a day. good afternoon and welcome to capital account i'm more in the store here in washington d.c. these are your headlines for thursday july fifth two thousand and twelve central banks issue a command. oh yes central bank give it a go try to keep the easy money flowing the easy be cut it's a benchmark interest rate to an historic low the bank of england said yes to more q we china's central bank unveils a surprise interest rate cut the danish central bank goes one step further and touring europe territory negative interest rate policy there was of course is under

anesthesia already but already middleton will explain why no amount of money printing can create wealth but can any amount of cutting rates or money printing avoid this when it comes to real asset prices. total annihilation will come from what follows a whole week. or two. will no way says our guest will tell us why plus former barclays c.e.o. bob diamond testifies before members of british parliament over of course the library scandal now it's been pegged as a preview of what may lie ahead for other big lenders under investigation for this same thing but what's it to look back as it seems the real pattern of repetition is cool luzhin between of the worries and the big banks let's get to today's capital account.

well what can i say they won't keep getting worse for economies in europe for example despite central bank efforts to prop things up things just seem to be getting worse it appears all the way to the core that's what mario draghi fessed up to today when he announced the e.c.b. is lowering its benchmark interest rate to a record low take a listen and we can generally say that this may ease a grace to the euro and he's not addressed to specific countries. that i. know it's addressed to the entirety of the eurozone all of these manmade actions to try to juice the economy are billed by some certainly central bankers as solutions how much of these actions ensuring financial and economic destruction by papering

over insolvency prolonging the debt binge i don't know the answer but hopefully our guest does and on that note just as people look to the concept of a nuclear winter to ponder the cost of human destruction is that what we're looking at when we look ahead at asset prices real asset prices are we looking at a nuclear winter already middleton is here to answer all of that and more he's entrepreneurial investor and of course author of the very popular boom bust blog he's going to help us out now first of all reggie it's very nice to see you thanks for coming back on the show. thank you very much it's good to be here we always are happy to have you so reggie central banks they all today or a lot of them said we're lowering rates or we're printing you preempted them yesterday talking about how you can print all you want but it doesn't create wealth and today several banks come out with these announcements could you just break it down what is the difference between money printing and creating wealth. ok money

printing is basically. basically creating more dollar bills or euros to go into the system where the dollar bill and all of the euro is a representation is a representation of wealth in the system of physical or a tangible or in this case actually a digital representation of the growth in the system but be aware it's a representation of wealth it is not about that so so let's suppose we have ten units of wealth and it's represented by ten euros. to actually ten euros. prints and they take those ten euros and make it fourteen year olds who are now you know fourteen year olds but those fourteen year olds to represent only ten euros of growth because the board has not changed nor the full of the change the economic progress so people have to make things of value those things of value have to be

sold to people who can make use of them basically you need capitalism to take place in you need actual exchanges of value versus financial engineered paper machinations of. digital things which is basically what we've been having for you know an untold amount of time i'd say at least six seven years both in the us in. europe i don't want to say just the e.u. because i say we used to have issues such as in the u.k. yeah so you can't fake economic progress but yet central bankers continue to try and you've gone so far to say no amount of money printing can keep a nuclear winter from occurring when it comes to real asset prices first let that the ground rules what it what are you what constitutes a nuclear winter an asset prices and realize that right is. basically the real that surprises me because us a purse is this say real estate in general and that could be commercial we'll see

in the. residential real estate these are income producing assets they usually track inflation and over over time have been up in price in general i'm nuclear winter is basically when you have a downward move in the value of these assets and eventually the prices and you have an over significant mean period of time i don't mean a couple of months or a couple of years i mean of significant long time and a dramatic downward movement in price this is inevitable because most cities purchase the s.s. is with leverage in other words they borrow money money money they borrow money primarily from lending institutions such as banks the banks it doesn't matter how cheap the money is the money that banks acquire is if they don't lend the money it's irrelevant so you can have rates at three percent two percent one percent close to zero percent at zero percent you have

a negative rates but if the banks don't lend the money to those who need it then those entities who need to borrow money simply can't borrow money now in europe you have a significant situation because you have hundreds of billions of euros of mortgage loans coming due over this year and next two or three years most of those loans or either close to or significantly underwater so even of things were going well and banks would be doing very well and healthy and quite generous they still would not be willing to turn over to roll over fifty fifty may you alone on a property that's worth thirty million euros so you know you have a short for their natural for has to be made it would buy equity and of course of the n.c. they develop more than best they had the equity they probably would be in trouble in the first place so what you have is you're going to have a hole. in the hole it's going to be made real when the loans get need to be rolled over now you could possibly kick the can down the road and say we will roll the

loans over extend the loans etc well but that doesn't. it's a problem you know the problem is you have this much iness you have that much in debt so you have a negative home equity so you can kick the can as much as you want i don't think the karens going to get too much for this road is coming to an end because the eurozone has played games with this political front entrance in the ring or so through for too long and the insolvencies coming to bear in many different facets and several different nations in several different ways so then when they can kicking does come to an end as you believe that it will soon this can't go on very much longer what is the fallout for europe and also the u.s. from this nuclear winter and asset prices. well you difficult to have a reset in the banking system things are going to be done differently exactly how they're going to how differently you know that crystal ball but you're going to have wash out of the and so when the situation's. real asset prices are going to

take a dip and a significant bit that's actually a good thing oh yes like for phoenix that burns and then rises from the ashes you'd have investors that come in and you have to market prices where you can actually buy real as its principle on you and you're going to have you'll shoot up because prices go down significantly hopefully that causes a truly set system and you have true pricing of debt because you still have. to have like the german one for instance you know running very very close to zero percent and even though germany is relatively strong economy compared to much of the e.u. and it's trading problem this is still an explanation and its exposure trading problem is or ranging from going into recession hard landing into recession or you know damn near depression like greece so what is an explanation that has trading partners ranging from depression or lending do has an economy that's

stagnates so you have a stagnant economy and you have almost zero percent interest rates and an economy with macro situation the fundamentals that look bad a banking system that's over leverage having rollover underwater loans and a global economic picture that's negative it simply doesn't make sense exactly i think you bring up a really good point you can have german bunds that look really good when you look at the yield that look like a safe haven but you have a real situation that is affecting faith haven countries it is affecting germany and of course something that mario draghi was essentially saying today in his press conference you gave an example a dutch example of kind of a microcosm about what you're talking about for real at that investors could you talk a little bit about that example that i saw you writing about. ok the refresh my memory because i prefer and you were writing about it about a dutch example that's a microcosm of what's to come for

a larger real africa and that's what they kind of gives an example of what you're talking about. here basically you have a dutch the dutch really has a powerful you have income producing. producing properties and significant amount of properties or even. have. of approaching one hundred or over one hundred. in europe you know a comfortable t.v. will be fifty for l.t.v. is going to value ratio so a fifty percent loan to value ratio is comfortable up to sixty five percent this particular company has it at sixty five eighty and over one hundred percent which means that the properties underwater you know they have a ten b.n. ten me your property they have twelve meals of loans on it. and once you have a significant amount of your portfolio in that condition it's very very difficult to get new loans so this company is basically losing value as each loan comes to bear and that property is being written off in general and then you also have

degrading a level of income from the property because rents are softening you know when you have. to really have a softening economy going to recession you can increase rents and then there's wednesday crease it's harder to service a debt that's underwater in the first place and then you have the fact that the companies for us to make whole on its maintenance you know of course the public have to be maintained and developed so you have capital expenditures in the cap expenses can't be met because rents a decreasing properties are underwater you have the potential for foreclosures so the value of this company is going you know down the crapper the several different avenues now this is one company this company's bad off but this company was in a dutch. dutch company where the dutch were considered relatively stable relatively strong but nobody is immune because a contagion is just. it's a contagion in a move from one economic system to the other because they're all very tightly related this company's problem is the exact same that other companies in other

areas would have been of a reserve both europe and the us simply takes to write an example of that going on in the core in the netherlands considered as a safe haven i want to keep you want to read you want to talk eliab or while we're on all this interest rate manipulation we're going to go to break and we'll be back with reggie middleton entrepreneurial investor and author of the boom bust blog in just a minute also still ahead the i.m.f. is warning the u.s. could be pushed off that fiscal cliff and one city is trying to avoid a fiscal cliff of its own by paying your student loans to move there we'll tell you all about it in loose change 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 people have made who can you trust no one who is you who with the global machinery see where are we heading 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 and you sure see some other part of it and realize that everything you. don't i'm sorry is a big issue. here . but in the alone the show will 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 about the nuclear winter and real assets that we may be facing ahead once that can kick in down the road of policymakers they want to get that can any further and we start actually seeing insolvencies reggie middleton as you were talking to entrepreneur investor and author of boom bust blog and read you before the break we were talking about central banks i do want to touch on them for one more minute before i get to well i guess central banks are still involved in life but before we get to that the danish central bank is now in negative interest

rate policy territory with the deposit rate of negative point two percent i find just curious what this does to the physics of the economy when you have negative interest rates as a policy. it turns everything around you know when you drop a ball the skyward. you know. basically you know you have to pay that in the central bank to lend them money. which is a good deal too bad they don't have that in commercial bank accounts. that way i get paid to borrow money from people but unfortunately i doubt that's going to happen anytime soon to the consumer good this basically indicates is. the end of a cycle for the as thirty two years roughly you've had a bull market in treasuries in the us and i think the us was the first of the laws developed nations and such and central banks to have. a negative rates in the in their bonds. us rates been negative several times during between two

thousand and eight and two thousand and nine and did so recently as well. this basically shows you that you know at the end of the line you no longer lending people money you have three you know giving them money to hold you giving them compensation to hold your. liquid assets that are at risk anyway and that's basically unheard of so you know you have a bubble. and this appears to be the apex of the problem now has for how long they say takes the shape of the apex the shape at the top of the curve again it's hard to tell but anybody who uses common sense and follows grandma's wisdom knows that you should not pay people to in the money this is basically you know indicating that there's going to be a significant lease it coming sometime soon and the reason why and cities are able to charge big of interest rates is because there's so much fear in the environment that they know that if they're considered

a safe haven they could actually charge to park capital and investors or speculators or idiots or somebody. in space or greece is not looking for return on our capital we're more concerned about return of our capital and even a two year old can see that that wouldn't pass the smell test you know paying someone to hold your money but that does show the perverse kind of world that we're and what policymakers are doing so when you're talking about that bubble and reaching a pact but not knowing exactly when it's going to pop do you think in this era where we keep hearing a lot about coordinated central bank efforts and all of these kind of innovative quote unquote policy tools do you think that we're going to see central bankers do something to mess with the space time continuum to the extent that they cause this to explode the universe to explode. not literally obviously. yet the. a lot of times in the mainstream media you hear. the word sin

to be honest for my opinion we need a significant crash because once you have a significant reset matt starts to take place again you don't have negative interest rates for someone powers of money you get to charge an interest for the money so that's what we're looking for the central bank trying to buy time for the system to grow itself out of a hole ok but the system is not going to suffer the whole system is too shrinking and the hole is getting deeper but this is trying to buy time and by now it should be obvious that their particular methodology is not working but that methodology is being continued with q e dropping interest rates etc so it does we matter what the central banks do you know the ends of it and so these either will for now or world to handle for the next fifteen twenty twenty five years i mean we've seen this happen before in complete and full detail which upin right you know japan and you know sort of all the bad assets and not performing as m.p.'s under the rug they

turned their backs to insolvency and they looked at real assets that were underwater and they may rules to protect lenders who simply imprudent underwriters and what did that do for japan well you had twenty three. commercial real estate prices and you had twenty one and a half or twenty two years of the coming residential real estate prices so you know it was a lost decade it's the last two point three decades to you in two decades right you know and this still going down by the way you know japan's real estate is still not the hottest thing in the world yeah so even though we've seen a walk in blueprint of the year and decide to replicate it again and i'll be replicating it globally worldwide right and the funny thing is sometimes people pointed to pan to say hey look you can do this for a long time without a country imploding but that is exactly the point is that you kind of need that. implosion to reach a bottom really quickly before we go i didn't have much time to get to library but while bra manipulating interest rate libel or is not some rate set by the free

market this is done by a poll of the leading banks and people have been blowing the whistle about this i mean there are press reports about why board manipulation years ago you were talking about the u.k. c.d.s. market saying that banks are unable to buy at that rate that it was dictated so is it any surprise to you should be any surprise to anyone that banks were manipulating live or trying to or at least one thing. it was no surprise and we all know it's not one event you know the. last time it was just one row you sever it your that that's indeed a problem you know it is not just one bank is that matter of fact when you put c.e.o.'s back to the wall and he has a lot of secrets usually you know he opens the scales because in skills and bones go flying everywhere and apparently that's what he did when he released the little document with the e-mail with the you know the powers that be with the bank of england and the government of england where basically he was. given the go ahead and even write to falsify the rates that he submitted to even after he said

that everybody else is rates were high for a set of us now with this leads the way i see it this is going to lead to many banks the royal bank of scotland r.b.s. was just find a significant amount of money and then if you look at those others who submit rates you have three american banks citibank j.p. morgan and bank of america you know these banks have enough little risk as it is between foreclosure but tween the mortgage put back to make them you know. because as it is bank of america in my opinion should have negative equity if you took a realistic look at the teacher liabilities that on top of this a potential for anybody who's been on the wrong side of any product that was said price off of liable and you have. to give up the was to potentially hundreds of billions of dollars risk so the litigation kind of the risk that's not even really being discussed we're going to have to have you on again to talk all about that

right because i'm out of time for today i really appreciate you being on the show great insight as always he's ready middleton author of boom bust blog. all right let's wrap up with loose change today we have making a very special cameo the one and only alone in minkovski host of the lerner show joining me to talk about these stories that we want to end on so first alone and thanks for being on the show my pleasure thanks for having me we love to switch things up now whole we've all heard warren buffett's past calls for taxing the rich we even gave you our analysis on this show to comments like this.

we should we should cut charges of everybody except the very rich i think we should raise taxes of the rich but when you look at the facts is this really about buffett wanting to be taxed more or is this about crony capitalism and his place in the pecking order. so before this a lot of we've talked about warren buffett as a political entrepreneur someone who's realized that it doesn't necessarily pay to know the fundamentals of a company in terms of investing in it i mean not in the way that it does these days to be connected with washington so that you get the benefits of crony capitalism and you're not just left to the devices of the market so i'm asking if this is an example of that because congressional filings say that wells fargo is outspending any rival when it comes to its washington d.c. lobbying office so we get that news and now we've learned that berkshire hathaway's annual report reveals warren buffett's been investigating not investigating freddie

and less to investing in the banks since two thousand and five making it is second largest investment and one of the only that he's been adding to consistently since that time does this pass a smell test to you coming in here from the outside what do you think i don't know i mean i think that it's always a little bit sketchy right if this is been going on since two thousand and five suddenly everybody is finding out about it but if you haven't realized that it's the political capital that really matters here in washington by now than when you're kind of an idiot right and so you would expect warren buffett to know this and i think that from a political perspective for example with wells fargo what ninety seven percent of their assets are all based in the u.s. ninety eight percent of their employees are all based in the u.s. it looks good too right not only do you want a more progressive tax system for the rich to pay their fair share we're also going at something that's a little more american oh there goes it goes along with his saying i want to tax the rich and kind of giving a big stamp of approval on to america to try and get that political capital i agree

i agree so let's move on the i. recently war in the u.s. is in danger of being pushed off a fiscal cliff ok everyone knows that but the i.m.f. is saying that one u.s. city is kind of innovative it's using its cliff to its advantage by offering to pay some student loans if you move there can you guess where it is take a look. the poles are almost like a bath tub drain they're pulling all of the water out of great lakes. so niagara falls is in danger of falling below the fifty thousand population count that it needs in order to get federal funding it could lose it so it's going to pay up to thirty five hundred dollars in student loan payments for two years to get people to go their kind of perverse incentives you're going to pay off loans in order to get federal funding i mean this just seems a little weird well you know i when i first heard about it i thought great idea right you always need to give somebody an incentive and so why not since so many people in america are bogged down by student loans right we've surpassed

a trillion dollar mark but then it is just to get more federal funding but it's kind of i guess the way the world works when i was a little shocking is that only two hundred people have signed up for this so far and really you would think that we're going to you know they have student loan debt more people be signing up but then they're only going to pick twenty two so i don't know how perverse as it is this one may be acceptable yeah well have you ever been to niagara falls i have grave was on the canadian which is evidently supposed to be amazing and very rich and the u.s. side is a bit of a dump and in need of a lot of money as it is so just give it to canada. but i think more of those kids are going to want to go to canada for i guess job opportunities i would assume but that's all we have time for alone and thanks so much thank you so much for watching be sure to come back tomorrow and in the meantime you know you can follow me on twitter at lauren lyster give us feedback on the show any you missed at youtube dot com slash capital account catch us in a d on hulu at gulu dot com slash capital dash account for everyone here thank you

so much for watching and everything. will be british style. it's not art. right with. the markets why not. find out what's really happening to the global economy with mike's cause or for a no holds barred look at the global financial headlines tune in to kaiser report. there hasn't been a thing 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 else. download the official placation to go on the phone all i pod touch from the top story. one life on the go. video on demand on ts mine gold costs and.