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well the british science. markets why not. find out what's really happening to the global economy with max concert for a no holds barred look at the global financial headlines tune into kinds a report on our team. and you can. start. to. chloe and welcome to cross talk i'm 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. 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 tike 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 a 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 i'm going for broke wanting stuff get asked unless a fourteen point three trillion dollar debt ceiling is lifted by meade me on the line the course of the us is on i thought of a barge and so how do original lives probably get it more than fourteen point two

trillion dollars and rising by four wheeler dollars they handed massive iou the next generation forty three cents for every dollar we spend this year we borrowed against the future of our children. our 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 against the size of the debt and last month we go through launches one trader said it was all of us treasuries smelling trillion dollar deficits as far as a no scam snaith some counter those largest economy has to go for growth and even that isn't possible can't handle that but mounting criticism of the learned some strategy and spiraling prices for anything priced in the greenback underlying confidence in the u.s.

dollar and the global economy you bet on that that if you're going to show up artsy . 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 defacto reserve currency of the world we'd be greece i mean we're broke bankrupt really bankrupt and now we are treasury secretary james baker i reflect upon those words. good grasp of us was saying that the us is actually old 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 what this is really about but really the unfunded liabilities are the so-called fiscal when that's two hundred and two trillion us dollars saw in many ways that's worse than greece the budget deficit is more or less the same as crazy of ten point eight percent budget deficit in the

eurozone was formed not that the eurozone is any better i mean they're just they're blowing up right now too or we have to be seeing again pressure on greek and pigs government bonds and even germany and france are increasingly looking shaky under government 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 as a maximum sustainable so the u.s. is now at ten point eight percent clearly as we have been warning there beyond the point of no return and we don't really see that they could solve the problem in any other way and then it's now. estimated the most analysts they agree greece will have to go and basically some form of the default of their restructuring or very very high inflation interest rate of currency to bed really out of this debt saw we say stay out of the u.s. dollar stay out of any form of medium to long term u.s. treasuries but by the way also eurozone doesn't look better again saw the rest we are very optimistic on it ok jeffrey in cambridge i'm going to you is that too

bleak of a picture there i mean packed the past the point of no return that's remarkable. 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. i mean we have a very serious long term debt problem we've had it for quite a while it's on its long term in two ways one that the problem is that deficits the moment the problem is the 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 year 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'm 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. the willingness of foreigners to hold u.s. treasury securities there isn't the slightest sign that they are that they're getting tired of it so to use the phrase. that crisis is to my mind absurd five years ago i don't feel it is better to read it as they have been crying a lot of that yet because nobody has buying it. ok i was just following this 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 gentlemen and where do you jump you know 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 degrees but we do of the dollar and. we have a fundamentally different monetary system the various greece doesn't control its own currency there's actually borrowing in someone else's currency they have to build up a surplus of them pay it back we will fundamentally different system than that and to compare as through greece or ireland or any other trying to prepare isn't just wrong and i think look this is something that politicians freak out about yeah you know as the other guest said all the sudden it's become a political issue but if you actually i look at the market 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 going to grow but the market doesn't seem to care and is not concerned so i really tend to think the issue is a lot of ok i want to 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 get fourteen trillion dollars on a number of digits but 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 the wealthiest need most of them put it in stone and really seem to understand the situation as they do or maybe they do and therefore if i don't read and outrage to raise their voices or do damage in their lives in some way or another although no one know recently you will see those raising the issue of skating a bit more attention finally because he has now become this political issue about

a need that was ongoing before but i would like to come back to jeff and it's going to be on the market the market. and seeing the danger because that's a very important one but if you're talking about the markets with two seems to look at that one the stock market and the commodity market so actually is 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 firms companies was really behind in more services for the second increase the prices and this inflation and commodities also represented less and so if these markets and warry to world and silver they're going up a lot what do you what do you see royd i mean i think the more growing to market gets about this over and debt crisis and the resulting inflation or hyperinflation because that's the only way they could possibly get rid of the debt the more worried the market gets be higher you see commodity prices rise ward and civil rights 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 are 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 day 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 benard be had and even if anything when we would 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 out ok you want to jump in there jeff i saw you want to do the bill gross the gauge of job growth i mean rose. is drastically misunderstood everyone saying oh he's selling bonds because he thinks the government is going bankrupt or what not but it's you know what's going on 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 to various. look at what is 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 this is actually really nice of these it's an emergency law legal but i don't think this is rising so how do you possibly seeing a you even say right interest rates are going to be on the rise how do you possibly saying business debt 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. just yeah i see. 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 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 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 proposed parties we could we could start a pretty quickly but to be doing for a very i mean is the. short break here and after that short break we'll continue our discussion on all that stay with our.

oh. shut up shut up shut up shut up shut.

up shut up stood. up to you to want to cut. welcoming your cross talk i'm carol bellamy to remind you we're discussing if the us will default. mother. and. sister the such. ok jeff i want to go back to you he 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. going 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'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've been 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 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 pledge of deficit by tax cuts and i mean

it's just 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 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 jill what about that because you know there's a particular the united states there's a lot of. wealth in the sense of financial. things like it is in 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 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. 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 and you know 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 the republicans want to use the debate as a opportunity to weekend some of the social safety net taxes the democrats will also you know agree with the republicans that that 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 else 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 getting worse and worse. absolutely there even this debate here i mean with historian jeffrey i think they're totally getting carried away in these idle ideological he baits and arguing with words but totally annoying what actually the numbers tell us and because we are also talking about the rating because of the a rating downgrade on the united states on the way to being potentially 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 quote 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 and they do not hear it here to objective standards the u.s. is insolvent and faces bankruptcy as a pure defamation by the rating agencies 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 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 to interact with china the projections are now that the trade with china is going to grow it's going to gobble over the next five years and you look at what this has done to brazil saw there are some names but certainly not the budget deficit again i don't see a way out of this short of various drugs sharing everything as is just you know.

from people who don't understand basic of the nominee jeff if i can go to you. structuring is. granted there are so many ways we could 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 prime and medicare and we want to avoid a situation where we might be forced into a draw for. 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 yes yes it'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 the politicians don't want to say them but you know it's if we had. gotten 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 taiwan and had to trim defense spending in addition to the nest expanding to a little bit all around. it can be done as 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 there just a mindset in the united states is that the dollar's just too big to fail which is 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 limits 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 having this kind of liquidation is let's not raise the debt ceiling now let's just bite the bullet and 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 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 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 running out of money i mean either countries raise their debt all the time and it's known as a 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 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 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 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 it's i'm going to blow us all out 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 there may be

a crisis it may not be a crisis but i'm going to get what i want to portion was mentioned i read that earlier from when 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 to titanic is going to its final destination people now waking up to what really needs to be done just mention some very good things. yeah i mean definitely. the baiting you know maybe you know even soon you'll 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 are going to raise the debt ceiling or the u.s. is the one market and of causing a major bond investor saw i think that's really interesting to watch we have been watching the euro zone one market really years in the beginning also rising very slowly and then suddenly spiking and it hadn't been for as a bailout it's off now it's really yours on countries they would already be history and this can go very very fast or for want investors in particular this is something to watch very very carefully you know u.s.

years going up and you know just last week actually out of the u.k. you know an advisor to the central bank saying they have 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 are affected in commodity prices for you know silver has been surging like gas knowledge and more and part of this is the fear of the rising to force way 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 whether or not you believe the u.s. will go bankrupt or not the watch the rates there will 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 food we should be afraid that met some private investors get tired of their current eagerness to hold

u.s. bonds and it will be a decline in u.s. 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 guests today in hong kong cambridge and in new york and thanks to our viewers for watching us here on r.g.p. see you next time and remember across talk. a little. you the latest in science and technology some of. the future

coverage. little. little. little little little . a charmer in her broadcasting live from washington d.c. coming up today on the big picture. i.

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