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tv   [untitled]    June 17, 2011 5:30pm-6:00pm PDT

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it's. culture is that so much about taxpayers' money when there is a chinese media bottom people have areas bureaus in crisis will have you with those ten years ago.
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wealthy british stock. market finalists find out what's really happening to the global economy with my instructor for a no holds barred look at the global financial headlines tune in to this report on
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our keep. taking the stand. alone and welcome to a special edition of crossfire i know. you're always in crisis we'll have you with this ten years from now. you can see. to discuss the fate of the euro here at the st petersburg international economic forum i'm joined by alex since he's a professor of economics at yale university and rowling nasheed the senior partner in chief investment strategist at verne zero capital all right gentlemen crosstalk rules in effect i mean you can jump in anytime you want roland i want to go to you first the euro is having another very bad few days here markets are.
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bankers or spooks i'm going to ask you the big question are we seeing the end days of the euro and if not what can they do you know a greek tragedy generally speaking has many twists and turns and i don't think we're at the end of that process yet the markets are beginning to price but i think we're we're still a little bit of distance from from that how much has more if there's more hesitation now on another supporting call bailout remember the first one wasn't called the bailout where you know greek tragedies were they always ended right they always ended in tragedy and i think that that is going to be the endgame here unfortunately markets right now are beginning surprised perhaps the greek prolonging of of debt and that's the latest euphemism for default but whether that actually you know what was going to happen off of that that's going to be a question let's come out here and i'm going to press you now ok in the nobody wants to talk about the end here i mean now we're seeing the risks so high right
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now and enormous amount of indecision going on there's so much double talk and how to deal with this problem here and now the markets are all more or less agreed there's going to be a default you know what does that mean when if and when it's probably when greek defaults and the greeks say we want the hell out of this project what what what kind of precedent is that established for the eurozone actually i'm very positive on the eurozone in general i think it's paradoxical this crisis is going to be good news for europe in general so what we're seeing now is bad news is good news the bad news is good news is actually this done because if will look at greece for a look at spain portugal. for the first time in many years that zeal and where the structural on the line the reforms which will cause faster growth over the medium term are going to pay for all of the germans going to say hey we'll pay for it we will always. for i mean really that's where
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a push comes to shove here and merkel in a lecture it's ok i mean it if something isn't done we're going to have their own tea party. to feel the first person actually i've heard say that this is this is good news for the euro i think the problem is that they're trying to address right now i'm not the actual problems to that exist in in most countries you know by providing more money and not really solving the underlying problem and they're trying to force countries through to revalue their currency troops through changing domestic prices you know at the height of recession they're forcing these countries to go to get another round of austerity and that's that's that's all wrong how can you find growth when you're when you know we're in it when you're in the gutter how do you find growth by going by having more austerity and they're going to start the article where appearance of a large scale consolidation maybe expansionary not not contractionary i think another good search points out she will be curious why go back have the same effect on the duction specialist ban one of the increasing back to fiscal consolidation
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that last not on the production of that but also sustained increase in grow the devil in detail and. for investors and for bankers it's not in many ways here are we at the point now where everybody has to accept a haircut because of the way you avoided the bankers because i've always said maybe with a lot of cynicism here these are not sovereign problems these are bankers problems ok and they want their money back in return on top of it and so this is where sovereignty and the risks that countries were allowed to make in the bankers need to be their money back ok i mean is this would be the next big complications of the next pelada going to bail out the banks will again credit is always a big problem is that they're owed this money and they need germany to so effectively bail out the peripheral countries the bailouts the banks and if that doesn't happen then the banks elect holding the baby and that you know that doesn't solve any of. europe's problems you know the banks themselves all parts all of the
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euro monetary system and you know again fundamentally right now peripheral european countries have exchange rates which are not competitive and that's how you have doesn't want to you have to take them in and other what's the difference between an orderly unwind in a just orderly way unwind i love this new speak that is being used by the financial media and by bankers what is the difference between the two we have for the key for me. on the line leads to the increase in the uncertainty when you know it is important and that work has been i think stark starkly clear during the big financial crisis what that is that the increase in the uncertainty hurts the markets business certainly hurts growth in general so i think what they're policymakers are worried about this how it's on the line without the freeze and start a lot on your own can you do both can you have both because unwinding is unwinding i don't care if it's orderly and disorderly you have the potential for
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a domino effect and we've seen this in many other parts of the world in the past major in one thousand nine hundred seven rusher and in one nine hundred ninety eight if you unwind one part of what is a very complicated problem the danger is that you start a series of domino effects and it moves from greece to other countries are already seeing that if you look at the bond markets what was wrong with the first bailout of greece because it was inevitable that we have to do it all over again and plus we have ireland we have portugal spain is knocking on the door i mean what was it all about. what what was wrong with this actually that i would have preferred to see that in the bailout bill laswell figure i would i would like to see more on the imposition of i see it structurally buildout way moral hazard that's my biggest fish growing my biggest issue has always been more. i think it's if you provide an endless stream of money coming from another source of financing then it doesn't put enough pressure on two too countries. restructure but you know at the moment i do
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believe that greece and spain and portugal and ireland i mean they are doing quite a lot to try and deal with this issue problem is they're addressing the wrong types of issue right now they've been need to change the value of a currency so how do you know change the value of your friends i'd like for having is going to very difficult for greece to deliver your i just don't see the op side for the brakes on that so sure you'll be able to devalue a car and said that's our problem inflation moves all the time consistent so that part of your body for that want to drive to your so i think the costs are going to start thinking about if you can't win for losing i mean i don't i can't see any potential upside at all in doing that either you have to make a decision one way or another it would be it's painful to stay in the eurozone it will be painful to be out of it but at least you have control of your finances what's better grow and what's worse it's the it's the book that's the least worst option and you know before a country devalues it always seems much worse than off to the country devalued
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russia still that in the one nine hundred ninety eight in the remember everybody said russia is too big to fail you know be let alone to rush through to be the last generation if we will do values in one thousand nine hundred and what i see happened well you know off the devaluation six months later of you want to lend to russia again obviously greece is a different type of situation political capital bearers it is much greater but the economics i think are actually quite similar like i was a somewhat similar but the positive sign that i'm seeing is that at least now the money i can in with strings attached the money i can aware of the necessity to do structural reforms and of the start for reforms happen especially on the part cuts in spending stuck in the parts where you very little punch comes in as a middle name because you walk away from your sovereignty in a financial sense ok part of i mean that's the unspoken rule of the eurozone but then there's the political side of it i mean there are people that are elected ok i mean how do you how do you marry the two or do or die if we divorce. it's
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paradoxical and wanted perience off a convert of the large fiscal consolidation in the oyster do over the last twenty years there is no evidence that a large fiscal consolidation leads to a loss at the polls so i think anybody who is saying. i don't know very cool information. on the great except i don't know i mean i think recession in general is home to politicians and you're already seeing you know politicians being elected out of office were forced out of office and seen it in some regions and it's by no surely an island so you know when you try and implement austerity really difficult austerity i agree there are big strings attached to these loans and you try and implement that at the height of one of the biggest recessions in the last hundred years i think is going to be political consequences but what is the we're going to be seeing here is this a liquidity crisis or a solvency crisis i think it's it's it's a solvency crisis i don't see that this is
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a pure alert around on the banks or on on greece it's a crisis which came from the sustainable economic policy. of greece it's not that different from account but i think i'm finding that everybody throwing your money nobody wants to get on with the interesting thing was the unsustainable policies were a direct result of the way in which the euro it sets up so you can go back to merely point to you and i you know the credit is themselves they have to take some blame for this i mean they were the ones that were making loans to to greece mannish and what it turned out to be an unsustainable economic situation like the haricot will happen i think the markets already priced on this and i think what the markets are not pricing and here is that the structural reforms can lead to higher medium term growth. well that's asking for the bankers get bailed out and everybody else has to pay for it that's why we have the riots in the streets here i mean is that tenable and it's certainly not tenable in the short term what is going to be learned from that because people are just going to say well just have
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a better year oh it's going to be hard to convince someone this unemployed or their family is going to think it will be unemployed for the next decade i mean structural reforms have a very large cost associated with them you know spain already has twenty percent plus unemployment there are already people out on the streets in greece so you know i tend to agree if the structural reforms all successful and they could be they can be forced through very quickly then through competitiveness and maybe to these countries and go out of the situation but the key question is is it politically sensible to expect these structural reforms to be to go through i did so i am like like now when these countries are facing real the economic pain you certainly wouldn't expect a country like the u.s. or or the u.k. to go through something like this and we saw it happen in two thousand and eight when they were going through deep recessions there was a big monitor if this will stimulus and right that's the because i'm right and i'm going to jump in here when we return we'll continue our discussion on the fate of the euro state to. keep
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students. wealthy british science science. sometimes that's right let's look at. markets why not just some. why no one should really be happening to the global economy with mike's concert for a no holds barred look at the global financial headlines tune in to come. there's a report on r.g.p. lenses use three credit station three in-store chargers sri. sri. sri. sri
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led. all in video for your media draw against the stream media oh don carty dot com. please. welcome back to cross talk i'm peter lavelle right before we were to the break
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roland we were talking about how the euro is. how some people think it is collapsing in europe expression of your own voiding greece but what are the implications internationally i mean the chinese are very very unhappy about is the united states is just about to end its quantitative easing its part to how do the i don't all three of these fit together and i don't think it was really interesting we were talking about the weaknesses in the in the euro but actually the euro has been strengthening against the u.s. dollar and you've got to ask yourself you know why a country or want redefine what is it actually i think because it's it's a competition is a right to both of between the dollar and the. they both say i have to fight to the bottom and they both have a lot of very deep structural issues the u.s. is dealing with them on way in the the europeans are trying to deal with it in another way and so far q e three your q e two story. predicts you've already said
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it we're going to three are we going to create a fund manager i think a lot of people to carry through with you know q e two is the simplest way to try and solve some of the issues in the in the u.s. another would be devalued be the dollar against the euro now what we're seeing in europe is trying to devalue the euro against the dollar. how the chinese looking at this now how worried are you i think of the big right from my point of view to think about the conversation because when your dollar is from the point of view of the global imbalance. there has been after the financial crisis one of the key things that has happened is the dramatic reduction of the supply of the safe assets think about this our two thousand and seven what had wonderful triple a mortgages so we had all kinds of mortgage backed securities which were supposed to be safe now what you have is you have a long term about them and that which may not be perfect has all kinds of issues with it but it's still safer than watching this can produce especially for the long
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term securities so what we're seeing is despite all the problems in the developed markets in europe and in the us there is still so difficult to replicate this long term instruments it's a unique export that's. because there's not an alternative it's not one built on the intrinsic value just think about for example a thirty year or thirty year bond when you're issue a thirty year bond what you're selling is yes alan that in thirteen years your economic policy is going to be paid to get that the country is not going to collapse that the inflation is not going to be found and you can only sell that kind of expertise if you had a long history of our political system which is consistent with great economic policy because it makes by any estimation of the united states is on the verge of bankruptcy i mean did you find those funds i'm not asking you personally but would
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you advise an investor to be that i think on the verge of bankruptcy is probably press release talk a little bit strong but no easy answer to your question i would not be buying u.s. the u.s. treasuries right now i mean it is still the safe haven album but it really is a lack of alternatives and you know you made the assumption that china didn't offer any sort of long distance security been in the us you know obviously the track record of the u.s. is much greater than in china over the last hundred fifty years but you know i'm not sure that you can make the argument now the china doesn't offer longer term security than. in the u.s. given the economic disaster the region's most of it is for them for the euro zone here why don't we have just see two tier three tier euro system it was premature we know that the greeks lied openly lied about what they did frankfurt knew about it brussels knew about it but it was the great project that had to succeed but it is under failure by many accounts by many different people here lie
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don't they is it time to rethink the project completely which is much more rational where there is some countries are going to be at the children's table in some countries will be at the adult think about the theory of why and how their unions work one of the key paraclete that's in addition to just a common currency if you have synchronized business cycles. go at it on across some particular the fiscal rules so you're abroad the credibility on the monetary policy or outsource the european bank or bank so now you have the crisis would lead to better or pulse i don't want to say this war but european fiscal record that this could make you well we've got a lot of people in the euro zone afraid we specially i mean someone said to me once for all in which all that was really quite interesting is that everybody should stay in the euro zone except for the germans they should leave the euro zone and then things might work out better for you but i think very very probably benefited
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more from the eurozone than. anybody else and i think the euro zone actually is a great political invention and has been very successful actually politically if you think about european history and what do you have that's not the heart strings i mean i used to be a professor of european history i can absolutely agree with you i mean creating unity here but can you do that alexy can you do that monetary really and maybe it just takes a much longer time than they had expected i mean we have countries like poland that are kind of stepping back now thinking maybe this is not necessarily a good idea it least at this point in time. you can have roland if i go back you you could have political union without monetary union he you know it was something like the european economic community they didn't work out too bad ok it was a quite a political ambition. the the floor part of it i totally agree with that if the floor part of it was on that was on the economic side you can't have monetary union without some kind of centralized school authorities and that's exactly what's being proved now we're going to take the tools away from sovereign governments to fix
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their problems when you have something like that you can't default you can't build up dead in the first place and that's that's the issue it was it was the ability of governments to use and private sector to use low interest rates over a very sustained period of time to build up debts that proved to be unsustainable if it gets very profitable isn't it for some people to do that the model works for some works it's a work for a lot of other discussion before the introduction of your so many people were saying that it would never happen that you know a lot of low inflation would never happen and the country would sort of under still a towel you can find it very soft or emmett's. right soon that at this for me the euro was a much more successful project that i thought it would be outsource that monetary policy to the technocrats of the european central bank which were more conservative than the average population of europe and if something like that happens in terms of policy i think your euro project and european project it terms of policy as are
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all the same kind of work our own commission offer can change it. or is it more likely now or less likely everybody is jittery ok i think it's i think it's going to be really really difficult now just to stop the whole concession you know they've already tried it several chances in the past they put you know a lot of money several hundred billion trillion rupee euros into into defending the the region it hasn't been enough and markets are compare now pricing more aggressively. expect a default in greece portugal ireland and i think i think spain as well so what happens when the contagions starts. it's it's great market share i mean we'll have when we will we have more than pigs. only going to the pain if i can danger of the contagion the on what's price in the markets. i think is going to be i think the market particular significance to short term are looking on the whole european
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situation again i'm going to come back to what i was trying to say in the beginning that the period of fiscal consolidation and of the unprecedented structural reforms would be positive for europe in general and so i think the risk of contagion is relatively small again you know what about the slippery slope here ok moral hazard i mean there's always going to be a bailout. you know it has to there has to be a contradiction there i mean the money runs out eventually the question is that the question is on its own bailout if it is just a bailout then you know well a structural reforms don't take place so if if it's money that actually results in structural reform then that that is the exit i just think this is where we really disagree i just think that trying to do structural reforms right now is politically unfeasible in the markets so you just reporting money in some kind of stabilization then go for the structural reforms so that they disagree actually where they're on on and that's i think this is exactly the right time to do the structural reforms i
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think it kind of people as a fairy or because you think it's i mean i'm looking at a man and woman and child on the street right now is are going to be a lot more pain that way so therefore there is a look at look about a different kind for comparative japan japan isn't. austar colder for us to get it out of the last decade to try to sell it to germany is that they have to do all the painful reforms to grow faster why their rage they're growing at one to two percent for a huge economy that's sort of your take on it but they could grow faster try let's try to think of all the u.s. is doing ok there is no crisis there's no acute crisis no good crisis and it's that's why it's so difficult to portray that all structural reforms in the that production are far. exactly now. so badly. for all this long. the cost of the sausage roll in looking at these the elections
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across europe we've seen a lot of wild cards coming out a lot of nationalist parties doing much much better of course is going to be the element of immigration that always pops up there but there is the euro issue is well and the sense of sovereignty here do you think that the reform reformists for the for the eurozone have enough cards to play star of off. a growing political reaction because we see that me and i go back to the germans and they say you know. you know we didn't screw this up you know we use that you've rightly pointed out germany has done quite well by the euro in the longer term but it is certain point they're going to say it's politically not viable for us to do it because of the ballpark hazard that's still out there but again you bail out on bail out the belgian sticks but that again is the point i mean it's up to the germans to maybe conditionality substrates that if there's no consensus be a bailout they haven't done that yet and then it comes down to a point about you know is the other governments in place or can there be governments in place that are able to follow through on that strict conditionality
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given the current circumstances that exist in those countries and you know when i look at places like spain right now and the way in which you know the regions of finding it very difficult even to make payments you know there actually is known payments growing in some of the european states and washington state so it's a politically very difficult very difficult thing to do and i have to say that although i think like a very good point and it's and it's a necessary time to do the reforms i'm not sure was a feasible time to the polls and i guess that's the thrust of the last question where we are where you say you're going to stand a year from now i think it's so difficult to predict what's going to have learned is economists so difficult to predict the current best forecast in fact is the value of the car is it today so that's going to be much more well i can't believe it we ended the note on a positive positive position you want to thank both my guests here in the studio and i want to thank our viewers for watching us here at r.g.p. see you next time remember across talked. to.
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students. a charter here broadcasting live from washington d.c. coming up today on the big picture. if. if if.
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