good afternoon welcome to capital account i'm lauren lyster here in washington d.c. the zero headlines for wednesday october twenty fourth two thousand and twelve the federal open market committee released a statement following its two day meeting announcing nothing new really it's maintaining its existing programs as q e three and operation twist keeping interest rates in a coal mine until at least mid two thousand and fifteen is the statement though that you will never see on a fed press release that the us is trying to inflate its way out of debt while perpetuating the us as fiscal imbalances that's

a question we have will discuss plus the third party presidential debate was last night bringing up this policy and economic national security arguments missing from the mainstream here's one. of the leaders who wrote more national security is the fact that we're going pro. how about that karl denninger and mike norman are here to talk about what should or should not be done by the technocrats or elected leaders when it comes to helping the country out of economic doldrums and goldman sachs versus goldman sachs the op ed writing goldman defector greg smith is out with his new book he and lloyd blankfein have been hitting the airwaves today we'll talk about the highlights let's get to today's capital account.

so last night were the u.s. presidential debates you did not see on network t.v. it was the third party presidential debate with candidates from the green justice constitution and libertarian parties and on the stage were issues that we have not heard about in the mainstream dools between romney and obama this includes money in politics cutting defense spending dramatically monetary collapse and the government's role in the student loan debt crisis so let's bring in our guests and use some of these economic and fiscal arguments to fuel ours here to talk about all of this is mike norman chief economist of john thomas financial and author and trader carle denning so gentlemen first thank you so much for being on the show today but you have me absolutely so let's just start i want to throw out a sound bite from gary johnson just to to play a little bit of what was discussed in terms of federal spending admonitory collapse let's take a listen. i promised

a balanced budget to congress in the you're thirteen that is a one point four trillion dollar reduction in federal spending if we don't do this now we are going to find ourselves in a monetary collapse ok so not not focusing on gary johnson as a candidate or a politician but this this issue of a significant reduction in federal spending and balancing the budget is this necessary or not mike let's start with you. necessary i mean the question should be asking is is this completely misguided or not and the answer is yes i mean little over the course of the history of this country we practically never run a balanced budget in the few times that we have have preceded major economic collapses like in the late one nine hundred twenty s. and just recently look in order to remove in order to balance a budget of one point three trillion the deficit right you have to remove one point three trillion dollars from the private sector from the private economy and anyone

who could argue that that's a good thing has got to be completely out of their mind and in fact we see them trying to do this in europe where the situation is a little bit different because all those countries over there they're no longer a currency issue is but we see the outcome the deficits are getting bigger the economies are collapsing on employment is skyrocketing you have social unrest everywhere you look look the public's desire to save is what the search determines the size of the deficit the only way that people can have dollars is if the government spends more dollars than it confiscates from us in the form of taxes that's the only way anyone could have a dollar in their pocket so in order for the government to have a balanced books have balance books it has to remove those dollars from the private sector now who's going to sit there and argue that draining one point three trillion dollars in an economy that's already weak and where people are already lacking in income that that's

a good thing it's not and that's precisely why we've never really seen this over the course of our history and the times when i have seen it have preceded major economic collapses well let's get carl's view on your take on history and the importance of and balancing budgets that is that there isn't an important day doing south carl oh i couldn't disagree more your other guest seems to have forgotten that in nineteen twenty and twenty one the federal government did exactly that of the federal reserve raised interest rates. by the way the person who counseled against us last name was hoover i think you can figure out what he did after he was involved in commerce what the government has done and what we've done since the one nine hundred fifty s. is one about a three percent spread between accumulation in the economy and gross domestic product and if you compound it over a working man's life which is forty five years what you do is this you take an obama box three dollar bill in there and you get to keep at the end of that from

your time as a worker about one third of it the rest of it evaporates into the ether and this is why what we're doing now doesn't work because when you emit more credit in the system you have obviously a larger g.d.p. but what i did was make the dollar worth less and so you denominate something in what the other thing has been diminished and when you end up with a fraud we say well it's fifteen trillion in g.d.p. and it was ten before but we're not talking about is that gasoline four years ago it was half the price it is today so why don't we deflate g.d.p. by the price of gasoline or corn or any of these other commodities or gee we seem to be going backwards well level that we're not because i'm an ip numbers the g.d.p. numbers all factor in when you look at real g.d.p. there is growth in there as well as if you really want to look at the purchasing power of the money why don't you look at the amount of labor hours because that's what we sell right we sell our labor to earn the dollars to purchase a car or

a house or a movie theater ticket all of which have gone up and they always go up in a nominal you know nominally they go up but in terms of the amount of labor required to purchase that good or service it's actually gone down so the purchasing power has not been reduced it is actually gone up that has not done any studies that show this so you completely wrong on that call i'm sorry ok mike let me let congressman i want to that's part of congo and responded i'm like that's a hard to think there is not declined well yeah because. the productivity of the american worker goes up we started with picks and shovels and our ants and then we went to animals and then steam and then mechanized farms and automobiles and trucks and everything else called productivity it's called technology and dances but what's being argued here is that the government has the right to steal that how is it with its rating no wealth that's what's going on here and so we should have dramatically higher standards of living than we have today but instead we distributing them playing an arm waving game to make it seem like it's all right ok

let me let me move this conversation for because you guys both respond to that and this is what i want to ask you mike so sixteen trillion dollars and national debt trillion dollar deficit sure the fact can continue printing money on to affinity but but i address that he did that but that is so what happened that the government got one thing money instantly and it's an important point ok so i would say this all the time mike you know i've done this is my show not yours let's answer my question in them and you can make your argument but what i'd like to know is how do you keep the dollar from being devalued when you are increasing the money supply when you are putting more money into the system and when you're running these huge deficits and all of this spending how do you keep the dollars that are you not from collapsing it because remember there's a foreign exchange market how do you keep a blowout from happening in the foreign exchange market well lauren i think i've already addressed that in the sense that the economy increases in size so more goods and services our producer your real wealth increases and by the way if you want to just take

a little litmus test of barometer of what the dollar has done since all this money printing by the fed as you call it if you go back to two thousand and eight when the fed started to really engage in all these extraordinary activities with the fall of lehman and you look at the dollar index at that time and you look at the dollar index now and i use the dollar and it's because so many of these dollar bears maybe you perhaps even look at that and say oh my god it's crashing it's actually up ok so how do you explain that because we predicted the. the trillion or the fed has printed three trillion in reserves and the dollar has gone up and by the way you could look at the same thing in japan you could look at the same thing in europe with massive so-called money printing by the central bank and it has not had any effect on these currencies the what would have an effect on the currency is if the government just started printing money willy nilly without the ability to expand the economy and have that flow into greater output greater employment

greater production of goods and services then yes you'd actually have the situation of too much money chasing too few goods but you don't have that now you have capacity sitting idle you have millions of people unemployed you have homes that are empty you have factories that are running at seventy percent of their capacity so i mean you have enormous ability to continue to create wealth to produce real goods and services and we're worried about basically an accounting issue here which is all that the dollar is ok it's a keystroke on a keyboard ok i want to i want to allow crowd responded i do want to say there's an argument there's a debt deflation going on the question now is what happens when the deal leveraging is done what happens when interest rates do return to normal and you have these enormous enjoyable game if you're not zero they haven't been at zero this is a historical law that we've seen since the financial crisis i didn't going to go rained down down there what's normal normal to you ok a month or out above zero when you don't argue that any amount that they would go

up about now would make a material difference to the amount that the u.s. government's paying interest on the debt so my question is when they do rise what happens to the amount of money the government is spending on interest payments and how sustainable is that karl i want to allow you to respond. let's let's just take a look at this from a standpoint of what's happened to the economy we know here four years of running roughly ten percent deficit twelve to general rich and orders actually occurred is that the median. family income in nominal terms before inflation adjustments has gone down so we have an argument here that we can print money we can have and that is what's going on the government is issuing credit the federal reserve is taking credit up in the form of quantitative easing that is what has been occurring and what's really happening here is they are trying to fill the hole in bank balance sheets that the banks created by issuing unbacked credit for their derivative and other trading applications and as a result they're protecting the banks none of it is going into the economy kill it

chill this stops right problem with doing it is that the value of every dollar that's out there is being debased by this action so you have its real incomes decreasing in nominal terms and then when you add the inflation adjustment to it it's even worse ok now i had the opportunity to respond also to ted plain why i met guided when i think money printing well first of all let me respond that the deficit of the government is equal to the savings or the change in the size of the deficit is equal to the change of the savings of the non government that's a come and we and you could look at this very graphically it's very evident when the government went from basically almost a balanced budget in early two thousand and seven to a one point five trillion deficit we saw a private sector savings go from negative to a record nominal high of seven hundred something billion yes the rest flowed out into the rest of the world because we run trade deficits current account deficits but how does carl explain that in his in his view of the world that's it has sucked

savings away from the private sector yet what it did with add exactly the same amount to the penny because if the government spends more then it takes away from you in taxes in other words that's called the deficit that money has to go somewhere and it goes into the non-government the private sector and it balances out i mean equally the gun might have mine let me and i will not i mean i have right now one has ever. r l before we get to the break i want to have a few seconds to respond to what you said then we'll get the money later carl you were shaking your head and mike was kind of hammering away at what he had there is say how this is just or i'm waving nonsense lauren this is a. little girl you know grasp how done here i was let go i want to tell him that you know that this argument comes up the bottom boy is that they claim that there is such a thing as a free watch there is no such thing as a free lunch when you know this could lead to the economy the value of they were single dollar goes out their g.d.p. you know middle terms goes up because you must but you haven't actually produced

went on the real target they will end up in my old charge i just said that ok they are over one hundred on ok take out a plugs out a year you know what everybody in radio arrives in your ears for a second and stop speaking if we have to go to israel so are we going to any or all of the armed opposition on a moment to have some truth here ok and we need to go to break in my corpsman we've got to go to break mike girl don't worry we'll have plenty of time to respond i got ahead a break we'll be back in a couple minutes still ahead we will continue we'll also delve into the battle of goldman sachs versus goldman sachs all explain everything in tonight's least change but first our closing market numbers.

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i will fight all that i also promise like every single day i'm ever going to go. to go i'm going. to get the. cool. welcome back we're having a spirited debate today about fiscal policy and monetary policy in light of some of the talking points at last night's third party candidate debate where some of the issues that were addressed were actually addressed in a more in-depth way than what we've heard from the mainstream financial debate and

one of those issues i felt was student loan debt we actually had some discussion about what is healing increases intuition what is. possibly complicating the student loan what some called a bubble a trillion dollars in outstanding student loan debt so i want to play a little mash up of what some of the candidates had to say. we can all afford more federal. loans and we can afford more because of guaranteed government student loans no one has the excuse for not going to education and so because of that institutions of higher learning colleges and universities are amusing from pricing i think it's time to make public connor its occasion free as it should. ok so it's a couple of different takes there there's one that i want to focus on with our guest let's bring back and karl denninger and mike norman gentlemen thank you for let me go to that break let's continue on on this topic and i want to go to you

first carl i want to ask you one thing that stuck out to me was you had gary johnson and another candidate here talking about the impact of a government spending government backing these loans governing the government issuing these student loans and the impact that that has had on driving up college tuition prices is that an issue of course the simple economic theory price and quantity are connected when you if state was of no cost to the consumer everybody would eat it every night and the classical definition of inflation is too much money chasing to do goods so when you make money cheaper are freely available the price of a particular commodity rises because demand becomes infinite if there is no check and balance that is provided through price then the demand has no boundary and that's what we've seen happen with colleges it's what we've seen happen with medical care it's what we've seen happen with all sorts of different government programs and it continues apace because we continue to believe that value in toto

terms of time which is expressed in interest rates what ought at least today to be zero and mike i want to i want to ask you about this because you're talking about government spending federal spending and it is an assessment but what about this flipside of it driving up prices and in this case college tuitions. ok well you know certain schools are not seeing precipitous increases in tuitions they could be local schools community colleges cetera we see major universities definitely skyrocketing tuition and a lot of that has to do also don't forget with the extremely extremely difficult job market that we have right now if there are very few opportunities out there in terms of work people and students are going to compete for these elite schools because that they believe that will give them some sort of an. vantage in the job market and that's driving it up my response to this or my remedy for this would be to focus again on the economy and creating jobs if there's an abundance of jobs and

if employers were looking for employees they'd be happy to employ look i went to an ivy league school ok there's no difference in the world between me and somebody else say this right now who came out of a community college same. completely disagree i completely disagree there are certain there are your. bases there are certain barrier to entry and certain fields and certain companies where you have to have gone to a good school i'm just being honest just from my personal experience as hires me very little differently in terms of perception and perception matters i mean in terms of employers that have hired me in the past and financial especially they were one of the reasons as many as i went to a good school they would have otherwise boring you're making my point here you're making my point here i'm however not a good job if the economy was strong and booming and employers needed to employ people they would gladly hire from secondary schools there's nothing wrong with those schools that don't be surprised that there isn't somebody you know who is

from one of these institutions watching this right now who's who are you saying your comment because it's a total put not only on line not a as i said no that's not it is no it's not not at all my point on a second i'm not criticizing any education i know people that have a spirit and a reach you know i'm not i'm saying my experience and the experience that i have seen with perception barriers to entry in certain fields i'm not criticizing education are the quality of it or what people can achieve so then let me ask you this what is the proper amount of sending in order to create jobs with the proper number of deficit because i want to show a chart of the democrats that have been run over the last several presidential administrations and so in the obama administration you can see much bigger deficits and we're getting one point seven per cent of g.d.p. growth so what's the right enough mounted deficit spending that this is a very easy. as to the answer you know you you spend until you're at full employment and then you know that the deficit is where it should be we're so focused on this concept of the money which is an accounting unit ok how is it

created by a keystroke when we are dealing really what we're dealing with here and the real shame of this whole thing is we're not facing a lack we don't have a lack of institutions we don't have a lack of housing we don't have a lack of workers we don't have a lack of productive capacity what we have a lack of is understanding of how the monetary system works you know we need to utilize and to create the real goods and services that that make up the define our wealth and not continue to focus on the monetary number because the number is a relevant so you spend until you have full employment helpful and my definition you're creating the greatest wealth your economy can create ok let me want that we have a minute i hate don't we want that karl what's the what's the problem mike santa you got a minute oh be nice if that was true unfortunately the reality through situation

isn't it and your creation comes from capital formation capital formation comes from savings and when i take a dollar that i earn a twenty and it turns into a third of a dollar by the time i was sixty five and when i was in my capital that i have used to for a business destroyed a kid into saying i will let him he said i'm at my stage yes i'm going to direct shines or it never changes there's one time that we did this the other way around in one thousand nine hundred twenty one and the result was that what was a massive to slay sherry contraction in the economy reversed and we have full employment eighteen months that's a fact and nobody wants to talk about it because it goes directly against all this nonsense that these people have been talking about over the last five years and it hasn't worked just like it did in the one nine hundred thirty s. and that is where we're going to have to leave it for today thank you gentlemen so much for being on the show for a very. spirited conversation mike norman chief economist of john thomas financial author and traitor karl denninger if you're.

all right let's wrap up the please change dimitri laura that was months those words like i know you're going for the day so i'll let you have all this off the results now i feel excited actually to talk about this because greg smith book is out well actually i don't know if it's al but some journalists have gotten copies now he's doing some press and we have some footage from the bloomberg interview with greg smith the goldman defector let's take a look. in a transparent organization you should be able to walk into the lloyd blankfein office and say i have these problems not i why when you he would have taken over for you wrote this little five hundred million dollars settlement with us you see a member of the board being convicted for insider trading the judge in delaware

accusing goldman of being on both sides of a deal like you know your thing should you have been on that understood goldman's position that in two thousand and eleven you want to double your comp at a time where they were having one of their worst years in fired ten percent of our employees and you could pay me a million bucks kid even though you made five hundred grand a year before it can be what you were involved in where there was real wrongdoing stephanie you know you know the irony of all of this the reason no one has gone to jail of their actual crisis is this stuff is all legal. so those are some highlights why you think they're all right so first of the purposes say i actually like bloomberg and to do a really good job in general i like stuff in a rule she's really smart and but i think that this this really first and foremost shows the limitations of the mainstream financial news networks because even though even bloomer which i like more than its competitor it's still you see that stephanie rule was not willing to engage greg smith on any of the the substantive points he was making about goldman sachs or wall street when he talked about subsidized profiteering when he talked about prop trading your clients and making

money directly betting you get your clients abroad the abacus deal she would bring it back to why did you want more compensation writing a thing or you know where you want happy that these guys that are about to lofts and you didn't have a you didn't have a. membership at soho house it was like a door it was as if she was channeling goldman sachs's p.r. department in the day before that or a few days before that they had the head of h.r. right so basically in the first and foremost thing i want to make clear is that you can't go to these mainstream news outlets and expect to get a conversation about what most people care about with respect to wall street what you're going to get at the end of day is they're all saying that what most people care about with regards to wall street is what's really going on and the issue is not the character of greg smith yeah exactly people look maybe there's a disgruntled employee you want to hit by goldman sachs fine but he was actually bringing up a really good important point it was a gift an opportunity for stephanie ruhle or anyone else of bloomberg to actually broach this discussion but of course she was going to do that i wasn't expecting

her to really know i mean she's she wanted making industry she probably had much of a very valid insight that maybe somebody else would not but i don't think that's what it is i don't really they are going to make it about let's or does it again i think seven rules fantastic she's smart she's great she's good for what she does but again what she does is not investigate wall street fraud and corruption m.f. global even bloomberg gave it scant coverage all right yeah john edwards and still walking around there's no wonder so we just have to be very clear understand that these major financial news networks are not there to look objectively. what the problems are in the financial sector they're there as a entertainment p.r. source for wall street that's what they're there for i just want to make that very clear that you are and we're going to a long post to be fair though it is my view on it for us to go that route and to be fair though i mean to play the devil's advocate a little bit don't you think when someone comes out with a book and he's making his one point five million dollars from his book or whatever that they paid him to write this that the money i want to go goldman in your last name oh no look and in your book and i think it's a very fair thing to ask in interviews the motivations for their book and kind of

pulling apart that's all you know where motivation that's all the interview was he would bring up ad because i want to pivot it yet again i guess i like the funeral how it has been eliminated until i mean to be fair i because there's old news we're going to leave it there that is all we have time for thank you so much for watching the show to come back tomorrow and meantime you know you can follow me on twitter at lauren lyster you can like us on our facebook page you can watch us on you tube or hulu and have a great. culture was that so emotional and which of course is a lot on its own terms of using these candidates probably to mitt romney revealed a little major difference between the two in their approaches to security and foreign affairs many clearly.

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