if you move from france to trace you. through starts on t.v. don't come. with r.t. and live from moscow a recap now of our top stories france is a military initiatives in libya and khost backfire at home with president sarkozy losing points and allies the french public are angry their leaders imperial ambitions accosting the country gets money and reputation. of india's fast turning into an electronics waste dump with western companies sending computer junk to the poverty stricken country instead of recycling it for the consumer society provides work for locals their health is being put at risk for those goods return as trash.

rushes preparing to launch one of the most promising projects for the future of space exploration the biggest telescope ever to enter albeit with allow the deepest corners of the universe to be scanned with extraordinary clarity. and now here are two financial analysts say america can only pay its debts if it is allowed to continue borrowing people have now discussed whether america is a black hole beating the dollar into submission. if you can. start. to think you can.

blow in welcome across town peter lavelle on the brink of bankruptcy time is running out for the american budget deficit 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 you. discuss america's out of control debt situation i'm joined by martin henniker in hong kong he's an associate director at the 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 the 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 get mess. going broke i going for broke

wanting stuff get asked the l.s.o. 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 federal budget so how do original money lives that it more than fourteen point two million dollars and rising by four wheel and dollars that a massive iou generation forty three cents of every dollar we spend this year. we borrowed against the future of our true. compromise boarded a us government shutdown with agreement on the largest single spending cut in u.s. history but thirty eight billion dollars is small change begins to slice of the debt and last month in the war with largest bond trader said it was also a few us treasuries smiling trillion dollar deficits as far as the nose. some counter those largest economy has to go for growth and even that isn't even

possible can it handle that but criticism of the learn strategy and spiraling prices for anything priced in the greenback on the line every confidence in the u.s. dollar and the global economy that. that if you let the cross the artsy. ok . 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 was former treasury secretary james baker and we reflect upon those words. for us was saying that the u.s. is actually out greeting the greeks because if you add all the unfunded liabilities to the national debt figure i mean the national their figure. isn't really well

what this is really about but really the unfunded liabilities are the so-called fiscal government 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 crazy of ten point eight percent budget deficit in the eurozone was formed not that the euro zone is any better i mean they're just they're blowing up right now toward we have seeing 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 was 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 are. made of the most analysts they agree greece will have to do it basically in some form of the default or debt restructuring or very very high inflation interest rate of currency to get really out of this step

so we say stay out of the u.s. dollar stay out of any foreign off medium to long term u.s. treasuries but by the way also eurozone doesn't look better again saw the rest of the i'm 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 the point of no return that's remarkable. well absolutely not i mean 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 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 a 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 as arly 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 they were 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 to use the phrase. debt crisis is to my mind absurd five years ago i don't feel it is better that i really like a lot of debt yet because nobody has buying it. ok i was just following this look at sawyer caught a lot of other. and i was buying i mean 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 you where do you do it and where do you jump you know this. on the view the crisis is totally overhyped i mean this idea is like will if we didn't have the dollar we would be greece but we do of the dollar and. it we have a fundamentally different monetary system. doesn't control its own currency there's actually borrowing in someone else currency they have to build up a surplus and then pay it back we have a fundamentally different system than that and it compares to greece or ireland or any other trendy prepares it's just wrong but i think look this is something that politicians freak out about yeah you know. the sun it's become a political issue but if you actually i look at the market 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 out about how we're bankrupt the market doesn't seem to care and is not concerned so i really would 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 are politicians. 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 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 obviously most of them put it in stone and really seem to understand the situation

. maybe they do and therefore for other reasons out pray to raise their voices or say to their marginalized in some way or another i'll go no more recently you see those raising the issue of scaling a bit more. and finally because this has now become this politically so but obviously that was 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 market at two sayings to look at their run the stock market they're good one market and the commodity market so actually three in that way but mainly if you're looking at stocks market because i would put it into the basket of real assets because stocks represent companies there's real asset behind them or services that can increase the prices and i'm just inflation and commodities also represent under less that sort if these markets are in warri to world and silver they're going up a lot what do you what do you see void i mean i think the more glorious the market

gets about this over and debt crisis and the resulting inflation the hyper inflation because that's the only way they could possibly get rid of the debt them although it's a mark against the high 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 so it's 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 big as this story it's absolutely now the time to get out i mean any long term going through an even anything when we wouldn't even shot it because you're still in india 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 either but that's going to come now no no graduate you want to jump in there jeff i saw you want to do the bill gross. i mean rose. and we're

going to get selling bonds is. drastically misunderstood everyone saying oh he's selling bonds because he thinks the government is going bankrupt or what not that's actually know what's going on because he insists it's the end of q e two essentially. the fed goes back to normal zero interest rates and so the 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 his partner mohamed illyrian is saying elsewhere is like oh the ten year yield got a bit higher we pry actually by violence again so this is another thing people look at at his move and start to freak out and say oh this means that he thinks the government is going bankrupt isn't true who you really nice decent citizen he wants all your buds i think is this rising so how do you positive thinking you even say right interest rates are going to be on the rise how do you possibly saying this these 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 at some point if we don't there could be a crisis certainly there's a risk that eventually could be ten years from now there could be a sharp increase in inflation and interest rates and fall on the plan 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 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 message spending we need to cut military spending we need to do something on the 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 it pretty quickly but to be doing it for a very i mean it's easy to go to

a short break here and after that short break we'll continue our discussion on state party. live in a country they've got to 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. races. to bother her.

crowd gathers momentum. to. download the official anti happily cation joe i phone on i pod touch from the i q saps to. life on the go. video on demand on t.v.'s my blog comes and says feeds now in the palm of your. questions on the com. kitchen. welcome back to cross talk i'm carol about to remind you we're discussing if the

u.s. will default. 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 you can solve 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 these. 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 doing this as

a crisis they would and 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 from and 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 got the same thing and the budget deficit got much worse he could triple the national debt george w. bush saw that same thing and the budget got 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 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 and things like that there's a new 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 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 phase it in catastrophe and we're going to become the next greece and have all this and yet this is so severe and it could threaten our prosperity for generations but we can't raise taxes slightly on anyone who's in a server level sort of split thinking it seems completely contradictory i think what this basically exposes is that most of the day is actually just a pretense for getting if 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 nets and cut taxes the democrats want you know what agree with the republicans that the debt is an issue and they want to use it as 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 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 people on the titanic arguing over the seating order on the top deck because it's still worse and worse. absolutely there

even this debate here i mean we're destroying geoffrey i think dad totally getting carried away in these idle ideological debates and arguing this words by the totally ignoring what actually the numbers tell us and because we're also talking about the rating because there be a rating downgrade on the united states on the way to bank potential bankruptcy and also just want to say not all of the rating agencies are stuck in this i was 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 call because he also does gave me one from the chairman of the dugong global rating agency and he is saying that western rating agencies are politicized and highly ideological and they do not hear it here to objective standards the u.s. is insolvent in place as a bankruptcy as a pure debt the nation got the rating agencies to give it a high rating and rain came saw 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 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 this china is going to grow is going to double over the next five years and you look at what this has done to brazil saw there are some linings but certainly not the budget deficit again i don't see a way out of this short of a restructuring everything as is just you know. from people who don't understand basic economics just if i can go to you. know you structuring is. 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 the revenue is growing and we're borrowing from abroad the prior nanse medicare and we want to avoid a situation where we might be forced to adopt. all 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 and i thought i was saying that yeah yes it's a serious problem yes we should address that and there's all kinds of ways we could address it there politically very costly very dangerous the politicians don't want to say that but you know it's if we had. a value added tax or greenhouse gas emission permits together with steps that many of us have proposed to slow the rate of growth of spending in title ments and to trim defense spending in addition of domestic spending to a little bit all around. it can be done if there's a political one it's not an economic problem joe if i can go to you if you think there's a mindset go ahead i was going to say this is just the 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 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 can 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 that obviously 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 it's 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 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 we have 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 you know 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 great 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 great 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 highs or 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 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 it that rather it's going to blow us all out if you don't give me my way you know marni it seems to me they did it 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 maybe a crisis that may not be a crisis but i'm going to get what i want to portion was mentioned i read that earlier from want 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 that we're going the 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. debating you know maybe you even have silly bait on raising the debt ceiling or not raising the debt ceiling but why this is being debated and saying they are thaw it he who can really

decide on whether or not they are going to raise the debt ceiling of the u.s. is that one market and of course the major bond investor saw i think that's really the same to watch we have been watching the eurozone bond market re years in the beginning also rising very slowly and then suddenly spiking and if it hadn't been for a bailout of now it's really yours on countries they would already be history and this can go very very fast or for wonder investors in particular this is something to watch very very carefully you know u.s. years going up and you have just last week actually out of the u.k. 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 gold in all silver that's been surging like there's knowledge on or and part of this is the fear of the rising to force. rising potential bankruptcies and also as inflation and if that continues again as inflation rises interest rates would

have to rise because one investors demand it and this is something to watch very carefully but as or not you believe the u.s. will go bankrupt or not but watch the rates there were probably tell you earlier so what's going to happen all right jeffrey i'm going to give you the last word we're going to be really having this conversation a year from now. yeah yeah well i mean the fifth we should be afraid that met some private investors or get tired of their current eagerness to hold us bonds and there will be a decline in us bond market an increase in interest rates that is not a default 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 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 prostitute. case.

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