welcome back you with all the live from moscow a quick summary now of a headline some by the u.s. house of representatives swings behind the debt limit deal to avoid default and the criticism that america still faces harsh times ahead of economic recovery despite the compromise deal. nato members pressed for tougher u.n. action against syria's government in response to escalating violence with russia to

block any resolution leading to a libya style interference. and israel was seized by a tidal wave all the anti-government protesters demanding sweeping economic reform but demonstrators complained summer of discontent is largely being passed over by the international media. ok up next our financial expert max kaiser looks at the low standards in high finance and what wall street would prefer you did not know that's on the cards report coming up next they were not see then mr built. we've got. the biggest issues get the human voice ceased to face with the news makers. max kaiser they see her this is the kaiser report today stacey you're going to be talking

a lot about risk in all of its forms tell us also. as i go alone but. tell the people what you've got over there ok well let's start with the first headline max because that has risk in the actual headline t. bills no longer considered risk free by chicago mercantile exchange c.m.e. group announced monday that as part of a normal review of market volatility they claim it is determined that t. bills should no longer be treated as a risk free when used as collateral haircuts time t. bills will rise from zero point zero percent to point five percent and. let's talk about this for a moment treasury bills you say when you have them in your portfolio and you use them as collateral you can borrow against them one hundred cents on the dollar and this is interesting because if you remember going back to the construction of collateralized mortgage obligations what they did was they created collateralized

mortgage obligations as a way to skirt the margin requirements set up by valuable and switzerland that's the genesis of collateralized mortgage obligation because it's all about the margin requirements and margin requirements are different for different classes of assets so it junk bond you have to put up more of the junk bond if you want to put it into an account of borrow against it the margin account as it's called treasury bills you can borrow one hundred cents on the dollar t.v. . ells you can borrow one hundred cents on the dollar but what they're saying here is that there are so worried about the underlying fundamental integrity of these global markets that not even a treasury bill is as good you know hundred cents on the dollar they're going to require you to post more of these bills into these margin accounts because quite frankly these global economies are at the risk of this precipitous

collapse caused by over indebtedness and the see any it almost sounds as if they're doing something responsible but that can't possibly be true because they've done nothing but conduct themselves irresponsibly for years but let's see what else is on the subject here well there's another headline regarding this and they are saying that c.m.e. acts to curb volatile treasury futures and they're saying in this article that the reason why the c.m.e. is the reason margin requirements on treasury bills is that they've been so volatile as their kooky theater between baner and obama has been going on about whether or not they're going to raise the debt ceiling and whether or not allowed the u.s. to default so they're saying that it was the volatility and that because of that volatility it was driving people away from the markets so the chicago mercantile exchange was not making as much money well volatility is

a function of leverage or margin and by increasing the amount of treasury bills have put into the margin account before you can borrow little's and all little's against it you are supposedly decreasing the volatility and they're hoping by decreasing the volatility they're going to increase their order flow but you know the point about the you know the main point about the stacy herbert is that what the c.m. is not mentioning and what people tend to forget is that an exchange at the new york stock exchange seventy percent of the volume is computers trading was. and they do this you know people think the prices are the result of supply and demand and the lot of people want something for the price goes up and it happens as the result at the tail end of a transaction you end up with a price based on the buyers and the sellers but that's not true anymore you have traders on wall street like a goldman of j.p. morgan first to figure out the price they want ahead of time they create the algorithm they release the algorithm onto the floor of the exchanges and then the

algorithms take prices to the pre-determined levels that were set ahead of time a third of the trade and to do this you need overwhelming computer power as a says seventy percent of the trades are done by computers to create prices that are pre-determined of course is the very definition of insider trading and market manipulation well the c.m.e. was in the news recently on our show when we talked about them hiking margin requirements on silver and this was just before either but twenty five percent correction in the price of silver in may now silver is in the next headline maxed speaking of this polity and c.m.e. silver may rebound to test one hundred dollar level citi group says technical analysis silver may more than double to one hundred dollars an ounce if the current bull market follows similar patterns seen between one nine hundred seventy one in one thousand a.d. according to technical analysis by citigroup global markets incorporated now i want

to show you this chart miramax and this is provided by ned naylor leland and as you see the red circle there that's where we were just april and before that twenty five percent correction as you see it's very similar to what happened in the one nine hundred seventy nine run up a thousand percent run up from its secular low and then it took a twenty five percent breather and then as you see it zoomed ahead to all time highs at that point well this is where ideologically speaking we have to see that the c.m.e. is caught with their pants down. because if they were truly concerned about volatility they would lead the natural order flow and price discovery occur in the precious metals markets including silver and you know a lot of the capital flowing out of spec of the vets flowing out of the margin accounts and buying into precious metals and this would recalibrate a rebalance the system and reduce overall volatility the fact that they actually monkey around with the margin requirements on selectively instead of other commodities or other financial futures de targeted silver to increase volatility

the entire drop back a couple of months ago there was a fifty then a move down to thirty three that was engineered by the c.m.e. this image created that volatility as a way to scare people out of silver because they're in bed with the paper bugs so this is the fight between paper and little yes and as we pointed out at the time even bill gross who who operates the largest bond fund in the world a paper bug he mentioned exactly that that the c.m.e. had done that intentionally to drive the price of silver down but right and all it has done is it's radicalized more solver garners like a silver liberation army for example they're simply buying more physical silver so the base upon which this rally is being built is widening and if you get a wider base the ultimate price target expects extends to a higher objective and so another headline regarding commodities exchanging

on various exchanges around the world that has been overlooked during this diversion of this fake battle over the debt ceiling totally fake battle changes nothing in the genuine economy of america or the world another city headline city's top economist says the water market will soon it clips oil so this is well known boyd are and he says that he expects to see a globally integrated market for fresh water within. twenty five to thirty years once the spot markets for water are integrated futures markets and other derivative water based financial instruments puts calls swaps both exchange traded in o.t.c. will follow there you go max derivatives for freshwater yeah this is this is a remarkable story for a lot of reasons because the problem is that the amount of fresh water in the world

is diminishing and of all the water in the world less than three percent of it is fresh water and most of that is frozen so what the planners the central planners in countries like america are planning to do is to create derivatives based on water they believe that are increasing the look quiddity of paper derivatives somehow increases the availability and liquidity of freshwater and nothing could be further from the truth we know that when you introduce to rivet eventual market it causes price dislocation shortages and market failure we've seen that in food markets around the world that's why i've got salmon because the price of food is skyrocketing thanks to abuse of these markets what we've seen with derivatives markets max is anytime they introduce a collateralized debt obligation backed by these mortgages what happens everybody loses that asset and the banks gain it through these three videos greece credit

default swaps on their country what happens to the country once they these derivatives are introduced to protect them from the risk of that they lose their whole entire sovereignty and nation so look at who is the biggest body of fresh water in the world. it's in russia it's late bucko so you know anybody with fresh water assets now should be very concerned about these derivatives because they are used as a technique for seizing that asset in a way that they say the markets decided that we should own all your assets well raise the cost of water but ultimately that's the bottom line it will raise the cost of water and cause a lot of people to dehydrate and die and same thing with food and same thing with these other markets and credit but availability is just too expensive no one can have access to credit anymore it's too expensive so there's no credit available so you have this de globalization taking place now in the world but if it peak credit peak oil peak water peak gold peak silver peak everything because the industrial

model of the past one hundred years plated cellphone earth carrying capacity get only support so much and that eclipse got eclipsed in two thousand and seven and now we're on the down slope yeah this the financialization gone amuck of our entire global economy and that's not been addressed at all not for one single day during all of these so-called that ceiling debates and all of the two years of pretend drama between the red team and the blue team in america nothing's ever been addressed about the financial system and the financialization of our economy well i mean is that that's why we're going back to the dark ages in the middle ages and the crusades i mean you see this all it's unknown countries all over the world has gone back to religious wars because the neo liberal economics is failed neoclassical economics has failed there are going back to the economics of the middle ages my final headline here max the help wanted sign comes with a frustrating asterisk so apparently the unemployed need not apply if you look at

job ads across america they're saying that they don't want basically unemployed people you have to be employed if you're looking at this and the other way they're . excluding the unemployed. from the jobs market is that you can't have a bad credit rating for many jobs in america so of course people have been on a plane for eighteen months twenty four months and they start to accumulate negative points on their credit score so they get literally they're banned from applying for many jobs. just a fellow class of world war two catch twenty two about the insanity of war this is being applied now to the job market you know you can't you can't get a job unless you have a job and you get a job in a job and it goes around or around this vicious cycle because basically companies don't want to hire because they don't want to spend the money because all of their profits come from trading derivatives the banking sector is gobbled up fifty sixty

seventy percent of the economy and you're trading electronic phantom paper with each other to create phantom profits so you create fence and printing excesses down at your friendly neighborhood treasury and and federal reserve bank but you don't want to pay higher real people you don't want to pay them any kind of a real salary you'd rather keep that money yourself again it's back to the middle ages of lords and serfs and you know and america three hundred thirty million people you got three hundred twenty nine million peasants here thanks for being on the kaiser report thank you max thank you don't go away stay there much more coming your way. you believe this in some instances. the future of coverage. for the. we've got. the biggest issues good

voice face to face with the news makers. welcome back to the kaiser report i'm max kaiser time now to go to upstate new york . someplace called saratoga and talk with james howard kunstler author of several blogs including the long emergency and world made by hand of james howard kunstler welcome back to the kaiser report i'm an x. let's see you're already james according to your most recent blog post you have dumped some of your treasury bill i sense there's a story here tell us tell us about it well i just got kind of nervous about you know he wasn't the idea that they were going to lose value overnight or you know there's going to be stuck with worthless paper necessarily i was getting a little concerned that banking system was maybe going to freeze up and that we

just see a lot of sort of problems and obstructions in banking right now this is interesting because a treasury bill is considered to be really indestructible in terms of its credit worthiness it's the basis upon which the entire u.s. economy is built it's the basis upon which the entire global economy is built if you consider the fact that the u.s. dollar is the world reserve currency so the fundamental building block of the global economy that the lowly u.s. treasury bill you are suggesting that it is not as credit worthy as some suggest so but my question is with all this talk about the aaa rating of u.s. debt being downgraded it sounds as though it's already been downgraded in the minds of a lot of people yourself included oh yeah i think the psychological effect of what's already gone on is really strong and i can always go back to short term treasury

bills if i have to we're not going to bail out for a while into other short term instruments and wait it out sort of like you know we're eating out at you know a contagion let's talk about the craziness that's going on in the u.s. concerning the debt ceiling. until a few months ago people didn't focus on this debt ceiling so much because every time they came up for expansion it was automatically expanded there wasn't a huge issue suddenly there attaching all kinds of riders today that has to be re examination of the entire fiscal policies of the united states how did that happen who are the players and what's really going on well i think what's really going on is that all of these machinations and indeed a lot of the trouble all around the world really comes out of from one source which i think is the growing scarcity of capital and you know any way you cut it we're having problems. allocating money to the places that are used to getting it

and it's a game of musical chairs and you know someone is always coming up short and every week it's a new musical chair player and every week we have to sort out by some way to make up for the fact that that money is not there and we're going around and around in that game really can't go on that room there are some people including myself who attribute a lot of this trouble we really to the peak resource and peak energy resource issue fundamentally and that you know when you have fewer energy inputs and resource inputs available for your economy you're going to eventually eventually that will be expressed in having less capital available and so you see the whole world scribbling for capital in a situation where capital is increasingly scarce and it's reflected in currency problems and banking problems and the management of the management of capital itself yes you talk about scarcity of capital and this is something

that people can't wrap their minds around because they have grown used to the idea that capital can simply be loaned into existence in the current. fractional reserve system where there are no checks and balances it's just a matter of clicking a button and there you have it a new one trillion dollars in capital being created but you bring up an interesting point here in that the reason for this capital to be loaned into existence for decades has banned to finance and to underwrite the global energy business which is probably if not the biggest business in the world certainly close to being the biggest business in the world globally and now that you've had these resource constraints and i just read somewhere that something like fifty six countries oil producing countries are now in decline so you can make the case that the entire globe is in decline in terms of output of oil you also have this

phenomenon of shrinking capital so as they are these two coterminous are they tight if they had only had one hit peak oil as it's called you also hit peak capital are they connected can you explain that a little bit i think it's self-evident that they're connected and you know what we're seeing are very large chains of consequence and feedback loops of systems that are tied together. the energy system you know represents our primary the primary resource for an industrial economy and it allows the other systems that we depend on to work including our systems for doing commerce era systems for doing agriculture and remember what one of the main inputs for agriculture now for of the form of industrial agriculture that we practice is capital you know that that comes right right after all the diesel fuel in the or oil based pesticides and gas based

fertilizers you know capital is where keeps our food supply going and that's becoming scarce for or for the farmers all over the world. our transportation system ended a system which is that you know the management of capital that the management of accumulated wealth that can be allocated for productive purposes unfortunately our wealth for the last twenty years has been allocated for financialization which is really as we know paper shuffling and not productive and we best be able to go on for a period of time because you know there was tremendous momentum built up in the. fossil fuel based industrial economy yeah i was talking to stacey herbert in the beginning in the first half of the shout and we were talking about the diminishing

resource of fresh water and going forward as freshwater becomes a diminishing resource the talk the happy talk coming out of washington would be well we're just entered this huge industrial strength be sound as ation projects but of course that would require capital so you can have liquidity in the capital in the water market without liquidity in the capital markets and so therefore if you agree with that loan yeah i think a better illustration in the usa these days is the shale gas scam that's going on there's understandably a great wish that america could produce enough energy to keep the things that we run running virtually indefinitely you know we're so invested in the stuff that we've got including our suburban lifestyles and the interstate highway system and all the other things that we do that we want to imagine that we can keep on doing

this forever so this story has been going around for about the last year that there's one hundred years of shale gas out there. and shale gas. play. and then said got ramped up a round two thousand and four two thousand and five and it started in texas around dallas fort worth with the barnett clay and you know it seemed like a magical thing that we had these new techniques for drilling and you could go down horizontally and not shoot a bunch of water in there and break up some some tight rock as they call it and you'd have a manufacturing process rather than a drilling process for gas and we just more or less continually reliably come out at a great rate. and what happened was they discovered that in this form of gas drilling that after the initial production the flows fell off very dramatic way up

to eighty five percent in the first year and. they used the initial production figures to raise tremendous amounts of cash and to get to sell shares and to get borrowed money you know most of these companies were running at two hundred to four hundred percent of their their costs for doing what they do anyway they sort of front loaded the shale gas plays with high expectations and they played upon the american public's wish that we would have endless energy and when the barnett play started to show a great deal of weakness very quickly and is now virtually over and when that came to an end they moved on to the a.f.l. in haynesville in louisiana in arkansas and those are now showing weaknesses among

the weaknesses are that the geographical area of these shale gas plays. tends to retract to a tiny fraction of what they originally thought to these things they call sweet spots so now they're up in new york and pennsylvania. and there's a moratorium in new york which there's a lot of agitation can lift it there's a lot of fear about this the fracking process where you shoot all this water down into the rock to fracture it and liberate the gas from the tight rock so that hasn't been settled but i think the bottom line is we're going to discover that the shale gas. industry is not a manufacturing industry it's basically it's a real estate play it's a way of obtaining leases. and then selling him off for five times the amount of money you paid him for ultimately we would have to throw in an immense amount of

money and steal that is capital in steel at this process to keep it going at anything like the rate that people wish for and so the hundred year supply of shale gas is actually looking more like six or seven year supply of shale gas and that would be added to the conventional gas to so we've got about twenty odd years of gas altogether that we can can pretty much depend on but that's about it twenty years so we've already had peak fracking well we certainly hit peak fracking in in barnett and we're getting there in louisiana and arkansas and you know we'll get there soon enough in the marcellus but you know it's unfortunately it's a dodge it's just another thing that allows americans to not pay attention to the changes that we have to make in the way we live and you know i'm not suggesting that we have to become socialists or were communists or we all have to move into

you know one big house together but what it does mean is that we're going to have to pretty severely reorganize the things that we do with american life the way we do transportation the way we do farming the way we inhabit the landscape you know and cetera and we're not prepared to think about this at all right well it sounds as though without capital you can't have capitalism and with all this theocratic kind of middle age type crusades going on seems like reverting back to the dark ages politically and economically because we simply don't have the capitalist part capitalism anymore but anyway james howard kunstler us all a time for we have thanks so much for being once again on the kaiser reports you're welcome nice to be here all right now is going to do it for this day. another guy has a reporter with me max kaiser and stacy herbert and i want to thank my guest james howard kunstler going to send me an e-mail please do so at kaiser report that r t t

v are you until next time this is nice guys are.