room busters god three cold today eight hundred two large seven 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 we're 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 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. we are back on wall street today now after yesterday we descended upon the floor of the new york stock exchange behind me today we're crossing the street for what you could call an alternative exchange we have the opportunity to sit down one on one with jim grant editor of grant's interest rate observer from where he really does is observing jim grant let me just say it is a real honor to sit down with you thank you so much for allowing us into your intimate long a pleasure well great thank you so let's start with because there is a huge outrage about this live or scandal and we actually first process this news

we were thinking ok jim grant is probably saying this is what central banks do every day and in fact you have been saying that you've been out saying that so why are people so outraged about why bore and banks attempting to manipulate it when this is the job of central banks that we all live under wrote the private bankers for the pilate rates on the quiet when they think they can get away with it surreptitiously opportunistically rarely central banks do it for a living. so it seems to me that the london interbank offered rate scandal is almost infinitely insignificant compared to the prevailing problem of the manipulation market systemically openly and on principle by our central bankers so do you think that the outrage at the banks is mr wrecked it over libel sure. they are turned around and be outraged the people who manipulate the rates on which live bore from which libraries ultimately derive laborious that is

a rate that is derived. in very good part from the prevailing level of rates that the central bank said. or fix to use the proper word so the federal reserve the european central bank the swiss national bank all the rest are in the business of imposing their judgement on the marketplace so they do this many ways most visibly they they set a money market interest rate that goes in this country by the name of the federal funds rate and that rate happens to be zero zero zero s. before tax mind you so the savers get zero before tax the speculators get to borrow at zero with which to finance their speculations so one can make. a good many arguments against the nebulae sion of rates and i have but the library scandal it seems to me is is this as a scandal is almost infinitely insignificant the significant scandal is that is the

ongoing manipulation of rates by our central banks why do you think more people are making that connection have more so upset about live our lives why aren't we more upset about central bank manipulation of rates as a reality i think that i think there is a ritual loathing of of big money and big financial institutions that is certainly understandable not entirely misplaced because these outfits are kind of state sponsored cartels in good measure you know they. know. that many of them would be standing upright and solvent except for the intercession of the central banks. so the trick now is i think of it just celebrating its two hundredth birthday. is only two hundred years old thanks to the taxpayers yeah yeah george is that even though it's anybody else be worth it to us yeah yeah so it's it's not as if people should feel. some throbbing

resentment against the. financial institutions that they ought to but they ought to it seems to me. resent more thoughtfully and fundamentally and a more thoughtful and fundamental source of resentment is the government managed and directed central banks that set the rates. really are the basis for things like why bore and just along those lines to follow up do you think that it's monkey see monkey do banks see central banks doing this and things are going to get involved. i'm not sure it's the it's the traders the money market or treasury desk or these banks say ah if they do it will do that i think what free traders are saying is i think we can get away with this great right yeah there's e-mails now and those are some fun fodder for at least outrage in themselves but i want to ask you know you

have said before that living in a central bank world is like living in a hall of mirrors or living under a central bank it's like being in a hall of mirrors and then more recently i heard you compare it to the truman show that movie where we're truman is in a fake world but he doesn't realize it until he's going along in his rowboat any hits actually on the campus and this is the limits of his fake world and i think you said we're already there so does this mean we're at the end to arrange things can continue to manipulate the fake world that they want. i think that we exit the fake world when people decide that they are living in it the jim carey character and in the truman show do made this discovery when the proud of his rowboat five member right. tore through the fake canvas sky. i'm not sure how many investors are yet at the moment of realization that the values they see are derived from manipulate interest rates the interest rates are

really the. the basis of so much that we regard as value. i am afraid that the that the moment of more or less universal realization is a way off but perhaps at the margin more and more people say hey when the second that's guy's not real right this right this water is it's like plywood am i right how do you think that would take because you could argue that existential crisis that truman had maybe was exhibited in the markets in two thousand and eight there was an existential crisis but what do you think it would take for i don't want to hear i guess there is a there is a more interesting and and i think more historically remarkable existential event. in which we have been living lo these many decades which is the almost universal acceptance of pieces of paper established with the pre-mature of sovereign governments claiming to represent wealth your currency.

and in fact it does pass for currency people take it and the dollar is a little miracle of faith because it passes for value the world over you stand on the street corner of moscow one hundred dollars bill and people will think better of you for. but the idea that that these pieces of paper no intrinsic value could indeed represent actual value this is a heresy for most of the world's history that has only recently come to be accepted as an article of a fact. and i think posterity will look back on our collective acceptance. of these items of colored paper as money and say they believe that if you read the text in a federal reserve note it says no no now a note is. this is an instrument of debt is a promise to pay something. how much to pay what well nothing actually and there

was a guy who worked at citibank for many years and was one of the most thoughtful and perceptive server critics of the first name is john exter and he is no longer with us but used to say if a group of know is an iou nothing you nothing so we're talking about the truman show and about our collective acceptance of canvas skies and plywood seasoned. and imagined towns i think that the that the article of paper money which is so much a commonplace in everyday life and of commerce and great investing and say i think that will be seen in retrospect by our heirs and assigns since this thing of amaze with the same for forty years and counting we believe it so our error so do you think the next generation will make this. distinction or i don't have a crystal ball here i'm just curious of all is generally has been broken for some.

decades. i think that. that i think i'm beginning to see signs of people questioning the legitimacy of these certainly the euro has come under some scrutiny euro is the currency of confederation which an american might say makes it confederate money and we know what happened in federal money. and with faith based currency i want to stick to this topic of faith in the people that print it so the federal reserve we saw the at the y.m.c.a. minutes come out earlier this week and oh no it wasn't enough for the markets they didn't promise end of that easy money was going to come there wasn't enough of a sense that it's coming do you think that the fed has run out of the tool instilling optimism. or hope well it's nice if it is a as it were kind of a drug dispenser when it's five years it's taking larger dosages and the fed minutes there is some soul searching about whether they have run out of technique.

so they might do something more even more dramatic maybe rabbits and have something like that. but there was an expression in the fed minutes of. consternation that. the techniques at hand were not sufficient to off in a maze. so they might do something else but it is it is a pretty worrying sign that that. these massive massive materializations. of money or whatever they call it you know the is no longer having the desired effect. do you think that the power of percepts chen is more important than the power of the printing press for the federal reserve that it which is wrong or a great question i think perception is ever so important the. markets

perception that the fed is can is in control is an important element in what the fed does. yeah i mean that the what the fed is doing in fact is to cause to come into existence. untold hundreds of billions of dollars as defined which take the shape of electronic impulses that stored in somebodies hard drive of the federal reserve bank of new york that really create no wealth. that at best lubricate the census and the expectations of people who may choose to materialize themselves bank crimea it all gets to be very kind diet and rather mystical so perception faith is is part of the this magical mystery tour that we call central banking yeah do you

think that power perception has run out for for the fad i think i think that the market is increasingly skeptical in the market needs more and more these larger larger dosages of whatever the fed's dispensing. coming up you will hear more of our interview with jim grant and still ahead it's library manipulation central bank manipulation p.s.g. fraud and that's global fraud all how you're looking for a way out of the financial system you may be interested to hear what jim graham has to say about planting trees and see first your closing market numbers.

decline of american power continues. things are so bad. might actually be time revolution.

and a true dollars in a cooler drink at starbucks says a surprising him really you. the world.

welcome back so why would anyone want to give their money put it in an investment knowing that they would receive nothing in return or they would lose money after all was said and done in a perceived safe haven like a treasury or or government bond well let's look at today's news cycle p.s.g. he's founder and c.e.o. arrested he admitted in his suicide note he attempted suicide two fraud going on according to his note undetected for twenty years so does fear over protection of your property rights factor in to what our guest calls a bubble in perceived safe havens where you don't have to listen to me can hear

from him more of our interview with jim grant founder and editor of grant's interest rate observer he's also author of this book mr speaker the life and times of thomas be read the man who broke the filibuster take a listen. when you talked about a bull market in safe havens and people willing to level in a bubble in the same bubble incident perceive safety now see actual safety we we see in retrospect very clear all that was safe. and but paradoxically that which is substantively safe often appears unsafe for example the. two thousand and late two thousand and eight early two thousand and nine. so-called toxic mortgages selling at twenty cents on the dollar actually proved to be a fantastic investment because they had built inside them a margin of safety built on price they've been sold down to next to nothing people were sick and tired didn't want to analyze and lo and behold the dregs of this

stuff proved to be a wonderful investment if not well certainly a great year long speculation similarly now we are to the swiss government securities out to five years yielding less than nothing are safe we are told that danish treasury bills french treasury bills german woman's yielding less than nothing are safe the tips in this country treasury inflation protected securities yielding less than nothing are safe i submit that less than nothing is not a promising place to start investment. i mean you once investments all too frequently wind up delivering less than nothing but you don't sit out that way right that is the same with the support of the value proposition even pass muster with a two year old that was you know they know that they're not supposed to give their money to someone they want to get money but is there our role or is there a part that property rights play and this because we've seen m.f.

global we've seen i've heard many stories of customers of m.f. global who had their money taken they put it in parent financial group and now the money has been taken from there so is there a role that people are more willing to put their money somewhere they at least perceive not to be safe because they're more afraid of it being taken. out of us that is certainly that's part of it i think there's an overarching fear of something terrible yet not strictly definable. and yet this is such a very a gated financial landscape there is this thing without a name this year that causes people to settle for less than nothing on fixed income investments yet there's also some strong enterprising feeling still in the world. you know the world is a presbyterian say of sin and sorrow to be sure that is perennial yet there are companies such as google that are in the business of codifying and making

accessible the sum total of the world's store of knowledge for free that would seem to be encouraging. the higgs bo's'n apparently has been unmasked i mean that every day there are marvels and our material lives so it is a curious. and it's a curious juxtaposition between abject fear and hope. of course. one shouldn't invest on the basis of hope but i am not persuaded that less than nothing is the thing to shoot for. a little higher maybe we could do better than he was at a speed of shooting higher this is kind of a creative interpretation but i was speaking to someone who was saying that a lot of swaps were done with y. bore and so a lot of those those investors will have a may have a case there may be a case of print occasion for lawsuits of these banks that have been found i mean in

manipulating it so based on that is it first seeable or perceivable that that's a verse or investors could say hey we want to sue the bad for the first that we're getting on our money because they're manipulating it yes it would be a splendid suit certainly the headlines would be splendid not sure about the substance of the litigation but you know if let us say that litigation goes forward with respect to wipe or what to say that. the dark powers of these commercial banks were manipulating the rate down so that means that people are paying adjustable rate mortgages were paying artificially low rates that mean they had some some made off the state guys go back say alright cough up more money you mortgage all right but you are wrong or you know it's right at the side i don't see that happening either before before we go. let's talk about gardening i guess is not gardening but i'm just curious if you aren't actually bullish on black walnut

trees yes yeah let's look at what's with that what you have to offer ok so. the seedling. of a properly. trained. black walnut. prue university has produced a strain of these things that reach maturity in twenty five to thirty years the post of fifty to sixty years five. it's maturity perhaps because the future is uncertain i say perhaps they could fetch a thousand and so you the internal rate of return of the slick and zero coupon bond of yesteryear that's like when we were had real interest rates you probably read it i don't i don't know it was a long time. but that represents the rate of return on one of these old fashioned bonds actually paid something. so my thinking is that instead of taking one's entire risk with the federal reserve to give nature a shot at it as well right. so with a tree your risk of

a thousand can cure disease but not so much with you know with peregrine or with the right right right in a different kind of risky conservative kind of risk but or is it is not within the financial system it is outside of the financial system a very innovative alternative. which they see in the financial quarterly so uncorrelated risk correlated risk there you go in a world of so many correlated thank you so much that you were ever getting down on the action too and you need to talk to you it's you know i guess you could call that the mother nature risk now that is not all of my conversation with jim grant you can go online and catch a web extra at our you tube channel it'll be up shortly because i'm sure you saw that j.p. morgan reported a five point eight billion dollar london whale trading loss to date a lot more than they originally reported it would be and they will clawed back compensation for two years for the traders involved and their boss i know drew but

did these clawbacks reinstate. realistic accountability you can find out what mr grant has to say about clawbacks the first this. it is friday the thirteenth and we are going to the church so there's a graveyard behind me but there's a church right over here. which i don't know if you're not from new york are you haven't spent time on wall street you may not know that this is actually on the wall street right across the street which is kind of interesting and for me makes me wonder if during the financial panic during in two thousand and eight if if

people were coming here. for a his things were just so great i'm sure they were but you know the irony is that the church used to have a lot more power in society in the west of the middle ages obviously than then it does now today the fed is kind of taken over the role of the priesthood the monetary presuppose our destiny direct we call them. monetary priests but they used to be that the church has an incredible amount of power unfortunately now it's kind of waned a little bit now but i think that why is that unfortunate you think that for you to get back on the competition is the address here but i think that the fed i mean the fed has got such a strong you know stranglehold on the economy and on the culture of this country that the church should step into that vacuum it's been on competitive for a while you used to pay the church for indulgences and things like that if you want to commit sin you have to pay the church i think there should be some sort of tax on wall street sin i mean if you want to find a way to claw back with

a book club get a book club back some of those bonuses of blowback some of that ill gotten gains where you can do that and you can demand that bankers proportionally paying indulgence. spies' the church is a repatriates them right through the government i mean it's an ad hoc i mean it's not the ideal system i'd like but it's some way to kind of get that money back to people well what's interesting about that is you can't legislate morality as we've seen that it's very difficult to prove some of these alleged crimes that occurred during the financial crisis and by law to make sure anyone is more relevant and sure it's difficult to to prosecute criminal fraud not to prove intent although a lot of these actions in the spirit of fraud are criminal tried so and the spirit that's reading in the spirit has been broken see the spirit of the literary and the good of the slobbering has been broken and that's why we're here at the church lose the spirit yes there is the president and we've to really bring that spirit into

the law of the law and i was that it's a zombie there because the customs rizzo's through some zombie banks we do breed to bring spirit a spirit a life a soul back if we write who should the government and demetrius the course there are a lot of work here at the church on wall street that brings i guess the spiritual world to wall street we need to restore this spirit of the law that we all are among the dead who we honor we are not at all of that that we cannot speak so we can honor the dead no no i don't i don't agree oh ok you're putting someone else on t.v. somebody whose book they have right there with their broken heart and they was i've heard that about that venice well i think the point is that on friday the thirteenth we are in a break right now are trying to invoke this spirit of the law that seems to be missing when it comes to financial crime. all right that's it for our show today that's all we have time for from our jaunt to new york but will be back in

washington on monday with charles ferguson of inside job until then follow me on twitter or you tube or hulu and from everyone here thanks and have a great night. for sure is that so much and there's a huge decision. to fly towards people revolutions occupations and regime change are among the most important elements that are making and remaking our world today . well. science technology innovation all the lives developments around russia we've got this huge earth covered. me it's easy to.

see. the be. wealthy british style stuff. that's not on the typewriter. market why not. come to. find out what's really happening to the global economy with them.