tv Prime Interest RT July 10, 2013 4:30pm-5:01pm EDT
good afternoon welcome to prime interest i'm bob english here in washington d.c. here's the stories we're telling today to taper or not to taper that is a question being asked at the federal reserve so do we stop printing eighty five billion dollars per month or not and guess what today we learned that half the voting members want to end not even taper by year end we'll talk with jim rickards about this and the big trouble in china in a bit. and the first non-blank institutions to be named too big to fail was announced today actually the term is syfy guess who they are ai g. and g. who both required massive bailouts during the financial crisis will do about this with our t.v. producer rachel later in the show finally seems a new living wage law here in d.c. has wal-mart threatening to tear down their wal mart plans period boring will break
down minimum wage later in the show so without further ado here's what's in your prime interest. there are twelve members on the federal open market committee and they vote on monetary policy eight times per year the last meeting was on june nineteenth and it caused quite a stir as because we learned the committee was more bent on winding down q e so-called tapering well the minutes of that meeting were released today and they said half the members thought q q.e. should end and this is by year end this is the most dissent at one of these
meetings we've seen in years earlier today i spoke with james records he's the author of currency wars and i asked him if we're seeing mutiny at the fed. it's not so much mutiny of sort of the logical conclusion of market manipulation when you manipulate markets this much for this long you have ventured paint yourself into a corner with no good ways out so i think with the split among the members of the f.m.c. represents is that they're both looking at different strategies each of which has some cost and some benefits and they really are no good choices for me just to kind of be a little bit more explicit you know the debate is you know tapering or reducing asset purchases versus not tapering and continuing asset purchases at the current level maybe even increase in them a little bit so those are the the two camps now in favor of tapering tapering you have a couple things there's genuine concern on the f o m c germiston in particular that this low rate policy to lower rates for so long is actually increasing systemic risk banks are doing kerry trey's they're doing asset swabs the doing all kinds of
off balance sheet transactions to try to make money because it's hard to make money in a zero interest rate environment but as a result they're creating systemic risk and perhaps setting us up for another financial collapse so that's one concern on the other hand if you do taper where you're going to find is that it's very deflationary it's counter to a lot of what the fed's trying to accomplish the fed actually wants more inflation because they're worried about the inflation and they want to cheaper dollars because they want to import some inflation in the form of higher import prices so the problem is but if you keep easing and keep asset purchases and actually try to get more inflation get the cheaper dollar you may be creating bubbles and you may be creating systemic risk so that tapering crowd is worried about the risk of bubbles popping and off balance sheet games by banks the non tapering crowd is worried about deflation and a stronger dollar the answer is there is no good choice you're going to take significant risk either way this is what happens when you manipulate that way in the market guard the way you're trying to guard the way to paint yourself in
a corner so it's not surprising to see the split there are no good choices for the fed right now and would you care to handicap the odds of the fed. actually tapering or ending by the end of this year would they simply have to restart if we had a market crash. well certainly if we had a market crash on the exam thing there's now these any doubt about the fact that they'd have to start asset purchases again but i would suggest that if they taper they will have to start as increase asset purchases again sooner than later remember this is been the history of the last five years the fed has had thirteen separate policies in five years going back to two thousand and eight when you have thirteen separate policies that's the same as no policy in other words you have no no idea what you're what you're doing this is what's called stop go actually that name comes in the late fifty's early sixty's the tour of government the u.k. was trying to use monetary policy to fine tune the u.k. economy and economists came up with a name of stop go this is the fed's version of stop to remember they launched q.e. one and then they stopped it they had to come back we q.e.
two then they stopped it in june two thousand and eleven then they had to come back with q e three in september two thousand and twelve and then three months later they increased q e three so called q e three part two when they went from forty billion to eighty five billion so the fed has never gotten it right. my estimate is they will not taper in september by the way to temper is the key date the reason for that is they're almost certainly want to do it when they have a press conference scheduled such a momentous event if they do taper they're going to want to press conference associated with that so the chairman can explain it well there are only two press conference board meetings where from seed means between now and the time bernanke he leaves one of the september one of the summer they will be a lame duck by december so it's going to be september or never and if they do taper i think will be a huge mistake at least in terms of their goals and they'll have to increase asset purchases probably in the first quarter of two thousand and fourteen when that becomes apparent if they don't taper then you know we might see the markets rally
and sort of go from there because they say they have no good choices but if they do taper i think they'll be increasing purchases again sooner than later. well let's talk about the rest of the world we see no mics we see you know they want to double the monetary base in two years mario draghi is talking about possibly negative deposit rates and then we have this hilsenrath article that came out a couple months ago it says a dozen central bankers meet in basel about six times per year is it possible we have global currency cooperation. well. certainly i mean they've been meeting in basel six to ten times a year since the one nine hundred thirty s. so it was a graph is right but there's nothing new about that and that is the major central banks membership changes a little bit because they obviously now they've added china and some other players but you know bernanke has a theory on this you know my book currency wars went through the history of currency wars and says we're in a currency war today which we are which is basically cheapening your currency to
gain trading advantage against your trading partners and also to import inflation from them and export your deflation abroad so that's what the currency wars are all about now bernanke has this theory he says if japan the u.k. europe and the united states all ease at the same time that's not a currency war because if you're all easing in theory the comparative advantage in the terms of trade and across rate shouldn't change very much because everyone's printing a lot of money and so you get the benefit of the stimulus without the costs of the currency war and that's a good thing so bernanke actually said this is this is not beggar thy neighbor this is enrich their neighbor of course that's complete nonsense because they may be true on the four major financial centers but what about the rest of the world what about the emerging markets china taiwan korea indonesia thailand brazil switzerland you go around the world if the u.k. u.s. japan and europe are easing their their currencies are getting stronger their exports are getting hurt so it's still a currency war assisted stead of all against all the sort of the g four against the
g sixteen or or the rest of the world so very little doubt that the do coordinate policy we've seen that time and again. nothing unusual about it we saw it after the fukushima earthquake tidal wave nuclear power plant disaster in japan in two thousand and eleven when christine lagarde who is the french finance minister at the time led a coordinated g seven intervention to assist to strengthen start to weaken the yen actually so that this does go on all the time one of the problems that was europe is not exactly on board the clearly the u.k. japan and the u.s. are in this easing mode although the may have changed up a little bit with taper talk but europe is as not playing ball so far so it's just a mess well let's talk about the future of the global currency situation currently the u.s. dollar is the rebirth reserve currency of the world but there's been talk of reverting to s.t.r. as we're trying to you know has a part could we even see gold play
a part in it. gold's a bit of a stretch i think the international monetary system will collapse sometime in the next you know three to four years that's really not meant to be a provocative statement the international monetary system has collapsed three times in the past hundred years the collapse in one thousand nine hundred eighteen it collapsed again in one thousand thirty nine and a collapse again between one nine hundred seventy one and one nine hundred seventy three so these things do happen when it collapses it doesn't mean the end of the world or you know everyone's living in caves with candles or whatever what it means is that the major trading a financial powers have to sit down at the table and reform the system they have to decide what the new rules of the game are so that's happened in number of times and there are models for that so to me the interesting questions to look through their process is ok what will the future of the international monetary system be and who has the seat at the table think of it as a game of texas hold'em you know we're all going to sit around the table with our pile of chips but the chips may very well be in gold it doesn't mean you automatically go to a gold standard but gold is the kind of the ultimate base money the u.s.
has eight thousand tons the seventeen members of the european monetary system together have ten thousand tons china is. we player they officially have a thousand tons i'm certain they have more than that on officially they're not transparent about what they they really lie about their gold holdings but they probably have at least two thousand maybe as much as three or four thousand tons but their power chips are still small relative to the size of their economy so that's one of the reasons china is acquiring all this quickly as they can so i don't necessarily think we go back to a gold standard right away unless things really become catastrophic way but gold will determine your kind of seat at the table if you will play a role in the new international monetary system so would we see a lot of people talk about a gold standard and they automatically think maybe we have gold backing a few currency such as the u.s. dollar but i think in the in the long run we might see gold use as i don't know an international settlement piece is that kind of where you're going with this
argument. the problem with by the way i think a gold standard it's entirely possible there's not a central bank in the world today that actually wants a gold standard but then they may have no choice if you have a kind of a. an instantaneous catastrophic loss of confidence in paper money a major countries may have to go back to a gold standard not because they want to but because they have to to restore confidence russia is a very interesting case you know go back to two thousand and nine as they talk about my book we did a war game. i was interested financial were fair and one of the scenarios we played out was that russia would acquire a lot of gold and would partner with china which was also acquiring gold and launched a new gold backed currency well guess what we did that in two thousand and nine since two thousand and nine russia has increased its gold reserves fifty percent they've gone from approximately six hundred tons to a little over nine hundred tons of fifty fifty percent increase in the last four years and that and they're continuing to do that the russian central bank buys
a little bit of gold every month and we know china's acquiring gold so they these countries are russia and china particular are positioning themselves for a collapse of the dollar based system getting as much gold as they can and that's the rush is there they've sort of close the gap they only have one eighth as much gold as the united states but their economy is only one eighth the size so relative to the economy they have the right amount of gold china is not there yet china has to has to keep buying well there has been a lot of trouble in china recently they had an incredible expansion in lending and then they had a pullback there was a liquidity crisis and i'd like to read something for you right now it's a quote and it says china's state council said it would cut off credit to force consolidation in industries plagued by overcapacity as it seeks to end the economies dependence on express extravagant investment funded by cheap debt so does this seem like a major policy change you know getting rid of the magical ten percent g.d.p. every year. well they talk a good again let's see if they follow through this is sort of tapering with
a blunt instrument if you want to put it that way but china has exactly the same problem as the united states you have the credit expansion you had over leverage now they want to kind of rein that in the u.s. had a collapse in two thousand and nine but the problem still aren't solved a lot of those bad assets are still in the bank balance sheets the banks are still under capitalized and all we've done really is replace private leverage with public leverage now is the. we'll be back with more from my interview with author of currency wars james rickards and coming up harry and breaks down. all the controversy about minimum wage then rachel and i will do over too big to fail that i will be next.
relevant stories unique perspectives on top of my scans. please. reread. here is more of my interview with james records we discussed the developing problems in china and the chinese economy after two thousand and nine. they continue to grow their economy to eight nine ten percent but they did it with investment they didn't do it with consumption and most of that investment was forced landing on state orders communist party orders the banks controlled by the communist party and the vessel majority that money since the really about two thousand and three has been ways to i've been to china number
of times recently i mean they've got these monumental train stations that are bigger than the pyramids with hundred twenty eight escalators a half mile across the floor or a marble floor from door to door they don't need that they can't pay for it it is not about empty buildings it's about empty cities entire cities and not just one but seven or eight in one place and you know dozens of those projects all over china so they wasted an enormous amount of wealth it's a lot of it's leveraged a lot of us with borrowed money the loans cannot be repaid so now china is trying to rein in it but what they're going to discover is that when they do that they risk collapsing the economy because if you really start shutting down still mills and shutting down copper imports and shutting down construction projects the you're going to have massive unemployment that china is actually pretty close to full employment in take into account the size of the labor force but that's going to go the other way my guess is china will blink they understand the problem they will start down this road but they'll discover very quickly the pushback from the state
owned enterprises the chinese princelings the oligarchy and other financial powers in china are going to push them in the opposite direction it's a slightly more it's a larger version of what the fed's going through the fed may want to taper to avoid as the bubbles and systemic risk but they're going to find that they have to keep printing money because the alternative starts so you know you're looking into the abyss at some point that's very interesting and let's continue to talk about the foreign investment in china in the collapse an area now there's actually two chinese currency users of mainland one and then there's a hong kong one and that's you one and they actually are different master netting agreements. without getting too long here is it possible we're going to see a bait and switch whereas all these foreign investments in china in a bankruptcy scenario they're going to get zero cents on the dollar stores that you want markets concern a lot of people say well we're trading you on earth i'm wrong you want a sure you want if you look at it they're actually not trading the currency because china does not have an open capital account with their trading or derivatives with
banks and that means you have counterparty risk and you've got so in that risk and clearance risk in all kinds of contractual restore going to the currency itself so you've got to take all that into account to really understand what you're doing. that was james rickard senior managing director at tangent capital and the author of currency wars. there is a growing battle of the nation's capital between big business and big labor wal-mart's coming to town but not if they have to pay the living wage law d.c. city council passed a bill that would require retailers with sales over a billion dollars a year to pay their employees know what less than twelve fifty an hour that's four
dollars and twenty five cents over at the city's are already imposed minimum wage wal-mart has threatened to not open their doors if scientists. d.c. mayor vincent c. gray has the power to veto the bill and was recently quoted saying i strongly urge the council to consider whether this legislation will actually promote a strong economic development in the district and expand job opportunities for district residents while the city is debating this issue let's take a closer walk into minimum wage laws and their overall economic effects the definition of a memo on wages the minimum amount of compensation an employee must receive for performing re. the calls for a minimum wage are absolutely noble they're intended to protect employees from exploitation and boost the economy by putting more money and the hands of low income families president obama made the case in his state of the union address. this single step would raise the incomes of millions of working families it could
mean the difference between groceries or the food bank. scraping by we're finally getting a. business is close for comfort customers with more money in the past. so he worries the minimum wage workers get paid more they spend more and the economy grows right well it's a little bit more complicated than this yes raising the minimum wage will increase paychecks for some but not everyone benefits the only way to grow an economy is by increasing production and productivity a government mandate on wages cannot be used the economy wages are prices if the price of labor and price controls are hazardous by forcing a price floor on wages this creates inefficiencies in the economy and again the only way to grow an economy is to increase efficiency and production henry hazlitt puts it best when he said raising wages by government is the worst way and the wrong way real wages come out of production not
a government decree there are unintended consequences of minimum wage laws that further hurt those they are intended to protect for example if the minimum wage is eight dollars an hour but the worker can only produce seven dollars an hour worth of labor then that worker simply will find himself unemployed making it worse off than when he was before the way to control another issue is that these costs will have to be incurred somehow and if they're shifted to product prices this hurts the consumer and the employee raising prices will result in less production being sold and a decrease in production would lead to higher unemployment along with this empirical studies have found other negative effects of minimum wage increases these include burr not limited to encouraging employers to worker training increasing job turnover discouraging part time work in reducing school attendance increasing inflationary pressures and encouraging employers to hire illegal aliens these are some of the unintended consequences of minimum wage laws well mark claims that the
city's living wage laws would clearly inject unforeseen costs into the equation create a. an even playing field and challenge the fiscal health of our planned stores now wal-mart doesn't necessarily have the best of poor among human rights advocates however in this case the economics puts people first. well welcome to the daily dual again this is rachel courtesy is our producer and thank you for worrying purpled my favorite color i'm glad to see you're wearing it as well yes let's get to our first story in fact we only have one story today we talked about g.e. being named these systemic we important financial institutions in other words too
big to fail this means they come under greater regulatory scrutiny and have to submit a living will and this means if they get into trouble they get taken out well there are more of these cities coming scary let's take out the financial requirement from this rachel and brought in the field who would you like to be named too big to fail and possibly forced to break up well i think that's an interesting question and before we go on i just want to say that being called too big to fail and having to produce these living wills doesn't necessarily make us as consumers or citizens any safer that being said as long as we have that coffee out there i do want to say that i would say a lot of these information technology companies like for instance definitely tech something like google you know not only do they have control over google docs so anytime i'm writing something or trying to have tons of information about us but that's kind of their thing i mean they're a tech incubator and i was talking about this in an interview yesterday what they are what they're allowed to do with all that revenue that they're getting is they're basically a big venture capital firm and they serve a lot of good by giving us products for virtually for free sure and i think that
the the big question here is that or i guess the solution would be instead of having a too big to fail google in a sense because you know. i don't have to have a google e-mail address right i could have a hotmail e-mail address i could have my own email rachel and. there's something that in this and that's i think what distinguishes it a lot from a lot of these too big to fail institutions where even if i don't have money in bank of america even if i don't get my personal insurance from a.i.g. that doesn't mean that it won't have an effect on me ok well we're good we're getting into wiretapping here and that has a lot of other consequences what's your number two choice i would say a company like months into a certainly a large one already of the world's seed production comes from months santo i mean we're finding that often the you know exports have monsanto products in them accidentally so we might be interesting to see what would happen and they certainly have a lot of control over the market and there are lot of court cases that of of unfortunately brought up a lot of melfi since on their part. i'm going to ask you question what about apple
what about apple i think that apple is another one of those where you ultimately have a choice in the way you don't with something like perhaps not sando or a lot of these financial right i mean first of all you're making a very expensive choice when you choose to buy an apple product you're deciding that you want to pay extra money because you think it looks like or you like the way that it right i mean so you go with this well what i'm saying is i'm not sure that i do think apple is too big to fail at least from a consumer standpoint i do think that from a manufacturing standpoint apple is absolutely cornered the market in terms of having a lot of these really expensive court of the market but google is a big competitor who isn't making hardware in the same way they are the samsung and google glass could be the i phone killer i mean it's going to take over the market in a new way that we haven't seen before and it's only going to be a little bit of time before we see them transition into mobile intel other kinds of hardware i think that's out there is an interesting thought experiment is trying to get into mobile payments where you swipe your phone and you pay for something so maybe you have seen people do this already i mean you can do this already with this bump thing right you press this little bump and it's on your phone i mean at a certain point we're starting to get into the site five future where it's not
going to be on your phone anymore soon it's going to be in your arm or it's going to be in your waiting for going like that you know where i was going with i hope all is ok if the. into mobile payments maybe they are a non-bank financial company maybe the federal reserve could under when they are regulated i'm just throwing that out there yeah i mean i think that it's as soon that would be for the right but that it isn't is it is an option i think it's in writing about these non depository institutions being clued it that it certainly opens the field i mean for google as well what about pay pal what about people people could be too big to fail. to clean it up to end a very ill indeed go go all of these different things where people are being able to kind of put money that goes in somewhere else could eventually be considered this is well though i don't think something like pay pal or kickstarter for instance are at this point too big to fail over rachel this has been a fantastic tool thank you for joining me and if you want to weigh in on today's show be sure to like us on facebook at facebook dot com slash prime interest and don't forget you to follow rachel on twitter at curious underscore rachel you can
follow me on english p.-i rachel thank you so much for joining me. it was an apocalyptic day here a prime interest discord at the fed could be turns out bernanke is had germany at the fed is a waning and jim rickards painted a picture of the four horsemen journey into china their day of reckoning is nigh and wal-mart actually refusing to build more megaplex outpost with ever thought we'd see the day but we did expect to see a living will from the likes of b.i.g. we'll just have to wait and see when it's executed thanks for watching and be sure to come back tomorrow from everyone here of prime interest to have a great night. wealthy
let me let me i want to know what all let me ask you a question from. here on this network as we're having a debate we have our knives out. but if you get this right it's a bad thing never again you're in a situation where behind are you talking about the surveillance with. the foot the military getting control after a coup what does the future hold for egypt is this country's experiment with democracy a thing of the past what signal does this to send to islam and parties in the region and will washington's reputation among egyptians ever be redeemed for.
coming up on r t in a surprise move the defense in the bradley manning trial rested late this afternoon our team has been covering this trial from the beginning and we're at fort meade today for the courtroom drama. egypt remains in a state of chaos while pro morsi protesters filled the streets arrest warrants were issued for muslim brotherhood leaders more on these developments and what's next for the country in turmoil and more than two years ago the fukushima power plant disaster started now the plant manager fighting to keep it under control has died while radiation levels have increased more on the legacy of fukushima up and today show.
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