you're with r.j. you live from moscow our top stories violence is more cities across the u.k. while in london thousands of police runs to the store of calm after three days of disorder the government's social policies are playing for britain's worst fighting in the years. america's financial woes could see its crown as the world's top economists ask to china in less than four years investors are expected to turn in more asian markets asia and asian markets to escape the common economic turmoil in

the u.s. and in europe. and as russian officials turn a blind eye to complaints about how to follow assaults members of the public wants their own visit once you crack down on sexual predators. now we explore further america's financial troubles and how the debt that block of the u.s. congress has impacted around the world crosstalk is next here on our team. to. chloe and welcome across town peter little on the brink of bankruptcy time is running out for the american budget deficits

failure to raise the debt ceiling could have catastrophic consequences not only for the u.s. but for the entire world how can piling on more debt begin to solve america's fiscal woes. and. discuss 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 cross talk 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 of me ls the fourteen point three trillion dollar debt ceiling is lifted by i need me on the line the course of the u.s.

is a president obama so how do original money lives that it more than fourteen point. and rising by four wheel and all or is that a massive iou for the next generation forty three cents of every dollar we spend this year. we've borrowed against the future of our children. our compromise a void it a us government shutdown with agreement on the largest single spending cut in u.s. history but thirty eight billion dollars is small change against the size of the debt and last month the with largest bond trader said it was also off u.s. treasuries smolin trillion dollar deficits as far as the know. some counter of the world's largest economy has to go for growth and that is even possible can it handle that monsoon christmas season of the learn strategy and spiraling prices for

anything price in the greenback underlying confidence in the u.s. dollar and the global economy that. that if you're not sure what artsy. and i do go to you first i'd like to read something to you the united states of america if we didn't have the gawler is the defacto reserve currency of the world we'd be greece i mean we are broke bankrupt really bankrupt and now we are treasury secretary james baker how do you reflect upon those words. grasp of us was saying that the us is actually out the greeks because if you add all of 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 gap and that's two hundred and two 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 that the eurozone is any better i mean they're just blowing up right now at all we have to be seeing again pressure on greek and peaks government bonds and even germany and france are increasingly looking shaky on development as well but just as a reference on the eurozone was there was a limit of three percent a budget deficit as a percentage of g.d.p. that is normally considered the maximum sustainable so the u.s. is now at ten point eight percent clearly as we have been warning we 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 are. estimated by most analysts they agreed greece will have to do or basically some form of the default or bear the restructuring or very very high inflation in respect of currency to bed really out of this step 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 against of the u.s.

we are very optimistic on it ok jeffrey in cambridge of anger to you is that too bleak of a picture there i mean the past the point of no return now to markets right. 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 and it's long term in two ways one that the problem is the deficits the moment the problem is retirements and the rapidly increase in pensions and health spending medicare and social security that are going to come over the next few decades that's 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 that chick about about this year the only thing that's magic about this here is it's become a political issue this year the american political system kind of bizarrely swings back and forth between not being concerned at all about the problem and making it

much worse with huge tax cuts like we did in the early eighty's when james baker was working for ronald reagan or as we did in the bush administration versus times when all of a sudden we're concerned about it i'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 that they're getting tired of it so to use the phrase. debt crisis is crime and i'm sorry five years ago i don't think it is better if they have a lot of people it's no yes buying it. ok i was just telling us to look at sawyer a lot of other china's 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 start 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 jim 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 be greece but we do of the dollar and. we have a fundamentally different monetary system. greece doesn't control its own currency they're socially borrowing and someone else currency they have to build up a surplus and pay it back we will fundamentally different system than that and that compares to greece or ireland or any other trying to comparison just wrong and i think look this is something that politicians freak out about. the other guy 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's debt and everything is knowing that all the math is known and everyone's figured out about how we're bankrupt but the market doesn't seem to care and is not concerned so i really tend to think the issue is mainly a lot of ok i won't go back to martin i mean the market 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 the ones that are saving 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 on a number of digits by 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 are there's going to be a clash of this system you can't keep borrowing forever everybody knows that. wealthiest most of them put it in stone and really seem to understand the situation . or maybe they do and therefore for other reasons out to raise their voices or. their lives in some way or another although now with more recently you would see

those raising the issue of skating a bit more and finally because this has now become this political issue but obviously that was still ongoing before but i would just like to come back to jeffrey it's going to be on the market the market. isn't seeing the danger because that's a very important one but if you're talking about the markets too sayings to look at the one the stock market had but one market and the commodity market so actually 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 companies was really more services for the second increase the prices and i miss inflation and commodities also represent tangible assets or if these markets and warry gold and silver they are going up a lot what do you what do you see avoid i mean i think the more broad the 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 their debt the more worried the market gets the higher you see commodity prices rise ward and cereal

rise as a hedge against this possible bankruptcy or very high inflation and as a result of bankruptcy there is an indirect bankruptcy and also the stock market could actually rise on inflation expectations so really what you want to watch there is the bond market and you're right to some extent we haven't really seen a set of day yet but that's why for investors now as bill gross is doing it's absolutely now the time to get out and any long term be hadn't even. 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 adjusted to one another but that's going to come now ok no no graduate you want to jump in there jeff i know you want to do that who grows. up. a lot is drastically misunderstood everyone saying oh he's selling bonds because he thinks the government is going bankrupt or what not that's actually know what's

going on so environed because he anticipates the end of q e two essentially. the fed goes back to normal zero interest rates and sort of negative interest rates that's actually a rate hike and historically that would be a good reason to sell bonds if you're so. look at what his partner mohamed 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 movie and start to freak out and say oh this means that he thinks the government is going bankrupt isn't true what you really need to listen to it seems as though you but i don't think is this rising so how do you possibly sing 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 very low by the united states government so that's one issue but i want to jump in here. jenny just 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 program to address it and for my money president obama recently is recent speech addressing it just broadly speaking with the kind of balance we need to do a little bit of slowing the rate of growth of entitlements we need to cut the mess of 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 are both parties we could we could solve it pretty quickly but to be doing it for a very i mean it's not easy. to go to a short break here and after that short break we'll continue our discussion on state party.

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lead. ok jeff i want to go back to you because you said something really interesting if you could could get members of both parties together you could solve this here is not really a revenue problem and not a spending problem how to generate revenue. it's but i said if you get economists together of these. great. 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 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 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 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 the same thing and the budget got much worse he doubled added 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

a new 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 phase it in 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 who's an absurd level of sort of split thinking 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. 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 weaken some of the social safety nets that cut taxes the democrats will also you know 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's really just an opportunity to push whatever vision they 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 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 it would be 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 this idle ideological base and arguing

those words by the totally ignoring what actually the numbers tell us and because we are talking about the rating because there be 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 call because you also there's a gave me one from the chairman of the guy who wrote the rating agency and he is saying the rest and rating agencies are politicized and highly ideological and they do not hear it here to objective standard the u.s. is insolvent and faces bankruptcy as a pure dep a nation but the rating agencies still give a high rating of ranking so again you know this debate about being at all if you will billion dollars coyote or adding 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 other factors are going to interact with china their projections are now their farm trade with china is going to grow into a 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 as it's just you know. when people wouldn't understand basic economics just if i can go to you. structuring is granted there are so many ways we could start restructuring the restructuring is nonsense we want to avoid a situation where ten or twenty or thirty years from now with we have a huge year all of the revenue is growing we're borrowing from abroad the problem and medicare and we want to avoid a situation where we might be forced to adopt. all twenty years from now the idea that there is any chance of a restructuring you know within the next few years i'm sorry is just nonsense i

don't understand why my throat 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 and politicians don't want to say them but you know it's if we had. gotten a value added tax or auction off the greenhouse gas emission permits together with steps that many of us are proposed to slow the rate of growth of spending in title minutes and to trim defense spending in addition the domestic spending a little bit or all around. it can be done and the problem is a political one it's not an economic problem joe if i can go to you 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 dollars just too big to fail is just too important in the world and we'll just put it off in a few more years like a lot of noise about lifting the ceiling and it let it somebody else worry about it because as jeff pointed out you know ten years from now twenty years from now thirty years from now nobody in office today is going to be in office then.

actually i kind of think about 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 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 we are we have this big 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 default are even are even mentioned by anybody is not because we're on 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 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 increasing too rapidly for example if it's coming down as a share of g.d.p. or you know it's not that highs or 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 then 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 our debt rather it's going to blow us all up if you don't give me my way you know marni it seems to me that if the u.s. isn't financially bankrupt it's intellectually bankrupt according to and i'm not 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 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 that is we're going the titanic is going to its final destination people are waking up to what really needs to be done just mentioned some very good things. yeah i mean definitely i think debating you know maybe you even have to debate on raising the debt ceiling or not raising the debt ceiling but this is being debated same the are thought he who can really decide on whether or not they're going to raise the debt ceiling of 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 as a bailout's off now it's really yours on countries they would already be history and this can go very very fast or hold london best doesn't particularly this is something to watch very very carefully in our u.s. years going up and just last week actually out of the u.k. you know an advisor to the central bank saying they have it within one year. interest rate it 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 no tomorrow and there is the fear of the rising before us. 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 but watch the rates there were probably tell you earlier so what's going to happen all right jeffrey i'm going to give you the last word we're going to be really having this conversation a year from now. yeah yeah well i mean the feet we should be afraid that they at some point investors 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 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 make this a day 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 our three. key .

and. in india all she's available.