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tv   [untitled]    October 5, 2011 8:30pm-9:00pm EDT

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some. if. you the latest in science and technology from the realms. we go into the future covered. more news today violence is once again fled elfland. these are the images the world
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seeing from the streets of canada. china for asians are relieved a plum. can. you think. a low 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 and where is the political will in the us and the eurozone to lead the world out of crisis. can still.
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get crossed off the global economic outlook i'm joined by we'll kind of new york he is a distinguished research professor in senior canada research chair at york university also in 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 crosstalk 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 it 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 a very long period of capital is stagnation since we don't have the credit fueled consumerism. consumption going especially in the states and imports of europe you know the picture doesn't look quite as bad in the united states as it
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does in europe at the moment. 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 outside of the constructions that i mean a lot i think in the longer term well i mean what is the job generation which is 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 a double dip and how deep will it be no no you are going to double the head and i think it's really been unfortunate there's been so much focus in the media on that because the basic story hears 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 forecasts and somewhere
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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 a four 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 should have us concerned whether we're going to double dip absent a collapse of the euro which is a real possibility given 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 and 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 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
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been much more severe than people thought but what's more disturbing is credit default swaps on motty producing countries have been blowing out the last month and that hasn't happened since oh wait so in other words say countries like south africa countries that produce peru chile countries that produce commodities there paul 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 has some extra tools at his toolkit there but it's that he has no impact whatsoever or maybe i'm wrong because it seems like the economy is on the downside it's just a question of to what degree. well or how much worse would it be were he not attempting to do that i mean he's in the situation of interest rates already good zero and he's trying to induce a longer term investment in a situation where corporations big corporations are sitting on
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a lot of cash in the investing and those the. 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 other this is the exact opposite of what they're doing this specially in europe but also in the united states and that's the opposite of the spirit it would be direct to school 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 sold the crisis of capitalism but it certainly played a role in the mid one nine hundred thirty s. until there was another dip in one thousand nine hundred seventy 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
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to be there at the moment jeanne what do you think about that that everything everything is being done backwards i mean everyone talks about austerity but do we really need a fiscal injection here or a fiscal injection when you think about that. that's exactly right i mean you know you sort of scratching your head going what on earth are these people thinking when they're pushing for sarah to 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 could 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 babysit sorry but it's not going to be that holy leg if it's not if you paid people point then why isn't it happening i mean i think we all agree you know you have to do it well i think it's really you know it's happening anyhow because you know 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 the fiscal stimulus never genet generated in any
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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 total deals in 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 hamstrung 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 shadow banks mortgage brokers do you want to jump in there go ahead of fiscal stimulus if you think about it is the
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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 and these are you know has been build demand until the private sector she said it's worth its while to invest again you want to jump in there. but let me let me have those results on by too much rick. it's certainly not homes have strong by too much regulation all this talk about regulation since the crisis virtually none of it has kicked in in any serious way either internationally or in most countries the mess the cli you know and i'm not even sure if fiscal stimulus is enough if that's understood simply as. running a deficit no i think not this crisis is so serious for the reasons that that larry just identified in terms of the extent to which private credit has been restricted there is no way that this is going to turn around without direct government employment and when you say why aren't they doing it because it's not a technocratic question everybody thinks it's about what advice economists give
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governments it's about what are the political forces in a country under heat 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 the force is this ok dean 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 that corporate profits were through the floor that 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 at below market loans at the financial sector but as it stands now the financial sector is back on 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 talk it out larry then so it's really just about
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politics in the early in the election cycle because you know mr obama has been so timid about pushing more fiscal stimulus and you he wants to cut it go go go down the austerity path when we talk about europe in the second half of the program here i mean it's really a political issue the republicans will let him have it have his way and he's got it face a mazing challenge because it will be higher than ten ten percent unemployment by the time he gets to election time when you think about that scenario. well i've been i've been tweeting about this point my twitter handle is at converged on 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 not true you look at bank earnings this quarter many of the biggest banks will report losses deutsche bank just this morning reported a warning so you're seeing banks all across the world are struggling now granted two years ago a year and a half to two thousand and nine they were reporting record profits but in terms of
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wall street being a whole whole whole profits are back that's just not true but you have to understand one thing in these numbers and you remember back ok say simply a mom and a stray she 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 in a book new century and know of a star at lehman were doing fifty five billion a month of mortgage issuance that money was going right into the u.s. economy that's a massive stimulus actually shows that money was not everything you know it was really on paper back and forth. there was not job creation when someone who has also money was actually not that into you know surely that's really north of that we don't have to. know what i mean in a second don't tell me it's not truly a home and he was just call it you create jobs when you build a house you create jobs when people spend it on consumption items of vast majority and we have the data it was not we didn't see that big construction boom we didn't
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see that big of a consumption we don't have to replace that much money would be replacing the amounts we lost in fiscal stimulus. the one thing i think i would appreciate a little real quick one of the really quick one of the reasons for this long step one of the reasons for the depth of the stagnation and the length of it is that we're facing is that a credit fuel consumption that has been going on until two thousand and seven for decades given that leaders incomes were cut ok we are going to have to jump in right here gentlemen we're going to short break and after that it's your brain looking to change your discussion on the state of the economy state our.
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still. want to. welcome back crosstalk i'm peter lavelle to my job we're discussing if the world is entering a double dip. start.
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ok you know and i go to you first i mean we can look at what's going on in the eurozone and let's go in the crucifixion of greece if they're good people if you're greek is the way out of this crisis this bed ridden crisis austerity can the united states get out of void 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 explicitly the people because they're not being bailed out as we mentioned earlier in the program banks were though. now it's come on boggling to me what on earth the people at the european central bank and the i.m.f. could be thinking in insisting on further austerity because what that 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 doesn't work that way no one in their right minds are going to ask is that what you get in the current situation with austerity is you get further declines it out but that's what we're seeing in greece and spain and much of europe so how that helps
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them get out of this debt crisis you know basically they're going to have to write off much of that effort to clean the case of greece perhaps some of the case of portugal and ireland and then in principle guarantee it that's a step forward and everyone knows that they have to know that these are not that stupid people only 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 that 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 st petersburg economic forum year and a half ago everyone was still talking about the euro replacing the golf or as the reserve currency if there was going to be an altar and what it was ludicrous then.
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and that was very common of course over the whole last decade and people every time some more oil sheiks said he was going to buy his oil in euros people thought the dollar was thanking what we see in this crisis and the extent to which the capitalist classes 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 one nine hundred seventy s. unlike the fed been extremely irresponsible everything that there's 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 in a dollar later that's only worth ninety cents of what it was before the banker is making money the bundesbank 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
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for fifty years and change its mentality and it hasn't that's the real problem well it's larry if i could 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 to make sure they survive. yes 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 outstanding so that the fourth largest government bond issue or on the planet earth three hundred twenty billion of 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
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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 of 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 i mean. paper there for the e.c. not to let me finish but the e.c.b. the president is stepping in they have to buy the bonds so at the end of the day the reason why you need austerity is that people in the north have to support the back stock to buy all these bonds and they're just not happy by putting taxpayer dollars in there 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 asperity 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 go to the opposite there's no issue at all here to europe and the reason why there is
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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 e.c.b. 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 it's the spread between that italy's debt and germany's that was very very small so basically the fact that that spread is exploded in c. due to the irresponsibility of the european central bank and the i.m.f. we all jump in go ahead we're going to e.c. . 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 was the guy whose chief economist of citibank with that time was an ellis the economist to his school economics economist who called for turning the banks into public utilities the response we've had to this crisis has been incredibly politically
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timid it's because there isn't a strong left in europe or the united states and that timidity is 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 the 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 smart hedge fund manager i speak to call this the keynesian end point you know it's been going on for a long time but to say that the e.c.b. in this potential this backstop the syllabi this by buying bonds to say that they're not buy italian paper is not true the e.c.b.
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is mike italian spanish and portugal paper over the last couple of months 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 panic 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 a largest bankruptcy in history the world corporately but six hundred sixty billion but what's happening in europe is much more serious than it really requires a tarp two like solution some type of big easy cutter to put this fire out what's the future of the various explicitly said they're going to he wants to he wants to leave open the possibility that sovereigns can fail he's explicitly said that so that leaves open 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
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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 our spirit they can squeeze out of the greek tell you and the spanish and portuguese and irish people before we get to that point. i mean what they are going thank god i mean how much was there last year he didn't really use i mean how how much at what point did you kill the patient itself go ahead. yeah i mean they will definitely be killing the main generator of growth in europe which is ultimately the german export economy what this all goes back to is that germany other than german banks lent money to greek 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
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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 you find out it's very interesting i was going to get to this point earlier but i mean there has been no real structural change in dealing with these economies in the united states in the particular to euro zone everyone ceiling with the cycles ok trying to control the cycles but not really go in there and structurally change 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 while i say you absolutely have to and that's. going to downsize finance go ahead larry.
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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 are many books including mine that address this and now this is the classic the leveraging process that has to take place because at the end of the day you have to have bondholders that are with that are willing to take the risk on this government paper and as long as it's easy to keep going up you look at germany's five year credit default swaps through the two thousand and eight wads i mean that's a startling statement i mean this is the credit default swap on german debt so 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 should pay and same thing create the false promises through the whites of the
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bond buyers around the world are stepping back and governments have to do something to fix themselves well gentlemen on that gloomy note we end our program many thanks to my guest today in washington and in new york thanks for greece for watching us we are to see you next time remember crosstalk.
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