good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for friday june twenty ninth two thousand and twelve european leaders have a breakthrough at their summit they agreed to more adverts to play dead hot potato . peace talks despite probably double zero zero zero zero zero zero zero zero but you should stop her. but hey i new schemes announced to try to help spain and italy avoid getting burned by the bond market turn out to allow the rescue funds to bail out banks directly in some cases but the dakotas glowing with a crew that will push but before the road to them is the central to wish to accomplish. what was that mr van run boy i know you were looking

down kind of under your breath but what was that about needing a credible solution for the long term oh yeah there is that we'll talk about how it's going and in the us the personal savings rate rises to its highest since january coupled that with virtually no real income growth shown in numbers from the commerce department out today and where is the economy headed or more importantly where is it already lost karl denninger he comes here all the way from florida to our studio in d.c. today to tell us that this all adds up to recession and yesterday's landmark supreme court health care ruling is being digested we saw some health care and insurance winners and losers in the stock market yesterday we've heard much of the politics deconstructed and can see a political battle on the horizon but what about the economic one we will break down the mouth let's get to today's capital account.

all right let's put europe on hold for now it's been taken up a lot of air time let's talk about the u.s. for a minute let's look at what's brew it let's take a look at the increase in personal income in may or lack thereof so personal income increased little more than twenty five billion dollars or zero point two percent disposable income increased eighteen point five billion dollars also point two percent in may personal consumption expenditures declined four point seven billion or less than point one percent so these numbers are flat people aren't making much more they are spending less and they're saving more in fact coming in at three

point nine percent this was the highest savings rate since january so what does this mean are the already creaky wheels of the economy grinding to a halt does this confirm that and on that note speaking of the economy what exactly does the health care supreme court ruling mean for the economy and the government's fiscal situation will it add up to the debt will it add to the debt or allow us to move forward and address our fiscal imbalances well if you listen to what president obama and his opponent mitt romney say it'll do both and now's the time to keep our focus on the most urgent challenge of our time putting people back to work paying down our debt and building an economy where people can have confidence that if they work hard they can get ahead and even with those cuts and tax increases obamacare trillions to our deficits and to our national debt and pushes those obligations on to coming generations. all right so which is it and

what bigger issues to need to be pulled out of this decision here to talk about it as karl denninger he is traitor and author of leverage how cheap money will destroy the world and he is here which is so wonderful thank you for being in studio what a pleasure we usually speak from florida yeah thank you very much warren for having me on absolutely it's a pleasure is all ours so let's start with health care because this was at the end of a jewel mandate was in the supreme court decision found to be a tax what do you think of of that aspect of this to begin it's frightening if you think about what chief justice roberts said it was that what congress had devised which was to call the supreme leader get around to infirmities the most important one being the direct taxes are barred by the constitution unless they're a portion meaning they are in relationship to the census. chief justice roberts said oh no that's not a penalty now we're going to call the tax and this is how we make this entire law

constitutional the problem with doing this is that now congress can do something like say mr carmaker you must sell cars to everybody who is poor for five thousand dollars and if you don't you have to pay a penalty it's a tax of twenty five thousand dollars per car so congress now has been given the power to compel any behavior by simply associate in the tax with your failure to do whatever it is that they want you to do the people on the right that have said that this is somehow a win for the rule of law and limiting of the commerce clause they're out of their mind there's no limit imposed on anything by congress anymore now literally anything that would they want to do within the government they can compel you to do under penalty of financial ruin it's terrible so in your view the biggest takeaway from this is the president you think it sets that this penalty has been deemed a tax and therefore congress can directly tax people they can tax anything it's this is a bill clinton's what is the definition of is this is his decision on so. steroids

when he stood up and he made that statement people just looked and said wait what now you've seen this from the chief justice of the supreme court that has said whatever the five hundred thirty six people here in washington are the representatives senators and the president whatever they decide to do we will make legal and we'll do it by saying well if you don't do it then it's a tax and what about the income tax because that is a direct tax all the income tax was made specifically legal by the sixteenth amendment so we could have a constitutional amendment in order to have an income tax but there is no constitutional amendment to put in place obamacare and that was the correct solution if you want to rewrite the constitution and you rewrite the constitution you don't end run around it and then when it's challenged twist the language to come up with some way to not have to throw the law and you say congress is well aware of this during the whole care debate that they call this a penalty because they knew that if they called it a tax that that would could could be struck down right that's what you're saying you know there's plenty of evidence in the congressional record in the debates in

the actual process of passing the law that congress was well aware that they could not impose this as a tax because of the direct tax prohibition so as a result they put this in place as a penalty and when you read through the law you find the word penalty or feel or whatever have you but what you don't find is the word tax and there's a reason for that and you're saying that this is exactly about now that's now and void by the supreme court decision so why was that the decision if it's unconstitutional for congress to directly tax it seems to me that the supreme court had a preconceived notion of what they were going to do and then they had to twist the language around to figure out how to do it and the frightening part of this as a business person is how do you know where this goes next where are the limits on federal power the people say that this somehow limited federal power that's absolutely wrong this made federal power unlimited on an explicit basis it's terrible ok so this is a dangerous precedent you believe that the rulings that's in terms of what is a tax and what is congress's ability. to be able to levy one what about in terms of

health care this this bill this law has been upheld what does this do for individuals and businesses in terms of buying health care does everybody go get health care insurance now you know nobody gets health care insurance there's no longer a penalty for not having it you can't be denied insurance nor can your price be increased if you wait until you get sick so if the cost of your insurance is less than the cost of the penalty or i mean tax then the wise thing to do is to dismiss your health care insurance just pay the penalty and then if you get sick go get the insurance well if everybody does that it's kind of like buying auto insurance after you have an auto accident that's not going to work out very well well it's not going to be very inexpensive to buy insurance if everybody is waiting until they're very ill to get it so what do you think this does to insurance costs it makes them go to the moon and you think that's what will happen absolutely absolutely there's no doubt about it because there's no incentive now to curious surance you can't be

denied nor can your coverage cost be increased if you get sick later on because you're saying the penalty is much less in some situations than paying for insurance when you're healthy and when you're fine and when you don't need it for something dire not only that but the law says you can't have your cost increase later on if you're sick nor can you be denied so if your price is five hundred dollars per month if you're well it's also five hundred dollars if you're ill of course of the only people who are buying it or people that are ill it's going to be five thousand dollars not five hundred again so that's concerning also a lot of the criticism of health care from health the law from doctors that i've spoken to was that this didn't address the costs of health care which are astronomical and which insurance companies largely dictate so do you have a criticism of that are already well you know the real problem with the escalation of cost of health care is that you have monopolistic anti-competitive behaviors that are rampant throughout the industry the american citizen pays for the

development of essential all new drugs and devices that are then. worldwide well with three hundred thirty million people we can't possibly shoulder that cost that is a big part of where this comes from another part of it is that there's no incentive for you to be healthy because it's divorced from your cost that you pay for health care so if you are ill and you do things that tend to make you more ill you don't end up paying a higher price. we've done nothing to address any of those considerations and so the cost is going to continue to ramp in my expectation is is going to overturn will affect on the federal budget well that's a question because i think that there's numbers that show different things ok there's going to be savings here there's going to be it's going to add to the deficit and the debt is there but at the end of the day these are all projections i don't necessarily trust the cvo projections in general so what do you see this doing to the fiscal picture for the government i think it doubles federal health spending within the next five years currently we are spending about one hundred twenty billion dollars a year at the federal government level i think the implementation of this law will

easily double that to want to have trillion within the next five years and double it again in five more we do not have the ability to pay even for the first one so how long this goes before we have a fiscal crisis in this country is now the open question but where do those costs come from is that from the expansion of medicaid is that from what is it coming from it's comes from medicaid expansion of medicaid is going to by itself according to see below about four hundred billion dollars over ten years i believe that is radically low it's also comes from the fact that we develop these therapies without any concern as to whether or not they are cost effective and people demand them because they everybody always wants the best the question is whether or not we can afford to pay for it and the answer sometimes unfortunately is no well this also disincentive is the best because what is the incentive for doctors to innovate or to create experimental treatments if that's not something that they would get reimbursed for under under these new policies while the drug companies and the device makers will get reimbursed they'll get paid whatever they else so they're

the one. in this for a short period of time at the point at which the check can't clear then everybody loses right and you end up with a system that's rash and everybody was talking about death panels well you have a situation somewhat similar to done canada if you need a procedure you go on a waiting list when your name goes to the top you get the procedure if something bad happens to you first well that's most unfortunate so you are you the country can't afford it and there are costs like that to two people that you see down the line also people can't really afford or don't want to pay for a lot in terms of spending right now incomes are flat expenditures are flat savings is up a little bit are we headed for a recession are we enter a session well if you look at the two indicators that i like or the regional fed surveys primarily richmond in philly are the two that i watch most closely and we now have two months of bad data in both of those one month as a warning signal to have something to really pay attention to and three is a trend so if we have another bad sort of reports next month you're going to have

everybody in their brother all calling a recession i think when you look at the income and spending numbers when you look at the philly indicators you look at the employment and the claims numbers that come out every week my call is that we're already in one in the official call will be made sometime towards the end of the year so you think we are in a recession just wait for some more bad data for everyone to be saying that we're going to go to break when we come back we have heard the u.s. we know europe is. at a breaking point two they've bought a little more time maybe we're going to talk about it in a moment with karl denninger author and trader also still ahead you've responded all answer check out if your comment caught my eye this week and your feedback but first your closing market numbers.

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 going to be you who with the global machinery to 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 is ok. i'm trying hard look at the big picture. here which i. love and they alone are still you know 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 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 let's watch careful talk about europe and what the big deal was about this summit that's still going on or it was today at least this is what the president of the european council sets. we agreed on something new which is a breakthrough that the banks can be recapitalized directly in

certain circumstances and the. but what kind of break there is that is that a good thing that there's a green light for a direct bank bailouts and some cases as they've agreed upon in spain doesn't that just mean the debt is being shuffled around and not getting dealt with what kind of a fix is that karl denninger is going to tell us he's traitor and author of leverage how cheap money will destroy the world and karl denninger what was this big breakthrough and solution just buying spain and italy a little more time you know pretty much there's no breakthrough in solution at all i mean you've got two facilities to do this with the e.u. in the. one of which doesn't have any money in it who are essentially no one and the other which has been ratified yet right now germany yes so there's there's no money in one in there's not a lot of money in the other and the best part of it is that major parts of the contributions to go into these funds are going to come from the nations that are in trouble and are going to allegedly be bailed out so this is very much like me

taking a twenty dollar bill out of my left pocket putting in my right pocket claiming i'm twenty dollars richer that doesn't work now it doesn't work but don't pull the markets for a little bit now are we seeing a point of diminishing returns with these can kicking efforts will sure are in a big announcement soon got a big pop today in the market you know you're making sure the market goes up and everybody cheers and everything's fine watch the bond rates over in europe they were down big today all right that's to be expected but see how long they stay down because what does happen is every time they come out with another one of these deals we get you know a few days sometimes hours or minutes in a couple of cases and then the markets are selling off again because people say well wait a minute if i buy spanish debt how many we're going to get paid if all these guys are doing shuffling money around then at the end of the day how are they going to pay me back and what you have with spain ireland in italy is a situation where all of these governments you know despite the fact they all claim well austerity you know can't be done the truth is that government cannot spend

more than it takes in in taxes whether it's here or anywhere else and when you do the. what you're effectively doing is destroying the purchasing power of everyone in the nation so you can temporarily try to make up this black hole that you've created but over time how do you sustain an economy if the power to purchase things is being destroyed by everybody that's in the economy will sooner or later run out of money right now and that's when it all comes apart ok and as far as the bond market it seems like they need more and more of this drug of short term fixes or short term bracing confidence to get the same effect of not pushing spain to unsustainable levels and their borrowing as far as any kind of long term fix about what you're talking about which is the dynamic there that doesn't exist doesn't know there's there's been nothing that actually addresses the root cause of the problem which is that the people in these nations and here in america for that matter need to have an honest conversation with their governments what services do

you want government to provide to you and then you have to pay taxes in order to cover all of those not tomorrow but in today's money so that means that some part of the money you earn by going to work and doing your job has to go to the government to pay for these services and if you're not willing to pay the taxes then you don't get the services that conversation is one that's very hard for politicians to have because if you say to the greeks for example for cope twenty five percent of your income or this particular program is going to go away they say well we're not going to pay and they have an underground economy and evade paying and then they cook the books to make it look like everything is ok when in fact it's not well i don't hear any of those conversations i hear banking authority i hear one hundred twenty billion euro for some kind of a growth program i mean even if these things are decided upon long term are they solutions no because what has happened is the banks have financed you know their words brought forward the ability to have things to do to be paid for tomorrow but

unless you can find a way to pay for them tomorrow all that's happened is you've increased the total amount of debt in a murder. how low the interest rate is you increase the amount of interest you have to pay. so over time this problem becomes worse in this is why we continue to see the same dynamic play out yes you get a little bit of relief and then people start thinking about and say wait a minute the debt is now you went from sixty two percent to seventy two percent of g.d.p. or whatever it is that means that the interest it's going to have to be paid is greater than it was a month ago or why do we think that this should add confidence should subtract from confidence and it does and what why was the oil at nine percent which we just saw today oil's been on a downward trajectory whitish it up today because hot money loads some more to go that speculative in commodities or one of those places and so when you have somebody that thinks that we're going to get currency debasement which is essentially what borrowing more money is there where do people go they go into commodities so you see moves in gold you see moves in silver you see moves in oil.

and of course the problem with moves in oil is that it makes gas prices go up which one does this consumer flush knows that you have because now it costs more fill your tank up good morning and nobody likes that and nobody's going to take a summer vacation if they can't afford the road trip which you said you noticed on your road trip that you've been taken across the u.s. i appreciate you being on the show that's all we have time for thanks very much karl denninger van in studio he's author and traitor and a frequent guest in florida thank you very much. all right let's wind down with the viewer feedback before we let you go for the

weekend a certain orwellian reference has come up a few times this week with nigel ferar when we interviewed him yesterday talking about the euro krauts building blocks that they laid out for democratic legitimacy or so they said but first it came up in loose change in a story where a judge said goldman sachs as rhetoric was channeling this famous orwell novel. that's george orwell's one thousand nine hundred eighty four where words from authority are the exact opposite of what they mean it's the old should of the language to mean the very opposite to what the truth is in the case of bankers law is profit freedom is debt gambling is hedging. so this is really been a recurring theme and one of our viewers philip c.e.o. e-mailed me and was nice enough to look up the direct reference from george orwell in response to my comment on george orwell's one thousand nine hundred five on yesterday's show it led him to look up that book on the shelf here's what orwell

had to say about the manipulation of words in the language of news week in the fictional future nation of oceana in the appendix he wrote on the principles of newsweek some words for instance as joy camp which was forced labor camp or mina pax or ministry of peace which was really the ministry of war meant almost the exact opposite of what they appear to mean some words on the other hand displayed a frank and contemptuous understanding of the real nature of oceanic society an example was prolife meaning the rubbishy entertainment and spurious news which the party handed out to the masses and our viewers said dimitris comment about c n b c in our show yesterday it fits the definition of prolife eed but you can be proud meaning us here at capital account that your show provides real news and information which i watch as often as i can while philip thank you dearly for that compliment there on the show and then you looked up the actual orwellian principles

of news for all of us to really understand that reference because it seems to be coming up a lot lately let's move on we had the mayor of sandy springs on this week which is a city in georgia that has successfully outsourced most of city government well bev ics on you tube wrote i would be concerned with privatized city government too much risk for cronyism if attempted all bids should be put online and the entire financial should be put out you make absolutely a great point this model opens up the possibility for no big contracts and cronyism to be sure perhaps the kind of corruption you see at the pentagon for example would draw us to this story was this town seems to be saving money and doing it well in their model the way that they're carrying out you heard what the mayor said the interview she said it's very important to write a good contract to encourage competition and to keep contractors on their toes. if the service is not delivered and all the conditions are not met by by companies

somebody else will be there to do the work. bye-bye company but no there is certainly no cure for bad management and corruption now we also talked this week about how barclays is settling over accusations which they've fessed up to reportedly that they were manipulating key interest rates for one to benefit their driven his positions now this caused average people because this affects personal lending personal debt to pay more or less on their loans and debts during this time now mind you this is all for the banks benefit so recurring theme there will boost seven four six wrote whole oh the federal reserve is manipulating key interest rates it is a banking cartel where is the outrage we're eight point the only difference is when the government does it it's legal so ponder that one for a while and we do have outrage about the fed all the time so just look back on our

shows if you're a new year now i noticed a little youtube or on our you tube boards we had dr martin on this week who is always amazing and as so much insight to give and scott h. park said thanks for yet another outstanding interview with dr martin sen as a suggestion suggestion i would rather have listen to five more minutes of martin on precious metals than listen to dimitri in loose change i never watch the last five minutes of your videos for this reason alone how did he manage to get a job who is he related to at r t k well is not related to anyone i can assure you but i will actually defer to another viewer in defense of dimitri because once upon a space did it so well he said this he's actually the show's producer and a damn fine one you could well argue that he should stay off screen him self of course but if you at all like the content of the rest of the show you can be sure you had a lot to do with it that is all very true and as far as making the call to extend

an interview i totally hear you it's always a game time decision and chris martenson is obviously phenomenal will try to have me. on again to talk precious metals as for loose change contrary to your opinion a lot of our viewers love it so it's probably not going away anytime soon and as the producer of our show neither is dimitri on that note it's all we have time for thank you so much for watching and make sure to come back next a week and in the mean time you know you can follow me on twitter at lauren lyster give us feedback on the show or any that you missed at youtube dot com slash capital account you should also go subscribe if you haven't and you know you can give us all of your feedback there and i will read the very best of it and respond to it on the show now you can also catch our show in h.d. on hulu at hulu dot com slash capital dash account do not forget to come back monday we have an amazing of merging markets expertise you haven't heard from a new guest on our show who has some very interesting insight about maybe what you

could call the emerging emerging markets but until then for everyone here at capital account thanks for watching and have a great night. the issue is that so much of it there is a huge decision a person on the mark when you're a popular uprising the toppling of a tyrant and the parliamentary and presidential election where does each of stand of the people of egypt in which. there hasn't been anything yet on t.v. . it is to get the maximum political impact. the source material is what helps keep journalism honest we. we want to present. something real.

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