federal banks to get established, the artificial cycle of inflation and deflation will have the american people bankrupt." he talked about the cottage industry. cottage industries are the military industrial complex, the energy industry complex, the pharmaceutical industrial complex, and thank god for the internet. we are able to learn these things. it is interesting when you talk about the fed. never assume they need some type of liability and that there is some type of malevolent intent on their behalf, that it is not too big to fail. we need to look at the federal reserve. the pictures are very cloudy when it is actually very clear. guest: i did not know the pictures were cloudy. maybe i misunderstood you. the fed is not the private

institution. it was supposed to be owned by the member banks and a technically own shares in the fed. the fed is a creature of congress because its charter can be revoked at any time. the fed governors are appointed by the president of the united states, as they are with the securities and exchange commission, and approved by congress. . have fixed terms. i think i have been fairly critical of government agencies when they have not been doing their job. i don't see malevolent intent over there. we have at the white house a director of national economic policy who took huge payments for making speeches at goldman sachs before coming to washington. but ben bernanke was a respectable academic who earned a modest salary teaching at princeton. largely speaking, that people who work at the fed have perfect

reputations. they don't seem to be feathering their nests and operating with any malevolent intentions. i don't always agree with everything they do, but everything they do is justifiable. i think it is unfair to start to pull out these kinds of 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. inappropriate. the internet is not solving the

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 rds 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 administration over money. at that point, all of those conservatives out there that like to put jefferson about central banks will be very happy to have what is left of an

independent and a boric economists over there holding the crank. host: north carolina on the democrats' line. caller: have you read a book called fool's gold? guest: know i have not. can you give me its basic thesis quickly? caller: it starts back when timothy geithner was ahead 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, youill 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 do not have to buy a chevy

tahoe. there is a chevy traverse. it seats seven passengers and the gets most better gas mileage than a tahoe or that we can do that they have. -- or that weekender that they have. it is a state of the art hybrid system. i was in the ford dealership last weekend and i got an escape and there was the mercury version of that if you want a little bit more chrome and luxury. the city mileage is higher than the highway miles omileage. you have to be prepared to pay for hybrids. even conventional engines, you can get pretty good gas mileage with a four-cylinder engine. they meet the highest quality

and reliability standards. you can buy with the confidence that they will have the quality and durability of a honda or toyota. they may not be as fashionable these days among young people, but they work and work 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 more on infrastructure. in europe, a lot of governments didn't spend as much as we did, and the question what is going on here. when you consider how liberal europe is, and the kind of lessons learned from adventures like ours that we are about to embark on with gm, i would listen to them closely. host: long island, new york. caller: think you for joining us commune of the ability to be able to make clear so many complex topics. you had spoken earlier about how the government somewhat was compromised by financial incentives to allow this current

economic crisis, it seems as though there is an ibility to govern because of the race for money, i should say the race to control or to undermine what is ethical government policies by our leaders, because of the trail of money. the point would be the pardon and revoked pardon of the -- in new york, on long island in particular. it was a situation whereby the gentleman had taken up to the tune of $30 million of hud money in one year as well as various other -- every government dollar that was available was followed through his operation. in the end, he paid $10,000 in restitution and got away with it.

he ultimately got a part in. -- gotta pardon. is it at all possible for the university to explore the topic and use that? it is a quintessential example of where government has no longer honor the rules? guest: you have to understand how universities are structured. they are full of people who do whatever research they want, but they have to do research that there other peers consider relevant. it is up to individual professors. it is the matter of finding a professor with a knowledge of financial regulation and law and

the interest to do this. this is better done in a law school than the department of economics. but there are serious problem with the obama justice department. there is also another situation in california where i believe a former basketball star has been elected a mayor, and there has been a similar trail of misuse of government grants, a criminal investigation. the criminal investigation has gone away. host: last fall, republican -- last call, republican from palm beach. caller: we can cut the mycogen as -- michael jackson's, we all

have a billion or two coming in. our government itself was basically set up for defense. somehow or other in the last 40 or 50 years it has gone from local people taking care of local needs to where it is inclined with the county, state and federal government that when they go to cut something they cannot because it will cut the federal money and the state money and the county money. all of the local money is going to washington and we have to depend on washington telling us what we need locally. in the education system, the family structure is broken down so much. instead of one parent, whether it being a male or female being home with the kids, they have to

depend on other people. the whole structure of this country has fallen. economics should take care of itself between the seller and buyer. guest: there always is the issue of how far the state should extend itself. the government's was not established for defense. it was provided to provide domestic infrastructure, an integrated, a single market and selling disputes within the states. it was established because of the necessity for a national government so that states can better prosper together. that is what we have gotten. the state and the federal government extend its hands into our lives. we elect people and we can attack -- continually like

people to continue to do this. there is always a question of where do you draw the line? that line will be in a variety of places.s. >> tomorrow, on washington journal, faiz shakir and kyle trygstad and peter brooks and then gerald herbert. washington journal is live at 7:00 a.m. eastern here on c- span. >> tomorrow, on c-span2, a look

at india relations with the obama administration. that begins at 9:00 a.m. eastern on c-span2. >> how is c-span funded? >> publicly funded? >> donations may be? i have no idea. >> government? >> it gets its funding through taxes. >> public funding quantum marquis may be, i don't know. >> it is a private business initiative. no government mandate, no government money. >> , up next, president obama signs a bill that expands the food and drug administration's authority to regulate tobacco products. this is just over 10 minutes.