good afternoon and welcome to capital account i'm more in leicester here in washington d.c. these are your headlines for may first two thousand and twelve austerity is in the news everywhere you look germany's finance minister wolfgang shorey blood is saying the euro zone must stick to it as a precondition for what he calls the stain of growth the mainstream media and critics are saying recessions now in the u.k. spain along with a number of other eurozone nations show this you look at the all dirty measures that they put in place in europe after years of spending now the on just not working it is this a false argument the problem in the euro zone is the debt debt they cannot be

repaid will not be repaid cutting spending with this level of debt is not going to solve the problem that neither is papering over it with spending we'll talk about it and we keep adding to the list of paul crewman debate yesterday it was paul versus paul as in ron paul versus paul krugman today it's paul verse there's mischance right might shed luck will make the case that crewman's claims the fed can solve unemployment amount to this. mission impossible odds with that was we'll talk about it and it is may day labor day demonstrations protest strikes going on all over the globe for the cause of workers you know workers people who make things produce things but how many people actually fit into that category in the u.s. anymore as protests go on in this country we'll talk about it let's get to today's

capital account. all right let's take a look at the headlines today berlin call to stick to euro zone austerity got another one europe in slump rethinks austerity austerity as this is an example has literally been everywhere that we have turned lately so it's being thrown around all over the place what exactly does that mean officially as in the west there is definition well here it is austere qualities severity of manner or life sternness usually austerities of the monastery life ok well it sounds pretty awful i wouldn't want to live in a monastery or leave to live

a stirring lifestyle but does cutting back on government spending qualify as austerity austerity well maybe in the short run for those whose incomes drop as a result but what about longer term what does austerity mean in that sense there seems to be a popular notion among mainstream economists that there are periods like the one we're in today where the private sector willy nilly just stop spending this is otherwise known as a crisis in aggregate demand and the solution according to people like paul krugman is for the government to step in and spend money but why isn't the private sector spending again mainline economists point to something called the paradox of thrift in order to explain this well this paradox they believe that people are responding to negative expectations about what roath income security choose to save an ever greater amount of their declining income and by doing what's in their best interests as the theory goes the whole of humanity drives itself and its economy to

a halt and back into the stone age if everyone saves there's no one left to spend and if there is no one left to spend then there is no economic activity g.d. contracts incomes crash savings evaporate essential it is a self to prove produced depression sounds pretty straightforward right. only it isn't what economists like paul krugman ben bernanke e and others fail to recognize in our view is that there's a reason the private sector isn't spending and it has nothing to do with an elaborate psychological feedback loop it's true that negative expectations about the future sure they reinforce a negative trend but at some point that trend does have to reverse a bottom will form and from the point of that bottom the economy will what will what else it would have loved to do it will go the other way it will rebound so what then is preventing the bottom from forming and toured the true four letter

word d.e.v. t. debt the reason the economy can't recover and the reason the private sector isn't spending is because it's in the process of leveraging from a debt binge that has gone on arguably for almost four decades in the us and with a bit more variation in europe the problem isn't a lack of demand this is a symptom of the disease is a stock of nominal debt so large that it has created a negative drag on the economy and attempting to carry this debt and not defaulting on it not forgiving it is a path towards feudalism towards serfdom and this is why we have bankruptcy laws for the private sector the notion that this should not apply to government debt as well is bank. and as we have mentioned often on this show excessive debt levels lead to the distortion of prices and the misallocation of capital this

misallocation ultimately pushes economies into recession a recession isn't pleasant but it is a natural economic process you can't have booms without a bus and a recession is just the economy's way of purging itself of all the malinvestment created during the boom in the economy as in life you can't run a race forever without taking a break at some point. you need to rest and if you don't do it on your own accord you can bet your body is going to force you to do it and dead and that scenario is a stimulant for the economy the way that amphetamines are for a runner it may help you get more growth in the short term but you will pay for some of that extra growth with recession later on that's life nothing moves in one direction for ever and on that note this introduction maybe is bumping up against those limitations as well so let's turn to our guest mike said locke miche his investment advisor for sick of pacific capital and it is still nice to have you on the show and you are right it looks like

a beautiful day in illinois where you're sitting thanks for being on mission. and it's a pleasure on the show with that great intro i'm not sure i get it but so that was that was very very good well thank you i beg to differ with you miss you always have a lot to add so let's start from the top my first question for you which i set up in my intro are critics in the mainstream media critics in general missing the point when they look at spain when they look at these other euro zone economies that are in recession now when they say. the problem austerity didn't work are they missing the point that there is this huge overhang of debt that has been liquidated . you're missing so many points i don't know where to start but you know let's take a look at france you know the government spending is something like fifty six percent of g.d.p. what i want to be one hundred percent of g.d.p. so so where is this going so this idea that the governments can speak keep spending more and more money you know france already proves that doesn't work i think we've seen not i for inflation it's but we've also seen japan you know japan has

debt to g.d.p. ratio two hundred percent agreement saying and others keep saying well you know nothing's gone has got wrong yet but the point is is yeah in a mere one percent rise in interest rates in japan literally consume one hundred percent of government revenues so. soon and all these economists out there manc you they're they're all alike they have an academic background they look at academics for most you know their it's wonderland economy they think we can spend our way out of the problem when spending is the problem and the fed then reacts to that creates these boom bust cycles of ever increasing amplitude and they say oh well we need to lower interest rates where we are down zero in japan it didn't work and we're now at zero and the united states certainly hasn't created any jobs or and i wasn't sure hadn't and i want to get to that point a little bit later but i do want to stay on this argument about austerity in europe

and this being focused on as the problem what about as we talked about some of these eurozone nations what about a country like the u.k. though in europe but it's not under the euro it's not under some i.m.f. troika bailout program where austerity has been imposed it took off parity upon itself preemptively with a two hundred thirty billion dollar program of cutting seven hundred thousand public sector jobs and trying to essentially have no deficit by two thousand and seventeen now it's in recession according to the new g.d.p. numbers that contracted point two percent for the last quarter is this evidence that austerity doesn't work is the bad thing to do. right measure we're going to hold you right there we lost sound we're going to try to get your sound back with you because there is

a lot more that we want to talk about about austerity i do not want to miss the opportunity to talk more about paul krugman with you but for now we're going to take a quick break try and get this fixed and then we will have more with mike said locke investment advisor for sick of pacific capital also still ahead it is may day or international workers day around the globe in occupied may first indeed us will give you our three cents about this after the break. and so state can for that. matter what drives the world the fear mongering used by politicians who makes decisions to break through it's already been made who can you trust no one who is human be you who with the global machinery see where we had a state controlled capitalism is called sessions when nobody dares to ask we do our t.v. question more. you know sometimes you see

a story and it seems so. you think you understand it and then you glimpse something else to some other part of it and realize that everything is ok. i'm sorry it was a big issue. for me or what i learned. but in the ilona so we'll get the real headlines with none of the most of the problem with the mainstream media today is that they're completely disconnected from the viewers and what actually matters to those viewers and so that's why young people don't watch t.v. anymore if they want news they go online and read it but we're trying to take those stories that people actually care about and transfer them back to t.v. .

all right lucky for you and for me we have mike said log back mission bacchis investment advisor for think the pacific capital and now we can finish hearing his explanation to a situation like the u.k. impose austerity itself back in recession does this mean austerity isn't working or is to blame in this situation or do we even have a definition of austerity i don't think we do economists bandy this about and everyone's revolting now against austerity everyone's revolting against their own little piece of the by the. all the people in the unions and the people holding banners and by who don't want to see those things because no one wants work or a reform i mean i actually don't want any of this to be perfectly honest with you but government comes along and raise taxes on top of it all it's those tax hikes

that are really really damaging they raise taxes and spain they raise taxes in italy now brussels wants them to raise more and more taxes that's exactly the wrong kind of austerity if we if we want to label a right and wrong the right kind of austerity is modifying the reform rules making it easier for businesses to hire and fire people what it what it takes to start a business in greece is absolutely phenomenal and there's stories out there on the internet what it takes to even put in a sidewalk in your own home you know all the all the paperwork that you have to fill out literally to do anything that's what needs to be caught i mean you know is that really austerity you know i don't know i mean i suppose we can make a case that reducing pension plans is austerity but that's something that needs to be done these promises that have been made are simply on title books do we people need to look at it this way the public sector is enormous it's enormous in france i

talk about it like fifty six percent of the economy something like that and and what should be the role of government i. i think the role of government should be actually to do it little as possible but if the government is to do something and then the government should provide the most services at the least amount of cost and then a great that's a great formula mission so you're saying this is a debate about what the government should be responsible for what the public sector should do and that raising taxes and isn't the solution and this is also more of a regulation issue but on that issue of cutting public spending if you've got public spending yes the economy may shrink that may be a consequence of it but there's a question of if that's necessarily a bad thing because all growth isn't necessarily good growth you can have malignant growth as the us housing boom in the us showed you can have malignant growth ok that went bust that that growth was not a good thing it was a cancer that needed to be cut out so isn't the corollary to that that sometimes

a contraction of growth in the short term isn't necessarily a bad thing not a bad thing you know we're going to this way and the government spends less they can put more tax dollars in people's pockets those people will spend and you know government grow government never knows i mean look at all of the programs that president obama has bankruptcy failures on trying to pick. technology companies government can't pick winners and losers and the government can only take money siphoned off to their cronies and then they hire people as public union wages. were these workers people would be whining up to take jobs constructing roads repairing roads repairing bridges for ten twelve dollars an hour they're ripping forty dollars an hour we're robbing taxpayers for all of these what you know makeshift ready projects that obama wanted to do what did any of that do did nothing as soon as the government spending stopped we went back in and our

everyone's really we need more and more and more and next thing i want to get men to answer is when when does that stuff you know when does it is better that he's run you know never know what that is the answer to that question never if it hasn't happened yet the answer is more of what he first prize until it does happen or until the world i don't know implodes but onto the subject of malignant growth we can only talk about malignant growth without talking about the fed's role and speaking of krugman he did answer a question about central banks yesterday in central banking let's listen to and then i want to get your response but you can't leave the government out of monetary policy if you try to think you know we're going just let it set itself so it doesn't happen the government is actually always that the federal reserve the central bank is always going to be in the business of managing monetary policy. doesn't like crude men think that you need this group of enlightened individuals setting interest rates or also market we'll just don't know explode so what do you

think about this notion when you have the fed before and i think third game so is clearly wrong. if you look at the history of the fed they've created bubbles of increasing amplitude over time every step of the way there was an interesting interview out there with greenspan on bloomberg the day he came out he was telling people that they ought to buy stocks that earnings are going to match the vegas can turn an indicator in this coming out of telling people you know what they should be doing and i found a clip on the daily channel that i actually put it in my blog you know back in two thousand and seven he was worried about inflation worried about inflation and do they also he was also worried about inflation in two thousand and one right as the dot com bubble imploded and so now he's out there telling people to buy stocks bonds stocks or the interesting thing is that in that clip with jon stewart on the

video as he actually admitted he said over fifty years we've not learned the first and i am good on human psychology or something i forget the exact term right now he blames it on humanity so here we are a man the minute the fed doesn't know anything and yes they are trying to set interest rate policy as if they do pretty amazing actually pretty amazing and i like that the greenspan contrarian indicator on this that we've actually proposed to burn eighty contrary an indicator so maybe it's just that ph d. to get the top spot at the fed contrary an indicator i like that but another thing that you took particular offense with with krigsman interview yesterday was him saying the reckless thing is to allow mass unemployment to continue krugman of course wants the fed to do more to help with unemployment you. to argue hey i can't do that in the first place the doormat mandate of the fed is mission impossible why . is this mission impossible you know look what can the fed do the fed can control

and this is just an economic fundamentals the fed can control using the word control loosely most one thing at a time the fed can set short term interest rates but then it has no current control over one hundred three supply and we've seen that right now money supply is sort of under volcker volcker cited we want to control money supply the fed has no control over interest rates and as we saw in bokor controlled money supply interest rates were soaring up to fourteen fifteen sixteen percent so the idea that the fed can do two things at once here now you know kirkman well it's you know who's who's to blame here congress has this dual mandate policy that says the fed needs to control inflation and unemployment the same time the fed can't control employment at all even in any scenario even if they were trying to control one variable what can

the fed do the fed can lower interest rates to zero which is what they've done it hasn't created any jobs employment not in employment actual employment is back to two thousand and two levels that shows you how bad this is so crude is coming out there and saying that the fed needs to do more well what more can they do yeah i don't actually side with the nadia on this burnett try to defend himself and say what we're going to do now you know here the debate has gotten so litter us that i'm actually occurring with with bernanke you over croman because they're both literally on mars yeah well that's how far that they that the discussion has gone and i like you throwing in that outer space analogy because christmas seems to only use those but i do want to get into something you said which is that we have low interest rates we have zero percent interest rates they been there since two thousand a they can't go any lower and yet you still have very high unemployment so does this show that the phillips curve is not accurate is wrong. well i don't

believe in a lot of these academic formulas that these guys put are they don't have real world perfect hell of a you know idea that you can measure some of these things in the first place but there's always measuring g.d.p. but you know how many times g.d.p. revive how many times is the unemployment look the weekly unemployment stats a revised every week every week something like twenty six weeks they reported that the things have gone down but they've gone down in relationship to upwardly revised they can't even get these things right for a week and so these photos they have these long term models that always leads to the fed chasing their tail and greed and then once the fed to do more well a lot we've got a trillion and a half in excess reserves sitting out there on the balance sheets of banks because banks don't want to lend is this money is parked at the fed because banks don't want the land who wants. you to do something why if we printed

a trillion dollars where would it go i'll tell you where we'd go there would be another trillion dollars part is an excess reserves at the present but the idea that he was doing this would probably stimulate more speculation in oil filter futures more speculation in the stock market it would have. long term rates destroying people on fixed income even more i think if the fed did what kirkman asked them to do you know want to actually destroy jobs well and that's an interesting point and as you said you know two rounds of i'm president of q.e. and zero percent interest rates have resulted and going from zero excess reserves at the fed in the midst of the recession to eight hundred billion to as you said one point four trillion before we go even saying the fed or anybody could affect unemployment or employment would that be a solution or would that be a quick band-aid because who is the government to pick winners and losers how does it know what's going to be a sustainable business or not. as you say the idea is that they should do this at

all is fallacious in the first place the government care pick winners and losers i mean certainly the government until it runs out of one any can go out there and hire people at absurd rates and that's just it i mean the government obama everyone wants and current wants a living wage well why aren't wages living well because the fed keeps increasing the money supply prices of goods over time keep going up until there's a crash like there was in housing and because. wages are lower in other countries it actually leads to an exodus of jobs because labor is priced too high in the united states we've had an exodus of jobs leaving for china and then everyone rails against china as if this is charlie his fault for manipulating the one oh we're manipulating the interest rates all this manipulation is leading to all of these distortions and these guys can't even see it they just want more of the same yet

maysan more distortion we'll leave it there because we're not going to figure out what's going on in their heads but i appreciate you telling us and filling us in on your view on all of this that was mike's headlock investment adviser for thyca this if a capital author of a very popular blog pleasure to be on the show lauren. all right let's wrap up with loose change on the mission a hard act to follow we will try dimitri and shannon what i think about this the obama campaign is taking on offshore bank accounts specifically mitt romney's take a look. as a corporate c.e.o. shipped american jobs to places like mexico and china as governor he outsourced the

jobs to a call center in india he's still pushing tax breaks for companies that ship jobs overseas it's just what you'd expect from a guy who had a swiss bank account. well good for him if he does have a swiss bank account because americans can't get them anymore obama and attacking them is just following the lead of the are asked who is overreach is made it so that if you're literally ex-pat american teacher trying to open a checking account in switzerland you can your talks that it's a true story too so the irony of course is that obviously is not doing anything illegal if you do something illegal he would be in trouble for right the fact that he has a swiss bank account so they try to make it so sound as though anyone has a swiss bank account is doing something illegal clearly mitt romney can't be doing something illegal because they wouldn't be putting it on the t.v. if you want so i just which is a ridiculous thing it's an absurd thing i mean the audience really knows how it feels i mean. i think we'll move on and get her perspective on this because occupy may day protests are getting under way under new york they've been underway and may

day protests and demonstrations have gone on all the over the world today take a look at some of them. so i think we saw indonesia bangladesh asia and new york. and you know this is may day is a day that labor is active that they protest or demonstrate for higher wages that sort of thing for people who do work but the question in the us is who works anymore i mean it makes sense to see those huge crowds and bangladesh or indeed they make all of our stuff but what do we make in the u.s. anymore but we will still work but i mean labor has been under attack for a long time so labor has been losing the battle and that's why we've said before

that the battle lines are not a drum to the savers in the speculators and we've course got that from max kaiser does a show on this on this network and it's a very accurate battle line to draw and it's a service under attack yeah and it is accurate when you look at the new york and the u.s. protests that are going on on may day there occupy wall street protests that's a strike for that shannon. i would have to say that i'm in the us and i work and i beg you to go on t.v. every day and sometimes i think you look good today the audio obviously got nowhere but. i don't work for the u.s. in arguing that i work well you do work but you menu to make a show that's true you should have the day off because traditionally this was supposed to be a day that you don't have to work i think it was the idea that we have this policy finance economy now yeah and it's not just in the u.s. it's a global phenomenon but it has affected her the worker or labor and then it's moved to the saver it's true all right good progression and we'll leave you on it because

that's all we have time for thanks for tuning in don't forget to follow me on twitter at lauren lyster give us back a you tube dot com slash capital account and for everyone here thanks for watching have a great night. there hasn't been anything yet on t.v. . it is to get the maximum political impact. the full source material is what helps keep journalism honest we. we want to present. something you'll. get a lot 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 realized everything you thought you knew you don't know i'm tom harpur welcome to the big picture.