tv [untitled] December 21, 2011 4:31pm-5:01pm EST
claus bring yesterday's stock market rally he warns though to brace for a record cold winter ahead we will look at who is bringing the biggest chills to the global economy and if this means a new economic order is taking shape meanwhile zines some young americans are not waiting for santa claus or anyone else to bring them prosperity we have heard the case for investing in farmland now more signs that people in their twenty's and thirty's are going back to the land to sow their own seeds of economic growth so will people go over occupying wall street to occupying the bar and we will discuss that let's get today's capital account.
it's the holidays happy holidays and santa claus is coming to town but the question remains what form yesterday markets rallied and you had bought on big bill gross of pimco tweeting this today is a santa claus rally prepare for a record cold winter solstice upon us euro land will not go away china lurks us not an island so in that tweet you see there is the threat of europe which we talk about nearly every day on this show concerns about china and the us is the sceptical to all of these problems not to mention its own now the china us issue is really a favor for us politicians too they love to hammer china we've seen it in the g.o.p. debates we've seen it in negative campaign ads in the past here's an example. from children's to make sure it is part of the obama. hold for the troop build that led to believe it's a tax break for foreign companies moving jobs and you know just looking around the
office today we decided to do a little of our own due diligence and we're checking our labels and tags and realize ok my shirt made in china or mugs are made in china the american flag i had this hat that our producer dimitri swore and i haul the wheat episode to dress up as uncle sam again made in china but had a sideline in there of this ridiculous thing our guest says china is not to blame for america's economic ills far from it she asked if santa claus in fact is chinese she points out that u.s. manufacturing decline before china became engaged in the global economy went from fifty three percent of the u.s. economy in one thousand nine hundred sixty five to twenty five percent in the seventy's and my highlighter actually we saw is made in mexico our guest argues that now to move jobs from america to mexico not china so. oh mexicans not
americans ought to be mad at the chinese for taking away low wage manufacturing jobs from them that have gone to china and now meanwhile americans she argues have been the biggest beneficiaries of chinese labor and consumerism with u.s. exports to china growing four hundred sixty eight percent over about the last decade wall to the rest of the world that growth has been fifty five percent that's not to mention china has been driving global growth while the western world has struggled with economic doldrums and as we've mentioned on this show before the us has been a net exporter of inflation to china inflation that if it were to land on our shores would drive up the cost of everything from again my shirt to my mug to probably this glass desk and dimitris hat well and lee is here she is in new york to talk to us about all of this she is author of the book you see here what the u.s. can learn from china and openminded guide to treating our greatest competitor as our greatest teacher and professor lee it's nice to have you in the studio in new
york today so to go along with the santa claus thing because you implied that santa claus is perhaps chinese our question is how long is santa claus going to continue to visit us here because we know that is economy slowing down a bit we know that he certainly is not immune to say the pressures of the eurozone crisis and this is true. china's growth will likely slow down it's been growing a very rapid clip in the last few years. but the chinese leaders have made it very clear that they want to make sure that their inflation doesn't get out of control that they need to rebalance economy so that they don't have a real estate glut and that they need to develop more of a service sector and just a more balanced economy to continue the consumption growth and make their economy sustainable and whenever
a large economy transitions from one state to another this requires a lot of retraining ploy ease and it will slow down as people need to educate themselves and learn new ways to do things so. china's growth may slow down but that doesn't necessarily mean it's a it's bad news for the rest of the world in fact a stronger china would be in the interest of many countries because it would just mean a more stable china will staying on this topic i want to bring in what prominent hedge fund managers for example hugh hendry are doing they are shorting china reportedly have been and continue to be and here's a clip showing why some of these people are concerned i want to show our viewers. ok it doesn't look like we we have that clip but it was a clip showing how china is investing in building basically manhattan so investors
like you are concerned about malinvestment they are concerned about. the rapid loan growth that is fueled some of those go cities that we have seen so do you think china could be headed for a hard landing or simply as you're saying growth slowing down. i'm in the camp that growth slows down as opposed to hard landing first of all the cities that you talk about. are basically government officials trying to build in the anticipation of demand that will certainly come china is still very early in their development and today at least one hundred fifty million of their households still need housing and along the coastal cities they still expect another hundred million people to migrate to the cities from rural areas in the next decades and so this would mean that they need to create roughly ten million new units a year and so this is not a real estate bubble per se they have
a housing shortage what these people are talking about is maybe valuations of real estate which no doubt can fluctuate it's no different than apple stock it can go from three hundred dollars to two hundred dollars but does that change the fund some fundamental characteristics of the company no you still the same employees are still coming out with the same products so short term valuations should not be confused with the overall development trend china's going on ok in professor lee i really want you to break this down for us because we have so much analysis that comes from people sitting here in the united states they don't have firsthand knowledge you being someone who has spent time in china who has taught in university and china i want you to kind of separate fact from fiction for us what do you see from analysts from pundits from people in the media or politicians that they're either completely getting wrong or really getting right about the chinese
economy. well all just one of the issues are always come up in that they worry about the banking sector that that their banking sector is going to implode because of the real estate that's going to float so this official government debt in china is roughly twenty percent. just to give you comparisons to the united states are here is about one hundred percent of g.d.p. so right there alone the official numbers are much higher however if you wanted to add on all the other liabilities that the joint chinese government could possibly take on which these people are talking about such as bad loans from their banks made to local governments if you add in other and securitize debts and financial industry bonds that they issue if you add all those up yes it can take china's debt to g.d.p.
from twenty percent to at the highest one hundred eighty percent now if you did an apples apples comparison to the united states which is fair because obviously we went and saved our banks so even though they're private they frankly are too big to fail and therefore it is the government's responsibility anyway so if we take on their liabilities and of course all the state and local governments liabilities which we've been doing as we transfer federal monies to them if we add all that up all the other and securitize and securitized securities all the financial and corporate liabilities that they have taken on the us debt to g.d.p. would be only almost four hundred percent and in fact that might be understating it because the wall street journal also came out with a study saying that most of these large banks do repo's to hide their liabilities from their balance sheets so they estimate it was roughly forty two percent of the
liabilities they hide so if you actually take on these off balance sheet liabilities and add that on the total government debt to g.d.p. in the us could be upwards of five six hundred percent of debt to g.d.p. and professor lee we talk every day on this show too about how the u.s. banking system is a disaster for the reasons you're talking about but it's interesting when you put a. chinese analysis of the banking system there in that perspective we have to go to break quickly but i want to come back to talk with you more about of course the issue of reserves because that is something that definitely is incomparable when you look at china's foreign reserves being the largest creditor compared to the united states the largest debtor nation so we will continue this conversation for now that was professor and lee. right it's time now for word of the day where we break down
a financial term or concept for our very smart for your but perhaps not the financial expert and given that our discussion with and least centers around the united states and china and there are disputes between the two countries so often center around the issue of currency we want to break down currency peg today and let's take a look at how it is being talked about in the news right now so in this article about china's currency the you want being up late on a stronger central bank guidance that was received in a weaker dollar abroad the wall street journal writes that you want is that four percent against the dollar this year and seven point seven since june of two thousand and ten when china and its currency pegged to the dollar and vowed to make the you want more flexible so there you see it but what exactly is a currency peg well it is a countries or governments exchange rate policy of pegging the central banks exchange to another country's currency so you may ask what is the point of doing it well here's the reasons why if you peg
a currency artificially high it means you're a country that's trying to encourage foreign money to come into your economy you're trying to attract capital and if you pay your currency artificially low it means that you're trying to encourage exports you want your country your industries to export more now when a country pegs its currency artificially low as is argued in the case of china currently which still loosely pegs its currency to the dollar the central bank has had to intervene in the markets and it does this by buying up foreign currency and adding to its foreign currency reserves as you can see china's share of the world's foreign currency exchange reserves have certainly risen now this also. creates inflation domestically and what happens when a country pegs its currency artificially high well this happened in the case of argentina for example prior to two thousand and two i'll get back to this chart but basically the central bank has to intervene in the market by buying up its own currency with foreign exchange reserves now let's look at how this can play out and
i want to continue to use this argentina example so argentina originally pegged its currency its peso to the dollar in one nine hundred ninety one you can see this here it's as flat lined but it eventually came unglued at the start of two thousand and two as people started dumping their pesos argentina i think you probably know it's going through a tough time going through a depression the peso came under increasing pressure and the government eventually had to stop intervening intervening allowing the dollar you can see what it did to appreciate very rapidly against the peso this is the dollar's value shooting up relative to the peso so this is how you can see the impact of what happens when a currency peg you know isn't able to be maintained so this has everything to do with trying to affect a country's exports and investments and relationship to other economies which is why this becomes an international issue much more complicated than i can explain and word of the day but now you at least know basically what
a currency peg is and still ahead here do not go away right here on capital account china reportedly became the world's top happen filer in two thousand and eleven surpassing the west and japan so are we going to see made in china turning into designed in china have that coming up the first your closing market numbers. internally or military mechanisms to do the work to bring just a sort of good. i have every right to know what my government should do if you want to know why i pay taxes. but i would characterize obama as a charismatic version of american exceptionalism. welcome
the world i want to show you how china along with other emerging economies have really built up their reserves at the same time that western nations have been increasingly going into more and more debt of which we have seen the toll now all of this and the fiscal house in order kind of approach that developing nations have taken in the growth that they've seen have led to them demanding a greater seat at the international table and it's not just developing countries who are asking for this and calling for this saying this needs to happen we just saw mohamed el erian c.e.o. of pimco in an editorial today say that a new economic order is taking shape before our eyes and it is one that includes accelerated convergence between the old western powers and the emerging world's major new players so the big question is if this is going to happen or if we're going to see emerging economies bind together forge ties amongst each other to develop their national interest so i want to bring author and professor and lee
back into the conversation to ask her just that so professor lee the question is what i just posed in my introduction which is as we've seen this trend with with emerging nations growing and building up reserves and the west becoming just more and more indebted are we going to see emerging nations take a greater seat at the table places like the i.m.f. or are we going to see them forge their ties amongst each other to forge ahead with their national interests. well that remains to be seen i was at a brick conference hosted by columbia university recently and i reminded the audience that yes it has been spectacular to see the bric countries rise very quickly however they need to be able to move away from relying on natural resources relying on cheap labor and and start innovating as the developed countries have in order to continue their growth and to change the. center of gravity more towards
them so. we don't know if they're going to have some natural ways to work certainly there's trade that's developed between them that's been enforcing ties and certainly currency exchange settlements in the realm and be between china and other nations has started but that doesn't mean that. that necessarily the. cooperation would necessarily just start or end there so we need to yeah go ahead well i was just going to say speaking of innovation i thought it was really interesting reuters reported that actually china has moved to the number one spot for patents filed surpassing the u.s. and japan for two thousand and eleven so are we going to see made in china become designed in china and that really forge ahead as a leader in innovation. it's very possible because the source
of innovation comes when you have insight and when so many countries are moving their manufacturing to china and the people there working on the factory floor are the ones who have the experience and can see and develop the insight as to where improvements need to be made certainly down the road we could see more innovation coming from china on that front and the fact that they are graduating more and more people in the sciences and engineering fields. i talk about this in my book. in this one chapter where i explain how the chinese have very long term visions of where they want to be and they invest in those visions one of them is to replicate silicon valley like technology incubate around their country which enables them to. let their own entrepreneurs to focus on coming up with innovative
products without the worry of having to make a living and then there's the question of how the united states is going to respond and address our own jobs crisis in the united states the decline in manufacturing i want to play what president obama in a recent speech said is the obligation of corporations and this let's play that for our audience this brought. many forms you know the time when the cost of hiring workers in china is rising rapidly it should mean more c.e.o.'s decided that it's time to bring jobs back to the united states. so my question to you professor lee listening to that i don't see that as a solution waiting until wages in the united states drop below china what do you see as the solution to the united states is jobs crisis. yes i think that you waiting a long time because all the economists know labor wages are very sticky and to date
i don't know any american that's willing to work for three dollars a day let alone. what china is doing so for them to wait for labor wages to equalize is not the. right solution in my mind in fact if it came to that we would probably just have robots and other technology do all those of all the work that currently chinese people do right now so the more realistic way to address this is to retrain unemployed workers for a new knowledge economy to get them to. learn the sciences and learn math and all that and invest more talent in those areas because wrote an article recently that yes we could have solved the unemployment problem in so and have it anyway because we have three million jobs in the united states that we're going
unfilled for six months or longer and that's because the c.e.o.'s are saying they couldn't find the talent to hire for these positions and these positions tended to be technical they were in information information technology in health care in manufacturing even and and this is what's happening when we graduate one point six million college graduates and less than thirteen thousand of them go and get electronic electrical engineering degrees and over eighty thousand people graduate in performing arts yeah it's a really good point you bring up and what you're calling for sounds like something you say they're already doing in china it's always interesting to make these comparisons i really appreciate you being on the show that was author and professor and lee.
all right we've made the china u.s. comparisons talked about the u.s. jobs crisis now let's look at what some people are turning to as a result so i want to bring in our producer dimitri kofi anna thanks for letting us your uncle sam hat earlier by the way as welcome as well as shanna dano in the control room holding down the fort so with that question of where to turn and downward economy look no further than a sector that has fared better than others during the recession trista. rehn into their strong. all the way to. oh all the way to the. car. that's right we are seeing signs that more and more people in their
twenty's and thirty's are going into farming the evidence enrollment and university agriculture programs has increased as has interest in farmer training programs and to me true we know that farmland averages twenty one hundred forty dollars per acre so it is a little bit of an investment but people are going for it and this is a great sign i mean we know that farmland. oh my gosh that's amazing this is really good picture which i really actually look like you know you know that i didn't know about this on your own entirely actually yes i did ok well this is not a highlight of my whole day but. to me. this is a really good move for people in their twenty's and thirty's we always hear investors talk about going into farmland is going into farm the answer for the jobs crisis for the youth. you know in all seriousness the thing we did see in the united states with the low interest rate environment during the two thousand special you had this big boom in construction and homes yeah and
a lot of that whole building happened on land that could have been used at some point the future for farming so the point is that you had a lot of excess capacity build up and a lot of investment things that people perhaps did not need so farming has been neglected for a long period of time in how many people do you know that know anything about farming want to go into farming not money it's been an even an industry it's complete change during the great depression i think about ninety percent of the country was living in rural areas and now it's the reverse and it's become really technological as well but as you're rogers has said hey farmers might be the ones driving the montserrat is shannon you think this is a good bet for these these twenty's and thirty's or old twenty and thirty year olds i mean it's really hard work that's going to say i mean sometimes like i don't know i've warned them that they should look into it before they know what they want to know is there and that there are good on the ground perspective and one of the. i think as we did have chris martin a while back. fossil fuels oil specifically those of that's pretty humongous role
in making farming and making it more machine capable fertilizer everything like that so that's been a part of the reason it's changed so the fact that more and more people are learning to farm that could be increasingly important a world where war or oil will become increasingly expected of brevity you basically need to grow your own food and hey who knows maybe me and you will be out there tell a very good show if the show doesn't we didn't have who is that you are so doesn't work out with at the end of the show the it's very there's your tomatoes. but he said you trade tomatoes as long as we go well i started because i have no interest in dressing like that shannon i don't know how you made that possible i'm going to get you back for that honestly that's just you know i tried to do that once with lauren he didn't love me what i had when you went rogue again family you are i would stand going around you is a trend and we're going to have to get her back tomorrow because that's all we have time for we're going to save the rest of our stories for then find out how maybe times were better in ancient rome when gladiators got slaughtered and we haven't
today is that that thanks for tuning in to our show feel free to follow me on twitter at lauren mr and give us feedback at youtube dot com slash capital account i am more in leicester and from everyone here thanks for watching until next time have a great night. for sure is that so much you really mean a lot of people in your reasoning ability and when you came to the next stage of north korea's do leader again highlights the acute insecurity in the korean peninsula and beyond. the news today violence is once again flared up. these are the images the world has been seeing from the streets of canada. showing corporations rule today.
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a big picture. but i think the iranians have to believe as well that i put it without leadership believe that america would consider taking military option. shifting the axis of evil from iraq and the taliban to iran and its nuclear potential g.o.p. candidates are cooking up a healthy dose of iran a phobia but iran isn't alone and straight ahead we'll tell you the other two countries under this new axis of evil. and while g.o.p. candidates take shots at iran u.s. home.