tv [untitled] January 25, 2012 12:30pm-1:00pm EST
this tiny ski resort town of davos the world economic forum it's invite only high on the agenda is capitalism itself its problems and its future so what does this mean for the rest of us were there fill you in we'll hear from lauren who just checked in with us later in the show. and back in the u.s. the president's annual state of the union what really is the state of our union. and i must say to you. the state of the union is not good. gerald ford delivered those famous words during a time of rising trade and budget deficits and expanding national debt and high unemployment america had already started down the road to empire long before that but almost forty years later what do we have to show for it our next guest co-writer and co-producer of award winning documentary io usa and best selling author of the two thousand and six m. part of that the rise of the financial crisis joined me earlier to discuss just
that. and with the today f o m c meeting kicking off this morning the only thing we've been promised is more transparency kind of interest rate forecasts of individual committee members will not be made public but considering that the fed has already committed to keeping rates near zero as far as the eye can see is this really a concession or just more helpless p.r. by a central bank that has reached the limits of one not so great moderation let's get today's capital account. yesterday i had the pleasure of traveling to the headquarters of a gore a financial in baltimore and interviewing best selling author and publisher out in
wigan who along with bill bonner started one of the first online financial news letters the daily reckoning back in one thousand nine hundred nine a very a veteran of alternative financial media and investing how dissent not only predicted the current bull market in gold over a decade ago but has also been writing about many of the perils associated with our collective addiction to debt and overconsumption imperial expansion and the hollowing out of the american economy for even longer today i will be paying playing a small part of my hour long interview with him i started by addison asking addison if he has been surprised at all by the federal reserve's inability to reinflate what he has dubbed the mother of all bubbles addison wiggin publisher of financial . to use the war metaphor because it seems so popular with with the media there is a war between deflation which is the natural de leveraging process that happens at the end of a credit bubble and inflation which is the natural result of trying to reinflate
the bubble and that's that's when we get the federal reserve. meeting minutes that's the debate that they're having they're trying to reinflate the bubble and then we're reassured by mr bernanke the fed governors that they'll be able to measure the moment at which they put on the pedal too much and the and inflation is going to take off and that's the debate. is going to meet this week and we're going to hear more about whether they think they're injecting enough money into the economy or not enough that's the way the system is regulated the danger is we just enter into a period where people lose interest in the stock market entirely they don't consume as much they certainly don't as produce as much as they used to and the entire economy just slows down and you have an extended period of slow growth and low employment and that's what we've been experiencing since two thousand and eight
despite all the efforts with the quantitative easing and even purchasing of treasuries and mortgage backed securities that the federal reserve has done and that period can go on for a long long time and if you're interested in growing your own wealth that's presents a significant challenge and the other thing that we've seen that makes it very difficult for people to understand these big macro trends in the economy is the debt crisis the sovereign debt crisis in europe the challenges that japan has had getting its economy back on track after two decades following their own credit bubble collapse is that the dollar and treasuries remain the reserve asset class whenever the. that crisis begins to spike again in when we hear greece or a couple weeks ago as in p. downgraded nine different. nine economy is in in europe people
lead to treasuries i think as well because historically treasuries have been the safety trade and the safest place to put your money gold has played a role certainly since one nine hundred ninety nine when we begin recommending it was two fifty three now it's hovering around sixteen hundred it has had a good run but in the financial markets the paper asset that is represented by the u.s. treasury still maintains its flight to safety status and to my mind that just in bold ins. mr geithner and mr bernanke even more because they believe that that status will be maintained regardless of what happens even if congress can't get its act together and balance the budget the the treasuries and the dollar have asserted themselves as specially you know i was especially shocked in september of two thousand and eight the dollar rallied twenty two percent right after lehman brothers declared bankruptcy in
a very real way it reasserted itself as the event to some extent of course and that's also there's a website because so much of it is the character that you've written about right many years right and that's that there is that that tension in the economy is something that's our daily bread because when i and i say when not if there is an alternative to the u.s. dollar i believe that people will rush for the exits so how do you see that do you see that as something playing out in the near term how do you see that happening in terms of alternative because the one alternative to the u.s. dollar has been essentially precious metals or commodities basically people seem to be playing hot potato instead of thinking that maybe maybe towards the late ninety's people are thinking more how to make money a lot of people now are worrying about how to avoid getting hit. i think it's a big paradigm shift at least among the sophisticated well it's a paradigm shift that we recognized throughout history in financial reckoning day we did a whole chapter on john law and the misuse scheme. will we see these big financial
bubbles in history and then on the down side during the collapse people are more concerned about preserving their capital than they are making money anymore and those periods last for a long period of time and we expect this one to last seven to ten years and we're only three years into it so there's a period of time where people become disgusted with stocks and they get worried more about the return of their capital than their return on capital. and then you have periods of time where treasuries actually go negative people are willing to lose money and give it to the government then put it in the stock market or invest in their own innovative enterprises and that's because the feeding on itself and people are trying to stay there for them because they still have bills to pay because still if you use dollars to pay bills and these down to pay bills and they just lose trust in the system so on the downside of a collapsing bubble you have a period of mistrust and it takes
a long period of time before that trust can be reestablished and then people start looking for alternatives that's the phase that we're in right now but if you look at countries like china russia brazil they're all holding in massive amounts of u.s. dollars and u.s. that china i mean japan and india south korea these countries are all dependent on their their reserves their dollar based reserves and they're fearful to so they're looking for alternatives they're trying to figure out ways to trade with one another using their own currencies we've had announcements from russia and china brazil trading in things like oil but settling those accounts in their own currencies rather than the dog. all or and every time a major announcement comes out. i remember specifically one time i was sitting in a hotel room in dubai and there was a headline story in dubai which is twelve are twelve hours ahead of the markets
open in the u.s. where there are. some finance ministers from saudi arabia and the gulf six countries had gotten together and suggested that they might put together one currency back it partially buy gold and then begin selling oil in that in that new dinar remember that in a beer in the dollar index before the open in new york got whacked for two points because the fear is that some kind of alternative to the u.s. dollar would get created and people would rush for the exits because all all of these reserves are being held in what. what most people recognize is a risky asset so we think preventing the diversification why wouldn't they just move away right now well because there's no alternative right now and if you ask big money managers or people that are using the reserves of the central
banks they have no alternative they've been trying to accumulate cold we know that china is buying gold and storing more of it but there's not enough. of an alternative. to move into that wouldn't also crash the dollar at this is a terror is it fair to say that the people that investors are looking to take the lead looking for central banks to take the lead they're waiting to see what the people bank of china is going to do with their reserves what what global central banks that are trading partners with the u.s. would do because the reason i ask that is because it would seem to me that there are not written right in our place they've experienced help pump this bubble up so high this point that they depend on a consumer they can't afford their own goods so they have a political problem which is a play it is that's exactly right it's a political problem because. investors and banks around the world are dependent on a currency and
a bond that unanimously people agree is unsustainable because of the deficits that the u.s. government has been running and. the entitlement problems that we foresee but are unable to address address politically and also just the mounting interest that we need to pay on the the existing debt these are problems that have been politically impossible to even discuss and yet you have all these reserves around the world waiting to see what's going to happen and so it's pretty goes back to what we're saying which is that people are just waiting to see which way the wrecking ball is in a swing and they want to out of the way so everyone is playing the same game and does that mean that eventually think at some point something completely unexpected will happen that it will that the deal leveraging will occur unexpectedly and some form or fashion that's what we're expecting will happen and is very difficult as you know to forecast when that is going to happen or in what form it will happen
and it's fair to say that a reason a very strong reason why the deal leveraging hasn't happened yet is because there are other crises around the world that are even more egregious than the ones we're facing and people are still fleeing to treasuries in the dollar in the meantime. because. you know the central bank of brazil is holding now because china's still in china still holding on because japan is still old enough there there is no alternative on a scale large enough to accommodate a. flight from the dollar. and still ahead more from my interview with bestselling author and producer addison wiggin where i ask him how long he thinks it will take for this credit bubble to finally be flayed and what he thinks the american economy will look like when it does but first your closing market numbers.
show is that so much given to each musician. in the market egypt's unfinished business a year on the revolution that you have to do spirit appears to have stalled the military rulers who replacement. with. this month by the particles that make up the fabric of the universe find what you're looking for in the deep siberian forest fire with the help of lasers in fibers pull out your tablets of a new gaming religion and let the teacher begin all of that here in dover sibierski technology on stage here on along with the future coverage.
welcome back in this second part of my interview with addison i asked him what he his time frame is how he sees the bursting of a decades long credit bubble playing out and if you think that this depression will get so bad that the american government will stop at nothing to prevent the economy from bottoming out as americans agree to forfeit whatever liberties they have left for the promise of ever more security history shows that on the down side of a big asset bubble the credit bubble and government. gets more aggressive and they start looking for ways to balance their own books off the backs of the producers and i think we're in a period where that hasn't really begun yet. that's what makes people fearful that's why people are sitting on the sidelines waiting for the next thing the next
the next moment where they can jump back in and begin deploying their capital and making money again i know again the one of the things we spoke with before is having read they reckon i know that you have a very human very humble theme to the work of theirs and you never want to say this will happen and this will not happen would be your guest your best guess if you just play it out theoretically in terms of how this will develop and the time frame do you have a general idea yeah i think the history shows that there's a long period of malays after a credit bust and we saw one in two thousand and eight we could expect that to go on for ten years twelve years so it's if you put that into perspective we're only three years into it we're only in the the initial shock of the collapse because stock market still reasonably high people are still watching the housing numbers expecting somehow there to be a resurgence in activity in new homes in construction we're still talking
about the crisis in the same terms we were before two thousand and eight happened. before this cycle is done we will no one's going to care about housing at all the stock market is going to be like it was in one thousand nine hundred one when businessweek ran the the title the death of stocks people lose interest entirely before before it turns around before the contrary inflated jump back in is ignored but do you think of it when we do bottom out in this cycle that the rules will be sufficiently altered where you'll be able to actually make investments or will there the political climate be so different i mean will people have we willing to sacrifice so much of their freedom for security given what the environment will be like that you know i think it's a great question and one of the guys that i've been working with in the new film is one in week as who was. venture capitalist helped put together the financing for the human genome project and he talks about the amazing things that are going on in
the lab right now he's invested in a number of different businesses and they're innovating at a rate that they've never been able to innovate before because of the advent of advanced communications and quantum computing they're able to do a quantity of. experiments that they had never even imagined before but his greatest fear from an economics perspective and from a political perspective is that we will never get to take advantage of all those advancements because the rules will change to suffer such a significant degree because of the collapse of the credit bubble that entrepreneurs will never deploy their capital to get those things off the ground and that's the tension that we're facing right now when is that going to happen when is that moment going to going to take place when people shift from profound pessimism that we're seeing in the in the headlines today to profound optimism again the belief that the american economy is dynamic and and can grow our way out
of the daily reckoning is free it's a free website we give our analysis of the situation all away for free so if you visit w.w.w. dot daily reckoning dot com you can actually just enter your e-mail address and sign up and get our daily analysis on a regular basis through the daily reckoning we make a number of our paid for private subscriptions available so you'll be contacted from time to time with special offers but we've also set up a special page on the a core a financial website w w w a financial dot com slash r t four listeners today who have who are interested in the solutions that we're trying to provide for this macro environment that we see ourselves in. and that was addison wiggin executive publisher of core financial. i. i.
i. time now for word of the day when we break down a financial term or concept for our very smart the or but maybe not the financial expert and today the word is quite fittingly given that the world economic forum is upon us it's known simply as davos because that is the name of the swiss mountain hamlet it's held in every year how does davos man fit in well here's one headline man ways future of capitalism. so what exactly does that refer to well we have a definition davos man is an expression which refers to the global elite of wealthy men whose members view themselves as completely international where they come from samuel huntington the late harvard professor an influential american political scientist is credited with inventing that term he said the davos men have quote
little need for national loyalty the you naturally boundaries as obstacles that thankfully are vanishing and see national governments as a residues from the past whose useful function is to facilitate the elites global operations so who helps get to find this concept of modern global elite men and women the guy who dos out the invites to the flagship event which is invitation only once a year here is. it's swab founder of the world economic forum german born harvard educated in one thousand seventy one he launched what later became known as the world economic forum bring together elites in every arena c.e.o.'s royalty heads of state cabinet members central bankers celebrities authors the forums agenda is meant to talk about some of the world's big problems and solutions to them but it's become better known as one giant networking opportunity
for davos men and women how valuable is that well check out what corporate sponsors shell out every year according to david rothkopf book superclass a handful of lead sponsors pay three hundred thousand bucks a year thirty sponsors do one hundred sponsors pay roughly one hundred fifty thousand dollars a year and two thousand sponsors pay thirty thousand a year so all pay this to attend and schmooze with a gathering of what you to use lead singer and global afficionado bonnell calls fact cats in the snow.
that was upon us it's the world economic forum's annual flagship event a couple thousand of the world's richest and most powerful people are packing into this tiny hamlet town in the swiss alps to schmooze and talk about what the world's problems are by invitation only who gets invited well the l. is this pretty long angle merkel opens up the form david cameron will speak famous economists like joseph stiglitz and nouriel roubini are regular attendees timothy geithner will be there of course i.m.f. head christine legarde billionaire fund manager george soros google's eric schmidt and of course head of the c b mario draghi will be in attendance so now what about everyone else the concern is decisions are being made that could affect their lives maybe in a bad way but definitely without their say. and lauren is there to see what's really going on. all right i'm here i've made it to davos i'm at the world economic forum my first time i'm not alone though turns out morgan stanley's c.e.o.
says first time which shows the caliber of the people that are here ok these are much of the corporate elite much of the global elite when it comes to wealth power all of that so they're all gathered here the question is what is davos man got on his agenda this year now of course the unofficial business is what davos has really become known for in many respects that's what you hear about that makes it worth all of the money that some of these corporations shell out to be here is the networking and the deals that are done in private parties you know off the record in hallways and lobbies so this is where a lot of the global one percent or some of them at least presumably are doing business according to past for reports ironically on the actual official agenda this year is that the topic of capitalism and if it is for ambling what its future is and what the solutions to its problems are so schwab the founder of the world economic forum has said that we can't think of this is business as usual anymore
that capitalism in its current form has no place in the world around us talking about much of the of the discontent we've seen over in quality that we've seen with the occupy wall street movement which is on the agenda when some of these sessions are talking about remodelling capitalism occupy is one of the things that they're talking about interesting lee though none of those activists are invited to the forum to have that discussion but they are here really highlighting the difference separating everybody else from the elites that are meeting here they have the it lou and can't which many people are talking about but they're very much here now as far as what exactly is going to go on i'll do my best to show you but the more i'm looking at these reports of what the press is going to be able to do it looks like i'm not going to be able to see film or go a lot of the places that i would want to go except for maybe in thirty minute increments what's a day hopefully as supported by someone from the world. economic forum for me to lock down from some of these big business leaders and heads of state and central
bankers exactly what they're talking about me sessions that i may not be privy to but that is what i'm going to try and do i'm going to do my best to bring all of that the forum starts tomorrow and i will be here be your intrepid reporter until then talk to you tomorrow back to you guys. that was the host of capital account the lovely laura lister in davos switzerland. and that's our show thanks for tuning in feel free to follow me on twitter at cover and delta and as always follow lauren lauren lyster and give us feedback on our show at youtube dot com slash capital account on them you can feed us and from everyone here a couple of town goodnight. wealthy british style. that's no time to write. in
the top stories from our team moscow tens of thousands of egyptians are back on tahrir square to mark a year since the uprising that toppled president mubarak's thirty year rule but it's frustration along with celebration because of drug reforms. president obama kicks off his campaign to stay in the white house using the state of the union address to pledge saving the economy he stressed his successes and promised millions of new jobs but critics say it doesn't quite reflect reality. on the world's top whistle blows to get others to spill the beans on t.v.
as julian assange slams his own interview show right here he is with the leaks founder exposed some of the world's darkest secrets in his new series blueprint this channel. and then when you look to the ten pm hour here on our t.v. be alone to show. welcome to the launch show get the real headlines with none of them or see me live in washington d.c. now tonight we're going to take a look at the continuous warmongering and cold war rhetoric of the g.o.p. candidates when it comes to cuba and iran will also discuss an upcoming speech to be given by attorney general eric holder or some secrets about the legal memo which allows for targeted killing of u.s. citizens just might come out colonel lawrence wilkerson will join us for that one.