that's where people are forced to. close up on the march. welcome back you with live from moscow i'm real research show you and question are the live pictures from central athens police have unleashed tear gas on protesters for a twenty four hour nationwide strike is under way we were seeing thousands of people there earlier that's just outside the main government building in central athens there. the police are there with the white helmets you can see most of the major crowds have been. primarily with the use of tear gas still struggling to hang around all of this in opposition to the latest austerity measures as a result

a twenty four hour nationwide strike is in effect transports at a standstill flights have been council in out of the country schools are closed hospitals are operating with limited staff this comes again as the government has to pass more austerity measures are many now being passed over the past several months in greece as the eurozone is funneling a more bailout cash towards the debt stricken country thousands have gathered over the past few hours i'm sure they'll probably continue to come in the next few days as they continue to protest against austerity measures again live pictures right there central athens outside the government building. pressure and trying to block a resolution on syria the u.n. security council saying the text doesn't rule out foreign military intervention they condemn the european backdraft as biased and unhelpful to the crisis in syria moscow and beijing want a different solution that will push opposing sides of the conflict towards dialogue . all right next to people of elements discussed at just how deep the global

economic crisis is and who will bear the brunt of it isn't. can. follow in welcome to cross talk and peter lavelle gaze of rage is the global economy on the brink of a double dip recession if so why can't the rich west find the right mix of fiscal and monetary policies to jumpstart the global economy while generating jobs at home and where's the political will in the us and the euro zone to lead the world out of crisis. can. he crossed out the global economic outlook i'm joined by new york he is

a distinguished research professor in senior canada research chair at york university also new york we have larry mcdonald he's a senior director at new edge and the bestselling author of a colossal failure of common sense the inside story of the collapse of lehman brothers and in washington we cross to dean baker he is co-director of the center for economic and policy research all right gentlemen this is proscar that means i want you to jump in i very much encourage it leo if i can go to you first in new york are we headed for a double dip recession and is it the united states in the euro zone that's leading it. well we may be whether it happens this quarter or next quarter you know we're in for a very long period of capitalist stagnation since we don't have the credit fueled consumerism. consumption going especially in the united states and imports of europe you know the picture doesn't look quite as bad in the united states as it does in europe at the moment. perhaps because the

a scary isn't quite as heavy auto sales this month that actually increased and warren buffett said over the weekend that he thought that the going to be was coming along side of the construction so that i mean a lot i think in the longer term well i mean we i mean what is where is the job generation where is the job generation i mean it's very interesting to look at these numbers and stats but people are out of work and that's something that is not happening generating jobs even if i can go to you i mean you can look at two consecutive quarters of negative growth and that's a double dip recession ok but we're not getting any job generation so we're do you see this going and are we going into a double dip and how deep would be no no we are going to double date and i think it's really been unfortunate there's been so much focus in the media on that because the basic story here is at least in the united states we're looking at a prolonged period of very very weak growth i mean the baseline we're looking at and there's not even that much difference in the range of forecasts and somewhere between two and three percent growth and we need to add

a half percent just to keep pace with the growth of the labor force so that means if we're at two percent we're going to see the unemployment rate rising rather than falling given the severity of the downturn we should be seeing five six seven percent growth that's what you saw coming out of the recession seen in eighty one eighty two and seventy four seventy five so that's what should have us concerned whether we're going to double dip absent a collapse of the euro which is a real possibility given the incompetence of the european central bank and we'll talk about that a little bit later ok all right larry if i can go to you how do you see this is going into a double dip you're going to talk about the political will on both sides of the atlantic in a second here but the way you look at the economy in the u.s. and globally where's it going. well unfortunately just like in two thousand and eight just before the failure of lehman brothers about eighty percent of global academics and economists have been dead wrong about this soft patch it's been much more severe than people thought but what's more disturbing is credit

default swaps on commodity producing countries have been blowing out the last month and that hasn't happened since oh wait so in other words say countries like south africa countries that produce peru chile countries that produce commodities the aired the fall protection on those countries is blowing that tells me this is much more severe than people think ok leo what's going on with operation twist mr bernanke he had you know he had some extra tools of his toolkit there but it's that he has and no impact whatsoever or maybe i'm wrong because it seems like economy is on the downside it's just a question of to what degree. well or how much worse would it be were he not attempting to do that i mean he's in the situation of interest rates already being at zero and he's trying to induce a longer term investment in a situation where corporations big corporations are sitting on a lot of cash and not investing and those that need banks are lending to so i think

we're all in agreement with you know this is going to be a recession or not that we're in for a very long period of stagnation and the only thing that's going to get western economies other this is the exact opposite of what they're doing especially in europe but also in the united states and that's the opposite of the spirit of it would be direct to school spending and i must say i think more than that i think it would take direct government employment the kind of thing that was done with the w.p.a. and other programs during the depression here in the united states not that it by itself solve that crisis of capitalism but it certainly played a role in the mid one nine hundred thirty s. until there was another dip in i think thirty seven so you know it's going to take that and the political forces to force that certainly in this country in the most important state of all in terms of global capitalism don't seem to be there at the moment what do you think about that did everything everything is being

done backwards i mean everyone talks about austerity but we really need a fiscal injection here huge feet fiscal injection we think about that. that's exactly right i mean you know you sort of scratching your head going what on earth are these people thinking when they're pushing for our stair to you know it's you know there's like no story you could tell i'm staying this is an economist there's no economic story that i could think of i mean if they had one i'd be happy to look at and try and figure out if it made sense or not but i don't even see one so it's not even like a debatable point they're saying oh we have a pollution here. sorry but it's not a good deal of point leg if it's not a dependable point then why isn't it happening i mean i think we all agree you know you have to do it well i think it's really not it's happening anyhow because the people with money and power are doing just fine let me go ahead jump in. gentlemen you're missing a huge point first of all the fiscal stimulus never generated generated any

meaningful economic recovery you have to understand something in two thousand and seven i wrote about this in my book a colossal failure of common sense in two thousand and seven we had four trillion dollars of stimulus that came through securitization through all kinds of investment banking deals and wall street securitized mortgage products four trillion this year we're on pace for total deals in from wall street and global banks this is globally of a little bit less than seven hundred billion so we're that's the problem is the private sector is him strong by regulation globally by him strong by this recovery in other words the banks are leveraging and that private sector is being hamstrung and that's not injecting capital around the world in the united states in two thousand and seven we had this year and shadow banks mortgage brokers do you have a job and they're going to have a fiscal stimulus if you think about business and that's the argument for fiscal stimulus the private sector is hamstrung because the collapse of the housing bubble

so that's right that's exactly the point the private sector is not going to do it you know are going to step in and build them and until the private sector she said it's worth it's well to invest again leo you want to jump in there. but lately of those results by too much rick. it's certainly not homes have strong by too much regulation all this talk about regulation since the crisis virtually none of it has kicked the in any serious way either internationally or in most countries the mess to clean you know and i'm not even sure if fiscal stimulus is enough but that's understood simply as. running a deficit you know i think this crisis is so serious for the reasons that that larry just identified in terms of the extent to which private credit has been restricted there is no way that this is going to turn around without direct government employment and when you say why aren't they doing it because it's not a technocrat a question everybody thinks it's about what advice economists give governments it's

about what are the political forces in the country and the speed of labor they go over the last thirty years both in the united states and in europe is the fundamental reason why there isn't the pressure the force is this ok dean is it all about politics then it's just politics not economics. oh yeah i mean i would say that's absolutely right i mean if if the situation were reversed if it were the case there corporate profits were through the floor that the financial sector was you know just about to go out of business you would see serious action from the government which of course we did in the fall of our way when the banks were about to go out of business they jumped to it in a very very quickly and through literally trillions of dollars of below market loans at the financial sector but as it stands now the financial sector is back on its feet many of them are as profitable as they were before the downturn of business as a whole is highly profitable it's only you know it took all workers that are suffering and you know they're supposed to talk it out larry then so it's really just about politics in the early in the election cycle because you know mr obama is

been so timid about pushing more fiscal stimulus and you he wants to cut you go go go down the austerity path when we'll talk about europe in the second half of the program here i mean it's really a political issue the republicans will let it happen and have his way and he's going to face the nays and challenge because it will be higher than ten ten percent unemployment by the time he gets to election time when you think about that scenario. well i've been to have been tweeting about this point my twitter handle is at convert pond and the bottom line is wall street banks are not not more profitable than ever we're hearing that all over this all over the world but this occupy wall street movement so untrue you look at the bank earnings this quarter many of the biggest banks will report losses deutsche bank just this morning reported a warning so you're seeing banks all across the world are struggling now granted two years ago a year and a half to two thousand and nine they were reporting record profits but in terms of wall street being a whole whole whole hahaha profits are back that's just not true but you have to

understand one thing in these numbers in your memory bank ok say you see a mom and a stray she creates a fifty billion dollar highway project over ten years that will generate certain amount of jobs in the united states in two thousand and seven i talked about this in my book new century. and lehman were doing fifty five billion a month of mortgage issuance that money was going right into the u.s. economy that's a massive stimulus actually so some money was a lot of it and you know it was written on paper back and forth. that was not job creation when somebody who has known someone who is actually not that i can tell you i'm sure and that's very clearly not true that we don't have to. you know what i mean a lot of are second don't tell me it's not true in the home he was just showing you create jobs when you build a house you create jobs when people spend it on consumption items the vast majority and we have the data it was not we didn't see that big construction boom we didn't see that big of a consumption we don't have to replace that much money would be replacing the

amounts we lost in the fiscal stimulus. do i do you know i think i would appreciate a little just a real quick one of the really quick go here one of the reasons for this long step one of the reasons for the depth of the stagnation and the length of it that we're facing is that the credit fuel consumption that has been going to weigh in on until two thousand and seven for decades given that labor's incomes were ok we'll then i will jump in right here gentlemen we're going to short break and after that your brain will continue our discussion on the state of the economy state arctic. and. if. you want to. play. along. you the

latest in science and technology from around the world. we've got the future of coverage. welcome back across town people about to niger we're discussing if the world is entering a double dip. ok again i'd like to go to you first i mean if we can look at what's going on in the eurozone and what's going on in the crucifixion of greece if pregnant people if

your greek is the way out of this crisis this debt driven crisis austerity can the united states get out of void a double dip and go back to growth through austerity and will it work the same policy work in europe a lot of people having a lot of doubts about that explicitly but people because they're not being bailed out as we mentioned earlier in the program banks where though. you know now it's come on boggling to me what on earth the people of the european central bank and the i.m.f. could be thinking and insisting on further austerity because what that does a slow growth i mean it's not as though anyone in the private sector rushes out and says hey great time to invest the government just laid off half its workforce it doesn't work that way no one in their right minds going that's because that what you get in the current situation with our spirity is you get further declines in our port that's what we're seeing in greece and spain and much of europe so how that helps them get out of this debt crisis you know basically they're going to have to write off much of the day after to clean the case of greece perhaps some of the case in portugal and ireland and then in principle guarantee it that's

a step forward and everyone knows that they have to know that these are not that stupid people well we i mean i suppose they're not stupid because the way the euro always build this is why it's happening here because if you bail out one country then there's the moral hazard and everybody else will get in line i mean that's the biggest problem with the euro the u.s. has different problems that similar with debt but the euro is just really screwed because you know you bail out greece the portugal and ireland and italy and who knows who else will line up because if you can fail you're allowed to fail. when i was at the st petersburg economic forum year and a half ago everyone was still talking about the euro replacing the daughter as the reserve currency if there was going to be an altar and what it was ludicrous then. and that was very common of course over the whole last decade that people every time some oil sheiks said he was going to buy his oil in euros people thought the dollar was thanking what we see in this crisis of the extent to which the

capitalist class is around the world look to the american state as being their guarantor and i must say in that sense the german bundesbank which really is the ethos behind the german central bank has since the nine hundred seventy s. unlike the fed been extremely irresponsible every time that there's a crisis. in a typical bankers' orthodox way and that bankers orthodox way is always to look to the restriction of government spending for fear of inflation because of a banker lends you a dollar and you pay it back and a dollar later that's only worth ninety cents of what it was before the banker isn't making money the bundesbank has that mentality it does not play the role in a capitalist economy a international lender of last resort it never has the fed has put pressure on it for fifty years to change its mentality and it has and that's the real problem well it's larry if i got if you can say with the eurozone i mean again the real problem

is that it's not really sovereign debt people are worried about at least the powers that be but it's again the banking system they want to make sure that german banks and french banks get paid what they loaned out i mean you can talk about you know all these terrible stories about what's happening to people in the eurozone but everyone's got their eye on the banks still make sure they survive. yes you know i've delivered forty five keynote speeches over the last year and a half about seven in europe and one message i have is very clear take italy for example they've got one point nine trillion of bonds us standing so that the fourth largest government bond issue or on the planet earth three hundred twenty billion of that debt comes due in the next fifteen months so the point earlier that was made about the policy leaders in austerity being stupid it's not that they're stupid but bottom line is the it's hellion credit default swaps and the yield that they have to the market is requiring italy to pay is upwards about six percent now

five point five percent the in the us the ten year treasury is one point seven five percent so the bottom line is the investors around the world making my way italian paper there for the e.c. not to let me finish but the e.c.b. the f.s.f. is stepping in they have to buy the bonds so at the end of the day the reason why you need our stary is that people in the north have to support the backstop to buy all these bonds and they're just not happy buying put in taxpayer dollars and they're to buy these bonds through the e.c.b. through the f.s.f. and through these other backstop facilities they're just not happy doing that investing all that capital without some asperity return ok do you know i hate when people agree on this program but go ahead. no i don't agree at all ok we are going to the opposite there's no issue at all here of the year but the reason why there is a big spread between the interest rates and in a way in the interest rates in the u.s. or germany whichever you like is entirely because it your responsibility stupidity

whatever viciousness whatever word you want to use there for the e.c.b. because if they would stand behind the italian debt then people would accord it the same credibility as the german debt and that's in fact was the case just a couple years ago so what is the spread between that italy's debt and germany's that was very very small so basically the fact that that spread is exploded easy to do the irresponsibility of the european central bank and the i.m.f. we all jump in go ahead we'll go to the e.c. . there is a larger question here there's a larger question here that has increasingly to do with the irrationality of a finance driven capitalism and there were people including that of the now who is the guy whose chief economist of citibank with that time was an illness he gone amiss with a school economics economist who called for turning the banks into public utilities the response we've had to this crisis has been incredibly politically timid it's because there isn't a strong left in europe or the united states and that timidity is showing itself in

the extent to which we're trapped in the irrationalities of the finance driven capitalism banking should be a public utility which would allow for democratic economic planning i know that's heresy if you see it on wall street but it's what a lot of people down there who are protesting really need to be thinking do you think about that larry i mean it's again we keep focusing in on the banks i mean in light of what we just said i mean it's just the way it's the it's the economic financial system we have right now it's coming to a dead end and we have to find a new way out. well you know that some some smart hedge fund manager i speak to call this a keynesian and point you know it's been going on for a long time but to say that the e.c.b. in this potential this backstop facility that's guy buying bonds to say that they're not buy italian paper it's not true the e.c.b. is but i tell you in spanish and portugal paper over the last couple of months to the tune of sixty five billion over the last three months so they are supporting

that marketplace and i think at the end of the day we saw the failure of lehman brothers create this kind of economic plan a career on the world in the in the european union the reason why we're seeing such volatility in the markets today is that it's a much bigger problem than lehman lehman was the largest bankruptcy in history the world corporately but six hundred sixty billion but what's happening in europe is much more serious than it really requires a tarp two like solution some type a big daisy cutter to put this fire out what's the future of the various explicitly said he wants to he wants to leave open the possibility that sovereigns can fail he's explicitly said that so that leaves open the possibility that they could fail so that's why he's stepped in to buy bonds when the spreads threaten to get so out of line because you run the risk once the spreads do get very large and of course the debt is explosive that's really simple everyone understands that even the people the e.c.b. could figure that one out but if you want to make sure that you don't get

a meltdown you have to give some sort of guarantee and that is what's going to happen the only question is how much our spirit they can squeeze out of the greek italian the spanish and portuguese and irish people before we get to that point. i mean they are going because i mean how much trust there really use i mean how how much at what point would you kill the patient itself go ahead. yeah i mean and they will definitely be killing the the main generator of growth in europe which is ultimately the german export economy what this all goes back to is that germany or the german banks lent money to greek and spanish and portuguese banks the by german exports they then you know when the think tanks were able to continue doing that and what you see in the latest reports this morning is the german manufacturer german manufacturing center sector is going down so yes this is a vicious circle i am convinced that the e.c.b.

and behind it the fed each of the governments in europe will indeed guarantee these bonds and in that sense guarantee the french and german banks but that is not going to remove the underlying volatility of this finance driven capitalism that's not going in the long run solve this problem will be coming back to it again and again and again it's endemic in the nature of capitalism we have of it you know where if i go to you it's very interesting i was going to get to this point earlier but i mean there has been no real structural change in dealing with these economies in the united states in the particularly the eurozone everyone's dealing with the cycles ok trying to control the cycles but not really go in there and structurally change what's you know what's making the problem happen in the first place everyone says delaying it delaying it the numbers get bigger and bigger and bigger while i say you absolutely have to start going to downsize finance go ahead larry. well you know this problem's been brewing for twenty five years i mean there's no

question governments in the east and particularly the west have been growing bigger and bigger and bigger relative to g.d.p. there's been many books including mine that address this and now this is the classic the leveraging process that has to take place because at the end of the day you have to have bondholders that are with errors that are willing to take the risk on this government paper and as long as these eels keep going up you look at germany's clive your credit the paul swaps are through the two thousand and eight wives i mean that's a startling statement i mean this is the credit the german debt so it's a bet on germany's solvency so you have a situation where even even germany which is one of the largest governments in the world opinion same thing. as through the wind said that bond buyers around the world are stepping back and governments have to do something to fix themselves well gentlemen on that gloomy note we end our program many thanks to my guest today in

washington and in new york thanks our viewers for watching us here are to see you next time remember crosstalk.

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