tv [untitled] February 13, 2014 11:30pm-12:01am EST
there i'm aaron a this is boom bust and these are the stories that we're tracking for you today. first up european banks are playing it fast and loose when it comes to dodgy new capital requirements here in the u.s. i'll tell you all about it coming right up then we have political economist yanis varoufakis to live on today's show at least we hope so we're still working that out his signs of what he thinks is next for the euro zone and into dave big deal ed harrison and i take a look at what's going on in europe and the western country part of all that is you won't want to miss it and it all starts right now.
for years now european banks have run operations on much capital requirements then there are american counterparts and with new u.s. financial regulatory rules set to kick in as early as next year european banks are now looking for ways to skirt the new laws banks including barclays in the u.k. deutsche bank of germany and u.b.s. of switzerland are all allegedly considering tactics to shore up u.s. subsidiaries by buying the subsidiaries debt other banks are considering selling assets or moving firms into legal structures outside the purview of the us a k off shore now according to the wall street journal u.s. bank entities would quote issued their parent companies the type of bond that converts into equity if the u.s.
business capital falls below a certain level some european regulators have allowed this type of convertible bond to count as capital although it is regarded as less helpful for absorbing losses than simple equity. and the european european parent companies were to finance the purchases of these subsidiaries debt by issuing bonds to investors i mean why use your own principle when you're trying to skirt capital laws in the first place no why not just raise more debt say right right anyway one thing is for sure there's european bankers they are afraid of some debt and they sure aren't afraid of some regulations for that matter either. now want to show we're discussing europe and our next guest mike in the shed lock writes a widely read blog called mission is
a global economic trends analysis in which he looks at all the important global macro issues facing society today including europe of course now i spoke to him earlier about europe and i noted that data coming out of europe seemed to indicate a recovery so i asked him is europe in a recovery here's what he had to say. in europe being a recovery you know just look at france it's the it's prince's the weak link here by a long shot and. arguably spain is bottoming perhaps one can look at the current account in greece which is a very minor country and perhaps it's bottoming but when you look at france when you look at the netherlands when you look at some of the larger countries france is really a basket case here and employment unemployment is rising about every month there are huge disputes everyone's with the law and and so you know one wonders you know
how long you know germany holding all of europe together are i don't think the game . ok now europe has been forced to undergo austerity in the periphery to prevent a fault as you said especially in greece but now bond yields they're dropping is the eurozone crisis over it's kind of like my first question but euro zone as a whole i'm asking. well actually bond yields have been dropping not just in europe but in the united states until recently actually because of central bank manipulations of buying bonds in the united states and in europe of a belief that everything's under control and if you look at the leverage of banks so you know who's buying these things you've got an enormous problem in europe. all of this debt is is owned by the spanish dess owned by. banks in spain
so what happens if you start to rise there and i think they're going to as soon as we can have some sort of contagion crisis and starting right now in emerging markets i think it's going to spread greece is making overtures here about defaulting on. defaulting on debt certainly the. party. the leader has come out and said if they win the election and right now they're leading in the polls they wouldn't pay this debt back so how does how does all of this work i don't think it does and then if you look at back at france some of the things that are happening in france. like spanish real estate companies are moving into france and france is complaining that these guys are under causing them on construction costs by as much as forty percent so spain's all
up in arms there what they really need actually in france especially is prices to go down so that france could be more competitive but the central banks are resisting this and in the process of resisting this especially in the united states they've added liquidity that in the united states is field property bubbles. on bubbles a bond market bubble in europe as well with all the leverage of banks holding all the european debt mathematically it doesn't work this what can't be paid back won't we're just waiting for trigger for a crisis here in europe and the trigger might very well be emerging markets now last week official figures that show that the eurozone inflation fell to zero point seven percent in january that's further below the e.c.b. two percent target now is monetarists would say that the e.c.b. needs to employ quantitative easing to fix this what do you think of the e.c.v.
potentially employing q e. i think they're likely to as long as germany in abundance vying doesn't complying but is that the right policy let's start with a quote simple question why are falling prices bad and certainly what we need here in the united states look at the minimum wage debate and i would touch on that later but you know everyone wants minimum wages to go up because prices have gone on up so what do consumers want consumers want prices to go down is central banks that one prices to go up and why shouldn't they you know the here's the here's the climber you know all these economists climb that if prices fall then people won't buy things well it's not you know look at the price of computers of flat screen panels of t.v.'s all the electronics prices have been falling for years it used to
buy six years ago it might cost fifteen thousand dollars for a huge sixty hands flat screen t.v. now you can buy one today for six hard box baby so you know what is with this notion that falling prices are are this horrendous thing it's a good thing we should welcome it france in particular desperately needs falling prices but central banks don't realize is is by inflating money by supporting these bonds they've actually created bubbles look at the u.s. equity market actually the equity markets worldwide have have solar and and so we've created this bubble and they've rebuilt the housing bubble in the housing bubble in the united states well loans are made on the on the value of those assets the deflation they ought to be worried about isn't price deflation but
acid deflation and it's acid. deflation the bad and the central banks can print money all they want and the fed certainly wanted it to go into jobs the fed watered it to go into jobs or to go into hiring wanted to go into loans it didn't go into our it didn't go into a loan didn't go into jobs it went into the stock market bubbles it went in to market bubbles corporate bond market bubbles it went into the prices of assets. if the person close to fifty percent of the homes bought in the united states in the month of november and december were all cash squeezing up prices now what happens when these prices start turning down it's ass it bubble deflation that's going to cause the real problem not consumer prices where everyone screaming for lower prices the fed and the central banks just don't
get it there's spawned these bubbles that are going to pop and it's the popping of those bubbles that is the deflation that they really don't want instead they're worried about the wrong deflation if you would actually if you think of it in terms of money supply the advance of. of credit and money is that it is is really what is inflation but if you look at what central banks are actually worried about it's falling prices should be welcoming home prices that was investment manager and financial blogger mike said lot. time now for a very quick break but stay tuned because coming up in yonkers and verify talks about the so-called european recovery you won't want to miss the interview i have with them then ed harris and i are taking a look at the portuguese housing market is recovery on the horizon for the beleaguered nation well led to now but as we had to a quick break here's a look at some of today's closing numbers at the bell stay tuned.
now everyone is saying that europe is in a recovery manufacturing data has been positive in g.d.p. data as well gone heels in spain are at record lows and foreign investors are coming back into portugal spain and greece however if one looks at the jobs data it's another story altogether unemployment in the eurozone is still twelve point
one percent that's a record high and youth unemployment is twice as high of twenty four point two percent so the question is is europe in a recovery or not yanis varoufakis a professor of economics at the university of austin at the university of texas at austin and an expert on european sovereign debt and the european sovereign debt crisis is here to discuss how you want us last time we spoke it was back in january seems like so long ago but only a couple weeks ago and you were very pessimistic about the eurozone since that time we've seen a lot of figures pointing to growth of both in the eurozone as a whole and greece specifically would you know quite a bit about now are you more optimistic as a result of these figures coming out or ease staying the same still pessimism. if you look at the figures to realise that the right is going on in europe is a. wishful thinking or a reality. of the growth numbers exactly. the heart of the eurozone is stuck in
a rut. we have absolutely no ging in good has ever told you not to get. used a smidgen of a modicum of growth in germany but nevertheless. it is extremely low by world standards and in view of you know the depth to which production had to fall in the last five years we're talking about what the white civil stochastically the first two was the dead cat bounce whether in that ice of the eurozone what we have that says we're talking about figures in the last month we had confirmation that investor production i confess. the numbers seem to be completely at odds with the exuberant to take the coming out of europe now but things they seem to have died down in europe regardless i know what you're saying i hear you but according to twitter at least you don't hear the same chatter about
the crisis in the eurozone breakup now you're more likely to hear stuff about the u.k. going into a break out what's going on there over in the u k. well what's going on in the united kingdom is you have the surgeons of a very sensible kind of scot this nationalism in the face of a very serious decoupling between england on the one hand in scotland the other england is increasingly being absorbed by the logic of perch real estate eighty for the masses and socialism for the bankers and with a selected few. you have. a kind of. new a new form of for you the skepticism there's going to be if that end which is very likely is going to push or england or the whole of britain the city remains unified
out of the european union whereas north of the border north of haiti as well you have the majority of the scots who are very seriously questioning the logic of perpetual state the completely now they're really committed to staying within the of the european union and who was not taken over by the frenzy of as you know phobia which is so evidence out of the border especially with their eyes of you keep and the general attitude towards the so called of invasion of the british isles by foreigners romanians bulgarians and so on ok now i'm grad that you kind of bring up greece because in greece retail sales are up car sales are up industrial production is up and greenfield they're down the question is is the greek economy going to start growing. i hope it does but at the moment
the government is celebrating the fact that he session the never ending recession. has not ended but it is slowed down so the the good news is not that we have stabilized the economy but that eight of. diminution of shrinkage is falling. you mention their eyes and car says well that's only arise if you compare it to january of two of two thousand and thirteen when there was a complete it out a collapse i mean the car sales went down to zero effectively and now what has happened is there's been a fifteen percent bounce relative to last january. if you look at the annual figures you know you have a catastrophe if you were a car dealer in greece you would have absolutely no cause to celebrate speaking of industrial action it hasn't gone up which is good and. they say humans have more of those stabilized but what are the very catastrophic level it's like saying that the
united states economy in ninety service for the stabilized well it's stabilized would have had a very very very low level and if you look at the investment data because remember the investment is what drives future growth or even shorter gross investment is down and even the government is predicting that the rest is going to fall further now when you look at the euro zone numbers one country that stands out on the negative side is france what do you think's going on there well france is the battlefield for the year. because let's face it the whole of the european union and in particular the euro zone is predicated upon the franco german axis. france was always the weak link of that axis if we go back to the ninety nine days. with the exchange rate mechanism. france france's incapacity
to stay the. bonded to the german economy was the reason why that airlie at them that wanted their union failed so. if there is a break up of the year it will. proceed beginning from the baby free and it will reach its climax when france is effectively jettisoned by germany so what we now have the inference is we have if you want the money for station of the dict on the plates sifting underneath the eurozone causing incredible tension and bringing the unit was own while the bond markets have stabilized and the whole the number seems to be doing reasonably well nevertheless underneath the surface you have a decoupling between the german and the french exams and you can see that now france is caught in a situation where you have absolute movie no degrees of freedom that will allow
france to regain the boys which is necessary in order to retain the link with the deutsche mark and then the french government is can really play at the really out of leavers. they have no access to monetary policy they have the on a buffer with fiscal policy and they are stuck in the currency union where the euro is a very high level of the moment and in a world environment in which other currencies are. diminishing in value and there's a big question is with the french political elites find it in themselves whatever is necessary in order to counter the motive but really in base juggernaut which is crushing any chance or a the french economy has of recovering now i have one final question for you now i take a trip from our friends to italy it only is our premier enrico letta is it he's going
to resign after losing a key vote and now thirty nine year old not hale renzi will become the youngest prime minister of italy ever what politically do you expect to happen in italy regarding austerity and structural reform we've got thirty seconds can you give it to me fast. we have a political system which is displaying all the signs of the malays. underpinned by an economy that is stuck in a round with a credit banking system which is incapable of financing any prospect of what it covered with. so good times right away ahead is what you're saying. honest thank you so much that was our political economist and author yanis varoufakis time now for today's big deal.
and joining me now is dr weil is not a doctor but he is just mr edward harrison and we're going to talk about european the european continent most western country which of course will now official figures released at the end twenty thirteen showed the property prices across portugal have sunk to unperson dented levels even below the bank estimates now bank estimates will typically value properties lower than their true market values to avoid risk and to help ensure that the properties will sell values usually vary from one to twenty percent less and it ended in a depressed economy such as portugal's economy these values could be even lower now add despite what we know about portugal's khana me it seems like a great time to buy portugal now well it all depends on whether you think it's going to go lower and you know because people are saying that it's stabilizing because the economy has somewhat stable. the prime minister is talking about
actually you know getting out of the bailout program and so forth do you see that happening i think that it's a possibility you know at the beginning of last year i didn't think it could happen but after we saw the yields in the periphery drop like a stone. i think that it is possible and you know the going to try to go to market with some bonds and if they can not only go to market with no paper in the you know one to two year time frame but further maybe five years ten years then you're looking at. you know a comp with a country that can leave the bill. now according to a new analysis by the portuguese government housing prices in portugal they're stabilizing and they're likely to remain that way for the next one to two years because of a sluggish economy canonic recovery can you explain to me how portugal sluggish economic recovery helps to stabilize housing prices in a country to me this seems totally backwards yeah i would think you know the exact
opposite would happen i think that you know just the wording of it in terms of what they really mean to say is that the sluggish economy means that. house prices are going to rise the way that they're rising in spain in ireland spain and ireland that's where portugal wants to go they're the ones who are already free and clear they're out of the bailout program and the. particular is they're seeing their house prices rise but given how bad things are in the real economy in portugal that's not going to happen the best you can hope for is a stabilization the best we can hope for portugal a set of plans to resume auction of its bonds in the first half of this year and on january fifteenth they started selling one your bills point six nine percent now that's the lowest rate since two thousand and nine and what does this say about the portuguese economy and recovery relative to countries like spain and italy and greece even from my perspective it says more about the so-called you know outright
monetary transactions that are talking about basically there's a backstop for all the periphery debt and people are using that in order to buy if you're a portuguese bank you can pick up a lot of the yield by. into portuguese government bonds knowing that the e.c.b. has a backstop there for portugal as a result of the pretties up your balance sheet and you get a nice yield pick up at the same time so both of those things are factors that are positive and i think it has much more to do with those factors than it does actually with the real economy that's interesting now the rate on the portuguese ten year it dropped thirty basis points to five point two three percent and s. and p. remove the nation's rating from negative credit watch which is where it's been since september and s. and p. use this credit watch indicate a substantial likelihood of it taking a reading action within the next ninety days so it's going to call it garbage.
three months now how much weight does this new credit rating actually carry does it actually matter and if so how much you know there's no no the ready credit ratings there in my opinion. will the credit rating agencies they were completely you know we saw when they were rating all of these things aaa that venture became just that they weren't really worth that much and i think in particular with sovereign debt it's even more so the case that it's really. a factor of the market moves ahead of where the credit rating agencies are i mean the credit rating agency comes later remember when we were talking long a few weeks ago she was talking about puerto rico she was saying puerto rico is in dire straits they should be really jump up and just they were rated jump but she was saying that the market was saying that before the rate where they rated at the time they were rated triple be mothers which is the lowest of low but it's still better than john ed thank you as always that's all the time we have for now but you
can see all segments featured in today's show on you tube the you tube dot com slash boom bust archie we also love hearing from you simply check out our facebook page at facebook dot com slash boom bust our t. you can also tweet us at aaron ate at edward and it's from all of us here at the best. thanks for watching the back. we welcome aaron eight and abby martin two will be terrific hosts on the our team network. it's going to give you a different perspective give me one stock tip i'll never i'll give you the information you make the decision don't worry about how breaking the. revolution of
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