good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. to hear headlines for april twelfth two thousand and twelve the vice chair of the u.s. federal reserve suggest keeping interest rates close to zero until possibly as late as two thousand and fifteen we asked if this is the unintended consequence of a negative real interest rates. if you try to create a time paradox result which could cause a chain reaction from going on out of the very top of the space time continuum the entire universe are we headed for a disaster of cosmic proportion will ask that question an international monetary

fund managing director christine legarde seems to be doing p.r. in washington ahead of her attempt to collect more money from i.m.f. members which is expected to come next week to guard against the risk of europe's crisis. we probably have of the moment little bit of breathing space not much but the little bits of breathing space where we can actively pursue what still needs to be told. meanwhile george soros writes in an op ed things have gotten less volatile in europe but more lethal we've seen an e.c.v. official hint that the bank could attempt to put out the fire with more debt purchases or try policymakers may control the printing press but they can't control or confidence in a currency or economy so we'll talk about where this is headed and virgin mobile goals richard branson has a new global idea he's got a plan to tackle the racket of student loan debt and you thought outer space is

ambitious look talk about it let's get to today's capital account. more reading of the u.s. federal reserve's tealeaves today as the fed's vice chair janet yellen said interest rates maybe should be kept at zero until as late as two thousand and fifteen reportedly she said that in a speech in new york meanwhile the new york fed president william dudley also has reiterated he supports keeping interest rates near zero until late two thousand and fourteen now all of this has us thinking back to the future about time travel and has us wondering if the artificial manipulation of interest rates distorts this

space time continuum and therefore frenzy economic destruction of cosmic proportions now we have mike norman here to talk about it he's probably going to severe with what i have to say but that's why we like him so much his chief economist at john thomas financial and he joins us now to talk about all things monetary issue related first of all mike thanks so much for being on the show again it's nice to see you. i love being on the show lauren and you know i love talking to you and you are so smart how did you get some more i mean i'm going with. my things i said i don't read your blog i don't read your blog ok on that note i have a feeling that though i do read your blog you're going to disagree with what i have to say but my question is this back to the future question does the feds manipulation of interest rates ok that may keep intimate is there are there going to continue keeping them at zero does that distort the space time continuum meaning

that it's manipulating and screwing up perception of risk my and therefore the value of the present relative to the future when you think. well i don't think so i mean it's kind of a weird. entree into this the space time continuum but look first of all let's understand that the one of the functions of the central bank is the setting of interest rates it's part of its monetary policy and it goes along with its mandate of trying to keep low inflation and employment at a certain level does it distort risk i mean you have to remember there's two sides to a balance sheet right we've been for the last five hundred years on double entry accounting so for low interest rates you know create an incentive to take more risk on the part of some people. on the other it's flip side of that which is something you guys have been talking about and everybody's

been talking about for a long time it reduces incomes to people who you know are on fixed income so i ask you the question you obviously don't like low interest rates you think it's a distortion but high interest rates the very same thing only it's the reverse ok it increases income to people who are in fixed income or savers or creditors and it reduces the ability to borrow it makes it more expensive so basically it is what it is you know the fact that the fed or a central bank sets interest rates in its own currency i don't think that's a distortion i don't think you know what it is basically i think it removes risk in the sense that essential bank is telling you where the interest rate is going to be you don't have to guess in this particular situation they're saying out to twenty fourteen another two years or maybe possibly even three years out from now we're going to keep it as zero or around zero that's wonderful because you talk about

being able to plan you know exactly where the interest rate is going to be if left to the vagaries of the marketplace as we see with other. instruments or commodities where there is no monopolistic power that sets a price it could be all over the place that makes it very very hard to plan so i don't think it's has a distortive effect at all but mike how can you argue that and i hear everything you're saying but when there is keeping interest rates at zero and that's unusual even if they're telling us that they're going to be at zero for a while i negative real interest rate i think that distorting a lot more people than maybe it should be when you're in france and i think grants now as opposed to planning for the future saving for the future you can do that ok well well they can't obviously they do but here's the reason why they think you know the fed believes it will accomplish

a certain goal right i mean that's why they're doing it what we have seen after the financial crisis and the very severe contraction in the economy the loss of jobs is that households have this very strong desire to save they're worried about the future they may not have a job their consumption ability their spending ability has been impaired this savings is a leakage to the economy right i mean somebody has to spend or there is no economy so the fed in its thinking and i'm not saying it's correct i'm not saying it even accomplishes the goal but in its thinking it lowers rates trying to spur the man for credit in the hopes that that would foster some kind of a spending boom to offset the desire to save but what we're saying is it doesn't work ok the savings desire is still very very high. household spending spending is still very modest very weak that's why we only have

a two percent growth rate so it really isn't working is it bad to save my. it's obviously enough to said no that's a loaded question but now and then we say how how do we save how can i as a saver accumulate net positive amount of dollars net dollars how can that happen the government somebody has to spend more dollars than it takes in order in order for me to have a surplus of dollars right so in order for the non government that's me and you and businesses and everybody else who's not the government in order for us to save have a net surplus of dollars the government has to run a deficit of dollars because that's where dollars come from so if you notice when the deficit went way through the roof up to one point five trillion if you notice the savings private savings exploded it went where not went way off and that's

because private savings equal the deficit of the government took a penny needs an accounting identity what now you're talking about deficits that i am that just came out and said that we're looking at a scarcity of state assets that as we've seen is sovereign debt crises there are fewer countries that people are willing to accept our risk free when they issue debt so is that the unintended consequence add these deficits we are literally mike we're running out of faith risk free assets. well that's not ok that's not the consequence of the deficits the deficits are providing the safe since they're providing the treasuries look at treasuries people want to own treasuries to spite the lowest rates in history right so the deficit is supplying those say facets the problem is it's not supplying him in enough quantity equal to the desire of people that want to hold them it needs to in fact what the markets are saying

what the markets are screaming lauren is that the deficits have to be much much bigger because it's an enormous desire to save in these safe assets ok you can control death as that if you're a government but you cannot control they and your currency and your economy so what about when that runs out and if it runs out how can you rule that out. i don't follow first of all let me just say as a government you know you can't even control the deficits the deficits are an economic phenomenon not a policy phenomenon the deficit got to where it is because economic growth contract and so sharply ok if the economy were to grow at historically that's the only way to eliminate deficits if the economy were to grow the deficits were to shrink so it's not a policy decision that creates the deficit it's an economic phenomenon that creates a deficit the second part of your question i didn't really follow ok well then

let's let's maybe you can follow decimal are close late because it's something that i know you will have a strong opinion on a lot of people are wondering about q.e. if there is going to be a q e three you have people reading the tea leaves with every fact governor's comments that have come out like and deadly said something about it today. surely you don't think that mark you we would be a good thing mike but yeah no i do not and i guess it's something that we agree on lauren and here's why q.e. really functions like a tax and the reason that it's true is because it removes interest income from the private sector think about it when the fed conducts q.e. what happens it strips the public of one asset which is a bond and replaces it with cash a reserve balance in the banking system which pays nothing so you have the removal of a very significant amount of income that's the same thing as a tax what is a tax why do we hate taxes because they take income away from us q.e.

does exactly the same thing last year the federal reserve handed over eighty billion dollars in interest income to the treasury that's income that would have been earned by the private sector and over the past four years four hundred billion dollars has been taken out that's not an insignificant amount of income so and the proof is in the pudding right i mean we've had. all this q.e. and the economy is still only grown to two percent so i would i would say absolutely they should so in out regard is the fed messing with the asp a centime continue one and could this be leading to a cause make explosive destruction in the economy mike. well no i don't think so and i think it gets back to what i said at the beginning was remember it's double entry accounting so if it's taking income away from somebody save or let's say it's providing income to somebody else in the form of let's say lower debt service

payments the problem is there's a leakage there it goes into the banking system in the form of higher margins and profits so net net i think it's a negative net net negative when we come back i want to talk about europe because that's been a a big and we're going to want to talk about what's going on there we'll have more with my garmin chief economist john thomas financial after the break and still ahead forget the space time continuum and even flight to outer space for that matter it seems to richard branson has other ambitions these days we'll give you our three cents on the billionaires plan to send student loan debt light years away but first their closing markers. we just put a picture of me when i was like nine years old and just

a little truth. i'm a contestant i am a total get a friend that i love rap and hip hop is that and for. that he was kind of the jester that. i'm very proud of the world with its place. you know sometimes you see a story and it seems so silly you think you understand it. something else you sure see some other part of it and realize that everything is ok. i'm charging the is a big issue.

what drives the world the fear mongering used by politicians who makes decisions. who can you trust no one who is you. know with global machinery see where we had a state controlled capitalism it's called sessions when nobody dares to ask what we do our t. question more. welcome back so europe is trying to paper over its problems we've seen that despite the fact that a debt crisis persists the e.c.b. has conflict quiddity into banks we've seen more than a trillion dollars pumped in through l t r o yet again we see spanish yields have been rising some concerns there christine legarde managing director of the i.m.f.

today said europe is the threat to the financial stability of the global economy still and is no way out of the woods george soros writes in an op ed about europe at the fundamental problems have not been resolved indeed the gap between creditor and debtor countries continues to glide in the crisis has entered what may be a less volatile but perhaps more lethal phase now regardless of the motivations for what they're saying ok we know the guard is trying to raise money i think george soros has plans and ideas of his own but the problem is that they talk about that is very clear it goes to show that you can try and paper over a problem but that doesn't make it go away so what are you to do that's my question as we continue with mike norman chief economist and john thomas financial so my question is we've seen so much liquidity pumped into europe they still have a debt crisis they still have all of these problems what is the solution to that.

ok well that's a hard i mean i'm going to answer that but i am going to add to the surface article by the way he said he didn't have an answer i'm going to give an answer first of all you have to understand one thing the village quiddity that was pumping in were loans and the problem with europe right now is that all these countries and we have to remember very important to state that none of these countries are currency issuers anymore they're like functionally like states of the united states so they can go bankrupt so these loans on top of loans to countries whose economies are contracting as a result of austerity there's no way they could pay them back right i mean the math just doesn't work in this situation we know that what the problem is now the solution is to have a fiscal authority but they don't have a fiscal authority it's not like the united states of california was going bankrupt if push comes to shove the federal government could give money to california you

don't have that in place what you have in europe is the e.c.b. which could be like a fiscal authority and it kind of has been acting like that in the purchase of bonds it's been sort of quasi funding these countries like greece and spain what you need to have is for that to be institutionalized right now in the european constitution that can't really happen so they're figuring out all kinds of ways that the e.c.v. could kind of do that and germany's against that put to really solve the problem what you need to have is for the e.c.b. not to lend but to give a distribution maybe let's say ten percent of your g.d.p. to all countries not just greece so there's not everybody all you know upset that it's just going to graze ten percent of g.d.p. a one time distribution or maybe repeat that the next year if it's necessary to allow the deficits to remain at the current level so that they could stop all

the good. of their economy so that the economies can stabilize start to produce revenue again hopefully get back to a growth path and then those deficits would start to shrink so my are you saying hurry are you saying you're saying give them money countries not give them banks money give you money give them the e.c.b. gives a ten percent distribution to all the eurozone members give them money ok so then in this scenario what would the members do with them because the whole issue of the banking system and we've seen these to be at least try to prop up banks but one of the big issues there is that that money it may be avert a credit crisis but the banks don't lend it and they don't buy sovereign debt with it they just use it to shore up their balance sheets. right well here's what happens and i went over the problem with the other way they do it because it's just a loan on top of a loan the money for stalls or stops the collapse of economic growth there's only

one way to pay back the banks floor and that the bad banks are businesses right they made loans that's their business the loans get paid back if you have economic activity where people have jobs and they're making money and they could pay back the loans this is the whole problem the way austerity is not allowing this to happen if you stabilize the economies so you don't have to layoff millions and millions of people and you don't have to close firms and businesses could start to grow a little bit guess what the loans get paid back the banking system starts to heal and you grow your way out of it that's the only way if you continue with these loans if you continue with the current approach the so-called remedy that they're going after it's an absolute one hundred percent guarantee that the whole thing is going down and i will say this is the strong nations like germany who think they are now shielded from this or in some way protected because they're very strong

financially the whole thing will migrate right up to the top it'll get to them too why because germany is literally killing its customers that is the periphery on the other nations in the euro zone that by their exports if they don't see this it's amazing that they don't see it is that i've said it before in his show it's the definition of insanity continuing to do the same thing over and over again and expecting a different result than the one question i have now and how do you know that you're going to maintain faith in a currency if you just get all these governments a bunch of caps. well i was in the next phase here are you all just answer your question with a question are you maintaining faith in the currency by destroying your economy i thought well either way it doesn't seem like either one wins it seems like you could lose either way. i disagree i think if the economy grows and people are working again and things stabilize i think the currency lease stays stable i'm not

saying it's going to go up through the roof but at least it stays stable all right i'll be my guess ok will gas and i appreciate you being on the show we're going to leave it there for today that was mike norman chief economist at john thomas an answer. all right let's wrap up with loose change we've got to stand in here and talk about how it's richard branson's big new idea so virgin c.e.o. and billionaire richard branson has his sights that on a new crusade take a look i think government should generally get out of any business and. you know price used to try to encourage. private private individuals to do it.

don't forget carrying u.s. astronauts to space he's actually taking on the university system the high school dropout took to his blog to write this there needs to be an urgent rethink in all countries around the globe courses for most subjects need to be slashed in half so that students can get out into the real world quicker with less debt and have the ability to start earning so yesterday we got a lot of feedback when we talked out some solutions to the student debt crisis and here is richard branson what do you think cut down class and i think was a. great career genius because we used in the medieval period and feudalism we have we have an educated serfs basically people that were indebted but didn't know anything right and now those are in turns with nothing. but what i'm saying is people know i was agree but i actually think that they knew something was rocky stupid and i was there actually is boomer than we were before you have

a college degree but i don't think i'm a genius like these kids come out of me in three. dimensions. my point is that at least in the fuel period they were in educated now they are educated so they're worse because they're under. because there's cause agree isn't worth anything at all and they're going to have it for the fuel system of work of people who go to the swap with actually stoop and they're going to get it there's i do think he's honest on the shannon i feel and honestly the money has gone to his head because if he is he's been picked up off of the middle of the ocean like six times his budget and if i had a surgeon operating on me after the six times i was plucked from the ocean i hope that they didn't have an excruciating college course. was ok there's only one goal stance you need that's unique ok if you're a surgeon or something specialized that's different i think in general i think for a lot of jobs you don't necessarily need to have an expertise and you know the last

if you want to one or some of these other subjects that you know maybe you don't let's move on though. because speaking of education maybe you should consider this before you get yours because career cast dot com ranked the best and worst jobs of two thousand and twelve the best job a software engineer according to them and the worst a lumberjack if you're curious to where we tell as broadcasters well broadcaster fell a hundred and sixteen spots below this any rule. you know actually bush they're there plumbers so broadcaster is ranked one hundred ninety one out of the two hundred worst jobs out there maids shoe repair people just a little bit better than lumberjack who risk their lives every day i totally get the software in a previous life i basically work with all software engineers and software jurors are anti social and they're able to extract huge amounts of money that are so good for them or desirable in this economy because there's that world where there's

a there's no there's not enough supply so they're able to command a certain premium and they're able to really bust your you know you know what there's no they feel like so course a great job being a software engineer the worst job is probably being a journalist it's almost the worst job she had and what was your reaction to these jobs just a rather subjective list because i didn't see a politician on there yeah i didn't i didn't see investment banker either or both of us have very kind of a lot of risk of fail risk their investment banker did well know where you work and then if you're on it to get it too big to fail bank or in your own right on hey let's move on we've got to get to this one malaysia airlines against flying or double decker airbus on july first and it seems the company has a bit of a seating chart in mind take a look. a luxury launch has to clear the trold freezone it's the first lawn in the world to do that and honestly i think a lot of business travelers are hoping on the relaunch. so what do you think of this my issue the child free zone will restrict families traveling with children to

the all economy lower deck so basically only get a child free zone if you're in business class or first class if you're an economy you're stuck with the kids what makes sense because the children and they have population growth and it desire to contract or pollution growth and euthanize the population so i think it goes with the culture to eliminate children they don't want you to hate them a shoulder and all this is what i want to child free zone but i ride economy because i obviously have job number one you want to not less i'm a broadcaster and i write in economy and i don't get the benefit of a child free zone really got under the understanding that this is really an elite all of our policy it is an elite all of our policy because it excludes the middle class who want to write it of having a child free zone to ride in peace and i'm all for it otherwise on that note that's all we have time for thanks so much for tuning in do not forget to follow me on twitter at lauren lyster also going to speed back on the show at you tube dot com dot com slash capital account tomorrow we will respond to it we will also speak

with the always informative and interesting chris martenson there for now from everyone here at capital account thank you so much for watching and have a great night. wealthy british soil. mark why not. find out what's really happening to. global economy with my scars are there are no holds barred look at the global financial headlines tune into cars a report on our feet. i

believe.