case of the federal reserve wasn't doing much of anything then. but it's a question of magnitudes what the fed did or did not do was dwarfed completely dwarfed by runaway expectations. excessive optimism followed by excessive pessimism. central banks are not going to stop that look the first big episode of this was the tulip bulb craze in holland but again they didn't have a central bank they didn't but they didn't have the excesses that we have now but it was still it was a gigantic boom and bust right well i mean not to belabor the point but i guess my argument is that what we've seen now is a huge credit then lose we've seen a massive amount of credit and each time there was a recession the great moderation was you smooth another business cycles by lumping credit into the economy and it just feels like we're at a position now where we've created so much and we're kind of potentially where we're japan was where again where interest rates are zero there is zero for the

indefinite future and we're at a point where we need to continue to monetize assets in order to try to get credit out of the economy right but the savings don't seem to be there and the capital that needs. to have the economy go forward but in your view the central banks should still be there so then let's let's let's talk then about. i have a graphic that shows the central bank's balance sheet if we could bring that up. all right that is actually a chart i mean a graphic it's about a year old the federal reserve's balance sheet has actually. grown a little bit since then it's about two point nine billion now and that shows really what happened after the crisis it bought up a lot of securities and traditionally when the fed conducts monetary policy it buys and sells assets from its portfolio in order to manipulate the interest rate that spot so many assets now and one of the things we heard during this crisis was don't worry. when the time comes we'll be able to sell assets from our folio draw this liquidity is that really possible surely they'd be able to sell those assets

without causing the pressure yes absolutely so the key thing is when the time comes what will the find when the time comes when the economy is growing nicely and or when inflation looks worrisome we're not close to either of those how will they do it basically you do the reverse of what you did as you just said it's that you wouldn't buying up a lot of s. . if you start selling a lot of assets now you don't try to sell all those in a day or a week you saw america gradually sell them out grabbed the you on your graphic you saw an incredible spike here of the lehman brothers on the downside the resuming going to see nothing like that much more gradual wearing down of the of the balance sheet we really like let them expire let some of it you get from run off but eventually they're going to have to do beyond run off and start actively selling things wouldn't that be wouldn't that put punishingly high interest rates in an economy that will not punishingly i but higher than they otherwise would have been that's what i was going to say so what's going to be the first reaction to that if

you start selling treasuries or especially if they start selling m.b.'s one of those big hunks of their. b.s. the prices of those assets are going to fall which means the eels are going to rise so you will see higher interest rates that is the way central banks the interest rate part. is the way central banks modulator commies when they need to be calmed down a little bit and that's what the fed will eventually do but they're nowhere near that now. all right so then let me actually pull back a little bit and stay on the issue of japan because i brought that up and they've been income people say a liquidity trap how do you stimulate an economy when it is essentially on a drip or in a certain way it's been an i.c.u. for a while if people aren't willing to take on more credit you can lower interest rates much as you want you could start buying assets and i mean i suppose theoretically the fed and i don't know it's according to chart ability theoretically if it were allowed to go out and buy indices you can go out and buy stocks at the end how does

that change the fundamentals in the economy and doesn't this create dislocation the structural dislocation and changes that take a long time to fix it does create this location at those create abnormal interest rates it might create an abnormal structure of interest rates for example the fed is not trying to flatten the yield curve more than. a normal market outcome mood would have it the fed is intervene in b.s. which lowers the rates on m.b.'s and mortgages relative to other things these are things in normal times the fed doesn't want to do. and they will eventually be unwound the problem for the fed was this became to be a fateful day in december two thousand and eight when it basically put the federal funds rate to essentially zero that's what it had always used as this instrument before that it's now used that instrument up and it came to what is proverbial

forks in the road so either we're going to just fold up the tent and say there's nothing more we can do the economy is on its own or we leave it to congress good luck or you could start doing more creative things so we went for the more creative things and they do have these because these dislocations this impact on resource allocation a whole variety of other things but to me as to been bernanke and his colleagues the. other fork in the road would have been much worse. but then of the me ask you because the fed and obvious you know so you can only create credit they don't actually create capital eventually don't you it's kind of like flushing water through a pipe each time you flushing your can on jar a little bit less a little bit less but eventually it got nothing but metal there well it's one of the reasons that all of us say you just said it and i've said it many times before the feds getting down to pretty weak weaponry. powerful weaponry now it's only got weak weaponry another way to look at that is your you know your graphic showed. if

it had continued the other year that you said that the fed added almost two trillion dollars to its balance sheet that had some support of effect on the economy but not a gigantic effect on the economy in the old way of thinking where you weren't up against a liquidity trap in a zero balance the way i used to teach my students if we ever if i ever imagine with them in a classroom exercise i never did let's think about what would happen if the fed added one point seven trillion dollars the bank reserves the right exam answer back then would have been a hyper boom huge inflation gigantic expansions of money and credit in the kind of economy we're actually living in none of that has happened i think it's probably because there are certain there are limits to what policymakers can do i mean at the end of day it's the economy has to generate the wealth and the individuals and we have to wrap it up i do have one more question are you. are you concerned at all

with the amount of debt that has accumulated in this country and in general in the west over the last thirty forty years and what the implications are for the next ten to twenty year given where we are sure you mean government that a private school i mean total credit market i mean private i mean total government and private and public debt well let's take them separately because a lot of the private the private debt problem has been substantially whittled away i wouldn't say it's all gone by a more conservative behavior given the catastrophic we still have a huge drop out of this is right and some defaults mortgage that has partly that's not the way you like to get rid of it but partly we've got rid of it through the fall so they're going to be more of those the government debt of course keeps mounting. and eventually we need to take care of that now eventually to me if i had a magic wand which i don't and neither does anyone else in washington i would like to see the congress. lock in today. as soon as possible very

substantial deficit reduction down the road not now we don't need a fiscal contraction now with the economy still on its knees but we need it some time later because ron explosive that path it's not it's not sustainable and eventually we need to get off of that path so in a well ordered world congress would be legislating now things that happen in the future of course they're not doing it i guess i just don't see how we can get there without either defaults which should be depressionary obviously if you had the kind of defaults you mean that i'm thinking about on the public debt i mean write downs on private right. but if it's right but it still would be a problem but even even the government that i mean that you can expand up to a certain point and japan had done that obviously they took on a lot of liabilities they tried the problem their economy now they've got a huge national debt and now they run their first trade deficit in the last thirty years so there's a lot of problems of this with that when you're paying really low rates but nobody

is warning about japan faltering on its public debt right but they have little or no ways that we do right but they could inflated away which would be the other side of that right so in both those cases you would have a depression what could be a hyper inflationary depression what could be a deflationary depression but in both cases do you still have these this location that have been caused over time as a result of these these interest rates i would say and that just think that's that's that's that's a concern that i mean i personally have it's one of the things we talk about on the show but thank you very much for coming on i really appreciate your your input that was dr alan blinder university professor of economics at princeton. and that's our show it was really great having dr blinder on because we had an opportunity to talk to someone who actually works the fed and we may have different views but it's always good to have someone with different as the come on and try to put out a friendly bit about it so thanks for tuning in and feel free to follow me i was always on twitter at covering delta and lauren lyster at lauren lyster and you can

give us feedback on our show on you tube dot com slash capital account nice comments and criticism this is appreciated by the media to feed us and from everyone here at capital account have a good night. you know how 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 tom harpur welcome to the big picture. down the official. called touch from the top story.

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politicians billionaires nobel prize winning economist they're all here in davos for day two of the world economic forum i'm sure you've seen a barrage of headlines becoming up find out what's really going on. and as the leaves and wine and dine and davos another forum is serving up some economic solutions as well and brazil and the clash of the economic forum so there's either a meeting the right answer will explore. what's good for the community good for the state and good for you this is where those roles are today. maybe abstract art

something about draining a community of its resources and the government of its stimulus money doesn't paint a pretty picture well tell you how the company world pool is putting one town through the spin cycle. it is thursday january twenty sixth i am in washington d.c. i'm liz wall and you're watching r.t. . well right now the world's most rich and powerful are gathering in this whiskeytown of davos for the annual world economic forum they're expected to take part in talks aimed at resolving the world's economic woes the meeting comes at it as the crisis and the euro zone there and stop plunge the region back into a recession and bring the global economy down with it but as we see one economic summit after another play out will this forum be any different and bringing about

some real change to help me answer that artie's own lauren lyster join me just a short while ago with the latest from davos. well as you can imagine liz the eurozone as very much taken the official center stage after yesterday we heard from angela merkel which i talked about with you guys and she said be patient we're going to stick to this fiscal integration we're going to join together for more europe that's a solution just hang in there we heard david cameron come on stage today for his remarks which were drew a very large audience a very large line to see and as you would expect he talked a little trash on the euro zone and talked a lot of trash on the solutions that leaders of come up with that have been championed by angela merkel saying that in order for a single currency to survive in the case of the euro zone needs a number of things including a central bank including a way to do some kind of what sounds like he was amounting to euro bonds a few other things to a need that it's not that the eurozone doesn't have all of these it's that they

don't have any of these so pushing for more money more of a firewall more of a solution and we hear that not just from politicians we hear that from big wig investors like george soros who has been really pushing his plan for the euro zone which he's come out with in a book which leaders in the eurozone have not adopted so very much taking center stage but as you know liz as i've been talking about that's not the whole forum at all. speaking of solutions this year they were expected to discuss capitalism and rethinking the system is that the these are the political and business elites that of course have benefited from a capitalist system so are they really interested in talking about income inequality or is it all for the cameras. well you know that's the thing you can put whatever you want on the official agenda but what people are really going to do and what they're really going to talk about is whatever they're really going to do and talk about and that's the status quo that they've benefited from then that's what

you can expect yes we have seen people like klaus schwab who is the founder of the world economic forum talk about the problems with capitalism and how it's outdated in its current form but that's a same quote i've seen appear over and over again and all of the stories i've seen about the rethinking of capitalism it's the same quotes over and again coming from one debate yesterday morning on capitalism and a handful of billionaires talking about income inequality so while yes we have seen some focus on stage and in some of the content on the agenda you have to remember that a handful of billionaires and a couple of people that are concerned about capitalism and these issues are i hand full of the twenty six hundred people who are here many of which to talk business to network and to continue on in the status quo many big corporations and big banks that have very much benefited from the current form of western capitalism and when you hear really the establishment figures asked about western capitalism in its current form they are very much in favor of it they're not questioning it at all

yesterday we heard that from brian moynihan c.e.o. of bank of america today i heard that from david cameron the u.k. prime minister when he was asked directly that question. as the political and economic leaders there the big wigs are all there in this one place some argue that this of that is just a bunch of pomp and circumstance rather than generating real solutions to world problems what is the feeling that you're getting over there. well the building i'm getting because you have to remember lives yes all of the sessions are going on but really what i'm seeing is the sidelines and the people that i'm talking to joseph stiglitz and brian moynihan and then a some of these guys most down to me the guys i'm talking to are the business leaders i spoke to a governor today i spoke to a couple of people that are our diplomats from from britain and for all of them the benefit today is the business deals are the meetings is the networking some of them you know day to adopt those and they hadn't been to a single session so for

a lot of these people it is business and that's really the agenda also everyone kind of has an agenda even from the big wigs that are speaking whether it's investors or c.e.o.'s they have a reason for you know bill gates there's a press conference but it's to announce the money he's giving to aides george soros talks to the press has a prince lunch he has a new book out he's very much pushing that with the same kind of rhetoric that he's writing in the financial times and saying to everybody at the forum so every guy has an agenda live or a lord of the we also here you people are on twitter are saying about davos let's see if it matches up with what you are observing over there all over a willis he says a leitz hobnobbing with elise about elitist things pretty much what's wrong with the world and answer cain says that the two bankers at the bar of a fancy davos hotel they are talking about the crisis and smiling not quite sure

what's so funny. so what do you think laura. yes all right yeah lives you do get that sense you don't hear a questioning of this system a rethinking of things really you hear solutions and concerns from the people who have been operating and benefiting from the system that we're currently in so and yet they are elites and many of them are the global one percent seventy billionaires politicians. all of these people they are very much the global elite so you can imagine that this solutions they find in the problem they're talking about are very much the ones that pertain to them and there is kind of that that separation you definitely see that being pressed you feel like a little bit of a second class citizen i have to say sorry to hear that lauren but maybe the occupy movement will make you feel that way and i know that they are there they set up some igloos outside of the of that if you would you say that their message and

their presence is affecting the dialogue there at all. you know i wouldn't say that it's affecting the dialogue because although we've seen discussion of occupy and the movements from again klaus schwab who's the founder of the world economic forum i've also heard snickering on the sidelines from businessmen at the occupy igloos that are here saying oh they really lack the numbers what i will say is if you're going to have a protest igloos are a really good way to go because i think that all he by has been mentioned in a lot more of the news stories that i've seen and then pretty much any of the other occupy protests that i've seen since this movement started in new york in wall street so i think they're getting some bang for their buck with the igloos as far as public awareness not sure if it really matters when it comes to the agenda of what's really going on and being discussed at the world i guess that's more interesting to talk about igloos than ted lauren thanks for keeping us updated that

was our t. is lauren lyster host of the capital account. and as the one percent thinks about how to tweak the capital's capitalist system another group wants to change it radically and they're holding a form of their own it's called the world social forum and it's taking place right now in porto alegre brazil brazil president dilma rousseff decided to ditch the elites and instead tend an event which has brought together a medley of social movement groups from around the globe the event of rivals the exclusive forum happening now in davos so can the world social forum shake things up enough to change the system well to help answer this question and more as mike norman chief economist of john thomas financial. welcome norman so we have several different groups from the arab spring occupy wall street spain's indignant movement they're all taking part in this for what do they all have in

common. well i think what they have in common is an expression of outrage of what we've seen policies which have resulted in massive income inequality around the world any quality that has risen to a level where it's even being noted in the elite is gathering in davos not that anything is going to be about it and there's the point i have to make is that while this is a great alternate davos if you will i'm not very optimistic that anything is going to come out of that simply because we see throughout the world policy is being dictated and dominated by these elites look we're not even talking about the failure of capitalism or the problems with capitalism as it exists right now it's not capitalism we're really talking about socialism for an elite group of people

corporate socialism where policy by design around the world in the wealthy nations and elsewhere has been fashioned to a degree where most of the public wealth of nations now flowing up to that top one percent and the result of this has created unstable economies it has created unstable social environments i don't see that changing any time soon which means that less for the ninety nine percent more for the one percent and a highly unstable economic system so this movement as it's you know it's dad as being anti capital last they're protesting the fact that capitalism is not working what than a is the alternative. well first of all let's understand as i said before this is not capitalism this is clearly socialism for large institutions and an

elite group in the world what will work look let's understand something right now ok we hear a lot about maybe shortages shortages of energy shortages of food shortages of capital indeed shortages of money but we have none of that the only thing we lack really in the world today is moral leadership that's what we lack and i think that's where the focus is moving towards the understanding that look you know we're having policy being driven by people by leadership which is morally bankrupt and the attention has to first start there and that's what i think these alternate movements and occupy wall street have drawn attention to from this perhaps we'll start to see political change with sort of just or rights the system but for now i think if you look at what we're seeing happening in europe if we're look if you look at what we're seeing happening here in the united states it only

seems to me to be an intensification of this well flow to the top one percent creating a highly unstable economic environment and that might add how successful do you think they are are they will be and getting their message out as a rival to the world economic forum. well look you know i am i'm rooting for them unfortunately i'm not very optimistic i just don't see where they have the political leverage right now to really affect any sort of large change ok most of occupy wall street if you look at when that was going on here in the united states. no connection with the political process it was mocked broadly so i think it still has a long way to go the thing of the positive thing that came out of it in my opinion was it did draw attention to this problem of inequality which is

a big problem and i think just the fact that even if they're talking about it almost in jest in a place like davos it least it's something that they're thinking about so that's progress and you know this past year has been a and sturrock year of protests around the globe and will that play our part in making that foreign event more relevant this year. well i think so and the other thing to recognize is i don't believe that the protests and the outrage is going to go away if anything i think it's going to be more established it's going to become more organized it's going to become more widespread in the coming years eventually you will start to see it have an effect on the political process we may hopefully get some change out of it some much needed change but we're still a long way i think from that sort of thing happening but the first step is just the realization that the system is broken something needs to be done and you know

that's the step we're on right now. and i also want to turn over to specifically here in the u.s. president obama sate of the union speech a couple of days ago he said you know is very optimistic. saying pointing to the fact that the economy is getting better he is playing making it seem like it's a fact that it's getting better but you know we see crisis a crisis from the eurozone to uprisings over a cigar and forces rising inequality where is the proof to back up the president's claim. well the proof is in the data over the last couple of years but the problem is you know going forward now we see the united states embarking on the very policies that europe has embraced over the last several years was staring a cuts in social programs all the sorts of things which lead to

a broadening of poverty a weakening in the economy look the economy here it's much better than it is in europe but we're only grown we're growing of two percent we're way below trend there are millions of millions of people still out of work something like forty million people in this country on food stamps so the rebound from the very very low depths of two thousand and nine yes it was a rebound but by any comparison to historical periods of the economy coming out of a deep recession it's been very weak and that's precisely because of the policies that have been in place and coming into this year and twenty thirteen we have an intensification of this austerity of spending cuts of all the sort of safety nets that have maintained some sort of economic growth in the united states and i'm afraid that that's going to lead to much slower growth more unemployment more

poverty and though that's the real legacy that you pass along to future generations it's not the debt as we see look s. and p. downgraded the credit rating of the united states and what happened in interest rates went down to a record low they're practically had zero all across the structure the real legacy we pass along is not that debt it's the poverty that we create by not making the investments we need to make in infrastructure in schools in education in basic science research and development in health care all those things represent the real capital the real wealth of the of the nation and we're just not doing it and that is why we are seeing these uprisings ending is probably task thank you for coming on the show that was chief economist john thomas financial mike norman. well still ahead on our t.v. you might make the appliances that clean your dishes and your clothes on.