good afternoon welcome to capital account i'm laurin leicester here in washington d.c. these are your headlines for wednesday september twelfth two thousand and twelve germany's constitutional court ruled the sandwiches the euro zone's permanent bailout fund does not violate the country's laws ruling against plaintiffs that were reportedly spanning the entire political spectrum who allege that it in fact did but what is next the big question meanwhile the european commission president called for a better ration of nation states and unveiled plans for the e.c.b. to supervise all the euro zone banks who was the lack of

a centralized banking regulator what caused the debt crisis and is more integration a solution was makes a member of european parliament and u.k. independence party member godfrey blue and just fight more attempts at integration and consolidation in europe there are more signs of fracture running parallel for example while spain reportedly mole's whether or not the country will need easy bond buying which would enter spain into the e.c.b. workhouse the crisis at the same time reportedly fuels the independence movement in this banished region of catalonia we'll have more let's get to today's capital account.

today more hokus pokus in europe to report the e.s.m. is upheld but the decision adds a cap reportedly making large scale bailouts cost prohibitive it also reinforced buddhist dad beat zero power over activation and jose manuel barroso in his state of the union speech called for deeper integration in europe but in reaction we feel it was nigel farage that put it best but you make it clear the woes of asian state should continue to exist it mustn't has any democratic. yet the euro responded positively another example of this. and that example would be markets responding to policymakers not fundamentals where

down left is right and the world resembles more of a wonderland then ality while earlier today for some reality i talked to godfrey blue member of the european parliament in u.k. independence party member first i asked about the e.s.m. ruling which he thinks was more driven by politics than the law. well i think one of the problems we have this came as no surprise to us or an important a fact that the german constitutional court would come to this view because there's been an awful lot of overturning of countries constitutions my own country as being one is quite legal membership of the european union under our own constitution so this came as no surprise to us for this to be because we're now in a situation where a great number of the senior judges in europe in european countries are political appointees so of course he who pays the piper calls the tune i see ok

so you think there's a little bit of collusion a to put it i guess a little more aggressively there speaking of kind of this direction towards tech nakor a-c. and consolidation and jose manuel barroso state of the union address in his prepared remarks he stated we will need to move towards a federation of nation states and he also said in this age of globalization food sovereignty means more power not less how do you interpret this statement as it implying that somehow because the world is becoming more integrated super states take over the role once reserved for the nation state. well it's very frightening isn't it what he was saying and he came out with a phrase which we thought was absolutely fabulous which was extreme populism i'm not quite sure what extreme populism means but i would argue that that's called democracy to you and i and he goes that extreme populism we all feel that was highly amusing but of course what you also have to understand that there is in the

history of democracy that an american or an englishman would understand in this place. you know democracy in america there for example there where you are emotions and goes back several hundred years now it goes back something like eight hundred as we understand it now it's it's moved in the state of those number is. parliamentary democracy in the european. noon is extremely new we have an awful lot of countries who've just come out of the soviet system of course there were a number of countries of course within my living memory and i'm getting a bit old now my living memory were input point of fact fascist so you know this franco in spain there was dr salazar in portugal so there was a fascist element so democracy in the european union is something which is relatively new i see so you think it's the newness of it and ranges on people being able to call it extreme populism what may be your i would consider the democratic process now the european commission also unveiled sweeping plans for the european

central bank to supervise all euro zone banks today got germany and mediately raised objections i know the u.k. has objections to their proposals one of the risks is that the e.c.b. will be overstretched reasonable to understand why there are i believe six thousand banks that will be overseeing do you believe that the lack of such supervision has caused or contributed to the crisis. well we have a problem when the eyes of the commission here neither the. e.c.b. neither of the politicians here fully understand international banking conference is this is the problem now what i'm facing in my committee my problem entry committee and what the commission facing is that they cannot face the truth of the matter and that is fundamental economics none the professional economists now have but you know i'm in politics now but that's not my main field i'm a financial economist they will not accept and don't seem to want to accept. these

that if a country spends more money than it raises in tax revenue it will eventually go broke it's no different to you or me or our family is or a small business so over in states simply will go broke if they continue to spend more money than they raise now the view here in the european union commission in the parliament and the committees in the e.c.b. . he is somehow we've been struck by a meteorite somehow it's a tsunami somehow this is an act of gold they do not yet associate the fact that there's we have a financial crisis in europe these because sovereign states and spend more money than they gain in revenue and that's what's called the bank that's caused the banking crisis fractional reserve banking banking that lends money the commercial banks lend money they don't have it's fueled by central banks of course to manipulate interest rates and isn't it funny that they're getting very cross yet how some of the accusations of commercial banks. manipulating interest rates what

of course the greatest manipulations of interest rates are central banks then let's get more into that let's switch over to dr b. because he recently said that the o m t which everyone knows by now is the unlimited bond buying program announced last week but this one seemed to address distortions and financial financial markets and this is a pretty stunning statement since markets have become completely dependent on the actions of governments and central banks which would imply that it is a druggie and his fellow policymakers in fact that are creating the very distortions that their actions are purported to address and what do you think you agree with that. yes of course you're absolutely right what we have here is extreme moral hazard we have a situation where governments have spent more money than they've actually raised in revenue they've gone broke banks have gone broke so what they're doing is monetizing the debt so they are making in effect the taxpayer pick up the time

for failed commercial banks which of course i would argue is immoral banks should be allowed to fail we're already now talking about in my chamber the softer noon of banking insurance deposit insurance and the people here have no idea how that works of course if you have deposit insurance for a bank the system they're suggesting is that is on the written yes you can buy the tax pass so we haven't moved to wait. this because people don't understand how the system works in fact if you sit around the average in about the table in europe you won't find it doesn't matter how well educated people are they won't have the slightest idea how the banking system works and why we're in the mess to start with and if we don't understand why we're in this mess to start with there's no possible hope of us getting out of it yet they can look to the us for a lot of lessons on many things that you just talked about with deposit insurance then and some of these that bailouts now following on this point i also want to ask it seems that the preferred creditor status and e.s.m. bailout that is that there is the creditor first in line to be paid by whoever it

bails out ahead of other creditors it seems then this distinction adds further to these distortions and markets we're talking about what impact do you think this will have on the market. well i mean what they're trying to do is to give the implication the some form of gold plated guarantee along the line to bring private private investors into buying bombs well they're not going to do that if people private the private citizens who buy bones or private investment houses buy ball which is actually junk status if they don't if they don't have at least joint status as investors and if the e.c.b. your any c.p.a. agency has priority over them as creditors they won't invest so well that will happen is you'll find in about six or seven weeks the market will actually understand what's going on and they will turn their back on it i mean most of these sovereign debt. to greece and spain and italy verging on junk status

will most of them are junk status and so consequently there's no reason to invest in the misspent the coupons that they give i mean you know would you then the spanish government money for sort of you know ten years on on five percent or six percent i mean it would no serious private investor would go near it and you know that's a. interesting point i want to touch on that in the end but first i want to bring in the political implications because there seems to be this similar dynamic with the market trying to break out despite the policy makers constantly trying to smooth things over in the markets go along with that for a while but then figure out what's going on and then these fractures emerge it's kind of similar politically because with these moves towards integration in europe you see both moves from countries that would keep on this plan towards integration you have spain's prime minister for example indicating they're figuring out whether or not they need help from the e.c.b. these bomb buying program which would of course tie them further to integration

because they'd be in a so-called program they would have certain terms the to meet but you also see more fractures there is an f t's story for example that the crisis is fueling the independence movement in the spanish region of catalonia is there a different response to integration at the federal level of these e.u. countries versus the regions with in those countries. well. i think one of the major problems we have is that nobody actually signed up to this when the original idea of the european union came into being it was regarded as a single market it would bring down time or if so it would facilitate trade that is what the people of the european union have been told since its inception since the british joined in nine hundred seventy two. what this is all about is political union on a single state in a single super state but of course as you know it isn't based on the sort of system is in the united states it's more of an old soviet system it is centralized there's

a drive for harmonize ation of taxes because they actually use phrases like touch competition they don't they don't understand that if politicians didn't have some of rein back in the taxes that they were allowed to raise they would raise taxes to one hundred twenty percent that's what politicians do and so nobody is being addressed nobody feels they be noticed about this let me go. we have free movement of labor which you might argue is a master in libertarian might be a good idea but it doesn't work with welfarism lore and the problem is they haven't readdressed welfarism so you have people going from the east of europe into the west of europe well north of europe where the welfare systems are significantly better and into the reform welfare you know you're always going to have an immigration problem because it's economic immigration and that causes disturbances to cultures. still ahead from economic immigration to what you could call capital immigration despite that trend in some debt stricken countries none have left the

e.u. so coming up does our guest think that anyone will but first your closing market numbers. i mean so should the u.s. city in europe on the host of the twenty four g. in the winter the figure. thank you. so much. thank you.

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welcome back before the break our guests name the problem of economic immigration where a people move for employment within the u.n. there is also of course bank deposit immigration you could call it or bank deposits immigrate from say greek banks outside of the country greece of course an example of a very debt stricken country with a program that has put it you could argue on

a deflationary spiral down now despite this and problems like this in other countries we haven't seen an exit despite the fact that many have predicted we would see one so i asked our guest godfrey blue member of the european parliament if he's been surprised that no country has left the far. well the main problem we have here which president grossly referred to today in his state of the union address and it's the first time there's been any public knowledge of it is that we can't go on like this in the forum in mediterranean in portugal and spain southern italy greece we are talking about fifty percent fifty percent youth unemployment fifty percent no society is sustainable when humph you know people under twenty five don't have a job and of course the reason they don't have a job is because they have currencies which don't turn to line interest rates that

do into mine they have completely different styles and types of economies different cultural backgrounds so on and so forth so this whole thing was doomed for from the start of this whole euro system was doomed from the start as i said it would be many years ago when i was a guest lecturer at cambridge university in the ninety's i explained exactly how this would go wrong why it would go wrong and in what manner it would go wrong i would actually have some of the people who forced this through this political currency forced it through i would have the range i would like to see and i've said this on russia today before i would have them arraigned out of fiscal financial court in the hague and i would send some of them to prison i really would i'd send some of them to prison and well you know i think we need a politician like you over here and congress right here in washington i have to tell ya you know but but i do want to follow up do you think we will see a country accept the euro zone or do you think that's off the table that that's

behind us and if you think that countries don't going to accept because it sounds like you think the euro zone is going to break down is that going to come near term say this year or next year. well it has to it has to break in some form of congo almost it is because what happens of the the mainstream media who don't understand these things as you understand them or new program and some of your programs what they don't understand is that it doesn't matter how many g ten o g twenty summits you have it doesn't matter how much talking you do over the weekend in davos and all the rest of it if you broke your broke and we're broke you can't talk your way out of this sort of corner and as soon as we need to get back to real money back to i would argue money sound money real interest rates the abandonment of welfare resume and the way it's not just social welfare is and it's corporate welfare ism i mean this is many people in my country rich landowners getting energy subsidies and farming and landing subsidies there are people out of work so it's

not just social welfare it's corporate welfare we need to get rid of that sort of thing we need get back to small government government it's not interfering in our lives as much as they do fewer regulations this is the only way the economy can grow and it cannot be sustained as it's going at the moment of course what may happen the danger of these happens these things happening of course as you know is when societies broke break down you get extremist politics and this is how if you go back to the nineteenth thirty's this is where it all started and i can't believe that europe's done it again and they've done it to themselves and we'll have to see if there is the next think i can get a pen down on that but i do want to move on because as someone who understands financial markets and this touches on something when we talked about earlier. have you been surprised by the way markets have reacted more broadly dissention bank intervention particularly and europe it appears traders room war and currencies

managed by reckless central banks rather than punishing them in a foreign exchange markets based on fundamentals and your career is a financial professional politician have you ever seen markets are just. i wanted. well my my opinion i would say this wouldn't like because i'm old now but when i was in investment banking i knew my job and i've got a feeling now that these days in international investment banking we have a lot of children who don't really know what they're doing and consequent you see conversely movements moving in completely the wrong direction the euro should be moving down not up and start now because of course being people are being stalked investors are being forced into stock markets because there's this search for yield there is no yield. there's no sovereign bowman's who are producing a yield so they're being forced into the stock market which move the prices of stocks up but this is a this is a purely temporary phenomenon. and they will crash as soon as the children in the

city of london and probably new york and hong kong suddenly realise actually just how things work at the moment they don't they've all being college they've done keynesian economics and they don't really know very much but if they call themselves and most of them a terribly overpaid got it you think are the you there before we go quickly this does beg the question of how and why and we return to a market where price is more accurately reflect reality without crashing the entire system maybe as we are in the twentieth anniversary of the week now and as black wednesday in the u.k. where speculators. crash the british pound so to speak are there any lessons. where the should be less and shouldn't when we crashed out of the red in one thousand nine hundred ninety two. as soon as we came away from the official pay to the deutsche mark which we did was totally artificial the economy then. me had interest rates. and money supply and all the other things that go out to make an

economy which was suitable for the united kingdom and if you look at the graphics and i'm sure you have from one thousand nine hundred two to the year two thousand recalling the shop forward it lurched forward. and you would see the same thing with the iberian peninsula in greece if they were out of the strait jacket of this appalling euro experiment suddenly it would be cheap to go to spain cheap to go to portugal feel dollars cheap to go to greece so on and so forth cheap to run an i.t. company in dublin these these countries have to come out about just coming out the cheap shots of devaluation is not nearly enough they need to understand that they cannot pay themselves more than they actually are and they need to learn the lessons from that and i would argue that they should go on to hard currency as well learn the lesson. tough lessons that the generation now has to learn that he blamed on the older generation for racking up so much debt which i would argue in some countries that sovereign debt would constitute odious debt that was godfrey bloom member of european parliament with that analysis.

ok let's wrap up with loose change lawyers say dimitri good pain as much as i know you're excited about this story let's talk about the i phone people have been an see over the latest i phone announcement but it has finally arrived. the new iphone fog is just seven point six millimeters thing that's eighteen percent thinner than the i phone four s. and best of all it's the world's thinnest smartphone. carol but as the world's been as i have known but hey about will sell more i phones i guess they're going to go

with it and some of them such as j.p. morgan believes that that slim phone could help to generate so much in the way of sales that new i phone could add up or could could up g.d.p. growth by point five per cent that they could add to g.d.p. growth to that extent so does this make our poll too big to fail dimitri it's the question you were so excited to bring up so maybe i should have let you whine about it only when i was there and i was one of the gravel your kid going here he is so you know the big apple the big new york and then he got he got out on his own softballs to big fell out of the debate the for arnold and we got rid of militants margaret on the show he thinks. is a lot i have for probably years i mean they're brilliant marketers they're great and you know what i do this probably one of the new i phone i don't know why. you're unlucky. and i went on google with this shameless i want

to begin our producers here i want to do remotes from the apple store oh god i want to we're going to choose the world you know i would just wonder if what's driving this whole conversation of too big to fail based on this j.p. morgan prediction has to do with j.p. morgan's predilection towards size and large size because. they now are saying that size doesn't matter is that you making the argument that the bigger bank the better the bigger the better the. bigger is not better that's a homeowner bigger is not always better than when a bank that definitely applies. there goes on oh ok you're just tapped out and. so let's move on because i want to talk to myself we spoke about college education a little bit in this segment having to do with employment with my guest these days the value of college in america is being questioned and this is in part of course

because of rising student loan debt more than a trillion dollars and it many financial experts are saying college may just not be worth it take a look. at the rising cost of college has changed the equation so college is less all fordable and less good of an investment i think that it was five or ten years ago. which is something that has become part of the discussion in the us for sure but guess what the u.s. is not alone and we just have a minute to me i'm not a war new but south korea there's an article and bloomberg that south korean youth are coming out of college going to the top schools and they can't find jobs at the heart of your videos like thirty or so and they used to learn you know the story is going to be worked up you're going to have you know everyone artist knows that i think that education is b.s. pure b.s. like the dumber you look yeah it really is value thought when you went to n.y.u.

and spent four years there and graduated from i was running has no memory that a vast majority learning i did i did outside of you i had to on learn universe is a measure of education you actually have to spend years on the owner of the stuff you learn so you have some words with imo do it because they're worth your time. with that i'll just let him get that final word and that's all we have time for dimitri went today thank you so much for watching though and have a great night and in the meantime you know you can follow me on twitter at lauren lyster give us feedback at youtube dot com slash capital account watches and h.d. on hulu and from everyone here at capital account at a great night.