good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for friday october fifth two thousand and twelve the european central bank sees buying a large amount of solver and bonds through its unlimited bond buying program or o.n.t. for one or two months then they'll hold on to reassess that's according to reuters and of course we know q e three has put monetary easing in the realm of unlimited the attempts to reflate have really reached another level. of pressure problems. which slow the growth rate to. free.

will discuss ludicrous being with the very sane chris martin said meanwhile consumer credit rose more than forecast in august according to the fed that eighteen point one two billion dollar rise was driven by borrowing for education and automobiles it's up the most in three months so is this a sign the bubble is being replated or are we past the deflationary point of no return we'll talk about it and the unemployment rate dips to seven point eight percent as the job gains used to calculate it clocked at eight hundred seventy three thousand or the most in almost a decade wow that's amazing driven by what well those who are part time for economic reasons look at that bar on the far right at the very end ok it's not the largest increase since february of two thousand and nine and those folks who can't get full time work their part time for economic reasons they are counted as employed too so we'll talk about that also how the factor of exponential population growth compounds the problem let's get to today's capital account.

central bank policy in the us has gone from traditional monetary policy of setting interest rates to then buying u.s. treasuries and government agency debt to buying mortgage backed securities and i suppose that attempt to bolster the housing market and spur the economy while leaving the timeframe for future purchases open ended no more need for press three releases we can save money on paper let's go back to that spaceballs clip to follow through this idea of ludicrous. apprenticeship programs done outside speed is too slow too slow yes we're going to have to go right to the priest free. speech

so we're never going to fast for the ship to take one step better colonel sanders chicken. they go ahead and do it and things don't end well in spaceballs as that order ultimately sends that dark helmet dude flying through the wall of the space ship it was reckless what he commanded his ship to do it's a great lesson for central bankers who in their attempt to break the laws of physics have entered it time and space sucking whatever generation is left out of the bond market combine that with credit expansion excuse me combined that credit expansion with a more holistic view looking at global resource depletion and population growth and what are we looking at in terms of life after ludicrous speed well joining me now is chris lawrence and with his answer to that question he is author of the crash course and he joins us now thank you so much dr martens and for being on the show today lauren it's my pleasure it's our pleasure to have you let's start with

consumer credit because it was up for august more than forecast more than expected do you take this as a sign that consumers are really going to lever up again and the fed may be successful in reflating. you know a lot of that is being driven by the student at this point i don't think the september and october or unusual months to see those student borrowing but i don't know if it is doing everything they can get us back to the ludicrous speed i just don't think that we are the fuel airport that we really need to go to spec you know it's nice that we maybe go to fewer stronger loans going and we're borrowing more for schools but but this isn't really the broad based credit expansion i think the food is looking for so they don't have the fuel to keep it going is what you're saying. ok so let's take a look at what they have done and what the impacts of policies have been i want to bring up a couple charts they're actually from your website so let's bring up the first it tracks the s. and p. five hundred from shortly before the start of q.e. one to today and you can see that both q e one in two coincided with higher stock

prices as well as operation twist though to a lesser extent however if we look at the second chart which tracks commodity price . this in the context of q.e. we find that the commodity prices rose during q one and two the latest twist did nothing to raise commodity prices and in fact they fell and continued to fall and since killie three least a drop in oil and gold is more or less flat so i'm wondering if you think there's anything inherently different about stocks and commodities that would justify this difference. well operation twist up is completely different from the q.e. program so that was a balance sheet neutral right the federal reserve is just being something on one end of its balance sheet for something on the other in short and so technically that's neutral although that still had an impact on stocks because it has the effect of driving interest rates down pension funds and downs of their yield needing vehicles have to go out have to take risks to go into the stock market when bond rates become very unattractive so twisted will drop so many entities

institutions people into the stock market commodities different story they tend to operate on the global inflation trade they operate they respond very well to excess stimulus excess money in the system twist didn't provide that extra money q.e. one great pop in commodities from their q e two as well i've seen a pretty decent pop in gold since the announcement of q e q e three whatever thing it's it's behaving reasonably well right now i think the markets are looking for more of them and it's a case of of as we saw the debt to g.d.p. g.d.p. became less and less responsive to additional increases in debt i think we're seeing the markets become less and less responsible to the injections of this stimulus so you know forty billion a month this noise rolling over the maturing m.b.'s to give us a call total eighty five billion balance sheet expansion all well and good i think it's going to take more ok how much mark as you say that the fed is getting less

and less bank for its back how much more if you had to put a number on it if you could if that's even possible. if that is a possible i think i would double there just for starters just to see if that worked honestly you know what i tracked this credible it started in the mid eighties and it expanded very aggressively through that whole period of time if we just short of the credit bubbles having started in one nine hundred ninety eight which is giving it a very late start i think we have we doubled the total credit market that so that's an extra twenty six trillion that came in if it's a normal bubble that this was a credible we have to burst if we have to find a way to undo probably twenty trillion dollars worth of bad debt. into that story while there's a long way to go so looking at what the fed is dealing with the forty billion dollars in mortgage backed securities that it's buying with newly minted money and that that additional forty or so billion dollars that it's buying based on the accrued interest from existing mortgage backed security holdings how is that

helping that housing market crash that's my question. i think that's a big question you know if the bird would just go out and buy mortgages directly i think they could then charge homeowners a quarter percent interest which is what they're charging banks love the homeowners accrue that the benefit of ultra low interest rates the idea is there's this sloppy rube goldberg thing that the feds try to do if they buy mortgage backed securities they're going to drag some of those off the market the market will have fewer long dated safe securities to buy so it will scramble for the few that remain that will drive interest rates down a little bit and then because interest rates come down there with theory is mortgage interest rates go down and then people like you and i go oh look three point seven two percent instead of three point seven eight percent i'm buying that's the idea it hasn't been working because the banks have been doing with banks always do when they're in recovery mode they haven't been passing along those interest rates savings to consumers yes the new stated rate on mortgages is lower

what they've really raised the bar in terms of lending standards so. they're just it's really not a linkage in the mechanisms for make you want to pretend it is right and i think we just i just i was street journal article that said mortgage rates were at the same level that we haven't seen since the one nine hundred fifty s. and yet yes banks are not giving those rates to people because they are still loaded up with all of these bad mortgages however chris and that answer did i hear you say that essentially if the fed was going to establish some kind of facility like a maiden lane to find another way to buy mortgages directly as opposed to using the banks as middlemen that this would be a more effective way to achieve the goal that they're thing that they're trying to achieve it seems a lot simpler to me in a complex environment like this one like simpler i mean it really just dots the eye and says yes this is what we're doing we are now in the business of of becoming landlords we are buying mortgages instead of buying mortgage backed securities they

could buy used to more directly they could actually take mortgages onto their portfolio if they wanted to and i know this would bend a few rules but that doesn't stop them so it really seems a lot of the things the bet is sitting there doing that's not the simplest explanation of what the fed is doing to me it feels like the fed has been in the business of repairing bank balance sheets were turning banks to profitability they've done a wonderful job but they have the data just came out in the twelve months up through june of two thousand and twelve banks the top six banks are and i think sixty three billion putting them on par with their two thousand and six. well that's fantastic so so what is it i'm not i'm really unclear on the battle the burning is fighting in printing all this money at this point in time and it's really quite a mystery so if that's like what you could conclude dr martin i don't know if this is what you're saying is that the feds mandate it's dual mandate is really a bunch of baloney it's dual mandate and let's make sure the banks are healthy and

make sure they have lots of profits. but there you go that's a very different mandate than bemba. may say that the fed has or that it may proport to be on the fed's website for folks to go and check out what exactly the federal reserve is now naysayers might say dr martin said hey look at the unemployment report today unemployment came down seven point eight percent the economy is getting a little better it's getting a boost maybe this is a cyclical issue and the fed is helping out i would say that that's bogus because the household survey we saw an eight hundred seventy three thousand dollars season eight thousand job rise in this was driven by part time workers and it was a huge difference from the non-farm payrolls which was one hundred fourteen thousand so that's a very confusing thing but is there a totally different aspect here that policymakers and people that watch this number every month and are planning for the economy aren't thinking about it something that you talk a lot about which is population growth exponential population growth is this

a factor headwind if you will that people are really planning for. well let me get to that in just a second you know one old axiom was don't fight the fed i think another one might be we where government statistics the month before an election. this is a very. people myself included let's let's give ourselves some leeway if we feel confused by the numbers we're seeing right now i think there's good reason for that there are so many crosscurrents it's hard to line these numbers up we're going to have to unpack this most recent non-farm payroll number to find out what really happens you mentioned there's a lot of a part time jobs in there but that is a huge huge gain and i'll be surprised if it doesn't get revised at some point in the future to get to your other point this is absolutely the number one thing that i think we really have to look at this is the most important story of our day is that we have the fed we have the federal government really attempting to preserve

business as usual and i can't fault them for that it's what systems do the systems want to preserve themselves and business as usual says we need nominal g.d.p. growth of or five preferably six percent so that we can have nominal credit growth of four five preferably six percent we need real g.d.p. growth in the over around three percent in part the need for that is driven by an expansion of our underlying population workforce by one one and a half percent per year so this all makes sense but you know we're getting to the point where there are so many warning signs that say look we're kind of at the end of back story there's a new paradigm of foot here which says we may not be able to just count on all the resources we want when we want it the quality levels we've come to known low quality is down quantities are down they're just more expensive it means we have to adjust in tune ourselves to a new mechanism of a new system if you will in the fed is doing everything it can to resurrect that

old system look we're four years into the resurrection efforts i think we can say the recantations haven't worked their magic mumbojumbo is. fall on deaf ears in the skies whatever they're doing the rain is falling and so we've got to just maybe come to different conclusion here which is that the systems the tools the old policies or go to war anymore ok and when we get back i want to talk to you about how resource depletion fits into this mix and also what you suggest people to do in the case that policymakers the fed whoever else doesn't figure out that this old system is gone and not going to come back so hold tight right there chris martenson author of the crash course still ahead or oil capped a third weekly drop in new york points out bloomberg the report attribute that to the fundamentals of supply outweighing demand but is that way off we'll hear from our guests after the break but first your closing market numbers.

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welcome back we're talking about ludicrous speed as in a speed that the federal reserve is never going to get to again because that old system may be gone a credit expansion it just continues with the kind of growth that it's posed to produce chris martenson our debt gas says that is over and another factor in that is resource depletion so let's bring back dr martin author of the crash course to talk about how that factors into this whole new paradigm so dr martens and i know a number you cited before is that house the oil that's been consumed in the history of humanity has been consumed in the last twenty two years which is a very small fraction of this history of humanity so i know you believe we've reached our surpassed peak oil but what kind of timeframe can you give us for how long it'll take before we actually feel this scarcity and by feel i mean oil prices

hitting two or three hundred dollars a barrel i mean where we feel it. you know we're already feeling it is the era of cheap oil that's over right now we do know lots of talk is out there about shale oil we've got the titles we've got the tar sands there's the deepwater drilling we can do but all of that coming in at seventy eighty maybe ninety dollars a barrel if oil prices somehow went below seventy dollars a barrel the predictions easy to make a lot of drilling will happen the next thing you know supply will be falling so the first thing we can say is that the era of cheap oil is over and that's the era in which all of the policy makers and all of our economic policies and understanding is models all of those were literally developed in a world where we had twenty thirty dollar a barrel oil in today's terms now as we cast forward yes we're making some nominal gains here and there but the world crude oil has been plateau ing since about two thousand and five that about seventy five million barrels per day this is just

crude oil i'm not adding in all the other liquids in the ethanol and stuff like that just good old fashioned conventional crude and if we look into that story you know world oil prices are still well over one hundred dollars a barrel and we track that by brant we're looking at demand across the asian and developing nations as really increasing expansion rates go global slowdown or recession or no oil is just indispensable and this is really been overlooked in the big mistake that conventional economics has been making has been the assumption that somehow human capital can replace or somehow substitute for natural capital and i think that's just a colossal error error to be making at this day and age oil is irreplaceable we do not have substitutes for it it's getting harder and more scarce to find yes there's quite a lot of it left but not at the prices that we've come to know and love so right now i would say just look around look at what's happening to economic policy fiscal

policy monetary policy all across the globe will find it's just not working quite. same as it used to and i connect it up to the idea that we've never been able to engineer a robust recovery with oil anywhere near one hundred dollars a barrel in the world stage ok but do you see in the foreseeable future us being this scarcity in oil that prices that people truly cannot afford because right now ok yes oil prices are high and people have felt that maybe if you're living somewhere where you have to drive a lot and gas prices are higher but when does it reach that point and do you think it will reach that point where it really becomes untenable. you know we're going to just it if it goes slowly enough will it just right now europe is paying the equivalent of nine or even ten dollars a gallon at the pump could we pay that here in the u.s. of course we'll find a way to do it if we have the time to adjust the concern in the story that i have and many other people share is what if there's a shock in the system what if there isn't

a rhenium or what if israel decides to attack in the strait of hormuz gets shut down here's a prediction if the strait of hormuz is shut down to free flowing oil traffic for sixty days or longer we will see an absolute panic in the world markets we will see oil supplies above ground getting depleted to really crisis levels i don't even know what the price would have to be in order to dent a world consumption enough to account for all the oil that passes through the strait of hormuz so yes if we see a shock like that it really is going to be a matter that could happen at any moment time things progressing as they currently are i think the big to answer your question directly somewhere around two thousand and thirteen to fourteen is where i'm looking at the world oil consumption exceeding what can really be supplied because of depletion from conventional reserves ok and if other sources of energy from natural gas or solar or

wind or nuclear do not come on line soon enough how do you suggest that people prepare. well and even of those last three mention of we have solar nuclear wind in it that's what that's giving us electricity which we don't have a shortage of liquid fuels or what we're going to have a shortage of in the story and natural gas yes we can use it for transportation but right now only point seven percent of all natural gas in the u.s. goes towards transportation what would it take to get that even seven percent which is a ten fold increase you know it's going to take an extraordinary build out years and years trillions of dollars so how do people prepare for this the first thing is you've got to insulate yourself oh and make yourself resilient against rising energy prices and rising oil prices unfortunately don't just hit you at the gas thing rising oil prices translate almost immediately indirectly into food prices even leaving the drought aside translates into all sorts of other products and things because it's used in five hundred thousand separate products that we buy and

consume on a daily basis so oil prices very rapidly turn into shocks into what you just eat into your disposable income and in numerable ways and i have thirty seconds how would you recommend that people prepare or what would you say that they should do in order to to make up for the fact that they might not be able to afford all of these things that oil touches for individuals you absolutely have to think about your personal transportation your personal and your home state there are lots of things that can be done there that are web site prosperity dot com we talk about all the kinds of ways people can insulate themselves and lower their energy bills lower their food bills great things to do if you're open to you have to start thinking about the supply chain itself right and maybe sacrificing some cost efficiency for deeper inventories because in this story shocks rapidly turning to supply shocks we know corporations don't like cost cutting are dull like do not they do like cost cutting but you know i'm getting

a way we have to leave it there thanks so much chris martin stand up there at the crash course. i meant corporations don't like sacrificing cost cutting for the record that came out wrong let's well let's wind down with with your feedback because it's friday and we haven't done it for a while and this was a very cool tweet that jim rickards tweeted out with the benefit of having worldly gas and he was in bahrain and said here i am in bahrain chatting with a top dog defense contractor and he says the only market t.v. he watches is capital account with lauren lister that's very cool now he may just watch because it's one of the only shows you can watch

a full fifteen minutes of guests like jim rickards really expound upon their analysis but i will take it that is awesome and just good to know so thanks to that defense contractor for watching too and speaking of viewers i also received a tweet from jake ellenberger saying good show which was interesting because when i looked at his profile and this is certified as legitimate by twitter he is a u.f.c. welterweight on a mission to become a world champion so this kind of confirmed a theory that dimitri at least had that we have fighters watching our show because our show in many ways is for fighters people who take charge of their lives their investments their knowledge and they fight for what they want and their prosperity and keeping it so bring on the fighters and when i talked about doing a charity comedy show which happened last week during a radio interview not too long ago where i struggled through this game that they played with me of either neither or both because i'm rather indecisive i had to

address this that d.j. carnegie rhodes on you tube he said are you cry. easy or sheet are you crazy going into comedy this interview shows you struggle thinking on your feet and non-financial matters it would also help if you were humorous if you think someone is going to write out something and you'll roll it out there and get laughs you might be disappointed good luck you are a great interviewer thank you but you have hidden but you've hidden your comedic skills well so far this pessimistic. viewer feedback that i just had to respond because i didn't go do comedy and i actually did wing it because i didn't think that written jokes were going to do well and i was funny everybody laughed the whole time so maybe you want to reconsider and take some risks for yourself not to judge who you are but i'm just saying that we should discourage people from taking risk because you never know what you're capable of i'll have the video to prove that soon i just talked to the publicist and he is getting it for us and here's the article to prove that it was good because i think

we have it so hey even if i sucked at least i got on the wall street journal which gives him bad moving on on facebook phoenix rose said i may not understand everything but i'm learning and the discussions are interesting even when i'm lost well i commend you for watching because you can definitely learn things and build upon your knowledge and word of the day is a great resource because we tailor that towards people that are maybe new to finance not experts that need and want to learn some of these important issues and what's behind them so keep a lookout for that because we've been bringing it out full force also dimitri i don't have time to play the sound byte of where he apparently feels that he's schooled me on his theory about how market demands for debate coverage are hurting democracy because it amounts to lame debate coverage well byron and five said to me you're one hundred percent correct in your critique of the presidential debates but you must accept the fact that you cannot win a debate with lauren she's too smart and distracting i will agree that dmitri can't

win a debate with me but maybe not for the same reasons if we just have one minute one second i could show the last your feedback the very last one because this is funny two of your said playing tetris takes enormous amounts of concentration and on the spot decision making as the levels go up props to dimitry ms lister can learn something from dimitri from this because dimitri said he was playing tetris through the presidential debate so whatever you can think of what you want to because we're out of time thank you so much for watching make sure to come back next week we'll have a great new week. show it and in the meantime you can follow me on twitter outboard lister like us on our facebook page facebook dot com slash capital account watching you tube give us your comments watch as an h.d. on hulu and for everyone here thank you so much for watching and have a great weekend.

more news today violence is once again flared up. and these are the images the world has been seeing from the streets of canada. trying to corporations rule today . well. it's technology innovations all the least of elements around russia we've got this huge earth covered. city.