with compliance failures thank you certain customers an improper head start on trading information and you can see from this little chart here all the information flow first to the proprietary trading not to the consolidated feeds which are to the public so max you designed the software that is used on this new york stock exchange or part of it is what do you think i was assigned a replacement for the replacement technology but that's where the where i was laid out years it was meant to override those broker dealer conflict on the floor of the stock exchange or use the special system they i pose as a broker and as a dealer meaning they maintain an inventory of stocks and they're able to buy and sell on the open market to maintain that inventory and to satisfy market orders when they come in you get a guarantee that's accusingly but a market order into the exchange but it gives me wiggle room to specialist to trade on inside information and that's allowed to foster liquidity but what we see here stacey is a new york stock exchange is selling the wiggle room to proprietary clients who are trading on inside information so they've turned

a flaw they've turned what alan greenspan himself called the flaw in the special system they've turned that into a profit center and they're doing proprietary information insiders the front runner other customers and so blatant wealth of a case is game by the york stock exchange after an expose of the overall economy they're draining the economy of well they're causing austerity that's what fostering this current you are that's why the double involved. well and of course everybody tells you you see across america in the media that oh all those occupy wall street types people are just jealous of the wealthy but this show is in no uncertain terms that since at least two thousand and eight that's all the data that the f.c.c. was managed managed to gather is that they were front running the public by quite a lot of time now the new york stock exchange agreed to pay five million dollars but will go into this next headline which gets further information from bloomberg new york stock exchange data violations extend u.s. exchanges reputation. wos thought reputational woes are not

a deterrent down china when they find bankers committing similar crimes they fricken execute them ok that's a deterrent that's a deterrent my friend and now we have this is clear the states are going to talk about this for months this is a clear evidence this is here irrefutable evidence of blatant fraud occupy wall street they use around the new york stock exchange and close it in like a noose on everyone working their. so sanjay was the deputy chief of the seas market abuse unit says the new york stock exchange chose ground shipping for sending market data to the consolidated feed i.e. to the public but news next day air for its paying customers and the f.c.c. as i said found this out discovered this information only by accident because of the flash crash of may sixth two thousand and ten when they were forced to look at some of the data what happened that day and what they found was that during the two

five minute period starting at two forty pm new york time the average delays for quotes were three point seven seconds and five point three seconds to the consolidated feeds while average processing time for the two proprietary data feeds were less than two milliseconds and sixteen milliseconds so they saw a huge disparity between the data speed available to the proprietary clients and those available for the general public so these are the free markets as these guys see it and this is what they say you know the scooping out of wealth the fact that these guys can trade on information within two milliseconds and the joe bag of donuts in the public doesn't get it for five point three seconds they could trade hundreds of times before you could possibly even enter the market well that's what makes this debate between barack obama and mitt romney farcical because one is talking about oh i believe in distribution there was no i don't believe in distribution i believe in free market capitalism and yet none of them are talking about the fact that there is distribution going on between insiders just getting

all the wealth of themselves that's the number one problem that's how america got out of the depression last time our banking reforms it wasn't a keynesian policy it wasn't a devaluation of the dollar it wasn't world war two it was a book or a commission and reform that's what got america out of the depression was going to get the globe out of the depression now reform its upholstery makers don't enact the reforms that it's up to the people to revolt join low seventy ninety revolt now or be a slave forever so the high frequency trading caused that flash crash which helped the f.c.c. find information that the new york stock exchange was feeding data to these protect proprietary customers first now this is from this past week disturbing a liquidity chart. so now max which produced this chart said on september thirteenth two thousand and twelve at twelve twenty five and twenty seven seconds to december two thousand and twelve in many contract experience and evaporation of liquidity at such an alarming rate that it produced one of the most disturbing

charts on market stability we have ever seen as you can see from that chart i would like to ask the sheep what he thinks of that chart. right what one boy made back parades like this being described just because it's completely nonexistent the volume it's a whole gram of volume it's i'll go with likely generated by it's not buyers and sellers and then what this is this is a by the way that here's here's a c n b c coverage of the same story going on around the room in other words it's complete nonsensical coming out of the mouse propagandists who are putting forward decided that there is actual transactions going on on the floor of the york stock exchange for the benefit of the economy in general it's only welcome as goetia computer driven proprietary nonsense goal of going to training and maria bartiromo knows this but she doesn't talk about it because she's a propagandist because you daryn over to probably joe good don't it's a huge one go whatever his name is is another to do well what that chart shows as

the as you see that huge startling dip that's eighty percent of orders resting on the books than a showing so now next sense of this this event tells us that either one firm controls eighty percent of this contract or that algorithms have become dangerously susceptible to herd behavior and could be triggered to stampede in a heartbeat could push a button and you can trigger the stampede because you can wreak a just the quantity of trades required to effect an uptick or downtick it's classic virtual specialist technology you can simply adjust the parameters of needed the protocols. to create an uptick or down triggering these the herd being a major their herd can always be relied on to act in their worst interest that's the basis of modern capitalistic the free and you can just flash a negative print on the tape and the herd comes from warming in because they're

printing their fear and this is what hank paulson did in two thousand and ten to get his way for almost a trillion dollars of extortion money for goldman sachs he went to congress and said so we're going to crash the market put a gun the congressman said threaten martial law and triggered the herd behavior but these are algorithms and most of the trading don on the new york stock exchange is with algorithms however they can trade in a fraction of a millisecond so this is the sort of heard behavior that could just evaporate as they call this is the favorite word of this modern financial system is evaporation of liquidity evaporation of wealth of apparation of client funds everything just evaporates magically but you talk about the og or the algorithm is very simple the amount of orders it takes to create a sufficient imbalance to generate an uptick or downtick is adjusted that's the algorithm and you just push a button and you can make it so that you it's a so it's a wash trade is what it is to use a formal nomenclature it's

a computer generated was fair simultaneously buy and sell in the market to make the price go up or down the prices are discovered by the computers and then the market reacts it's not the other way around when adam smith was alive the market first went to the market buy and sell and the result was the price now it's the price first buy the computers and then the market reacts is the complete opposite of free market capitalism neither mitt or obama talk about it because first of all they're both of them when they're both financially illiterate they're both dunderheads especially mit is just a you know private equity scam artist but they have no idea how this is working so max speaking of flash crashes we had a big one on monday oil plan. it's five dollars and rapid high volume selling so at one fifty two eastern daylight time on monday oil was trading at one hundred fifteen dollars and twenty cents a barrel this is bring crude and it fell to one hundred eleven dollars and sixty cents three minutes later so either global demand for oil fell off

a cliff for four minutes on one on monday or there was an algorithm trading wildly because ten thousand lots of brant traded in one minute during the drop from one hundred fifty two lots just the minute before prices plummeted brant crashed through the two hundred day moving average before beginning to recover so what happens then when it passes through the moving average the two hundred day moving average and doesn't that trigger other actions that triggers the sheep or go boa or so yeah exactly i'm saying that they target a price on a lot of the price target they hit the algorithm to get to that price target and to flood the exchange with as many orders as take to get to that target into the market down the stupid people who are panicked to buy and sell the buy or the elders but those people are being dragged by the nose and they're being accomplished getting their way. because there's do it.

maybe so maybe but. well john grotzinger energy risk manager says i've been doing this for fourteen years and that's the fastest move i've ever seen i think it was too fast to be anything but high frequency trading or other algos we just don't know right now but that's my gut feeling. like oh my arm just got blown up and might have been a bomb i'm not sure. to give you a little up there you will figure it out eventually i say jared thanks so much for being on the kaiser report thank you max you know these market crimes of legit financial collapse which in turn has led to currency wars so stay tuned for the second half and i'll be talking to jim rickards author of currency wars about the dollar the euro and the gold standard stay right there.

like millions of americans have lost thousands of dollars. in retirement funds and i haven't had as bad as many it's not just about the them it's about me to. me ma'am. ya gotta ship. sam. sam. and g.-d. . needed. now. since this is my film i get the last word this financial crisis will not be turned off like a light switch. you know sometimes you see a story and it seems so for lengthly you think you understand it and then you glimpse something else you hear or see some other part of it and realize that everything

you thought you knew you don't know i'm tom harvey welcome to the big picture. of the.

hi i'm max kaiser welcome back to the kaiser report did you know that the world isn't golf in the world war three of the currency wars that's right we're in the third major currency war that started in two thousand and seven you would know about this if you read this book currency wars by jim rickards it's not too late go out and get this book we welcome to the show right now the author jim rickards welcome back to the kaiser report thank you max all right general eckert's we've got some major action in the currency war first of all congratulations you predicted the exact date that the fed was going to announce q e three and you also an announcement it would be perpetual q e three congratulations on that anything

they can or to add on the recent fed announcement. no i think it between the jackson hole speech and what the fed actually said the federal open market phineas to temper thirteenth they've they've kind of said all they've announced an initial trosch mortgages that they intend to buy but that's not the end of it the point is they'll just keep making announcements from time to time so maybe three months to go by the announced another hundred billion another hundred billion what you have to do is look down the road and envision a fed balance sheet that has perhaps five trillion dollars of base money from about three trillion today that's sort of where we're having our i world war currency three that started in two thousand and seven we've got four big players there you've got euro zone you've got the dollar you've got china you've got the japanese yen you pointed out that when the euro got to a certain low level in the band china of course does most of their trading with the euro this would be more of a trigger at that point for the euro to take an action to support the euro that's exactly what happened and he said that they would have that taken place first and

then afterward the dollar and the fed would make their announcements now my question is how can you be so accurate is it because you don't really take on board classical economic theory and you're looking at this from a completely different perspective jim rickards i think that's right max the. i find that actually forecasting is easy if you get the model right if you've got the wrong model you'll never get it right and most of the neo keynesians and the mainstream economics that we see at the fed the fed staff the treasury you know the i.m.f. and elsewhere those models are completely flawed they assume these kids him all the players that are completely missed the goal they assume things about velocity of money that are historically empirically wrong this is not just a matter of opinion i think empirically if you look at the time series of prices you'll see that they're not normally distributed they are in accordance with what's called a power law distribution well that's such as to geeky argument about the shape of a curve and the degree distribution the bell curve and the power the represent

completely different dynamic systems if you get. system right which is harder if you get the system right the forecasting is a lot easier as far as the chinese are concerned the chinese you know they don't want to be the suckers at the poker table the united states put enormous pressure on china to allow the you want to appreciate a little bit against the dollar which it did in two thousand and eleven but the problem is they didn't want the want to be strong against the dollar and the euro so once you know what's the euro got we could be while we're stronger the chinese said forget about this we're going to lower the yuan and they have they've now repaid the dollar and actually lowered it a little bit so that's also the essence of the currency wars max it's not a one shot deal because back and forth and back and forth it's a lot like a ping com ping pong game and these things can actually go on as they're shown historically for ten or fifteen years they're not over one or two years it takes a long time for the countries just fight each other nobody wins or you get these are the global inflation or contraction of world trade if the currency wars turn into a trade war so you get bad outcomes are the way but they go back and forth until finally the system breaks down the major countries come together and they

reestablish the system we're still some years away from that these cars who are going to continue i always stick on this theme of the breakdown in failure of classical economic theory sense nine hundred seventy one us on the gold standard and you enter this era of a fee out currency world where the prices are all referential to other fee at currencies and the amount of the derivatives that train based on the span currencies has been exploding exponentially to the point where you don't really look at this from the point of view of economics you look at it from the point of view of systems analysis and we look at it from that point of view you have points of stress points of chaos in your book you talk about a phase states where a additional snowflake on the side of the mountain will create an avalanche are we prepared avalanche moment is the stress on the system with this new q.e. has it increased jim rickards. well we are in a preamble and share a moment max that's a good way to put it i would say that with the breakdown of the gold standard in

the one nine hundred seventy s. e an extent suddenly went off gold in one nine hundred seventy one the one speech that was the so-called nixon shock but the system kind of stumbled its way through the seventy's the world wasn't sure if they wanted to go back to fixed rates at a lower valuation for the dollar eventually they decided on floating rates and the european monetary system came together with a unified currency so there was a lot of turmoil in the ninety seven his course what we got was borderline hyper inflation quadruple of oil prices you know three recessions back to back to back it was a horrible period of economic performance but beginning around one thousand eight hundred eighty one with volcker and reagan what we saw was not a gold standard but what i call the dollar standard or the king dollar policy so wasn't really strong i could but it was some kind of anchor and countries around the world could at least anchor their currencies to the dollar and we saw that in china throughout southeast asia and elsewhere people were saying ok we trust the united states to maintain the value of the dollar so will anchor to the dollar that trust was misplaced beginning really around two thousand and ten the united states

decided as a matter of policy to trash the dollar or the chinese made one enormous blunder they actually trust of the united states to the tune of three trillion dollars of assets to maintain the value of the dollar but now the u.s. is cheapening the dollar you know if china has three trillion dollars of dollars in assets and you lower the dollar ten percent that's a three hundred billion dollar wealth transfer from china to the united states china is learning the hard way that you can't really trust the united states anymore arjen if china is losing trust in america and the u.s. dollar and by manifesting that loss of trust they are buying gold and gold prices are going i or people are losing licking and gold and there's and they're saying well that's the proxy of the distrust of the dollar china's aggressively moving on me ask you this because you're so plugged in to what's happening in washington and wall street you've got to be like the insiders insider it. is china going to make a surprise announcement that they have accumulated suddenly another one or two

thousand tons of gold that nobody is on anyone's radar damn any inside information with us you can share with us and a global audience well i think we can look at experience because they did this before in two thousand and nine charges official reserves were about proximately six hundred tons they came out one day and said you know what we actually have an additional five hundred tons so they got a little over a thousand tons just short of eleven hundred tons a total well they didn't acquire that gold overnight they acquired over five years between two thousand and four and two thousand and nine what was going on during that five year period where they were acquired through stealth secret means secret agents various channels and you can understand why because gold is thinly traded they didn't want to have the market impact of the world and what they were doing the price will skyrocket well there's absolutely no reason to believe in fact there's a lot of evidence that indicates that they're doing the same thing now we don't know exactly how much they have but china is the largest gold importer in the world they are the largest coal producer in the world their minds are producing three hundred tons a year that is by far the largest in the world where that three hundred tons going

some of it's going to domestic purchases for a lot of it's going to the central bank so this is an estimate my estimate is that china's gold reserves are actually closer to two thousand tonnes rather than the official one thousand tons and we should expect that shock announcement sometime in the next several years the problem is their economy is half the size of the united states the united states has eight thousand tons of gold so just to look to us in the eye they actually need four thousand tons so maybe they've scratched the scrape their way from one thousand to two thousand but they need to get to four thousand so there's still a little bit of a go pigmy they're still far away from where they need to go but this is just going to put upward upward pressure on low prices for years to come and me my estimate is that we get to seven thousand dollars an ounce not not next year not immediately but sooner than later that's my target price for gold it's a simple you know division between paper money and gold that's we get to write jim . so as you've pointed out many times when the ultimate shootout at the ok corral

of currency wars takes place he who has the most gold is going to be the victor orc and china finally realizes this and they're massively accumulating gold as fast as they can but i wanted to return to the fed for a second because they've done something that they've never done before as far as i know and this is a open ended quantitative easing commitment month after month after month forty billion and mortgage backed securities you know quantitative easing to infinity it sounds like a suicide mission your thoughts. well i think it is a suicide mission for the dollar and it's going to have very bad results for anyone who's trying to save or you know if you have a pension insurance policy or an annuity you know your savings are going to be wiped out because what the fed has really done the something a little more profound going on behind the scenes max because they said you're exactly right they're going to print all it takes this is the bernanke he's equivalent of what tragi said druggy said we're going to save the euro whatever it takes for knock iesus to temper thirteen he said the same thing about the dollar he didn't use these exact words but when he says open ended it my interpretation is

whatever it takes now they're going to print money until the employment situation in the u.s. improves but they've thrown in the towel on inflation and what they've said is that there's some ideal mix of inflation and real growth which together equals nominal growth you know they might want to see say two percent and three percent real growth for five percent nominal growth but if it takes four percent and one percent real growth they'll take it in other words they don't really care what the mix of inflation and real growth is they're targeting nominal growth because we have nominal debt that's where the nominal g.d.p. the absolute number of dollars regardless of the value that's going to you know get the velocity going drive the economy forward try to bring the unemployment rate down but what happens is you're going to get more inflation and less real growth so you know and paul krugman the other say don't worry about inflation well he's right to the extent we haven't had a so far but look out here comes the thing that people don't get about inflation people focus so much on the money supply money supply is only a partial function of what produces inflation the other part is philosophy or the

turnover of money that's a psychological and behavioral phenomenon it can turn on a dime right now people would rather save and pay down the leverage but once the inflation genie is out of the bottle they can start spending very quickly inflation can take off so it won't just go smoothly from two to three to four it could jump to seven or eight or nine percent placement very quickly i want to stick on that inflation idea for a second but i want to actually more importantly get to something that our audience here at the kaiser report brings up at. time you're on because we talk about the gold standard talk about the inevitable return of the gold standard and people ask well is there a downside to the gold standard was the wrong way to do a gold standard jim rickards the wrong way to do a ghost and is the way they did in the one nine hundred twenty s. if you get the price wrong in other words every gold standard is some relationship between paper money and gold there are a lot of questions you have to answer to get the right people through the word gold standard out there they don't even know what they mean sometimes by gold standard in the fact is there is not one gold standard there are many different possible

gold centers so you have to answer a few questions number one what your definition of money is it ends here zero and one and two they're all very different number two what your percentage backing the hard shelled gold bugs say it's got to be one hundred percent or nothing the starkly that's not true england where the very successful gold standard with twenty percent backing in the one nine hundred century the us since one nine hundred sixty eight had forty percent backing so historically you can have less than one hundred percent the final question is sort of who's in the club if the u.s. were to do it alone that would be extremely deflationary because we would have the only currency anybody want it all the other currencies would go to zero why would you want paper if you could have a go back errancy that implies it's got to be a world wide agreement among the major trading partners but if you do that you bring in china you're going to be bringing in a lot of paper not so much gold that's going to dilute it that's going to cause a higher price so if you take all these things into account that's how i get to my you know kind of seven to ten thousand dollar estimates but there's not a central bank in the world that wants a gold standard my point is they may have no choice if there's

a loss of confidence in paper money and i think we are heading in that in that direction they may have to go to the gold standard not because they want to but because they have to but it really does require some study i'd like to see it done thoughtfully rather than chaotically all right jim rickards author of currency wars rata times thanks so much for being on the kaiser report thank you max. all right that's going to do it for this edition of the kaiser report with me max kaiser and stacy herbert i want to thank my gas chamber eckert author of currency wars is going to send me an email please do so at carson report r t t v dot ru until next time that's causing bio. critic three. three. three. three. three. old cerebral

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