tv Boom Bust RT July 15, 2014 11:29pm-12:01am EDT
play. play a. little. cross talk rules in effect that means you can jump in anytime you want. teddy bear i marinate it this is boom bust and these are some of the stories that we're tracking for you today. it's day two of the brics summit in a quarterly is a brazil and some big news coming out of there this afternoon you'll definitely want to hear what's been decided upon there and what it means around the world big big news and victor she is on the program today the professor of economics that
u.c. san diego is giving us his thoughts on an emerging markets development bank and reserve fund and in today's big deal edward harris and i are discussing what a splinter group prize means for the strength of the u.s. economy it all starts right now. the brics are making some big news sunday two of these summit in brazil leaders from brazil russia india china and south africa have signed off on a new development bank according to leaders from the five brics nations the bank shall have an initial authorized capital of one hundred billion dollars with the initial subscribed capital at fifty billion shared equally among its founding
members and one of the facts well here they are the new development bank will be located in shanghai the first chair of the board of governors will be from russia the first chair of the board of directors will be from brazil and the bank's first president will be from india while the african regional center will be in south africa now the brics also announced the signing of a treaty for the establishment of a reserve fund for member nations called the contingent reserve arrangement or c.r.a. with an initial and this will see. size of one hundred billion dollars emergency reserve fund will help developing nations avoid quote short term liquidity pressures promote further brics cooperation strengthen the global financial safety net and complement existing international arrangements artie's paul scott is covering the summit from the fourteen days of brazil and has a full report from day two paul. this is going to be initially worth around fifty billion u.s. dollars with each country h. putting in around ten billion each now is seen as
a rival an alternative to the international monetary fund and to the world bank which the brics nations and russia in particular fail to western centric and in particular to washington centric so this new development by him he's going to be seen as an alternative a rival to the current really the current global financial structure and on top of this there's also to be a new reserve fund wealth around one hundred billion u.s. dollars now this will protect the emerging countries from any possible future global financial crisis is going to be seen as a buffer to protect them and if there is a global financial crisis in the future now the hope is that the brics nations can continue to grow and act as a counterbalance to the economic power of the west and in particular as i mentioned washington are russian president vladimir putin has spoken of what he wants which is a multi polar world in which the global economy isn't so western centric it isn't so
dependent on the u.s. dollar so the signing off of these two initiatives is seen as a step towards creating that new economic world order. that was r t international correspondent paul scott in for two days of brazil. so the brits are a motley crew of emerging economies that have different economic and political systems but they're trying to figure out multilateral ways to foster economic cooperation and growth we sat down earlier with victor she professor of economics at the university of california san diego to learn more about what china is looking for at this summit china is one of the biggest players in the brics and arguably the world now i first asked him if the negotiations about emerging markets
development bank and reserve fund were significant and obviously they probably are going to prove to be but here's what he had to say. the way that they're talking about it seems like it's going to be a very large scale developmental play but one thing that i think people should be cautious about is you know whatever the government comes in and invest too much money you mean of course there is a time place for government investment but when we're talking about hundreds of billions of dollars people would be worried whether you know this investment is going to bear should we turn and in a world where interest rates are beginning to rise again i think it's been very challenging these developments. to earn you know this issue. that they're going to need to raise now what about reserve currency status you know who in the emerging markets can buy for increased reserve currency status over and over what timeframe. yeah you know among the emerging market countries of course
people would say well the roman be clearly it's a candidate for being a reserve currency the rest of the world but of course you know in order for that to see come to fruition i think china needs to carry all substantially more financial reform i mean for one thing and probably the most important thing that roman be it's not a freely circulated currency so the capital what counts in china is still closed so that people cannot move into and out of china freely and that's a really big barrier to the right to be to become a reserve currency there are also a whole host of negro and economic institutional reason why there are the is still not quite ready to be of use or currency. you know for example there has to be a lot more transparency in the budgetary process that china you know as messy as the
u.s. budgetary process is actually you know pretty transparent and the whole world can see republicans and democrats debate about the budget you know on t.v. that's not something that you can see in china and so people are you know sometimes in the dark about the budgetary process in china especially when it comes to local debts which is of course implicitly guaranteed by the central government it expands extremely rapidly without anyone in the world really noticing it and it seems like the chinese government deliberately tries to hide that debt so on so you have transparency and so you have capital now opening you know room and b. so it's not ready to be a reserve currency. many people see the brics as representing a sort of emerging market a lead or emerging market leadership and this is a question i've had for some time and i'm sure that you can answer it what exactly makes a country an emerging market and in what respect are the brics the leaders of emerging
market countries. so you know i guess traditionally emerging markets which is you know countries that are not that rich you don't have that with a very simple definition. on a g.d.p. per capita basis and the and what makes the great countries sort of the powerhouses among the emerging market countries is just a simple fact there are a large. you know they're all fairly populous countries meeting led by india force which has a population of billion. and there is you know in some of those countries are substantial amount of human capital right so in the it russia of course you know enormous amount of high end human capital because of the education system in the soviet union. so that's what makes them powerhouse but i think i think people also think the bric countries are different from each other so i don't agree with this so we're practicing lumping in them all together brazil and india are
democracies russia and china are not so much democracy you know in debate about degree to which they are not democracies but they're clearly very different resilin in yeah where the public. plays a very substantial role in public policies in these countries and in russia and china clearly the public places less row of course you know as as i touch on already a case of transparency there's just a lot more transparency in you know just focus on economic issues in the budgetary process in monetary policy in all kinds of economic rossi's in india and in brazil a lot more transparency than in russia and china. and of course you know russia and china also you may be partly compensate with but they don't have a lot of transparency they keep the lords lords foreign exchange reserves. and that
has actually provided them with a large degree of stability in terms of their exchange rates. you know much more so in china than russia of course but even the russian foreign changers of this hope this so i think they're quite different and you know i think it's helpful for them to have a meeting and talk about like common objectives but they're also divergent objectives of the theory that i want to talk about china here now would you walk us through the main reforms announced during last year's third plenum and tell us that there are significant and shiva ball. so you know on the third plenum. of the eighteenth party congress of the chinese communist party boards or so people sometimes talk about the third plenum as if it's like the federal reserve meeting but it's actually a chinese communist party media. they sort of decided on a fairly comprehensive plan for reform although they have carried out some very
important policies promised a lot of already for example relaxation of the one child policy so i think i believe in all problems in china they have rolled out policies to allow more couples to have two children instead of one so not even all couples going to children yet but more so event previously was the case but some of the other sort of issues that were discussed in the plenum have not been carried out and it doesn't look like they will be carried out. to by the by the same extent as as people had hoped so for one thing it was talk of allowing giving property rights land property rights the former so that we can really sell and buy the land that policy has been put aside completely there was some wording on encouraging spoke to kill reform so allowing people to move into the city and receive social services
and in that city. you know this interim government has since made clear that there's going to be very strict limitation of migration into major cities like beijing and shanghai and so that's yet in the reform that's falling short of expectation finally and i think this is the big one that everyone's waiting to see what happens is what's going to happen to state and a price reform whether they're going to be allowed to go bankrupt or privatized that's a big issue still under discussion right now and i think a lot of people watching to see how far they're going to push for sitting on a price bankruptcy or privatized nation. that was a victor she professor of economics at the university of california san diego. time now for a very quick break but stick around because when we return jim burps the brains behind the film money for nothing inside the federal reserve is giving us his thoughts on possible options open to the fed in terms of exiting the monetary
i was at that and i think a society that i think we're for radiation kind of can consume can do and the banks are trying to call them all about money and i'm actually sick for a politician writing the laws and regulations that. they're just too but it's a society. that. star wars. anderson lined up. like.
welcome back to share now the financial crisis with the federal reserve on a wild path of monetary experiments the various quantitative easing programs and near zero interest rates that the fed has embark on in this new monetary journey has you know some way now put the economy in a different place and now it's time to steer the economy back to a place of getting stronger it has to figure out a way to exit all of these strategies and has to do this without creating some unintended consequences to get more on the possible options open to the fed i spoke to jim bruce the brains behind the documentary film money for nothing inside the federal reserve i first asked jim if you support of the fed's move away from quantitative easing here's what he had to say. i think what's curious is the fed waited as you know as we've seen recently u.s. g.d.p.
has been has been widely negative recently so i think the fed that the timing of what the fed is doing is a little bit strange if you look at some of the variables that they're supposed to be watching like economic growth but i think it's long overdue i think they waited far too long to do what they're doing but i certainly agree with stopping q.e. at this point i think the fed's recognizing by what they're saying that the. potential for further q.e. is is zero essentially that they've run out of benefits but they're worried about the risks so they're unwinding the policy. jim yellen i did say that quote i read another quote you given the economic situation that i just described we judge that a high degree of monetary policy accommodations remains appropriate so despite ending q we low rates will remain in place for some time to come so are you concerned that this will have negative unintended consequences well yeah i mean i
think that's the fed's trying to walk a fine line there is trying to say ok we're done with q.e. but what they're worried about is the market overreacting to that and start to sort of collapse because that they know the market's been propped up by q.e. so the idea is they're going to sort of handoff from q.e. over to zero percent interest rates and the reason to not sell stocks and things like that and to not have a big risk on period in the market is with q.e. gone is now will have an extended period of low interest rates so that the fed it's a very delicate line they're trying to walk you know my concern all along is the fed shouldn't have made these promises to the market in the first place and so and now they're trying to sort of manage a gentle graceful. exit from the from this position they put themselves in you know what about macro prudential regulation can't the fed deal with market froth by regulation the way that new zealand has successfully done and the british are now doing. you know i think maybe theoretically but if you look at the areas
that the fed is willing to acknowledge where there's there's problems the leverage loan market high yield bond market some areas of the stock market. those are tricky areas i think the leverage loan market they are trying to take steps to sort of dampen down but i think in general you know so much of the playbook the fed has developed for the things they'll do to resist the bubble if one happens again is looking at the bubble that happened in two thousand and three and four and five and six and in housing prices and so they have these clear steps if we see a big huge housing bubble and a massive us credit bubble these are the things that we can do is regulators but again they're fighting the last war i think they're not seeing the risks that are currently on the horizon and i don't think they have very good tools to to adapt to what we have right now which i think is is overpriced stocks bonds and houses on
a sort of global basis i mean it's london real estate new york real estate there's sort of big problems that the fed has and i don't think they have easy i don't think they have tools to deal with it and i don't know if they have the willingness because if the fed's going to sort of take the punch bowl away from this party it's going to slow economic growth and i think they're they're so scared of slowing down economic growth because it's so weak that i don't think they're really going to take any steps to really to really regulate this and any of the problems that i see on the horizon away jim i'm going to play a devil's advocate here if the fed doesn't keep rates at zero won't the u.s. economy we can and then perhaps tip into recession. i think that's probably that's a potential and likely historic outcome i mean again my problem is i would have allowed interest rates to rise maybe several years ago when the economy probably could have withstood it you know more effect you know more easily so so i think
that that is a risk but i think to me the higher what the fed has done really they haven't really caused healthy economic growth or a strong economic recovery in the u.s. we haven't seen any of those things for the last six years what they have caused is a big boom in financial assets and i think today was day one of the fed janet yellen you know specifically recognizing that there are risks in the bond and stock markets in the u.s. and i think that sort of turning the page to a new chapter and i think what the fed is trying to do is begin to distance itself from what it's been doing for the last five or six years which is talking up financial assets talking up financial markets in an effort to get economic growth and i think the risky thing is that is exactly you know as you're pointing out there. they're pulling away taking away the punchbowl they're beginning to talk about tightening at a point when the economy is not growing because their policies haven't worked their
policies haven't led to growth so now as they remove their policies there is a further risk to growth i agree with you that there's a risk the problem is i think the fed has to think about the big picture in the long term and i think they are slowly realizing what i would have you know said three years ago which is continuing to promise q.e. and promise to your percent interest rates forever creates expectations that are dangerous in the markets and now i think the fed is going to have to deal with those expectations over the next you know year or two. jeff here's another question in the vein of my previous one what about the fed's congressional he authorized dual mandate this little thing to promote not just priced ability but also full employment you just mentioned employment how can the fed put on the brakes and now when we're not even close to full employment. i think that that's the big problem i mean if you look at it's there's a distinction between what the fed is trying to do and what it's actually doing i think the fed's been trying to impact growth in employment for the last five or six
years but what they've really been doing in reality their policies have been and impacting financial asset prices pushing up prices stimulating financial markets and the idea is always that that would then lead to healthy sustainable growth and employment but since it hasn't lead to help these as they will growth and employment the fed is left with the conundrum right now of their seeing that financial assets have been pushed to dangerous levels janet yellen admitting that finally publicly and so they're realizing that they have to slow down on q.e. and these policies that are that are pushing those assets higher. that was jim bruce director of the documentary film money for nothing inside the federal reserve time now for today's big deal.
big deal time with edward harrison good to be in the clash today now in today's big deal at or and i are discussing what the slump in crude oil prices means for the strength of the u.s. economy especially in light of fed chair janet yellen from markets today congress ok so this is a very very macro big deal that we're we're going through this i want you to walk me through it step by step ok this is a big step but you know first thing what does yellen basically say today in her report to congress she said basically you know even though actually we're tightening we don't want to think of this is tightening because we're just remove removing the excess accommodation that's associated with leave because we've become uncomfortable with that but we're still going to be accommodated by having zero rates for as long as it takes how do inflation unemployment and you know future fed rates basically appear in her remarks today basically she said inflation isn't
coming on a good so that gives us accommodation unemployment is still which should be with there's excess capacity there's slack in the labor market and the two when you combine them together given where we are in the economic cycle we feel like we have the fed that is that we need to be more common now what did she say about you know the markets kind of regaining strength and growth happening times and what were her in marks there you know i think she was a bit concerned about or she gave lip service at a minimum to the concept that there was fraud in the in the equity markets and credit markets and so forth. but generally. speaking i think that she's much more concerned about the real economy and the the other side of the economy that is the financial column and she feels like you know her remit basically is a dual mandate for full employment and for you know a price to build and that's all she's going to focus on now actually on the subject of financial stability i want to highlight some of her remarks from c.n.n.
here's a quote from yellen today the committee recognizes that low interest rates may provide incentives for some investors to reach for yield and those actions could increase vulnerabilities in the financial system to adverse events while prices of real estate equities and corporate bonds have risen appreciably and valuation metrics have increased their main generally in line with historic norms so can you break this down for me basically to think that there is froth in the markets i think yeah i was just saying that there is some froth in the market but you know i'll pay some lip service to the whole concept we should be thinking about whether . what we're doing is being overly common native in creating that for however now that i've said that it could be in fact it's not these are within historic norms and remember that stock prices have tripled since the six six six the s. and p. two thousand that's you know a two hundred percent return for anyone who invested over the last five years
that's kind of incredible now in the fact that it generally sounds pretty optimistic about future growth and you know some contradicting indicators there we have crude oil the. oil price and you know this record long slump that we've seen so can you tell me what's going on with the percival oil what's this all about so basically if you look back to two thousand. one hundred forty seven. that was the sort of thing that created demand destruction if the economy is actually doing incredibly well on a global basis you would expect there for there to be all sorts of you know people going out and actually using oil and therefore it will be. some constraints but that's not what we see. we don't see that for bread which is what they have in europe in fact it's below one hundred ten days in a row all of those are pointing to weakness in from a macro perspective as opposed to straight and the fed is tightening into that week
so basically there's oil prices they don't mean they're never not a good thing i would think that there'd be an excess supply in person are going down that's not the case they are somewhat you know from a consumer perspective it's a great thing that's going down you know gasoline prices going down it gives consumers a little bit extra money to spend but from a macro perspective it's a it's a signal that you know the economy is not ticking over there's no there's no chance of overheating in any in any way shape or form so that means that if the prices are going to you should look for coincident indicators they're saying the exact same thing for instance food prices are also going to other commodity prices are going so none of those things speak to a me on a global basis which is actually trending upwards if anything it shows weakness on the in the global economy exciting stuff happy time and i think only weakness all around and thank you as always that's all for now but please drop us
a line because we love hearing from you on our facebook page facebook dot com slash boom bust our t. and prince tweet out us. at work and page from all of us here have been bust thank you for watching we'll see you next time by. science technology innovation all the list of melons from around russia we've got the future covered. this was one washington well it's a missile that is being suggested in the latest numbers of the. candidates for the prophecy of current issues actually back to a new doesn't do too much for ad revenue my own tech agriculture giant teeth on
a seventy six year old american farmer based in india is fallout do you think this is going to create for the cia do you think this is what's triggering a great america is the largest economy in the world it's also the largest debtor nation in the history of the world breaking the set is mostly a hollow turn and it's the status quo but one night the real alternatives of points on the hill looking towards the american dream the next they were just trying to survive it's time for americans and lawmakers are forced to wake up and start talking about the real cause of problem.
was. a day of mourning is declared in moscow as emergency crews were twisted wreckage of the three carriages the details in the capital's metro system killing twenty two people dozens for mine in a critical condition. israel returns to its sweeping blitz of gaza as a cease fire plan falls flat and hamas hamas rockets kill the first israeli since the conflict began. the bricks in latin america where the leaders of the world's population agree on a new world bank and an internet free of mass surveillance. british intelligence about to get legal backing to monitor private citizens as an immersion .