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tv   [untitled]    May 16, 2012 9:30pm-10:00pm EDT

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social security check. mitt romney, he's got all his money overseas. it's so disgusted. you take -- wife. she is talking about an at-home momma, that she raised five children. she got five nannies. she ain't raised a childful those nannies took care of her children. >> i had a little trouble understanding him. but i think he mentioned social security. >> he mentioned social security, that his payments have been cut. he is talking about mitt romney's wealth and what he is doing wit. and it was a little hard to hear, but he was saying that mrs. romney had assistance and help raising her children. so even though she was a stay at home mom and raised her kids, she wasn't going through the hard times that he himself feels like he has experienced. >> i think it's wrong if we start attacking people's choices. this is america. it's a free society. there is people who have died for our freedom. we got to respect that.
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and if someone chooses to do something with their life, we should celebrate it instead of vilify it. i think stay-at-home moms are critically important to america. but i think the choice is the most important thing. >> one last tweet for you. jim asks about the occupy wall street. where is it going? can it make a difference? >> the occupy wall street movement changed the conversation in the country. they did the country a favor. they brought to light a great deal of frustration. now whether that maintains its moment politically remains to be seen. the only benchmark that you're going to have is an election. you can show videotape of a protest all day long. you can interview people. but when it comes to making a change at the polls, are all of these people who are out in front of these buildings, are they going to actively participate in getting the vote
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out and going down the road of what they believe in and what they want to advocate for? protesting is a part of the process. but beyond protesting, just like we've seen in wisconsin, there has to be the groundwork of 30,000 volunteers to go out and get the signatures, to go out and set the table within the function of the system and have the election. and so, you know, they've done a good job, the wall street occupiers, of getting the attention of the country, changing the conversation, focusing the conversation on the frustration of the country. which is also all very much part of the process. now whether they're going to be politically viable or not remains to be seen. they have an opportunity. it's coming up in november. >> ed schultz, host of "the ed show" weekdays at 8:00 p.m. on msnbc eastern time, and the ed schultz show syndicated nationally, you can catch that at noon eastern time throughout the country. thank you so much for coming in and talking with us. >> libby, it's been a pleasure.
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thank you. global markets are weighing the chances that greece will leave the eurozone. following the recent elections in that country. next on c-span3, the chief economist for citigroup talks about greece and the global economy. on friday and saturday, president obama welcomes world leaders from the largest economies to the g8 conference at camp david in maryland. and the next day, the u.s. hosts nato heads of state in chicago. we'll get previews of both those meetings later. ♪ >> this memorial day weekend on c-span we'll take you to colleges and universities around the country to hear commencement addresses from members of congress and the president's cabinet, state and local leaders, and business executives. and we also want to hear from you about your commencement experience. did you graduate from college this year or attend a ceremony for a friend or family member? or maybe something about a past commencement sticks with you. we want to hear from you. call us and tell us your story.
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202-643-3011. and we may use your comments on the air. that's 202-643-3011. this month in greece, 70% of voters supported parties that rejected the terms of the latest international bailout loans. up next, the discussion on the global economy with citigroup economist willem buiter. hosted this one-hour event. >> take your seats. i think we're going get started in just a minute here. thank you. my name is rana forhoohar. i'm the assistant manager in charge of business and economics for "time" magazine. i'm really pleased to be here today with dr. willem buiter, who we all know, the chief economist of citigroup. he eis one of the preeminent
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voices on the eurozone and on the crisis. i've been following his work closely as i'm sure you all have. this is part of the peter mccullough series on international economics. before we get started, i would like to remind you all to turn off your phones, not just to put them on vibrate, because they'll interfere with the sound system. the meeting is on the record. we do have press in attendance. just to note that the next meeting will be friday at lunch entitled prospects for diplomacy in iran. and we'll see after we hear from dr. buiter what will be more difficult, solving the eurozone crisis or diplomacy i in iran. we'll start with opening comments by dr. buiter, and then he and i will talk for 20 minutes, and then you'll have a chance the last 30 to ask your own questions. dr. buiter, please set the stage for us. >> good morning. it's really a pleasure to be here. europe continues to be in a dreadful mess. it won't get any better soon. but we'll probably be spared the worst.
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everybody is focused on greek at the moment. it is an important issue. but i personally am much more concerned what is going on in spain and the lack of progress in italy. europe still struggles with a -- the need to address three, maybe now four crisis that are distinct but interrelated. first is a sovereign/solvency crisis. a number of sovereigns will have to be restructured or rerestructured in the case of greece. expect portugal to follow some time into 2013. both will need new programs or extensions of their existing programs before long because the sums don't add up. ireland in my view either will need a lot of additional osi, official sector involvement, or
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they too will be pushing on the psi, the private sector involvement button. and that brings us to spain, where i'm of the opinion that the consolidated banking sector and sovereign probably cannot be kept whole, and that they have to make a choice between assuming there is no santa claus, that they'll make open-ended cross-border transfers. and surely that isn't one, not even in the wildest dreams of the pro-growth party in europe. so they will either have to restructure spanish debt bank or spanish sovereign debt. the risk of an ireland experience where an otherwise solvent sovereign by imprudent guarantees for too big to save
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banking system got itself in a hole so deep it's unlikely to get out. just beware of that. so that's the restructuring end. then they have to ring fence the most likely solvent, but the risk of unsolvency through lack of market funding in the rest of the periphery, which ranges from the small cypress, which nobody ever mentions, but it's clearly in the firing line also. as well as spain and italy, and beyond that, the soft-core, which now includes almost everything else, except possibly germany and finland and maybe slovakia. so that is really a need for a big bazooka. fortunately, we have it. we always knew that ecb had the resources to basically do anything that was required. after all, this is a euro crisis, not a foreign exchange
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reserve crisis for the euro area as a whole. and the capacity of the ecb to issue euro debt is fortunately from a technical perspective rather impressive. in fact, unlimited. now, imposing inflation constraint, rather less can be done. but a capacity of the euro system is also likely to be at least 3.5 trillion. so they have a bit to play with still. now the final third crisis that you recognized that is in full swing at the moment is the euro area banking crisis. unlike the american banks and the british banks, euro did not recognize continental europe, the losses suffered by the banking system in the earlier crisis. there has been a massive cover-up, evergreening if you
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will, lender forebearance. and a little conspiracy of obfuscation. and one stress test at a time. the eba, fortunately, without national sunk reputation or capital in the national bank is forcing the banks to review where the holes are. and each time you look, they're bigger. so we're going to need massive recapitalization. the scale of what is required i think is much, much bigger than even eba has so far allowed for. and of course it's getting bigger all the time because europe while technically not in recession in q-1, which is a bit of a surprise, because germany's performance was really quite strong, is nevertheless in deep recession in the weakest countries. and there the banks are shedding capital rather than accumulating it as a result of deterioration of regular loans to households,
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to nonfinancial corporates. finally we have the exit crisis. greece now looks to be on the way out. it's not impossible that it could stay in. after all, they can't legally technically be pushed out. the way they would leave is either in a haze of nationalistic populist rage following the next election, or a refusal of the troika to continue funding the sovereign because of noncompliance, injecting the memorandum understanding, and not achieving a compromise open to both sides. and the other -- sorry, i seem to be losing my thread here. >> easy to do when you're talking about europe. >> okay. so greece will exit unless it
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finds this ability to compromise on -- on the memorandum of understanding. there is a widespread i think nonsense debate going on in europe at the moment about growth versus hysterically. in all countries except germany, the argument we want more growth is the same as the argument we want less austerity, except that it adds in we need more long market funding. most europeans actually know that austerity hurts. there may be few teutonic knights that believe austerity is expansionary. i teach, i used to in my academic days. i enjoyed teaching it, but i didn't believe it. and it is clear from revealed evidence that the austerity that
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we're seeing imposed hurts. that's one. second, it is not actually self-defeating in the economic sense we don't have a -- curve. when we fiscally tighten, we don't get declining activity so strong that the deficit actually increases. i wish it were so because then we have the solution, reduce the deficit. we know how well that works. but there are few country in the world, and germany is the big one in europe where the authorities have the choice, when to do austerity, how fast to do it, and yeah, really when and how. in most of your area, the choice is not there. it's a market that enforce the austerity. and a request for more growth, which means less austerity is additional funding. and additional funding may be forth coming on a very small
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scale, but for the time being, and for the foreseeable future, the efs and the efm are it. it's 700 billion. it's nice, but it's not enough. if the whole 34 billion u.s. like lagarde ripped up in commitments, actually materialized, the imf sits potentially on about $815 billion of loanable capacity. but of course not all can be used in europe. historically they have used a 1-three ratio. which means effectively we have a trillion to play with in the troika. again, nice, and it will take care of spain and italy sovereigns for a year or so, but it doesn't take care of the banks, and it is simply not enough. this is still pocket money. the e ecb can pull out the big bazooka. they print the stuff.
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they have the massive capacity, but they rightly think that it's not their job to act in a fiscal capacity. they have been willing to do so only when nothing stood between us the disorderly collapse of a sovereign or a disorderly collapse of systemic reports of financial institution, or now it is exit. or indeed exit via contagion. let me focus on this last thing. the risk to the rest of europe actually doesn't come from direct linkages of trade or portfolios. greece is 3% of your gdp. you can barely find it. and the portfolio exposure to the greek sovereign and the -- also the big banks has moved from the private sector to the official sector, to the ecb and to the efsf and the greek loan
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facility. and the rest of the exposure to the sovereign has might grated back home to greece. so this is manageable. for the rest of europe. the fear is, of course, that there will be contagion of exit fear. and exit means three things. new currency, say next -- assume the market focuses on portugal as the next country most likely to exit. new currency, new escudo, elimination of all existing contracts under domestic law and all existing securities under law into escudo and 50% deappreciation. knowing that you have a sudden stop. not just the deposit stop, the sudden stop. no sector, private, public, banking, nonfinancial, government can fund itself. and given that, if there is no
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way to fund through this market blockade, a country is driven out because better print your own money than have nothing. this i think is actually easily manageable. the ecb supported by the troika bill fund the sovereigns and the banks, and the banks will be able to fund the rest until the markets believe that no country that is more or less compliant with conditionality and not wanting to leave, and no country in its right mind would want to leave, will exit, and therefore the pressure comes off. now how is this going to end? not with a big bazooka, right. no part of big money, no ebonds on open uncapped scale, no last-minute opening of the german wallet. it's politically and constitutionally impossible.
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so what will happen, and ecb will not do anything that poses a material threat to its definition of price stability. they tolerate a bit. they do now, if inflation hits 6.2% instead of 2. but we're not talking about inflating our way out. it should be a solution, but it's simply not politically feasible unless they send the tanks into frankfurt. so what will happen is a mixture, is preventing disorderly sovereign defaults, but arranging ordinary sovereign structuring. preventing the disorderly collapse of systematically important financial institutions, but not necessarily shirking away from the what should ultimately be the provider of capital to banks of last resort, which is not the taxpayer, which can no longer do it in many european countries, but the unsecured creditors. and i expect we'll start to see
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that. with much of europe we can't have banks be capitalized by say converting credit into equity because in only three other sovereign euro member states do have a resolution for banks. in addition depositors are still not senior to order unsecured creditors. you really don't want to turn depositors necessarily into shareholders. that would be a shock to grandma. so -- but these things will be remedied. the ecb is now calling for it, for a special resolution regime, for the 34 largest banks. national regime for the smaller banks, and indeed also very important for a euro recapitalization fund. and this isn't something that probably will be funded by ebonds, but they will be finite capped amount of ebonds issued for, quote, a project.
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rather than 50% of your deficit, henceforth they'll be for joint and several accounts. okay. let me also say that the greek crisis is probably going to result in another important step on the way tounion, in europe which is the necessary condition i think for them to survive in the longer term. and coming out of it, some form of euro area wide, bank deposit guarantees. clearly, the money, now -- likely to be loaded on donkeys and shipped over to albanian border, the ecb has effective two choices. either replace the -- the disappearing deposits with other forms of funding. if you do it for the euro area. the deposits are $6 trillion. for the periphery. so that's -- that's not
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conceivable. and -- and looking for a way of stopping deposits from leaving. it could be provided for the ecb. in the short run there may be no alternative. ultimately i think we will see here, concessions by the euro zone to the creation again of a small fiscal pot for deposit sovereign banking, several depotz d depotz de deposit insurance. i expect to see that. because the the alternative would be i think so much worse, the cost of doing it, and constitutionally and legally, it is -- the beneficiaries would not be government but, private sector. there is nothing in treaty that stops, you know, the national central banks or, government
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providing assistance, provided, competition laws to private entities in the economy. so i think we will see this small step towards banking union as a result of the -- the currency crisis in greaece. i will stop here. >> that is terrific. overview of topics. let me take you to the orderly, disorderly exit for greece. what policy steps do you think need to be taken now, what hasn't been done to ensure that is the case? >> i think there must have been a lot of midnight oil burned in frankfurt, brussels and central bank of, of greece. even, no later than when -- greece exits -- and -- possibly, even before it exits, we'll see capital controls, foreign exchange controls and bank holidays, right. that's -- it's all compatible
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with the treaty. the first two. necessity and the law are sometimes bedfellows and necessity always wins. so that is to make it more orderly for greece. greece should provided it does not, in a national rage, and cuts off its nose to -- to spite its face. greece will remain in the european union. and -- will -- will continue to receive financial support from the european union. not necessarily through the esfc. structural funds, like that. they will remain on the imf program as well. that will minimize the damage in greece. it will still be horrendous. only possible upside for greece. much fame sized by american commentators who are -- take the
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short run, ruthlessly into -- into -- into the structural side of things -- there is a widespread belief of economists here that you can devaluate prosperity and competitiveness. i got news for you, peace its not an economy. it doesn't have rigidly downward wages and very flexible real wages. it has rigid real wages and very flexible upwards wages. so the 65% devaluation or more that you would get from, will indeed give greece this, this momentary, fantastic competitive advantage. they won't be able to take advantage of. because they don't hatch ve as resources. shifting is difficult. apart from that, even if there were highly mobile resources that could move from the training sectors.
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the greek worker and the greek shopper do know the difference between retail, domestic inflation would explode. i expect following exit by greece. unless they get material financial aid to fund their ongoing deficits -- i expect hyperinflation in greece. even if they -- effectively write off their debt. they will. the wipe out of their debt except, from the imf, is i think a given. if they do that they still have between 2% and 3%, gdp, that is more than can be funded at any constant rate of inflation they would get hyperinflation. the currency of a country.
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and paying taxes, because of contracts. and everybody will be able to use the euro -- and probably as the means of payment as well. so -- i really -- i -- so we will minimize the deficit. we believe that no other country wants to leave. and provided the country adheres, broad outlines of the hopefully somewhat flexiblized on the fiscal side especially
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memorandum of understanding, programs. as long as they are compliant in spirit, we will simply provide them with the funding that they need to stay in. it is after all, the in or out is a matter of liquidity. it is not a matter of solvency. and the liquidity they can't provide in an infinite amount. who has more euros, me or you? and this has to be winnable. if it is not winnable then somebody, in frankfurt, you know, needs, needs a long holiday. i don't think that is the case. they are aware of that. this is an anticipated event. there is a small chance that greece would stay in. i think, what could happen of course is they simply give in and says, okay, never mind. your debt, your debt is gone. the rest is gone.
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here is the money. it is possible. i think it is about as likely as me being the next pope. it is not going to happen. right? you couldn't get it past the german parliament, dutch parliament. couldn't get it past the constitutional courts. simply out of the question. they could do a deal -- the only deal i can see realistically, europe is now realizing that they have been -- excessively pro cyclical in their fiscal policies. and that any -- program that is a greed, following implementation, for a year or so, led to an overshoot of the deficit target had to be corrected in the original window time frame regardless when the overshoot was due to bad faith or bad luck. i think there is an intellectual
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readiness. prompted strongly by the imf. would argue for this. that you should at least condone and -- and we can expect the activity as long as we comply. that does require funding. otherwise it is talk. only the u.s., japan, germany can choose the amount of austerity and the timing of it. the rest of the world is stalled by the markets what to do. >> doctor, i want to make sure to draw you on the banking situation as well. back in november, things were on code red. came in, put a trillion euro in the system. why are we back in a banking situation again? tell, walk us through the high points? >> much of the banking sector in the euro area is -- is solvency challenged. right?

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