request the gold and silver investors god. call today eight hundred to avoid service goal. good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. and we are on vacation 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 fed 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 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. host two thousand and eight years later the markets have really focused much of their attention on europe however are we having deja vu is two thousand and twelve in fact looking more like two thousand and eight well increasingly it seems the only thing that is absolutely clear and so far is the euro zone is concerned is that the status quo can't be maintained the monetary union either moves towards deeper just deeper integration or there's some court kind of breakup or dissolution

in the meantime everyone is left every word uttered by political heavyweights like angela merkel today i have a clip here it was something she uttered in a closed door meeting with lawmakers but did she say no shared debt is long as i live or did she mean partial sharing or total sharing and wait what did she say exactly because no one in the meeting can really remember that was all over the internet and financial press today and the latest official news i suppose is that european authorities have tweaked their plan for fiscal consolidation to be debated this week at the e.u. summit it calls for progress towards euro bonds and an e.u. treasury eventually but they've scaled it back from ten pages to seven pages since monday everyone is trying to read the tea leaves but here to discuss whether or not this house of cards can continue to be propped up and how much longer this insolvency across much of the developed world can be sustained is chris martin's

and he's author of the crash course the unsustainable future of our economy and our g. and environment and it's really a pleasure to have you on the show today dr martens and thanks so much for being on . thank you it's a pleasure to be back great thanks mall let's fast forward because post two thousand a you heard the whole runup everybody is debating what is going to happen with the eurozone we have some news about a fiscal consolidation plan none of this really seems to stay in a bowl so my question to you does europe get out of this alive does the euro get out of this alive no europe has been kicking the can down the road we're almost out of road at this point there's some important structural differences between how the u.s. and europe have been approaching this crisis europe obviously politically fractured has a much tougher political row to hoe but they've been largely feasting on the savings of northern europe principally germany in order to continue funding the special vehicles that they're using to prop up some of the debt markets and they're just

about out of territory there so to your point you know where intell merkel is now saying things that we're trying to parse and slice the summary is this europe is out of savings to consume there at that portion of the credit crisis where they either have to print their way out of this or accept a very very punishing deflationary impulse that will possibly take down not just the european monetary union not the euro itself but maybe the european banking system by extension the world banking system does your crystal ball have any read on on which way you think it's going to tip. but you know history is pretty clear on this one or very clearly illustrated for us that over eight hundred years given the choice we always print whether europe can provide us with open heart and is the open question right now i have every faith when pressed we will go down that road so then my question becomes what is two thousand and twelve going to look like because i know that you have written that it is resembling two thousand and eight

that you could see a two thousand a type crisis happening this year that you see the same kind of signs going across your screen when you're looking at the markets now i know since the last time i saw you writing that we've had a few more extend and pretend measures we've had greek elections to so where are we on your timeline and are we still looking at some kind of a lehman crisis moment in europe. i think we are in so two thousand and eight that was the tail end of a very very large very elaborate credit bubble that actually extended over several decades in a burst in that bursting we saw that extraordinary measures had to be taken but let's be clear that was at a horror it liquidity crisis where the pace of the expansion of the credit bubble couldn't be maintained so normal mechanisms any longer and so we don't with that as best we could but now we're looking at insolvency or a liquidity crisis that's not at the lehman level it's at this pain level it's at

the greek level it's at possibly the entire european union level and soon enough at the united states level because really this is always been a crisis of insolvency the central banks have done everything they can to keep the liquidity game going but what i'm looking at and what i'm seeing is that is trying as they might there are just many things that are outside of their control that they've been unable to get the credit markets really going again we've had absolutely flat credit growth for a while and that's once you do go into the the details a little it's a very uneven part of the down there and some real simple we're just not seeing the credit growth that is required to get this bubble back on track which means we have to deal with the aftermath i want to get to that that first you're saying that history shows that when countries are in the situation they end up printing they try to prop this up and my hearing you say that two thousand and twelve is when this fails to work anymore and a real crisis and save it as

a result of this insolvency. i think so but i've been really surprised at how long the can has been able to be kicked down the road it's surprised me that we've been able to get away with the extraordinary expansion of central bank balance sheets without the world bond markets revolting more than they have so and so i'm always i'm open to being surprised however at this particular stage it's clear to me that if we face a future of default look when defaults happen the kind of thing we're talking about here political careers are ruined institutions are ruined the whole countries get ruined as we're seeing in greece right now the possibility of even more serious on the rest of the nation state level rises those are very serious outcomes and if the alternative happens to be hitting the enter key and printing a few more zeros on the end of of the credit balances out there that is the electronic version of money printing if that can buy us a little bit more time will always take that route because listen that is a much more powerful to alternative sounds better and there's always the chance

that the economy will somehow magically get back on track and grow for us and that's always been the game extend and pretend or delay and pray how we want to call it the prayers just haven't borne fruit yet the economy has not picked up and gone marching forward like we thought it should with a few trillion in printing all the signs i'm seeing on the global economic stage principally looking at trade balances coming out of china and everything going on in europe we're looking at a global recession again that is an absolute disaster for all of the rescue and bailout plans as they currently stand because they all hinge on a resumption of growth robust growth and soon and i don't see that coming in two thousand and twelve that's a great point it's growth that we haven't seen and that doesn't seem that there are any kind of terms that these agreements that would allow any kind of growth so if we do see a default one nation or if we see banks start to go down or a bank run what does this mean in terms of the interdependent. the banking system

because you point out that even a small corner of the c.d.s. market like greece that seems to be too scary of a prospect for four decision makers to call a credit event when bondholders took write downs because of the fear of triggering that c.d.s. so what happens when a bigger situation happens. well i think we're going to see the same sort of panic on on the basis of the regulators who were involved in overseeing the derivatives market to be specific what you're referring to there you know greece had maybe seventy eight billion of notional credit default swaps with a total trigger value at auction of maybe three point eight billion maximally but probably closer to two and a half billion once the auction went down and the regulators didn't let that happen for months and they came up with all sorts of reasons like degrees maybe didn't technically default and it was real contortion language that made no sense to

observers ultimately they did let that auction go across they did let the credit default swaps trigger but that was on this tiny tiny amount and if we saw that level of concern and distortion and back then being in order to avoid that we have to ask the question what happens when the larger credit default swap markets that are now structured built around italian debt spanish debt french debt even u.s. debt if those ever got triggered nobody has any idea what could happen next but it's very clear that the chance of a big gigantic counterparty failure like we saw with a i.g. which was counter party to a whole lot of credit default swaps on of relatively minor amount but still significant amount of mortgage backed securities well i think the fear is we're looking at something like aig but multiplied by ten and that could well exceed the capacity of central banks even to step in and fix it if it broke hard enough fast enough deep enough wow so that is a real real crisis moment we've talked

a lot about central banks but i do want to get into what efforts they're making now because we just saw the fed come out not with some big q.e. measure but with operation twist which changes the composition of the fed's balance sheet but doesn't add to it so what exactly does this do dr martin say and does it do anything for that to prop up the economy does it do anything at this point even to prop up banks. no this most recent decision was something i think they did it to look like they were doing something really it didn't expand their balance sheet so it's not the equivalent of printing all they're doing is taking shorter dated maturity treasuries and swapping them one for one with longer dated maturity treasuries so if they take the ten year and they drag it from one point five all the way down to one point three percent is that going to reignite the animal spirits in the las vegas housing market probably not so you know i don't see how this is really going to do much incrementally at the margin it does nothing

and very little and so i think that the federal reserve as if it is some people think they are miss placed there because history says quite often we find that they're a little behind the times that they go a little bit more slowly they're waiting for data to come in to support their decisions some of that data is a quarter old or two quarters old so it's driving through the rearview mirror i think the fed should have stepped in stepped in large with a sizable amount of brand new near liquidity if they want to prevent another two thousand and eight style market run which is something that i think is a very high possibility now i think the fed is late to this game really and what is it. that i'm not saying i support that they should do the right i was used i wanted to do something that was meaningful that i think they missed their chance here ok then i want to talk to you about what would happen if there is some kind of coordinated central bank effort which i believe you think is coming so hold tight there will be back with you after a short break we'll have more with chris martenson author and energy depletion

specialist also still ahead we know incarceration can be added to rain on resources a drain on taxpayers the government of brazil has a novel way to deal with prison overcrowding turning prisoner sentences into a shorter story three rating we'll give you are three thousand on the program could be a that's the first or closing market number. thank . you are going to.

you're going to. decline of american power continue. things in our country so. it might actually be time for a revolution. and it turns out that a killer drink at starbucks has a surprising. or

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welcome back before the break our guest chris martenson says that the fed may have missed the boat on providing more liquidity not that he's condoning this but just if the fed is trying to prop things up that they may have missed their chance so we're going to talk more about what some kind of a central bank effort would do at this point let's bring chris martenson back and he's author of the crossed crash course i should also mention that interesting leigh he is speaking at the cripple lou. yoga center in massachusetts this weekend that incidentally our producer has been to and highly recommend so i just wanted to throw that in there so dr martens and before the break when you're saying the fed may have missed the boat on liquidity what happens then if the fed does act or if there's a coordinated central bank effort as you said you're anticipating what it do more at this point than just prop up asset prices that market prices as it has been in

the past arounds. well i think that the time of individual central bank action is is over at this point the fed has done a pretty much everything they could do in the u.s. markets of course we know that through the freedom of information act request by bloomberg but they also have been propping up of other institutions dexia in belgium or the south korean central bank i think however given where we are in the story with with each nation whether it's the european union or it's japan or the united states needing their own currencies to maintain some sort of parity you know the last thing japan could afford right now is an even stronger yen so i think the in order to maintain the larger system we're going to have to see something a little bit more coordinated this time by an dissipating is that instead of the fed coming out announcing all on its own another trillion dollar liquidity program i think we're going to be seen instead is a coordinated action bank of japan the bank of england e.c.b. all getting together and coming out with some giant announcement saying that we're going to throw in some really meaningful an amount pick

a number of three trillion five trillion something and that money has to be dedicated towards absorbing a lot of the dodgy debts that are existing out there because we need to get the conventional bank credit system on the expansionary path it's stuck governments has expanded credit about as much as they can we need the credit markets to keep going again if we want to avoid a really punishing deflation so then i want to ask how shadow banking factor is that i'll bring up a chart to show our viewers that shows how shadow banking liabilities have actually declined a bed and that's chosen versus traditional banking liabilities they've come down to kind of meet in the middle to where they're at around the same place so first i guess most of our viewers are probably familiar with shadow banking but dr martin for anyone that's not could you just break down a little bit of what constitutes the shadow banking liabilities in these dark pools of liquidity. sure the regular banking system that everybody smaller with are the

investment banks and commercial banks they're regulated entities they take deposits the shadow banking system is a variety of entities hedge funds being an example money market funds being another or entities like special investment vehicles the s.o.b.'s are special purpose entities these are conduits through which money and liquidity flows it comes out of the regular banking system and then detours out it goes into this shadow system and it goes over there and those things the real key to the shadow banking system is that it operates outside of regulatory oversight and that means it has no limits on the amount of leverage that it can apply very very popular vehicles during the expansionary phase of a credit bubble because you can take money out pop it over into the shadow banking system leverage way up and make a very good return on your equity for your troubles so when we've been hearing about things like a re hypothecation or of the explosive growth in derivatives a lot of that is happening because and through the shadow banking system well and

so then as as we're talking about deflation and central bank efforts to of boyd at possibly pumping trillions of dollars then how did these declines and liabilities in the shadow banking sector factor in is this deflationary does this bring prices down and are central banks effective and making up for that contraction. absolutely this is all part of the game so we had this giant credit bubble tens of trillions of dollars were layered on in the chart you showed you know the shadow banking liabilities started to first exceed conventional liabilities back in ninety five this was the period of time ninety five was when greenspan did a couple of things he took away the influence of something called the sweeps program which allowed regular banks to sweep conventional deposits off of their books at eleven fifty nine at night take a snapshot sweep them back on and thereby avoid a lot of the reserve requirement ratios so this we have this extraordinary explosion that really you can pin it right there in ninety five it did

a lot of things for us it fostered an internet bubble and then helps support a housing bubble and when the bubble burst in two thousand and eight that game ended it didn't end with it ended with a complete crash and so we have this extraordinary credit bubble going on and a huge part of that was happening in the shadow banking system the loss of that needs to be made up over a year on the other side in the conventional banking system but over there we're not seeing them owning a little bit of loan is going on but for the most part they have extraordinary access reserves piled up things are really loaning us the opportunities aren't really there you know a lot of the corporations are able to tap generationally low interest rates over in the credit markets so we're not really seeing the kind of expansion that the federal reserve not only was hoping to see but we really need to see if we want to stop this deformation or in polls from continuing to do what it's doing in europe and maybe visiting a country near you soon there's a

a country near you think and we appreciate you visiting our newsroom here today to fill us in on all of that we're going to have to leave it there i didn't get the precious metals i wanted to but we're out of time next time dr martin said have to have you back he's not there at all so if you're interested in any of his talk that we told you about his web site is pete prosperity dot com all of the information is there. thanks. all right let's wrap up with loose change dimitri shannon we found the coolest thing thank you to the twitter follower who brought it to my attention a spanish movie referencing capital account guest and university of sydney

professor steve keen has gone viral the clip has received hundreds of thousands of hits here is a snippet. so you will have a son in russia has seven hundred. i call most of them looking to somehow not do that a single no and will she have the. massive that only the seeds of the see . how cool was that and they go on to have this economic talk in a woman from the balcony shouts down about q.e. and it is awesome so what does this say about the reach of our amazing guests as an international superstar. anywhere you know like it was like wherever there is like whatever there is that steve arrives and educate every one of the exploited them about the inflation so are you proud to you know this kind of international reach yes we're there it is part of our wave wherever there is orthodox economics he is

there to debunk it and he will be here to debunk it with us next week in studio yeah so our spanish fans anybody who saw that video can watch him here to get more material i guess let's move on we know paying lots of taxpayer money to keep tons of people in prison is not always cost effective something we know well in the united states where the incarceration rate is very high well the brazilian government is offering inmates a break federal prison four of them are offering a way to shave some time off of their sentences by doing this. it will go. through it should go to prison if you want to follow up on the education of two. reading the program is called redemption and redemption through reading rather i should say and according to reuters criminals will be able to read up to twelve books to trim a maximum of forty eight days off of their sentence each year participants will

have to write an essay they can't fake it so that i guess that's the thing. yes it breaks it for me. well because you have to prove you did the reading i do the same for your other seven years in jail then do those i says i can't do that stuff again that's the reminds me of like high school english classes i can't do those those b.s. i says but the reason i think you should really get into it on it you might not writing those us there's no way i'm done with that was that it was like prison time for me when i was an english grin like doing was spotted no no but the reading of books yes please this should give you more time off ok forgive me it was like that if you ask me this isn't enough four days for one more time off. i already said i was releasing this is great i agree this goes to read it's you know it's a good thing i learned that if it's not a present bunking economics they should do it. shannon. i think there's going to be a black market for cliff notes and i'm not going to be struggling like smuggling.

in order that. this. good about market share those working yeah that will create an underground economy for cliff notes in the u.s. incarceration prison this industry is the country i'm sorry but that's what i'm not ok i'm really likely we can't add anything because that was so brilliant shannon just and so it used to be that scientists engineers mathematicians left the academic world and headed straight for the financial sector then there was this. ten years ago when we tried to hire engineers we were always competing with wall street firms who were competing with the financial services firms that were paying no equity really but a lot of cash compensation and now with the contraction and financial services you see a lot of engineers now looking at other avenues. so this is interesting to be i as reported on by the financial times f.t. alphaville did a really interesting story breaking down how the scientific sectors in

a country with a financial system boom grow one point nine to two point nine percent slower and a year is not so interesting well this makes perfect sense that this is happening though because that's why you know we're seeing more blue collar financial crime now that's why j.p. morgan literally had to to reach into m.f. global and steal their money right they couldn't cope with these complex derivatives actions steal it so this is now we're regress to the blue collar crime because the engineers who are sophisticated white collar criminals are now going back into the tech industry and the other sectors of the real wealth and so it's finding innovative ways to steal it on wall street so i applaud this this reverse engineering of reverse engineering well now none of these other countries that are seeing a financial bill watch out for the broad shock of the flood of engineer our country are right that's all we have time for thank you so much for watching be sure to come back tomorrow and meantime you can follow me on twitter at lauren lyster give us feedback on their show catch and you missed you tube dot com slash capital accounts you should subscribe to the you haven't already and there's an h d on hulu

thanks so much for watching come back tomorrow have a great night. started here. for going global. and now it's cooling the fire. log in.

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