top stories tonight u.s. secretary of state. supporting the syrian regime as the u.s. spearhead to probe. the. critics say the proposed closure of the. russian lawmakers vote to brand nonprofit groups from. opposition parties. to washington d.c. now for tonight's capital.

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 is 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 the u.s. 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 and what's been pegged as a preview of what may lie ahead for other big blunders under investigation for this same thing but let's take a look back as it seems the real pattern of repetition is cool luzhin between the ortiz and the big banks let's get to today's capital account.

well what can i say they don'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 druggie fessed up to today when he announced the e.c.b. is lowering its benchmark interest rate to a record low take a listen but we can generally say that this may ease a grace to the euro and he's not addressed to specific countries he said. no it's addressed to the entirety of the eurozone now while 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 having 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 could 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 in 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 well now you have 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 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 financially 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 us every 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 and asset prices and realize that right is. basically real that surprises and i discussed us a purse is this say real estate in general and that could be commercial real estate in. residential real estate these are income producing assets that 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 movement in the value of these assets and eventually the prices and you have it 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 purchased the excesses with leverage in other words they borrow money money money they borrowed money primarily from lending institutions such as banks 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 are going well and banks would be doing very well and healthy and quite generous they still will not be willing to turn over to roll over fifty fifty million you alone on a property that's worth thirty million euros so you know you have a short for their natural for her to be hit with by equity and of course of the n.c. the developer of investor had the equity they probably would be in trouble in the first place so what you have is you're going to have a whole equity whole and the whole is going to be made real when the no 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 does. 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 hole in equity so you can kick the can as much as you want i don't think the can is going to get too much for this road is coming to an end because the eurozone has played games with this political financial engineering or social floor . 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 defeat going 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 susannah 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 at a significant bit that's actually a good thing though yes like the 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 base upon you and you're going to have the old shoot up because prices will go down significantly hopefully that causes a truly sick 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 it's exposed trading profits or ranging from going into recession hard landing into recession or you know damn near depression like greece so what does 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 the macro situation that's of the fundamentals that look bad a banking system that's over leverage having a rollover underwater loans and a global economic picture that's negative the supreme 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 druggy 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 you were writing about it about a dutch example that's a microcosm of what's to come for a larger real average and that's what that kind of gives an example of what you're talking about. here basically you have a dutch the dutch really has

a profile of the of income producing. producing properties and significant amount of properties or either. have the of approaching one hundred or over one hundred. in europe you know a comfortable t.v. will be fifty degrees 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 ten being 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 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 each property because rents are softening you know when you have. to really have a softening economy going to be session 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 call on its maintenance you know of course the probably 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 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 the contagion is just said. and dejan 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 another is of both europe and the us right is simply takes to write an example of that going on in the core in the netherlands considered

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 a 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. the issues that so much know there's a huge music issue on the market the arab spring only coming to sudan as the protest movement grows the regime of al bashir appears to have limited options which we can chew.

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 or 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'm 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. and their bonds. u.s.

rates when they did have several times doing tween two thousand and eight two thousand and nine and did so recently as well. this place agrees 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 that a bubble 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 we said 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 can actually charge to park capital and investors or speculators

or idiots or somebody. else basically says we're 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 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. the. a lot of times in the mainstream media you hear pocket the word sin

to be honest for my opinion we need a significant crash because once you have a significant reset meth starts to take place again you don't have negative interest rates when someone powers money you get to charge an interest for the money so that's what we're looking for the central banks are 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 to shrinking in the hole is getting deeper but the trying to buy time and the. by now it should be obvious that that particular methodology is not working but that methodology is being continued with q e dropping interest rates etc so it doesn't really matter what the central banks do you know the ends of it and so these either will for now or will dwindle for the next fifteen twenty twenty five years and we've seen this happen before income and full details which appear right you know japan you know sort of all the bad assets and up from houses m.p.'s and the road they turned their backs to insolvency in cities they looked at real assets that were underwater and

they may rules to protect lenders who simply were 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 the last decade is the last two point three decades to go into 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 well you decide to replicate it again and i'll be replicating it globally worldwide right and the funny thing is sometimes people point to japan 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 libre but while bra manipulating interest rates 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 day. it was no surprise and we all know it's not one event you know. you know was the last time it was just one row you. never did show that that's indeed a problem you know it is not just one bag as a 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 causing skills and bones go flying everywhere and apparently that's what he did when he released the little document with an e-mail with 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 right to force of the rates that he submitted even after he said that everybody

else is rates were high before and cetera 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 city pain j.p. morgan and bank of america you know these banks have enough risk as it is between foreclosure but tween the mortgage put backs to make them you know both the same cause as it is bank of america in my opinion should have negative equity if you took a realistic look at the teacher liabilities and on top of this a potential for anybody who's been on the wrong side of any product that was said price off of libel and you have litigation up there was this is potentially hundreds of billions of dollars of risk so the litigation kind of the rest it's not even really being discussed we're going to have to have you on again to talk all about that right you can add

a time for today i really appreciate you being on the show great insight as always he's that writing that all ten author of boom bust blog. yes. 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 on his 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 we've all heard warren buffett's past calls for taxing the rich we even gave you our novices on this show to comments like this. we should we should

cut charges of everybody except the very rich i think we should be rich 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 listing in 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 to write 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 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 the 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 the 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 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.