this is. why. the u.n. security council meets on syria is seeming to see consensus rather than any action russia says it is. calling between the opposition. to the country's president in a. brutal and bloody end. of the single currency topping ten percent just today on.

the risk of another world financial crisis and how close it might be. good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. and remember this. why don't you know we're going to say a lot of the customers are freaked out waiting to see how logar dow will go but. it's been more than three years since the financial crisis and we never cleaned up the mess now we're seeing the consequences so just how close are we from having this happen again and why haven't we been willing to pay the price of change and

the e.u. has a treaty deal meanwhile banks are set to double crisis loans from the e.c. b. oh yeah everything is just fine in your banks are just fine in europe they just mean perpetual bailouts after all and from bailouts to ballots florida residents cast their votes in the republican presidential primaries consider this we've heard presidents before talk about how bad adding trillions to the debt is. the responsible. patriotic. and then they do a complete about face once they're in office they lie to get elected it shouldn't pay to lie why don't we make presidents members of congress elected officials personally liable for their promises they can't run for reelection if they break them you don't rein in the deficit you don't get to run we'll talk about it let's get today's capital account.

you know we just don't know how this euro zone crisis is going to play out we do know this though the greek government and a lot of other countries in europe can afford to pay the totality of their debts you can add the u.s. to that list too but let's stick to europe for now because the same goes for banks check out this headline bank set to double crisis loans from e.c.b. all right there you go and anyone who wants to dispute that should go back to two thousand and eight and take a long hard look at this speech is being made back then by george w. bush by people like hank paulson at the height of the financial crisis take a look at this this was when the house first rejected the seven hundred billion dollars bailout bill and the dow plunged seven hundred seventy eight points the

largest one day drop in history. we've experienced significant turmoil or from mitchell markets in the last few days including the collapse of washington mutual and wall culture year and the failure of two major financial institutions in europe. that crisis showed the emperor has no clothes and still the us has too big to fail banks zombie banks propped up by the federal reserve we still just see u.s. public debt getting racked up by the trillions as unemployment is still depressed while our addiction to debt has been fed by the public purse the government stepped in to borrow and spend when the private sector collapsed and there's just so much we didn't learn and didn't change in the u.s. after the financial crisis despite all the promises of house leaders made on the floor during the debates you can go back and look at nancy pelosi john boehner they were all saying that for example we didn't pass regulation that really changed the

way banks operate ok we have basil capital requirements but how long are they going to take to implement and the vocal role in the u.s. yeah sure they're looking at it but you have all of these contingencies fighting against it and no one in power seems all that concerned not really least that's how i felt at davos listening to these guys and that's not even taking into account just how fragile our economic model is we were looking back at videos from two thousand and eight because that's what we like to do in our spare time during the financial crisis let's just move wind a second for you watch this. concerns continue to be the leveraging that we are seeing around the world by my drugs with other investors with recessionary fears that were brought to the world today by the fact that its economy right to the first time sixty years. listen did you listen to just how vulnerable our entire economic model is vulnerable to the realities of life in real life prices

don't rise forever and economies don't grow every quarter year over year over year forever but that's what we expect that's what we're obsessed with growth propping up the system to keep it going at davos speakers were harping about growth no differentiating between good growth and bad growth just come on we've got to grow and we've seen how it ends so what we have to look forward to let's talk about it here he's blogger and radio host of the market taker is also author of this book leverage how cheap money will destroy the world so he's got plenty to say on all of this carlos nice to see you thanks for being on the show thank you for having me absolutely so the video i don't know if you could see it that we played from two thousand and eight the the cut lines were wall street expects collapse and nasdaq drop below october tenth low but what was really interesting to us was not that but the ingrained expectation that price is always had to rise and economies always had

to grow and the moment that wasn't true all hell broke loose it really seems like our very models aren't equipped to deal with reality do you agree. you know there's there is a fundamental disconnect between the fact that any time you have a system where capital can be went out of interest you are inevitably going to get recessions and in a recession the people who are the most imprudent both in lending and borrowing go bankrupt that's basically what a recession is is that you have too much stuff being produced for the economic demand the problem is that when we have governments borrowing that is their make political promises to spend money they don't have then the government can fail and that's much more serious than joe's car dealership down the street going on dirt with shoes shortly going to be replaced by another car dealership because somebody will step in to provide that service or that good when the government goes under of course it's much more serious and this is what everybody fears right as we see

sovereign debt crises going on right now which i know you've been talking about i want to get to that but really this conversation we're having about the very system is that at the core of the problem still today we're just running around dealing with symptoms without really dealing with the disease that we've built an economy and a financial system on a faulty set of assumptions. we never took care of the problems in two thousand and eight and the biggest issue we have in the united states right now is that we still have financial institutions that are holding various debts on their books that on realistic prices and this is one of the reasons that dollars in market won't clear because we have banks that are holding houses and loans values that have no representation to reality but if they were to mark those things that reality they'd either show big losses or possibly be rendered insolvent and until that problem goes away and we stop propping these institutions up we can't have an actual economic recovery we've got the same problem with a sovereign level but it all boils down to the fact that we have these people who

have gotten so powerful politically of the largest contributors to both republican and democrat candidates both sides of the aisle are these very same banks that cause. this problem holding these loans and properties are unrealistic valuations and i want to talk a little later about the politics but let's stick to the mortgage crisis let's go back in time to two thousand and eight i want to play you a little snippet of a report from the mortgage crisis meltdown during two thousand and. right now the banking system is so clogged with mortgages there's no credit available and. ok so now fast forward let's bring demitra again dimitri get in here ask carl your question their call we thought was really interesting about that was that that sam b c anchor was talking about how the system was clogged in other words it wasn't clearing the mortgages more clearly through the pipes but all that happened was the private sector debt was transferred onto the public balance sheet and now three years later it looks like sovereign debt the backstop of the fee up money system is now clogging the pipes and there is nothing else to roll that debt into so where do

you see this going from here where it's the sovereign debt that's the issue. recognition of the problem is going to come whether we like it or not and so you're seeing this over in europe but it's also true here in the united states we just got done with another year with more than a trillion dollars being put on the public balance sheet eusebio was out this morning saying that there was going to be another trillion for the next fiscal year this cannot continue forever. as long as we continue to allow these institutions to pretend we're going to continue to have this system where in the united states for example we're representing in g.d.p. in our economy approximately ten percent more activity than there is actually private demand to fund that cannot keep going on and that's what led to the crisis over in europe and it's what's leading to the crisis here in the united states governments are still trying to make up for the collapse in private debt by substituting it with public spending and just to give an example of what this looks

like i was speaking to a governor of a state and davos and he was talking about how his medicaid costs have soared in the last couple of years because of he said in one part it was inflation it was prices going up and he said the other part of that was just a lot more people on medicaid and he said his staff literally does not have a solution for him for how much these costs have exploded for their state so does this really get to the problem of the unsustainable system that we can't deal with ever rising prices yet the attent is to keep propping prices up. there's the medical problem is all from cost shifting and attempts to sustain a system that has been designed on the back of the unsustainable we all want the perfect heart bypass and all of these advanced technology and treatments and yet the fact is that medical costs at the federal government level have gone up over nine percent a year for the last thirty years last year the federal government spent about eight

hundred twenty billion dollars that means that in about eight more years we will spend one point six trillion dollars in fifteen sixteen more years we'll spend about three trillion dollars well three trillion dollars is awfully close to the size of the entire federal budget so that's obviously not going to happen and yet without addressing this issue head on and saying ok we cannot have a system that has a nine percent growth in expense when our economy is growing at two percent or we will all go bankrupt is at the root of what's going on and it's not just in the medical area it's also in other parts of the budget but the medical is the most acute and the first one that will fail and you know with what we're talking about with an economy if we want to use an analogy you know you can train athletes and you can give them steroids but at some point both the natural you know training and coaching and the artificial stimulant is going to reach the end of its rope it's going to reach its limits and the athlete is going to stop winning and will

probably have bad side effects too from the steroids maybe you know baird if you're a woman or some breast if you're a man but is that where we are as western economies where does this go if we don't bring in a new athlete and keep trying to push the old one instead. if we don't stop what we're doing we will end up with either a sovereign collapse or an economic collapse we're both in and we're running out of time to deal with this in the united states in globally the simple fact of the matter is is that governments cannot promise to their citizens more services than they are able to tax in the present day in this is something that just showed up in recognition over in europe they've now got this new deal that supposedly is going to go in effect where they can't run deficits of more than one half of a percent but over in the united states we are currently running deficits of about nine percent so you know they may be kind of figuring it out over there in europe but we'd better get on the stick over here in the u.s. as well what about people carlo that would say you know the stock market looks

pretty good january was just poised to have its best month in a decade until it kind of took a dive today the u.s. dollar is looking pretty good relatively speaking to other currencies i don't know what you're talking about are you crazy. well that's what everybody said after birth stearns went down in two thousand and eight the stock market took a little dive and then it recovered and everyone said happy days are here again ben bernanke he told us that subprime was contained and it was all going to be ok and six months later everything went right down the toilet yeah and yeah when i was a loser is and at the end of the day is not everybody is going to be a winner who is going to be the major loser here just real quickly. i think at the end of the day what you're going to see is those people who have become dependent upon the government cheese are going to end up being the biggest losers and it's not going to be by choice it's going to be by force which is an unfortunate result and i want to talk about some political solutions when we get back we're going to go to break real quickly but we will be back with more with karl denninger. and still ahead drivers start your engines because betting is now open for obama is on

chrysler on e.-bay the price may not be had to break so we'll give you our three cents on the map and first your closing market number as. well. it's technology innovation all the developments from around russia. covered.

welcome back so it is the republican presidential primary in florida so let's talk now about attempts of elected officials to rein in the debt and the spending let's look at how it's gone ok here is then u.s. senator barack obama back in two thousand and eight tocking about president george w. bush adding four trillion dollars to the debt we've known are over mine trillion dollars over. there but we are going to pay burke. dollars for every man woman and child ok responsible. yeah it sure is only the problem is that obama has added five trillion dollars to it that's in only three years into his term annualized that's almost three times what bush spent we have fifteen trillion dollars in debt national debt what punishment to leaders have if they don't do what

they say at the end of the day the political system rewards complacency so to talk solutions let's bring back and karl denninger a blogger and radio host of the market ticker and author of the book leverage how cheap money will destroy the world and karl i'm really curious what incentives at all do politicians have to not lie about things like you know deficit spending an order to get elected and what incentive do they have to do anything about u.s. fiscal problems. absolutely none then what you've seen from barack obama appears to be an acceleration of what george bush did but in fact he's just following the geometric series that we've done over the last thirty years so we didn't change anything and that's the problem at the end of the day is that this is the nature of geometric functions everybody learns about them in about the eighth grade the united states and yet we all forget about them as soon as we go into public office because you can't buy votes if you don't promise to spend what he's told have to do

what he likes higher taxes and at the end of the day the government in our country has never managed to collect more than about twenty percent of g.d.p. in taxes so there is a natural limit as to what you can tax and when you want to spend more than that it shows up in the offices and karl you know i know you've suggested a balanced budget amendment but i have a hard time believing that politicians wouldn't just find some way to get around that when it became too difficult or when it was you know with some kind of tough times in the economy that we needed to spend more you know in their words what about doing something more what about making politicians personally liable for their promises to rein in spending or balance the budget or whatever by tying that to i mean i would say compensation but we know that politicians compensation is that really you know what they're as hooked to as real like sions what if we say hey you know you can't run for reelection if you don't do what you are what you say you're going to do and i would love to see a change like that i don't know how you'd ever get it into the law i mean it would

have to be passed by the very people who lose their job it's the same problem we had with the seventeenth amendment which gave us direct election of senators instead of them being controlled by the states i believe it when we write the final history books on america that's going to prove to be the fatal flaw that we enacted but you'll never manage to repeal it because the senate would have to repeal essentially their own jobs which isn't going to happen so there are certain things that are one way roads in all political systems and i think this is one of them well that is a real bummer. i'll tell what we're going to do then but let's talk about real quickly bankers because. i know we talk about money and politics and you talk about how the bankers are the very people that have bankrolled these politicians and give to their campaigns on both sides of the political aisle but in the u.k. i mean come on we have the c.e.o. of r.b.s. which is you know bailed out by the taxpayers who had to give up his one billion pound bonus and now the past leader of r.b.s.

there stripped him of his knighthood if you ask me that's how you do it you get bailed out you collapse the economy we're going to take your money and we're going to take your manhood what can we do that. i think that would be a good idea you know it wasn't all that wall ago that if you were a banker you want out of business you were held personally responsible you couldn't hard behind a corporate shield and everything that you had went away and you might even go to prison there's plenty of opportunity to put that kind of war. the problem of course again is that the bankers are the ones that are bankrolling the campaigns and so you would essentially have to eliminate them in order to make that happen i just feel like there has to be some way around it i just don't know what it is and in europe if we can continue the conversation on that how do you punish politicians there when you don't have even elected officials that are running some of these budget reforms and governments at this point you have technocrats that have been installed and italy and greece how do you how do the people in the in those

democracies have any say. well you throw people out of office that's the way that traditionally you hold all politicians to account to question is whether or not the people will actually listen to an adult conversation about the fact that the d's promises have been made cannot be paid for and you cannot have government services that you know willing to pay for with taxes and this it is at the root of all of the problems both here and in europe i don't know if the people are willing to accept that conversation in the consequences or whether or not we're going to end up with a disorderly collapse as it is a result of them not being willing to do so we keep seeing them perpetuate this and kind of keep everything on life support where we just have been minute but at what point do you see this reaching the end of a throw. well i think disagree situation may approve the trigger but if not there was a report. apparently is about to lose in his reelection bid there later this spring and if that was to happen and the people that came into power behind him were to

repudiate any idea of balancing a budget that would almost certainly set it off because france is such a huge economy and has such a huge banking system yet it's funny i was talking to the chairman of society generality said that he thinks banks and france are just doing fine now that they have this liquidity from the l.t.r. a program that's for another day though i appreciate you being on the show great insight that was karl denninger he has the market ticker and he's the author to. it's. before we go it's been a little while since you've gotten to see me and dimitri and shannon go at it so let's do it today here's dimitri kovtun as our producer and shannon donahoe in the

control room to talk about this angle on the eurozone crisis we've been talking about it today the fate of the euro and the eurozone nations well and i'm unemployed irish artist decided to build a house out of shredded euro's one point two billion dollars worth wonder where it got him you know the saying the euro is considered the house of cards by some now we have a house of euro's air go what happens now. i buy a house a euro. ticket if the big bad wolf is going to blow down the house of euro and this guy is going to be prophetic this irish unemployed artist you know i think my first reaction when i saw it was. i think it's funny but i think it's actually you wouldn't have seen something like this how many years ago where they would make

a house out of the national currency there was more respect for the national currency i think it's telling of where we are today where people have such obviously they were torn up and they were worthless but still symbolically it's interesting that people don't respect i don't know if i agree with you because i was talking to a brit who actually he's not a brit he's french but he works and in the u.k. for morgan stanley he was saying that in london and in the u.k. everybody views the euro as a house of cards don't you think that the u.k. has a totally different perspective on the euro that maybe someone in france or germany or they're going to be careful they wish for because the pound is worse than the euro because they are in the industry now where they can't print currency and there's a concern about an actual break up of their monetary union doesn't mean that they don't have bigger fiscal problems than europe so i think that's funny you care to share who this guy i don't know i don't know who stores everywhere but that's an unnamed source you can take it up with him after the show shannon do you have anything to add to this pig little pig euro house debate. at least she's recycling

government least that's that's more of a really good point it's a really good point this is putting it to really good use making a symbolic statement with waste with explain the word agree on currency level areas ok let's move on to something that might not be totally worthless but kind of close if you're in the market for a new car this is one that you could own it is u.s. president obama's old car junker. an illinois resident is selling it it's his old two thousand and five chrysler they're selling it on e bay the car is worth about fifteen thousand bucks if i remember correctly they're trying to get a million dollars ok now the president traded it in with nine hundred thousand miles on it no bids yet auction ends on february first these are actually the pictures from e-bay i think that this is a little bit of a sign of hope that no one has put in a bid for a million dollars for this crappy car wow it was obama's can you zoom in on there we go because i just saw that right there is that

a metaphor what those three will like is it's upside and you know a metaphor for what to me to obama is driving the court regarding this. you know you know i don't know why is that upside down i like it that's very straight so maybe maybe it's a permanent it's a kind of a he sees the world upside down there you go maybe that is jones everything maybe that's why no one's put in a bid for the one million dollar car i mean come on that's absurd shannon can you imagine someone actually coughing up that amount of money for obama's old car i mean i think the guy is just selling it at the complete wrong time i mean if he was selling it when you know we had that hope and change we could believe that maybe he'd get something for it but now. all laid out over there i'll serve the new republic all right i came back from davos and shannon is this new and philosophical outlook and you're working with only you for a week to. see how to develop. ok. meanwhile. let's talk about commodities because

a combination of severe drought and historically high grain prices continues to drive hay prices higher leaving no way for horses and animal rescuers are actually being flooded with horses because owners can't afford to feed them it's not about the situation. you can't penalize the good people out there with horses that are doing the right thing it's the economy and it's the price of hate what is the price of hay right now it's about twenty dollars bill and last year about this time it was about nine that's a big change nine dollars to twenty dollars is this and that global rattling the commodities market is this one more fallout over the shame because obviously we already have a tradition crisis in this country with fuel energy. going to the arts and you know the one type of just just when i thought there was another solution there goes back to a more sustainable economy with horses and i heard doubles in price so well you know it is because they're there in rescue farm so now we could take foreclosed homes give them to renters and give them

a horse in order to get to work that's our solution that will end on for our show thanks so much for tuning in please follow me on twitter out more in leicester and give us feedback on the show at youtube dot com slash capital account i'm lauren lyster and from everyone here at capital count thanks so much for watching and have a great night.