market. has come to. find out what's really happening to the global economy with much stronger for a no holds barred look at the global financial headlines tune in to cause a report on our. top stories from r.t. at nine thirty moscow time the syrian government confirming to russia it's begun carrying out the u.n. envoy peace plan for the opposition says western and arab states are promising them billions of dollars to step up the fight against the regime also head learning from us india's army has been shaken by a major corruption scandal involving the country's military chief is causing a reshuffle among india's foreign defense suppliers which could possibly give russia an upper hand. i'm president of signs a new law relaxing the registration rules for political parties here in russia which aims to diversify the country's political landscape landscape. next we cross

to washington for some more of the latest economic insight from laura lister kind of a look out there on the air. good afternoon and welcome to capital accounts i'm laurin the search here in washington d.c. these 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 belief in an economic recovery an appetite for more risk who cares what is the reality that's what we ask 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 did the worst over for u.s. treasuries after the most tumultuous quarter since two thousand and ten. why is

that is that because people expect more q we less q e with a twist no q we can't win without thank you i mean who knows the new more grow 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 scrutiny scrutiny over how they do their jobs in the first place let's get to today's capital account. you heard the headlines of stock market performance is being attributed to some optimism about an economic recovery and 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 new us 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 thousand 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 reach twenty trillion dollars by two thousand and fifteen and according to jim quinn of burning platform on a 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 official the c.b.

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 in 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 reagan 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 think 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 a managing director at deutsche bank as well as lehman brothers so we're really lucky to have had 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 clothes lauren now we've seen a tremendous bull run in 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 it's an interesting historical parallels to the mass for an 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 geopolitical rivalries and monetary arrangements what you find when you apply a game theory type analysis is that a return to something of a gold standard is simply in a bowl at this point and i know that may seem a bold prediction but really it's not the fact is that the global unbacked the yacht dollar reserves standard as so 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 hey i want to get to some of those scenarios that kind of really hammer this point hunger thing that some kind of return to a gold standard is inevitable why did game theory tell us that in your view. well the thing about game theory is it's very instructive with respect to how smaller less powerful less obvious players in again in nevertheless at the morrigan impact the way the bigger players play their game eleven 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 want maybe

some euro's who knows what and of course gold well now wait a minute if south korea is accumulating fewer dollars then 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 the us dollars needs to be accumulated well ok so south korea has changed policy but someone else now has to change policy they must accept more dollars or they too must change policy in a different way i also in favor of divesting those dollars will the same way a small domino can topple into a larger domino eventually into the largest dominos there are the same way this can work here but south korea doesn't spill over into other asian economies asian economies in general and 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 to replace it with 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 times for some context that's that 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 rose twenty percent over the prior year to seven hundred seventy metric tons first place with india by 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 bold back her and see if they needed to or wanted to. well there are certainly who lots of contingency planning going on behind the scenes and it is 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 so one else is going to force the issue and history suggests that the

first actors in this sort of destabilized game theory scenario but first backers have the advantage purchases of gold by central banks are 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 certain 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 of the fire fighting of one crisis to the next yeah well guess what those serial crises are themselves brought on by this unbacked the you've got all the reserve standard which is so far past its sell by date it stinks it's picking 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 book to specifically address it because the brits are doing well or actually behind the scenes to try and prepare for what they probably do regard this point as the in the to books monetary regime change which is coming they know that they are stronger together than apart and aren't they interesting group russia is a traditional cold war isn't work and in many of the united states china and the u.s. have obvious rivalries and yet india and the u.s. really cozied up a lot in recent years and brazil and the us have had generally good relations for

the long time 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 of a polar global monetary regime which historically has always been back michael 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 printing is diluting the value of the dollar and so people are going into gold and that it's 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 the majority of money is created not through central bank my printing but through the banking system through traditional means like fractional reserve lending also through the shadow banking system things like hypothecation so can you talk to me a little bit about what role inflation plays knowledge that 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 of 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 that 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 some form of money supply growth but also mentally money and the stability there of is a confidence game and if you want to instill confidence you need to focus on inflation future but past is past financial markets don't care they care about inflation future and historically inflation future is dreary and government deficits and debts policies that are unsustainable clearly unsustainable are inflation future and that's what policymakers need to concern themselves about this idea that they can run up these huge deficits and debts and not someday perhaps it would incur the wrath of planet and to our it is just wrong history is very clear on that point it's a really interesting point inflation future based on debt 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 a new york times talker greg smith now an alleged a possible connection to child sex trafficking and we'll give you our three cents on the wall street giants p.r. issues but first our closing market numbers. will be. slaves technology innovation all the latest developments from

around russia we've got the future covered. filmmaker. the. director's costco's real life things in prison on charges oh oh. oh . welcome back of course 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 and he 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 and now it's

a really interesting concept and i want to talk more about it he is john butler author of this book that i have here the golden revolution he's also 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 debts and deficit say about our future inflation. well the reason why is because when a government runs chronic this it sent builds up a huge accumulated debt alternately it becomes unserviceable a corporation simply goes bankrupt when a government is 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 burdens is far more common than taxing your way out and in fact some economists think that beyond a certain point taxing your way out it is simply impossible just kill off your economy so think about it if you if you do end up in

a situation. 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 have the burden from the fiscal authority i.e. the government to the central bank well guess what when that process finally happens that then what was inflation future becomes inflation present but once you reach 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 are simply not acceptable well and that's really interesting because my producer is telling me that you guys were discussing hyper inflation 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 deficit and what you talked about confidence deficit some people no longer believe and have faith in that currency can you talk about that. the absolutely and i'm not the only one who ever had i mean nobel prize winner thomas sargent wrote a very provocative paper a couple of decades ago where he pointed out fairly clearly not a very good data set but if you look at history growth in monetary aggregates is a poor predictor of severe inflation and hyperinflation i don't 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 ultimately the better predictor to me is the clear evidence that it's the confidence came in the future it 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 this as a source of liquidity rather than as a store of value ok and i hate to say this but. the obviously being a global reserve currency a preeminent global reserve currency absolutely positively needs treat pain that store of value quality or the current global monetary regime will collapse and you know i want to talk about the dollar in a minute i just first 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 then are followed up thereafter and with various unpredictable forms of government market intervention churn release came a lot of foreign capital is involved in the process it's 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. that is the exception japan's finance their bubble they have gone and there is a policy response to the bust with their own money they owe it to themselves now 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 a book does mean is that the imbalances so created can be resolved domestically in the same way they were created domestically if the currency doesn't need necessarily to be part of the adjustment process mathematically that simply waited

whereas in the us or other countries running the lord's humility out deficits were foreign capital has been an essential ingredient to a bubble or to the fiscal and monetary response to a bubble that's where the currency complete is part of the endgame ok great part of the endgame and there's also that issue of the u.s. military backing at propping up really the us dollar that we're going to save that for another day though i really appreciate you being on the show really interesting stat that 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 three 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 a republican presidential candidate if you haven't seen him take a look. to the republicans a kind of villain newt gingrich has said i think he's done the most deflationary dangerous we can keep here offer side to someone of my. former candidate rick perry even suggested that the fed might be treasonous and then you have to do with that in texas we were true completely i believe this is. 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 they're central bankers it's ben bernanke in making these decisions with governors why can't you attack that person is this because mr bubbles is you know has had to deal with his own fair share of criticism so he understands what he also

wants to maintain respect for the office because he comes from that also brings his legacy is part of parcel of as legacy because greenspan was there when the big mess happen and bernanke you participate and of course you know recursion is the biggest thing that video clip really because what you are used to used to be capital punishment in the united states when you were given counterfeit and i think that is instrumental you know perry would bring back cover for counterfeiting then maybe we could actually get these bankers under control and it was the producer with money and said we just suffer from capital punishment and the form of central banker policy i really like that so we're basically. going to throw this away yeah what exactly were the victims of capital punishment 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 he's been going on saying that. fed didn't cause the housing bubble that those policies in the two thousands of artificially low interest rates did not

cause it who was at the helm then mr greenspan yeah mr bubble channon we have to say about mr bubbles and the hero ben bernanke i think because greenspan has come under so much pressure he's just trying to play big brother. 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 then. and over the relationship

goldman was in years since his cell industry. goldman just like we're out we're done we can handle another p.r. scandal right while goldman 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 goldman that's why the best p.r. was one hundred shut up and he just stopped talking because he knew that if anything he said was going to be corrupt the corrupt it was at its core corrupt so we know that we trust now been accused of being goldman sachs is pimping out 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 people around and horrible who for goldman starts to you know question craigslist do you think rags 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 use a good read of the week are ok well the middle group i'm staying 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 that 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 want to search this is in the business of making money you think there and was knew where that really was coming from every single penny i don't buy that shannon to land a couple seconds here before we wrap 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 that's all we have 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 i'm going to be back 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 then from everyone here thank you for watching and have a great night. all

.