see i love you that's the case we go to the grand imperial truly the torch was the push coromandel you can go with a chill closely civility to go. read this and the colonel was so chilled as to retreat. past the hour now here in moscow with a recap of the headlines now in a cold to put it nicolas sarkozy's popularity rating at historic lows its critics saying the president is taking france down a powerful imperialist with military interventions in libya and the ivory coast as comes just ahead of next year's election. and. russian police say a high level terror suspects with links to several moscow bombings has been killed in southern russia it happened after a routine check turned into

a major shootout. and politics in finland is threatening to ruin the hopes of a bailout for other financially stricken e.u. countries nationalists made major gains of the latest parliamentary elections and have threatened to veto the rescue packages for nations like portugal. for my colleague bill dog will be here in half an hour's time but for now financial analysts say america can only pay its debts if it is allowed to continue borrowing . costs not discuss what america's black hole is beating the dollar into submission thanks for watching. can you.

think. chloe and welcome across town peter little on the brink of bankruptcy time is running out for the american budget 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. start. to discuss america's out of control debt situation i'm joined by martin henican 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 the business insider all right gentlemen this is cross talk that means you can jump in anytime you want but first let's have a quick look at america's debt mess. telling broke i'm going for broke

wanting stuff that hastert the l.s.o. fourteen point three trillion dollar debt is lifted by i need me on the line the course of the u.s. is on a federal bonds if so how do original money lives probably get it more than fourteen point two million dollars and rising by four wheeler and all or is that a massive iou for the next generation forty three cents of every dollar we spend this year. we borrowed against the future of our troops the compromise a voided a u.s. government shutdown with agreement on the largest single spending part in u.s. history but thirty eight billion dollars change begins the size of the debt and last month there we go through largest bond trader said it was all out of u.s. treasuries smile and trillion dollar deficits as far as i'm no scam snaith some counter the world's largest economy has to go for growth and even that isn't even

possible can it handle that. 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 on the that if you wish. 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 we are treasury secretary james baker and we reflect upon those words. well bill gross of us was saying that the u.s. is actually out creaking the greeks because if you add all the unfunded liabilities to the national debt figure i mean the national debt figure. isn't really was what

this is really about but really the unfunded liabilities are the so-called fiscal when that's two hundred two trillion u.s. dollars saw in many ways that then greece the budget deficit is very small as the same as crazy of ten point eight percent budget deficit and the eurozone was formed not as a eurozone as any better i mean they're just blowing up right now to all you have to get seeing again pressure on greek and pigs government bonds and even germany and france increasingly looking shaky on their element 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 and it's now. estimated by most analysts they agree greece will have to do it basically in some form of the default on their restructuring or very

very high inflation in respect of currency to bed really out of this debt saw we said 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 euro zone doesn't look better again so the rest we i'm very optimistic on it ok jeffrey in cambridge i go to you is that too bleak of a picture there i mean part of the past the point of no return that's remarkable. 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. i mean we have a very serious long term debt problem we've had it for quite a while it's long 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 the 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 that you can 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 bizarrely 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've happy that we're 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. it on 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 they use the phrase. debt crisis is to my mind of sorry five years ago i don't feel it is better to read it as they have a lot of debt yet because nobody has buying it. ok it's not just telling us to look at sawyer well lots of other china is buying it 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 you where do you gentlemen and where do you jump you know this yeah i'm definitely 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. we have a fundamentally different monetary system the various doesn't to control its own currency they're suddenly borrowing in someone else's currency they have to build up a surplus and then pay it back we will fundamentally different system than that and that compares to greece there are a lender or any other trying to comparison just wrong and i think look this is something we have politicians freak out about and yeah you know the other guest said all the sudden it's become a political issue but if you actually i look at the market but 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 freaking 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 ok i want to go back to martin i mean the market 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 saved i mean 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 your digits because 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 it will reach the point where it where there's going to be a clash of this system and you can't keep borrowing forever everybody knows that. but obviously most of them put it in stone and really seem to understand

a situation. maybe they do and therefore i don't read it as out for a pay raise their voices or as they do their minds in their lives in some way or another all go no more recently you see those raising the issue of skating a bit more. and finally because he has now become this political issue but obviously that was still 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 markets to seems to look at that one the stock market did one market and the commodity market so actually it's three and 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 as real asset behind them or services for which they can increase the prices and i miss inflation and commodities also represent tangible assets or if it's these markets and warriors are gold and silver they're going up a lot but what do you see roid i mean i think the more broadly it's

a market gets about this i went back prices and the resulting inflation hyperinflation because that's the only way they could possibly get rid of their more oil as a market gets behind you you see commodity prices rise ward and cereal 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 celebrate yet but that's why for investors now as bill gross the story it's absolutely now the time to get out on any long term bonds for and even. anything when we would even shaadi because you're still in the dollar and the dollar may just suffer through the devaluation so no i don't really see that the market isn't getting interest in that one either but that's going to come now. you want to drive in there device where you want to get the bill gross. i mean rose joe for.

violence 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 or know what's going on because he anticipates the end of q e two essentially. the fed goes back to normal zero interest rates and sort of negative interest rates this is actually a rate hike and historically that would be a good reason to sell bonds to various. look at what his partner muhammad illyrian is saying elsewhere is like of the ten year yield got a bit higher we cry actually buy bonds again so this is another thing people look at his move and start to freak out and say oh this means that he thinks the government is going bankrupt is actually really nice and easy to use an emergency not only do but i don't think 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 post in the same business that 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 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 there could be a crisis certainly there's the risk that eventually could be ten years from now there could be a sharp increase in inflation and interest rates and fall in 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 program to address it and for my money president obama recently is recent speech addressing it just broadly speaking with the kind of balance we need to do a little bit of slowing the rate of growth of entitlements we need to cut the method spending we need to cut military spending we need to do something i text right 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 for both parties we could we could solve a pretty quickly doing very very i don't even i mean it's easy to go to

a short break here and after the actual break we'll continue our discussion on steve harvey. 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 spring. breaks of. desert her.

crowd gathers momentum a. stream of it. downloads the official anti allocation chobani phone the i pod touch from the i q snaps to. life on the go. video on demand policies my old costs and r.s.s. feeds now in the palm of your. question on the call. can be. welcome aerostar campaign will evolve to remind you we're discussing if the us will

defaults on. the kitchen. 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 could solve this here isn't really a revenue problem and not a spending problem how to generate revenue. it's paul i said if we get economists together about 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 that's so that. 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 us as a crisis it 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 and 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 you brought 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 thought the same thing and the budget deficit got much worse he could triple the national debt george w. bush thought the 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 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 and things like that there's and there's a 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 so if the country is so concerned about debt then you know then 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 a 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 is an absurd level of sort of split thinking it seems completely contradictory i think with this basically exposes that is that most of the debate 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 that republicans want to use the debate as a opportunity to weaken 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 an opportunity to raise taxes and cut defense spending so this big problem that everyone agrees the problem. is really just an opportunity to push whatever vision they already have 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 this really is a political football and i would agree with our other two guys that 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 destroying jeffery i think bad 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 under nineteen states on the way to end potential bankruptcy and also just want to say not all of the rating agencies are stuck in this type of thinking and giving the u.s. a aaa but actually the chinese rating agency. has downgraded in november last year the 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 the rest and rating agencies are politicized and highly ideological they do not have here to objective standards the u.s. is insolvent and faces a bankruptcy as a pure destination 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 run hole that i do see for the united states even in the in the near future now it may be our great kiters are very interested with china their projections are now they're on trade this 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. names but certainly not their 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 jeff if i can go to you. know you structuring is now grant grant 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 you know all the revenue is growing that we're borrowing from abroad to finance medicare and we want to avoid a situation where we might be forced to adopt. well 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 my fellow panelist is saying that yes yes that's a serious problem yes we should address that and there's all kinds of ways we could address it 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 have proposed to slow the rate of growth of spending in title ments have to trim defense spending in addition to domestic spending do a little bit all around. it can be done the problem is a political one it's not an economic problem joe if i can go to you if you think there's some might say this go ahead i was going to say 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 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 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 think that obviously there's a there is that definitely. 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 is like let's not raise the debt ceiling now let's just bite the bullet and default let's restructure our debt was 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 where we have this 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 yeah 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 greece 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 grant running out of money i mean other countries raise their debt all the time and as long as their debt isn't 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 hanger date 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 lobby as a relevant 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 our debt rather it's it's going to blow us all out of you don't get in my way you know marni it seems to me they did the 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 to 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 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 i say good baiting and maybe you even have a debate on raising the debt ceiling or not raising the debt ceiling but why this is being debated saying they are thought it he who can really decide on whether or

not they're going to raise the debt ceiling or the u.s. is the going market and of course the major bond investor saw i think that's really interesting to watch we have been watching the euro zone one market where 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 fast or for want investors and but again this is something to watch a very very carefully in our u.s. years going up and we're just last week actually out of the u.k. you know 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 gaurdian or silver has been surging like there's knowledge on or and this is the fear of the rising because. rising potential bankruptcies and also the inflation

and if that's a 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 do 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 are we to be having this conversation a year from now. yeah yeah well i mean the fifth we should be afraid that met some private investors we 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 that default or restructure and i cannot 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 archy see you next time and remember across talked. to. one.

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