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hello and welcome to cross talk i'm peter lavelle the u.s. federal reserve has met and decided. little as the global economic recovery slows now it's time for congress and the president to take things from there given the deadlock in washington and the debt crisis in europe is there any reason for optimism. to cross-talk the prospects for the global economy i'm joined by martin henniker in hong kong he's an associate director at the tight group in warsaw we have patrick young he's the executive director at devi advisors an editor of the gathering storm and in washington we cross to daniel mitchell he's a senior fellow at the cattle institute all right gentlemen this is cross talk that means you can jump in anytime you want to very much encouraging but first let's look at the fed's recent meeting at jackson hole. in the end ben bernanke is lacking an announcement that there would be further quantitative easing was so

close and having there was something in it for almost everyone the fed can't tell us specifically what it's going to do because it doesn't know specifically what's going to happen so the more specific the fed makes a promise from are liable the fed does have to go back to the back later and change it because it promised us something that kept the lever on the questions behind any further action by the world's most important central bank remain and will dominate economic discussion for months to come can't do more well it's what happens if it doesn't most of the economic policies that support robust economic growth in the long go outside the province of the central bank. there is still the widespread view that the fed will act to provide monetary stimulus beyond the july statement that it would keep us rates at record lows for up to two years but there is also the view that it needs to keep something up its sleeve in case the euro zone's fight to prevent the financial system meltdown isn't what you. said european

situation there is different for leadership there is some lack of coordination and this. certainty on the markets the bigger issue but as bernanke himself has acknowledged there is no fiscal side to efforts to support the world's largest economy the role of the fed in this circumstance is largely to prevent further meltdown but with american politics as divided as that are and the role of the fed becoming more contentious there isn't any sign of a strong recovery on the horizon my char and i crossed party. ok man if i'm going to you first in hong kong why do you think your name he was so coy about that because he says he said he still has some tools in his tool box is he really because quantitative easing really hasn't helped the economy grow at all it hasn't created jobs certainly made a lot of people rich on the stock market. well maybe it's not it's not at all about recovering or stimulating the u.s.

economy but it may be much more about preventing the national bankruptcy of the united states because the reality is the u.s. is sitting on a disco there of two hundred and eleven trillion us dollar and fiscal debt was really is a number you need to look at not the mickey mouse figures they use for the national debt numbers because they conveniently include a lot of things of exclude a lot of things from though official book so if you look at all the unfunded liabilities including social security medicare and many other items they have already committed to why they don't actually have the funding that's the fiscal gap that's two hundred eleven trillion of missing funds is not too different from the situation they're greasers in and if they don't print if they don't engage in many many for as i pointed out if easing measures of well very inflationary nature down the road then that's what they may face a national bankruptcy and on that note i would also say maybe as you said before the federal reserve bank may not actually be anymore as the world's most powerful

central bank that but that may be china now the i.m.f. predicts that china may be the number one economy in two thousand and sixteen the i.m.f. is always cautious in real economic output on this probably that might happen early as already is the number one car producer number one car market number one commodity consumer and so on so far saw rethink the u.s. and western countries decline china is rising and more of a crisis is coming down the road particularly in the west and one market and the currency market because money printing is what they have to do to get out of this that for if there anything. in washington what is the role of the fed right now i mean again we look at quantitative easing part one part two maybe it will be three out there but it doesn't seem to have an impact on the economy except for maybe you could make the case some people have it kept the economy from going into free fall but can't seem to groove your car be really. the federal reserve is in a difficult position because the more they try to follow an easy money policy is

just like pushing on a strang they just create more money but that winds up just sitting back at the fed in the form of access reserves deposit it by banks banks have more than a trillion dollars of excess reserves at the fed that's of course on top of the more than one trillion dollars that non-point actual companies are just sitting on the problem in our economy isn't the lack of liquidity in the world's awash in liquidity it just doesn't know where to go japan's long term prospects or care of all european welfare states are collapsing and of course the big government policies of bush and obama have made the united states very unattractive so i really think the fed is completely out of the picture all they can do is make things worse by giving us i guess nine hundred seventy style stagflation what america needs to do is dramatically reduce the burden of government spending we heard that they drew about the giant level of unfunded liabilities in america we

need to do the entitlement reform to reduce the long term pressure of medicare medicaid and social security unfortunately washington is a corrupt town so are politicians that like to make government bigger because that's how they make themselves better off ok let's talk about the political dimension of the second factor if i go to you in warsaw i mean what did you what has quantitative easing actually achieved except for make rich people richer. well that's exactly the point actually peter i mean it's really achieved up salute me nothing the thing that's interesting about quantitative easing is that when it first came out the fed had to make a large argument about the fact that the economy was in danger of deflation and actually there was no real danger of deflation even before quantitative easing the fact that america night has an element of inflation ok it's only a few percent but it's there has meant that effectively that both cloud has had to be thrown away from the armory of tools that they can potentially use and you're

absolutely right peter i think the thing is that in many ways i mean the issue has been one of the fed trying to do two things first of all in the post lehman world there was this idea that we had to intervene to prop up the banks the best way to do that was actually through quantitative easing it was a way to throw money at banks that were flying during that we're going to draw on of course the problem is the banks themselves weren't terribly intelligent so they took the free money they made a great deal of profit out of it and then lo and behold they decided that they'd pay huge bonuses to a lot of traders because these traders they regarded as being superman that was very unfortunate because ultimately if you give me money for nothing it's very very easy to make a profit from it and that's all quantitative easing has achieved for all of us when you think about me again you know where are the also quantitative easing just created asset bubbles all over the world in the united states is exporting its problems there everyone and where you are in china very not very happy about that.

here definitely i think that's that's the major risk globally that we're going to see in our like the two thousand and eight financial crisis where everybody was panicking out of stocks and panicking out of commodities and going for the perceived safe haven of the rest and southern downs now to some extent this has happened again now as the first reaction to the crisis news and to people realizing that the crisis isn't quite over yet but some of that money has started to flow out and back into gold and service so i and i put arsenic so i actually grow old and survive down by thirty to fifty percent this time around they're recognized as a safe haven to be using other commodities and also stocks to some extend particularly in the emerging markets that don't have or don't suffer on this excess debt burden. this may be recognized increasingly as then you say fagan so obviously it's not a nice in iowa but as an investor knows what resides an effect of this crisis and

there's this time around the bond market we're not we're not given all the much safe haven but more of a trap and one can be a physician position for that but clearly i think everybody agrees here the federal policies and particularly good ones all are one thing i would say it's maybe also even to late to save now and then tags obviously draw because if they're if they're a u.s. economy and if the u.s. government is trying to implement massive saving measures it will be very difficult because they increase taxes and cut spending what will be as a result probably the economy will be slowing down more at least in the short i mean i can't really afford that at this moment because the deficits are already out of control so i was saying some far off bear reorganisation s. as we have to happen in the eurozone is probably the only solution follow western countries going forward but it's not all it's not there are a lot of emerging market countries gulag a lot better ok. we are asking the fed to do much too much is it really raining

do you decide to break the u.s. economy in the global economy i mean are we asking too much of the fed right now. the federal reserve should focus on one thing and one thing only which is to maintain a stable dollar european central bank actually has the right idea they have a single mandate now they're not maybe not doing a great job of it but their single mandate is to preserve the value of the euro we have what's called the dual mandate in the united states where the fed is supposed to somehow preserve the value of the dollar but also be an economic manipulator and somehow try to generate more employment and more growth and that's where we get these easy money policies and things like that which of course as we've already discussed go really work or if they do work they give us inflation which of course is actually a net negative in the long run so the problem is the legal dual mandate isn't that's a problem but the real problem is that the politicians and the central bankers

can't resist the temptation to try to artificially goose the economy there's always this pressure to artificially lower interest rates because borrowers outnumber lenders and at the end of the day that gets you in trouble and unfortunately their solution is to do more of the same right before you go to the right time patrick what do you think is the root of the of the fed is it playing the right role in this economy. look the problem we've got is that for many years the fed told us that it was a brilliant arbiter of central banking it was the greatest central bank the world has ever seen i know what's happened is after the growth faded we suddenly have a crisis and the fed sits there and goes oh well actually we can't do anything to help you i'm terribly sorry it's a cult and it's a disaster for government ok i'm going to the government only the second now after a short break and after that short break we'll continue our discussion on the global economy state.

wealthy british style.

markets. find out what's really happening to the global economy with max cons are a no holds barred look at the global financial headlines tune in to kaiser report on our keep. you can say. welcome back to cross talk i'm here a little to remind you we're talking about learning to use fact. you can say. ok and i to start off again with martin our new

it interesting thing a jackson hall the informal meeting that was extremely formal it looks to me and i think it is a lot of evidence to bernanke is saying don't look at me anymore ok it's not my job it's you people in washington in your gridlocked politics this is why we have this problem and on top of that we have an election cycle going on right now is there now keep passing the ball and say look it's a fiscal problem too not just a monetary one. well it is clearly the federal reserve is to blame for quite a bit of it you know that i mean there isn't there isn't a big difference between a different federal reserve. and if you look at alan greenspan he clearly caused the housing bubble. inflating the economy by keeping rates artificially low and i don't think that center bankers have gotten a lot of good works since inception of the federal reserve as a matter of fact in the united states or clearly a lot of the blame. should be going to them on the other hand zone now or we are

already seeing this very high pepfar and clearly there needs to be some other political solution because i don't think there's any easy way to fix it as i mention apart from some form of debt restructuring one point that was made earlier i do want to comment on also though is that the european central bank is any better than them the federal reserve in my opinion clearly that's not. their moment ruining their eurozone but bailing out every eurozone country they can find in every bank left and right as they're desperate again records amount of italian debt spanish that italy is sitting on two trillion euros of their best know it's absolutely impossible even if germany was going to spend all their money that they have got on italy it still wouldn't be enough to to give that same afloat or right now the eurozone is in the process of total it isn't ration as a result of those policies and the e.c.b. is already doing quantitative easing without even calling it at least in the u.s.

there they are polite enough to say are we are we are going to do another round of quantitative easing although i said before work in the eurozone that they think you know without even announcing in their german. ministers distracting people by talking about actually doesn't want the euro bonds but at the same time the e.c.b. is actually buying a riley any any government bonds from. there can come up as mentioned so clearly no i'm afraid the e.c.b. is ruining the eurozone just as it's happening with the united. say so. isn't really a plays well like that ok daniel it's interesting i'm bernanke he is known as an expert on the great depression of the one nine hundred thirty s. and you know and not to defend bernanke your the fed in its policies but at least we had in the one nine hundred thirty s. i judge gannett political figure known as franklin d. roosevelt and he could create this consensus he could get things passed in congress he only had a majority and that's why it's very different right now because obama is very we

could we have a very disorganized and i would say you intensely selfish congress i mean. it really is just as much their fault as it is greenspan's or bernanke ngs. well a couple of things i would say first i would agree with what was just said the fed caused the current economic troubles by inflating the housing bubble and i also agree that the european central bank even though theoretically they have a good single mandate of price stability these indirect bailouts they're doing are reprehensible but my main point is that franklin delano roosevelt extended it and they disaster baited and worsened the great depression with all of his spending the higher tax rates more government intervention i mean hoover and roosevelt between them were two terrible presidents that kept the economy in the dumps for a long time now the only good thing i can say about the current political situation

is that we will have gridlock because gridlock at least stops politicians from doing additional stupid things now and the long run gregg luck is a problem because we had desperately need to fix these entitlement programs this giant unfunded liability that the politicians have given us and that's clearly not an issue for the fed that's something that has to be done in the real sector of the economy so i am not optimistic i think that america a less something dramatic happens we are basically baked into the cake as we say we're going to become another greece within ten twenty thirty years i mean i don't have the exact figure if i did i'd probably be a rich was three guy but i know that the the prognosis is very graham ok patrick kennedy there are some pundits out there and experts who say that this is really a political problem ok obviously that's if there's a financial crisis going on here but it's a it's not it there's no way a monetary solution is

a political solution and it has to have leadership in washington and i would say in europe we don't have leadership in either areas. look the situation is exactly that peter i mean you know you and i we were educated on opposite sides of the atlantic but we both know those great stories that in the white house in the oval office in fifteen hundred pennsylvania avenue that's the place where there is the best in the buck stops here and frankly it's sickening having to listen to the american president blame storming everybody else for the nation's woes not before the united states of america suddenly get on the backs of europeans at least there is somebody who vaguely seems as if he's in charge of the picture in the united states of america the euro zone is a fiasco we have a series of politicians who put new concept of economics new concept of economies and they're busy destroying the eurozone in one fell swoop and all of this is ultimately only helping the world go east this is a huge political economic problem it's being driven by a large number of politicians who put no idea what they want to do what they're

trying to do all they're trying to do is desperately hold on to control and actually that's the nub of the problem because they need to get out of the picture they need to run away from it they need to help us entrepreneurs get out there and be able to invest and the reason we're not investing in the united states of america at the moment is because in the new europe such as poland where i'm speaking to you today all the way through that wonderful crescent of russia all the way down towards china and hong kong that's where the opportunities are because people want to work they don't have incredible entitlements there are huge embedded costs in the economy and ultimately all that the washington mafia is doing is killing the united states of america the greatest economy we've ever seen in the world and that's a tragedy martin here in hong kong what joe biden was in china just recently to try to mend some fences i know that there was a basketball game right but i go beyond that what do you what are the chinese saying behind closed doors to people like joe biden because the mess that we continues in the united states and in the euro zone impacts china in

a really really big way. first of all our personally agree this was what was said about the euro zone the us. asians and so you know some emerging markets countries really wanting to work and looking at the physical economy so that's what's happening in china they are focusing on technology physical production wanting to work wanting to progress whereas the physical production has really given way to begin mix of finance in a large part of the united states and then in europe as well so while they are focused on the production there of course china now is clearly really worried about what's happening because the united states and europe not only because it's a consumer market but also obviously there are there are quite a lot of treasuries but i think the consumer market is playing the most important role and that's really the only reason why we think they're actually buying treasuries so far because they don't want to let us fall

a cliff at least not all of a sudden before they replace their exports raise their local consumer market but that's what they have been working on clearly and surely they would also have reminded by and that's. a concern about the u.s. spending and would like to improve the deficit situation but clearly i would saying they have just been buying time to develop their own consumer market to address their own debt issues they have some local government debt in china something that also talked a lot about but if you add those to the national debt they have much less. of a problem than the rest and also tax revenues are quite strong so we're quite hopeful that a lot of the art that's not in the united states or in the eurozone really having a chance to survive this crisis and really getting out of it relatively unscathed us. q e three it's been hinted out there it is good we do have the beating coming up in september if he'd go down that path continue down the path of quantitative easing is actually

a level of desperation in your mind. bernanke he is a political animal and he wants to keep the white house happy so do i think q e three is possible yes i mean if we're here to do it three years from now we might be talking about q e seven but it's not going to work the analogy i said before i like pushing on a string you don't achieve anything america's problems and for that matter europe's problems are in the real sector of the economy governments that are too big governments that are depressing private sector economic activity governments that have giant unfunded liabilities which of course raise the threat of giant future tax increases which just add to the downward spiral in economic performance that's what needs to be fixed otherwise we're all going to be in this very dystopian future where you might as well stock up on bottled water and goods and ammo. for your factory your. question to me if bernanke he does go down this path of q e

three and we continue with this political deadlock in washington there's no reason in the world why i did locke's going to come to an end anytime soon would that be bringing he's saying creaturely should you know i do nothing else we could do he claims he has tools at his tool box but i don't see him look that's a great point that's just been made the whole concept of this he's a political animal would a disaster he's supposed to be looking after the economy the last thing we want is a politician of this job and of course he's going to through anything out of because the one thing that i think is still in the d.n.a. of the democratic party in the united states of america is if you want to win elections it's the economy stupid and that's something which obviously helps. i don't care for martin so that no one had ever heard of suddenly appear from what looked like a very mediocre democratic party and beat an incumbent president more than twenty years ago and right now if we look to have an incredible reversal of fortune that's exactly where we sit is going to do anything he possibly can to try and rescue the

economy or at least to keep his political masters happy and the problem with out is ultimately he will do anything even if it's completely the wrong thing and it has no merit whatsoever to the general economy or the nine point one percent of americans who are unemployed of whom half the pain on employed for more than a year and that's a travesty ok gentlemen i saw no optimism in this program thank you very much many thanks and i guess today in hong kong warsaw and in washington and thanks to our viewers for watching us here r.t. see you next time and remember crosstalk. wealthy british science. is not on the tight.

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