culture is that so much of the tax payers money i mean i see you have a real ministry even if it's hard to deny something foreign is happening in french politics with president bush sort of hold the fighting for his political life what is the future. of the. mission of free accreditation free in-store charge a free arrangement free. three stooges free. download free blog loaded videos for your media projects and a free video dog r t dot com. if. you know how sometimes you see

a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realize that everything you thought you knew you don't know i'm charging welcome to the big picture. good afternoon and welcome to capital account i'm lauren lister here in washington d.c. these are your headlines for april twenty fifth two thousand and twelve the federal reserve came out with its u.s. interest rate decision no shocker there the f o m c voted to keep rates at essentially zero and continue to expect them to stay there until late two thousand and fourteen but what is this doing to the economy in the long run. there you see it that says it all will speak to zero heads contributing editor

bobby english about it and are we witnessing the death of price discovery when a small group of unelected bureaucrats set interest rates for the entire dollar denominated universe will explain why not allowing the market to vote on prices is a little like rigging democratic elections and last month we asked if we were seeing an emerging market and wall street whistle blowing as regulators encourage insiders to come forward with the incentive of possible payouts while we have to admit we're rethinking that is the ses the blows the cover of one of its sources reportedly does this mean that whistle blowing could be a prime candidate for a wall street short we'll talk about it let's get to the day's capital account.

all right before we get to the fed interest rate decision today i'd like to start with a little story once upon a time there were these things called prices and the market i.e. you me joe schmoe down the street determine them with every single transaction we make now although we still use prices in our everyday lives in order to make these decisions these prices are no longer freely determined by the market they are distorted and the source of that distortion rests at the table isn't the issue and she maintains its collective judgment the economic conditions will likely word exceptionally low levels for the federal funds rate at least through a twenty four. now it's just this afternoon now the federal reserve and global central banks by controlling interest rates which you can think of as the price of money through their control of the supply of money and credit have destroyed the

markets price mechanism the difference between direct price controls like what we've seen in communist countries and what we have in the united states today is simply one of degree ok the government does not set the price of bananas or computers sure but it does set the price of money and by doing so distorts prices across the entire economy thus destroying price just coverage and the very essence of a free market we have another way that you can think about this about the f.o. once the setting of interest rates is to compare it with regard to democratic elections let's have a look at one of america's popular demon's saddam hussein remember this and the iraqi elections back in two thousand and two the now deceased dictator reportedly won one hundred per cent of the popular vote people were photographed at the polls and every one of the more than eleven million eligible voters participated according to the government but anyone who actually believes that that the price

mechanism of democracy was actually working in that country might need to have their head checked my need to revisit the way that they assess logic now the same is true in the market for money and credit we have interest rates but they are rigged and rigged by a central authority of well in theory twelve are right now technically ten and elected bureaucrats we have prices but they're distorted we have the vestiges of the free market just as saddam had the vestiges of democracy but they are in a coma that's my story now let's try to all wake up and hear what's really going on we're going to talk to bob english contributing editor of zero hedge and economic policy journal dot com it is his inaugural debut on capital account so first welcome to the show and thanks so much for being on. it's great to be here lord yes so bob let's get started because today we had the f o m c's rate decision no surprise there is zero percent and till late two thousand and fourteen they think

as we've heard before ben bernanke had a press conference pretty much i would say a lot of the questions were geared towards is q e three coming what would be the situation in order to substantiate q e three coming or other unconventional easing measures and that was really what people trying to get out so my question to you is there anything interesting any interest in my new show that you can take out of the f.o. and c.s. announcement today. well ben bernanke is always talking about his tools and he's never afraid to use a thinly veiled threat that at some future time given the stock market decline of maybe ten percent or followed in europe that he will appoint his bazooka back that the economy and flood it with money and it's also interesting that he was talking about saddam hussein and his hundred percent vote for nike consistently gets nearly one hundred percent votes at the forum see there was one dissent today lacker but essentially he has a bunch of lefties on his squad there and they all kind of they're all with him in

his drumbeat that's a really good point and you mentioned that bernie he always comes out and threatens you know i've got it's funny the wording you choose threaten that's a little different than all of the reporters that you net not unanimously but seem to all be saying why don't you do more we're saying you know why don't you threaten us with more more action but he says that he does have those tools in his chest but when you look at the fed's press release from today i just want to point out a little trend if we can bring it up ok look at some of the wording anticipates likely to warrant is expected to affect suggests somewhat the committee expects there are some signs anticipate seeks to foster i mean these are not the words of certainty these to us are words of impotence now it's interesting because under the greenspan fed there was kind of this sense of awe directed at the institution my question to you do you think that this press release is symptomatic of a fed governor who maybe is realizing the limits of what he possibly once thought was a limit less tool box that he had at his disposal. well the short answer is yes i

think when you go back to greenspan he was very good at saying absolutely nothing and just confusing the markets and everybody could read into it what they wanted to and then we had to wait to see what the fed actually did in terms of money supply with respect to bernanke he's a little bit more humble these days and i think it's symptomatic of all the pressure that's on the fed he's done to sixty minutes appearances which is is unprecedented for a sitting chairman you have ron paul on him he's subpoenaed him and grilled him in front of the monetary domestic monetary committee and you know the pressure is on him so he has to be a little bit humble because everybody's waking up to the fact that the emperor is wearing very little if not no clothes at all let's talk about some of the clothes that the emperor has attempted to put on what is operation twist which the fed will continue with as planned and it's scheduled to end in june bob what is the impact of operation twist been on the real economy and has it met its objectives not to

mention what even worth the jacket because it was a very confusing kind of a program in my opinion. yes despite a catchy name i suppose one of its stated objective was to cap long term interest rates now put in the explicit yield ceiling on them but just to get them under control and it's interesting that every time the fed announces one of its major ellis a piece that is large scale asset purchase programs or something like operation twist we actually see a bottom and yields and that's when we see yields going up from the time of the the announcement which suggests to me that it's really not productive but there is a hidden side effect which really did add to the risk markets and when the fed was selling its short dated securities that is t. bills and in other securities and bind the longer term ones it was effectively sucking duration out of the market and what that does is it allows the risk tricks they calculate risk for all these large investment firms to leverage up they look

at the vix going down they see the fed essentially shorting volatility and then they can leverage themselves and what we see is a risk ramping effect and it's more pronounced with the l.s.a. p. programs as opposed to operation twist but it still had a substantial effect so to be clear what a fair way to characterize this be something that we've talked about on the show before that bernanke is a math thing with this space time continuum. yes the space time continuum of prices and price interest rates are really prices too and they're the way of coordinating between savers and producers over time so yes he's messing with the space time continuum on that note you know i want our viewers to all think of and probably many do the interest rates are the price of money and the fed has kept them close to zero since two thousand and claim that they are likely to until two thousand and fourteen what is manipulation of rates by the fed do to the economy in the long run and specifically what does it do to productivity in the long run. well in the long one run we could go back to nineteen thirty in the

creation of the federal reserve a dollar printed back then would be worth two or three pennies today so that's the on the very long term horizon that's one of the facts but a little bit shorter scale from from year to year when the fed manipulates interest rates or conducts one of its big purchase programs it creates a boom bust cycle and it tricks entrepreneurs into thinking at the beginning of the boom cycle that it's wise to take out these long term projects that end up being that end up not working out at the end of the day when the fed has to inevitably take out the proverbial punch bowl interesting is so a lot of problems it creates for the economy longer term which is something that cannot be overstated i don't think now bernanke you know if press conference today i thought was quite ironic that he said that the influence of too big to fail banks needs to be curtailed needs to be eliminated that might not be verbatim but

something to that effect is this kind of the height of hypocrisy because doesn't the very existence of the fed and its policies create a situation where too big to fail banks can even exist. i think so and the even had to change the terminology now they're called sixty's or something like that the fed the fed has required them to come up with blueprints basically for their own demise and submit them to the fed so now they have on record all the weaknesses of these large firms but at the end of the day you have to look at what the fed is still doing they're still printing money they're still willing to engage in these bailouts bernanke is himself said today that he's willing to conduct another large scale purchase program if he thinks the economy needs it so i don't think anything has changed so let me ask you this if you had to grade burning on a curve as far as how well he's done and you can't fail him as i'm sure you would want to do because you probably object with them your promise of a bed so which we may agree on you know so we can't fail him how would you grade

him you know considering what he's done and how it stacks up versus whether you think that he has created a lot of these problems or whether he inherited some of these problems from his predecessors. he definitely inherited a number of problems from his predecessors but he also before i became chairman was was one of the chief architects of the quantitative easing program along with two federal reserve bank of new york economists brian sack and vincent reinhart and that was in a paper in two thousand and four that they titled monetary policy at the zero bones so in a sense he kind of got his wish he got a financial panic which he helped create by the way and then he got to pull all these tools and build himself a sandbox and conduct his med monetary experiments and what i placed in the probably. long winded answer he got to be towards the bottom because at least at the end of the day if you look at the other chairmen in amman in the modern era maybe burns going forward they haven't done nearly as much in the way of these

unorthodox easing programs and it's interesting economic policy journal the blog that i write for our chief editor robert wenzel was invited to the federal reserve bank of new york today the heart of the lion's den and he gave a speech on austrian business cycle theory and he was able to expound some of these points that's quite interesting you invited him. actually an economist there i think his name is richard peach might have the name slightly wrong but peach had had been going around and talking about that there was no housing bubble in two thousand and four and mr wynn sell pointed out his error in a polite letter to him and eventually they had a dialogue recently and mr wenzel pointed out everything i said came true and i called it in real time here on my blog entries isn't about time you took me to lunch and so he was invited down to the new york fed to their credit and delivered that speech today that's pretty interesting to show that hey look you can document these booms and busts and predict them unlike what the why is guys that the new

york fed may believe we're going to keep you want we're going to go to a quick break we will have more with you in a few minutes including how the fed could have a negative or create a negative kind of carry trade the scenario that you've come up with we'll have more with bob inglis contributing editor for zero hedge and economic policy journal dot com. also still ahead our whistle blowing enthusiasm goes bust as the f.c.c. inadvertently revealed the identity of one of its own source is will give you our three cents but first your closing market numbers. are sure is that so much. i mean if you would like to have a real. hard to deny something or in this happening in french politics with president nicolas sarkozy fighting for his political life what is the future.

sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realize that everything you saw you don't. park is a big issue. all right welcome back we're talking to bob inglis contributing editor of zero hedge an

economic policy journal and he has discussed with us before this idea that the there's a wall that the fed will run up against when the market begins to demand a higher return on the reserve that the fed has created and this creates a perverse situation where the fed would have to print money in order to prevent runaway inflation in other words it would have to raise the interest it pays on excess reserves to entice banks to park the excess money the fed has created at the fed to keep it from entering the broader money supply so let's bring bob english back on to talk about how he thinks this is going to play out so bob i hope i described that right and if not correct me and tell me how you think this could play out. you hit the nail on the head there are a lot of problems that happen when short term interest rates start to start rising . in the economy itself outside of the fed but the fed has its own problems because it's purchased all these trillions of dollars of assets including treasury

securities and mortgage backed securities and what it did when it bought those it created reserves or digital money that ended up being parked by the banks that received in the primary dealers at the fed itself and the reason they did that is because the fed gave the ability in october of two thousand and eight to pay interest on reserves on excess reserves in particular so right now we have about two trillion dollars just sitting idle earning interest as zero point two five percent doesn't seem like a lot but according to compared to thirteen week t. bills it's not bad but when the short term interest rates start rising and especially if they start rising rapidly we could have a situation where the fed has to pay say four or five percent interest on all these assets that are there but it doesn't have the income to do so and whereas its income come from it comes from the interest on all the stuff sitting on its balance sheet again the treasuries in the mortgage backed securities so currently it's operating at a tremendous profit it remits maybe seventy billion dollars a year back to the united states treasury but like i said when short term interest

rates inevitably rise that has to come to an end and they kept the fed can actually go cash flow negative which means that it has to start printing money to fill that void in order to cover the expense of interest on exports reserves that it pays to these banks that now in the old days i'm sorry i was that they got so interesting under that scenario would that be able to control inflation from getting out of control. in the old days yes but they changed their accounting methods in two thousand and nine retroactively for the year two thousand and eight to be able to print money out of nowhere just like i said to cover the difference before the banks themselves would have would have had capital calls and would have had to pony up the difference so what we have here is a banks are going to receive all this money disproportionately the too big to fail banks that should otherwise be going to the taxpayer in the treasury and this is something that nobody's talked about yet but it's a situation that's almost inevitable and there is that there is another option for

the fed it can sell assets but then you have to ask yourself what happens when the largest marginal buyer of treasuries in the world starts selling them and that itself puts huge tremendous upward bias on interest rates and the largest buyer treasuries in the world would be that the fed the fed itself the system open market account that as i mentioned previously brian controls who incidentally is resigning as of june twenty ninth the last day of operation twist so is he the right to leave the ship here i don't know but there are big things ahead for the fed and i wouldn't want to be in his shoes speaking of what is ahead what about longer term the fed cannot control people's own valuation their own expectations in faith is there a point at which confidence in the dollar deteriorates enough so that people refuse to hold it or begin to refuse to hold it and what would happen then. well there's so much unpredictability surrounding that sadar all because it could happen in any

number of ways it could have happened with fukushima for instance it could be a natural disaster it could be a war it could be any number of events but yes when the marginal holder of u.s. dollars decides that in his or her own mind that they're not going to be worth as much materially as much tomorrow as they are today they're going to try to get rid of those dollars and you have a flight out of dollars and there's going to be a tremendous strain on the system because of it and so quick question because i only have about a minute left but do you think central banks and the largest private banks have a bridge to sell us toward some core kind of i don't know global unit of accounting like the f.d.r. or something else i think that there are a few complete competing plans in the works and let's face it the world has had for decades to plan for the united states dollars demise and that would begin when nixon told us took us off the gold standard bretton woods collapsed and put us on a pseudo petrodollar standard so there's been a lot of planning into this and i'm sure there are there are solutions in the work quote unquote and i don't think any of them are going to be particularly good but i

do think gold will serve a role in international settlements because the central banks can't get their hands on enough of that recently so several central banks in mexico russia kazakhstan all loading up even as recently as march we got no new numbers indicating that such an insightful interview we're going to leave it there thanks so much for joining us in our miami studio today bob inglis contributing editor for zero hedge and economic policy journal dot com thank you laura. all right let's wrap up with a loose change and shannon dimitri and a great opinion on something that we have opined about last month on the heels of

the greg smith goldman off bed and a reported one thousand tips that it poured into the f.c.c. the security and exchange commission after dodd frank regulations went into effect last summer that incentivized whistleblowers to come forward we posed this question . are we seeing an emerging market for this. kind of blow in the west. so we thought it may be an emerging market but now i don't know not if this the curator and exchange commission can't keep their identities as secret there's a new report out that federal securities regulators revealed the identity of one of their whistleblowers during an investigation into the company with pipeline trading systems and an f.c.c. lawyer showed a pipeline executive a notebook from the whistleblower and ok the guy i know recognized the whistleblower handwriting totally selling this guy out you know these guys are they're incredibly incompetent or incredibly corrupt or both but it's to me it's

very suspect why does the government promote the federal reserve bubbles way past her due date and don't pop them when it would have benefits the financial side to book immediately when it's against the financial sector the f.c.c. does everything they can to destroy this emerging market which actually hurt the thought of competence yeah i mean rounding it we need we need markets to clear and they're doing everything their power who couldn't destroying these emerging markets that could help clear these clogged too big to fail markets so i'm a little disconcerted by by this and it's probably incompetence but just goes to show you the most incompetent people of all of the people that are in charge of regulating the gangsters on wall street yeah and to be fair i mean we have seen a lot of indications that regulators are and nat and other areas too so i mean it might be kind of this i don't know why it's right ineptitude or it could be doing the bidding of the wall street firms even though on paper they're not really doing the bidding of the wall street firms they're having these incentives for whistleblowers well it's the phenomena you see all corrupt systems the most

incompetent people are in the position to enforce the laws and the people that are in a position to benefit from breaking the laws are the most competent and most intelligent people so you probably have idiots running the c.c. and unpopulated up and down who don't understand but if you know what made our story yes. and if you've read dr c. as we're talking about right exactly right and marco polo says book the guy who says the whistleblower he was exasperated by his efforts to try and get the made up scandal under control so this is he is up and down and competent and the people that work there are clearly just biding their time hoping they can get a job at goldman sachs so much for that emerging market maybe wall street can come up with a derivatives product to short this. industry that has sprung up meanwhile speaking of industries that have been run up and then gone bust the housing run into two thousand and eight and it's bust could be leading to a two thousand and twelve boom and feudalism ok investors are buying foreclosures in distress markets and turning them in to red tolls market watch caught up with

the chicago company looking for some lucrative returns take a look at this course clearly thousand dollars or i'm going to put it another fifty thousand dollars or two which will be there for one thirty and it will praise for one seventy five. ok so core logic a real estate data firm estimates the foreclosures to rental business could become a one hundred billion dollar industry and sales of investment home soared nearly sixty five percent in two thousand and eleven is this just a mentoring total the futile argument that this is a plantation economy and that sort of paul krugman paid interest rates because an appliance on a plate is no have interest as you have money ok you just have servants and feudal laborers and that's what you have the why would you have mortgages why would you have ownership in a fuel economy you would you would have raised rent. right of the negatives which will it ever smaller class that has the money for it i don't mean you know we have to get to this story because i know you're going to love it a recent article in the washington monthly was debating if more regions in the u.s.

that are finding themselves isolated as airlines merging consolidate and cut their less profitable routes so this article excuse me it's beyond this discussion of if government should reregulate the airline industry the new america foundation had a panel washington post covered it polo we want to have like a big reality check that take a look just if you need a little bit of inspiration over the pond for a lesson from c.e.o. of ryan air as to why regulations are the problem and why major european airlines have failed to innovate. the reason they feel it's a bit of the reason why the airline industry is that your motives is because it's ruled by politicians and bureaucrats who like nothing more than to process the regulation when something is working i remember so i mean the core thing news here is that regulations are almost always written by people that are incompetent ok and at the very least of their own incompetence they don't understand the workings of the industry or the sun regulate well enough to actually regulate it and that's

a consistent problem that we've seen and ironically because we need some basic amount of regulation we don't get that all we get regulation is written to benefit the company or entity being regulated speaking of dimitry net jets warren buffett's private jet business big boy and a million dollars lobbying washington to get tax breaks for that kind of a company then they got it eighty three million dollars over four years for net jets customers and other companies like it so how's that for regulatory capture and the airline industry that's all we have time for that there are so don't forget to follow me on twitter at lauren lyster and give us feedback at youtube dot com slash capital account and for everyone here at the show thank you so much for watching come back tomorrow and have a great night. for sure is that so much of it was me i mean i says you know it really really hard to

deny something work in this town putting in french politics with president nicolas sarkozy fighting for his political life what is the future. that's.