good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. and we are on vacation and you see we've been broadcasting since october so that means were a little overdue for a break but in that time and in just the last few months we've interviewed so many amazing guests from jim grant to mark father to jim rickards even joining me as a co-host and we've covered so many topics that are relevant on any given day whether it's the bad or the eurozone crisis so we put together some of our very best and most popular episodes from the last few months for your viewing pleasure and the time while we're off and you can look forward to all the new shows starting september fourth so mark your calendar and don't forget interviews can all be found in their entirety on our you tube channel you tube dot com slash capital account but for now let's get to today's capital account.

so boy did sandy weill raise more than eyebrows yesterday when the former chairman and c.e.o. is citi group said anough with these too big to fail banks take a listen. i'm suggesting that they be broken up so that the the taxpayer will never be at risk. the deposit is won't be at risk the leverage of the banks will be something reasonable and the investment banks can do trading and not subject to. they're not subject to not being there when they can make some mistakes . now the ironies should not be lost as sandy weill was at the helm of citigroup when it was becoming the he met that is today he was instrumental and pioneering

the one stop shopping bank model even violating remaining provisions of glass steagall at the time in the process here is inside jobs filmmaker and predator nation author charles ferguson talking to us about it take a listen citi group wanted to acquire travelers did acquire travelers before the glass steagall act was repealed and so it was at the time. illegal combination of a commercial break and an investment is travelers which was at the time an insurance company also owned a large investment bank. but greenspan the federal reserve gave them a pass gave them a one year exemption in during that one year exemption they got the law changed repealed. fancy that and now the chairman the former chairman is advocating for something that sounds a lot like it or at least the spirit of it things seem

a little paranoid paranormal needless to say this is wall street begin suing itself over line for manipulation here to talk about all of this and more is our co-host today he will stay with us the whole show jim rickards senior managing director at tangent capital partners he's also author of the best seller currency wars the making of the next global crisis we'll bring our guest today resource guru rick rule on shortly but first jim records thank you for co-housing capital callid needed it to be here on this is great it is great so let's start with this these comments from sandy weill because it's really interesting you and i have often talked about the problem with these massive banks they can leverage depositors to make these huge outsized trades that you said are flat out gambling as in the case of the whale trade so what do you make of the former c.e.o. and chairman of citi group saying break up the banks and is that the right solution first i applaud what senator wellstone i think was exactly right look we all make mistakes but the only really bad mistakes of the ones we don't admit are that once

we don't correct sandy made a mistake in one thousand nine hundred so a lot of other people phil graham bill clinton john reed lots of people on board the repeal it wasn't just one individual even though he was the driving force given the experience of the last ten years of him back he says that was a mistake so i applaud that and by the way he's not alone john reed who is cochairman at the time of this city good travelers merger has previously said that was a mistake this should not have repealed was to go richard fisher president of the dallas fed said the same thing so the list of people who say look this is just a mistake let's go back to something like what we had glass steagall work for sixty five years it was an act of one nine hundred thirty three it was you killed in one nine hundred ninety nine so sixty six years you know we have some we have some business cycles we have some individual bankers but nothing like what happened in two thousand and eight so let's go back to it it does work so you think that that. is the solution you think sandy weill and these guys are feeling a little guilt well again maybe maybe not but i applaud the honesty and again it's very hard to me he was so outspoken he was such

a leader in the repeal of glass steagall along with others that it takes a certain amount of courage to come out and she made a mistake so i applaud him for that i mean remember why they enacted glass steagall in the first place in the one nine hundred twenty s. we had you know the roaring twenty's we had a huge stock market bubble then the stock market crash there were investigations and hearings in the early thirty's it came to light that the banks who organized the garbage loans securitizing them and selling them to the customers so the congress said well from now on you can do one of two things you can take deposits make loans or you can sell securities but you cannot do both that work for sixty six years now along comes you know glass steagall program i don't know why the congress in one thousand nine hundred nine thought they were smarter than the congress in one nine hundred thirty four congress nine hundred thirty four i just lived through this experience they saw it so any way you repeal glass steagall ten years guess what happens the banks original i originate garbage loans put them in securities and sell them to their customers and the market crashes it was the same thing over again so let's go back to the same solution history repeats itself i was reading actually an editorial from right before

a glass steagall was enacted it was crazy the similarities speaking of the craziness of the banking sector i do want to touch on library because you've also told me that you think one of the big issues to come out of this could be the class action law class action lawsuits and after you told me that then the news came out about these class action lawsuits and we've seen baltimore we've seen charles schwab and just out today bloomberg is reporting that black rock the delany and vanguard may get into the fray where could this be headed this angle of well these lawsuits are going to be huge first to adobe hundreds if not more of individual lawsuits but what will happen is some federal judge will consolidate that he said look we don't want one hundred separate lawsuits all over the federal court system will be consolidated in the single court for the class actions to appoint a warrant or maybe a couple law firms. to be the lead counsel for those so they get the all into one giant lawsuit as far as infidelity and others they really have no choice their fiduciary is for other people for pension beneficiaries investors and others they

have to sue it doesn't matter if they're suing their buddies or their cronies or their banks they have to sue because if they don't their beneficiaries will sue them when your produce you're in a representative capacity for the benefit of others if if they represent people who had swaps and they were they had money stolen from them because the bank rate fixing they have to sue to get that money back so this is of course we know the theoretical damages are potentially in the trillions and may only have been five or ten basis points of manipulation but when you apply it to five hundred trillion dollars worth of swaps times five years you get to two point five trillion in damages enough to wipe out the capital and you're saying that if they don't have it then we're talking bailout so in this crazy world that we're living in where this is what we're looking at in this is the environment that people are investing in the question is how do you hedge against us volatility how do you how do you get fraud how do you had to guess what mario draghi is or isn't going to say well to answer this i want to bring in our guest today jim it is rick rule he is

a natural resource industry guru he is also the chairman of sprott us so we're really pleased to have you mr roy you're joining us from vancouver where you are theodore a financial symposium so thanks for being on the show. it's my pleasure and i'm really curious to know because making a big splash across headlines and markets as mario draghi coming out today and saying we support the euro at the e.c.b. one hundred percent and my point isn't whether or not that happens my question is how do you factor into your analysis or your forecasts what a policy maker might come out and say that everybody gets really excited about. well i think that's a wonderful question i think it's a wonderful question of two points in the first instance given the veracity of the information forward in the past who would really care what they said in the second instance what is it that we that we did they can do. this in circumstances that

surrounds the euro are not a set of circumstances i think that gives people a lot of confidence in the fact that it can be saved they're dealing in europe and i think we're dealing in the united states with an odd sort of circumstances we are trained to deal with the solvency issue i.e. the old too much by having liquidity they're confusing solvency with liquidity i think perhaps what they're trying to do at the moment is restore confidence in capital markets in the very short time in hopes that a creator or something else can solve their solvency issue in the first instance i'm not particularly interested in what they have to say anymore in terms that the excesses and the second instance i'm. nervous about the fact that they are treating a symptom rather than the problem ha i don't know mr well i have to say i know someone that might have a slightly different view than you so i want to get directly into the back on that

because i know you think euro europe and the euro is going to they're going to keep it together i do think that the european monetary system or a man tag of the euro will stick together as a currency that no members are going to leave nobody's going to be kicked out i think some members will be out at the question i have for rick rick i agree with you this is a solvent see issue but i think what a lot of analysts are missing you know you have the bonds you have the banks and you have the currency the bonds deserve a haircut i wouldn't touch a great bond with a bargepole and some of the other bonds may take care of that i think a lot of the banks are insolvent so i think you're absolutely right about that but that doesn't mean the currency that doesn't means anything we're out of the currency the currency can hang together even if banks and bonds take care cuts and so i would just wonder if you agree that. those are separate things or if you sort of much them all together for purposes of your analysis no i actually i have to agree with you jim i think i think the currency is a floating abstraction. and i think that most of these modern currencies are based

on confidence i joke that the root word of confidence of course is current. and i agree with you holding back in the context of the fact that this floating abstraction which is the currency to go on as long as people are willing to accept it and transacted the bigger issue of course is from my what if you the banks are insolvent because most of their assets it's the sovereign sovereign debt the banks liabilities are of course money put but the assets are very very very ephemeral and one could assume that something as arbitrary as a currency union could survive the insolvency of some of the issuers or ins or the insolvency of the banks so i think i think you're absolutely correct i don't see anything that's more abstract with regard to the euro than the u.s. dollar although my friend said don't keep the case he famously jokes the u.s. dollar is an iou nothing whereas the euro is nothing. if you i

suspect the euro me houses were probably more problems than the dollar. gold actually one thing i like to point out is that i agree with you these paper currencies are abstractions they're based on faith and confidence but if people start to lose confidence and you say well what's plan b i've always thought of plan b. as gold and in that case the seventeen members of the european monetary system collectively have ten thousand tons of gold united states has eight thousand tons of gold so i like to point out that europe if you have to go to plan b. you have to go to the old europe actually is more gold than the united states i would take everything you say which i agree with and applied to the united states i think our banks are insolvent and we have let's call them europe i want to quickly respond to that we're going to get a break. you know i absolutely agree that what i'm interested is not so much the states as with the europeans but rather the goal that i guess the only count i come to trust in my declining years is my accounting of my own assets my own my abilities i'm nervous in the first instance about the solvency of the system i'm

curious about the measurement of accounts. i've learned from my what if you society's going to take your itself and i'm going to have to hear myself there you go self-sufficiency it's a lesson for everybody to take and run with we will have more with rick rule founder of sprott global resource investments after the break as well as our co-host jim records senior managing director at tangent capital partners and first a look at our closing markets.

a client of american power. continues. things are so bad that might actually be time for a revolution. and it turns out the popular drink of starbucks says a surprising in radio. korea

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welcome back before the break we were talking about gold and gold as money and cash the u.s. dollar the euro so i want to touch on something that is going on coming up ron paul the lawmaker has been in the news because his audit the fed bill passed the house which is a big deal because years ago people would have said audit the fed bill was that crazy and now it passed the house with a large amount of overwhelming support but also coming up here ron paul is holding a hearing dealing with this very issue of gold as a monetary metal so i want to bring back our co-host jim record senior managing director at tencent capital partners and also author of currency wars to ask what you think the significance is of this hearing in this debate of gold as money right well you know ron paul has been a member of congress for decades this is his last term and he's getting some major accomplishments on his way as you mentioned there in the house passed by

a very large majority of this bill to audit the fed but in a couple weeks he's a member of the house financial services committee but he's also chairman of one of the subcommittees on the monetary policy committee says some committee which he's chairman is having a hearing in a couple weeks on the subject of where the gold could actually be used as a form of money what ron paul is with what chairman paul is saying forget about abolishing the fed and getting rid of the dollar and go back to our let the dollar do its thing but let gold compete side by side as a form of money and so in theory if you're a car dealer and you've got a ford car and it's twenty thousand dollars you can say hey for twenty thousand dollars or sell it to you for fourteen ounces of gold with the current market prices now there's a problem with that today's to work could you do that today the problem is the tax of because gold is a commodity if i bought my gold it seven hundred dollars an ounce and i traded for a car pizza or anything else say fifteen hundred dollars an ounce i have to pay capital gains tax on the difference the hundred dollar difference and so that's very different than using paper money where there's no capital gains tax so you're

not really going to see gold used as money until you eliminate the. gains tax because otherwise we got a computer again at a loss and put our tax return every time we quote spend the goal post going to have a hearing on this to going to work through some of the technical issues he's a thought leader it's not going to change the world and one hearing but it will move the ball and maybe a few years from now this will be the issue that we're talking about saying oh a few years ago that would have been crazy but now people are moving forward on it i want to keep this conversation going about cash and gold and i want to bring back our gas rick rule founder of sprott global resource investments because mr riehl i know before you said there are times when investors will require both cash as well as courage so is this an argument for having significant positions in cash in addition to physical gold and when would be a good time for investors to reallocate their holdings from one asset to another. i definitely think it's period in time where investors would like to have or should have or meet substantial amounts of liquidity in your portfolios i have

a book actually and go over to the idea what if you get my gold is good cash so i regard them as in effect part of the same asset class i think the sets of circumstances that caused the psychotic breaks in the market in two thousand and eight haven't been addressed with the exception of official sector liquidity and as a consequence of the fact that i don't think that a lot of root causes been addressed i think the possibility that that occurring or reoccurring is reasonably high cashed will give you the means and it will give you the courage to take advantage of psychotic breaks in the market and well i'm not certain that a crash is inevitable or certainly eminent i think that the possibility of that occurring is high enough that one needs to be prepared i'm also cognizance of the fact that cash has opportunity and carrying costs the way you get paid for cash relative to the decline in his underwear and purchasing price means that you have strong opportunity cost inflation costs associated with it but my suspicion is in

the next two or three years the benefits of having liquidity and the courage that it gives you involve the markets will overcome the opportunity cost holding it's unfair for both of you gentlemen agnes or will you say you don't know if another crash is imminent but it's certainly something that could happen i wonder what if any black swans on the horizon you're watching out for are planning for and then i want to get advice or recordset on that too. when i look at in the grocery for black swans i see flux. i see discipline solvency in the united states i see a host of european countries i see a lot of banks that may or may not be insolvent and i don't think the banks know whether or not they're insolvent certainly the short true constraints on interbank lending that we had in two thousand it was a function of the fact that people knew their own balance sheets to know that their peers balance sheets were lousy too the idea as an example that the european bank might be one thousand times leveraged and have as its asset base that will mark the

mid as opposed to mark the market well in fact their liabilities with both were for the most part money good was not reason we're sure and so when i look at a set of circumstances that could cause us to have difficulties i think there's a whole range of damages i'm also interested in the discussion you were having about the manipulation of like or but here i would sorry yeah go out of course i want to hear your thoughts i mean i think a much more serious than if you lation is the effect is the official downward manipulation of interest rates in effect the war on savers the war on producers that's taking place and noted states and canada free market interest rates were not for central bank manipulations would be much much much higher we're having an income transfer for people who are throughout their life and are saving money to those people who are consuming money so if we're going to talk about a manipulation of interest rates and people who have distorted and the need belated

markets and change people's lives and if that ruined people's lives the right people to sue the right people to prosecute the right people to put in jail or in fact of course the central bankers and legislators you know you're not going to get a lot of argument about that at this table i don't think i certainly don't disagree i think that the bankers are obviously there's a lot of reasons to be angry at them for manipulating library and be directed there but you cannot overlook that then the mandated. elation that central banks are dealing record with that's that's right law and i agree completely with with what rick said couple months ago i testified before the senate banking committee on exactly this subject the name of the hearing was ahead of income security the members called it income insecurity but the estimate is that there's a four hundred billion dollars per year wealth transfer from savors to the banks because of these suppressed interest rates if you look at where interest rates should be assume normalized interest rate relative to this stage of the economy this stage of an economic recovery and look at where rates actually are and take

that difference and apply it to all the savings is four hundred billion dollars a year of missing income to the savers where's it going what's going to the banks because their cost of funds is lower so they can make more money on their holdings the government bonds so what you have is a massive wealth transfer from everyday americans to the banks being orchestrated by the fed now unfortunately for its last point all these agencies have what's called sovereign immunity you cannot sue the fed you cannot sue the treasury you cannot put them in jail for this but maybe they deserve it yeah this is a which is a real shame you know i do want to make sure that we get to this issue because rick will is obviously a natural resource and i know that you had an interesting question about water fire and make sure we get that in you know we talk you and i talk about gold and other natural resources but i know you you have a broader mandate and that i was wondering about your thoughts on water as perhaps the resource mark of the future we all appreciate the importance of water that's obvious but what has been a little bit of a local commodity you know there's one price in the colorado river basin and one

price in beijing do you see the evolution of maybe both sales of water or a global water market a global water price and you know derivatives of that at some point the future. i don't i think that water is in the persons well if we control i agree with all of your all of the rest of your thesis however water is a series of localised markets and i think the water is probably the most mispriced of all commodities it has been allocated politically over time which is a guarantee that it will be misallocated eventually we haven't had a free market water we say in the west the free market water flows uphill the money and downhill the boats and you have the sort of circumstances where of course water has been misallocated to understand water economics first of all you must invest in look out for water is scarce places like the american west and southwest but also in places that can afford to pay for water although water is scarce in somalia and ethiopia discovering it there does it go in no good because the buyers can afford to buy it the new golden sort of opportunity in water would be to be able to buy

agricultural water in the american west and southwest and then be able to do what's called the fall of the water or use rural titled water for urban uses there has been limited amounts of that so far but the law with regards to water is law that was established fifty or sixty years ago when rural constituencies controlled the legislature and the farming interests had no had no way or ability to compete in the market with urban water users and so they put in place legal safeguards to themselves from having the free market water my suspicion although i can't know this to be true is that when we have another good drought in the west and we will the biological record tells us that that the urban voters will begin to put in place the ability for them to appropriate some of that were a water in california my last understanding was the three percent of the g.d.p. which is the state's agriculture consumes eighty five percent of the water we need

feel good about using water for things like growing rice or alfalfa in deserts but the highest and best use of water from an economic point of view. it's probably brushing teeth so i should. have about a minute to respond if you'd like we're going to do that with you say about the politicisation of water in the in the fish to see the water mark and i just raising the issue of somebody if somebody could come up with some kind of global original price index you might be able to actually superimpose a market just make these allocations a little more efficient but that may be a major task. and we will end with a major task that may or may not ever be able to be carried out but i certainly appreciate you mr rule for being on our show founder of sprog global resource investments and also a real pleasure to have from vancouver so thanks for being on the show and jim rickards i want to touch quickly we just have thirty seconds but there is news that china is going to start depreciating its currency trying to lower it after it's been raising it a couple of years is this going to be the next round of currency wars between us

and china it is the law and that's one of the points that made the book currency wars are like a ping pong match it just goes back and forth and back and forth when these things sort of they're not over quickly the what i call currency war one lasted fifteen years in the twenty's and thirty's currency war two lasted twenty years in the sixty's seventy's and eighty's this new currency were started two thousand and ten it has a long way to go so this is just the latest hit of the ping pong ball latest head of the ping pong ball i appreciate you coming here and hitting the ping pong ball with me and with our guest as our guest co-host today that was so much fun thanks jan records thank you our senior managing director of tension capital partners author of currency wars and thank you so much for joining us that is all we have time for but be sure to come back tomorrow and in the meantime you can follow me on twitter at lauren lyster give us feedback catch any shows you missed you tube dot com slash capital account watch us in h.d. on hulu and from everyone here including our guest host have a great night. for

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