in a sense they don't they may not have a choice because the bond markets may decide for them. and i personally think that a country like greece would go through a period of desperate pain if they left they would certainly have to default or reshow jule it's called as much polite of them to fall but they have to do something like that but basically people who lent money to greece would have to take a haircut and probably quite a substantial haircut or to have a thank you very much my pleasure. i'm sure is that so much of the taxpayers' money i mean if you and i sit here in the real serious injuries all of us are trying to figure their neighbors and game and make up for their exports by keeping their currencies if left unchecked to. displace make sound and manage.

but another is it sparkles and unexplainable interest. a place where supernatural things are coming. along it. does. in india she's available in the grand central shirts in mumbai the taj mahal. tours president kimball. bay which resembles a minnow beatriz old book close to gone taj mahal hotel. the cement hotel palace hotel drawn closer in the ridea the lead up to the g.o.p. hotels church in new delhi who took the baby her tones carrying collection.

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we've got some. cross talk and today. a global currency war is really happening and if so what could be the consequences that's next point. if you can. follow me welcome to cross talk i'm capable of oh is it a race to the bottom countries all over the world are trying to better their neighbor and gain a leg up for their exports by cheapening their currencies if left unchecked the global economy risks not only recovery but truly devastating consequences. and you can. start. to discuss currency imbalances i'm joined by martin henniker in hong kong he's an associate director at

the tycoon in new york we go to daniel tending gallo's or head of emerging market currency in rate strategy at bank of america merrill lynch and here in the studio with me is erich krauss a moscow based fund manager and international consultant and another member of our cross talk team you know and the hunger all right gentlemen crosstalk rules in effect that means you can jump in anytime you want martin you've been on the program before thanks for coming back are we in the middle of a currency war a global currency war and if we are give me evidence of it. well some people are just looking at looking at china and saying on china's manipulating the currency so they are causing global problems but first of all i think what investors and the general public needs to realize i think the united states and europe they have very much either war or just to keep their own currency from collapsing you know that may two thousand and ten so you're away actually close to falling apart all by itself without any war happening i mean it's a wall of actually meeting that better gauge and more as any as i want the u.s. is in the same situation even ben bernanke addressed one yesterday and that is the

u.s. the debt was on unsustainable and we have been saying that for quite a while i said was a fiscal gap of two hundred trillion two hundred two trillion go us dollar actually which is fifteen times the nation. debt level if you include the unfunded liabilities of the us like the medicare medicaid and the social security fund so it's two hundred two trillion they're short of money that they don't have and they will have to increasingly print of this money so it's a struggle for survival in the rest and i would say the rest is going to exploit the inflation around the world and this is why some of the other countries are now saying well we don't want our counties to appreciate too much you know from brazil to japan china and so on so everything for and investors the most important single understand about the cons of all is that globally we are likely going to see a much more much sharper rise in inflation and commodities are going to rise as a result in gold and so who are some of the best investments and not expensive yet

ok daniel to you in new york is it is your head is it is better smarter brains go ahead. yeah i think that i mean first of all a war usually is fought over a common ground so let's say two countries are trying to fight to get you know a piece of land or because they disagree or something i think that at this stage you have two parts on this that are trying to achieve very different objectives so keeping that in mind you you must understand where where for instance japan is coming from and where brazil and china are coming from right i mean to develop just a tagalong you know the thing that you have been discussing so far is trying to fight deflation and as a result try to keep monetary policy is as easy as possible and for into japan case for us this is very easy for them to print yen right and buy dollars because that's a source of easing and adding liquidity to their own markets on the other hand.

emerging world you have a situation where they are receiving all those flows and they're trying to see depreciation so i don't think that the brazilians or the chinese are really trying to fight i mean for appreciation they're just trying to slow the flows and again that just things are very different from each other and i would agree yes the end result of this will be inflation high inflation especially in the emerging world but i would disagree that this is this is imminent i don't think this is a story for the next six months ok eric you've been just waiting to jump right in here i would kind of agree that we're certainly not ceasing a lot of inflation in the west they're fighting deflation through good reason the problem is the fiscal situation is unsustainable the whole thing is going to end in tears for the time being everybody is that tempting to bail as hard as they can the americans want to push the dollar down the dollar was crashing going into the crisis into the two thousand a crisis when the crisis hit there was sort of a panic move in everybody went to dollars and because the european banks had huge

american assets which were all of a sudden no longer as. they had to refund them they had to get dollars they sold down the euro quite brutally this was actually very good for europe cheapening europe as one of trooping europe was one of the things which allowed the europeans to fight their way back now we are back to the trend the euro has been putting on the bed a big figure a day we've gone from a low of one thousand nine hundred to one thirty eight yesterday and i think it's going a lot higher from there and the europeans are going to start to get uncomfortable with this the problem is not everybody can push their currency down at the same time we have to push and that is what everybody's trying to do with everybody that's been growing and that's why it is a race to the bone if i can go back to you mark i mean it's a race to the bottom i mean who wins getting to a winner how do you define a winner and how you define a loser when you have. yeah i was going to erick erickson he is saying bad as i

mean they're fighting deflation there's no inflation issue as i just one of us all question but why you're single instead of us going up right now because he would be . saying that they would have to bail out the whole rest of europe. is that people are afraid of all of the currencies people are buying gold and so vince overhead is going though so much why is everything going up this is gold and silver haven't gone up so much if you compare him with if you really want to make money you were in then you were in zinc you were in industrial metals basically all hard assets all react real assets being bought because everybody wants out of currency i mean it's the old story guy calls his banker says you know i want to sell a million dollars he says against what he says i don't know yet i just want to sell the dollars. go ahead you were arguing. that it's going to daniel daniel first go ahead. also i mean between do europeans and i and this is

a very important point i don't really think that the u.s. means to weaken the dollar ok i don't think that there disses really at the. top of burning his agenda i think the president of the federal reserve in the us is very more focused on a long restavec growth and shaping up the balance sheets the household balance sheets in the u.s. not to weaken the dollar i think the biggest problem that between the g three so that's us japan and europe is that the europeans just can't operate heroes or as did the americans they can print treasury they can print dollars and the japanese can print. just cannot print deals he is printing sorry the he is already i mean he was. back but between limited extent i mean they do it again they are committed to buying them back it's all done through repose and they have to take those euros back at some point whereas the way of the americans and the fed and the b.o.j. they eventually will take those dollars back but it's uncertain when they would do

it whereas of the europeans it's certainly those are the report agreements that are done so they take the money back i think it's a very different get here this is one of the reasons that the euro is strengthening because of the perception that the europeans are less committed to quantitative easing then are either the americans or the japanese that's correct but the point is that it's some point if they have to they will find a way to ease to i mean they've already changed the rules quite substantially i think the fiscal situation of europe is bad but it's infinitely better than either the united states or japan and their monetary policy is slightly less insane but they're going to be faced with a rapidly appreciating currency which is going to hurt daniels but i mean i think it's very difficult to actually you know on allies the european situation because we just don't know. what exactly is the situation i.e. the banks' balance sheets i mean we didn't know what was happening with irish banks until six months ago right so and again you know yes july was helpful to come up

with a report and and distress to ask but clearly there is still quite a bit of bad. in the pipeline that we just don't know about them coming out of your ok martin i wouldn't be so how do you. know what you want let me ask you a question eric said something that's very very interesting you talk about how really currencies have lost their values and i think you know we don't have to go into an academic discussion but from one nine hundred seventy one you know currency currencies took on a totally different meaning if we didn't have to really be backed up by hard you know definite wealth right now and now we've got into this situation where there's nowhere to run really there are very few currencies or people running twardy what it what it will go ahead the ones they're running toward there's not enough room for everybody like the swiss franc martin. i mean no no currency is saved at all because. of this because of this you know that nobody wants their currency to appreciate too much so no candy at all they say the major steam is going to be all

sinking together just at different speeds and inflating and i just said different speeds but all of them i have high risk and also just sorry i just need to put one question or two or a back to denny is saying a bit of bad news just in all of the i mean two hundred two trillion us fiscal gap two hundred trillion us dollar fiscal there is a bit of bad news i mean i don't know. ben bernanke said in one thousand nine hundred ninety seven that this sub prime crisis was contained and there was no contagion whatsoever on the banking industry and nothing i mean this is genius ben bernanke and even now you realize this that the u.s. fiscal situation is on an unsustainable policy even said that yes and you said this . i mean that's one thing the other thing is you say the federal reserve is working hard to restore growth i mean how do you think you know creating more money and more debt is going to solve the problem that has been created by. artificial you know interest rates and too much debt in the first place i mean how is it also

going to be going to happen and for europe the e.c.b. is just doing the same. thing as the u.s. is doing. right. but you know i want to say europe is not that different i mean what the irish did last week is right i mean they also increased yeah right i mean for their fiscal gap last week so i don't see a big difference between those two are absolutely absolutely i don't see it easy but i say you know that doesn't make the us any better i see that you have the u.s. and europe thinking together and in fact in europe last week the e.c.b. is a is a sober and one part as i said one point four billion euros it was ten times them on previous week and then the start of the bailout i then saw them again i think a little is highly to say ok i'm all right now it's not be ok maybe a little bit too close i misremember going to go to a big guy after a short break we'll continue our discussion on the battle of currencies stay with r.t. . and if you. still

. want to. wealthy british scientists like. dr rise for. market why not. find out what's really happening to the global economy with mike stronger for a no holds barred look at the global financial headlines tune in to the report on our. showbiz that sixty minutes it's absolutely it's

a nice present high production success grassi so. all of this is a way to sort of solve this. peoples attention by using take that as something to see now during this war we had. military entertainment. welcome back to crossfire computers about to remind you we're talking about currency wars.

but before let's see which currency russians prefer all we on the brink of a global currency war as mall the world's economy is weak in their current says the low exchange rate makes their goods and services more competitive but the race to the bottom may mean an open concept conflict is on the cards so which currency do russians trust most six to seven percent of opinion poll respondents consider the russian ruble the most reliable of all and of the twenty two percent will seek refuge in the euro during recession but only six per cent see any safety in the u.s. dollar that's for most russians the safest car of city to keep is the one they know best. ok if i can take control of my program after the first part of it if i want to talk about china now because china is very much in the rule in the news right now and there's a lot of talk we shall congress go through the motions yesterday i'm sorry last

week and you know the crew chinese currency is undervalued that's why middle class americans can't find jobs that's the headline ok i very much doubt if it's true. martin if let's say for example you know the congress got its wish and overnight china increased value its currency twenty five percent which a lot of people think is fair would it make any difference at all on the american economy. number one first of all briefly i agree that the chinese are undervalued on a purchasing power base basis from an investor's point of view we actually do invest in that currency i mean not that much because again globally we have this inflation issue but we do like china and chinese assets and the yen but anyway if there was to happen that the u.s. gets of what they want there's also a big problem is that i mean one problem is a large part of the population has depend has become quite dependent on cheap

imports from china and on many a good side and saw when that happens is the trait deficit could actually worsen because there aren't that many industries to be frank in the united states that it can be stimulated back in into life by a bit of a he would a raising of the u.s. dollar you know a lot of the manufacturing industries they had to have gone and it's not easy to get them back so the other thing is of course the chinese government a whole lot of treasuries and if you're a value is a remnant about twenty five percent that's an immediate loss for them of twenty five percent so maybe they would also be thinking more cars are unable to buy more u.s. dollars that continue to appreciating or not and then again you have a big mess in the united states from that and so i think at this stage it wouldn't even have the u.s. too much if you saw this big revaluation so there is no easy fix for the u.s. problems i think it's more of a policy issue than then a conversation which. to which you would have the fact that if they revalue their currency sharply become competitive with china through resources for energy for

basically everything with china imports is going to be very very tough it's going to send it's going to benefit all of the resource producers it's going to hurt all of the consumers including including the united states but what we're missing is there's basically a fundamental global shift which is happening right now and which is the currency wars are just one symptom of it which is for all of the twentieth century all of the economic the economic center of gravity was limited to the can. we now think of as the g. seven i mean a small piece of western europe the united states and latterly japan now basically you have all of the economic growth moving out into the asian basin and into other emerging economies so you know when we hop on the plane and go to thailand for vacation oh it's so cheap well it wasn't always cheap but it won't always be cheap and as these countries come up to a higher standard of living and their relative weight becomes greater their currency is moved up and the governments are trying to block that right now we're

seeing it in brazil we're seeing it in. the in korea we're seeing it pretty much around the emerging markets except for russia for the last month or two for sort of mysterious reasons the group was relatively weak and now it's coming back but basically it's inevitable these currencies are going to move up whether the u.s. is devalue its currency intentionally i think it is but i can't prove it the emerging currencies are going to strengthen and asia especially ok daniel if i go to you i'd like to stick with the china i'd like to stick with the china issue because that's what a lot of people are not financially have great financial knowledge are talking about what they're told about two and again i'd like to pose a question to you repeating it if china increased the value of its currency it's not going to have a dramatic effect on the ills that are happening in the united states or the rest of the global economy. you know i would tend to agree with that statement i think that and actually i would add even a nother layer of that right the chinese currency actually reached

a pretty strong level during the crisis against a boss because of other currencies and the reason was because again it was trading relatively strong against the dollar again very visibly two thousand and five when they started appreciating and in the meantime the u.s. dollar weekend all the way to one sixty versus the euro so if you look at the no mean effect of exchange rate so the basket was actually trading pretty strong ok it has weakened since then ok so that's point number one point number two is that china is actually trading quite strong against the main of the other main. trade partners of the us mexico is probably the best example again the mexican peso is meaningfully cheaper than the chinese currency so that's that's that's the point here the third point which is very important is that from the chinese perspective they would rather see their currency appreciating as the world trades more in reining be denominated transactions and that's why the whole process of

appreciation will be gradual and it's so important that what they have decided in hong kong to deliver there in in be in hong kong for trade transaction is a very important step that the market is actually missing here and i think that that's actually the beginning of a more meaningful flotation or flexibility on the right i'm going to it's really interesting because that's what every country wants to create a major currency in the world if i go back to you martin let's stick they take a look at some of the thing that is not a cozy is proposing at the g. twenty of having some kind of a new. global global regulation of currencies do you see that in the cards in any way i mean he's trying to court the chinese i mean what all the way to the extreme of currency controls i mean there's a whole spectrum there yeah i had dollar. that this is going to happen because i'm just too pessimistic if you wonder on the sovereign debt problems in the western world and i expect that there's a high chance of these currencies the u.s.

dollar sterling and europe to integrate which reached a day from from doing it in. in the case of the euro and may two thousand and ten and then that can still happen you know because the problems are and fix it all ireland this is broke now basically and spain isn't coming up at all and so the euro zone is going to be a mess and the same for the u.k. and u.s. so i think those countries can actually fall apart or go into hyperinflation as many senior economist have been predicting focus said this financial system is broken in the red so i'm going to miss it when this all but if you're one of bet on one currency again that that might become a new world reserve currency i would think it's maybe one option is gold and another option may be the renminbi or makes of all it was china by pfizer strong as economy in the word in our view and if you're really looking at the industry and the consumption there in many areas they're already exceed the united states as the number one economy so we would bet on the renminbi not on the chances of an

artificial kinds of coming through our fixed exchange rate because the prospects for the rest are just not looking good in the long really be a much more optimistic on days in currencies daniel you just. may be a little hopefully more optimistic ok martin martin comes on this program and he's pursued mr gray's usually right go ahead. i actually i like the that concept of buying emerging currencies against the developed world is the right concept that's what i like to do i think that all of the next couple of years people tend to underestimate the impact that emerging markets will have in global growth on a p.p.p. basis the emerging world will become. global growth it will be higher than fifty percent of the next couple of years so the impact that the emerging markets will have going for. in the global economy will increase and that should be quite positive in my opinion so i'm actually i would take the more optimistic side even

though we might have some short term bumps of course because again the sovereign debt crisis is a real problem that needs to be dealt with but i think that in the medium term emerging markets will continue to drive growth and that's like a two to three years but i'm not so i mean i think everybody is going to currencies falling apart i mean our best trade this year was buying greek debt and buying the euro when everybody got hysterical i mean they spent fifty sixty years building and it's going to be maybe if there was the money that you may have. but the point is that there's going to be an end to what's going to happen five or ten years down the road is a good way to blow up in this business i mean the germans sure they're savvy want to get out of bed like the germans had a little wager and missionaries of the of the euro they basically it prevented the italians of the spanish and the greeks from devaluing moody's is talking about

upgrading greece right now you know this doesn't go in one direction and everybody . i mean i agree that these currencies are it's not so much the currencies which are in trouble it's the economies which are in trouble how they choose where the strain is going to go i think in the states the strain is going to be taken by the currency they're going to weaken the currency very substantially to help them out of the debt problem and to attempt to attempt successful or otherwise to stimulate the economy i don't think the europeans are going to let the currency take it i think that we are peons are going to take it in terms of slow growth growth or a second dip of the recession martin i'm going to give you the last forty eight already so yes we've got forty seconds here i'm saying i agree. i'm not i'm not pessimistic on every way out that merging markets actually have much of the us over and that and the rest so that it might. better but in case of then you are saying that he is just completely you know doesn't understand anything much about the financial system was the knowledge and know and denial of what's happening on the

identity or are you even aware that it's a method by all the european leaders that in may two thousand and ten on that one weekend they had already they were about the the euro and was about to fall apart and i even aware that in two thousand and eight the whole financial system they have admitted in the u.k. and germany and then the us the banks were about to close ok what are you learning how to jump in here and as to how to do here and i'm sorry we didn't get your reply will do this again gentlemen many thanks to my guests today in new york here in moscow and in hong kong and thanks to our viewers for watching a few darkie see you next time and remember cross talk rules. if you. want to.