thorkel to this length so now is your chance to catch up on some of the best of it so far plus we have a chance to respond to more of the feedback you've given us on the show so back on october twenty fourth i interviewed jim grantees author and publisher of grant's interest rate observer also ron paul's pick for federal reserve chairman when he was asked about that also in november fifteenth i interviewed nigel for raj an always outspoken member of the european parliament to call him a euro skeptic would be to put it lightly so here are parts of those shows. after meetings over the weekend the eurozone debt crisis continues to hand on

a political solution that is still largely to be determined e.u. leaders are supposed to release more details mid week meanwhile how does this affect average americans how does this affect you and what role does the federal reserve have in the risk that average americans may be exposed to and speaking of what might the federal reserve have in store coming up is q e three looking more likely as fed officials are out talking about more stimulus well joining us from our new york studio to talk about all of this is james grant he's editor and founder of grant's interest rate observer which is widely read by investment professionals all over the world he is also author of this book mr speaker the life and times of thomas be read the man who broke the filibuster and we're certainly so happy to have him on the show thanks for being here mr grant. well you're entirely welcome right well ok so of course this is a big weekend for the eurozone and actually in your recent interest rate observer

you quote the c.e.o. of deutsche bank saying i have to say that a lot of people have lost confidence and whether europe is going to make it i'm wondering mr grant if you fall into this camp have you lost faith that europe is going to make it. i have little faith in the institution of paper money of course the euro is a. is a prime example of the currencies that we currently produce in the worldwide monetary system. i think it's important to realize that the euro is a piece of paper of no intrinsic value the value it does command is that it drives from political institutions and from the confidence of the people in the institution of the european central bank. so i think. it's not so surprising that people would lose face in this thing called the euro what is perhaps more surprising is that they imbued it with such faces as they had at the

start so do you think that this shows this kind of a broader failure and fear are insane. i do. the trouble with the currencies is not merely that they are undefined or as they say on wall street on collateralized that is there's nothing behind them except the problem and the good intentions of the politicians who see to the printing of the paper. perhaps a more fundamental difficulty with these currencies is that. is is the tendency of privileged if you are an unthinking principle of the united states to print lots and lots of the paper that alone may lawfully print and to live high on the hog because they are privileged to sure the united states as you know is the is the owner of the great money printing franchise in the world called the dollar

franchise the dollar is the reserve currency and it's that form of money the people are central banks will only take in exchange for american promises to repay eventually. but well they might ask in what and what is a good question and also and what is a good question for how investors will be paid if in the faith in the euro does this apparent figure is own crisis does unfold in a way in which banks go bankrupt there's the threat of contagion to u.s. banks and this isn't just big investment banks because reportedly money market funds are exposed to european banks now money market funds are traditionally supposed to be low risk safe investment so my question to you is why are they invested in these risky european banks in the first place. well let me preface this by observing that the people who manage money market funds read the papers as closely as your eyes and i dare say they have reduced substantially their exposure

to the european banks over the past five six months. press the underlying difficulty though is these money market funds yield almost literally nothing they yield one you know or one one hundredth of a percentage point some of them the the really really aggressive ones yield four and five one hundred of a percentage point before tax a needless to say. nothing you can do with money justifies that small return the whole purpose of investing is to is to earn a return based upon some tolerable level of risk our friends at the fed have knock interest rates down to levels approximately zero and therefore the fed has through this action has. has. completely confused. traditional relationships between risk and reward in the money markets

when you were earning nothing. any risk is too great to bear and that's the situation we face today it's it's what they call in the trade an unintended consequence of the ultra easy policy of the federal reserve and just to be perfectly clear so you're saying that some of this the u.s. exposure to bad sovereign debt of europe whether it's the country's debt or three european banks is the result of federal reserve policy. well yeah i mean. one ought to be paid for whatever risk one bear is in the credit markets or in the money markets and when interest rates are at zero and when the rate of pay on money working instruments is at or near zero by definition you are taking unrequited risks you are doing something you shouldn't do and that happens to be the state of affairs in the american money market i daresay that at a price some european sovereign obligations will be worth the risk speculators are

in the business of weighing the risk and rewards of the say you shouldn't ever buy a compromised paper or paper that the the prevailing. a pinion of the market says it's no good people have done very well by doing exactly that by being by speculating in stuff that is certifiably risky but which they can see through superior analysis is in fact value laden. my point is that the federal reserve through its policies of suppression of interest rates. has thrown these calculations of risk and reward up in the air and they have fluttered down to ground down to the earth in a great big scramble and the incoherence of risk and reward i lay at the feet of our fed and it's a really interesting connection that not many people would draw unless they were an expert i like you which we're so glad to have i want to actually bring our producer and to me take athena stand because he wants to ask you

a question dimitry i mr grant i had a question so when we talk about the federal reserve we talk about how the fed manipulates controls interest rates what would that look like if we didn't have a central bank how would interest rates be determined by the market and what sort of a check would that put on credit expansion and the allocation of resources and goods and services in an economy. as you know the federal reserve is a relatively recent. institution. in america i said i mean it's the past hundred years in between friends to me what is a hundred years it was founded in one thousand nine hundred eighteen having been enacted in one thousand thirteen so from the dawn of the constitutional history of america seven hundred eighty nine to nine hundred thirteen with some exceptions having to do with earlier. variants on central banking this country was without a central bank and so what how do we fix interest rates while there was a supply of credit or savings in the demand for credit and savings.

and the marketplace tended to the setting of interest rates rather well the period one thousand nine hundred to nine hundred thirteen for example in the authority of the terrific and universally esteemed financial economist charles good heart was perhaps the most successful it was the most successful periods in american finance interest rates were stable bank failures few. bank earnings strong nothing like the systemic collapse that we saw near collapse we saw in two thousand and eight and nine so in the absence of a federal reserve this country did rather well it did rather well under the institution of the gold standard. you've been an active audience watching and commenting on our show asking questions coming up after the break.

you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realized everything you thought you knew you don't know i'm sorry market is a big. issue is that so much a lot of people at area will. tell a difference between all she was here two thousand and eleven the world changed in ways hardly anyone expected we witnessed the rise of people power on.

this illusion to the euro zone's problems the task at hand according to angela merkel of germany is this the task of our generation is to complete economic and monetary union and build political union in europe step by step that does not mean

less europe it means more europe something she just said at the annual conference of her political party but ole contraire said my guest nigel for raj he is a european member of parliament to call him a euro skeptic is to put it lightly he is talking about a year ago about this in parliament i want to play a little bit of what he said increasingly people are saying we don't want that flag we don't want the we don't want this political class we want the whole thing consigned to the dustbin of history. i spoke to him today and i asked him for us to go to that dustbin of history because europe before the e.u. saw centuries of conflict and war and famine the e.u. was the first real attempt to unify the continent through diplomacy instead of war so i asked him is there nothing that should be salvaged of the last sixty years of integration here's what he said. well don't forget that communism was supposed to

make a lot of ordinary people better and in soviet russia it made it increasingly worse and the european union was based on the fact that france and germany force each other in three vicious walls in a space of sixty years and the idea was if you abolish a nation the states suddenly everybody will be at peace with each other if they unified on the one flag we seem to have forgotten we did this in the early one nine hundred twenty s. with the balkans we called it yugoslavia and that broke apart in violent conflict you cannot create a united states of europe without the consent of the people that consent has never been sold so what we should be doing if we want to make sure that europe is free from wars and free from some of those awful conflicts that we've seen is to make sure that we foster democracy democratic mature european nation states do not go to war with each other and what we are now doing is we're imposing upon people through

the euro and other measures a new political union that is undesired and wanted what's happened just in the last few months is many of the old eminences have flared up again we're headed in the wrong direction i don't want to get more to that but i want to bring up then the other concern that was that the e.u. was born out of it now was of course to contain germany after the devastation it caused in world war two you say that mature democracies don't go to war but you as an opponent of federalism are you afraid of germany and when i say that i don't mean literally germany perhaps i mean there reemergence of a player like that who tries to use force for control on the continent. there has not been since nine hundred forty five any public appetite or any public figure in germany that has suggested that they should invade other states that is being cain or remove the tries and i would actually i think much of this is actually rather insulting to germany yes they did some ghastly things i don't think since not in forty five there has been a more peace loving country in the world than germany ironically what has happened

through the euro project because the germans are really rather efficient very good at industry and manufacturing ironically economically they are now taking over the whole of the eurozone and i think mrs merkel finds herself a somewhat reluctant top dog boss in europe today but it's are is just i didn't mean necessarily germany specifically but more broadly the reemergence of a player like that who tries to use force for control of the continent you're not afraid of that at all if there is disintegration. look when you strip from pretty pull democracy when you take away from people their ability through the ballot box to determine their own future you leave them with only one option and that option is civil disobedience all civil disorder i don't i am very strongly of the thought that if we continue with this project trying politically to unify all these countries under a government that we can't even elect and we can't even get rid of that people will

take matters into their own hands so far from this leads of peace and harmony it's actually doing the opposite and it will see it is beginning to see already the reemergence of the very extreme nationalisms that caused the problem in the first place this is not going to work if we want to have a europe of trade democracy cooperation but that being done by sovereign governments hard fod but their own people well that is a perfectly reasonable proposition but the idea you know that a country like mine gives over gives away control of its of its of its parliament to people like mr barroso and herman van room poise people we vote for i'm sorry it's just not acceptable and you think this is headed further in the wrong direction but i want to talk about disintegration scenario and how you envision the next ten to twenty years if that does happen as far as the reemergence of all divides the emergence of new divides and they are kind of touching upon but what will the next ten to twenty years actually look like. well the irony of course is

that the euro is making the greeks slag off the germans you know they're burning european flags in athens with swastikas drawn on them there are cartoons appearing in greek newspapers of angela merkel wearing swastikas on nazi uniforms and in germany you get the tabloid press in germany saying that the greeks are corrupt lazy and useless or actually what the euro is doing it's making us all dislike each other very much more than before where are we going from here i mean look those mediterranean countries were never ever going to fit into an economic and monetary union with countries like the netherlands and germany we are now seeing the price of that countries that are trapped inside a currency that is probably sixty to seventy percent overvalued for their needs and they're now being told well they've already got an economy that is decreasing at a rate of five percent a year they must take further massive austerity measures the euro zone as it's currently constructed is going to break up the only question is does it break up in

a disorderly fashion or does it break up in an orderly fashion and what we are urging here is that if we really were good europeans we'd be helping greece to go back to the drachma to get a devaluation to stop massive capital flight from that country i want to see an orderly break up of the euro but at the moment nobody here can admit they've got it wrong and they're doing everything they can to maintain this project well it's interesting that you bring that up because you're actually one of the few people who are very vocal about actual ways that countries could access the euro so specifically how do you see this happening. well i mean i've been urging the bosses in europe for the last year or more please can we have a plan b. please can we have a contingency plan now you know we've started to work on this we held a conference here a month ago with a couple of senior germany columnists putting forward ideas as to how we can help greece portugal and other countries get back to their own current says there's been a big prize put up of

a quarter of million dollars for somebody that can find the right solution there is still a lot of work to do on this but i think we need to urgently focus on it because it's increasingly clear that what we're doing economically with crucifying greece we leading we're leading to a huge level of civil disorder and some is going to be done so i haven't yet got the perfect solution but i'm trying to find it is there anything you can tell us because just obviously the mainstream kind of consensus is that any kind of exit from the euro would be very disorderly would be chaotic would be horrible so is there anything you can point us to specifically for an exit from the euro. well. well if we carry on that down the current route we're going to find the markets overwhelming us with questions now being asked about italy potential questions being asked about france and its aaa rating so the current course we're headed down is the one that will head that will lead to real chaos too for greece to get back to her own currency i'm afraid banks in from some germany and the u.k.

are going to effectively have to write off the debt and give greece a blank sheet of paper yes it will cost us money in the short term but to give greece a devaluation of sixty or seventy percent to give greece the opportunity to get back to a form of democratic government that they might have some respect for i think is the only possible route i just want to quickly ask you obviously are sitting in the u.k. obviously the european and eurozone crisis is top of mind for you but sitting here in the united states obviously a lot of similarities in terms of debt a lot of similarities in terms of just obviously our economies are very much intertwined do you see any lessons for the united states in all of this. no not really that you've made your own mistakes justice in many ways and you wrote we have it with you guys that are on the greenspan claims and got rid of the last legal act we did much the same we've made catastrophic errors with our banking industry we all governments of work on the basis that you can go on borrowing

forever the day of reckoning is no i. have to say what i look at mr obama he just doesn't seem to recognize that national debt is a serious issue in america just as it is in europe we haven't got governments that are realistic we haven't got governments that are being truthful frankly with the people there is worse to come the rivera hard times ahead but at least america it's a democratic state and the least you've got the chance to vote for a different president if you want to pull people to greece i've got nothing like that we also have an expansion of executive power in our country as well by sounds like a plague on both of our houses i appreciate you being on the show mr fries. now

there was some debate going on among viewers about part of my december fifth interview with economist dean baker first i want to show you part of our conversation it was about what's going on with democracy in the west in the midst of this tech knockers sea and parts of europe. they were given very very little choice so i can certainly understand the resentment there but it did happen through a democratic process what about a u.s. congress said hey we're in tough financial times alan greenspan needs to replace the president or you know be the leader governor or the people we elected so they were people that the people we selected they were people that people in italy worked out so it was done through a democratic process not the way i'd like to see it but it was people were democratically elected made this decision. now our viewers expressed opinions both about dean baker as e.u. as well as my response to it apocalyptic a one wrote sorry dean baker but you failed democracy one

o one don't spout nonsense about parliamentary democracy where exactly it's like ministers must be elected representatives if you don't know anything about it dean too bad lauren didn't know enough to call you out now might corbell disagree responding to this you are saying i think dean baker is right and i think you're right in terms of what democratic principles should be or are in theory just that he evidently is right about how democracy operates in europe or in countries with parliamentary governments he wasn't speaking of democratic principles themselves now whether you agree with dr baker's view or think that i didn't question him and challenge him about it enough after that we did delve into unity governments more to explain how they're formed in poller parliamentary governments and under what circumstances so i want to make sure that you didn't miss when we defined unity government for word of the day.

all right it's time now for word of the day where we break down a financial term or concept for our very smart viewer but just maybe not the financial expert and in this case maybe not the political expert because we want to break down a unity government and here is just one reason why greece's parliament approved the two thousand and twelve austerity budget and restrike now is operating under a unity government so here it is in the news the unity government led by lucas papademos a former european central bank vice president has a mandate to implement the bailout deal and lead greece to elections on february nineteenth now as you heard with dr hudson we talk a lot on this show about the technocrats who are in charge of the unity government in greece and rome as well and we want to break down exactly how they have been put there so what is a unity government let's look at the definition it is

a broad coalition government consisting of all parties excuse me it's a broad coalition government consisting of all parties or all major parties in the legislature it's usually formed during a time of war or other national emergency now this isn't a parliamentary system of government and to remind you had a unity government in greece we have look as papademos as prime minister in greece and in rome we have mario monti he's the former commissioner of that now they're in charge because a unity government was formed and the former prime minister has stepped down and as for the national emergency in this case presumably it's the debt crisis and meeting the terms of creditors now this isn't the first time in italy in greece where we've seen unity governments for italy and one nine hundred ninety three to go back a little bit for example this guy carlos champion we could bring him up he was a former central banker he added. a unity government during oddly enough

a crisis in the euro where the lira had come under speculative attack and there were questions about whether italy would be able to conform to the master street and eventually adopt the euro now this you could compare to what's going on in greece today where papademos also a former central banker has been charged with leading the unity government to prevent that country or from falling out of the euro in this case now and the current italian government i just want to point out not a single member of the cabinet has been elected they are all technocrats including a former chairman of nato a former ambassador to the us now they have been voted into place by democratically elected parliamentarian's but not directly by the people and in both cases they have been charged with a rescue in their countries from financial ruin under the premise that their own elected officials were incapable of doing it now you can decide for yourself if that's democracy but now you know basically what

a unity government is. there you have announce it for a show tonight thank you so much for watching you can continue to follow me on twitter at lauren lyster even on vacations on the show i have not taken one from twitter and e-mail us your feedback and questions to you can do that at my account alister at r t t v america dot com you can also of course post them on our youtube channel youtube dot com slash capital account and go visit it because we will be posting fresh content exclusives during the break and from everyone here at capital account happy holidays and have a great night. is

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is a visitor stork moment. a war's ending. a new day is upon us the iraq war as we know it is history tonight will reflect on the path they fear and it's the cost to both the american and iraqi people. there are so many mistakes committed by the u.s. military leadership especially in managing civilian icepacks here this kind of negative effect of this is going to mention and what about our legacy and i will have a special report revealing what the iraqis think about our occupation of their home and what the future relationship could hold for the two countries.