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tv   [untitled]    December 13, 2012 3:30am-4:00am EST

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dollars in treasuries and continue that forty billion dollars in mortgage backed security buying so continuing bond purchases but at this point is this just the fad now trying to fight the addiction versus is fighting the treatment there excuse me versus giving out the treatment to the disease that was originally meant to fight but what the feds really fighting is the depression that they won't use that word we've been depressions and two thousand and seven we've had zero interest rates since two thousand and they will probably have them until two thousand and fifteen so whether friday is deflation and depression now things and we say depression because rates have been there for so long that there's just nothing at all we have a very low growth when you can have growth in a depression the problem is you don't get trend growth trend growth is sort of four four and a half percent something like that we're getting one one and a half percent sometimes two percent a good quarter so when you're when you're trying to grow so it's it's the gap between trend growth and actual growth that is depressionary and also deflationary the fed's frightening that now the fed's very good at telling you what they're doing they spend chairman spend an hour and
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a half answering questions and told you what he's doing they're very opaque about saying why they're doing it what they're what they're trying to do the kind of why behind all of this policy is they need to give philosophy increasing bossie just to turn over money how fast you spend the money you know the the money supply is three trillion but i remind people three trillion times zero is zero in other words you have to be three trillion times some velocity to get nominal g.d.p. so as for us it's kind of got to give us a going that's really behavioral psychological so it's a program of carrots and sticks the carrots are negative real rates they want to get inflation above nominal interest rates so that the cost to the bar was actually negative very powerful inducement to borrow and then they want to deliver inflation sharp they talk about two percent and you're right to they say well to use really two and a half but you know what they really want to get inflation to three and a half or four shocked people in the bar so do should a bar with negative real rates shock you into spending with higher than expected fallacious in the combination is designed to get the last. and that's the sort of
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secret plan behind it so the secret plan to get that money actually changing hands and does not create inflation as well actually it's the other way around inflation is how you read about longevity if you were to exact if you were about the place and you think housing prices are going to go four or five percent a year you think that new car their refrigerator those prices are going up five ten percent a year you're going to be much more motivated to buy it right now people don't worry about inflation they're like prices are going nowhere maybe they've gone down i'll leave my money in the bank and wait what you have to do is shock people to say we are better but now the price is going up so inflation will increase the velocity but that begs the question where some flourishing coming from and that's where the currency wars come in because they've tried everything is zero interest rate policy quantitative easing operation twist communications policy now the currency wars and if it doesn't work keep trying to what we're trying to do is important place in from abroad by cheapening the dollar that's how we get the inflation here let's give the last of the ground that's the feds play i don't think a word but that's what they're trying to do you don't think it'll work that's something that you have been saying for
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a long time you've been critical of fed policy for at least as long as i've interviewed you last year at this time you're saying the fed is insolvent more and more people and establishment people but i wouldn't expect a really worried about the fed's policies at this point and the unintended consequences that are resulting and sheila bair is one of them this is actually what she was most concerned about when i interviewed her recently of marsh's the former chair of the f.d.a. i see right now she's chair of the systemic risk council which is private sector but they're trying to impact public policy here is what she said. moving forward i think the really the interest rate risk and the and perhaps unintended consequences of the spirit attractive period of near zero interest rates that is the kind of the future thing that i'm worried about. that's what she worries about in terms of the next crisis you say you don't think that policy is going to work to achieve what you think they're trying to do you think they actually have an exit strategy do you think ben bernanke he actually thinks he has one and is it in reality going to work well it's kind of
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a race between the fed trying to achieve their goals in the whole system imploding because of loss of confidence in the dollar and actually i that's not a good idea to paradigm it's been interesting to watch these press conferences you know they've just been doing this for a little over a year the reporters are getting smarter and smarter in the rescue tougher questions each go and there were some very tough questions today because one of the reporters a forget the individual's name said you know with that with you know they're turning eighty five billion a month well that's a trillion dollars a year and fair enough for two years to two thousand and fourteen two thousand and fifteen that's two trillion dollars on top of the three trillion dollars they already have and the question is does there come a time when you know this is not working but the balance sheets three trillion four trillion five trillion and there's a collapse of confidence in the dollar and that's that can happen very quickly it's not something i was thinking of and it was something that just boom can happen just like that and so the question is can the fed is cheap its goals before everyone loses confidence in the dollar in the reserves that is the dollar that's the question so this is again the car sewers go around the world the u.s. is trying to chip in the dollar but it means everyone else has got more has to get
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more expensive it's a zero sum game that makes their exports more expensive that hurts employment in their countries that can be destabilizing around the world and then you have the chinese if you're saying there were three trillion dollars of assets denominated in dollars and the fed's trying to cheapen the dollar that's like picking your pocket yeah yeah exactly well i want to talk about that because ben bernanke said you know we're not the only ones doing this if you haven't noticed everyone around the world is expanding their balance sheet well yeah no dub and i think everybody has noticed that but also he was saying you know we are not buying as many bonds as many as much debt is the treasury is issuing well yeah that's where foreign lenders come in to write the composition of who is buying and how much has really changed over the last twelve months as of september. as of the treasury's latest figures it said over the last twelve months that china has holdings have actually declined to the tune of about what one hundred fifteen billion dollars while japan has increased their holdings by a hundred forty seven billion dollars so what is the dynamic of this within the
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currency wars well that's a very very important point a very important story chinese are done with the dollars and they're not going to dump what they have they know that would be disasters and they're not going to do that the president could stop them but they're going to buy less and less at the margin so as they generate capital count surpluses will use that money to buy other things now the japanese have always done whatever the u.s. one of their our closest ally and go back to the seventy's when nixon one of them to raise the value of the currency they did it so what's happening is you're exactly as the chinese go down sort of phone call the japanese you guys go dial it up a little bit now the question of political it was totally political this is all being orchestrated great article in the wall street journal about how they all get together for dinner involves switzerland over the rhine river and now all the stuff that's in the good example of that but but you know the problem is who's going to actually buy the treasure i said you want to get inflation about nominal rates a lot of people say well gee if inflation gets to three or four percent aren't rates going to go to five percent won't the bond vigilantes come in and trash the bond market the answer is no this is where financial repression comes in the
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federal budget themselves the commercial banks are kept the buyers will just turn to the commercial banks and say you have to buy them or we'll show you down me and solve it we can do that whenever we want and the third leg of the store was japan so between the fed's balance sheet the commercial banking system in japan will be enough buying power to keep a lid on nominal rates bring on the inflation through the currency wars get the negative real rates try to get people lending and spending again so we turn to the old consumption and driven model yeah yeah the model that has worked so well here in the past is that we're going to say yes exactly where does that leave china you say china sitting on all of the dollar reserves they're becoming worth less and at last and last are they losing their currency war while the solution the current who is because they the thing is for them to peg to the dollar you know where your friend the currency were. as paid the dollar all this money print is going to go to china they've got to print their money to soak it off so they're going to get the inflation that's very destabilizing so they are going to let the you want to go up that means the value of their reserves are going down you know ten percent evaluation the dollar or ten percent inflation is a three hundred billion dollar wealth transfer from china an emerging market to the
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united states which is supposedly a wealthy country so they're not going to stand for that what they're doing is buying gold because they when they're yes they can because that's kind of the head so ok i've got all these dollars and you're devaluing the dollar but what's happening to the price of gold with the price of gold is going up so i've got five got a portfolio consisting of dollar and gold in a hedge position you can inflate the dollar all you want to buy gold is going to go up in the choose the kind of balance so the question is how do you get the gold there mining three hundred fifty tonnes a year they're importing more than that to become the world's largest producer the world's largest importer the doing and the central bank the central bank transactions obviously. the doing everything they can we actually don't know how much gold the chinese have officially they have one thousand and fifty four tonnes my estimate is that they're probably closer to two thousand tonnes i've seen higher estimates just a bit of guesswork although their agents know for sure and you were in hong kong you were just there so you were doing this due diligence and you're really fresh with this information after the break we'll have more because if the fed is trying
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to devalue is this the way. u.s. growth u.s. exports or is there innovation and investment needs to happen that is not happening more jim records attention capital partners author of currency wars after the break also still ahead our interview with m. and economist stephanie calton yesterday heard so many responses won't discuss change first or closing market numbers.
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all right let's just bring jim records right back in a tangent capital partners author of currency wars on this fed decision day we're talking about the currency wars and i want to actually continue on the fed's decision that they announced just earlier because i want to ask about what they said about inflation so they're saying that they're giving they're near zero fed funds rate guidance as long as inflation projected one or two years out doesn't exceed two and a half percent what kind of leeway does that give them that now they're just saying we just need to be careful of our inflation targets projected two years out well it's a good question and they give themselves leeway in two respects one is you know what what's the meaning of inflation what's the definition of inflation well you have c.p.i. you have p.c. prices deflate as you have a private service with the fed says inflation is what we say this we're going to collectively come up with their own forward projections so you could have
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a situation where the actual c.p.i. inflation is three percent but the fed saying well long term we think it's really two and a quarter so we're still within this mandate to buy these so you know the eighty billion a month or whatever it is trillion dollars your security so don't rely on c.p.i. as a cap on this it's kind of whatever the side that character in alice in wonderland you know means whatever i say it means yeah that's what the fed is saying the chairman of us said that but the other thing is they said they didn't say that they will raise rates when inflation hits two and a half percent rate was the inverse they said they won't raise rates before it hits two and a half percent but that means it could hit two and a half three three and a half which is what i expect maybe four before they raise rates so they've given themselves plenty of you know it's like putting the brakes on nice you can go a long way before your car stops right they could go right past two and a half percent and the two and a half percent is not a hard number it's whatever they say it is right so this is smoke and mirrors and as we've seen inflation number is different calculations can be changed all the time in order to kind of make it how you want inflation to look at it and change the composition of it it's interesting they didn't give themselves that kind of
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leeway with unemployment it was much more specific on unemployment but why. what do bad purchases have to do with unemployment do you think does the fed really think that it's helping unemployment well it's really it's indirect and it can it goes back to this issue of loss of the and bring inflation of the economy you know interest rates don't directly affect unemployment but if we can get nominal g.d.p. if we get people spending money lending and spending borrowing and spending get nominal g.d.p. to increase then that in theory would produce more goods and services a little more weighted to you know imports because they're. domestically produced goods because imports be more expensive with the cheaper dollar if you get that kind of production going in theory people are going to start the higher so this is in direct benefit down the road but remember with the six and a half percent they said the same thing they didn't say they'll raise rates when unemployment gets to six and a half percent they said they won't raise rates until it does but it could go to six or five and a half or five before they raise rates so that with themselves leeway on both sides
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they have tons of leeway to just keep doing whatever it is that they want to do you mentioned devaluing the dollar we've talked about it throughout this conversation is that how you get more exports or do you need a base and do you need the kind of investment that we're just simply not seeing from u.s. corporations right now the the idea of the kurds who are in that you know chip in the currency and make our exports more competitive in crude to create exports you know boeing sells more craft or whatever that's true but only to a very limited extent and that's a little bit the cover story what they really want to do is important for a shoot through imports remember the u.s. is in the importer so maybe it helps or exports a little bit i want to argue that but we import more than we exports what a cheap dollar really does it increases import prices that inflation feeds into the supply chain and gives this generalized pleasure to this let's help exports is it's a little bit of a cover story of the real story is let's important place to higher import prices and the cheaper dollar that's what they're doing yeah but to make. us more competitive in terms of exports in terms of manufacturing those sort of things are we going to need more investment from companies because then figure out i'm out
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there severely under investor absolutely that's another method idea that you promote you know if you. you hope that your currency is not true germany has been an export powerhouse for fifty years and they had a strong currency for fifty years going back to the one nine hundred sixty s. so it's education innovation investment technology good business climate low taxes that's how you promote experts and things are really lacking right now want to leave it there and see how it all shakes out that's all we have time for thank you so much general. i realize our boat would loose change to meet your famously lauren i'm glad you're here because we wanted to respond to a few things you know we don't obviously obviously always respond to actual
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interviews that we did but yesterday we had stephanie calton on she's an economist she's a modern monetary theory advocate we had a very long and thoughtful and fair discussion about mt we also had an overwhelming response from people who both agreed and disagreed more than five hundred comments in less than twenty four hours on that video on our you tube channel tons of tweets both critics of m.m.t. and supporters we have people posting it on their blogs you can kind of see it clause here a blog post and tweets people saying they loved it they hated it this doesn't make sense this makes so much sense to me three let's talk about kind of just a few of the key themes of the. interview so stephanie colton's main point was that the government is not revenue constrained the government is the monopoly issuer of the currency. which the well that should i think stephanie said it is though a lot of people think that the government is very concerned maybe some people do but a lot of people understand that the government has the ability to print money at least
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through the central bank one step removed so they understand that. and she made another point which is essentially that the government doesn't need to borrow money from china it doesn't come from china or the government because they've got all of this idea dollars come from china they don't write because naturally we can print our own money that's true but i think that that's an important distinction that i would like to see made which is the distinction between the thing and the value of the thing or the things of value so the dollar is the thing but the dollar has value the dollar doesn't get its value from its from from from from itself it's a currency it gets its value from people's willingness to use it in transactions so you've got people that are willing to lend china is willing to lend the united states were able to borrow from china that is natural value that currency gets because they're willing to the chinese voluntarily give it value they're willing to hold it there's taxation which is the other side of value coin which is forced value were forcing value into the currency as the sovereign you're saying you must pay me in this currency and therefore i can still value in that thing so i think
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that's an important distinction to make and they're saying foreign lenders have to see the u.s. dollar is having value and that gives it value not just for lenders everyone every since the caliber of users that use or give the current gives the currency value not the issuer and so their focus on the issuer i think gives a false sense of power and omnipotence to the sovereign but there's an exit ultimately it's the users in the economy the human beings interacting every day using that currents that gives its value but what about her argument that there is a way that the government has that it's not using in order to get people to be more employed she was talking about just that waste and production and the waste of labor they could be better utilized and it's interesting too because she wrote a lot of numbers there and she said look at this waste incredible waste of manpower man hours just imagine what people could do yeah and i think that's true there's an idle life is a life wasted but a life spent in wasteful and bevers is a life wasted so and she made a point and you brought it up you said is there a modern economy that you can say practices of. philosophy or something close to it
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. example what you said while trying to those really resemble anything i think. would support you know you don't want empty buildings but yes that's where the rubber meets the pavement that has been in your view ideology and what happens in reality one hundred percent because the thing with china is what's their goal their goal is g.d.p. growth and jobs growth is if you're just if your goal is growth and jobs then you're not focused on. profitable investment you're not focused on making sure that your investment for ten thirty whatever period of time it is. turns a profit so what happens you naturally have malinvestment and you always do the real economy but the point is in china as an example if the state is the right investments getting all those growth people get jobs that build things then you have massive around us and you do have empty buildings and that to me is a problem is not adequately addressed that there seems to be this desire to live in this theoretical world where things would work if the only way they could write
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their own reality we often see so so different and you know not everyone was happy about the interview this often happens it always happens this is the nature of what we do it's the nature of ideology to for sure rarely do we respond directly but this time i do want to respond to mike norman because even after a very fair and open minded discussion with someone ideologically in line with mike norman's views he cannot get off as ad hominem straw man and inaccurate diatribe he's been on against me so a while back he made a video post after we'd had him on our show which included a completely sexist personal attack on me and then he took a comment i made in a show completely out of context to try to make his point that i'm stupid now i didn't want to dignify his behavior with a response but he's still on it not his blog he responded to you actually dimitri last night saying oh lauren didn't make ignorant comments isn't it wonderful that nature does a better job of regulating our money supply than the central planners he attributes not to me he said you're right laura you're right dimitri that was truly brilliant
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now the thing is mike norman says i claimed mother nature controls the money supply that was. the video blog he did i did not do that i didn't do any such thing i had made a tongue in cheek comment in a show paraphrasing what our guest james turk had said about the yearly increase in the supply of gold that the way gold is dispersed in the earth and the limitations of mining balance with the increase in technology and the population growth has kept the supply constant at one point eight percent yearly versus the dollar supply increases which have been all over the place and at a higher rate than population growth and new wealth creation so he said gold had better adhere to milton friedman's kay rule that money supply should increase at a constant amount each year to control inflation according to him i made a comment about mother nature and supply and demand as a claim i didn't it was tongue in cheek to paraphrase the gas and get into a follow up question with him and i just keep seeing it taken out of context which i'm just sick of and just for the record if mike wants to misconstrue my comments
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and continue making ad hominem attacks to make the case that i'm stupid i don't really think that's the strongest way to do so i don't really think that's a strong argument but if you really ask me what's working against him is this. i love being on the show lauren and you know i love talking to you and you are so smart how did you get some more i mean. i've been reading your blog. so i don't know enough said there but dimitri you challenged him on twitter i did come on and to debate we have those tweets doesn't look like he took you up on that as the offer still stands there are told him he started obviously with his blog the blog post he wasn't happy about your phone remarkable because we were extremely magnanimous and we brought on someone who very mary may not agree with on everything you're going to get over the florida talk about it so my cousin. called me out on twitter and then i called him and i said listen i tell you what mike if you if you think that you're not getting a fair shake whatever it is or you disagree with me play were also show for
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a day ok if you keep bringing up my name and blog you come on the show and i'll do . so you will have an open debate open discussion on the show he didn't respond the first week or so again i was like you can back out obviously if you're if you're uncomfortable he didn't respond so my call if you're told to come out of the show host the show you can debate me you didn't respond he disappeared you were busy tweeting up until that moment but then you just kind of disappeared mike saw tell you what i mean i gave it to you it's out there now let me know yeah and he keeps calling up your hair which peter chip is not here yet and actually we challenge him pretty robust labels to honor lash out so it's a ridiculous because we had peter schiff on the ok we challenged him and so i got a lot of flak from people but so i learned it yeah but again like america i'll tell you something the difference between theory and what people believe and reality want to throw at me to say the. issue that mike may have of peter schiff and he should stop using us as a hologram or for his own issues with peter that's not a problem mike that's your issue alright alright we've got to go to make a right of time but thank you so much for watching be sure to come back tomorrow
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and in the meantime you know you can follow me on twitter at lauren lyster uchenna like our facebook page give us feedback on you tube catch a shows you missed also you can see it and on hulu and from everyone here thank you for watching and have a great night. see . destruction see. what could be just really. you say great sacrifice
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you start. by human jets it's. a remarkable reminder of courage and selflessness. putin is a more people. listen to the russian side. pluck. pluck.
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pluck. live. lead. it as.
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if. actually i actually .


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