and welcome to capital account i'm lauren lyster here in beautiful snowy davos switzerland and timothy geithner here to day representing for the u.s. say that day euro zone is one of the biggest the rights to the u.s. economy is or isn't the distraction that is saving the u.s. right now i'll tell you all about it coming up but first here's dimitri in washington. thanks lauren and staying with europe for a moment the negotiations between greece and its creditors seem to finally be on the verge of a resolution at least that's what you finance commissioner olli rehn thinks beyond just a boat to pull should you indeed all know that he would secure involvement between the greek government and private critter to. a deal the kind of deal greece is a deep depression consumers aren't spending and businesses are investing and that's not going to change the almost as bad debt underwritten by greedy banks and taken on by generations of the crowds and politicians and taken off the backs of the

greek people why should they could do to suffer while bankers like jamie dimon claim as you did in a recent interview in davos that a greek default would have zero impact on the banking system and getting back to the u.s. g.d.p. numbers for the fourth quarter out of the mainstream financial press is reporting that a two point eight percent growth rate so that we finally may be on the road towards recovery really if you take into account consumer price inflation and the fact that more than two thirds of the g.d.p. numbers reflects companies restocking their mentors the pictures look so rosy in fact it looks like a country on the verge of another recession speaking with prominent financial blogger mike shell blog to get his take on this and other economic hocus pocus in a moment but for now it's good to.

well it's day three of davos and there are lots of headlines out about what officials are and aren't saying regarding the eurozone and the global economic outlook but how many people there actually care about the agenda and what's missing from it while the host of capital account the lovely lauren lister is there to tell us all about it so lauren i want to i want to start off right away let's start off with davos you've said that not many people really care about the agenda there it sounds like a typical convention atmosphere do you still feel that way. i feel that way more today because today was where we saw the big headlines come out about some of the remarks that were said that you already talked about your headlines about the euro zone about some of the solutions that are coming. so called optimism from some of these finance ministers and from all the i thought that this would be kind of a dominant agenda day based on what was on it and you know timothy geithner to spoke about the u.s. outlook going around the conference center the congress center is what it's really

called that's where you kind of you know see the forum that isn't on stage that isn't in these sessions and that's where i talk to people and say you know what is the value of davos you know what do you think about the thing that happened today what's your take on the eurozone and the responses i get to me tree are about the euro zone. i don't know you know whatever and as far as why people are the same thing you know today i tracked down larry summers who did not want to talk to me and was looking over my shoulder and trying desperately to like talk to other people but he said he's never networking that you get to see all the people you want to in one day that you would in one year and that is the value of davos is the same thing i heard from darrell issa who is a u.s. congressman who i asked about that he did say that this isn't a good thing i don't think he said that also it's one stop shopping for you know finding out where the global economy is going you know if you want to figure what's going on with greece you just you know hear what the people up there are saying which i think dimitri speaks a little to that a herd mentality we talk about because everybody out there is having

a debate but they're debating from what then what feels like that same range of a stablish many viewpoints not a contrarian that i've heard at least and the way that a lot of our guests are so that's a low concerning but it's the same thing c.e.o.'s saying they're here and the benefit is is the business you know i spoke to bill gross who has a new not that pimco bill gross but the c.e.o. of idea labs bill gross who has a new company said it's amazing you know he's selling prefab houses in india and he comes in he talks about it he has all of a sudden book buyers and hooks up with you know the u.n. and that is the dominant agenda from the perspective i have. on the sidelines while i'm asking people what they care about that sounds like me at a convention i don't go to and events but why but there are there are official agenda item watching on t.v. dimitri oh well but there's one official agenda item that they catch my eye and i do want to bring it up it was in the briefing papers that you had and it shows what the top concerns are for the people at the conference this year is the ones attending the events and top on the list is income inequality now this to me spells

social unrest and and i would i would say venture to guess is that is that is it possible could we say that social unrest is now a tail risk for the davos man. i like that and maybe that is why it's on the agenda because they've seen the actual change that this kind of income inequality has created in some of these countries in the arab spring for example and there's protests in western democracies so maybe they're concerned but do you have that chart that you showed me for viewers because read that title it says something like the risks and their likeliness and income inequality is top for two thousand and called isn't that r.t. here isn't don't we already have income inequality and i want to back up a little bit because you said that this reflects what everybody at the forum believes is the biggest risk but i'm not sure it does this is something that the world economic forum which is the organization that puts this on puts out with kind of their small group that's their risk assessment group of yes some risk us s. r.

is that do this for their lives and their business but that's just the world economic forum that reflects what they've come out with as the rest some what i found is the world economic forum may have its agenda but so do all of the twenty six hundred or one hundred other people that are here and those twenty six hundred other people their agendas aren't necessarily aligned with the world economic forum's agenda i think it's also telling that they call it a risk it's not a concern to help help solve the equality issue is more of a risk and it's also funny that the before that with the exception of the of the right before was i surprised the leveraging and i don't know if. this social inequality just but we'll see but when we spoke yesterday you told me that you spotted j.p. morgan c.e.o. jamie diamond with mysteriously walking around with a pair of running shoes he may have actually used those shoes to run to an interview would soon be see that he did later and i want to play a part of that interview for you right now. and the e.c.b.

to sell to euro thing it was a significant thing which took in my opinion took the major risk off the table which is that a bank level liquidity problem. now lauren you're not talk talk about this before and you and i both know that the l.t.r. was presented as a plan that would help governments by giving banks cheap loans so they could buy higher yielding government debt all right but that money was just hoarded by the banks went right back to the deposit facility so i'm shocked that jamie dimon is openly admitting that this plan was never to fund government to begin with it sounds like like the way they used tarp they said we're going to buy a liquid assets but then did a buying bank equity what do you think of this. why are you shocked dimitri you can lead a horse to water but you can't make him drink we see not time and time again with bad policies we know the drill jamie dimon has very much the banker perspective and i knew you were interested in this because you sent me this interview earlier and were really excited about it so i did a little bit more due diligence and i actually stumbled upon the chairman of society's generale the french bank and so i was asking him about l.t.r.

and he had a very similar response he said hey this is a verdict a credit crisis and a liquidity crisis for banks and that's great so i doesn't sound like he was concerned at all about the countries and the funding of sovereign debt you know just because that was the intention of the people that created l.t.r. oh does that mean that that's in reality what banks are going to do or what they can force banks to do or even expect them to do so you know i'm hearing that same viewpoint from from other bankers about how that's very funny you know these guys always call it a liquidity crisis you can do that and you can have a liquidity crisis the last four years liquidity crisis is supposed to be short term if it's years it's a sort of a secret. there's no point but look at that in that same interview the other thing i want to bring up was that jamie dimon talked about zero risk to the banking system if a greek fault were to happen now you said people aren't back concerned leaves out so the conference the agenda yeah but the people outside the conference aren't that concerned about the europe of the euro zone but the people that you've spoken to or people that are interested in the official agenda are they concerned at all about

about europe and the risks that are going on there in the fact that countries like greece are in a depression. ok let me touch on all the things that you just talked about are they concerned that greece is in a depression not that people i've spoken to people are optimistic and kind of excited that there were there was a run up there today saying that greece is probably going to reach an agreement with its bondholders this week and you know that was a big headline we saw in the financial papers and that's also what the chairman of society general said you know there is some optimism as far as the depression scenario which is brought of brought on because of austerity and part no people are concerned about that we've heard people reiterate again and again in this conference that austerity is necessary for these countries in the euro zone and i think it's really interesting to hear how timothy geithner played that one because he was asked about it today about the debate between stimulus and austerity and he was very careful in his answers because of course there's a little bit of a different perspective when he's talking about europe where he says austerity has to be part of the solution for some of these countries which is obviously not

something that i don't think timothy geithner necessarily champion for the u.s. where in the u.s. you see a lot of politicians calling for stimulus even though it's you know they're still talking about a problem with the economy and so it's you know different medicine for different people so he was careful about it so i think the consensus i'm gathering is austerity for greece good thing deal bondholders good thing also really interesting the vibe i'm getting from the people that i'm talking to is that people aren't as concerned about the euro zone because it's a lowering of the bar people are comparing this to normal times or to good times they're comparing it to the disaster of two thousand and eight and say compared to that you know this looks better this isn't so bad the chairman of the society general again to talk about that conversation he said you know things aren't as bad as they were looking two months ago so i think that's good you know people are looking at the short term and they're looking at it in comparison to two thousand and eight when things were horrible and it was the biggest disaster ever so that's against that backdrop it looks better so it's. pretty girls go grocery was the

normal and jamie lee you're going to miss they're going to muddle through. and actually going to cover that later with i guess my catalog but sticking with him because he is an american. azhar or whatever you want to call these guys now he's a cabinet member is not a politician though and last time we had the g.o.p. debates another one and i know you couldn't see it but are people talking about politics there are they interested at all about american politics and what's going on to have opinions. and. you know i think that people are quite happy that the eurozone crisis i mean i bear it from the american perspective are quite happy that the eurozone crisis is such a big headache because it distracts from the problems of the united states i haven't had the political discussion about the elections with a lot of people but i did talk to a couple of u.s. senators and i was asking them about ben bernanke has zero percent interest rates and why we have them if the economy is quote unquote improving which is something we talk

a lot about and you know what they said they said you know we haven't because things aren't as good you know they're they need to get better and they agreed that will corker agreed that i don't think chambliss really knew what i was talking about i don't want to presume but that was the oppression i got gorgar on the other hand he said that yeah the fact that interest rates are zero he doesn't think the fed is putting them there to incentivize congress to not cut back on spending or to attack the debt but he said that he thinks that that is one of the reasons why is he basically is that interest rates were higher congress would be more serious about tackling the problems because that would amount to a lot more money paid in interest on the u.s. debt so that was interesting and then i said well what about when that you know runs out or what about when something happens you know what he said he said the eurozone i think is saving the u.s. right now because the u.s. is not as bad so there is a demand for u.s. treasuries which is something that we've talked about he agreed and he admitted that so the eurozone crisis is the headache that you know is maybe saving the u.s. right now it's interesting not only the threat that timothy geithner says is the

biggest threat to the u.s. economy that's funny well it's not surprising so they're not really concerned about the economy anymore they're looking at or more from a perspective of financial markets what's happening euro u.s. dollar what's happening because of the credit markets the markets and things like that so lauren on a lighter note is there anything anything you've been up to the been doing ever spoken to go party with sean parker and always use the facebook one of the facebook founders are profound of their. to raise your body to ask this question is this fair to ask me about my after hours. activities at davos know i've been working very hard around the clock but people do know that part of that is you know going out to network and that sort of thing and no i wasn't shown parker's party but i did you know have some sightings last nights and jamie diamond schmoozing with chelsea clinton kind of stuff where you're better you're better person than me and i think i think i would have been our partner and i but thank you so much that was

host of capital account the lovely laura listserver was missed profusely a couple of cows as i've said many times before you're doing a great job dimitri. go ahead we'll speak with popular blogger investment advisor microblog to get his take on on the recent g.d.p. numbers of the u.s. as well as what he thinks of the muddle through scenario that we'll be hearing about we've been hearing about lately but first we're closing markets. well with. technology innovation all these developments around russia we've got the future covered.

welcome back we spent the first half of the show speaking with lauren about davos and what the people there are saying about the problems in europe but what about the united states well joining me to discuss this is mike shad lock investment advisor for sic a pacific capital and popular financial blogger otherwise known as mish so michelle let's let's get started right at the top with the recent g.d.p. numbers i want to bring up a chart for you that you had for your for your audience and on your blog this morning you made the point that the g.d.p.

number of two point eight is grossly misleading in that if you look at it in terms of real g.d.p. growth year over year we're talking in pre-recession territory talk to me a little bit about this. the g.d.p. quarter to quarter rose two point eight percent one point nine percentage points of that two point eight was refinement of elementary wasn't supposed to be that way remember the inventory replenishment was supposed to be last quarter it didn't happen that way and some now it's happening this quarter is happening this quarter at a time of decreasing sales and we look at some of the apparel reports that come out you know i had a chart on my blog not too long ago showing a decline in the cubic metric imports of apparel and we've seen j.c. penney's come out it's now competing with wal-mart everyday low pricing forty percent price reductions across the board so we're seeing a lot of signs here you know automobiles held up. pretty well so we had amatory

hold up well well if we look at what j.c. penney's is saying and doing i don't think retail sales are going to be holding up going ahead and in fact i think when the fed came out on wednesday and announced that they were going to hold rates all the way below zero percent all the way through the end of two thousand and fourteen i think they had advance notice of these g.d.p. numbers but year over year. one point six percent the other reason why we're up anything at all is if you look at the g.d.p. deflator point four percent you believe that as an inflation rate i don't i don't think anyone else does either so these numbers were much much worse than what was reported and that's thing you mentioned about rates being zero that's something that we always bring up the people on the show whenever they try to say that things are rosy you wouldn't have an economy on negative real rates if you thought the

situation was good but also what about quality of growth that's something else that i like to talk about alec to point out because you have a lot of economists that always say would you. new growth and that's it will grow our way out of the problem but if you just put emphasis on growth and not the type of growth how does that prevent us from getting the kind of growth that we got during two thousand when we had a housing boom a credit boom and then when that blew up all we were left with was the nominal debt load. oh the tiger growth we have now is growth in food stamps growth in government programs. growth in government transfer payouts you know it's it's government spending that not private spending that's keeping these things together but you know to get back to to the point that was ironically brought up in device by the way how come you're not there having fun you're letting a lower number i know. but. they are they were talking about this equity income you know problem. look who's responsible for that to me

three why it's the fed in two thousand the greenspan fed came in and bailed out all the banks that then made. bad loans to dot com companies bad loans to foreign governments like argentina so in the wake of that greenspan purposely he told a housing bubble who did that benefit that benefited the bankers that benefited wall street brokers that didn't certainly did not benefit anyone that bought a house had their property taxes go up and up and up only to see property only to see their property prices stay high while the housing crash plunged wiping out stock market in the process then what is what is the bush administration do what is the obama administration do we bail out the bankers who does that bonus well that

benefits the banks that benefited wall street that we have record bonuses back once again so you know you want to look for the source of the income inequity that they're talking about their thought it comes from the fact now it comes from you know i think you're not going to disagree for me on that actually when i got out of college one of the first jobs i had interviewed for was lehman brothers and they were just busy slice and dice and mortgages they needed underwriters so it was a big boom time for them but i want to play for you part of a of an interview a long interview that jamie dimon gave at davos yesterday we played part of it earlier with laura you might have heard it but i want play this part now and i want to get your take on it. i've always believed are going to muddle through because i don't think there's a better solution un radley the euro is a terrible thing. so muddle through that that to me is code word for we the banks are going to need to stay solvent stay liquid can do to make profits not go bankrupt while the rest of the economy has to suffer for one two three however many

decades it's it takes what does that say to you when he says muddle through without me but all through what i think a muddle through i think of japan you know you look at what japan is japan is muddled through now for two decades fighting deflation and then and the end game of japan is near at hand the endgame of japan is the currency crisis they've now got does the g.d.p. of two hundred thirty percent they are expecting to have this year is that muddling through well yeah for the last two decades they muddle through but what about the currency crisis that awaits that and the other interesting thing with the with geitner who said oh you know austerity programs well oh those are for greece those are for france those are for germany you know what about an austerity program for the united states and i think they're already program in the united states that are you know one point four trillion deficit and we're heading into a recession so you know what that means it's going to get worse and no one believes the recession is coming there are very few people bleeding recessions coming united

states i think one's right hand look at those g.d.p. numbers you look at g.d.p. deflator that they're using were they came up with this preposterous g.d.p. in the first by you know we're on a fast track towards recession right here right now. bernanke he acted is trying to stave that off with preannouncement that are ready to do another round of quantitative easing what what's that doing as propping up oil prices that's sending gold higher and that keeping interest rates low it's destroying everyone on fixed income so is his policies are counterproductive and i contribute to the to this income inequality and distorting those on fixed income that. what the project that is doing they have not learned a thing so the thing i'm actually worried about is that these these l.t.r. rosies negative really interest rates these q.e. programs these lock in rates till twenty fourteen and beyond that they may actually

work not that the work you know what the p.r. rationale is but they'll actually work in preventing banks from going bankrupt and keep the financial system the flow of the rest of the economy going is the kind of muddle through in this new normal of high structural employment eventually leads to social unrest and that's what we saw a kind of with the occupy movement and we're seeing more and more what do you think what you think about the political dynamic that's going to come out of this over saying social unrest right now certainly in greece we're seeing social and unrest in italy. a big major major strike over there hardly anyone even reported and i didn't have time to report on my blog we're seeing politics in france the trade barriers in france spain is victory with france's bickering with spain. the president of france is is want to do things to protect french interests meanwhile spain is careening with twenty two point eight percent unemployment and

the trade policies are not for was in the purpose of the euro zone was to get everyone together well the trade policies now in france are isolationist not revolving around we had started cozy proposed and then backed off of this told in financial tax so you know what's up with what's up with that with the banks protesting i think it's a bad idea in the first place but cozy look. preposterous to propose this and then backed down on behalf of the banks so you know yes we're going to see all of this same kind of stuff happen here in the united states you know we're heading into another recession i think unemployment rates are going to go down and i let me get in if i can just because i want to bring it back to greece because you mentioned greece and you have that p.s.i.a. which is just basically it's the it's a it's a deal to to have greece restructure it's that with private creditors involved

really quick because we have to go what do you think is going to come out of these negotiations are we going to eventually get that greek default sooner rather than later well let's recognize that greece is already all i mean here we've written these bonds down already fifty percent the next card is going to take seventy six percent the s. and p. or movies or french one of the three came out and said you know this is a default it's just a default it's triggered credit default swaps it's looks increasingly likely that we're going to have a credit but you know that drove this thing out now so long at great expense but the banks are probably prepared for this now you see these not prepared for this now it is easy beason a situation where the e.c.b. is going to have to take some losses on it but remember shakes me when i started to say that you don't know what i got of this start interrupt you miss but we have to go i wish it wasn't live we continue it but that was that was investment advisor for simply pacific capital my commish said lock and and thanks for tuning in that's

the best our show for today you can follow me as always on twitter covering delta and you can follow or not lauren lyster and you can give us feedback on our show are you two channel on you tube dot com slash capital account i'm demeter you can feed us from everyone here at capital account have a great night. for

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