by virtue of the nature of what's called fractional reserve banking. They don't keep all the deposits on hand, they loan 'em out. So you have one bank goes down and then the second one, and then they get afraid. Everybody's going to fail.

Ed Bonderenka (15:45):

Yeah, the Bailey Brothers Savings and Loan, Hey, your money's not here. It's in so-and-so's home. Yeah, that one.

Todd Sheets(15:51):

Yeah. So the idea behind the Fed was very narrow and limited. It was if this starts to happen, the Fed is supposed to step in and provide enough currency so that the good banks don't go down with the bad, so that as the run develops, they can supply funds to the good banks within a marketplace, they can honor their depositor's request and the panic comes to an end That was their sole mission. So we get to the Great Depression of the 1930s, and there are actually two things that we now know caused it what people thought caused it at the time, which is the reason we went down a vastly different direction after the Great Depression from the one we had been on before. In terms of the relationship between the government and the state at the time, it was widely attributed to private market failure.

(16:48):

Everybody associated the stock market collapse of 1929 as leading us into it. They thought this was a failure of the private markets. There had been a big political push for government to play a bigger role for some time, and it became the excuse for that to happen. What we now know actually happened is there were two major causes. One was international and one was domestic. So let's just spend just a second on the international. The international cause actually goes back to and originated with World War I. So England had put the gold standard in place to prevent governments from printing too much money and destroying the economy while World War I comes along and deficit spending escalates to massive levels. All of the major European countries borrow more money than they can afford to repay, and they monetize a portion of their debts by printing and inflating their currencies, which blows apart the gold standard, which for a hundred years had also created for the first time in history, meaningful growth in those European countries and was actually starting to raise working class people up there as well, not as quickly as what was happening here, but it was happening there.

(18:09):

All of that gets blown apart by World War I. Those countries go through a decade of failed policy responses trying to maneuver their way out of the fact that their currencies are now misaligned with gold and with ours it has upset their trading balances. You have a question?

Ed Bonderenka (18:33):

Well, we had the roaring twenties, but they had the not so roaring twenties, is that what you're saying?

Todd Sheets(18:39):

Absolutely.

(18:41):

And the Roaring twenties is also, it's important to know this was not something that was destined to collapse the economy after we came out of World War. I grew in the 4% plus range, but it was not out of the ordinary for what had been happening for a hundred years. Here there's kind of been a perception created that, oh, we went on this crazy private binge which ran out of control and then collapsed. But that was not the case. We were growing a little faster than we had historically, but not enough to cause anything like alarm or anything. So the real problem was by the time we get to the late twenties, all these policy measures fail, and the international monetary and financial systems both collapse at the same time. In the United States, we start to go through a mild downturn or a mild to a moderate downturn, but then the driving force, this is the second key thing that caused the depression in 1930, a series of bank panics breaks out in the Midwest and western United States and the Fed fails to do the job that it had been created for less than two decades earlier.

(19:53):

It fails to step in and provide the liquidity to the system that would've curtailed those banking panics. And as a result… Question?

Ed Bonderenka (20:02):

Why did they?

Todd Sheets(20:05):

We still don't know. The people that wrote the book on this. Milton Friedman and Anna Schwartz in the early 1960s wrote a book called A Monetary History of the United States, which totally changed the perspective on the depression. It went from a failure of private markets to a massive failure of the Federal Reserve as a part of the government. And this is now widely accepted across the political aisle. This isn't like conservative people believe this and others believe that. Christina Romer, who was Barack Obama's chief economic advisor of the books that she recommends on the Great Depression, the first one she recommends is Milton Friedman and Anna Schwartz's book. It is the definitive explanation. So we don't know why, but the consequence

Ed Bonderenka (21:01):

Today, the common wisdom is you read everywhere. It was Smoot Hawley caused it.

Todd Sheets(21:06):

And we'll get to that in a second. But that's fear mongering. And that's one of the things I addressed in one of my Substack pieces when this tariff stuff first came out is any reference to Smoot Hawley is Fear mongering. We now know Smoot Hawley played

Ed Bonderenka (21:26):

And folks audience, we will explain Smoot Hawley in a minute, I'm sorry, but it was a legal tariff system, if you don't know. Please continue, sir.

Todd Sheets(21:34):

Yeah, yeah. So the second main problem was the failure of the Fed to do the job it was created for and provide the funds that would've kept good banks from going down with the bad. And the bad was a very small percentage. By 1933, 40% of the banks in the country had gone under the vast majority of which were otherwise healthy and would've survived had it not been for the failure of the Fed to do its job. It was so bad. FDR when he came in created deposit insurance to kind of put a belt and suspenders. I think that the failures had basically run their course. It was pretty much over and he basically was inheriting a recovering economy, but they implemented deposit insurance just to make sure that this didn't happen again and the Fed didn't continue to fail. So this was a failed institution. Now what we need to do is move forward a little bit the yes,

Ed Bonderenka (22:36):

There are some people who, the conspiratorial folk of whom I know, a few would think that, Did the Fed do this on purpose to crash the system politically to bring us into a one world communist government, blah, blah, blah, the failure of capitalism. And I mean perhaps even look at what FDR did, he used the Great Depression to bring in all of his restrictive regulation systems that basically like it was Henry Morgenthau said, we've done everything. It still hasn't fixed anything.

Todd Sheets(23:12):

Yeah, I mean what they actually did was they prolonged the great depression with all of those changes. And that's another thing that's not well understood is that prior to the 1930s, the country had been through many downturns, some of which were relatively severe. But what happened is, without all of this government intervention, the recoveries consistently happened within a 12 to 18 month period of time in the depression because of all of these things which came in and interfered with the natural mechanisms of recovery that would normally had worked before the recovery took 10 years. So in terms of the conspiracy theory, I'm not aware of anything that would back that up, and I don't personally hold to that. I think this was just a massive failure of policy and response by this organization. And then it creates an opportunity for someone else to go in a different direction and they do. And then the story becomes that they needed to, and that kind of thing.

Ed Bonderenka (24:20):

But I had to bring that up. I know there are people listening who would think that. And we've got 30 seconds left because we're talking with Todd Sheets, the author of the Substack newsletter On Wealth and Progress. And if you're finding this interesting, you will find that interesting and when it come back after the break and talk about it some more. Isn't that right Derek? There, 15 seconds. Thank you sir. Alright, we'll be back folks. Come on back and join us.

Ed Bonderenka (25:11):

Well, welcome back to Your American Heritage and we're talking to Todd Sheets, the author of the Substack newsletter On Wealth and Progress, which you can get for free, even the backlog of them. And so you can read about finances in a way that explains it like he's doing today. Excellent job. He's also the author of this book, 2008: What Really Happened, which we're going to get into, but we've been kind of setting the table on, well, how did we get to 2008? And so we were talking about the start of the Great Depression, how policy actually made it worse and did not allow it to recover. And like I was saying, Henry Morgenthau, FDRs guy, said at the end of it, I don't get it. We did everything we know to do and nothing's worked. Well. You were doing all the wrong stuff, dude. Todd, you want to explain to us why, what Smoot-Hawley was as a tariff because tariffs are the talk de jour and then we can move on from there to the aftermath of World War ii.

Todd Sheets(26:16):

Yeah, I think that's perfect. And it is a very important point because Smoot Hawley has been used by many critics of the current tariff policies that the Trump administration is taking on, I think to try and scare people into thinking that we might be headed into another great depression, especially when the stock market dropped pretty substantially immediately after the tariffs were proposed. And I think it was a intellectually dishonest thing to do. The United States was only minimally dependent on international trade. It was nothing like Europe or England where a significant portion of their economy depended on international trade. So the tariffs couldn't have played that big of a role to begin with. The second key point to understand is what was really driving international trade into the abyss was this failure of the international monetary system. And I don't want to get too far down into the details there, but I think that'll go beyond what people want to hear.

(27:24):

But it was really the origins of the failure of international trade was again, World War one massive deficit spending, which pushed Britain's currency significantly out of alignment with the gold standard that it itself had created. And then Britain didn't want to realign because they wanted to hold their position as the world's financial center, and they thought if they devalued the pound, then that would be a sign to the world. You can no longer trust the pound. So they operated with a significantly overvalued pound throughout the two thousands. And then as all of that started to collapse, the whole trading system collapsed on top of it. Smoot Hawley happened in the midst of all that and had minimal, if any impact on the United States. The real key problem in the two big problems again were this collapse of the international monetary system, which was a result of excessive deficit spending on the war and the failure of the Federal Reserve to step in and do the job it had been created for and bring the bank panics to an end, which they could have done as early as 1930.

Ed Bonderenka (28:35):

Every time you say excessive spending and war, I keep thinking of Bidenomics and Ukraine, but I'm sure that's not germane to our discussion today.

Todd Sheets(28:47):

Well, I mean all of these things are interrelated, so depending on where you want to go, it absolutely is germane to our discussion today.

Ed Bonderenka (28:57):

Okay, let's not go there right now. We got a thing going on. We get into World War 2. I'm not quite sure the mechanics behind how that brought us out of a depression. We were broke. The next thing you know, our manufacturing base increases phenomenally. We're pumping out armaments everywhere. Of course everybody's buying war bonds, so it's more borrowing than anything, but we come out of it as an economic powerhouse. But then Europe is in shambles. And then we did something that's totally unheard of, I think in the history of mankind that I think only a Christian-based western civilization would find the motive to do that. What did we do?

Todd Sheets(29:41):

Yeah, and actually it's a great question. This ties into the issues that we are dealing with right now. We're bouncing around a little bit, so bring me back in line if we need to. But what we did, for anybody that's out there, just picture in your mind the scenes you've seen of post World War II Europe in the history books you grew up reading or anything else that you've seen at any time. And what you're going to imagine is these black and white photos of totally devastated cities, infrastructures,

Ed Bonderenka (30:15):

Factories,

Todd Sheets(30:16):

Roads, factories, that was all of Europe, Germany, France, Britain. These were the three major economies of Europe and the world other than us. And they were totally devastated. And now think of Japan and what had happened after the atom bomb was dropped there, the same kind of a picture. So the amazing thing that we did that you're alluding to, which I think again is unique in the history of the world, I'm not sure if anyone else has ever come close to doing it or would've done it, is we extended the opportunity to help both our allies and our enemies rebuild and recover from this devastation. And we provided loans and we opened up our market for them to trade with, and we allowed them to erect trading barriers and tariffs that were significantly in their favor and against our best interest in order to help them accelerate their recoveries.

(31:21):

So if we move forward, and this is just to refresh everybody's memory, this World War II comes to an end in the mid 1940s. So this then we were ready to recover because by the time of World War I and then maybe somewhat helped with World War I, we had dealt with these major problems. As I said, the banking failures were basically over in 1933, the monetary problems, the international monetary system collapsed in 1931 when Britain finally devalued the pound. It was forced to, and then we devalued when FDR came into office. So the system had been set for a recovery for many years. It was just delayed by the problems with the new deal that we talked about. And then by the time the war came to an end, we were very well positioned and ready for our system to start growing again. And we did.

(32:16):

And we set up this dynamic where like I said, both enemies and allies could benefit from our strength and our lending and our willingness to let them erect, unbalanced trade relationships, all of which helped them accelerate their recoveries. And by 1960, the two major economies that we're talking about in all of this, and even today on a relative basis, they're nowhere near as big as we are now, but we're talking about Germany and Japan both had fully recovered by 1960, and yet some of the tariffs came down, some after that many of the trade barriers remained or were strengthened to kind of do what the diminished tariffs. But today we are still sitting here 60 years later after they had achieved full recovery with just, let's just create one example with Germany, which has tariffs on our automobiles that are four times the tariffs that we impose on theirs. And that just doesn't make any sense. And that's

Ed Bonderenka (33:34):

Why the only American cars you saw in Europe were by servicemen bringing them over.

Todd Sheets(33:40):

Yeah, exactly. I mean it's like you extend a favor and you get slapped in the face for it in a way. And then on top of all that, if we want to go there, let's just take just a brief detour and bring me back in line if you need to. But we not only did all of that, but we then defended and provided the funding for the defense of Europe against the Soviet Union in the Cold War. And so they weren't forced to up their defense budgets as we did in order to try and keep the Iron Curtain from expanding and spreading across Europe. We also played that role for them, and that's something else that we have continued to do here we are 60 years after they achieved full recovery in that type of thing. And these are the issues. We can come back to the Fed if you want to do that or not, but these are the issues that are finally being addressed today with the Trump administration that need to be cleaned up along with other things that have developed in terms of our relationship with China, which is another path we can go on if you'd like to. So these are all the things that developed out of this post World War II environment

Ed Bonderenka (35:00):

In 15 minutes that we have left, we're not going to go anywhere near what I want to get to, and we're not even getting into the subject of your book 2008, what really happened, and maybe people are just going to have to buy that book to find out what's in it. Certainly

Todd Sheets(35:17):

There's a method to this madness, right?

 

 

Ed Bonderenka (35:21):

That's the Plot here. Yeah, I mean, so moving on, we became a great economic powerhouse, as you were saying, we actually outspent the Soviet Union on armaments on what we call defense, and then we threatened to build up Star Wars and they finally said, that does it, we can't outspend you. We quit. And you had the fall of the Soviet Union. But before, before the fall of the Soviet Union in 92 or 91, 93, somewhere around there, we had people coming out in this country with books like two books. I really remember reading in the seventies and eighties, The Greening of America by Charles Reich and the Third Wave by Alvin Tohler. And I think those books were the excuse for Nixon going to China, so to speak, for us opening up China and moving all our manufacturing to China. One, it would make America a green nation.

(36:27):

All we'd have to do is manage all those coolies out in the rice fields, putting our stuff together for us to ship back here to Walmart. And then there was the Third Wave, which is like, well, that'll be the new, as I remember the book by Tohler, this will be the new manufacturing wave we had the Industrial Revolution, we had, I forget what the other revolution was, and then now this is move all the manufacturing out of the country and we just manage, which fell in line with what Reich was saying. And so regardless of the motives, all our manufacturing went offshore, a lot of it. Certainly not all of it or I wouldn't be doing what I do during the week, but obviously we've seen some downside to that. And now I guess the question is what is Trump trying to do with tariffs? Is it to level the playing field or is it to bring manufacturing back to America? I don't know that you can have it both ways. Do you?

Todd Sheets(37:28):

Yeah. So I'm going to touch on a couple of things that you brought up, which I think are very important here. One of the great mistakes that happened here, I think, let me kind of cap where we're going to go with this for a second. China is the 800 pound gorilla in the room from a trade perspective and from international geopolitical perspective. And people talk about the great sucking sound from Mexico, the real great sucking sound with China. Things have shifted around a little in the last several years because of Covid in the first round of Trump's tariffs. But before that, our goods deficit, which had mushroomed from somewhere around 80 billion in 1990, which was one of your reference points to roughly a trillion dollars here recently, 50% of that goods deficit with China. That is the core issue there. And it goes back to what you said in the 1970s, Richard Nixon and Jimmy Carter made historic mistakes in failing to understand and appreciate what Ronald Reagan did.

(38:44):

Now, Reagan never doubted the superiority of the American system of free markets and individual freedom would win out in the end. And because of that, he knew that if we continued to isolate the Soviet Union economically and we forced them to try and match us in an arms buildup, it would push them into the abyss and we'd would win the Cold War with, as Margaret Thatcher put it, without ever having to fire a bullet. Maybe the greatest victory in the history of the world when you think about the lives that were saved, the casualties that were avoided, and less importantly, the minimal financial costs involved with doing all that. But Nixon didn't get those things in the seventies. For those who don't know or remember, Nixon came just before Reagan and Nixon was there in the seventies. He thought that we needed to try and counterbalance the Soviet union's growing strength by initiating relationships with Chairman Mao and China.

Todd Sheets(39:57):

Then at the end of the seventies, Jimmy Carter formalized that by recognizing the Communist Party as the official government of the Chinese people. That was a historic mistake. The second big historic mistake happened in the early nineties, and you mentioned the date, it's exactly right point, 1991, the Soviet Union finally falls for the reasons that we just talked about. But what happens is in the euphoria of thinking that this is going to lead to democracy and free markets throughout the world, the Western leaders fail to, and I've written about this in a Substack piece that's out there, so if people want to go back and read it, it is called, it's on Trade and tariffs part two, a Tale of Two Empires. And what happened was

Ed Bonderenka (40:48):

That's on your Substack newsletter called On Wealth in Progress, which you can find under the name Todd Sheets, if I'm correct.

Todd Sheets(40:55):

Yeah, that's correct. And this particular one is called A Tale of Two Empires, and it's talking about exactly these issues. In the midst of this euphoria of the Soviet Union collapsing, the Western leaders failed to read what I called the bloodstains on the walls of Tiananmen Square, which had happened a few years earlier when some pro-democracy protestors in Tiananmen Square in China were allowed to protest. The protests started to grow. They were enthralled with the idea of moving towards these Western, and after a few weeks, the hardliners and the Communist Party rolled the tanks in. The estimates are anywhere from a thousand to 2000 people were killed. They were brought to an end, and the message that was there that we failed to read was that the communist Party would allow these Western ideals to take place only so long as they were in the interest of the Communist Party. And so in the nineties, without failing to read that message, we go down this idea of the Soviet Union collapses. That means we don't have to worry that their tanks might roll into China so we can start making loans to China. We can start investing in the country what's called foreign direct investment mushrooms. And so we are actually helping them rebuild. They are. It's not that they have some great economic centrally planned model. They are merely riding the poverty that the failure of their own system had created.

(42:45):

And this huge wage disparity, hundreds and hundreds of millions of people estimates of anywhere from five to 800 million living on less than $2 a day. You don't have to provide a very high wage to give them an opportunity to start moving up. Right.

Ed Bonderenka (43:03):

Yeah, man, you just made me think of something that ought, I'm going to coin a phrase. Free Markets demand Free People. That's it. If you're not a free people and your government's keeping you down a poverty level, like, well, why should we not have tariffs against China if they're only going to pay their people rice and beans? And we want to live at a higher level of standard than that,

Todd Sheets(43:30):

It goes even beyond this. Because what we've effectively done, we thought, and we hoped, and I understand why it happened. I'm not trying to make it sound like there were a bunch of idiots back then. The whole world embraced these ideas. The enthusiasm from the fall of the Soviet Union cannot be overstated.

This sense that history had forever changed and we had won the great battle of freedom versus totalitarianism was so powerful. But what ended up happening, because we failed to read those bloodstains on the streets and the walls of Tiananmen, what we did was we rebuilt the Communist Party and we hoped that this was going to become a balanced trading partner with us and potentially an ally in geopolitics. And all we did was funded what has become a hostile regime.

Ed Bonderenka (44:29):

Well, I remember when Chou En-Lai came into power and it looked like, wow, he's going to renounce communism and make this a capital, bring market policies in and make this, I think it was Chou En-Lai, and he was going to bring in a market economy and the people would be free and everything's going to be groovy. And then it wasn't work out that way. Is that right?

Todd Sheets(44:52):

Yeah, yeah. No, they went down this path for a while in the seventies because they had to, the key turning point was when Chairman Mao finally died, there had been uprisings along the way because the poverty and the famine was so bad, but he continually, he had the political power to keep shutting those down. But when he finally died, their leaders had no choice but to start to move down this path. And they did for a while in the seventies. That's really what led to these protests at Tiananmen Square. But that was the turning point in retrospect, when the Communist Party said the hardliners of which the current leadership now is an extension, he's taking it back to in a malice direction. But that's when the hardliners effectively said, we're going to bring an end to this because if we don't, we're done, we're cooked.

(45:43):

We no longer sit and control all the levers in the Communist Party. And so we missed that. We funded their renaissance at that time in 1990, their GDP, which is total economic output, was about 6% of the United States. Put another way, ours was about 16 times the size of theirs. Today, their GDP is almost two thirds of ours. So we are only fractionally larger than them today. And if they had become a good balanced trading partner and a global ally, that would be fantastic. But they have become a global adversary both economically and militarily, and they have returned to oppressing the freedoms of their citizens and taking advantage of the working class people in China. And I think this is, as I said earlier, the 800 pound gorilla that needs to be dealt with through these trade negotiations. We also need to clean up the things with our friends and allies that are still out of whack, like we talked about earlier.

(46:55):

This is the Germanys and the Japans and the rest of Europe and that kind of thing. But I think the thing that absolutely has to be dealt with is the China issue, and then we need to clean up the rest of it so that our people, our working class people have the opportunity to participate fully in the next round of recovery if we can trigger it. And I am of the firm belief that if we can deal with a few big issues properly, and they're very big and they're going to be very difficult, one of them is this, another is the deficits we're running, which gets back to your question about the last administration and the debts. Right?

Ed Bonderenka (47:34):

Yes. Thank you. I'm so sorry. We're running out of time. We have about a minute, minute and a half left. I would like to ask, do you think China's going to fail or is China going to lash out? You got five, 10 seconds for that.

Todd Sheets(47:51):

If we play our cards right, we're going to win. Every time we have freedom, we have the strongest economic engine in the history of the world, and all we need to do is unleash that and let it go, and then return to isolating these aggressive totalitarian economies. And I don't think they have a chance against us, just like they didn't in the Cold War.

Ed Bonderenka (48:13):

Thank you. And we've been talking to Todd Sheets. He's the author of 2008, what really happened, and we ought to really have it back on the show, sometime to talk about that book. We'll see. And he's the author of the Substack newsletter On Wealth and Progress, which if you thought this was a good presentation, there you go. Follow up on that, it's free. Well, Todd, thanks for joining us today, folks. Thanks for listening. I hope it was helpful, and come on back next for your American Heritage.