market. candy why not what's really happening to the global economy with mike's cars are the no holds barred look at the global financial headlines tune into cars a report on our. top stories this hour on r t polls put nicolas sarkozy's popularity rating at historic lows with critics saying the president is taking france down the path of imperialism with military intervention in libya ivory coast this comes just ahead of next year's elections. later terrorist leaders killed in southern russia are after a routine idea each year turns into a major firefight he say he was involved in deadly bombings in moscow. and politics in finland is threatening to ruin the hopes of a bailout from other countries stricken the country's nationalists made major gains of the latest parliamentary elections and if it's a veto risky packages for nations like portugal. i'll be back with more news for

you in less than half an hour from now in the meantime peter novell's cross-talk guest discuss not discuss whether america's economic black hole is reaching that goal or into submission that debate is next stay with us for that. for the full story we've got. the biggest issues get a human voice face to face with the news makers. and. we can welcome across the computor a little 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 to begin to solve america's fiscal woes. can. start.

to scots 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 the 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 debt mess. going broke going for broke wanting stuff get asked a less than fourteen point three trillion dollar debt ceiling is lifted by need me on the lines of course the u.s. is wrong to want it so how do original money lives probably get more than fourteen point two trillion dollars and rising by four wheel dollars that a massive iou the next generation forty three cents of every dollar we

spend this year. we borrowed against the future of the leventhal compromise boarded a u.s. government shutdown with agreement on the largest single spending part in u.s. history but thirty eight billion dollars is small change begins to sign myself the debt and last month the war with largest bond trader said it was all out of u.s. treasuries snellen trillion dollar deficits as far as the no skin sneak some cons are the walls largest economy has to go for growth and even better isn't possible can it handle that but mounting criticism of the learns on strategy and spiraling prices for anything priced in the greenback on the line and having confidence in the u.s. dollar and the global economy that on the that if you wish for crossover artsy. ok. and i 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 de facto reserve currency of the world we'd be greece i mean we are broke bankrupt really bankrupt and that was former treasury secretary james baker and he reflected on those words. well bill gross of us was saying that the u.s. is actually out greeting the greeks speedo's if you add all of the unfunded liabilities to the national debt figure i mean the national debt failure. isn't really what this is really about but really the unfunded liabilities are the so-called fiscal gap and that's two hundred and put 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 as a eurozone as any better i mean they're just they're blowing up right now to the f.b.i. seeing again pressure on greed and plagues government bonds and even germany and

france increasingly looking shaky on the government as well but just as a reference when the eurozone was found there was a limit of three percent of 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. estimated by most analysts that greek greece will have to do it basically some form of the default or gap restructuring or very very high inflation in respect of currency to bed really are the best bets or 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 euro zone doesn't look better again so all the rest we are very optimistic on it ok jeffrey in cambridge of anger to you is that too bleak of a picture there i mean perhaps the past the point of no return i should morning sir . well absolutely not i'm not sure i heard that right there is there's no chance

we're going to have a restructuring of the debt i mean we have a very serious long term debt problem we've had it for quite a while it's not it's long term in two ways one that the problem is the deficits the moment the problem is the retirements and the rapidly increase in. 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. this year the only thing that's magic about this year is it's become a political issue this year the american political system kind of bizarre early 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 have happy that 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 know that they're getting tired of it so to use a phrase. that crisis is to my mind i'm sorry five years ago i don't. really know if they have been crying a lot of debt yet because nobody has buying. ok as you just told us to look at sawyer why 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 join again and where do you jump in all this. generally 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 greece greece doesn't it controls our

currency they're suddenly borrowing and someone else currency they have to build up a surplus and then pay it back we have a fundamentally different system than that and they compare us to greece are ireland or any other trying to compare isn't just wrong and i think look this is something that politicians freak out about and. the other guest said all the sudden it's become a political issue but if you actually i look at the market like i look at what the market is reacting to america is that everything is known at all the math is known and everyone's free out of our banker but the market doesn't seem to care and is not concerned so i really 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 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 our politicians are. 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 odd numbers to digitize 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 we're there is going to be a clash of this system you can't keep borrowing forever everybody knows that. but obviously most of the qualities in stone really seem to understand the situation as they do maybe they do and therefore for other reasons outrage to raise their voices or if they do they're marginalized in some way or another all go on now oh no recently you see those raising the issue of scaring a bit more attention finally because this is become this political issue but obviously that was the ongoing before but other trust jeffords comments i wonder market and market isn't seeing the danger because that's

a very important one but if you're talking about the markets to things to look at that one the stock market but one market and the commodity market so actually three in that way but mainly if you're looking at stocks not good because i would put it into the basket of real assets because stocks represent firms companies was really behind in more services they can increase the prices and i understand and commodities also represent time to be less and so if if this these markets and worried her gold and silver they're going up a lot what do you what do you see avoid i mean i think the more broadly it's a market gets about this over and that crisis and the resulting inflation or hyperinflation because that's the only way they could possibly get rid of their debt the more roi the market gets the higher 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 if 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 that one marker and you're right to some extent we haven't really seen a sell of day yet but that's why for investors now as bill gross this story it's absolutely now the time to get out i mean any longer. be hadn't even. anything when we wouldn't even shot it because you're still in 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 are going to graduate you want to drive in their device where you want to do the bill gross the . yeah do you know what i mean joe for you to move you're selling bonds as mitt is drastically misunderstood everyone saying oh he's selling bonds because he thinks the government is going bankrupt or what not that's actually not what's going on he still involved because he anticipates the end of q e two essentially rate hikes 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 actually look at what his partner mohamed el

area is saying elsewhere is like of the ten year yield got a bit higher we pry 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 this is actually what you really need to be surprised than anyone else and how do you think this rising. so you how do you possibly think you even say right interest rates are going to be on the rise how do you personally saying this the estate 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. jeff 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 is the risk that eventual it 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 a 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 attack site 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 i'd be doing very very i don't know when that means e.g. if i think we go to a short break here and after that continue or discussion on all that debt steve turkey. is. still.

eleven 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. the missouri. crowd gathers momentum beyond. the streets of the.

kitchen the streets. welcoming your hostile campaign little remind you we're discussing if the u.s. will default. to keep. 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 is not really a revenue problem and not a spending problem how to generate revenue. it's a poet i said if we get economists together about this. 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 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 now 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 and from arithmetic viewpoint the republicans think that they can solve the project 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 saw that same thing and the budget got much worse he doubled created more debt than all twenty 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 and there's the 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 face. catastrophe and we're going to become the next greece and have all this and yet this is so severe 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 and you know it seems completely contradictory i think what this basically exposes is that most of the debate is actually just a pretense for getting it 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 weekend some of the social safety nets and cut taxes the democrats will all say 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 there's the problem that everyone agrees that it's a huge problem and it is really just an opportunity to push whatever vision they're already had on everything else you know to 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 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 getting worse and worse. absolutely there even this debate here i mean we're destroying jeffrey i think they're totally getting carried away in these idle ideological the bates and arguing with words by the totally ignoring what actually the numbers tell us and because we're also talking your god the rating because of the a rating downgrade on the night it stays on the rate of bank potentially bankruptcy and also just want to say not all 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's united states plus it is a negative outlook and i just want to give you a call because you also there's

a gave me one from the chairman of the dugong global rating agency and he is saying that western rating agencies are politicized and ideological they do not hear it here to objective standards the u.s. is in southern and faces bankruptcy as a pure debt the nation but the rating agencies still give a high rating of ranking so again you know this debate about being about a few a billion dollars being there is totally irrelevant i think if anything i mean one hole that i do see for the united states even in the in the near future now it may be other kiters are very interested with china their projections are now that trade with 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 there are some lightnings but certainly not the budget deficit again i don't see a way out of this short of a restructuring everything else is just you know. when people wouldn't understand basic economics jeff if i can go to you do you see that is the structuring is.

granted there are so many ways we could see 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 or the revenue is growing and we're borrowing from abroad the prime nanse medicare and we want to avoid a situation where we might be forced into a. 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 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 that they're politically very costly very dangerous for 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 are proposed to slow the rate of growth of spending in title nantz 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 do you think there's a mindset that's going to i was going to say this isn't there just a mindset in the united states is that the dollar's 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 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 happening this kind of liquidation is like let's not raise the debt ceiling now let's just bite the bullet in the fall 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 clear we have this we have there's 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 greaser to ation 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 a holding the capitol building hostage it's not directly related to the issues involved we're not 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 high so 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 and these other issues like you know prohibiting abortion and stopping abortions the district will obviously 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 our debt rather it's going to blow us all off if you don't give me my way you know marni it seems to me they do 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 here 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 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 now waking up to what really needs to be done jeff mentioned some very good things. yeah i mean definitely i seem to be abating and maybe i even have to debate on raising the debt ceiling or not raising the debt ceiling but why this is being debated saying they are thaw it he who can really decide on whether or not they're going to raise the debt ceiling or the u.s. is the bond market and of causing a major blunder investors saw i think that's really interesting to watch we have been watching the euro zone one market way years in the beginning also rising very slowly and then suddenly spiking and if it hadn't been for the bailouts of now it's really yours on countries they would already be history and this can go very very fast or for bond investors in particular this is something to watch very very carefully in our u.s. years going up and we had 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 rates 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 reflected in commodity prices for you know silver has been surging like there's knowledge of more and this is the fear of the rising because. 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 they will probably tell you earlier so what's going to happen all right jeffrey i'm going to give you the last word would be really having this conversation a year from now. yeah yeah well i mean the fifth we should be afraid that met some quiet 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 restructure and 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 a new york and thanks to our viewers for watching us here on our keith see you next time and remember crosstalk. if you. want to. reach you the latest in something instance technology from the realms. we've got the future.

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