tv [untitled] April 17, 2011 11:30pm-12:00am EDT
these are the images. from the streets of canada. corp today. the week's top stories here on r.g.p. a bomb attack on the metro system in the belorussian county kills thirteen injures over two hundred. nato is accused of endangering civilians in libya by using depleted uranium munitions against gadhafi forces. and the man behind an extremist web page of terrorism against russia goes on trial in finland for smuggling the chechens into the country but not for his support of moscow's most wanted terrorists. coming up in about thirty minutes time my colleague josh he will be here with a complete look at your news but first our debate show cross talk stay with us for that. for the full story we've got. the
biggest issues get the human voice face to face with the news makers. we welcome across town peter little on the brink of bankruptcy time is running out for the american budget deficits failure to raise the debt ceiling could have catastrophic consequences not only for the u.s. but for the entire world how can piling on more debt begin to solve america's
fiscal goals. to keep. discuss america's out of control debt situation i'm joined by martin henoch in hong kong he's an associate director at a tight group in cambridge we have jeffrey frankel he's a professor of capital formation and growth at the harvard kennedy school and in new york we cross to joe weisenthal he is a deputy editor at business insider all right gentlemen this is crosstalk that means you can jump in anytime you want but first let's have a quick look at america's debt mess. going broke i'm going for broke wanting stuff get asked of me and less the fourteen point three trillion dollar debt ceiling is lifted by i need me on the line the course of the u.s. is on a president obama so how do original money lives public debt at more than fourteen point two million dollars and rising by four wheeler dollars thirty hands and
massive iou that's generation forty three cents of every dollar we spent this year . we borrowed against the future of our children the compromise voided a u.s. government shutdown with agreement on the largest single spending cut in u.s. history but thirty eight billion dollars is small change against the sun myself the debt and last month even though the war with largest bond trader said it was all out of u.s. treasuries smelling trillion dollar deficits as far as i'm no scam sneak some concert at the walls largest economy has to go for growth and that is even possible can it handle that but christmas isn't of them learn some strategy and spiraling prices for anything priced in the greenback underlying everything confidence in the u.s. dollar and the global economy. that if you cross are artsy. and
i do go to you first i'd like to read something to you the united states of america if we didn't have the dollar is the defacto reserve currency of the world we'd be greece i mean we are broke bankrupt really bankrupt and now is former treasury secretary james baker i reflect upon those words. well bill gross for us was saying that the u.s. is actually out creating the greeks because if you add all the unfunded liabilities to the national debt figure i mean the national debt figure. isn't really what this is really about but really the unfunded liabilities are the so-called fiscal when that's two hundred two trillion u.s. dollars saw in many ways that's worse than greece the budget deficit is very small as the same as crazy of ten point eight percent baiji deficits when the eurozone was formed not as a eurozone as any better i mean they're just they're blowing up right now to. have
a good thing again pressure on greek and pigs government bonds and even germany and france are increasingly looking shaky on development as well but just as a reference on the eurozone will spawn there was a limit of three percent or budget deficit as a percentage of g.d.p. that is normally considered a maximum sustainable so the u.s. is now at ten point eight percent clearly as we have been warning they are beyond the point of no return and we don't really see that they could solve the problem in any other way then then it's now. estimated by most analysts they agree greece will have to do it basically some form of the earth default or bear the restructuring or very very high inflation in respect of currency to bed really out of this step saw we say stay out of the u.s. dollar stay out of any form of medium to long term u.s. treasuries but by the way also eurozone doesn't look better again saw the rest we are very optimistic on it ok jeffrey in cambridge i'm going to you is that kubrick of the picture there i mean the past the point of no return that's when markets are
. well absolutely not i'm not sure i heard that right there is there's no chance we're going to have a restructuring. i mean we have a very serious long term debt problem we've had it for quite a while it's it's long term in two ways one that the problem is that deficits the moment the problem is retirements and the rapidly increase in pensions and health spending that carrot social security that are going to come over the next few decades that's the problem it's also long term in the sense that we we've been facing this problem for thirty years many people like myself have been worried about this for thirty years there's nothing magic about about this year the only thing that's magic about this here is it's become a political issue this year the american political system kind of bizarre early swings back and forth between not being concerned at all about the problem and making it much worse with huge tax cuts like we did in the early eighty's when james baker was working for ronald reagan or as we did in the bush administration
versus times when all of a sudden we're concerned about it i'm happy that i mean if we're concerned about it fine let's take advantage of that political crisis to solve the problem but if you look at. the willingness of foreigners to hold u.s. treasury securities there isn't the slightest sign that they that they're getting tired of it so they use the phrase. a debt crisis is to my mind absurd five years ago i don't feel it is better that i really do as they have been crying a lot of people get yet because nobody has buying it. ok i was just following this look at sawyer a lot of other china's buying it and we know i mean it isn't just the u.s. federal reserve lots of other central banks like china are buying now you might say at some point they're going to start and i'm worried about that too but at the moment they're not slowing down their purchases foreign central banks ok joe where you where do you jim and where do you jump you know this. on the view the crisis is totally overhyped i mean this idea is i will if we didn't have the dollar we would
be greece but we do of the dollar and. we have a fundamentally different monetary system of greece greece doesn't that controls our currency they're suddenly borrowing and someone else currency they have to build up a surplus of and pay it back we're a fundamentally different system than that and that compares to greece there are a lend or any other trying to prepare isn't just wrong and i think look this is something that politicians freak out about and yeah you know as the other guest said all the sudden it's become a political issue but if you actually i look at the market like i look at how the market is reacting to america's debt and everything is knowing that all the math is known and everyone's free out of our growth but the market doesn't seem to care and is not concerned so i really tend to think the issue is mainly a lot of ok well if i go back to martin i mean the market of the the market didn't isn't particularly concerned by it but it seems to me when everything gets goes sour the markets are the ones that are saved the bankers are the ones that are
saving me if there is a crisis they're going to come out on top like they did in the last crisis here i mean our politicians are. underestimating this problem because it's just so gigantic i mean i have a calculator on my computer and i can't get fourteen trillion dollars on a number of digits by this a big number it's a really big number and believing that it's going to be cut down when the budgets continue i mean the defense budget continues to expand i mean if we reach the point where we're going to be a clash of this system you can't keep borrowing forever everybody knows that. but obviously most of them put it in stone and really seem to understand the situation . maybe they do and therefore for other reasons outweigh to raise their voices or. in their lives in some way or another all go no more recently you will see those raising the issue of skating a bit more attention and finally because this is it's now become this political issue but obviously that was still ongoing before but i would just like to come
back to jeffrey it's going to be on the market the market. isn't seeing the danger because that's a very important one but if you're talking about the markets seems to look at one the stock market the market and the commodity market so actually three in that way but mainly if you're looking at stocks not good because i would put it into the basket of real assets because stocks represent companies was really more services for the second increase the prices and i'm just inflation and commodities also represent tangible assets so if these markets and warry gold and silver they're going up a lot what do you what do you see avoid i mean i think the more growing it's a market gets about this over and debt crisis and the resulting inflation hyperinflation because that's the only way they could possibly get rid of the debt the more the market gets the higher you see commodity prices rise gold and silver rise as a hedge against this possible bankruptcy or very high inflation as a result of bankruptcy if there is an indirect bankruptcy and also the stock market
could actually rise on inflation expectations so really what you want to watch there is the bond market and you're right to some extent we haven't really seen a sell of a yet but that's why for investors now as bill gross is doing is absolutely now the time to bed are down any long term. and even if anything when we would leave uncharted because you're still in in the dollar and the dollar may just suffer through the devaluation so no i don't really see that the market here isn't getting adjusted to one another but that's going to come now ok no no great judge you want to jump in there jeff i saw you want to do the bill gross. greg i mean joe for just a moment here selling bonds is. drastically misunderstood everyone saying oh he's selling the balance because he thinks the government is going bankrupt or what not that's actually know what's going on in some violent because he anticipates the end of q e two essentially. the fed goes back to normal zero interest rates and so the
negative interest rates that's actually a rate hike and historically that would be a good reason to sell bonds to various. a look at what is partner mohamed illyrian is saying elsewhere is like of the ten year yield got a bit higher we cry actually buy bonds again so this is another thing people look at his move and start to freak out and say oh this means that he thinks the government is going bankrupt is actually really nice and so it's an emergency but i don't think this is rising so how do you possibly seeing a you even say right interest rates are going to be on the rise how do you possibly saying this these debt numbers are high interest rates are going to be bearable by the united states government so that's one issue but i want to jump in here let me go to. the gym just going yeah i think. so i seem to be between the other two panelists in a sense number one we definitely have a long term fiscal situation which we need to address and at some point if we don't there could be a crisis certainly there's the risk that eventually could be ten years from now
there could be a sharp increase in inflation and interest rates and fall in the bond market we want to avoid that we can do it it's not it's not impossible if we have a balanced kind of program to address it and for my money the president obama recently is recent speech addressing it in just broadly speaking was a kind of balance we need to do a little bit of slowing the rate of growth of entitlements we need to cut domestic spending we need to cut military spending we need to do something on a tax write we need to do a little bit and maybe we'll succeed in doing that we certainly can if i sat down with economists you know a group of economists from both parties we could we could solve it pretty quickly but to be doing it for a very i mean it's not easy to go to a short break here and after that short break we'll continue our discussion on state party. started.
world. bringing you the latest in science technology from around the world. we've got the future of coverage. to keep. the. welcome in your house dot com family well to remind you we're discussing if the u.s. will default. to keep still. ok jeff i want to go back to you as you said something really interesting if you could could get members of both parties together you could solve this here is not really a revenue problem and not a spending problem how to generate revenue. yes but i said if he had economists together about. the kind of.
you know i mean the good the good even though it's there's at the moment somewhat surprisingly i would say the markets are completely relaxed there's no sign that they're nervous about holding us and as long as they go on doing that we don't have a crisis but we be foolish to rely on that forever that's that's so that's the that's. that's one point it's kind of nonsensical that at this moment in history two thousand and eleven is when american politicians are suddenly viewing this as a crisis it would've been much much easier much much better to have just half of the support for fiscal stabilization ten years ago or five years ago but we are where we are the good news is maybe we can take advantage of this all this political ferment to address the problem the bad news is that one of the two political parties is speaking nonsense from an arithmetic viewpoint the republicans think that they can solve the budget deficit by tax cuts and i mean it's just a complete nonsense and we've shown this over and over again reagan thought the
same thing and the budget deficit got much worse he could triple the national debt george w. bush thought that same thing and the budget cut much worse he doubled added created more debt than all two hundred thirty previous presidents and his father and reagan combined so now the republicans are saying exactly the same thing we're going to we're worried about the budget deficit so we're going to cut taxes it makes no sense ok joe what about that because you know there's a huge particularly united states there's a lot of. wealth in the sense of financial speculation in things like there's a new there's the concentration of wealth here i mean i know it's politically incorrect to talk about taxing people in a bad time but there are some people that have a lot more than others ok and so if the country is so concerned about debt then you know then generate a little bit more revenue over a ten year period or something like that i mean the rich are going to stay rich. yes i totally agree with this idea that we phrase. catastrophe and we're going to
become the next greece and have all this and yet this is so severe it could threaten our prosperity for generations but we can't raise taxes slightly on anyone is an absurd level of sort of split thinking and you know it seems completely contradictory i think what this basically exposes that is that most of the debate is actually just a pretense for getting it's the whole thing is a pretty says we're getting something else so it's a pretense the republicans want to use the debate as a opportunity to weaken some of the social safety nets and cut taxes the democrats want also you know what agree with the republicans that the debt is an issue and bay wanted to use it as an opportunity to raise taxes and cut defense spending so this big problem that everyone agrees that it's a huge problem and it is really just an opportunity to push whatever vision they already have on everything else you know joe it sounds like to me that everybody
wants to go to heaven but nobody wants to die martin if i can go to you i mean if this really is a political football i would agree with are the two guys that is a political football here because somebody wants something for something ok but isn't this really like the the people on the panic arguing over the seating order on the top deck because it's still worse and worse. absolutely there even this debate here i mean this historian geoffrey i think carefully getting carried away in these idle ideological debates and arguing with words by the totally annoying what actually the numbers tell us and because we are talking your god the rating would be a rating downgrade on the night it stays on the way to being potential bankruptcy and also just want to say not all of the rating agencies are stuck in this type of thinking and giving the u.s. a aaa but actually the chinese rating agency. has downgraded in november last year
united states plus it is a negative outlook and i just want to give you a quote because he also does gave me one from the chairman of the governing global rating agency and he is saying that western rating agencies are politicized and highly highly ideological they do not have here to object to stern that the u.s. is insolvent and faces a bankruptcy as a pure debtor nation but the rating agencies still give it a high rating of ranking so again you know this debate about being about a few a billion dollars heading there is totally irrelevant i think if anything i mean one hole that i do see for the united states even in the in the near future now it may be our great kiters are going in trade with china the projections are now that the trade with china is going to grow it's going to double over the next five years and you look at what this has done to brazil so there are some means but certainly not the budget deficit again i don't see a way out of this short of structuring everything as is just you know. from people
who don't understand basic of the nominee jeff if i can go to you really see it is just the structuring is now granted there are so many ways we could start restructuring the restructuring is nonsense we want to avoid a situation where ten or twenty or thirty years from now with we have a huge year all of the revenue is growing that we're borrowing from abroad to finance medicare and we want to avoid a situation where we might be forced to adopt. twenty years from now the idea that there is any chance of a restructuring you know within the next few years i'm sorry is just nonsense i don't understand why my fellow panelists is saying that yes yes that's a serious problem yes we should address that and there's all kinds of ways we could address it they're politically very costly very dangerous of politicians don't want to say them but you know it's if we had. a value added tax or greenhouse gas emission permits together with steps that many of us are proposed to slow the rate of growth of spending in title nance have to trim defense
spending in addition of domestic spending to a little bit all around. it can be done the problem is a political one it's not an economic problem joe if i can go to you if you think there's a mindset that's going to i was going to say this is there just a mindset in the united states is that the dollar is just too big to fail it is too important in the world and we'll just put it off in a few more years like a lot of noise about lifting the ceiling and it let it somebody else worry about it because as jeff pointed out you know ten years from now twenty years from now thirty years from now nobody in office today is going to be in office then. actually i kind of think the opposite there's a there is that definitely this idea that you know we are too big to fail but what i think is actually more interesting is this kind of opposite strain of thought that's having this kind of liquidation is like let's not raise the debt ceiling now let's just bite the bullet and default let's restructure our debt let's just pull the rug out from under the u.s. banking system and under the dollar right now that's a kind of a surprising new strain that you hear more and more of what if there is no reason
to restructure or actually you know people say oh the debt situation is getting worse and worse even by some metrics it's not interest payments as a percentage of tax revenue or interest payments as a percentage of g.d.p. have actually gone down because interest rates have gone down over the last twenty or so years so it is we are we have this we have there's a lot of people want to take something incredibly painful want to do something drastic like not raise the debt ceiling when there actually isn't any kind of external force that suggests we need to do something about it jeff you want to jump in there. oh yeah i want to i want to make clear that the only reason why words like you know default or even are even mentioned by anybody is not because we're in a greece situation but rather because the two parties of congress are playing a game of chicken a deliberate game of chicken which i mean it's almost like holding holding the capitol building hostage it's not directly related to the issues involved we're not
running out of money i mean either countries raise their debt all the time and as long as the debt is increasing too rapidly for example if it's coming down as a share of g.d.p. or you know it's not that highs or that that's not that's not an issue we happen to have all kinds of corks in our political system and one of them is that if one of the two parties chooses to pull the pin on the hangar date and say if you don't give me my way on what i want on these other issues like you know prohibiting abortion and stopping abortions the district lobbyist irrelevant things i'm going to blow us all up i don't hear anyone anyone a single person in the united states saying we ought to restructure our debt rather it's it's going to blow us all out if you don't give me my way you know martin it seems to me that if the u.s. isn't financially bankrupt it's intellectually bankrupt according to and i'm kind of extrapolating from what jeff had to say but again you know i mean the thing is is that people are using this is a political opportunity there may be a crisis that may not be a crisis but i'm going to get what i wanted portion was mentioned i read that
earlier before i'm going to do this program here but there's a lot of other things that people just want to you know a lot of horse trading and again it is we're going to titanic is going to its final destination people are now waking up to what really needs to be done just mention some very good things. yeah i mean definitely i think the baiting you know maybe you don't even have to give aid on raising the debt ceiling or not raising the debt ceiling but why this is being debated i think the authority who can really decide on whether or not they're going to raise the debt ceiling of the u.s. is that one market and of cause a major blunder investors or i think that's really the thing to watch. we have been watching the eurozone one market way years in the beginning was of a rising very slowly and then suddenly spiking and if it hadn't been for a bailouts of now this really was on countries they would already be history and this can go very very fast or for one to invest doesn't particularly this is something to watch very very carefully you know u.s. years school and up and you know just last week it actually out of the u.k.
you know an advisor to the central bank saying that's it within one year a u.k. interest rate might quadruple so if this is something that's going to happen around the world as a result of the rising inflation which you see reflected in commodity prices gold you know silver has been surging like there's no tomorrow and this is the fear of the rising before us. rising but i'm sure bankruptcy is and always has inflation and if that continues again as inflation rises interest rates would have to rise because one investors demanded and this is something to watch very carefully because or not you believe the u.s. will go bankrupt or not do watch the rates they will probably tell you earlier so what's going to happen all right jeffrey and we give you the last word we're going to be really be having this conversation a year from now. yeah yeah well i mean the food we should be afraid that met some point investors get tired of their current eagerness to hold u.s. bonds and there will be a decline in u.s.
bond market an increase in interest rates that is not a good restructuring i do not understand why that word those words have been used at all on this show all right gentlemen we've run out of time here many thanks to my guest today in hong kong cambridge and in new york and thanks to our viewers for watching us here on arche see you next time and remember a process. to keep. the. peace soon which crisis if you live. from fails to mention these.
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