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 showed this. you look at the off the measures that they put in place in europe after years of spending now they don't care it is just not working but is this a false argument the problem in the euro zone is the dead debt they cannot be repaid will not be repaid cutting spending with this level of debt is not going to solve the problem but 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 then ron paul versus paul krugman today it's paul bertha's mischance right mike said locke will make the case that crewman's claims the fed can solve

unemployment amount to this. mission impossible that's what that was we'll talk about it and it is may day labor day demonstrations protests 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 western definition well here it is austere qualities severity of manner or life sternness usually austerity of monastery life ok on something pretty awful i wouldn't want to live in a monastery or lead to live a stirring lifestyle but of 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 a 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 wrote income security choose to save an ever greater amount of their declining income and by doing what's in their best interest 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.p. contracts incomes crash savings evaporate essentially it is a self to prove produced depression sounds pretty straightforward right. only it isn't what economists like paul krugman ben bernanke he 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 is going to love to do it will go the other way it will rebound so what then is preventing the bottom from forming enter the true four letter word d b 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 u.s. and with a bit more variation in europe the problem isn't a lack of demand this is a symptom 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 have booms without a bus and a recession is just the economy's way of purging itself of all the mal investment 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 in 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 avar 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 so 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 mish you know lorne is a pleasure on the show with that great intro i'm not sure i can have much of that was that was very very good full 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 and saying and others keep saying well you know nothing god has got wrong yet but the point is is yeah in a mere one percent rise in interest rates and you can literally consume one hundred percent of government revenues so. soon and all these economists out there merrick you there they're alive they have an academic background they look at

academic for most of their it's wonderland economy. i 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 increasing amplitude and they say oh well we need to lower interest rates where we are down to zero in japan and it didn't work and we're now at zero in 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 and 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 austerity upon itself preemptively with a two hundred thirty billion dollar program of cuts 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 it 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 stay tuned for that.

the issues that so much about mayors and i mean differences between a lot of people have serious the time finally when we should value complicated measurements of well being indices such as g.d.p. and other governments that. sigrid laboratory in the curve was able to build the world's most sophisticated robot which on fortunately doesn't give a darn about anything tunes mission to teach creation why you should care about humans in. this is why you should care only on the dot com. all right lucky for you and for me we have mike said lock back mischa's bacchis

investment advisor first pick up a civic capital and now we can finish hearing his explanation to a situation like the u.k. imposed austerity itself back in recession does this mean austerity isn't working or is to blame in this situation lauren do you have a definition of austerity i don't think we do yeah economists and in this route and everyone is revolting now against austerity everyone's revolting against their own little piece of the pie you know the. all the people in the unions and the people holding back and plans don't want to see those things caught no one wants work roll reforms and 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 those tax hikes that are really really damaging they raise taxes and spending that raise taxes and only now brussels wants them to raise more and more taxes that's exactly the wrong kind of austerity you're for your 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 takes to start a business in greece is absolutely phenomenal and there are 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 you have to fill out literally to do anything that's what needs to be caught i mean is that really austerity you know i don't know i mean i suppose we could 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 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 think it's the role of government should be actually to do it little as possible but if the government does to do something i

think 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 in 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 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 u.s. housing boom in the u.s. showed you can have a leg 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 if the government spends less they can put more tax dollars in people's pockets those people's friend in. government

government never knows i mean look at all of the programs that president obama has a bankruptcy failures on trying to pick. technology companies government enters and loses the government can only take money and siphon it 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 now everyone's reeling we need more and more and more and next thing i want to turn to answer is when the when does that stuff you know when does a good bet that he's run you know what never let that the answer to that question

never if it hasn't happened yet the answer is more of what he prescribe 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 the legnani 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 you can't lead the government out of monetary policy if you try to think you know we're going to just let it set itself 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. so it sounds like crude men thinks that you need this group of enlightened and digital setting interest rates or else the market will just i don't know explode so what do you think about this notion oh we didn't have the fed before a dive team thirteen so kirkman 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 today he came out he was telling people you know they ought to buy stocks that earnings are going. with the biggest contrary an indicator in his front 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 out there in my blog you know panic 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 and how does the. com bubble imploded and so now he's out there telling people to buy stocks buy stocks bonds stocks what was the interesting thing in that in that clip with jon stewart on the video time is he actually admitted he said over fifty years we've not learned a thing i mean i mean what am good on human psychology or something i forget the exact term right now he blamed matty but it isn't so here we are

a man in their midst the fair that doesn't know how do you thing and yet they are trying to set interest rate policy as if they do pretty amazing actually it is pretty amazing and i like that the greenspan contrarian indicator on this show we've actually proposed to bernanke the 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 you took particular offense with with crude interview yesterday was him saying the reckless thing is to allow mass unemployment to continue growing of course once the fed to do more to help with unemployment you. you argue hey it can't be 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. supply and we've seen that right now money supply is soaring if under volcker volcker cited we want to control money supply and the fed has no control over interest rates and as we saw when volcker 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 curtains 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 net you on this burnett try to defend yourself 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's 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 out of they don't have real world practicality and the 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 revised every read every something like you know twenty six weeks they reported that the things have gone down but they've gone down in relationship to an upwardly revised they can't even get these things right early 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. excess reserves in the thread 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 what actually destroyed jobs well and that's an interesting point and as you said you know to around that 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. well 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 prove it once 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 and actually leads to an exodus of jobs because labor is priced too high in the united states when you have an exodus of jobs leaving for china and then everyone radials against china as if this is charlton's fault for manipulating the one well we're manipulating 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 said lock investment advisor for thyca is that the capital author of a very popular blog oh sure to be on the show lauren. all

right let's wrap up with loose change all the missions is 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. 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 r.r. as he was overreach has 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 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 honestly not hard 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 indonesia they make all of our stuff but what do we make in the us anymore. well you 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 the battle lines are not a drum to the savers in the speculators and we've got that from max keiser does a show on this on this network and it's a very accurate battle line to draw and it is 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 or that shannon i would have to say that i'm in the u.s. and i work and i make you to go on t.v. every day and sometimes i think you look today though you obviously got. i mean worker in the u.s. you know arguing that i work well you do work but when you do 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's just the idea that we have this ponzi finance economy now and it's not just in the u.s. it's a global phenomenon but it has affected her the worker 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 lauren lyster give us feedback a you tube dot com slash capital account and for everyone here thanks for watching have a great night. keep

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it. quiet.

the top stories from moscow at ten pm clashes leave twenty killed by unknown attackers during a protest against egypt's military rulers while neighboring israel strengthens its borders. to tell about falling kill seven in kabul in retaliation to break a bomb a surprise visit which saw him commit americans in afghanistan for at least another ten years. plus the e.u. reaches for the red card as countries move to boycott football's prestigious euro treaty twelve new crane over the handling of its jailed former prime minister. well that's it for me the news team for the moment will be back with more in half an hour from now in the meantime the made a mayhem and a resurgent occupy movement are up for discussion next internet on a show from washington d.c. .