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tv   [untitled]    August 2, 2011 7:30am-8:00am EDT

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find out what's really happening to the global economy with mike stronger for a no holds barred look at the global financial headlines. welcome back you will see live from moscow with me will recent headlines now on the emergency deal to avert a debt crisis has been approved by the lower chamber of the u.s.
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called. a devastating default. and russia says it un action could help bring an end to the violence in syria but it warns against excessive measures that could lead to wait libya style intervention. on the voices of tens of thousands of anti-government protesters in israel calling for the prime minister to stand down by going unreported by the international media. report is next. geyser they see her this is the kaiser report today stacey you're going to be talking a lot of risk in all of its forms tell us. as i go alone but. tell the people what you've got over there i k well let's start with
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the first headline max because that has risk in the actual headline t. bills no longer considered risk free by chicago mercantile exchange c.m.e. group announced monday that as part of a normal review of market volatility they claim it is determined that t. bills should no longer be treated as a grist free when used as collateral haircuts on t. bills will rise from zero point zero percent two point five percent. let's talk about this for a moment treasury bills it's a when you have them in your portfolio and you use them as collateral you can borrow against them one hundred cents on the dollar and this is interesting because if you remember going back to the construction of collateralized mortgage obligations what they did was they created collateralized mortgage obligations as a way to skirt the margin requirements set up by valuable in switzerland that's the
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genesis of collateralized mortgage obligation because it's all about the margin requirements and margin requirements are different for different classes of assets so it junk bond you have to put up more of the junk bond if you want to put it into an account and borrow against it the margin account as it's called treasury bills you can borrow one hundred cents on the dollar t. bills you can borrow one hundred cents on the dollar but what they're saying here is that there are so worried about the underlying fundamental. all integrity of these global markets that not even a treasury bill is as good you know hundred cents of the dollar they're going to require you to post more of these bills into these margin accounts because quite frankly these global economies are at the risk of this precipitous collapse caused by over indebtedness and the c.m.e. it almost sounds as if they're doing something responsible but that can't possibly
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be true because they've done nothing but conduct themselves irresponsibly for years but let's see what else is on the subject of well there's another headline regarding this and they're saying that c.m.e. acts to curb volatile treasury futures and they're saying in this article that the reason why the c.m.e. is a reason margin requirements on treasury bills is that they they've been so volatile as they're kooky theater between baner and obama has been going on about whether or not they're going to raise the debt ceiling and whether or not allow the u.s. to default so they're saying that it was the volatility and that because of that volatility it was driving people away from the markets so the chicago mercantile exchange was not making as much money well volatility is a function of leverage or margin and by increasing the amount of treasury bills have put into the margin account before you can borrow little's and all the rules
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against it you are supposedly decreasing the volatility and they're hoping by decreasing the volatility they're going to increase their order flow but you know the point about the you know the main point about this jason herbert is that what the c.m. is not mentioning and what people tend to forget is that an exchange at the new york stock exchange seventy percent of the volume is computers trading with computers and they do this you know people think that prices are the result of supply and demand and they're the lot of people want something for the price goes up and it happens as the result. at the tail wind of a transaction you end up with a price based on the buyers and sellers but that's not true any more you have freighters on wall street like to call j.p. morgan first to figure out the price they want ahead of time they create the algorithm they release the algorithm on to the floor of the exchanges and then the algorithms take prices to the pre-determined levels that were set ahead of time ahead of the trade and to do this you need overwhelming computer power as i said
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seventy percent of trades are done by computers to create prices that are pre-determined of course is the very definition of insider trading and market manipulation well the c.m.e. was in the news recently and on our show when we talked about them hiking margin requirements on silver in this was just before the what twenty five percent correction in the price of silver in may now silver is in the next have i maxed speaking of this volatility and c.m.e. silver may rebound to tast one hundred dollar level citi group says technical analysis silver may more than double to one hundred dollars an ounce if the current bull market follows similar patterns seen between one nine hundred seventy one and one thousand and eighty according to technical analysis by citigroup global markets incorporated now i want to show you this chart here max and this is provided by ned naylor leland and as you see the red circle there that's where we were just april
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and before of the twenty five percent correction as you see it's very similar to what happened in the one nine hundred seventy nine run up a thousand percent run up from its secular low and then it took a twenty five percent breather and then as you see it zoomed ahead to all time highs at that point well this is where ideologically speaking we have to see that the c.m.e. is caught with their pants down because if they were truly concerned about volatility they would lower the natural order flow and price discovery occur in the precious metals markets including sober and you know. a lot of the capital flowing out of spec of bets flowing out of the margin accounts and buying into precious metals and this would recalibrate or rebalance the system and reduce overall volatility the fact that they actually monkeying around with the margin requirements on silver selectively instead of other commodities or other financial futures they targeted silver to increase volatility the entire drop back a couple of months ago it was in fifty then
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a move down to thirty three that was engineered by the c.m.e. this see any created that volatility as a way to scare people out of silver because they're in bed with the paper books so this is the fight between bit paper and little yes and as we pointed out at the time even bill gross who who operates the largest bond fund in the world a paper bug he mentioned exactly that that the c.m.e. had done that intentionally to drive the price of silver down that's right and all it has done is it's radicalize more solver buyers like the silver liberation army for example they're simply buying more physical silver so the basis upon which this rally is being built is a widening and if you get a wider base the ultimate price target expense extends to a higher objective and so another headline regarding commodities exchanging on various exchanges around the world that has been overlooked during this diversion of this fake battle over the debt ceiling totally fake battle changes
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nothing in the genuine economy of america or the world another city had one city's top economist says the water market will soon clips oil so this is well known boyd are and he says that he expects to see a globally integrated market for fresh water within twenty five to thirty years once the spot markets for water are integrated futures markets and other derivative water based financial instruments put. calls swaps both exchange traded in o.t.c. will follow there you go max derivatives for freshwater yeah this is this is a remarkable story for a lot of reasons because the problem is that the amount of fresh water in the world is diminishing and of all the water in the world less than three percent of it is fresh water and most of that is frozen so what the planners the central
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planners in projects like america are planning to do is to create derivatives based on water they believe that are increasing the look quiddity of paper derivatives somehow increases the availability and liquidity of freshwater and nothing could be further from the truth we know that when you introduce the rivet event to market it causes price dislocation shortages and market failure we've seen in food markets around the world that's why you've got famine because the price of food is skyrocketing thanks to abuse of these markets what we've seen with derivatives markets max is any time they introduce a collateralized debt obligation backed by these mortgages what happens everybody loses that asset and the banks gain it through these three if it is greece the credit default swaps on their country what happens to the country once they these derivatives are introduced to protect them from the risk of that they lose their whole entire sovereignty and nation so look at who wears the biggest body of fresh
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water in the world. it's in russia it's late by car so you know anybody with fresh water assets now should be very concerned about these derivatives because they are used as a technique for seizing that asset in a way that they say the markets decided that we should own all your assets well raise the cost of water well to believe us the bottom line it will raise the cost of water and cause a lot of people to hydrate and die and same thing with food and same thing with these other markets and credit availability is just too expensive no one can have access to credit anymore it's too expensive so there's no credit available so you have this d. globalization taking place now in the world but it paid credit peak oil peak water peak gold pete silver peak everything because the industrial model of the past one hundred years played itself own earth carrying capacity to get only support so much
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that a clip scottie clips in two thousand and seven an hour on the downslope yeah that's the financialization gone amok of our entire global economy and that's not been addressed at all not for one single day during all of these so-called that ceiling debates and all of the two years of pretend drama between the red team and the blue team in america nothing's ever been addressed about the financial system and the financialization of our economy well i mean there's that that's why we're going back to the dark ages in the middle ages and the crusades i mean you see this all it's unknown countries all over the world has gone back to religious wars because neo liberal economics is failed neoclassical economics has failed there are going back to the economics of the middle ages my final headline here max the help wanted sign comes with a frustrating asterisk so apparently the unemployed need not apply if you look at job ads across america they're saying that they don't want basically unemployed people you have to be employed if you're looking at this and the other way they're
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. excluding the unemployed. from the jobs market is that you can't have a bad credit rating for many jobs in america so of course people have been on a plane for eighteen months twenty four months and they start to accumulate negative points on their credit score so they get literally they're banned from applying for many jobs. just a fellow class of world war two catch twenty two about the insanity of war this is being applied now to the job market you know you can and cannot get a job unless you have a job and you get a job in a job and it goes around or around this vicious cycle because basically companies don't want to hire because they don't want to spend the money because all of their profits come from trading derivatives the banking sector as gobbled up fifty sixty seventy percent of the economy and you're trading electronic phantom paper with each other to create phantom profits to create phantom printing excesses down at
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your friendly neighborhood treasury and federal reserve bank where you don't want to pay higher real people you don't want to pay them any kind of a real salary you'd rather keep that money yourself again it's back to the middle ages of lords and sort of sent you know america three hundred thirty million people who got three hundred twenty nine million peasants here thanks for being on the kaiser report thank you max and thank you don't go away stay there was more coming your way.
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but imagine the kaiser report imax kaiser timed out to go to upstate new york someplace called saratoga and talk with james howard kunstler author of several blogs including the long emergency and world made by hand of james howard kunstler welcome back to the kaiser report i'm minutes they see here already james according to your most recent blog post you have dumped some of your treasury bill i sense there's a story here tell us tell us about it well i just got kind of nervous about you know he wasn't the idea that they were going to lose value overnight or you know there's going to be stuck with worthless paper necessarily i was getting a little concerned that the banking system was maybe going to freeze up and that we
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just see a lot of sort of problems in obstructions is in banking right now this is interesting because a treasury bill is considered to be really indestructible in terms of its credit worthiness it's the basis upon which the entire u.s. economy is built it's the basis upon which the entire global economy is built if you consider the fact that the u.s. dollar is the world reserve currency so the fundamental building block of the global economy that the lowly u.s. treasury bill you're suggesting that it is not as credit worthy as some suggest so but my question is with all this talk about the aaa rating of u.s. debt being downgraded it sounds as though it's already been downgraded in the minds of a lot of people yourself included oh yeah i think the psychological effect of what's already gone on is really strong and i can always go back to short term treasury bills if i have to we're not going to bail out for
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a while into other. short term instruments and wait it out sort of like you know we're eating out you know a contagion let's talk about the craziness that's going on in the u.s. concerning the debt ceiling up until a few months ago people didn't focus on this debt ceiling so much because every time it came up for an expansion it was automatically expanded there wasn't a huge issue suddenly there attaching all kinds of riders today that has to be examination of the entire fiscal policies of the united states how did that happen who are the players and what's really going on really i think what's really going on is that all of these machinations and indeed a lot of the trouble all around the world really comes out of from one source which i think is the growing scarcity of capital and you know any way you cut it we're having problems. allocating money to the places that are used to getting it and it's a game of musical chairs and you know someone is always coming up short and every
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week it's a new musical chair player and every week we have to sort out find some way to to make up for the fact that that money's not there and we're going around and around in that game really can't go on that room there are some people including myself who attribute a lot of this trouble were really to the peak resource and peak energy resource issue fundamentally and that you know when you have fewer energy inputs and resource inputs available for your economy you're going to eventually eventually there will be expressed in having less capital available and so you see the whole world scribbling for capital in a situation where capital is increasingly scarce and it's reflected in currency problems and banking problems and the management of the management of capital itself yes you talk about scarcity of capital and. this is something
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that people can't wrap their minds around because they have grown used to be idea that capital can simply be loaned into existence in the current fractional reserve system where there are no checks and balances it's just a matter of clicking a button and there you have it a new one trillion dollars in capital being created but you bring up an interesting point here in that the reason for this capital to be loaned into existence for decades has banned to finance and to underwrite the global energy business which is probably if not the biggest business in the world certainly close to being the biggest business in the world globally and now that you've have these resource constraints and i just read somewhere that something like fifty six countries oil producing countries are now in decline so you can make the case that the entire globe is in decline in terms of output of oil you also have this
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phenomenon of shrinking capital so as that these two coterminous are they tied at the head when he had when he had peak oil as it's called you also hit peak capital are they connected can you explain that a little bit i think it's self-evident that they're connected and you know what we're seeing are very large chains of consequence and feedback loops of systems that are tied together. the energy system you know represents our primary the primary resource for an industrial economy and it allows the other systems that we depend on to work including our systems for doing commerce or systems for doing agriculture and remember what one of the main inputs for agriculture now for of the form of industrial agriculture that we practice is capital you know that that comes right right after all the diesel fuel in the oriel base because this. and guess
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based fertilizers you know capital is where keeps our food supply going and that's becoming scarce for for the farmers all over the world. transportation system and the banking system the which is the you know the management of capital that the management of accumulated wealth that can be allocated for productive purposes unfortunately our wealth of the last twenty years has been allocated for financialization which is really as we know paper shuffling and not productive and we best be able to go on for a period of time because you know there was tremendous momentum built up in the. fossil fuel based industrial economy yeah i was talking to stacy herbert in the beginning of the first half of the shout and we were talking about the diminishing
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resource of fresh water and going forward as freshwater becomes a diminishing resource the talk the happy talk coming out of washington would be well we're just entered this kid's industrial strength the sound is ation project but of course that would require capital so not you can't have liquidity in the capital in the water market without liquidity in the capital markets and so therefore if you agree with that well yeah and i think a better illustration in the usa these days is the shell gas scam that's going on there's understandably a great wish that america could produce enough energy to keep the things that we run running virtually indefinitely you know we're so invested in this stuff that we've got including our suburban lifestyles and the interstate highway system and all the other things that we do that we want to imagine that we can keep on doing
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this forever so. this story has been going around for about the last year that there's one hundred years of shale gas out there. and the shale gas. play or bonanza that got ramped up around two thousand and four two thousand and five and it started in texas around dallas fort worth with the barnett clay and you know it seemed like a magical thing that we had these new techniques for drilling and you could go down horizontally and not shoot a bunch of water in there and break up some some tight rock as they call it and you have a manufacturing process rather than a drilling process for gas we just more or less continually reliably come out at a great rate. and what happened was they discovered that in this form of gas drilling that after the initial production the flows fell off very dramatic
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way up to eighty five percent in the first year and. they used the initial production figures to raise tremendous amounts of cash and to get to sell shares and to get borrowed money you know most of these companies were running at two hundred to four hundred percent of their their costs for doing what they do anyway they sort of front loaded the shale gas plays with high expectations and they played upon the american public's wish that we would have less energy and when the barnett play started to to show a great deal of weakness very quickly and is now virtually over and when that came to an end they moved on to the a.f.l. in haynesville in louisiana in arkansas and those are now showing weaknesses among
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the weaknesses are that the geographical area of these shale gas plays. tends to retrack to a tiny fraction of what they originally thought these things they call sweet spots so now they're up in new york and pennsylvania. and there's a moratorium in new york which there's a lot of agitation to lift that there's a lot of fear about this the fracking process where you shoot all this water down into the rock to fracture it and liberate the gas from the tight rock so that hasn't been settled but i think the bottom line is we're going to discover that the shale gas. industry is not a manufacturing industry it's basically a real estate play it's a way of obtaining leases. and then selling him off for five times the amount of money you paid him for ultimately we would have to throw in an immense amount of money and steal that is capital in steel at this process to keep it going
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at anything like the rate that people wish for and so the hundred year supply of shale gas is actually looking more like a six or seven year supply of shale gas and that would be added to the conventional gas so we've got about twenty odd years of gas altogether that we can can pretty much pin down but that's about it twenty years so we've already hit peak fracking well we certainly hit peak fracking in in barnett and we're getting there in louisiana and arkansas and you know we'll get there soon enough in the marcellus but you know it's unfortunately it's a god it's just another thing that allows americans to not pay attention to the changes that we have to make in the way we live and you know i'm not suggesting that we have to become socialists or were communists or we all have to move into
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you know one big house together but what it does mean it's we're going to have to pretty severely reorganize the things that we do with american life the way we do transportation the way we do farming the way we inhabit the landscape you know and setter and we're not prepared to think about this at all right well it sounds us without capital you can't have capitalism and with all this theocratic kind of middle aged type crusades going on seems like a reverting back to the dark ages politically and economically because we simply don't have the capital to support capitalism anymore but anyway james howard kunstler us all a time for we have thanks so much for being once again on the kaiser reports you're welcome nice to be here all right now it's time to do it for this debt. another guy has a reporter with me max kaiser and stacy herbert and i want to thank my guest james howard kunstler going to send me an email please does the advertiser report that r t t v are you until next time this is nice guys are.
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