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tv   [untitled]    April 18, 2011 3:30am-4:00am EDT

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markets. find out what's really happening to the global economy with much stronger for a no holds barred look at the global financial headlines tune in to cause report. welcome back unfortunately live from moscow these are the top stories france's military initiatives in libya and ivory coast backfire at home with president sarkozy losing points and allies the french public are angry their leaders and the real inhibitions are costing the country it's money and reputation. india's fast turning into electronics waste down with western companies sending computer junk to the poverty stricken country instead of recycling it while the consumer society provides work for locals their health is being put at risk when those groups return astrachan. and russia is preparing to launch one of the most promising projects for
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the future of space exploration the biggest telescope ever to enter orbit will allow the deepest corners of the universe to be scanned with extraordinary clarity . as we have lines next peter lavelle's crosstalk guess the scots weather america's mounting debt is beating the dollar into submission. if you can. start. to. think that. chloe unwelcome across time peter a little on the brink of bankruptcy time is running out for the american budget
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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 woes. can't. discuss america's out of control debt situation i'm joined by martin henniker in hong kong he's an associate director at the tykes 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 the 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 going for broke want to get asked if the l.s.o. fourteen point three trillion dollar debt ceiling is lifted by need money on the lines of course that the u.s.
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is on the wanted so how do original money lives public debt at more than fourteen point six trillion dollars and rising by four wheeler and all those that a massive iou the next generation forty three cents of every dollar we spent this year. we borrowed against the future of the compromise and boarded a us government shutdown with agreement on the largest single spending in u.s. history but thirty eight billion dollars is small change against the sun i thought the debt last month though with largest one trader said it was all out of us treasuries smile and trillion dollar deficits as far as i'm no skin snaith some concert with the walls largest economy has to go for growth and that isn't possible can it handle that but monsoon christmas is an author learns on strategy and spiraling prices for anything priced in the greenback on the line every confidence
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in the u.s. dollar and the global economy and you bet on that if you want to show up across artsy. ok. let me 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 we are treasury secretary james baker how do you reflect upon those words. big russ was was saying that the us is actually an old creaking of the greeks because if you add all the i'm funded 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 deadline that's two hundred and two trillion us dollars saw in many ways that's worse than greece the budget deficit is very small as the same as
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crazy of ten point eight percent budget deficit in the eurozone was formed not that the eurozone is any better i mean they're blowing up right now too we have to be seeing again pressure on greek and pigs government bonds and even germany and france increasingly looking shaky on the government as well but just as a reference when the eurozone was fran there was a limit of three percent a budget deficit as a percentage of g.d.p. that is normally considered the 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 that greek greece will have to do it basically in some form of the default or get a restructuring or very very high inflation in their respective currency to get really out of this step so 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
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are very optimistic on it ok jeffrey in cambridge i'm going to you is that too bleak of a picture there i mean the past a point of no return as with morning sir. well absolutely not and i'm not sure i heard that right there is there's no chance we're going to have a restructuring of the debt and 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 the retirements and the rapidly increase in pensions and health spending medicare and 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 have been facing this problem for thirty years many people like myself have been worried about this for thirty years there's nothing that tick 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
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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 know that they're getting tired of it so they use the phrase. that crisis is to my mind i'm sorry five years ago i don't feel it is better to remain as they have been crying a lot of feeling bad because nobody has buying it. ok i was just telling us to look at sawyer why lots of other china is buying 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 stop and i'm worried about that too but at the moment they're not slowing down their purchases foreign central banks ok joe where
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you. were all 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 greece greece doesn't it controls our currency they're subtly borrowing and someone else currency they have to build up a surplus and then pay it back we will fundamentally different system than that and to compare us through greece or ireland or any other trying to comparison just wrong and i think look this is something we have politicians forgot about. the other guys said all the sudden it's become a political issue but if you actually i look at the market i look at what how the market is reacting to america is that everything is known and all the math is known and everyone's figured out about how we're bankrupt 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 the the market didn't
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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 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 odd numbers to digitize it's 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 it where there's going to be a clash of this system you can't keep borrowing forever everybody knows that. but office need most of them put it in stone really seem to understand the situation. or maybe they do and therefore for other reasons outrage to raise their voices or say to them marginalize in some way or another all go no no recently you see those
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raising the issue of skating a bit more attention finally because this is now it's now become this political issue but obviously that was still ongoing before but i would 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 if you're talking about the markets through things to look at their one stock market one market and a commodity market so actually three in that way but mainly if you're looking at stocks market because i would put it into the. real assets because stocks represent companies was really behind in what services will be set and increase the prices and i miss inflation and commodities also represent tangible assets or if these markets are and worried her gold and silver they're going up a lot what do you what do you see avoid i mean i think the more broadly it's a market gets about this over and that crisis and the resulting inflation or 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
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rise as a hedge against this possible bankruptcy or very high inflation and as a result of bankruptcy 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 the story it's absolutely now the time to get our done in any long term. and even anything when we would even short it because we're still in ended dollar and the dollar may just suffer through the devaluation so no i don't really see that the market isn't getting adjusted to one mother but that's going to come now ok no no no good job you want to jump in there jeff i saw you want to do the google groups. i mean rose. and we're going to selling bonds is what is drastically misunderstood everyone saying oh he's selling bonds because he thinks the government is going bankrupt or what not that's you know what's going on so involved because he insists it's the end of q e two
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essentially. the fed goes back to normal zero interest rates and sort of negative interest rates that's essentially a rate hike and historically that would be a good reason to sell bonds if you're. you look at what is partner muhammad illyrian is saying elsewhere is like oh the ten year yield got a bit higher we pry actually buy bonds again so this is another thing people look at the head his move and start to freak out and say oh this means that you think the government is going bankrupt this is actually really nice and so it's an emergency not only you but as i was saying is this rising so how do you possibly single you even say right interest rates are going to be on the rise how do you possibly saying this these better numbers are high interest rates are going to be unbearable by the united states government so that's one issue but i want to jump in here and the general is 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
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there could be a crisis certainly there is the risk that eventually could be ten years from now there could be a sharp increase in inflation and interest rates and fall on 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 a program to address it and for my money president obama recently is recent speech addressing it 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 the mystic spending we need to cut military spending we need to do something on a tax side 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 are both parties we could we could solve a pretty quickly but i'd be doing very very and i don't know if it's not easy to go to a short break here and after the actual break we'll continue our discussion on stephen pearcy.
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i live in a country that don't understand that there's more violence in the streets of this country than there are in the streets in afghanistan or baghdad. one of the. brace of. her. for. some. crowd gathers no moss. to speak of the.
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download the official auntie application to i phone the i pod touch from the i q sampson. life on the go. video on demand on t.v.'s my blog comes and r.s.s. feeds now in the palm of your. question on the dot com. if. you want to. welcome my friend rostock i'm carol about to remind you we're discussing if the u.s. will default. to.
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ok jeff i want to go back to you because you said something really interesting if you could could get members of both parties together it's all this here isn't really a revenue problem and not a spending problem how to generate revenue. it's but i said if we get economists together of these. times ok. yeah. 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 that 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 so 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 that 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
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where we are now 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 arithmetic feels like the republicans think that they can solve the pledge of 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 saw the same thing and the budget got much worse he doubled added created more debt than all twenty thirty previous presidents and his brother 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 particular the united states there's a lot of. wealth in the sense of financial speculation in things like theirs and the concentration of wealth here i mean i know it's politically incorrect to talk
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about taxing people in a bad time when there are some people that have a lot more than others ok and if so if the country is so concerned about debt then you know 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 that this idea that we face. 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 it seems completely contradictory i think what this basically exposes that is that most of it is actually just a pretense for getting. it's the whole thing is a pretense for getting something else so it's a pretense the republicans want to use the debate as a opportunity to weak in some of the social safety net cut taxes the democrats want
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you know what agree with the republicans that the debt is an issue and they want to use it as an opportunity to raise taxes and cut defense spending so there's the problem that everyone agrees that it's a huge problem and it is really just an opportunity to push whatever visionary he had 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 the if this really is a political football and i would agree with our that you guessed it is a political football here because somebody wants something for something ok but isn't this really like the the the people on the titanic arguing over the seating order on the top deck because it's still getting worse and worse. absolutely there even this debate here i mean with destroying jeffrey i think they're totally getting carried away in these idle ideological eat bates and arguing this words by the totally ignoring what actually the numbers tell us and
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because we are talking about the rating and it could be a rating downgrade under 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 trouble thinking and giving the u.s. a aaa but actually the chinese rating agency. has downgraded in november last year's 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 the rest and rating agencies are politicized and highly ideological they do not hear it here to object to stand as the u.s. is insolvent and faces bankruptcy as a pure debt nation but the rating agencies still give it a high rating 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 one hope that i do see for the united states even in the in the near future now
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it may be other characters are going to interact with china their projections are now dead on 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 saw their lightnings but certainly not their 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 because the structuring is grand 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 when we have a huge year all the revenue is growing and 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 that i'm sorry is just nonsense i don't understand why my thought analyst is saying that yes yes that's a serious problem yes we should address that and there's all kinds of ways we could
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address that they're politically very costly very dangerous the 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 ments and to trim defense spending in addition to domestic spending a little bit or all around. it can be done if 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 it's going to i was going to say this isn't there just a mindset in the united states is that the dollars just too big to fail is just too important in the world and we'll just put it off in a few more years went to lot of noise about lifting the ceiling and 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 thing but obviously there's a there is that definitely this idea that you know we are too big to fail but what
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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 in the fall 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 restart 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 big that 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 like that jeff you want to jump in there. well yeah i want to i want to make clear that the only reason why
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words like you know your thoughts or even are even mentioned by anybody is not because we're an increase or to a show but rather because the two parties of congress are playing a game of chicken to liberate game of chicken which i mean it's almost like holding holding the capitol building hostage it's not the regular related to the issues involved we're not running out of money i mean other countries raise their debt all the time and as long as the debt is an increasing too rapidly for example if it's coming down as a share of g.d.p. or you know it's not that high is that that's not that's not an issue we happen to have this 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 a hand grenade 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 of columbia's irrelevant things are going to blow us all up i don't hear anyone anyone a single person in the united states saying we ought to restructure i got rather
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it's it's i'm going to blow us all up 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 there may not be a crisis but i'm going to get what i want to 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 is 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 mentioned some very good things. yeah i mean definitely. the baiting or maybe even soon we'll have the debate on raising the debt ceiling or not raising the debt ceiling but while this is being debated saying they are thaw it he who can really decide on whether or not they're going to raise the debt ceiling of the u.s. is the bond market and of course the major blunder investors saw i think that's really interesting to watch we have been watching the eurozone one market re years
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in the beginning also rising very slowly and then suddenly spiking and if it hadn't been for as a bailout it's off now it's really yours on countries they would already be history and this can go very very fast or for bond investors in particular this is something to watch very very carefully you know u.s. years going up and we are just last week actually out of the u.k. be 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 are affected in commodity prices for you know silver has been surging like there's no tomorrow in part this is the fear of the rising because waves rising potential bankruptcies and also as inflation and if that continues again as inflation rises interest rates would have to rise because one investors demanded and this is something we will watch very carefully whether or not you believe the u.s. will go bankrupt or not but watch the rates there were probably tell you earlier so
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what's going to happen all right jeffrey i'm going to give you the last word we're going to be having this conversation a year from now. yeah yeah well i mean the fifth we should be afraid that met some quiet investors or get tired of their current eagerness to hold us bonds and there will be a decline in us one market an increase in interest rates that is not the fault or 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 guests the day 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 across. the. street. great for the full story we've got it from. the biggest issues get
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a human voice ceased to face with the news makers. and.
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in india all these available to them are going to have joint you know tones.


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