tv Cross Talk RT May 1, 2013 1:29pm-2:00pm EDT
hundred days since the president's second term in a press conference this morning he warned of syria's probable use of chemical weapons while cautioning that more evidence must be gathered before taking action he did warn that the regime has crossed of the gradual i will take a look into the fine print of military spending in a special segment today and here's what's in your interest. i. am paying the four and a half years since the federal reserve launched the first quantitative easing program according to the c m b c bad survey q.e.
will continue well into two thousand and fourteen i spoke with peter schiff c.e.o. of euro pacific capital about how long interest rates can remain low a facility current u.s. deficit spending given the president's announcement today about the possibility of chemical weapons in syria i first asked if spending either military or domestic must be severely severely curtailed. this is the guns and butter argument right now i think we can have both and as long as we can borrow money it practically zero percent interest we can pretend that we can have both but eventually interest rates are going to rise and the government going to be forced to make some difficult choices there is going to have to be a lot of cutting going on and i think we're going to have to cut in both military and domestic because we're not to be able florida a lot of these expenditures or do you think it's possible to reduce the debt and the deficit while the fed enables lower interest rates piece of a quantitative easing well no i don't think anything. it's going to be accomplished
constructively as long as the fed is spiking the punch bowl i think a prerequisite to a legitimate recovery is going to be sound money and higher interest rates right we're going to have to sober up we're going to have to check into monetary riyad we can't keep drinking and expect to solve these problems well i have here a graph of the federal fund that sends the one nine hundred fifty s. were clearly and a long period of extreme easing stretching back to two thousand and eight now the fed has hinted at it as an exit strategy of winding down large scale asset purchase a it's but i've heard you say that when he doesn't actually have an exit strategy for an atheist famous or infamous for saying he can reverse monetary policy and stem price inflation in fifteen minutes so do you not believe him. best that's wishful thinking but it's not going to have but you cannot reverse this monetary policy without imploding the economy that is based on a continuation of the cheap money we have created
a cot of me that is completely dependent addicted to zero percent interest rates and quantitative easing if the fed takes that away the economy will implode so but they can't admit that they can't acknowledge that so they have to talk tough right they have to bark a lot of but they can't bite because they have no teeth well what about bernanke he's told he has the term deposit facility and try pretty were verse repos and the fed could always sell assets if it was backed against the wall you really don't think any of these are going to work and sell the assets through who is going to buy them and at what price you know when the fed tries to unload all these mortgages and u.s. treasuries there are no buyers the fed is the buyer and the only reason other people are buying is because they think the fed is going to keep doing it based on the last minutes of the federal open market committee and speeches by various fed officials i think it's possible we might see short term interest rates rise towards the end of this year what do you think. to be the net effect of that was that the
economy can't handle it for a number of reasons the banking system can't handle a big increase and raids the mortgage market the housing market can't handle an increase in mortgage rates the us government can't handle the increase in interest rates because it doesn't have the money to make the payments i mean look at all the pain that we have because of the sequester which were tiny tiny reductions in the rate of increase in government spending can you imagine if short term interest rates rose just a little bit and the government needed an extra one hundred billion or two or three hundred billion a year just to pay the the added interest on the national debt i mean i would not be a real disaster that's going to happen eventually but i don't think there's any way the fed is this going to allow that to happen if it thinks it can postpone the pain by printing more money which i think is what we're going to do so i think what we'll see first is weakness in the u.s. dollar against other currencies you'll see a breakdown in the dollar index and
a bigger increase in the price of gold a big reversal of the recent weakness we've seen in gold i think you'll see the dollar break before we see the bond market break because the fed will print all the buy they have to do to prop up the dollar but i think the break in the bond market will eventually force the fed's hand and it will not enable them to kenya to prop up the bond market and then we're going to have to deal with this problem well one of the arguments for higher interest rates is that it will have save or as i say retired easy who are earning very low returns on bonds and have been forced into riskier assets to receive higher rates you think this is a good policy you know it is a good policy we need higher rates the problem is big the economy right now can't afford higher rates given the enormity of the debt so what's going to have to happen when interest rates go up is a lot of the debts are going to go into default we're going to have to restructure the economy but you're one hundred percent right before we can have a real rick. every we're going to have to have real interest rates we're going to
have to have an increase in interest rates that encourage savings reward savings that discourage praful good consumer borrowing government borrowing so that our credit can be available to businesses to make the capital investments that we need to expand our productive impact capacity to hire people in real jobs and to grow our standard of living well how do we wean our economy off of this federal support . i don't think we could we did offer we got to go cold turkey but unfortunately you know there's nobody wants to do that everyone's everybody wants to pretend that we can just keep on doing exactly what we did to create the crisis and somehow that's going to magically solve the problem do you think the u.s. can continue to hold the world's reserve currency status no not if we continue on this course i think the dollar is going to lose that status what's going to replace it i don't know i don't think it's going to be another currency i think that gold will be a more important reserve asset in the future than currencies and i think this smart
central bankers particularly some of the creditor nations in the emerging markets will be taking advantage of the opportunity to buy more gold now that the price of come down and if some of these european indebted nations like cyprus or span or portugal or italy are forced to sell some of their gold i think would be very wise for these other central banks to snap it up way when we see this transfer of gold where do you think it's going to go i think it's going from the west to the east from the debtors to the creditors you know and as to shift of wealth and you know when you become rich you can afford to own more gold when you're broke because you borrow too much money you end up giving up your gold and you think the u.s. is going to have sell off their gold reserves as well well i think we're going to need a gold reserves i hope we don't sell them off i hope you know i'd rather see a restructuring i think we're going to need all the gold we have because when the dollar collapses i think the only way to really. confidence in the greenback is
going to be to back it by goal and so we're going to need those reserves in order to accomplish that when our crude oil production is up and with technology and acting and natural gas is it possible this could take us from the trade deficit to a trade surplus as potential for energy independence independence and then a gating factor in what you consider the real crash well mitigating factor maybe in that it's better that we develop these resources then that we not have them at all or not develop them but it's not going to take us from a deficit to a surplus eventually we're going to go to a surplus but not because we export so much oil but because we import a lot less of everything else because the dollar collapses and americans stop shopping so eventually we're going to balance the books we're going to have to have a surplus and we are going to use a lot less energy as a nation because americans are going to be poorer we were already losing using a lot less energy than we used ten or fifteen years ago because we're poor because
fewer americans are in the workforce but that trend is going to continue as you know we're priced out of the market and as people in other countries other nations whose currencies are going to be gaining in value they're going to start consuming a lot more energy we're going to have to supply that with that energy and it's going to be a good thing that we have it because we're going to need to export it but it is not a panacea it's not like you know we're not going to have any disruptions in our standard of living that we're not going to have to dial it down because we've got all this oil we don't have that much oil is better that we have what we can develop these reserves that we have but believe me it's not to get a free card not not even close ok i want to talk about a piece that you wrote an investment news that i read titled lessons learned from japan and one point that you brought up is that on one hand we criticize the policies that countries that artificially the deflate currencies to because exports such as in china but then on the other hand christine legarde and ben bernanke.
ported to fans policy policies of massive easing which has weakened the so what's ok and what's not ok as it pertains to currency devaluation. well i mean japan's policies have been a complete failure i mean a lot of people want to point to the mistakes of japan particularly here in the u.s. yet repeat those mistakes you know japan has had this monetary easing policy for what two decades now and it hasn't work so now they're just going to increase the size of the quantitative easing they're printing more money there they're trying to create inflation as if that's how you create economic growth it's not i mean if inflation led to economic growth in zimbabwe would have been the growth growth capital of the world it's sound money it's deflation that is more conducive to economic growth it's when prices go down that's what happens in a vibrant growing economy you produce more and prices go down and your standard of living rises they've got it backwards in japan they think if they can just make
prices go up the country will be more prosperous well they're going to get higher prices you know sometimes just say be careful what you wish for because you might just get it you know they just had the first price increase in mcdonald and five years in japan they raised the price to hamburgers now twenty to twenty and i haven't time then now. and lou even time to go i am going to leave it at look now i suppose that's great news for the japanese maybe for years they were bored every time they went to mcdonald's a burger was exactly the same price now because they're going to pay twenty five percent more for the exact same hamburger somehow this is going to be a boon for the japanese economy you know the crazy thing is they think they're going to create more consumption more demand by debasing their currency they're going to destroy demand because they're going to destroy the value the currency when prices go up you buy less you don't buy more when prices go up supply and demand means that as prices go down that's what stimulates consumption you demand more of thing. as the price goes down not as the price goes up so they're going to
create inflation in japan but it's not going to lead to economic growth if anything it will lessen economic growth and so this is going to backfire and you know we should learn that because you know we're following in their footsteps only we're doing it from a much weaker position now japan i think japan despite all their mistakes is in better shape than we are or maybe we're in worse shape than they are maybe a better way to put it. the prime minister of japan is devaluing the yeah and by doubling the monetary base with until years to pay and has the highest debt to g.d.p. ratio and the world and spends a fourth of all the tax revenues on debt obligations that was peter schiff from euro pacific capital from lincoln to bust to obama funding wars has always been a challenge next we'll look into the fine print of creative wartime spending and then our t.v. producer bob inglis and i will debate and see see will the bank of wal-mart and
it brought him into the war beginning look for reform like. the syrian woman is. trying to protect their families. there is another shot of the very most of. the last minute. to stay in russia. a secret laboratory was able to build a new most sophisticated robot which fortunately doesn't give a darn about anything since mission to teach me creation why it should care about humans in the world this is why you should care only.
wartime financing is always a challenge but governments are never short of creative solutions will explore how the iraq and afghanistan wars have been financed off budget but first history offers an instructive insight so let's take a look at what president lincoln and his treasury secretary seven pj's did during the civil war just a few months after iraq did the northern tree faced record gold outflows to stop this link and chase simply halted gold convert ability which brings us to the age of greenbacks unbacked paper currency it would prove a disaster as the money supply nearly doubled into eight hundred sixty three and along with it wholesale prices secretary chase outlawed speculation and gold
markets to stop the greenback devaluation but he was humiliated time and again and eventually forced to stop printing greenbacks as price inflation soared chase and link and then decided to finance the war with good old fashioned debt and to guarantee there would always be a buyer of the new treasury securities set up a national banking system that uses the debts as reserves this would lay the groundwork for the federal reserve fifty years later the south also experimented with money and the result was hyper inflation without the capital base and strong banking system of the north the confederacy of finance nearly their entire war with money printing after the civil war the us continued to finance its wars by issuing debt here's what defense spending looks like adjusted for inflation since the one nine hundred forty those peaks and outlays put massive stress on the economy nearly all of the money spent on war war to the korean war and vietnam was accounted for
on budget but that changed with iraq and afghanistan and. since two thousand and one the pentagon has taken advantage of an old trick to finance its dream budget from souped up tanks to bomb dropping drones and state of the art command centers their wish list has been filled year after year now in normal times the u.s. budget goes through a lengthy and heavily scrutinized congressional process but if there's an emergency that requires additional funds that can't wait for next year's budget congress can pass a supplemental appropriation bill this is the tool that pres the president can get immediate emergency funding for war and natural disaster historically supplemental appropriations were calculated into the future cost of war and then put back on budget but as we can see from the green line from two thousand and one to two thousand and eight emergency funding grew each year from thirteen billion to one hundred eighty seven billion dollars the pentagon is addicted to the stealth financing because it rarely gets checked and as much as two hundred billion dollars
since two thousand and one is accounted for for instance in two thousand and nine congress one hundred six hundred million dollars for a fleet of twenty two raptor fighter planes but the request in the department of defense budget was denied in the end the congress and julie simply stuffed the f. twenty two requests into that your supplemental and it was automatically granted to this day thereafter has never been used and iraq or afghanistan. lincoln and chase thought they were smarter than the market when they waged war on gold in favor of greenbacks perhaps the pentagon will get a similar lesson was short term and just rates and evidently rise and the market no longer accommodates one hundred billion dollars slush funds in this completes our book into the fine print of military spending.
now it's time for the daily do all joining me is bob english prime interest producer great to be here thank you for joining me so the jobs act which is the jump start jump start our business start up act is called out and signed into law last year is supposed to make it easier for businesses to raise capital now as you see as opposed to let's let the ban on general solicitation which limits how private companies can raise capital exactly the kind of been dragging their feet on this by the f.c.c. and its defense it's all leadership change mary mary shapiro step down now there you know why it's come in well mary shapiro's said that she did not want to be tagged with an investor legacy and then saw her interim business and her interim chairwoman comes and she's dragged in front of congress and congress says to her
why are you dragging your feet and then we have this new chairman and she's this new chairwoman says that well we have to do this now so suddenly it's in the balls court of the f.c.c. to implement these new rules and this has to do with the creation of an opportunity for business to raise capital that in the private markets through general solicitation there's a lot of questions with this rule so we will say that mary jo white once opposed the rules through and then deal with investor protections later however i don't know if the rule. protects investors or not well that's and that's up for debate because the funny thing about this rule is that when it comes to raising capital in the private markets when you have a general solicitation you can advertise on the company's website you can advertise in print but this doesn't necessarily mean that the protections will be afforded for accredited investors. i mean why does it really matter and incredible investor in this in this instance has to have an annual income of greater than two hundred thousand dollars or a net worth of greater than
a million dollars exact so basically you have to be an investor and you. know you don't have to be rich to be an investor to be an encouraging buster but the whole point here is that you know if you're going to be an increase if you're going to be an accredited investor you don't necessarily have to be rich but what i think the real question of the day is can vote markets have a bank ok so the f.c.c. has a new are actually a dodge frank implemented a three year ban on commercial firms from owning and duster alone companies this expires in july we know that wal-mart has looked after a charter for a bank for several years they dropped that in two thousand and seven so people still speculate they might still want to charter i don't know do you think wal-mart should be allowed to start a bank well that's an interesting point because wal-mart is already in the banking industry and in mexico in canada in the u.k. and they're already in the bank and the banking industry to an extent in terms of
cash trucking and bill payment in the u.s. and they would love to get into the business of providing loans because that gives them protection it does not give them access to the discount window but that's another story well some people believe that may not mix with commerce however this dodge for a moratorium only applies to firms that have less than fifteen percent of their assets tied to financial activities so you can have still eighty four percent of your business tied to commercial commercial activities and still enter the financial services world which we've seen with wal-mart they have bluebird which is the prepaid debit card that they work on american express and this is an interesting way for companies to get into the banking system and i think we're going to see a revolution in the payment system if a company in the coming years. there's a backdoor way through the federal regulation federal reserve regulation double i for a debit card issuers a prepaid debit card to get into the banking industry and they can only have four or five billion dollars of assets to do so but what we're going to see is servicers
like wal-mart have cash servicing centers be able to cash your bills and provide a whole new range of services in the coming years and they're not necessarily going to have to be a bank holding company to do this so maybe the question's not should wal-mart be allowed to have a but how is wal-mart going to find themselves exactly going to be with and it's quite possible that we're going to be we're going to be seeing the repeal of the bank holding company in the next few years and that would open up a whole range of options for non-bank players to enter the financial realm and i think it's going to be an exciting time we're going to see tech come in and really revolutionize the way that retail banking is done today but i also feel that wal-mart has done a very good job of reaching middle income classes and i feel that if they were going to charter a bank that they would probably service to middle income households who have a hard time getting capital anyway you know what i mean it's interesting that you say that because the whole the whole premise behind this debit card prepaid debit
card movement is serving the unbanked and the under bank and this was a this is something that's been founded by are funded by the ford foundation and it's been worked on for a number of years and we're just seeing it come to fruition now another development that happened just yesterday sir richard branson broke the sound barrier version the acting spaceship to completed its first its first supersonic flight test now the ship can hold six passengers two pilots it actually launches off an airplane and then the rocket the white knight launches off the airplane and they came to get up to three hundred sixty one thousand feet and then you're in the air for five minutes of waiting that's cool now the rocket only fired for sixteen seconds i'm just going to rattle off a few statistics here that is is printing. the five billion dollars dollars a month ok that amounts to one hundred eighty million dollars an hour or five hundred twenty four thousand dollars over that sixteen seconds so we want to be
a prize if we didn't tie everything and superiorly exactly the words and that's our do all things are joining us. it's been a day of milestones day one of our prime interest one hundred days of obama's second term in one hundred years for the bad all worth the radio we popped the debt bubble with peter schiff in an interview that was much more sustainable than our fiscal path than we delved into the fine print of creative wartime spending finishing with the dual over new rules for capital markets and a calculation of the extent philosophy of q.e.
is brahim. the war beginning looked far from my house on the skill of a. syrian woman is. trying. to stop the very most of other conflicts build. a mug i'm planning to stay here russia. to build a new life in. wealthy british style. time. markets why not. come to find out what's really happening to the global economy