the recently reduced more bearish economic growth outlook well up what it looks like at the distribution center according to write it will talk i phone five indicator let's get to today's capital account. to bloomberg reports u.s. investors are buying treasuries at a faster pace than foreigners for the first time since two thousand and ten undeterred by record low yields that's pretty nice of investors to help enable uncle sam sixteen trillion dollars plus borrowing bench for nothing or less than nothing in return but it does mean they expect ben bernanke and his chief dinse to fail and their efforts at turning up the thermostat on economic growth and getting

america back to work again and anyway how do you quantify this stimulus impact anyway well the latest issue of grants interest rate observer cites a paper or produced by the federal reserve bank of new york titled the macro an economic effects of large scale asset purchase programs and in it the authors conclude that that asset purchase programs have become the norm today increase g.d.p. growth by less than a half a percentage point although the fact on the level of g.d.p. is very persistent while the programs marginal contribution to inflation is very small so exacting down to that less than half a percentage point let's turn to our guest though jim graham founder and editor of grant's interest rate observer in new york for more so first jim grant thank you so much for being on the show always work pleasure or the pleasure is all ours because first i just have a really simple question in light of that report you cited in your latest grant

interested observer how on earth can one project with any degree of accuracy or humility economic growth for a fifteen trillion dollar economy anyway. one can do as you suggest but neither with accuracy nor with humility. the contention of the federal reserve bank of new york that to this so-called quantitative easing a persistent one half of one percent or less a year to growth. is less than impressive when one considers first of all that the estimate probably can't be done anyway but secondly. that one half of one percent is to testicular insignificant and furthermore that we've vision's to prior estimates of g.d.p. growth average more than one percentage point so it seems a most dubious claim for a dubious policy yeah every under remarkable figure is due and nonetheless the

market has definitely been waiting for this round of q we pretty much since the last one ended they referred to it as q e three that was before we knew that it was going to be q.e. on to turn eighty so what's your take on this latest round of q.e. and this policy and doesn't give you the sense that the federal reserve will do whatever it needs to expand its balance sheet for however long and however much it wants to until it achieves the economic results that it deems to be the right ones well that's what the fed says and i guess one gives them the benefit of the doubt it's quite an extraordinary thing when you contemplate. an arm of the government and indeed technically not even a fully owned subsidiary of the government. having the the capacity to to to form a judgment about what is desirable in the way of inflation and economic growth and

then to create as many dollars bills as it deems necessary to achieve those necessarily arbitrary goals. i think. which will give the day pronounced the said the new fourth branch of government and its true that is it is a light show of war. and what do you even think the fed would need to achieve in order to be satisfied. but we don't know it's up to the mandarin this is meeting in secret in washington. it's you know it's in the. i'm repeating myself more isn't it remarkable it's remarkable. the delegation of power by congress congress after all being charged in the constitution with the duty to. not to coin money and regulate the value thereof congress has quite blithely passed this responsibility off to this now rather than

a truly unaccountable organization the federal reserve yeah and there's this issue of inflation of course which the fed doesn't seem to know yes worried about but i want to bring up a quote jim grant that i think you'll like it's one that our producer has actually by his desk and ernest hemingway quote from the sun also rises and it reads how did you go bankrupt two ways gradually and then suddenly and one could say the same thing about inflation and the purchasing power of currency which has gone down namely. all of a sudden boom the fed loses control of monetary policy and inflation takes off that's what could happen i know you've written before about the looming threat of runaway inflation but have you given any thought to how this would occur what do you think. it's possible that our next inflation will have something to do with our fiscal predicament. you know we have as everyone knows in

a minute steps and as everyone also knows this debt must be constantly funded. we are used we privileged americans to to finding a better someplace for our debt we consume more than we produce we finance the difference with dollar bills foreign central banks obligingly take up these dollar bills and remit them to us almost instantly in the shape of new investments in treasuries and mortgages. we've been at this for twenty five years constantly borrowing cost money finding the financing years of our deficits and we have come i think to believe that. this course of policy this course of market accommodation is is given to us as a matter of right well of course it is not given to us it is contingent it is contingent on the markets deciding that somewhere we have the capacity to produce

the income with which to meet our distant or not so distant contingent liabilities now the present value of those unfunded liabilities what might or might call the long term fiscal gap. credible academic estimates range from one hundred trillion with a t and up now. the real value with the debt ought to reflect america's expected capacity to produce those trillions of dollars in good money in income to service the debt well it seems a stretch to believe that any congress is going to whittle back our spending and ratchet up our income such that we do in fact enjoy the capacity to meet these maturing pledges with with with sound money so it's seems to me and indeed to others that we are living the life of riley up until the moment when the

world decides that no after all in truth we will not produce the good dollars with which to meet our maturing debts and the arithmetic seems quite daunting and in the present state of political play quite manageable so you know it seems to me that these that these that these yields on treasuries are in themselves nonstarters they have no margin. for error they. as the value investing tribes there's no margin of safety people are buying treasury securities it seems to be as much as anything out of out of muscle memory you know these bonds have been appreciating by and large for thirty one years that's the length of the bond bull market that you know one hundred eighty one so people buy it because previous buyers have done well it seems to me that future buyers will not do so well and you know i want to just ask because i know a lot of people that come on the show not a lot but some that have a different take on monetary theory they say as long as the u.s.

government can print its own money it's never going to be an issue for it to run these type of deficits and that the u.s. government because it has the power of taxation can always just continue to do this so do you think it would be a situation where. the country's no longer are holding the u.s. dollar in reserves if there's quantity or there was a failed bond auction from. just less demand what would really be a turning point to counteract young people that say this is never going to be an issue where the congress has the capacity to tax but it also was asked for both of the people. the president's political advisor only last summer said approximately where this summer two thousand and eleven during the last. kerfuffle over the the debt limit. david proof. was perhaps a good thing i suppose but the president's chief advisor on politics said that. approximately that we will not just go about paying our part holders who can't pay

social security or we can't meet the defense budget. so they are saying that there is a political contingency to the nation's willingness to meet its obligations to to its creditors. it's not such or a startling revelation or a revelation i suppose these things are all political but still it's right there on the. on the public record. and people who say that. we can print all the dollars we like well they that is true that is literally true we can and we are but nothing says that the world must accept dollars at the value we wish to assign to them. this is recently is the late one nine hundred seventy s. if you were traveling in europe with american express travelers checks the roman hotel for a look at the way we try to present them. you know that there's nothing intrinsically valuable valuable about

a paper dollar it's value was is is is derived from all of the world's belief in the good faith of this country to make those dollars worth something so we can produce them at infinitum by definition right and i'm going to get a little bit later to what the president the buddhist bank said a recent speech about exactly what you're saying before we do and before we go to break though i just want to put this in a global context as we often talk about the unintended consequences of federal reserve policy in the u.s. but liquidity can cause booms bust bubbles anywhere in the world and the u.s. dollar is the reserve currency so give us a sense of what the unintended consequences are globally. well in faraway hong kong real estate prices are through the roof because the hong kong monetary authority has had slashed the value of the hong kong dollar to the u.s. dollar so the hong kong monetary people simply take america's monetary policy as their own so they have zero interest rates and q.e.

as far as the eye can see. but it seems not to be so appropriate for the prosperous city state now i guess special territory of hong kong they are looking at a huge asset levitation in real estate now that is a consequence you'll find nowhere mentioned in the federal open market committee meeting minutes but it is one of the reverberating away he was the. our money printing has set in motion worldwide aha you won't find that in the f o m c minutes but you'll find it here on capitol callen via jim grant we will have much more with you after the break editor of grant's interest rate observer and still ahead you don't want to go away well tom gold it with jim grant but first your closing market numbers oh.

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the news a secret laboratory to mccurry was able to build the world's most sophisticated robot which fortunately doesn't to learn about anything tim's mission to teach music creation why it should care about humans and world this is why you should care only. welcome back before the break we were talking about the federal reserve and of course it's not the fed alone the european central bank is swimming in some pretty deep monetary waters as well despite your unease wishes as we're often reminded remember the bank voted against o.n.t. and the buddha's big bank president yes men recently gave a speech in frankfurt warning that money printing causes money to lose value

through inflation and he plugged gold as a medium of monetary exchange and this was welcomed that with disdain in this financial times op ed that said the man has never accepted the theories underlying the policies of the modern central banks and is reinforcing people's innate fears about the common currency so i want to bring jim graham back and he was talking about sound money before the break so i want to get his take i think it'll be a wee bit different than our friends over at the financial times op ed page so jim grant tell us is young's vietminh just fear mongering over money printing any need to get with the program and get on with modern central banking and well i think the president of the bundesbank is would simply reminding his audience of eternal monetary verities he was borrowing from the great growth than from the great good for. which the the whole into the era of the emperor of the us

emperor or a little short of gold however if you sign this document. i will see to it that you have more than enough money. even a little more of that more than enough and indeed money cascades off the presses and what proceeds from this work of art two hundred years ago or where it was published or proceeds is a most authentic anticipation of the progress or i guess retrogression that inflationary cycle marvelous bit of economic insight by the german a poet. so this was the text from which the president of the bundesbank drew his remarks. and as you noted more and they were. condemned this morning in a gentle fashion i guess by the still condemned by one of these very very fine thoughtful. f.t. columnists wolfgang one shell but what mr monk shall i think fail to mention is

that the doctrines of modern central banking his phrase. haven't worked don't work and in theory i submit cannot work. he. he charges the president obama spent with fear mongering to which i say. that our modern central banks by suppressing interest rates by manhandling the yield curve by. overriding the price mechanism by printing money by the box carful our modern central banks have contributed to a constant state of apprehension among people who have money to save invest. what is it going to be worth we don't know as chairman bernanke he candidly admitted during his in a speech in jackson hole wyoming at the end of august he said we are quote learning by doing now those those are fear mongering words yeah i think so especially first

savers so in this financially repressive environment let's talk about what savers can do because i know in the past we've talked about your a thesis for black walnut trees but if you don't want to contend with actual weather what would you recommend as far as investments for savers anything else. well there are there are so yes there are some things to do all entail some risk getting out of bed does as well but these these are which we call businessman's financial risk of we'll call them business people financial risks to get with it. there is a class of income producing assets called mortgage real estate investment trusts the granddaddy of which is annalee the ticker is and that is a nancy l. why it's been around for a long time it is written out many cycles and it has the scars to show for its experience it. does this and only in the double digits it's priced at about book value. one risk one bears with anneli and and similar.

enterprises and there are at least a half dozen that worth looking at the risk you bear is that the fed continues to to milk the yield curve can use depressed down rates and thereby a two to remove all spread between the cost of funds and the yield on one's assets that's the risk and of this a clear and present risk and lee has done a very good job of hedging against and negotiating these risk that's one idea and another idea our mutual funds that invest in so-called leveraged loans which are senior bank loans to incumbent companies companies with some debt. these loans have in the past yielded per year of five or six percent they are senior claims the top of liver cap leverage capital structure they have they did

well or well enough in two thousand and eight in two thousand and nine the prices the in a panic market went down but the assets came out very very well so i think that one might look at these these so-called. prime rate funds or leveraged loan funds that every big mutual fund company has one ok and then i want to ask you about another idea that you had in a recent newsletter i'm sorry gold bullion international and it's a platform that helps someone to buy sell and store precious metals with ease normally reserved for e.t.f. which is interesting because we've been we read some cautionary signs about it as the e.t.f. so what do you find compelling about g.b.i. . the g.b.i. is it's a brokerage house like service that allows one set of merrill lynch merrill lynch trading platform to tap in the symbols for physical gold how much you want and

where you want stored as easily as you might tap in the symbol for a bond or a stock or you know that the reason for owning physical gold as opposed to the gold mining share or a claim on an exchange traded fund that it's cell phones gold that is you kind of like want to have the stuff or if you get you are going to write so. so which which brings us to the value proposition presented by gold itself and if you'll bear with me lauren i will remind our viewers that gold yields nothing earns nothing holds no conference calls it is necessarily for those reasons the earnings and the yield reasons it is necessarily a speculation it is a speculation on what i believe to be a high likelihood of it namely the continuing assault by our central bankers on the purchasing power of the currencies they print in such profusion still to

speculation gold trades today what seventeen thirty five or seventeen forty dollars an ounce they could as easily trade at fourteen fifty it could as easily trade perhaps with more justification in my view at twenty five hundred dollars an ounce or three. but there's nothing there's no there's no price earnings ratio there's no price book ratio this is. gold is an idea. anyway so why i'm bullish on it but it's always count the odds ok i broke up before we go i do just want to bring up this chart as it's very interesting it's gold index to the monetary base and there's quite a correlation that i want our viewers to see so i want to know if you think central bank easing an expansion of the money supply worldwide has been the driving force behind the rise in gold since two thousand and eight or if there is a larger factors at play too because the metal has after all been in a bull market since two thousand. well it seems to me that the insofar as gold has a what we in the stock market call a fundamental. it is you know sort of the present gold to me is the reciprocal of

the world faith what the f.t. columnist we talked about for call modern central banking now there's a phrase in so far as people trust modern central banking and it's mandarins at its methods and it's it's wonderful florid bouquets of differential calculus if they trust all of that then gold should not be for them however if they entertain well founded doubts in the efficacy and techniques of what our central bankers are doing then they might look at gold all right thank you so much jim grant and your conference i should mention is coming up in october in about a month's time that people can go to grants pub dot com if they're interested thanks so much jim grant founder and editor on grants interest rate observer always a pleasure thank you lord.

all right let's wrap up with loose change dimitri lauren let's talk about the i phone. here lo and behold you're one of those suckers that bought one this weekend none the less i phone sales missed axed estimates apple's blaming it on supply and demand but i would have imagined they would have values that. people were expecting and nonetheless i want to talk about the i phone five indicator because remember j.p. morgan had estimated that the i phone five could add up to a point five percent of g.d.p. or what jim brett would maybe call invisible statistically can't really even factor that in but nonetheless also fed ex had said that they were cutting global growth forecasts because they were concerned but then look at their distribution center because these are reportedly according to reddit this is the distro center there are these are all boxes of i phone five so i want to know how you think the i phone

indicator is going to flush out is this going to actually be a boon to growth or is global growth do much just slow regardless of what you know it's funny because i order the our phone. apple store but you know look the thing is at least this one actually has the economic growth one of the other i mean it doesn't actually i mean i know it's a small group everything but this is a increased productivity. using which how does it increase your productivity are you kidding you know lots of stuff i did first of all i tweet all day long this thing you could tweet on your old phone i mean it's the same thing ok well this is there's going to larger screen and i'm also going to be where you dimitri lest we devolve into an i phone commercial i think you do exhibit some of the characteristics of maybe the. greater of being a consumer over. however we're going to have to leave it there and see how the i phone five indicator shakes out on its own because that's all we have time for it thank you so much for watching be sure to come back tomorrow and in the meantime you know you can follow me on twitter at lauren lyster and go to our new facebook

page we're going to put up the address i believe and give us feedback and like it and you can catch any show we missed you tube dot com slash capital account you can catch us in h d on hulu hulu dot com capital dash accounts and from a. when you're at the show thank you so much for watching come back tomorrow and have a great night. courageous and creative. elegant and full and public speaking. a few european bodybuilders against millions of weak immigrants. which may not seem so serious now. but this could be

a real threat to. european extremists. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else and you hear or see some other part of it and realized everything you thought you knew you don't know i'm tom harpur welcome to the big picture.