tv [untitled] July 31, 2012 11:00pm-11:30pm EDT
good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for tuesday july thirty first two thousand and twelve the effort wednesday begins meeting today followed by the e.c.b. later this week amid reportedly heightened expectations that these central banks are moving toward a new actions but says the wall street journal doubts linger as to whether central banks even have the tools to fix the economic problems they face well reports of preemptive action have us worried about weapons of mass monetary destruction oh
contrary to those who fear the central banks can't do anything else we'll take stock of the collateral damage and brace yourself because this brings us to bill gross's latest note the pimco bond titan says the cult of activity may be dying but the cult of inflation may have only just begun we'll talk to mike maloney founder of gold silver dot com about the cold and us home prices rose in may for the fourth month in a row according to the s. and p. case schiller data out today look at where this bit of monks this swath of other data pointing to the u.s. economy losing steam let's get to the day's capital account.
we have a central bank extravaganza of meetings and front page anticipation of action this week the z.b. meets after mario druggy got markets really excited saying this last thursday these c b is ready to do what ever. to preserve the euro and believe me it will be you know. now this got speculation swirling about whether the e.c.b. may resume its bond buying program now of course the boom does they poured water on this idea that very next day but according to reports people are expecting or bracing perhaps for some action and on this side of the atlantic the fed is meeting and we've seen a number of reports focused on what the central bank may do in the wake of a lackluster g.d.p. report showing one point five percent annualized growth and also below target
inflation numbers so in reading the tea leaves about what the fed could do bloomberg compared july rhetoric from ben bernanke himself to february rhetoric in part to deduce the fed could cut the interest it pays banks for excess reserves take a listen. and a possibility that we have discussed in the past is cutting their interest rate we period excess reserves as a range of things that we could do. each one of them has costs and benefits and that's an important part of the calculation. now we don't lot of the money the fed has tried to pump into the economy has wound up right back at the fed so what would getting rid of that interest paid really do hear to focus on all of this and what the fed's actions mean for the lives of average people is mike maloney founder of gold silver dot com and author of guide to investing in gold and silver which is part of the rich dad poor dad series a very popular series there and always a very popular guest on capital account so first of all mike maloney welcome back
to the show thank you so much for being on today from what looks like beautiful los angeles. thanks for having him how's the weather on the coast you know the weather is fine but nothing really compares to l.a. i have to say my neck of the woods where you're sitting let's talk about something that is going on here though in my neck of the woods which is the fed because they're getting together f o m c is meeting this is become a ritual to talk about what the fed may do to intervene further in the economy i guess my question for you to just get this out of the way the last time you were on you said you expected to e three at some point and now we've seen a lackluster g.d.p. report showing the economy is just inching along at one point five percent on an annualized basis now according to the price index is from the g.d.p. report to inflation is below what the fed is targeting so does the fed have enough ammunition to act. well there's a whole bunch of other data that suggests that everything is already starting to
shrink and so they don't really announce that data but it means that they are on the verge of some sort of action like a q e three q e four q e five and it will continue they're backed in a corner and they really can't do anything else except you know tell us that gold is money that they have been wrong for the past thirty years that gold standards are hocus pocus fictitious gold and that we should be using real gold and then quit and close up shop quit close up shop go home nothing to look at here folks why is this the solution in your. they should stop messing around with the economy and skewing it one direction or another creating all these bubbles create a wealth transfer creating a disparity between the middle class and the rich that is and norma's. under i believe that if we had used gold like we used to before world war one not the hocus
pocus gold standards with reserve ratios and national currencies but just gold we never would have had any of the pullbacks yes growth would be slower but it would be continuous and with all of the technological advances in advances in efficiencies that we've had over the last hundred years i believe that our quality our standard of living would be far beyond what it is right now if they would just let the free markets work and get out of trying to keep they keep on trying to control the markets all they do is skew the economy pump something up into a bubble which causes a wealth transfer the bubble pops and then everybody ends up paying for the bailouts through future taxation and i think you made a really interesting point which is there's a difference between sustainable growth which you're saying would have happened under your scenario and just growth which is boom and bust and you don't know where this liquidity is going or what kind of bubbles that's forming in that one
a bus that was unsustainable growth that was a disaster so i want to talk a little bit more about the impact of the fed on on the everyday person because we talk a lot about savers and people living on fixed incomes and also the decline in purchasing power but one argument i hear from people who say the fed isn't doing enough is that one of the fed's mandates is unemployment and unemployment is still so high so the fed should act in order to help lower that unemployment figure so what's your best counterargument to that. well you know they create the unemployment the fed lowers interest rates that means that it's cheap to go out and borrow a currency for a house a home mortgage whole bunch of people do that and when they do that it creates currency when they take out a loan. through fractional reserve lending the banks get to create currency that did not exist the highest purchasing power that that currency will ever have is for
the first person that uses it after that it's out in circulation so what happens all of these real estate investors experience this short term boost in wealth they've got a whole bunch of wealth anybody that did not participate in that boom where they made wealth during the boom and got to use that currency first the currency is in circulation and prices go up back in the year two thousand gasoline was a buck twenty five a gallon in los angeles now it's four fifty so it's up about four fold from where it was in in two thousand. so the people that didn't participate and up losing wealth because prices are high they might be making the same amount or even a little bit more but if prices quadrupled and they're not making four times the salary they were making ten years ago they lost ground and that was a wealth transfer from them to the people that got to create currency the banks first and then the people that got to use it first and spend it into circulation
all the real estate developers and everything that we're dealing with the banks so it just creates a wealth transfer it skews the economy and makes things a lot sided that bubble bursts and the whole thing falls apart and then unemployment goes way up the unemployment that we have right now is alan greenspan's fault more than it's been bernanke he's bald and this kind of stuff will just continue the more people say that the fed has to do something about it that's the exact wrong thing the fed has to step out of the way the guy. moment has to step out of the way we need less regulation especially on small business we need to let the economy work and all they do is put stumbling blocks in the way and they make a few people rich at the expense of everyone else and you bring up a good point i'm glad you brought in alan greenspan because there is enough blame to go around when it comes to central bankers and sometimes the focus just becomes about them bernanke but i mean this is a legacy and there's
a legacy of other central bankers to which you're talking about i think it's important to bring up since you mentioned banks and lending and fractional reserve lending i want to bring up one of the things that the fed has hinted it may do that ben bernanke has said would be a tool which would be to reduce the interest it pays on excess reserves which banks hold at the fed which we know since the fed began pumping all of this money into the economy a lot of it hasn't gone into the economy it's just gone right back to the fed where banks are stockpiling it to the tune of close to one point five trillion dollars when that number used to be just a tiny fraction of that in two thousand and seven so what would the impact be of reducing that interest paid on excess reserves would that unclogged the pipes so that this money gets out to the average person who's trying to take out a loan for a small business or for a home. who says where that currency is going to go though it's not money it's currency first of all and we've got to stop calling currency money money has to be
a store of and that means that only throughout history throughout time only gold and silver are money everything else is national currencies they have a gold coin you take it any country on the planet you can buy something if you have a piece of paper with numbers on it i can't buy anything in the united states with chinese renminbi or japanese yen. or even euro's i can't pay for a cab ride if you had gold if we were using gold anybody would accept it all the way around the world but to get back to the question of. not paying as high interest rates on the excess reserves so the banks will free up first of all it's immoral for them to be paying interest rates the fed created a whole bunch of currency by buying up assets they bought up mortgage mortgage backed securities they bought up fannie mae and freddie mac. m b s's which are is real estate that they're buying and they bought
a whole bunch of treasuries from the banks u.s. treasury bonds the treasury bonds are our national debt that's what we have to put a treasury bond is a promise from the u.s. government and whatever treasury it is around the world it's a promise from that government to tax its population in the future so they're they're promising us that they're going to extract taxes from us in the future that's what deficit spending does they sell this bond the federal reserve acquires it and they buy that bond they write a check here's a trillion bucks and they buy those bonds that checking account they had has there is no account there's no balance there they're writing a fraudulent counterfeit check to buy this thing and then so then the banks have they do this through open market. abberations now the banks have that one point five trillion dollars they're talking about in their accounts at the federal reserve and the federal reserve is going to pay interest on it which we
have to pay in future taxation and. that's very easy if it's causing all the money around my going to stop you for just one moment and if you hold that thought i can get to right after the break i know that the question you posed is one you've been trying to pose to ben bernanke which is is it even moral for the fed to purchase assets with a checking account that has a zero balance we're going to talk more about that in a few minutes with the if you hold right there mike will talk to you on the other side of this break also still ahead what has mike maloney been trying to ask ben bernanke i mentioned one question but he'll tell us much more after the break but first your closing market numbers. those stories are. foregoing global. my.
for public they can easily be shawn sibley as he is a war ok. i wish he would have never happened but it has happened. in a war a t.v. camera becomes an unnecessary what destroys their own safety all foreign nationals including journalists and inspectors should leave around. and the spear broke up one's with such witnesses i got it on my site camera one of many objects the beating. the bushes versus shooting.
more news today violence is once again flared up the film these are the images the world has been seeing from the streets of canada. the giant corporations are all today. the be. the center. welcome back the f o m c meeting is going on today and tomorrow we'll get a decision from them on the interest rate no real surprise there at least presumably but we are talking about it with my follow me because everyone kind of has their eyes on the fed and also the e.c.b. wondering if and when bill act either writing for it or bracing for it however you want to look at it but before the break mike maloney with in the middle of a thought he wanted to finish it so we want to get straight to him to see what that
was mike maloney's founder of gold silver dot com off there a guide to investing in gold and silver part of the rich dad poor dad series and mike maloney before the break we were talking about your questions to ben bernanke i know you guys have been trying to interview him for your very popular series that you do no luck yet but i know you want to know is it even moral for the fed to purchase assets with a checking account that has zero balance that's your question for ben bernanke you why is that really one of the very important things in your view when you can finish your thought you have before the break to. ok well to finish the thought first you asked if they lower interest rates on the excess reserves that are held by the banks so that the banks will lend that currency no i won't help unless the federal reserve i mean the federal reserve came in right after the crisis and they raised all of the qualifications and regulations on the banks they raised lending standards so that somebody that was broke some bank couldn't dummy
up documents and create a loan for somebody that was broke and was not fan financially literate and anybody that fog a mirror could buy a home then. a lot of people are like up to here in debt the only way for that currency to go out and like stimulate another housing boom is to make lending standards lower than they were before it's to bring back the subprime market which is dangerous as can be and they're not going to do it so that currency will seek another home and where is it going to go probably into commodities precious metals that will it will cause retail price inflation. side note the true definitions of inflation and deflation expansion and contraction of the currency supply something follows there is a symptom that shows up somewhere it's not always retail prices but something inflates like for instance the stock market housing or. the.
commodities yeah you know goes several places that's a great like the fed can't control where that money goes and also can't control banks lending that money out which is just such an important distinction because what happens in theory or should occur in theory is that what happens in practice which is at a point that i think it often missed i really want to hear though mike what you want to ask ben bernanke because these are important points i want to know why those are your key points. ok but first yap that one point five trillion if it gets lent out it's through fractional reserve lending so under a ten percent. system that could create fifteen trillion of excess currency in the currency supply another words. an enormous inflation except most deposits are under a there is no reserve ratio once a bank has more than i can't remember exactly what it was seventy or seventy three million the loans after the first seventy three million don't have
a reserve ratio and they want to get back to the questions for ben bernanke that had been trying to ask in testimony to congress ron paul congressman ron paul asked is gold money and his reply was that no it is not money and then when ron paul asked why do central banks hold so much gold or why they still hold gold his answer was tradition well my question then is why do the central banks hold so much tradition and why are they accumulating more tradition yeah you know they're now net buyers of gold. there's i'd like him to. have a lot of value to have ended three days in a lot of value given to duration i think your other question to you had to do with . why can't we know who the shareholders at the fed are why is this such an
important distinction right yeah. the fed does have shareholders shareholders are the owners of a corporation so there is a corporation that has been passed off as a government agency that has owners the owners of the banks so the banks own the institution is supposed to regulate them. is that moral or immoral. the fed buys assets like mortgage backed securities which is real estate and part of our national debt which is treasuries which we have to pay tax on in the future like i said with these fraudulent counterfeit checks that borrow currency into existence and in debt this in the future does he believe that that is moral for it to be able to create currency from nothing and go around buying up pieces of this country it's a great question mike wait before we go i just have
a minute left i really want to make sure i got to this because because currency is it's a debt based system and there's not enough currency to pay the debt that's created and i'm curious in this system if you that he said it was live or scandal has anything to do with an assessment of where the monetary system is it was something are talking about before the show that. the library scandal is all the banks know that this is a sinking ship and they're trying to grab everything they can before the game is over they know that this system is coming to an end and they're just losing the entire nation and trying to get out while they can. this the world's monetary system you can see pieces of it starting to crumble now we're about to go on to some sort of gold standard when it when we do gold's purchasing power will increase astronomically but you know well a couple other things i want to know in one thousand nine hundred thirteen congress passed in a minute constitutional amendment allowing income tax coincidentally that is the
same year that the federal reserve was created passed by congress fed reserve act so we didn't need income tax before the federal reserve and with the federal reserve we do is this just a coincidence. and then this debt based monetary system where we borrow all currency into existence and promise to pay it back with interest means that we have to work in the future and pay taxes just to pay the interest on the currency that's in circulation today the prosperity we're enjoying today is this a for a minute in sleighs moment and do you think this is moral and if it is a form of enslavement and you think that it's moral then you should stay where you're at if you don't quit and close the federal reserve the very get go final word for ben bernanke yeah you got it you got to introduce a new tax if we're going to pay for all that deficit spending i really appreciate you being on the show mike maloney it's always very enlightening to talk to you
mike maloney is author and founder of gold silver dot com thanks so much. thank you . all right i didn't get a chance to do your feedback all week last week because we were all vancouver all week so let's catch up because there were a few things i really wanted to address last week we have mark's father on for the first half of our show one day live via satellite from vancouver and a lot of people loved it but it also inspired many of meltdowns on you tube to this in fact here's a viewer or becomes his most interesting way as time to expound on how he sees things i'm sure he was fine with being cut off but dimitri i don't know how good
you got on this come on more time should have been allotted to his interview unless he gave capital account a time limit listening to dr father for twenty eight minutes is much more interesting than some of the guests given that the team does a great job with the show please get back on in the future with more time twenty eight minutes given to him another one said i wish you'd had dr fall over all longer why is he not worthy of an entire show first of all just this sums it up don't hate the player hate the game on a serious note i do feel like i need to address kind of some of the nuts and bolts that maybe aren't the glamorous side as a glamorous side of of the process of doing this show we have certain resource constraints that are above my pay grade that's for sure i would like nothing more than a full show with mark farber with the great quality satellite from vancouver of course he is entirely worth it he is an amazing guest a huge get for us i just want our viewers to be aware that there are certain limits in terms of things like satellites or expenses that are out of our control entirely
maybe start a fund we can have a little satellite. funny that you could start moving on when we had jim rickards last week we talked about sandy weill's comments about breaking up the too big to fail banks and a viewer responded and said i don't understand why separating commercial banking and investment banking would solve much i mean why is there a crucial difference between the same company giving out loans in securitizing them versus one company giving out loans and another one securitizing and selling them when the exact same incentives exist in both cases the incentive to get out risky loans to make a profit and the incentive to sell bad debt would exist in both cases as far as i can see you know it's an interesting point i really do think this is a key issue though the separation of investment banking and commercial banking because the issue is not that similar incentives exist in both places the issue is the lack of a fire wall between commercial and investment banking which means that average depositors and savers can't put their money in a bank without the risk of having
a loss due to some risky trade or gone to investment and the amount of leverage a bank can take on in its trading division based on that deposit base and also equity capital now commercial banks yes they can take deposits that they can then leverage as part of their loan business so yes they take on leverage but the point is it makes it a great deal different when a bank can take on much more risk and an investment bank that's engaging engaging in far riskier and more exotic trading and investment activities is just a reality that it is not with just plain old vanilla commercial banking now someone else said you know not only did sandy violate some of the law meaning sandy weill back when he made citigroup this gigantic and to see that it is today breaking the last provision of glass steagall but they got a certain one year exemption with the critical help of robert rubin who not coincidentally was given ten million dollars per year at city can you journalist did a little deeper well yeah we can we've talked about it before on the show it just
wasn't the focus of this particular episode you're referring to but here's charles ferguson getting into that interview with us. and one of the people who was instrumental in getting that done was robert rubin who was standing the secretary of treasury and when he retired from treasury department he became vice chairman of citigroup you know at citi group he made over a hundred million dollars to keeping up the financial crisis. he also just point that out r.l. i for two was asked does whatever gets have taken night off that's dedication for a governor or a zz no not really i don't get a lot of time off and yes please on the race thanks for suggesting that on that note it would be a good time to leave you there's more i want to get to but what to save it for another time because that is all the time for today thank you so much for watching make sure to come back tomorrow and in the meantime you know you can follow me on twitter at lauren lyster and you can give us feedback on the show catch any you missed and you should definitely subscribe at youtube dot com slash capital account
you can also watch our show in h.d. on a cool who at hulu dot com slash capital dash accounts catch our show tomorrow we have a new guest peter chair t.f. market advisors a really smart guy you an expert on europe but from everyone here have a great night. if they shoot something inappropriate for public they can easily be. my. guest he's a war ok. i wish he would have never happened but it has. been a war a t.v. camera becomes unnecessary with just their own safety all foreign nationals including journalists and inspectors should leave the meat and the spear what happens with such witnesses got aboard much like the one above.
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