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tv   [untitled]    October 5, 2011 11:30am-12:00pm EDT

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it's a few school. welcome back here with our to learn from moscow a quick recap now the top stories police fired tear gas to demonstrators in athens as the nation is brought to a standstill by a nationwide strike state services have been paralyzed after thousands of civil servants walked off their jobs all in protest a new social austerity cuts. russia and china block a u.n. resolution against syria which did have european backing moscow says the targeting of damascus is based on confrontation and not the push for peace. thousands across
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the u.s. voiced their anger of corporate money and its influence on the government the time of soaring unemployment labor unions have now also joined the chorus of is of course. there are the headlines for you here and in half an hour's time it. is here but for now. discuss just how deep the global economic crisis is and who will bear the brunt of it crosstalk is now. came. to. follow in welcome to cross talk on peter lavelle days of rage is the global economy on the brink of a double dip recession if so why can't the rich west find the right mix of fiscal and monetary policies to jumpstart the global economy while generating jobs at home
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and where is the political will in the u.s. and the eurozone to lead the world out of crisis. can. start. to prosper the global economic outlook i'm joined by leo planets in new york he is a distinguished research professor in senior canada research chair at york university also new york we have larry mcdonald he's a senior director at new age and the bestselling author of a colossal failure of common sense the inside story of the collapse of lehman brothers and in washington we cross to dean baker he is co-director of the center for economic and policy research all right gentlemen this is cross talk that means i want you to jump in i very much encourage it leo if i can go to you first in new york are we headed for a double dip recession and is that the united states in the euro zone that's leading it. well we may be whether it happens this quarter or next quarter you know we're in for
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a very long period of capitalist stagnation since we don't have credit fueled consumerism. consumption growing especially in the united states and in parts of europe you know the picture doesn't look quite as bad in the united states as it does in europe at the moment. perhaps because the asperity isn't quite as heavy auto sales this month that actually increased and warren buffett said over the weekend that he thought that the economy was humming along the outside of the construction said i mean a lot i think in the longer through. well i mean what is the job generation where's the job generation i mean it's very interesting to look at these numbers and stats but people are out of work and that's something that's not happening generating jobs dean if i can go to you i mean you can look at two consecutive quarters of negative growth and that's a double dip ok well lisa recession ok but we're not getting any job generation so we're do you see this going and are we going into
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a double dip and how deep will it be no no we are going to double down i think it's really going to fortunately has been so much focus in the media because the basic story here is at least in the united states we're looking at a prolonged period of very very weak growth i mean the baseline we're looking at and there's not even that much difference in the range of forecast and somewhere between two and three percent growth and we need to a half percent just to keep pace with the growth of the labor force so that means it for two percent we're going to see the unemployment rate rising rather than falling given the severity of the downturn we should be seeing five six seven percent growth that's what you saw coming out of the recessions in eighty one eighty two and seventy four seventy five so that's what you have this concern what are we going to double dip absent a collapse of the euro which is a real possibility given the incompetence of the european central bank and we'll talk about that a little bit later ok all right larry if i can go to you how do you see this. going into a double dip here again we'll talk about the political will on both sides of the atlantic in a second here but the way you look at the economy in the u.s. and globally where's it going. well unfortunately just like in two
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thousand and eight just before the failure of lehman brothers about eighty percent of global academics and economists have been dead wrong about this soft patch it's been much more severe than people thought but what's more disturbing is credit default swaps on commodity producing countries have been blowing out the last month and that hasn't happened since away so in other words see countries like south africa countries that produce peru chile countries that produce commodities there are default protection on those countries is blowing that tells me this is much more severe than people think ok leo what's going on with operation twist i thought mr bernanke he had you know he had some extra tools at his toolkit there but it's that has had no impact whatsoever or maybe i'm wrong because it seems like the economy is on a downslide it's just a question of to what degree. well or how much worse would it be were he not
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tempting to do that i mean he's in the situation of interest rates already being good zero days trying to induce a longer term investment in a situation where corporations big corporations are sitting on a lot of cash and not investing and those that need banks are lending to so i think we're all in agreement with you know this is going to be a recession or not that we're in for a very long period of stagnation and the only thing that's going to get western economies under this is the exact opposite of what they're doing especially in europe and also in the united states and that's the opposite of the spirit of it would be direct fiscal spending and i must say i think more than that i think it would take direct government employment the kind of thing that was done with the w.p.a. and other programs during the depression here in the united states not that it by itself crisis of capitalism but it certainly played a role in the mid one nine hundred thirty s.
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until there was another dip in i think thirty seven so you know it's going to take that and the political forces to force that certainly in this country in the most important state of all in terms of global capitalism don't seem to be there at the moment what do you think about that everything everything is being done whereas i mean everyone talks about austerity but do we really need a fiscal injection here huge feet fiscal injection we think about that. that's exactly right i mean you know you're sort of scratching your head going what on earth are these people thinking when they're pushing for austerity you know it's you know there's like no story you could tell i'm staying this is an economist there's no economic story that i can think of i mean if they had one i'd be happy to look at it and try and figure out if it made sense or not but i don't even see one so it's not even like a debatable point they're saying oh we have a patient here they're going to be sick sorry but it's not just a blip or leg it's not if you paid people point then why isn't it happening i mean
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i think we all agree you know you have to look at this well i think it's really it's happening anyhow because the people of money and power are doing just fine larry go ahead jump in. gentlemen you're missing a huge point first of all fiscal stimulus never genet generated in any meaningful economic recovery you have to understand something in two thousand and seven i wrote about this in my book a colossal failure of common sense in two thousand and seven we had four trillion dollars of stimulus that came through securitization through all kinds of investment banking deals and wall street securitized mortgage products four trillion this year we're on pace for a total deals and from wall street and global banks this is globally of a little bit less than seven hundred billion so we're that's the problem is the private sector is him strong by regulation globally by him strong by this recovery in other words the banks are leveraging and that private sector is being him strong
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and that's not injecting capital around the world in the united states in two thousand and seven we have this you are going to spend your shadow banks mortgage brokers do you want a job and they're going to have a fiscal stimulus if you think about it is the same as the argument for fiscal stimulus the private sector is hamstrung because of a collapse of the housing bubble so that's right that's exactly the point the private sector is not going to do it these are going to step in and build them and until the private sector sees that it's worth its while to invest again you want to jump in there. but it would be i mean we know there is going to run by too much rick. is certainly not homes hamstrung by too much regulation all this talk about regulation since the crisis virtually none of it has kicked in any serious way either internationally or in most countries domestically you know and i'm not even sure if fiscal stimulus is enough but that's understood simply as. running a deficit you know i think much of this crisis is so serious for the reasons that that larry just identified in terms of the extent to which private credit has been
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restricted there is no way that this is going to turn around without direct government employment and when you say why are they doing it because it's not accept the credit question everybody thinks it's about what advice economists give governments it's about what are the political forces in the country under the feet of labor they go over the last thirty years both in the united states and in europe is the fundamental reason why there isn't the pressure that forces this ok gain is it all about politics and it's just politics not economics. oh yeah i mean i'd say that's absolutely right i mean if if the situation were reversed if it were the case there corporate profits were through the floor of the financial sector was you know just about to go out of business you would see serious action from the government which of course we did in the fall of our way when the banks were about to go out of business they jumped to it in a very very quickly and through literally trillions of dollars of below market loans at the financial sector but as it stands now the financial sector is back on
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its feet many of them are as profitable as they were before the downturn business as a whole is highly profitable it's only you know it typical workers that are suffering and you know they're supposed to tough it out larry then so it's really just about politics in the early in the election cycle because you know mr obama has been so timid about pushing more fiscal stimulus he wants to cut you go go go down the austerity path we will talk about europe in the second half of the program here i mean it's really a political issue the republicans will let it happen has his way and he's going to face a mazing challenge because it will be higher than ten ten percent unemployment by the time he gets to election time what do you think about that scenario. well i've been tweeting about this point my twitter handle is adam burke barnes and the bottom line is wall street banks are not not more profitable than ever we're hearing that all over this all over the world but this occupy wall street movement that's so untrue you look at the bank earnings this quarter many of the biggest
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banks will report losses deutsche bank just this morning reported a warning so you're seeing base all across the world are struggling now granted two years ago a year and a half and two thousand and nine they were reporting record profits but in terms of wall street being a whole whole profits are back that's just not true but you have to understand one thing burn these numbers in your memory bank ok say you see the obama administration creates a fifty billion dollar highway project over ten years that will generate certain amount of jobs in the united states in two thousand and seven i talked about this from a book new century. and lehman were doing fifty five billion a month of mortgage patients that money was going right into the u.s. economy that's a massive stimulus actually is no some money was a lot of it and you know it was your paper back and forth. that was not job creation when someone you guys know someone who was actually not that into these i'm sure and that's really not fair that we don't have to. know what i mean
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a lot of first second don't tell me it's not true the homeowner was just going to you create jobs when you build a house you create jobs when people spend it on consumption items and vast majority and we have the data it was not we didn't see that big construction good we didn't see the back of a consumption boom we don't have to replace that much money would be about replacing the amounts we lost in the school stimulus. you want to you know i think i would appreciate a little just a real quick one of the really quick here one of the reasons for this launch that were the reasons for the depth of the stagnation and the length of it that we're facing is that the credit fuel consumption that has been going on until two thousand and seven for decades given that labor's incomes were cut ok we'll let me jump in right here gentlemen we're going to short break and after that your brain will get the change your discussion on the state of the economy state are to.
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keep. even the books. on the sacred. is the place. where there is a buddhist prayer. or a shamanistic which. crossroads of religions. say some strong spirit. will. remain you the latest in science and technology from the realm for.
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the future coverage. can still.
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welcome back across our country are all about to mind you we're discussing if the world is entering a double dare. can still. ok even i don't go to you first i mean we can look at what's going on in the eurozone and what's going on in the crucifixion of greece if pretty good politically if you're greek is the way out of this crisis this debt and driven crisis are austerity can the united states get out of oil a double dip and go back to growth through austerity and will it work the same policy work in europe a lot of people having a lot of doubts about that expression the people because they're not being bailed out as we mentioned earlier in the program banks word go. you know now it's come mind boggling to me what on earth the people of the european central bank and the i.m.f. could be thinking in insisting on further austerity because what it does a slow growth i mean it's not as though anyone in the private sector rushes out and says hey great time to invest the government just laid off half its workforce it
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doesn't work that way no one in their right minds going to us because they're what you get in the current situation with austerity is you get further declines in output and that's what we're seeing in greece and spain and much of europe so how that helps them get out of this debt crisis you know basically they're going to have to write off much of the deputy cleaning case agrees perhaps some of it in the case of portugal and ireland and then in principle guaranteed that's a step forward and everyone knows that they have to know that these are not that stupid people when we i mean that i suppose are not stupid because the way to your always build this is why it's happening here because if you bail out one country then there's the moral hazard and everybody else will get in line i mean that's the biggest problem with the euro the u.s. has different problems it's similar with debt but the euro is just really screwed because you know you bail out greece they do portugal and ireland and italy and who knows who else will line up because if you can fail you're allowed to fail. when i was at the same petersburg economic forum year and
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a half ago everyone was still talking about the euro replacing the vaulter as the reserve currency if there was a going to be an alternative and it was ludicrous then. that was very common of course over the whole last decade people every time some more oil sheiks said he was going to buy his oil in euros people thought the dollar was thank you well we see in this crisis of the extent to which the capitalist class is around the world look to the american state as being their guarantor and i must say in that sense the german bund this bank which really is the ethos behind the german central bank has since the nine hundred seventy s. unlike the fed been extremely irresponsible every time that there is a crisis it acts in a typical bankers' orthodox way and that bankers orthodox way is always to look to the restriction of government spending for fear of inflation because of a banker lends you a dollar and you pay it back and a dollar later that's only worth ninety cents of what it was before the banker is
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making money that when this bank has that mentality it does not play the role in a capitalist economy a international lender of last resort it never has the fed has put pressure on it for fifty years and change its mentality and it hasn't that's the real problem well it's larry if i got if you could say with the eurozone i mean again the real problem is that it's not really sovereign debt people are worried about at least the powers that be but it's again the banking system they want to make sure that german banks and french banks get paid what they loaned out i mean you can talk about you know all these terrible stories about what's happening to people in the eurozone but everyone's got their eye on the banks still make sure they survive. yes and you know i've delivered forty five keynote speeches over the last year and a half about seven in europe and one message i have is very clear take italy for example they've got one point nine trillion of bonds us standing for the fourth largest government bond issuer on the planet earth three hundred twenty billion of
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that debt comes due in the next fifteen months so the point earlier that was made about the policy leaders in austerity being stupid it's not that they're stupid the bottom line is the italian credit default swaps and the yield that they have to market is requiring italy to pay is upwards about six percent now five point five percent the in the us the ten year treasury is one point seven five percent so the bottom line is the investors around the world make. paper there for the e.c. . but the e.c.b. the f.s.f. is stepping in they have to buy the bonds so at the end of the day the reason why you need austerity is the people in the north have to support backstop to buy all these pollens and they're just not happy buying taxpayer dollars and they're to buy these bonds through the e.c.b. through the f.s.f. and through these other backstop facilities they're just not happy doing that investing all that capital without some
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a stereo return ok dean i hate when people agree on this program but go ahead. no i don't agree at all ok we are going to the opposite there's no issue at all here in the year but the reason why there's a big spread between the interest rates and you know in the interest rates in the u.s. or germany whichever you like is entirely because that your responsibility stupidity whatever viciousness whatever word you want to use there for the d.c.d. because if they would stand behind the italian debt then people would accord it the same credibility as the german debt and that's in fact was the case just a couple years ago so that's the spread between that italy's debt germany's that was very very small so basically the fact that that's right is exploded you see due to the irresponsibility of the european central bank and the i.m.f. we all jump in go ahead we're going to release. there's a larger question here there's a larger question here that has increasingly to do with the irrationality of a finance driven capitalism. and there were people including that of the now who is the guy whose chief economist at citibank at that time was an airless economist
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with a school economics economist who called for turning the banks and the public utilities the the response we've had through this crisis has been incredibly politically timid it's because there isn't a strong left in europe with the united states and that's admitting a showing itself in the extent to which we're trapped in the irrationalities of a finance driven capitalism banking should be a public utility which would allow for democratic economic planning i know that's heresy if you see it on wall street but it's what a lot of people down there who are protesting really need to be thinking do you think about that larry i mean it's again we keep focusing in on the banks i mean in light of what leo just said i mean it's just the way it's been it's the economic financial system we have right now it's coming to a dead end and we have to find a new way out. well you know some some smart hedge fund manager i speak to call this the keynesian end point you know it's been going on
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for a long time but to say that the e.c.b. in this potential as if this backstop is silly that's by buying bonds to say that they're not buy italian paper it's not true the e.c.b. but i tell you in the spanish and portugal paper over the last couple of months the to the tune of sixty five billion over the last three months so they are supporting that marketplace and i think at the end of the day we saw the failure of lehman brothers create this kind of economic plan to around the world in the in the european union the reason why we're seeing such volatility in the markets today is that it's a much bigger problem than lehman lehman was the largest bankruptcy in history the world corporately six hundred sixty billion but. what's happening in europe is much more serious that really requires a tarp to light solution some type of big daisy cutter to put this fire out what's the future of the various explicitly said he wants he wants to leave open the possibility that sovereigns can fail he's explicitly said that so that leaves open
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the possibility that they could fail so that's why he's stepped in to buy bonds when the spreads through and to get so out of line because you run the risk that once the spreads do get very large and of course the debt is explosive that's really simple everyone understands and even the people b.c.b. could figure that one out but if you want to make sure that you don't get a meltdown you have to give some sort of guarantee and that is what's going to happen the only question is how much are spirity they can squeeze out of the greek tell you and the spanish the portuguese and irish people before we get to that point. i mean they are going because i mean how much does the end austerity do you really use i mean how how much to what point would you kill the patient itself go ahead. yeah i mean and they will definitely be killing the the main generator of growth in europe which is ultimately the german export economy what this all goes back to is that germany or the german banks lent money to greek
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and spanish and portuguese banks to buy german exports they then you know when the think tanks were able to continue doing that and what you see in the latest reports this morning is the german manufacturer german manufacturing center sector is going down so yes this is a vicious circle i'm convinced that the e.c.b. and behind it that each of the governments in europe will indeed guarantee these bonds and in that sense guarantee the french and german banks but that is not going to remove the underlying volatility of this finance driven capitalism that's not going in the long run solve this problem will be coming back to it again and again and again it's endemic in the nature of capitalism we have today you know where if i go to you it's very interesting i was going to get to this point earlier but i mean there is been no real structural change in dealing with these economies in the united states and the particularly the eurozone really sealing with the cycles ok trying to control the cycles but not really go in there and structurally change
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what's you know what's making the problem happen in the first place everyone says delaying it delaying it the numbers get bigger and bigger and bigger. say you absolutely have to start to do is going to downsize finance go ahead larry. well you know this problem's been brewing for twenty five years i mean there's no question the governments in the east and particularly the west have been growing bigger and bigger and bigger relative to g.d.p. there's been many books including mine that address this and now this is the classic he leveraging process that has to take place because at the end of the day you have to have bondholders there were one buyers that are willing to take the risk on this paper and as long as these eels keep going up you look at germany five your credit default swaps are through the two thousand and eight wives i mean that's a startling statement i mean this is the credit to paul swap and german debt so
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it's a bet on germany's solvency so you have a situation where even even germany which is one of the largest governments in the world japan same thing create the paltalk just for the why it's a. buyers around the world are stepping back and governments have to do something to fix themselves well gentlemen on that gloomy note beyond our program many thanks to my guest today in washington and in new york and thanks to our viewers for watching us here are to see you next time remember. if you want. wealthy british science. does not rise. to. the. market.
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