good afternoon and welcome to capital account i am lauren lyster here in washington d.c. and more rounds of ammunition fired off in the global currency wars to day as six of the world's central banks including the bed they make of england and the e.c.b. toward may to get cheap dollars to starve european banks this as the euro zone leaders scramble to solve the debt crisis that some officials say they had ten days left to figure out but for now is the bank bailing out the euro and what cost to americans the u.s. dollar and the world will be to currency wars author john records about it and

about this china is easing its monetary policy cutting its reserve requirements for the first time in almost three years is this a sign the eurozone crisis and the u. was his own economic problems are costing china otherwise known as the nation contributing most to global growth also gold venezuelans came out into the streets to cheer on the return of it to their soil organizers at a us oh conference alleged aliens have come to planet earth to wonder it's no joke with all of this fervor for gold what happens if a central bank doesn't have any of it we'll talk about all about so let's get to the day's capital account.

so as euro zone leaders scramble to solve the debt crisis that some officials as i said say they have ten days left to figure out finance ministers have been meeting and they agreed to ramp up the firepower of the european bailout plan this is known as the f.s.f. but they said they may have to turn to the i am asked for more help now also coming out of that meeting reportedly italy has that risk of insolvency meanwhile businesses they're coming up with contingency plans for a possible end of the euro that's according to the financial times and enter the central banks with their firehose of dollars to try to put out the fire for now they hope the federal reserve the central bank of canada england japan this was national bank and the european central banks have joined forces to essentially bail out the euro for now markets are pretty happy about it today as for what the central banks are doing they are lowering dollar swap rates now this is european

banks cheap emergency access to dollars one aspiring off of cheap money due for the global currency war that my next guest argues we are in while let's find out because we have jim rickards in the studio with us if you have it right his book i recommend you go out and buy it and do it now it's right there it's currency wars the making of the next global crisis and he's here in studio we are so glad to have you thank you for being on the show where you are supposed to be here great well let's just get right to this so what do you think in your view is this the federal reserve bailing out the euro well what they're saying is this is a masterpiece of sort of perception of reality what they're saying is they will do whatever it takes and substance this wasn't the big deal this was plans have been in place for years that you have your renewed periodically they have the can be increased periodic lee there are certain race where the fed is going to make it a little bigger i'm going to make it a little cheaper but it was more the signal that said look clearly or some distress

clearly there's a run on the bank in terms of dollars in the fed so we're going to do what. every day so the substance of it was fairly small but the message was huge which is will do this will do more will increase and if we have to we'll do whatever it takes and that's why the markets were relieved and that's why stocks went up i mean stock market loves free money yeah they do love that easy money but you're said something about a run on banks and it's funny because there were some rumors and speculation of forms article today with a big european bank you know not able to get money last night is that why we're seeing this decision from the fed today do you think that there is kind of disquiet run on banks going on and that defender reserve and other central banks are trying to do anything to avoid oh yes it's actually been going on since last summer so it was criers behind the scenes it's on the in anyone's interest to talk about it it was slow but what's happened recently is that the temple has picked up and it's. back it's almost like a central bank unto itself in other words the european banks are afraid to lend to each other but they will lend the jewish bankers that's considered to be the strongest private bank in europe in the ocean i can selectively we lend their

balance sheet leverage are actually expanding so they look a little bit like a sort of a crazy central bank so yes just it's a serious problem serious basically a run on the bank a run on dollar liabilities now they may be able to fund your liabilities from european assurance companies european pension funds and these are dollars many of which come from money market funds in the u.s. and they're just saying look maybe you're ok but i don't want to find out the program getting my money out and course the e.c.b. cannot print dollars they can print euro's but for them to get dollars they have to go to the fed so they have the swap line so interesting from the feds point of view they're looking more and more like a hedge fund they've got longer maturity the u.s. government obligations they've got more euro denominated obligations they're doing it with more and more leverage so the fed is in a very risky position probably technically insolvent at this point in the fed is insolvent sure how can that be in selling clothes and where they have sixty million of campus or sixty billion of capital and about three trillion of assets that are legacy assets if you took the intermediate sector and just mark from to market and

the mortgages they've got pierced turns out that if you mark this. off the market you know we don't know for sure if they're nontransparent there's a good chance that the world says would be greater than sixty billion dollars which would wipe out their capital now they're not going to say that and i'm going to put it on the balance sheet because if you market the market i think that's the result you get really interesting now you say that this latest dollars and now it's made is not a big deal in and of itself it more of a continuation of perception but what exactly does this do to the dollar in the short term doesn't it put pressure on the dollar isn't it perish on the dollar well it's sort of it's not very good question are because what the fed the treasury want is a cheap dollar that's the key to the currency wars who've been trying to change our currency against all the other currencies and yet as much as we want to strong euro the euro still gets in distress so here this is sort of a pretty much of an even swap by making more dollars available in europe it actually shows up the european banks to support the euro so it's bad for the dollar and i say better for the dollar the dollar is going down the euro is going up i'm saying since last summer the euro is strong and getting stronger the dollar is

getting weaker but that's what the fed wants so you can say it's bad news i think it's bad news from the from the national security perspective i think is bad for america but it is what the fed wants ok so let's let's stick to this because if it puts downward pressure on the dollar and you say it's a larger continuation and things of a policy it's also playing into your view of a currency war right can you explain how well because the we have to have a cheaper dollar while the theory is we want your dollar to promote our exports you look at the components of growth what are they it's consumption investment government spending and exports consumption is flat people were up to their eyeballs in mortgage that student loans credit card debt so that's going nowhere a little bit of investment but not much in our can invest if there's no one there to buy their stuff government spending is that the war because of the tea party in the deficit ceiling so what's left the only driver of growth that you have left is net exports and the cheapest way to get you know the exports going is cheap in the dollar that's the theory so we can sell more boeing aircraft microsoft's software general electric wind turbines etc the problem is that you're import prices also.

work with a cheap currency you pay more to buy phones or wherever else so this starts inflation into the united states it's really picking winners and losers that's not really the fed's business but that's what they're doing well and on the flip side of that you see china now which is easing its monetary policy what impact does this have on the currency or well the shooting back because fair sitting down they're firing back at us i bet that's exactly why for a long time china maintained a peg you know what was happening was the fed increased the base money from eight hundred billion to three trillion almost. me over three years and i would have said oh that's going to cause inflation in the united states and there was the critics of the fed we never saw the inflation in the united states the supporters the. poll crew were right about that but the problem is our felicia went to china because china had to print their currency to soak up the dollars to maintain the peg now about a year ago china kind of threw in the towel in that the you won appreciate because they had inflation problem in china once they did that that inflation starts to

come back to the united states so it is coming back here with the light so this cheap dollar policy is going to be exact would happen in the seventy's inflation is going to take off and course the losers in inflation are average american savers retirees teachers firemen the cetera the winners are the you know the speculators and the wealthy who can afford to buy gold or fine art or farm land or they know how to hedge against inflation with average americans and capture them by surprise so i view it as a kind of theft from average americans for the benefit of the wealthy are being stolen from exactly exactly we're going to be in film about what happened in the seventy's it's happening it will happen again we're going to see a repeat of history now i just quickly want to ask you because one more question we've got a lot of time for a baby as last time we spoke you were talking about how you see the future of the monetary system right as a race between gold and f.d.r. as with this news that europe may be going again to the i.m.f. and saying hey we need your help do you see this as maybe the i.m.f. chance to have a greater role for the s.d.r. in the financial system at this point i do what i see it actually is the next

oration that this is something that. very clearly see coming but i expected over kind of three or four years it may be as soon as for two years now just to be clear in the short run the i.m.f. has plenty of dollar credit facilities to set themselves up as a world bank in two thousand and eight two thousand and nine two thousand and they want to around the world and got commitments for almost a trillion dollars of commuter credit facilities from everybody netherlands japan germany etc they can draw others down there any time issue s.t.r. notes so now for the first time the i.m.f. doesn't just have capital and assets it's got dead it's going to have a leverage balance sheet so it looks more and more like a central bank and when they use u.s.d. r.'s you're exactly like a central back because there is from currency so yes that's happening very quickly in the right thing like a world central bank so the i.m.f. is turning into a central bank and the federal reserve is turning into a hedge fund everything is more bets exactly right all right jim record i want you to stick around right here there's so much more i want to get to i just really quickly want to explain to our viewers and our word of the day what exactly this

reserve ratio business is with china. right it's time now for word of the day why break out a financial term or concept for a very smart of your interest but perhaps not the financial expert you know not the gym records in the audience and today it is reserve requirements and light of the discussion that i've been having with our guests and also of course today's big news. kind of kicking things off this morning the country bank they're lowering the reserve ratio per bank for the first time back in two thousand and eight it is a move to try to defend the chinese economy from the weaker global outlook we want to look at ok so this news about the reserve ratio the reserve requirements what exactly are there are they well let's look at them in terms of the u.s.

central banking system the federal reserve to explain let's take a look at the definition ok this is the amount of funds that a deposit or institution must hold in reserve against specified deposit liabilities now depository institutions must hold reserves in the form of vault cash or deposits with federal reserve banks ok it sounds complex but in plain english this is simply the minimum amount of cash they have to keep on hand relative to what they've lent out at any given moment so think of this as representing their reserves what i'm going to show you here ok so this is a bank's reserves say they have a reserve requirement of ten percent so this is their reserves its ten percent banks can lend out ninety percent of the money that they have so this has an effect of the expanding credit in the economy as you just saw now when a reserve requirement is increased what does it do its course is. to reduce lending so you see this come down because they have to keep more of that money in their

reserves in that pot that you saw down here at the local central bank so they can loan less so what is the effect of china cutting its reserve requirements for its banks as we've just seen them do well in their case it's by a half a percent and this is basically a green light for the chinese banking system to loan more and create more credit now as they know that is inflationary it tends to put upward pressure on prices but now you know what it is that they've done this with the reserve requirements and what they are. and don't go ahead still and don't go away still ahead right here on capital i count you out and we will get answers for some of the questions that capital account viewers have had for james records but first they're holding stock numbers.

you just put a picture of me when i was like nine years old like you should only truly. exists and i am in total get of friends that i love driving hip hop music and. that is kind of the district. very. well that i'll just explain. you know sometimes you see a story and it seems so you think you understand it and then a glimpse something else hears you some other part of it and realize that

everything is ok and you don't. make. the same. tribes the world the fear mongering you have by politicians who made the decision to be a critic who they thought it would make you trust no. you with the global scene where are we having a state controlled catholic school. we know we're still we do our tea question more. welcome back in reaction to the fed's announcement about liquidity swaps today we

heard from g.o.p. presidential hopeful wrong paul he says citizens of the world deserve better than this they deserve sound money they cannot be manipulated and created out of thin air by central planners who promise printed prosperity now is not the problem is money the problem and could gold play into this solution while we certainly see emerging markets central banks stocking up on it countries like mexico russia and then as whale is repatriating most of it's gold take a look at their response ok these were the people cheering in the streets literally when venezuela's first shipment of gold arrived from european countries that came home to celebrations on the streets of the return of the country's gold now we have gone a lot of feedback from you the viewer on this topic and specifically about jim rickards thoughts on a lot of these issues so we are going to get

a chance to ask him some of your questions again he is senior managing director of tangent capital partners and of course author of currency wars the making of the next global crisis so first mr records welcome back to restore and i want to get to you because there was a little bit of i guess what you could call a back and forth between you and noted economist nouriel roubini on the issue of some of these things the gold standard and roubini said that the gold standard was kind of the cause of the great depression when you disagree in the sense that it was the price of gold if i am correct so if you know assuming we get the price right why do you see gold as possibly part of the solution. well you know the problem we had this sort of twitter we're dory over being not the problem i had there was that he clearly had not read the book and i are a few read the book if you disagree that's fine i'm always ready to have that debate but he said doesn't jim rickards understand that coal is contributed to the great depression well of course i understand that i wrote about it the book i said gold was part of the cause of the great depression but as you say laurent it was

not the goal itself was the price in one thousand twenty five a major countries of the world went back to gold back to the gold standard at the pre world war one price which was about twenty dollars an ounce the problem is they had doubled the paper money supplied to fight world war one so if you're going to go back to the old price with twice as much paper you have to cut the paper in half that was very deflationary and they contribute to the page oppression winston churchill was the major architect of that he said later in his memoirs as one of the greatest mistakes he'd ever made. and i put out the book that if we'd gone to gold in one thousand nine hundred five and say fifty dollars an ounce of twenty dollars an ounce that might have been inflationary and actually avoided the great depression so i was not unaware of the history of this event i wrote about it so i felt too bad you know professor roubini actually had read the book before he took a shot at it but that aside in terms of today could we go back to a gold standard the answer is yes but you have the exact same problem how do you get the price right and people say well there's not enough gold to support world trade well there's not enough gold the seven hundred dollars an ounce but there is

enough gold at seven thousand dollars an ounce in other words the same quantity of gold will support any amount of underwriting transactions depending on the price so what i've recommended is not that we do anything you know what immediately but have a have a commission a bipartisan commission had experts study it for four or five years it took ten years to create the euro from one thousand nine hundred to two thousand and one and study go for a few years and then load the variables how would you think about this i don't know the answer but i think i've got the questions right first we have to define what money every every gold standard is a relationship between paper money and gold so what amount of paper money was it and zero which is base money is it and one. is it m two one two is about six times bigger than one so that makes a big difference right there but how much gold backing do you need you know the gold bugs say one hundred percent that's on the surly true great britain round with twenty percent the united states around with forty percent so you've got choices there and then who's in the quad is it just to us or do you include china you get all different prices depending on those who are ok but there's a lot of questions to be asked here and you know suggesting that time will look

into you and you certainly have our viewers thinking about what kind of return to gold standard would look like and someone from new zealand actually wrote to us michael swatch and he did some due diligence he looked at the bank of new zealand he doesn't believe that they have any gold we look at their balance sheet it doesn't appear that they do and so he writes that he's living in new zealand and i think i understand correctly the reserve bank of new zealand has no gold if this is true what would a return to gold standard mean to countries that have little or no gold in their central bank well again that would be something like britain was not britain would it was not the case that every currency in the world was anchored to gold the way bretton woods were and if your currency was anchored to the dollar and the dollar was anchored to gold and i think in the twenty first century version of that maybe it would be the dollar the euro and the chinese you want maybe three or four currencies sadly for england they don't have much gold either they england actually sold most of their gold at two hundred dollars an ounce today it's almost eighty dollars for a very good price that was it was a bit of a. chance of the exchequer gordon brown but it's so i think the big three china

and europe and the us would be in the club and they would be set to go through the new zealand encounter than others could then pay their currencies to say the us dollar with the euro summit so that's how that would work but it's interesting that for fifteen years central banks were not sellers of gold and as you pointed out in the process when they become that buyers of well there's actually a cartel did they get a advanced copy of your book i don't know because they're not i mean we are thinking along the same laws but maybe you know it's interesting to me that you know ben bernanke he disparages gold the u.s. has not sold a single. since then nine hundred eighty we're still gathering thousand tons stashed away which i think is a good thing for the u.s. national security perspective ok and just real quickly we don't have a lot of time for a long answer but one of our viewers wanted to know if you were bullish on silver and said you know you always get asked about gold what are your thoughts quickly on silver silver will tag along with all the new has the presidential input so it has a little bit so the person i was at the end of the day so we will go in the same

direction still there you go thank you so much for being on the show so nice to have you in the studio go out and read his book it's general currency is the author of currency wars and we're so glad to have you thank you thank you greg. all right so we've spoken about currency wars and dollar swaps and gold but now i want to bring our producers in the trick upon us as well as shannon dano in the control room to talk about this very intellectual debate going on about gold ok there is organizers of a u.f.o. conference in south africa who believe that e.t.

is raiding the earth for gold ok they've reportedly said that aliens have been plundering the planet for gold for thousands of years three hundred thousand to be exact and you know this is not the first time we have heard about aliens in relation to the economy not too long ago we heard nobel prize winning economist paul krugman say that hey you know maybe an alien invasion would help sort the economy out take a look. if we discovered that space aliens were playing to attack and we needed a a massive buildup to counter the space alien threat and really inflation and budget cuts took secondary place to that. this slump would be over in eighteen months at that so what we see emerging really are two world view is one where aliens pillage the earth and take our goal of making our economic problems worse and one where they are the solution to economic problems so demitri shandon what can't do you

fall in. fact paul krugman i think he he's an organizer and a keynote speaker at this event in johannesburg. i mean. these guys think that the aliens came to this planet three hundred thousand years ago and they basically manipulate the genome of human beings but they would become workers for gold and that's why we have this obsession with gold but i do you know this is i think is kind of like a nice combination for the gold bugs you kind of merge them with paper bugs like neural ravine like paul krugman and you get this there's a new kind of gold boom this is really bullish for the gold market yeah i mean there really obviously gold is in high demand of aliens want to shannon which camp do you call and do you think aliens would be the solution to economic problems problems or would they contribute to them by taking our gold. just in case aliens exist i'm going to be. just a kid so you think that regardless of whether they help or hurt you are with them

now speaking of helping this is an interesting way to do it at a time when we know that cities budgets have really been squeezed when police forces have been cut what is the public to do well and for phoenix jones he is an activist he is seattle's self anointed superhero to fight crime literally here is a video and then catching a man who allegedly another man this past weekend wrote. that . that's real he was the superhero was turning over the bad guys to the cops are we going to see more of this and as you know police forces are cut as city budgets are squeezed real life makes fiction yeah i mean this makes perfect is the best

response you lose the cops because we're going to slash budget deficits but the market produces these new superheroes come out and basically say that they just the guy was shooting as the cop you put him in a yellow cab is that you know what we're going to get i think it was maher so this is the free market at work but tell me what is the upside for the super. possibly i guess a reality show contract i could see this could be going i mean i don't know what his business model is and i make money. i mean you know but like you know i think it's really awesome opportunity for these guys and get it and you're protected from here we know if there's any upside for him financially i am not sure i didn't get that information but i don't know i just think it's really. so even if he doesn't make money he is cute and he is offering us a glimmer of hope. instead of these horrible stories we always talk about in regards to the consequences of budget cuts now moving on speaking of budget cuts ok very quickly american airlines bankruptcy and in

a very ironic twist of fate as n.b.c. was reporting on this possible fire sale they got an unexpected fire alarm. in fact it flies the american brand around the world the airline has filed for chapter eleven bankruptcy protection during this busy holiday travel time financially group while staying in the air well perhaps not something special wanted more of let's not ok if there was this is so ironic to trickle what a greggs in deep trouble i was watching the broncos i was laughing i was laughing when i heard that it was part of the whole thing you know like the red alert that american airlines like you know is a metaphor for the american economy tanking so yeah it was it was interesting so was this is perfect symbolism shannon that america is just going down but airlines a fire alarm just the whole thing i think so poetic justice i can't help but leave it at that because that's all we have time for that's it for our show thank you so

much for tuning in feel free to follow me on twitter at lauren mr and give us feedback on the show at youtube dot com slash capital accounts and also watch everything i am line let's hear from everyone here have a great thanks. for your social ok you know we can't go on so long pulled from the.

following.