the same goes for jpmorgan. host: we have read about the . . . it would give more power to the fed. is that a good idea? guest: it is a gd idea to have a systemic supervisor. the real question is can the supervisor see what is going to happen? the banks bundled the sub-prime mortgages into bonds and not sell the mall. sell the mall. they put them i@@@@ i can show you textbooks. there was nothing unorthodox about this. the fact is that no one including henry paulson who was treasury secretary at the time saw any problem with it. we were told that essentially those siv's would not come back

to haunt the balance sheets of the banks of their work trouble, but in reality they did. the reason we have massive crises is that we fail to see the threat or peril and banks doing what is apparently ordinary things that turn out to be extraordinary after the fact. asking them to be clairvoyant. it is simply not that. the notion of resolution according -- the fed is emphasizing this at citigroup. it's essentially owns the place. it is trying to cut citigroup down to size. that is what you do during resolution. use a lot the good assets. they cannot do it. these large financial supermarkets with resolution of the orders would address and systemic regulators would have the ability to go into, aig is the same way. you cannot deal with that.

it raises the whole question of whether a systemic regulator can be effective if we are going to have banks the size of bank of america, citigroup, jpmorgan, or if we are going to permit operations that should be making largest in doing initial public offerings like goldman sachs. getting in bought in trading securities that threaten the fundamentals of the banking system. we do not need to go back to classical -- glass stiegel. with the banking sector being such an important contributor to the democratic party and political candidates requiring all of these $5,000 contributions from individuals, the only place you can harvest the contributions you need are on wall street, silicon valley, and hollywood, which gives those sectors of the economy extraordinary influence on washington.

host: we have michael on the line from mobile, alabama on the independent line. --caller: certain aspects of the budget had been hidden. i understand that this particular budget that we have is much more in the open and visible. what aspects of the budget is above board that makes this budget a $1.40 trillion budget? guest: it is more like a $4 trillion budget.

we have a big entitlement program. we have a huge stimulus package. we have the military. we have the state department that do not get enough money. it is hard to say. we probably have more people running around doing useless things than we need to do, and we need entitlement reform. this is such a broad question that it is difficult to answer. they looked at the deficits and said, these are kind of big. if we have more revenue, we could do different things. . going to grow 4%, and peter who is 5 foot 6, 60 years old will

be starting point guard for the wizard's next season. host: let's get a call in from maryland. tony, the republican line. good morning. caller: 01 to to start with a quick jefferson -- if we ever allow private central banks to get established the artificial cycles of inflation and deflation will have the american people bankrupt and not able to afford their homes. he talked about the cottage industry. in my mind they are the military industrial complex, the news complex, the pharmaceuticals, and thank god for the internet. we are able to learn. and you talk about the fed you never assume that they need some liability and that there is any type of malevolent intent from

them. we need to look at the federal reserve. economists like this who try to make the picture really cloudy when it is very clear -- guest: i did not know that my views are cloudy. maybe i misunderstood you. the fed is really not a private institution. it was set up to be owned by the member banks and technically they it own shares in the fed, but the treafed's petrarchan be revoked at any time. they are appointed by the president of united states just as with the sec, and approved by congress. i have been fairly critical of government agencies would they have not done their jobs. in my mind i don't see malevolent intent over at the fed. we have a director of national economic policy at the white house who took huge payments for

making speeches at goldman sachs just before coming into washington. it was at the last possible hour before would be a conflict of interest, but in bernanke was a respectable academic who earn a modest salary at princeton. the people who work at the fed have usually perfect reputations. it did not seem to be operating with any malevolence or covering their nests. agree with everything they do, but everything is reasoned and justifiable. . i think it is rhetorical arguments. we do not have a private central bank. we need a central bank. the rate structure of the fed is a very sound one. as for those cottage industries, everybody thought that the internet will shine all kinds of light, which it does.

at the end of the day, it is so difficult to penetrate shattering thing which is washington. it seems that those with very focus agendas and a lot of money to spend on political campaigns to the best. witness what has happened this week and with gm and liability claims. it is normal that liability claims are jettisoned in bankruptcy court. we can talk about whether that is good or bad. they were jettisoned in chrysler's bankruptcy but the tort lawyers were very promising -- prominent contributors to barack obama and democratic political candidates have managed to get best positioned refers regarding declines at gm. that was a flat out political pay off. it was inappropriate because of the arbitrary way in which it was done.

people who established in court will not be paid will have to go to gm to get money. my feeling is that was very inappropriate. the internet is not solving the problem. host: the long term deficit this year than ever. the huge massive debt which will reduce the american standard of living will be achieved through tax increases or spending cuts or a combination of the two. spending cuts, tax increases, what is the right combination? guest: the american people are adequately tax. the next big tax increase is likely to come in some form or another overly old corvette --

covertly. the united states already spends 80% of gdp on health care. the europeans spend about 12. i am talking about european countries have superior out comes in terms of life expectancy and infant mortality. it seems to me we should be able to get this done on the money we are already spending. 45% is already coming from the private sector. we need to do it better and look at how much we pay brand new radiologist right out of school and things like drugs. and things we can do quickly. we choose not to do that. it is politically distasteful. one of the biggest problems that obama has is he is trying to boil the ocean. he wants to change the entire structure of the way we use energy. he is trying to deal with health-care all at once. he is trying to restructure the

automobile industry. when you are dealing with all these powerful interest groups, you have to give them what they want. reform doesn't happen, you get a piece of legislation that spends too much money. last week obama said that the deficit keeps him awake at night. jerry bernstein gave him real numbers on the deficit as opposed to that base and a 4% growth race, he really would not be sleeping at night. host: the business section of the philadelphia enquirer had this headline, universal health care could boost the economy. the coverage to employers economists argue, hinders creation of enterprise. can you see any argument that this would boost the economy? guest: 1 of the things they say, christine roemer, she said it would increase the labour force

and productivity if everybody had health care. it is hard to imagine that we will get a lot more out of it. let's talk about the 45 million. if you look at the 45 million and you break it down, there are a lot of wealthy people in there. they just used to pay. there is a lot of young people opt out of the system. it doesn't affect how they participate in the economy. there are a lot of undocumented immigrants. that is an important public policy question. are we giving them health insurance cards even though they are on document? -- undocumented. i think it will come down on the side of the fact we have a democratic congress. if you get down to who is uncovered, it is about 10 million people. i don't know how spending two

trillion dollars to ensure 10 million people will make the u.s. economy any more effective. the u.s. health-care system is broken. i don't know that the statements that we need eight can add that style health care system will fix it. host: wisconsin we have an independent scholar. caller: some of the projects, the stimulus money is affecting the economy in 2010. your opening comments regarding participating in inflation and- or higher interest rates, how do you see a timetable regarding current trends in deficit spending affecting the economy with a detrimental effect with these higher interest rates and/or inflation proved guest:

we will have big deficits. the president's economic team are committed to big deficits even if they want to put a fig leaf over them. your question hinges on who is chairman of the federal reserve? does the president we approved ben bernanke? if you look at the set of economists that he is likely to pick from, and the kinds of people he picks, they are the kind of people who will let the president run the printing presses. they believe in lots of government. that is their point of view. my feeling is the person that is most likely to take the punch bowl away from barack obama is ben bernanke. he would not be a person that barack obama would choose if he was not there already. he is more likely to exercise some monetary discipline than anyone else the president appoints.

i would suggest that at some point there will be some kind of showdown between the fed and the a@n sá' will be gone here with the fed. and a born economist of the there, holding the crank. host: sanford, n.c. on the democrats' plan. go ahead, you're on with peter. caller: good morning. have you read -- read a book called "fools of gold," written by julian tett? guest: no, i have not. could you give me its basic thesis, briefly? caller: starts back when tim

geithner was the head of the treasury in new york. j.p. morgan -- jamie diamond and a bunch of the regulators, they concocted this entire mess. guest: there are many theories. some people don't have to look for a far off to place the blame. i can see that the congress is spending too much money without

asking how we will pay for it. but the 19 center banks did a lot to create the mess. it went unnoticed and unregulated by mr. geithner while he was president of the new york federal reserve. people as far as him repulse and did not see it coming. i think there is a search and promiscuity in nor, the notion of too big to fail means they can do anything they like. host: here is a question by the twister. will you offer any words of wisdom for younger folks? guest: let's start with i have an 18 year-old who is going off to the university of minnesota this september. i said you have to learn something useful in college.

if you get a liberal arts education when i was young, you could get a perfectly good job as a young executive and have a future. today you have to yet learned a useful skill in college. you need to learn a very useful skill. the other thing i would say is if you want to be an entrepreneur, there really are three basic disciplines outside of the medical profession that defined the world. engineering, finance, and a lot. -- and the law. it is important to learn to of those three disciplines.

unfortunately in the united states, you cannot study law as an undergraduate. if you learn to of those three disciplines you will learn the other by interpellation and experience. you need to have a consistent view of the world, a broad understanding of mechanisms of our economy and a specific skill so you can get started. if you have a law degree, you have a learner's permit at a law firm. my feeling is get a skill, get an understanding in two of those three disciplines. with that, you will be able to first get experience and then be an entrepreneur. host: an e-mail says i would like to buy an american car with american parts that goes over 50 mi. per gallon. well i guess what i want? guest: i know of anybody will

get -- if anybody will get that. you can buy some very fine american made automobiles, with most american parts that get good mileage relative to their size. you don't have to buy a chevy tahoe. there is something called a chevy traverse, seats 7 pot -- passengers and it's much better gas mileage than the chevy tahoe. at ford, the four diffusion, they have a state of the art, top of the line hybrid system now that gets 42 mpg. i was at the ford dealership just last weekend and i got in an escape, a mercury version of that if you want a little more luxury where the city mileage is higher than the highway mileage

because of its hybrid system. there are cars out there. you have to be prepared to pay for the hybrid spirit even conventional engines, you can get pretty good gas mileage with the well engineered engine today. you can buy a lot of ford products and many gm products with the confidence that they will have quality and durability of a honda or toyota. they may not be as fashionable these days for young people, but they work and they were very well. host: new york times magazine cover story, gm, detroit, and the fall of the middle class. that's in ruche, republican

line. caller: sense when it is the the government supposed to take care of every social need? originally the government was set up for military and infrastructure. host: what is the limit? caller: government -- military and infrastructure. i am not going to work a second or third job so other people can be provided for. my utilities, we suffer here in the south, you can be a little bit warmer. well he doesn't live in the south. guest: the fact is that the

american people elected barack obama to be president, and they knew he was going to do these kinds of things. they did it because they were disgusted with george bush. i don't think they give consideration to a couple of factors. one was that he was advocating a very liberal program from the u.s. economy. he let us down with regard to dealing with china. he is doing what he promised to do. americans have to consider how they vote if they want more limited government. one must remember also that they voted for more liberal government with george bush and he did not deliver it. host: i like the doctors pragmatic approach is. has he talked to the obama administration? guest: the obama administration is most comfortable with those of a great with him.

host: detroit on the independent line. guest: i have been invited several times over the last six months to testify on the hill and have had an opportunity to relate my views. caller: i watch a lot of these shows and i am glad i got on with you. i live in michigan and have a small business. all of a sudden, i got a form from my bank that said they are cutting my credit card for my business. a $20,000 limit. i have never missed payments. we have not used it in a couple of months. we are doing well, and all of a sudden, they are cutting it out of nowhere. the reason was that we have not

used it in a few months. thank you for your business but we will have to close your account. no other reason. we had no problems at all. i ask my friend who was a cpa and he said it is happening across the board. i am a clinical psychologist, so i see this in a hold from buy. nothing really can get done weather republican or democrat. we don't have any control. it is all run by other people. they play on fears. in the and, you have to worry about yourself because politicians just care about the next vote. guest: unfortunately, the banks are cutting back on lines of credit for small businesses.

small businesses are particularly affected because they are very afraid that they will get another round of defaults. if you have not used your line of credit, they may be fearing that you will only use it if you are in trouble. it is arbitrary and frustrating. i would send a copy of those letters to barack obama and timothy geithner. host: what are other countries in similar situations doing right now? guest: the chinese are pursuing, correctly, a very infrastructure oriented stimulus. there are a lot of unmet needs around the cuff -- country in the government sector, schools, things like this. that would have generated a lot

more jobs than obama will generate. the chinese are focused that way, and they have not been shy about saying this is being spent for chinese jobs. us putting in that kind of language in our legislation, we are spending it on chinese jobs. they spent much in the europe, a lot of governments cannot spend as much as we did in the seriously consider what we're doing. when you consider how liberal europe is and how inclined to big government -- i would listen to them very closely because when the europeans tell americans their spending too much money, they probably are. host: long ton, n.y.. caller: good morning.

-- long island, new york. caller: you have the ability to make clear so many complex topics, a professor. you spoke earlier about how the government was compromised by financial incentives to allow this current economic crisis with which we now find ourselves in, for buy it seems there is an ability to govern because of the race for money, or the race to control, or to undermine what is ethical. the case in point would be a part in and then the revoke pardon of theban bankster robert

isaac t., he had taken hud money in one year and every government dollar available which he funneled through his operation. in the end patent thousand dollars in restitution and basically got away with it. he ultimately got a pardon, but then when he pointed to malfeasance in the pardon process it was then revoked. is it possible for the university to explore that topic? because that is a quintessential example of where government has no longer honored the rules. if it had, we would not be in this situation. guest: you have to understand how universities are structured. they are full of free agents called professors who do they are full of free agents called professors who do