good afternoon welcome to capital account i'm more in the stir in washington d.c. happy friday your headlines were june eighth two thousand and twelve spain is poised to seek a bailout for its banks possibly tomorrow that's according to media reports meanwhile figures show greece's economy shrank at a rate of six point five per cent for the first three months of this year as there appears to be a collapse going on in europe regardless of what technocrats and politicians say so what is this going to look like well that's all a lira says he has seen this all before in latin america he'll take us back to chile a in one thousand nine hundred eighty three will be joining us live from santiago and u.s. president barack obama held

a press conference today about the headwinds facing this country for carious economy take a listen. right now one concern is europe which faces a threat of when newt was censured as countries deal with the financial crisis. now while europe is the u.s. is the largest trading partner he pointed out there to detailing the threats posed from the trouble brewing across the atlantic but is the euro zone crisis also helping the u.s. perversely we'll explain finally from bunker timeshare plans to deflation to customers down under from m.f. global australia we'll hear from our viewers all around the world and respond in your feedback let's get to today's capital account.

let's see what's new in the eurozone crisis saga. spain needs a bailout the country may ask for one as early as tomorrow now there are conflicting reports and comments coming from spanish officials some refuting that spain will ask for a bailout or when but come on trouble is brewing and different estimates put the money needed for a spanish bank bailout recapitalization whatever you want to call it from twenty seven billion to one hundred billion euros overnight the head of the eurozone finance ministers commented on it said spain will get the green light to listen. spend time. see this full speed chose to. write it all have support grades so they can maybe paper over this problem this time if all goes as

concocted by these money creators money mover crowds technocrats politicians but what is the road map for what happens when this unsustainable ride when everybody realizes that it's just that an unsustainable ride well we may have a road map maybe we just need to look south to latin america we're talking about indebted countries that can't pay back their debts i.m.f. programs austerity yeah we've seen it all before but here to lay out just how and why this actually is a comparison we can and should look to is going all the lira he is in chile he's founder and president of the s.p. g. group and he is going to lay it all out for us so first of all gonzalo thank you so much for being on the show i'm really excited i don't know if that's the right word because obviously we're we're dealing with some high stakes here but i really do think that this is an important thing to lay out so first of all thanks for being here. it's a pleasure being on that brought me absolutely so let's just start with what you

see as the fundamental problem in the euro zone and that regardless of what angela merkel or mario draw here anyone else says they are not solving or addressing which use the is the deflationary death spiral so lay that out for us why is this that the core problem well the problem is that you have just a bunch of countries that went into too much debt and you have the creditors that are unwilling to take any kind of a vote on it was cheated some of them and so these countries that zero to much and can't pay it are slowly winding down now what happens when you have a depletion or spiral debt spiral is you're kind you owe too much money you can't pay it so you try to cut different things you do austerity measures to cut services and what have you in order to pay off these gets out when you start doing that as a country you start cutting services and the services means that you start laying off people start laying off people you collect less relevant in this state and therefore as you collect less revenue it becomes increasingly harder and harder to

pay off the debt and so you start to do even more austerity cuts even more to the bone in order to get the money to pay the debt and that's how you start going into a deflationary spiral everybody starts spending less because they owe so much money to other people so they spend less when they spend less they consume less than you consume less of course producers produce less and start hiring people and those people who have lost their jobs or start saving start consuming less and so you just start going down the tubes that is if you haitian are gets fired and that is what we're seeing in reese in spain in portugal to a lesser extent and we're going to see a little bit in italy you know it's basically. the end game for the european monetary union now they have to figure out how to fix this and of course they're very have had two years to fix it ok and have not come up with a buyable long term solution so it's unrealistic and foolish to think that they're going to come up with something over the next you know few weeks they're not going

to come up with anything and so what we're going to see is greece and spain portugal probably we are definitely going to exit the euro zone what they're going to do is they're going to exit the euro zone go back to their. point they were at their currency for instance the standards will go back to the set up they will then convert all their debts from euro's into cosette us and then after they have done their conversion they will devalue the septa by twenty thirty percent maybe as high as forty percent at the end of the day the markets will punish that they said they will in the end it be divided by maybe sixty percent but by doing this spain will be able to pay off its debts but of course the bondholders will be left you know holding the empty bag because they will be paid back in a currents and this seems recently likely that will happen in the short term short term the next six months i cannot tell you when it will happen but it will come out

and because your credits are not coming up with any kind of solution to fix the problem that we have and you found really really confident about this then zollo youth down like maybe you've seen this before maybe you have a glimpse into what that has looked like so take us back to latin america circa one thousand nine hundred eighty and tell us why you are having deja vu. well what happened was that and the reason i've been able to see this issue so clearly i mean i've been talking about the breakup of the eurozone there s.t.g. dot com since last year early last year and published and publications about two years ago because of what america in the late seventies a lot of a lot of american countries are king tina brazil and chile they've had their currency to the u.s. dollar now the reason they did so at the time was because they had rampant inflation or even hyperinflation in some cases for various different reasons that are not pertinent to our discussion but they've kept their currency to the dollar

by doing that they halted glacially so they had a stable currency which is of course a good thing but what happened was that these countries because of this pay they went into debt they were able to get cheap dollar loans and pay them off in there are. in there are local currency and d. states we make the exchange between the local currency and the dollar and this is how these countries foreign reserves were depleted because the people went into massive dollar debt and they would pay them off with the local currency and the state and the central bank of these countries would make the exchange and pay off the dollars but in the process start eroding their or their balance sheet and what happened in the end of course is that these countries found themselves in a position that they had no more dollars and they were essentially bankrupt and so when that happened they had to devalue the currency and get off the peg when they did that. all of these people who had debts and dollars and they were before able to change their local currency into dollars and to pay off their debt well all of

a sudden they found that their debts had grown exponentially in some cases but at least you know thirty forty percent because of the devaluation when that happened these people who were for the most part small businesses this is about different sorts of themselves bankrupt because they could not pay their debts they owed more than they generated there their payments were greater than their revenues so they went bankrupt it by going back over the perm course they threw their workers out on the street without jobs and all of a sudden literally overnight you had a country that had gone bankrupt and at last its industrial base and had massive or of the unemployed i mean for instance when this happened in chile there with roughly thirty five percent unemployment and that is at its peak one could argue if you look at the metrics that it was easily over fifty percent unemployment now we're seeing the exact same thing going on in europe because people don't seem to understand that something that i've been barking for couple of years now the euro

is not a common currency with the euro is is a currency pair there is and i'm glad you know i'm glad you're pointing that out because you're talking about a currency peg in latin america and your essential effect that what the euro is it is analogous to that so rich quickly explained that why why you can look at europe as a currency peg or as these countries have peg in their currency share because in the seventy's and eighty's right these latin american countries pay their currency their local currencies took the dog up right right so in a way everybody had dollars that was their currency of choice in europe today what we have is the strong currency in germany the europe germany is or is playing the role that the united states played in the late seventies and early eighties for these latin american factories and the pigs are essentially the little latin american countries that have you know. you know hosted their cart to the german horse now of course germany is a much stronger more efficient economy for various reasons including the fact that

they went ahead with their labor reforms in the arts in two thousand and three four and five whereas these other countries of the pigs have not gone ahead with their labor reforms and so their labor costs are extraordinarily expensive now because of all these issues all these countries are pegged to the german euro if you want to put it that way and they simply cannot pay back germany germany is the country that that is owed all this money for in many respects and so we have the exact same situation that we had in the united states and latin america nights and seventies and eighties the problem of course is that in one thousand nine hundred seventy nine ninety eight the latin american countries were a small fraction of global g.d.p. you know about ten percent that's right now europe of course g.d.p. of well i think it's seventeen trillion dollars last year eight hundred billion dollars last year that has roughly twenty percent of the global economy if europe

goes bankrupt we're going to have a serious serious problem worldwide and the atlantic is not going to be any kind of insulation to the united states yet it is going to be severely affected by european collapse and this is what we are about to experience because these countries that have pegged their currency to the euro cannot pay they have depleted their foreign current their or their hard currency reserves they are and we are seeing it of course you are mentioning that the spanish banks tomorrow want to are supposed to get a bailout maybe from the e.c.b. you remember it doesn't matter if it happens tomorrow or next week it's going to happen because all these countries are bankrupt right out because they're bankrupt . well simply by you know of. her own actually doing these things all the lira i want to stop you right there because you're saying you're saying this is what we're headed towards there is no getting around it euro zone leaders cannot come up with a solution in the next three weeks or six months or whatever so when we get back

from the break we're going to look at what you think if it's going to look like what's going to happen based on what you saw when you were in chalet in one thousand nine hundred eighty three when this was all going down so we're going to go to break we'll have much more with you he's going salo lire founder and president of the group also still ahead you responded and now i'll answer check out if your comment caught my eye this week and viewer feedback but first your closing market numbers. what drives the world the fear mongering used by politicians who makes decisions to break through that sort of to be made who can you trust no one who is in view with a global missionary see where we had

a state controlled capitalism is called sasha's 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 and you sure see some other part of it and realize that everything you thought you knew you don't know i'm tarred as a big picture. here . and they alone and so they'll get the real headlines with none of them are the problem with the mainstream media today is that they're completely disconnected from the viewers and for what actually matters to those viewers and so that's why young people just 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. . welcome back we're talking to good zollo lira in chile he was in chile in eighty three living through the latin american debt crisis he said that that is what the eurozone is headed towards in terms of defaults in terms of the societal cost the unemployment the global economic impact but take a look at the difference and what these areas of the world contribute to global g.d.p. gonzalo mentioned this and i just want to point out take a look at latin america that's combined with the middle east and africa contributes more much less to global g.d.p. then the e.u. and what you're looking at there is the e.u. fifteen that's not even the broader twenty seven nations that make up the european

union so the impact of this is stands to just be much more severe now let's go back again to latin america because i want to show you some pictures from chile and one thousand nine hundred three from protests from water cannons being shot at students from the unrest that was going on there as a result of all of this only there was a military dictatorship there so let's talk to gonzalo layer and see what we can draw from those experiences to figure out what we're going to be looking at across the pond and a who knows what in the u.s. because we know that the global impact of this is going to be significant so low compare chile in one thousand nine hundred three what you experience what was going on in latin america tell us what happened after these defaults and what you think we can can look for in the eurozone if spain exits if greece exits. well because you had massive bankruptcy is just across the site it was catastrophic

and you had catastrophic unemployment and unemployment that of course to social unrest and some of the images that you showed there and i was actually in some of those approaches that was good times but anyway it's going to be so pretty today it's i am sorry for laughing about it because it's in a way very funny because the europeans have nobody to blame but themselves they created the situation and it's their own arrogance of their inability to look at history and the example of other peoples that has led them to this position so it's sad that that same time it's rather amusing because these very arrogant europe rats that it handled this and they simply did not know how to handle it because they simply assumed that the euro was a good thing and the euro in and of itself is a great thing because it unifies germany and france and that's something that we want because those two countries are gone two or three times in the seventy years before nine hundred forty five franco-prussian war one and world war two so then the well let me let me get in here you don't think that this marriage was made to

fail you think that it could have been a successful marriage yes you could have been a successful marriage if they just kept two people in the marriage but instead of keeping two people in the marriage they turned it into an orgy and you know an orgy at the end of the day always ends you know come in i mean the drugs have run out everybody is tired and wants to go home and that's pretty much the position that we're in today you know if it had been just a franco german marriage it would have been effective because france and germany economically are close enough that any differences be papered over and fixed somehow but when you have countries we countries like portugal greece ireland you know that because of this they created this massive banking sector in ireland for things you had all these different countries jockeying for position within this or that eventually of course it was going to be a disaster and we are living this disaster now the euro cracks who are in charge of the. simply do not have the imagination to fix the situation they just don't know

what to do because they've been so hell bent on the issue that none of them have considered how a country can exit the eurozone in an orderly fashion i mean sure they're talking about it now they're coming up with contingency funds they say. but realistically if they don't we conceive of it so they're not going to say this is the time when this country has to be cut they're not going to go they're basically going to be like the guy who has gang green in this arm and he says oh if i just wait a little bit more it'll go away and then the game goes from his wrist to resolve this is all just wait a little bit longer and then the gang we have course goes up to his shoulder and pretty much it's game over that's the problem with european you just they don't know when to call off you are and they're going to let this in green spread but you have let this gangrene spread and it's too late it's over so the issue becomes now therefore and what is going to happen and what is going to happen is going to be. over europe at heart absolutely it's going to be pretty good for united states well

that's what i wanted to get to so we have president obama today saying hey europe is a big problem but there are solutions simply because he's parroting angela merkel talking points we have ben bernanke saying ok if it's a banking crisis sounds like their plan is bailouts which is hard for the course but there is this conventional wisdom that that europe has is this huge threat to the u.s. but perversely this party you're talking about this or a g.e. that ended and nobody wanted to pay the bill have and that party all distracted from the horrible spending origin in the u.s. allowing the u.s. to continue borrowing at one point five per cent has that helped the u.s. yes it has it has if that's exactly what you have it was looking out the. spain greece portugal at least those three countries are going to exit the euro ok let's say for the sake of argument that three countries exit the euro now you're going to have a call in the value of the euro probably even which part if not below par that is

you know ninety cents american will buy you a euro or something along those lines now when this happens there is going to be a tremendous capital flight a flight to safety from european assets to dollar denominated as. the most common dominant dollar denominated assets is of course u.s. treasury bonds so what is going to happen with this huge demand for treasuries as europeans flee the euro in order to safeguard their or capital the evils of the dollar is going to flatten even for the yield of the u.s. for if your plan is going to flatten even more which is going to drive down the cost of borrowing which will be an incentive for the next states federal government to continue to borrow ok so at this point in time if we have essentially the u.s. government borrow one dollar for every one dollar of income tax that it brings in you know that if there's a big collapse in europe and under the under the the keynesian notion that you have to spend your way out of any problem the government might well start to increase

its deficit spending because it's going to say heading lower borrowing costs are so cheap that we might as well just borrow more and so that ratio of one to one borrowing to tax receipts might increase to one point four one point two or one point three dollars for every dollar of tax receipts as the budget deficit balloons even further because of the fall in the pledge and the cost of debt that the u.s. federal government ends up dallaire a long term it is a bad debt benj that when the party is really over and europe went to fall to have happen when a bottom is been reached you're saying that already of spending in the u.s. it's going to run out of drugs in the u.s. is not going to be able to borrow and continue its debt binge any longer that will be the day of reckoning it sounds like in your view we're going to have. believe it there i could talk to you all day we're going to continue this conversation thank you so much that was been salyer founder and president of the as p.g. group.

was a good interview was interesting let's wrap up with your feedback though because we've talked about a lot of interesting things this week and you had a lot to say so earlier we spoke to robert proctor that was earlier in the week he is the founder of elliot wave international and he is a deep lation it he laid out his analysis for deflation in a comment like by several viewers on you tube kev riley seven said it can't be deflation if my grocery bill is up forty percent the past year and a half. i know it seems odd i know it sounds counterintuitive but let me help you make sense of how it absolutely can be both a higher grocery bill and deflation ok first and foremost when we speak about

deflation we need to place an in the broader monetary aggregates in other words deflation of the money supply and credit and an economy that is experienced one of the largest across the board asset inflation's in recent memory the kind of deflation that we're talking about is deflation asset prices specifically asset prices were bid up during the credit boom that was pumped up by the fed after the stock market collapse in early two thousand now if you listen to gold silver dot com founder and author mike maloney we interviewed him yesterday he argues the fed stimulus we've had since two thousand and eight has been inflating the financial sector but not the real economy which is why he says if the fed votes for more stimulus later this month we could see this you'll be seeing deflation in the public sector of the currency supply inflation in the financial

sector and where they place their bets the commodities and so on i know it's perverse but you should go back and watch my. interview to get some more clarification also earlier this week on a much lighter note we bantered about the new survivalist reality show where the winner receives a bunker or we brought it up because wouldn't you know our producer dimitri is a proper book is true i have a cobol unit and i have one years of the food supply but i won't tell you where it's on the scale of the occasion but all of a bumper and that's. expensive right so i would love to have one of those things where the translation is or to get there if you're an oligarchy call me i could do a timeshare maybe. well let me first say that that bunker comment got a lot of positive response from our guests and the people that we interact with which i thought was pretty interesting steve two three two z. x. similarly i thought it was compelling said dimitri should have

a you tube web exclusive on survival tips how to store food what to buy. i have to say i've fully endorse this here is a glimpse at what this could take till just of sneak peek dimitris showing you how to build a fort in your living room and prepare oh and preparing for the end so that's what you can see to come a work on on coaxing dimitri into doing a web video but let's move on for now because we reported on the m.f. global trustee reports out this week too and one of our viewers from down under a customer of m.f. global wanted to alert us to this situation for m.f. global customers in australia and now we'll look into this more fully next time we cover m.f. global on the show but i did want to share some of his email so andrew perrotte i hope i said that right from south australia says essentially m.s.g. a which is australia operated under the u.k. license and the local rules and regulations were obviously not thought out enough

to monitor them so the whole thing is stuck in limbo the administrators have recovered a large percentage of the funds but they do not have a regulatory framework to follow to distribute them so they are essentially relying on the courts to make precedent and provided provide guidance on distribution as a result clients have received zero per cent the worst of all countries now that's according to him some other m.f. global sources that i talked to customers have confirmed that said it's not australia alone u.k. account holders also have received nothing because the u.k. trustee is waiting for a resolution to the us is seven hundred million dollars claims before doing anything i called james givens office a trustee nothing from him but we will keep you posted on all of this. but for now that's what we have time for and that's our show for today thank you so much for watching and do make sure to come back next week for a packed lineup also in the meantime you can follow me on twitter at war and lester please do you can give us feedback on the show or catch any you missed it you tube

dot com slash capital account should go subscribe as well and you can watch us in h.d. on hulu at hulu dot com slash capital dash accounts have a great night and a great weekend. the issue is that so much was made musingly maybe you could get a lot of people in your area with the burger lunchtimes with the euro with the greek economy and timers in spain on the financial bring the future of the monetary union looks anything but bright.

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