good afternoon and welcome to capital account i'm laurin the search here in washington d.c. these are your headlines for april second two thousand and twelve the s. and p. five hundred is reportedly beating gold by the most in more than a decade is this a sign of growing investor confidence in corporate profits or a belief in an economic recovery at appetite for more risk who cares what is the reality that's what we asked where exactly is this so-called recovery coming from and with so much debt the prospect of more monetary debasement and stagnant unemployment where are we really had it and what role might gold play in the future we'll discuss plus bloomberg reports the biggest bond traders seen the worst over

for u.s. treasuries after the most tumultuous quarter since two thousand and ten why is that is not because people expect more q.e. less q e with a twist no q we can't win without thank you and i don't know if the new more go we'll talk about what it means and on that note alan greenspan has come to the defense of federal reserve chairman ben bernanke against criticism from republican presidential hopefuls so do central bankers protect their own and why should they escape personal spirit mary scrutiny over how they do their jobs in the first place let's go to today's capital account.

lines of stock market performance is being attributed to some optimism about an economic recovery an appetite for risk and traders are looking at a continued bull market and u.s. treasuries so we're talking about confidence about sentiment but what is the reality of the facts and figures of the u.s. economy and the debt situation because the u.s. national debt is that fifteen point six trillion dollars according to the most recent numbers we've seen that's higher than u.s. g.d.p. you can see there how it skyrocketed since one nine hundred forty and look most of that has been accumulated in the last twenty years only seven percent of that accumulated before ronald reagan was president you can see how the rest is divided up there now if we stay on the path we've been going the national debt will be twenty trillion dollars by two thousand and fifteen and according to jim quinn of burning platform on a zero hedge post if interest rates normalized to the same level they were in two thousand and seven which was five percent annual interest expense would be

a trillion dollars or forty five percent of current tax revenue and if you want something more fishel the cd you know says the debt will reach twenty one point seven trillion by twenty twenty two now according to u.s. census data the share of the population that is working has fallen to its lowest level since women started entering the workforce in large numbers three decades ago you could see there it's forty five point four percent of americans that had jobs jobs continue to be an issue and if you don't have jobs you don't have a stable economy and you don't have a stable currency and then there's the unfunded liabilities including medicare medicaid social security they exceed sixty trillion dollars according to some estimates are sixty of those football field dollars tax you see there and others such as laurence kotlikoff of boston university professor who was also a senior economist in the wreckage administration he puts that number much higher at more than two hundred trillion dollars or. two hundred of those football fields

when you factor in things like defense now should we be worried about our future our monetary system running out of those we've been so so here to walk us through some possible scenarios is john butler he's founder of and for a capital and author of this book the golden revolution how to prepare for the coming global gold standard now i should also mention he was an interest rate forex and commodities strategist and managing director at deutsche bank as well as lehman brothers so we're really lucky to have him today and i have a copy of his book hot off the presses or at least on my mailbox today i just received it so thank you so much for being on the show first of all my pleasure laura now we've seen a tremendous bull run and gold over the last twenty years or twelve years excuse me it's caused some people to say hey this is a bubble you obviously don't think so you don't think it's a bubble in fact you think that there's going to be an endgame where gold plays a role as money again is is a transition back into a monetary metal that will be used to back global currencies now our audience is

already familiar with that we have had guests on like jim rickards author of currency wars who has talked about a gold standard now you go even further than jim rickards in your book could you explain how so. yes indeed i mean jim rickards book is an excellent survey of the mess we're in to some extent and interesting historical parallels to the mess for and and it is very instructive in that regard however i think you can go one step farther if you if you look at history and you consider the dynamics of international politics contemporary political rivalries and monetary arrangements what you find when you apply a game theory type analysis is that a return to some form of a gold standard is simply in evitable at this point and i know that may seem the old prediction but really it's not the fact is that the global unbaptised the

yacht dollar reserves standard has still destabilized the global financial system and the fed which stands behind back has lost so much credibility that there's simply no other way to restore a sufficient degree of trust or credibility at this point other than a return to gold if the u.s. doesn't do it voluntarily other countries are going to force the issue with the assistance of financial markets i am i want to get to some of those scenarios but it kind of really hammer this point hunger thing that some kind of return to a gold standard in a navigable why did game theory tell us that you're. well the thing about looking theory is it's very instructive with respect to how smaller less powerful less obvious players in again can nevertheless at the margin impact the way the bigger players play the game let me give you a simple example let's say a small country like south korea decides it's not comfortable with the dollar as

a store of value and as such the central bank begins diversifying its dollar reserves into wealth for example maybe some yen maybe some chinese you are on maybe some euro's who knows what and of course maybe gold will now wait a minute if south korea is accumulating fewer dollars and someone else has to accumulate more let's not forget the u.s. runs by far the world's largest current account deficit that implies that outside u.s. dollars needs to be accumulated well ok so south korea has changed policy but someone else now has to change our c they must accept more dollars or they too must change policy in a different way i.e. also in favor of divest you know those dollars well the same way a small domino can topple into a larger domino and eventually into the largest dominoes there are the same way this can work here but south korea doesn't spill over into other asian economies asian economies in general can seek to divest their dollar reserves and before you

know it the pressure grows on the biggest economies in the world to do the same and at that point the equilibrium collapses and you end up departing the dollar standard for a place that was something else well then i want to talk to you about a couple of the things that we already see happening we've seen our purchases of gold by central banks thirty in two thousand and eleven to four hundred thirty nine tons for some context that's that's it was seventy seven times the previous year i mean that is quite a town and some of the country's leading the way at china twenty percent over the prior year to seven hundred seventy metric tons first place with india buying nine hundred thirty three metric tons so do you think that we're already seeing some of the shifts or are they preparing to possibly have some kind of a gold backed currency if they needed to or wanted to. well there are certainly lots of contingency planning going on behind the scenes i mean it's so obvious how screwed up the current financial system is globally it's obvious that u.s.

policymakers are not yet willing to make the tough choices necessary to sort it out voluntarily someone else is going to force the issue and history suggests that the first actors in this sort of destabilized game theory scenario that first backers have the advantage purchases of gold by central banks or a form of gold in writing on the wall and there are other forms of writing on the wall to which the mainstream economic academic sort of group which influences the central banks in the policymakers they may not be focused on it because they are just so focused on the crisis of one dire fighting of one crisis to the next yeah well guess what those serial crises are themselves brought on by this unbacked you've got all the reserve standard which is so far past its sell by date it stinks it's ticking and maybe people that are smelling that most recently

i'm curious we just had a brick summit brazil russia india china south africa it's an economic alliance and they discussed and signed deals to lend in their local currencies to encourage trade in their local currencies they criticize their policies of advanced nations that have flooded liquidity into the global economy much of which has gone into their countries they criticize these kind of policies how significant do you see the moves that they're making now. it's hugely significant i devote two chapters in my work to specifically address it because the brits are doing lorsch leave behind the scenes to try and prepare for what they probably do regard at this point as the in a bunch of books monetary regime change which is coming they know that they are stronger together than apart and aren't they an interesting group russia is a traditional cold war is it work and in each of the united states china and the u.s. how obvious rivalries and yet india in the u.s.

really cozied up a lot in recent years in brazil in the u.s. it had generally been relations for the long times that's an interesting group that group may represent the tipping point where the unintended consequences of unsustainable u.s. economic policies not in the interest of other countries create a new coalition which finds a way to cooperate and help move the world back towards a more bold type polar global monetary regime which historically has always been backed by gold as a really interesting and another thing that factors in here is inflation i want to talk about the role of inflation and encouraging any of these kinds of scenarios you know a popular justification for the run up and gold prices that we've seen is that the federal reserve monetary money nine printing is diluting the value of the dollar and so people are going into gold and that if this dilution of the dollar and the

purchasing power that will result in hyperinflation however that view seems to misrepresent how inflation works and today's monetary system a little bit because of the majority of money is created not through central bank night printing but through the banking system through traditional means like fractional reserve lending also through the shadow banking system things like re hypothecation so can you talk to me a little bit about what role inflation plays knowledge as and how you're even measuring inflation how we can do that. it was easy to get trapped into a never ending semantic debate about what inflation is and it comes down to the hairsplitting which monetary aggregate would one like to focus on which appears to have the better relationship to economic stability or instability and i think it's easier to step back from those semantics and hair splitting and to really recognize what inflation is in more general terms consumer price inflation really that is inflation passed that's the result of inflation that has already occurred everyone

agrees it's some form of money supply growth that alternately leads to some form of consumer price inflation but it's the money supply growth itself which characterizes inflation presence but what money supply what aggregate well we can debate that forever but it's something out of money supply growth but alternately money and the stability there of is a confidence game and if you want to instill confidence you need to focus on inflation future what's past is past financial markets don't care they care about inflation future and historically inflation future is driven. government deficits and debts policies that are unsustainable clearly unsustainable our inflation future and that's what policymakers need to concern themselves about this idea that they can run up these huge deficits and debt and not some day perhaps soon incur

the wrath of florida and it is wrong history is very clear on that point it's a really interesting point inflation future based on debts and deficits when we get back i want to talk about what role that confidence game plays in hyperinflation over history we will be back after a break with john butler author and founder of and for a capital and still ahead it has been a rough couple of weeks for goldman sachs first it was the public resignation of banker and new york times talker greg smith now an alleged possible connection to child sex trafficking we'll give you our three cents on the wall street giants p.r. issues but first a closing market numbers. we just put a picture of me when i was like nine years old on the job the truth. of

the contest and i am a total get of friends that i love rap and hip hop is a tricky. but it was kind of yesterday. i'm very proud of the all the belgians you just played. you know sometimes you see the story and it's. so. you think you understand it and then you glimpse something else here's some other part of this and realize that everything you say you don't. charge this is.

what drives the world the fear mongering used by politicians who makes decisions to break through and through who can you trust no one. to move you with a global missionary see where are we heading state controlled capitalism and school sections when nobody dares to ask we do our t.v. question more. welcome back before the break we were talking about why my guest thinks a return to a gold standard by someone in the world is inevitable based on game theory any was talking about something that plays into this obviously is inflation and the measure of future inflation he says can be seen in debts and deficits now it's

a really interesting concept and i want to talk more about it he is john butler author of this book i have here the golden revolution he's also a founder of and for a capital and before the break we were talking about future inflation and that being based on debts and deficits now so my question to you is why and then what is the u.s. as debt and deficit say about our future inflation. well the reason why is because when a government runs chronic deficits and builds up a huge accumulated debt all smoothly that debt becomes unserviceable a corporation simply goes bankrupt where the government does not in the same way it will obviously seek to raise tax revenue or do what it can to try and service that colossal debt but historically inflating your way out of unserviceable debt is far more common than taxing your way out and in fact some economists think that you're on a certain point taxing your way out it is simply impossible just kill off your economy

at that point so think about it if you if you do end up in a situation where huge unserviceable depor guess where the pressure will then fall it will fall on the central bank to accommodate that huge accumulated debt burden with inflationary monetary policy and so in the way that you pass the burden from the fiscal if they're already i.e. the government to the central bank well guess what when that cross at this finally happens that then what was inflation future becomes inflation present but once you've reached that point you might already have lost confidence in the currency you might already have undergone a tremendous financial crisis because of the perspective financial markets have looking into the future that you are running risks and that the risks were simply not acceptable well and that's really interesting because my producer is telling me that you guys were discussing hyperinflation and you were saying that it's actually

not necessarily correlated with this kind of inflationary monetary policy you're talking about that historically it's about deficits budget deficits trade deficits and what you talked about competence deficits when people no longer believe and have faith in that currency can you talk about that. well absolutely and i'm not the only one who ever i mean nobel prize winner thomas sargent wrote a very provocative paper a couple of decades ago where he pointed out fairly clearly let you got a very good data set that if you look at history growth in monetary aggregates is a poor predictor of severe inflation and hyper inflation is going to get me wrong i mean it is a sort of wish it was a chore but the better predictor is very large government deficits and accumulated debt burdens that is alternately the better predictor of bats and me is the clear evidence that it's the confidence came in the future that really matters when you're considering whether or not

a currency is going to simply be rated in the investment community in a way that people will only hold it as a source of liquidity rather than as a store of value ok and i hate to say this but that the obviously being a global reserve currency the preeminent global reserve currency absolutely positively needs to retain that store of value quality or the current global monetary regime will collapse and now i want to talk about the dollar in a minute i just want to follow up to ask about japan because japan has the highest some of the highest public debt that we see in the world two hundred forty percent public debt to g.d.p. why not hyperinflation there. well japan is an odd case because historically when you get very large investment bubbles that terms of bus and that are followed up thereafter with various unproductive forms of government market intervention or

charity speaking a lot of foreign capital is involved in the process involved in fueling the bubble in the first place and it's involved in financing the unproductive government policies that come in there after in response. to that is the exception japan's finance their bottom they have finance there is a policy response to the bust with their own money they owe it to themselves no that doesn't mean it's not a i mean that doesn't mean it's not a problem i don't want to say that japan's off the hook here but the fact is is that when a government finances itself using its own domestic private sector savings it's still a misallocation of resources i don't mix skews it took us mean is that the imbalance is so created can be resolved domestically in the same way they were created domestically and that currency doesn't need necessarily to be part of the adjustment process mathematically that simply the way it is whereas in the us or

other countries running the lords funeral account deficits were poor and capital has been an essential ingredient to a bubble or to the fiscal and monetary response to a bubble of that's where the currency complete is part of the end game ok great part of the end game and there's also that issue of the u.s. military backing at propping up relate the us dollar that we're going to save that for another day though i really appreciate you being on the show really interesting i was gone butler author and founder of amp for a capital. live . all right let's wrap it up with some loose change i've got to meet harry and

shannon to stay on the topic of central banks for now because former fed chairman alan greenspan is coming out and defending the current chairman ben bernanke you against attacks made by republican presidential candidates if you haven't seen him take a look. to the republicans a kind of villain newt gingrich has said i think he's been the most deflationary dangerous. cute offers i'd like to someone of my own but my own former candidate rick perry even suggested that the fed might be treasonous and then you have to do with that in texas we were trying to implement this is actually i think. greenspan told the financial times anyone has the right to criticize federal reserve policy but it is wholly inappropriate and destructive to engage in ad hominem attacks why why there's central bankers if ben bernanke in making these decisions with governors why can't you attack the person it's just because mr bubbles is you know

has had to deal with his own fair share of criticism so he understands why he also wants to maintain respect for the office because you come from that also bernanke his legacy is part of parcel of legacy because greenspan was there when the big mess happened i'm going i was participating and of course you know repurpose is the biggest thing that video clip because what you are used to used to be capital punishment in the united states when they were doing it in counterfeiting and i think that is instrumental you know rick perry would bring back a couple dollars for counterfeiting then maybe we could actually get these bankers under control there was a producer with money instead we just suffer from capital punishment and a former central banker policy i really like that so we're. just going to get away yeah like that exactly were the victims of khalil you know one thing i want to add maybe this is a tip for tat because we did hear ben bernanke and part of his p.r. spree that he's been going on saying that. the fed didn't cause the housing bubble

that those policies in the two thousands of artificially low interest rates did not cause it well jean who was at the helm then mr greenspan was for it was a bubble and we have to say about mr bubbles and the hero. i think because greenspan has come under so much pressure from trying to play big brother to here but i'm not buying we're not buying it we're all in agreement here so let's move on because it's been a rough couple of weeks for goldman sachs needless to say here is another p.r. fiasco to add to the list so it turns out goldman sachs had a thirty million dollars stake in village voice media which has come under fire for its back page dot com website now in an op ed in the new york times over the weekend columnist nicholas kristoff says this site is the biggest forum for trafficking of underage girls in the u.s. so indirectly now goldman sachs was linked to the child sex trafficking allegation so what happened. over the relationship.

was employers cinches selinda state. goldman just like we're out we're done we can handle another p.r. scandal right while i'm gone we can't help themselves because they're so corrupt. they're so perverse in their very nature their culture is so malignant they really can't open it was no amount of p.r. could actually help hold them that's why the best p.r. was going to go if i just shut up and he just stopped talking because he knew that if everything you said was going to be corruptible. it was at its core corrupt so we know. now because the being cold hearted people you know women it's just it's the nature of the business which shouldn't surprise you know i actually in this case i don't really think it's fair do you think that craigslist is in essence you can rant and horrible. go right starts to you question craigslist do you think red list is and horrible and all of those things that you're saying about goldman sachs

i don't know maybe ok no you're not helping i don't know them are going to go me ok we're going to medical group i'm saying in this case craigslist was you know accused of having these ads were very lucrative but they were allowing prostitution and sex trafficking ended up getting rid of the business a lot of those ads went to this back page dot com which is part of village voice which goldman sachs own fifteen percent i believe in i'm sorry i don't really think that it's fair to say that the bank was responsible for knowing about that and i know i. don't really write a moment such as is used in the business of making money you would think there and was knew where that revenue is coming from every single penny i don't buy that chantal and i had a couple seconds here before we were out i think that things come in three years so i'm waiting for the next p.r. scam all right well wait till the next shoot for the next shoe to drop until then it's own time that there are so thank you so much for tuning in though and don't forget to follow me on twitter out lauren lyster and give us feedback on the show

a you tube dot com slash capital account to get you through until tomorrow at this time where we have another show but until the. from everyone here thank you for watching and have a great night. for .

me is believed to. be. able to. see. you know how sometimes you see a story and it seems so for like sleep you think you understand it and then he lived something else and you hear or see some other part of it and realize that everything you thought you knew you don't know i'm tom harpur welcome to the big picture. mission free accreditation free zones for judges free arrangement the free.