tv Prime Interest RT July 15, 2013 4:30pm-5:01pm EDT
for a no holds barred look at the global financial headlines tune into kinds a report on r t. good afternoon and welcome to prime interest i'm here in blank and i'm bob english here's the headlines that we're tracking today and. more next signal new york manufacturing the poor and beat expectations but the latest retail sales report this morning and disappointed the headline number increased to zero point four percent expectations were for example of that and when you dig into the nuts and bolts of the report it gets worse excluding the auto and gasoline components sales actually dipped below zero but does private spending even matter as much as government spending anyway bob inglis energy was warned moser on modern monetary theory and his take on this question in just a bit and citigroup reported a forty two percent increase in profits for the second quarter good news right well
that's going to layoffs and profits in emerging markets yes those would be the very same emerging markets the i.m.f. reported are in decline since bernanke is tapering talk so maybe the next quarter might not be so rosy hereon boring will break down income inequality later in the show but hey let's not forget how the merger between city and travelers that created the too big to fail citi group happened in the first place that would be there the glass steagall and the one nine hundred thirty air act that separated banking from gambling and you have figured that out as one of the proximate causes of the financial crisis but talking the proximate cause is there is always the fed itself with bernanke is whipsawed monetary policy and let's not also forget that citi received nearly one hundred billion dollars in federal emergency landing at the height of the financial panic thank you bloomberg and mark pittman for that will dog frank prevent a repeat of or rhyme of two thousand and eight justin underhill interviews f.d.i.c
had to appear on too big to fill in just a bit. and here is the what and your prime interest. m.m.t. or modern monetary theory it emerged in part from the writings of warren mosley or in his book seven deadly fraud frauds of economic policy it's a model of the economy that relies on precise definitions of financial assets such as u.s. treasuries and it also incorporates national accounting identities such as the g.d.p. recently i spoke with mr mosley or about the importance of these identities within
the m.m.t. framework here's what he said. loans create bank deposits to the penny so if you borrow two hundred thousand dollars to buy a house you take it all for two hundred thousand the bank gives it two hundred thousand were sold the house the bank now has a two hundred thousand dollar loan and there's been a two hundred thousand dollar deposit that didn't exist before and it's a bank liability and we tend to call their money under certain definitions of money that would be considered money so what you have is bank loans made in dollars create the causes in dollars but there are no next financial assets created their own loans are something somebody owes in the eyes of something somebody as they kind of cancel each other out they net to zero so for a living i'm sorry so from the end they don't study perspective or the moser economics perspective what what is the solution to the current crisis that we have in this country in terms of unemployment etc ok well look unemployment is always
the evidence that the government has not spent and not to cover the. tax bill and the residual savings desires for lack of a better word ok or another words if the government doesn't spend enough to cover the need to pay taxes and a desire to save the evidence is unemployment people looking for paid work in tampa who can't find. it so let me ask you so we're not spending enough right now and your prescription would be to spend more money to cure this unemployment problem. well what i'm saying is the deficit is too low so you can either cut taxes or increase spending well the government spending is that necessarily productive spending or is it just consumptive spending because it seems that the government could just build potemkin villages the way china is and yes it would put people to work but would that really solve problems. ok so no question about it what you're saying is absolutely correctly the government could spend money to build the panama
canal in terms of trade in costs and you know it world prosperity market spend money and blow up the panama canal which would destroy world trade right so we're talking about two different things one is the problem of unemployment which is people looking for paid work who can't find just because you solve that problem and others work for everyone doesn't mean you have anything near an optimal solution of how to allocate your resources which is your point what is the m.m.t. definition of government itself i believe that's an interesting i've looked into it and could you explain that for our viewers. you know in our case i guess i've never specifically defined that it's done let's say is does it include our federal reserve for instance yeah well yeah the federal reserve and the treasury are both agents of congress. ok and let me ask you there are primary dealers who transact with the treasury directly and they also transact with the fed would you go so far as to say that these big banks and brokers like j.p. morgan and goldman sachs are part of the government given their roles in purchasing
government debt. i would say as banks they are agents of government even without that particular role ok because they are ever government charters all their liabilities are insured directly or indirectly and they're operating under strict regulatory environment where other assets are regulated and they're public much like the military is and much like the military they have rules of engagement where the soldier can point is rifle where every wasp at the same time he's still you know a government agent and so have the ability to price risks in order to make return for a private investors but. they have fairly narrow rules of engagement and they're operating under strict regulation and supervision over there i'm sorry i consider public sector entities ok and would let's extend that a little bit a lot of corporations like g.e. lockheed martin derive a significant part of their income from government contracts so would it be i mean
could we extend this definition of government to include maybe fortune fifty fortune one hundred fortune five hundred companies as well. you know you could you can define anything that you want personally i would not do that because they're not under the same regulatory environment that banks are in they're not government chartered the way banks are yes they have corporations and they're granted a limited liability which is extremely important most of these corporations would be very different without it which is a government protection and so in essence the government certainly entitled to rig regulate them for public purpose in exchange for that but i'd say it's a whole load of magnitude different from the banking system ok and let me ask you. you know the back the government accepts bank deposits for payment taxes it does not accept liabilities from general electric for payment taxes ok that makes it clear and i'd like to talk
a little bit about the federal reserve because we have all this talk of tapering and what do you see is happening with the federal reserve into the next year are we going to have a tapering what is the federal reserve going to do. i think we are going to have tapering because i think that they believe that it's responsible potentially responsible for asset bubbles so i think the reality is that we will have it you know however i think there are probably mistaken in most of their understanding the notion of quantitative easing itself well let me ask you about their one point seven trillion dollars in excess reserves that basically the fed is paying zero point twenty five percent interest on and yet they're not causing price inflation or serious price inflation yet but what if there is a crisis of confidence in the u.s. dollar is it possible that this could matter someday even if it's not right now ok don't forget when the fed is printing reserve balances right that's pay for securities at the same time you can say they're on printing the securities so the
treasury securities are nothing more than dollar balances in securities accounts it's said in reserves or dollar balances in reserve accounts of say so when the fed by securities are doing is deafening securities accounts credit in reserve accounts if you have the exact same number of dollar balances at the fed to the penny so if you include treasury securities under your definition of money they are not printing any new money they're on printing one form of printing a different form and that's exactly why we've seen absolutely no signs of q.e. when we look at any of the actual economic indicators so it's so no one they're not printing money in a way that matters to any. that was my interview with warren mosley president develops co inc so let's turn to period who will be breaking down income inequality .
all right well on saturday a jury ruled that george zimmerman was not guilty of second degree murder and manslaughter in the death of trayvon martin the ruling sparked protests across the country about race and unequal justice but there is a deeper issue here that everyone seems to be missing and that is income inequality expression as it applies to minority populations so let's break it down and come any quality is the an equal distribution of householder and the vigil and come across the various participants in an economy income inequality is in the united states is a larger than you might realize in two thousand and ten the top one percent of income earners earned as much as ninety three percent of the country's and come growth according to an economic policy institute study between one nine hundred seventy nine and two thousand and five the bottom fifth of household incomes grew
just two hundred dollars adjusted for inflation and the top point one percent of households and calm grew about five point nine million dollars during that same time period let's look into this a bit closer as it is applies to minority groups in two thousand and nine a representative survey of american households revealed that the median wealth of white families was about one hundred thirteen thousand dollars compared with about six point three thousand dollars for latino families and five point six thousand dollars for black families and here's a graph from that same survey comparing the median net worth of a clue why an after marriage. african-american families as you can see and nineteen eighty-four the difference between african-american and african-american and white family net worth was just over eighty five thousand dollars and this gap has significantly grown over the past two decades to over two hundred sixty five
hundred thousand dollars in two thousand and nine we can also see how this affects unemployment in the united states according to the u.s. department of labor the unemployment rate in two thousand and twelve was seven point two percent but among african-american populations it was thirteen point eight percent income levels also vary by gender as well and the u.s. males earn almost thirty seven percent more than women overall factors contributing to this include work preferences women are less likely to travel or relocate for their jobs women are also more likely to work for the government or nonprofits than men now there are several explanations in arguments for why income inequality has continued to widen during the post civil rights era access to education is one of the obvious but one of the less obvious like homeownership and taxation in our post industrial economy education plays a significant role in income inequality and the upper income tax bracket earners
are more likely to have a college education than the lower quintiles and the rising cost of an education creates a barrier to entry for students from low income families to attend college now a less debated factor of income inequality is homeownership studies have shown that the number of years of families owned a home was the biggest driver of wealth growth by race for most families the hallman is the largest them and their wealth portfolio and that makes up an even greater percentage for minority families and addition minority families are more likely to lose their home and foreclosures. there are also debates around the tax code and how it affects the income gap some say that cutting taxes expect on top of her income earners contributes to wealth and equality while others would argue that there have been large changes in the way people report taxes resulting and exaggerated data so if you are enraged about unequal justice you might want to take
some time to look into unequal income growth too as the us continues this debate around george zimmerman let's not forget the role income and equality is continuing to play in the economy as the early one nine hundred seventy s. and has grown significantly also referred to as the great divergence the wealth gap today is the biggest between the middle class and the top income earners. and stay tuned because coming up next justin underhill interview the xterra woman of the f.b.i. see if she will bear on too big to fail then that political commentator sam sachs goes totally tell with bob inglis on apple's new endo i fully named i watch.
pretty dominant in the field but while you won't find it here if you're looking for relevant stories unique perspectives on top my scans and our. i. i to ensure that banks have sufficient cash on hand that there are requirements for the level of capital that banks need to set aside the bigger the spofforth the better a bank can weather financial turbulence there are different proposals for determining capital requirements one proposal is to use a percentage of a bank's total assets and another is to weight each asset according to risk under current risk weighted assets rules the holding government that is considered to have zero risk earlier i sat down with former f.d.i.c chairwoman sheila bair and
asked about the incentives the banks have to increase holdings of sovereign debt. there's absolutely a strong incentive it's more for g.s.t. security sirrah because the fannie and freddie securities or because they're implicitly government explicitly government back to this point that you get a very good as your percent risk rate so there's you don't have to you can fund all that with leveraged money you don't have to fund any of it with your own equity capital so that is yes that is just another perversion of their risk weighting system we have now in in europe it's created reapers incentives to load up on high yielding distressed sovereign debt and some some banks have done exactly that to get their ratios higher because you know you can fund those assets with zero percent equity capital can do it all with leverage and as for if we were to find a way to orderly wind down banks would that solve this isn't enough to solve the issue of too big to fail or or is there do we still have too interconnected to fail
you it is there are there's a lot of work that still needs to be done and that if it is a good proposal to reduce credit concentrations among different. large institutions we have i have suggested in fall the comment letter to this effect that not i'm audience simon johnson to caring that they have minimum debt in equity issuance is the holding company level and that debt cannot be held by other large institutions we do need to reduce the interconnectedness. the capital rules ironically right now those risk weightings they give you an incentive to buy another bank step because if you buy another bank's debt that say you'll have to find that twenty five percent. to the risk weighting is only twenty five percent of what it would be if you held a commercial entities jet so you know what the bank with the bank capital rules say is if you hold cities debt you have told one fourth you have fund that with one for the capital that you have to fund i.b.m. staff that just makes no sense whatsoever so the capitals give banks incentives to invest one another which needs to be changed so there's
a lot of work we do at the capital we need to up the dead oceans we need to reduce interconnectedness but you know that is in process the rules have been closed most of them but they have been finalised there's a lot of industry lobbying to stop that pushback and the industry can't have it both ways they want to say oh well too big to fail so over and we're fine and don't worry about us on the other hand the regulatory measures that will really in to big to fail they fight tooth and nail so that it gets very frustrating and so what about proposals like breaking up the big banks do you see that as a reasonable way to go about it i would i would like to see the market drive that i really think that if we can convince the market that too big to fail is over forced them to issue substantially more debt equity to the market to a market which understands that there are no more and implied government support their money is at risk i think that by itself will drive drive either smaller size or break ups of the share returns i've said this a lot of people have said this the share returns for the biggest banks are not good
i mean city of b. of a if it had terrible performance since two thousand j.p. morgan chase is a little bit better but even j.p. morgan chase feels in comparison to the smaller banks they have a more you know a simpler to understand more traditional business model so by teasing this implied government subsidy out forcing the market to fund these became us in a way where they clearly understand their money's at risk i think. its funding costs will go up significantly and that by itself will prate a tremendous pressure to downsize and break up i would like to see the market do it that i think it's very difficult for congress or even regulators to say you know your optimal size is one point five trillion or you should be more than x. percent of g.d.p. or it's arbitrary it's probably going to be game mobile and the market i think again if you if you miss the market the government subsidies are over with that they will they will find their market will find the optimal size of a sufficient size of these financial institutions for that difficult to convince the market that it is i mean that's one of the reasons why i wrote my fortune
column that the fortune column was really got the headlines adjusted to big to fail is over and i think investors should assume that too big to fail is over they should assume that if they vest in these mega banks their money is going to be at risk and they needed to stand the risk that these banks are taking and if they don't understand these risks they should get out and the big bond funds i think need to have to take more responsibility for market discipline for analyzing these bank balance sheets the regulators need to get more information out to them as well but yeah i think if you're a holding company investor your money is clearly a risk now and people should understand that this is they're the ones that are going to be absorbing the losses of these institutions fails the taxpayers are going to take the risk anymore and finally do you think that too big frank gives regulators the tools to overcome a lot of the issues in the banking sector are are the is the potential there i do think yes i think the tools are there they absolutely are there too in too big to
fail to give us a stable financial system the regulators need to use the tools congress needs to support them using the tools the president needs to make this a priority in the industry needs to stand down and let them finalize these rules the authorities are there but they need to use them you know we had a lot of authorities prior to the crisis that we didn't use and look what happened you know we had the authority to set mortgage the fed had to already does that we're. something standards across the board they didn't do it the f.c.c. and c f t c had the authority to apply some market regulation to drive it as congress strip them of that authority so there or they were tools that could've been used prior to the crisis that would have prevented it that were not and we should learn from that the tools are there now congress has given the regulators a lots of tools they didn't do. that was my interview with former f.b.i. c chairwoman sheila bair now it's time for today's daily door.
guess what we got sam sachs back here at thank you for joining me for today's dual let's get to our first story. we got the apple product it's called i watch you got to love that name i watch after all this tech stuff according to forbes apple is said to be hiring outside help to tackle design problems with its smart watch and according to the financial times a tech firm wants to bring in fresh pair of eyes to look at the device because it's in the house developers may be struggling to solve the problems i give you the floor so i don't really get the point of this i mean. i don't even know why we're watch anymore than the fact that my wrist feels weird if i don't have a watch on it or a seems to check their time with their i phones their i pads i had a calculator watch in the one nine hundred eighty s. it wasn't that cool but i mean are we regress into the prior state where you know google glasses seems to be the future here why is apple going with
a watch yeah that doesn't make sense when i was going to watch that could change t.v. remote control and i could like set up bars and change the t.v. channel that was the pinnacle that i was making all the whatever apple is trying to do now it's not going to get anywhere close to this watch that used to be able to change so it's going to cause is his goose could i mean he needs a new product pronto all right and he's ensnared in this n.s.a. whistleblower stuff. or engler against these tech firms for basically spying on their customers what's his future i don't know i don't really care about ten cokes future or whatever i mean i watch is not the future maybe i belts i necklace or i don't use let's move on we have a washington post story samsung purchased a million copies of magna carta that would be jay z's new album in advance and then via an app made the album available to subscribers five days before its widespread release in exchange the users were asked to share access to their social media accounts their phone calls g.p.s. location and more this is
a private company doing all this is this good or bad it isn't the n.s.a. doing this and i don't think that. this is about i mean j.c. is a corporatist who knows exactly what he says and you know of hip hop he's the c.e.o. of hip hop he's pretty much trying to profit off everything from he was trying to profit off the occupy movement selling t. shirts that say occupy all the streets and all the money from those t. shirts going to him. so he knows what exactly this is going to do this isn't just data that's going to samsung or or whatever this is data that's going to help him sell his target people with his clothes exactly he's a business it wasn't me that people are privately giving up their own data their own secrecy and i don't i wouldn't do that myself but what's wrong with voluntary subscriptions to to a service like this i just i guess there's nothing wrong with that if people want to do it i mean then people shouldn't be so mad that they don't have privacy anymore and you know jay z. can't really boast that he's this working man's person years of you know on the streets and everything like that i mean he's so he's got maybe lots of money and
he's made lots of money and good good for him but he's got no he's lost a lot of his interest them some isn't well and one more story in this has to do with facebook graph search was unveiled back in january immediately rubbing those who prize their privacy on the social network the wall the wrong way and his facebook begins rolling out these new features to certain users many are left wondering exactly how to protect their privacy on facebook i mean this is a feature where if you. like something some something controversial two years ago it could pop up on anybody's radar in including the f.b.i. and we only have about twenty seconds left so what's your reaction to this i think it's for two things it could be a law enforcement search there since i guess presuming all that stuff that all too complicated facebook's made it easier or it's for crazy girl friends or ex boyfriends who want to search for things a lot easier and i don't know why we did to the wackos on social media well thank you sam if you want to weigh in on today's show be sure to like us on facebook at facebook dot com slash prime interest you can follow sam right here. you can follow me. sam thank you so much for joining me on today's i know we will yes.
it was a bit of a mixed bag here today on prime interest as usual the key economic statistics say one thing but our view another or well maintained and it looks like we're taking a job opening about seal and they have started taking its toll on the economy whatever that is which one of those are thing about been interesting to you know only too big to fail well according to the f.a.a. it's already in the bag and apple so what america is for watching and come back tomorrow from everyone at prime interest and terry i'm going have
a great. technology innovation all the developments around. the future coverage. you know sometimes you see a story and it seems so for lang you think you understand it and then you glimpse something else and you hear or see some other part of it and realize everything you thought. i'm tom harkin welcome to the big picture.
back oh lord don't throw back do so. right after george zimmerman was found not guilty of protests spread nationwide it will look at why so many people took to the streets and what it says about race relations here in the u.s. watching the media at first attorney general eric holder and the nine any involvement in an e-mail search of a fox news reporter turns out that's not the case and now the department of justice has created new guidelines lay claim will protect journalists but will they really . edward snowden may have a blueprint of the n.s.a. the guardian's glenn greenwald suggested that the n.s.a. whistleblower has.