good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for monday november nineteenth two thousand and twelve just thirty percent of the s. and p. five hundred companies beat top line expectations about sixty five percent beat earnings expectations in the prior quarter according to bloomberg and wall street journal analysis found u.s. companies are scaling back on plans to invest at the fastest pace since the great recession so what bearing does all of this have on a so-called economic recovery and what levers are left to pull well americans up their use of plastic average credit card debt per bar or in the u.s.

rose four point six percent to just under five grand in the third quarter while these folks were less diligent about making payments on time that's all according to data from trans union doesn't sound great economist steve keen is here in studio to talk all things debt deflation and it is the business story that really hit home making the local news circuit in a town near you take a look. pies snowball cupcakes all of them will vanish. oh and twinkies to that list of course that's maker hostess brands made no wonder negotiations are going on it turns out twinkies will likely survive not only the zombie apocalypse but also this latest dispute what does that mean for the cottage industry of sellers hawk in the snack on line we'll discuss let's get to today's capital account.

all right as i said half of the nation's forty biggest publicly traded corporate spenders have announced plans to reduce capital expenditures this year or next according to a review by the wall street journal their filings and their conference calls meanwhile we're talking about consumers americans cranked up their use of credit cards in the third quarter which was july to september racking up more debt than a year ago but also being less diligent about making payments on time this is because of an analysis of consumer credit doubt it's what it showed us from trying to believe now are these data points the exact opposite of what you want if you're talking about an economy recovering in the type of debt accumulation that is positive versus negative here to answer that and so much more is steve keen he's

economist and author of debugging economics which is a great book that you see right there and also one of the great guests to have in studio all the way from down under so first thanks so much for being here so how about you as a wise as always we are so pleased so you said when i came down here from reading those headlines you were you were itching to get on one of them about the business investment you have this investment because if you look at how businesses can invest from that they can invest from the retained earnings or they can also invest by borrowing money now when you go to a will functioning capitalist economy the substantial part of investment is funded by additional debt and this is stuff which even conservative economists like summer and french have confirmed in their imperial research they say when is rising when you have rising levels of did it's financing investment in excess of retiring to earnings and if you have a disk a lot of corporations have been through the great recession and so on one reaction they have to the fact the economy's growing more slowly and they're fright about the level of leverage as well as they have only and this retained earnings and what

that means is your level of investment is lower than it should be your economy grows more slowly and it becomes a self-fulfilling prophecy and that's the danger when you when you have some society not to borrow money to invest then you have an economy which is. and a stag night will in addition i mean just just break down what is the difference between a corporation taking out a loan to build a factory that's going to produce income that's going to be productive and an american consumer going out and buying a flat screen t.v. on their credit card with no expectation that they're going to have an increase in income to be able to pay for that yeah i mean in some sense human borrowing is necessary you know you can't afford to go and buy a house you know with our own money and the cars also inaudible you expect to have some finance consumption but debt finance consumption doesn't build productive capacity that modern spawn corporations to do that you know. is consumer spending let's now go and invest and take advantage of that but if you have the again the

the the household sector is still heavily debt income but it's carrying the level of debt now roughly eighty percent of g.d.p. down from one hundred percent at the peak but still twice what it was counting back and non-tonality so the live a lot of room of headroom the households have got to go into debt to finance the consumption borrowing or to finance mortgage speculation is limited so you're not going to get a great deal of stimulus coming out again with court in the problem we have a profit to cross and as usual the politicians are obsessing about public debt and not seeing the cross was caused by too much profit caused by do leverage and from that level now we're getting a bit of relief bridging up of the household sector but it won't go very solid get a bit of a boost coming out of that and then it will peter out so then what does this mean because i can bring up a chart that shows kind of what all of this debt amounts to and it's what you're talking about that households have the leverage a little bit you know of corporations so has the financial sector and the government is made up some of that difference so government has been has been taken

on more debt is as households and others have been deliberate but that means that cumulative it's pretty much up where it was in two thousand and eight it hasn't gone down very much so what kind of impact does this have on growth what kind of deflationary pressure does this exert and how much more do you leveraging as. it's going to need to happen still well if you look back historically you going back to iran in seventy seven on that if you if you got back to the level of debt and not in seventy seven you're talking about one hundred ten one hundred twenty percent of g.d.p. reduction this is a very in the level of profit yeah which is astronomical now it's. even the. beginning of the what he called a purely a period of financial privilege to the american economy to not in sixty six i said before that level you had private debt was predominantly they of finance investment was growing up at the time growing faster than income but still you know it was in the range where it was necessary debt that it's productively used once you hit sixty six it's been for jubilee ever since i'm getting more and more extreme why

what was that turning point around that time that was really when the devil had about. a slightly the why wouldn't. the fed reserve rather than i see research off on about nine and sixty six and about eighty percent or ninety percent private debt to g.d.p. ratio from that point on you had more and more debt claims on the saudi more and more speculative debt turning up there and you began to get more gambling being the usage of debt rather than productive investment the knowledge in fifty's industrial capitalist america was being wiped out by the knowledge in the sixties seventies growth of financial capital i've suffered realty began in sixty six we had the. bankruptcy at that stage and that actually not in sixty six when you deflate the dow jones the consumer price index you find that was the biggest peak in the stock market products of the two thousand paper so it was downhill from there from sixty six to eighty three it went down then the bubble began in the eighty's framer totally financially driven society so. that pretty fragility has been rising and we

now are carrying a level of debt six and seven times what the private sector had back in the fifty's . certainly for three to four times what it was in sixty six when fragility began and if we think we're going to get out of it with that level of debt. it's going to keep on coming back and getting us every time. in what way what do you anticipate that to look like going forward in terms of what growth to the other pressure if you think about the amount of debt you can carry down the well you've got the less you can consider. back when we had not in fifty's we had a debt level of fifteen sixteen percent of g.d.p. plenty of headroom you know you're running it we had three hundred three percent private sector debt back in two thousand and nine now it's to fifty percent if you don't get a bit of a dip driven revival which is feasible at the moment it's not going to take you back up to the three hundred percent level again ok because you're going to find a large part of what in for sponsor people to go into debt is the expectation of leverage going to an asset crosses now when you look in the mortgage for example

that being seventy percent of g.d.p. down to maybe thought the cent at the peak you don't going to. be five percent again you will hit the wall and go down once more so what you're going to see is like a sucker's rally in the house crosses ok told people in then it falls down again once more and i think you're going to see the same structuring lack of progress that japan has had for today ok so it's the japan thing for and then japan but they are turning japanese now we want to hear something that we have talked so much about debts insidious role in the private sector yeah and the toll of it and you have spoken we've spoken together about that you believe as you've called that you have a plan for a modern jubilee and q we wanted to do everything for the public which i'm not i'm saying that even people are going to talk lisc is now making the case for an england sign off the so it's actually becoming much more mainstream than i ever thought it would do this early on in the process because i thought you had to have years and years of softening up we have had if she had thought of use of crosses now you know it's been quite a substantial period people still thinking business as usual. i know it's so

bizarre you don't realize this is a different game so but one where bit kind of does it's interesting that occupy wall street has their own way that they're addressing this and they're you know into a really clever. what do you think of this there's brewer is actually buying distressed debt pennies on the dollar and instead of collecting it like a debt agency a collection agency what they're for giving it what you think of this it's really a big question it's exposing what actually happens when people actually go bankrupt because when you go bankrupt to a bank let's say you have a debt of three hundred thousand dollars to the bank and you and they sell the property below you still was one hundred fifty thousand well rather than charging if it one hundred fifty thousand they sold it to a collection agency for one of the thousand of the collection you think right i've got to mention one hundred fifty grams i can get out of this sucker right i will got one of the half gram of the bank go to harvard barrister will go to get the sheriff to get them just thrown out there all these sorts of costs and saw it there they might be able to sell the gauze you know twenty collection that's going to.

come out with about a twenty grand twenty five thousand dollars on the whole thing and that's what actually goes on behind debt collection actually of his activities but it starts with the lying the debt of the bank for one or two cents in the dollar that will comply will sort of saying what's real let's raise a million dollars we could buy one hundred million dollars with the debt and if you give it that way yeah it's a brilliant piece of both it's effective for the small scale for people who get risky to that why but also exposes what goes on behind the vial of bankruptcy is that we're using is really kind of the the most impactful thing here because obviously when you're looking at a consumer that's two point seven trillion dollars in debt if you don't include mortgage debt and you know a few million dollars forgiven is is really interesting and cool and innovative but it's a very small fraction of that debt so is it do you think it's more of a long term thing cause it is what it will what it shows in terms of the banking system and how it is that's that's my that's my my the reason i favored i think it's a it's

a good for those people that they got out of debt but it also shows what goes on behind bankruptcy and why what we should be really doing is giving up because we think people should pay the whole one hundred fifty grand but the banks get up by saying we'll take one of the half crown thanks write it off on our. last. levels and so on and cope with it with the record effecting on we still go because they've still got the money has because they have banking losses they can still create money yeah yeah before we go to break we have a minute we'll get into this after the break but it's interesting that this doesn't get to the kind of the issue of a debt based money system and what kind of creates a these booms and busts and expanse of credit but a new i.m.f. paper it's not actually new it's a few months old but if it's gone as cult following and so much attention it's kind of to set it up what is so radical about this why is this so different for the i am less radical about it is the song we got somebody who works in a very conventional there called on them which the cost of general equilibrium framework but he's saying banks matter thanks to money match up the neo classical

school in general says let's ignore banks that money market says you can in the last couple of them without including venture to money. if you can do with the do with the biggest for you from work but i applaud monocle for bringing back step money into the economic equation and is this part of a growing attack on the classical way that neo classical economists look at the economy we'll find out more about what you think about that after the break more with steve keen economist and author of debunking economics in a moment also still ahead investing and hostess twinkies may not be all it's cracked up to be one of the snack makers latest labor disputes mean first sellers hop in the snack on line first their closing market numbers.

i mean. here is mitt romney trying to figure out the name of that thing that we americans call a dollar. i'm sorry i'm just a guy who cares an awful lot of money you sir are a fool you know what kind of mind the terrorist cells in your neighborhood all want to give us a defeat terrorism be on the ball and the christian. can secure the support of

the. girls were going to distract us from what you and i should care about because they're profit driven industry that sells a sensationalistic garbage he calls it breaking news i'm having martin and we're going to break that. welcome back we're talking about debt and the very instrumental role of private sector debt which steve king is always so illuminating on first before we get more into our discussion i do want to bring up this graphic because we thought it was very interesting it shows the household debt in various countries and the ones in red have seventy five to one hundred percent debt to g.d.p.

ratios and you can see the u.s. canada britain spain south korea all fall into that category well australia unfortunately wasn't on that map but but steve king knows his country well and says australia is included so before we get further into our discussion we have steve king here and we are talking about the i.m.f. paper which i want to get to but why do those countries have so much household debt they have to because the financial sector persuaded this to get involved in a ponzi scheme called speculating on house prices and she is so it's a financial sector it's a monitor sector thing this the financial sector creates profit for itself by creating did and if they can persuade us to take on that they'll do it given time and over time if you go from across it's like the great depression when you get the you know the jimmy stewart soft bank of type side which my father was that classic top of banker oh yeah oh yeah oh yeah and then he wasn't quite as good looking but he was nonetheless you know the jimmy stewart top and now of course you get would you like you know a credit card with that top banking word. and so on and the best way they can get

us to take on more debt than we would take we've got our income is if we've got to believe that there's going to be raj singh process and we can make a leave it going on that's a process ok so that's you need to those economies also one of the things the banking system does to increase credit i mean fractional reserve banking is how this really all all words that some misleading is that a man ok so then what do you think about your friends if i am asked which were of this paper that essentially is an attack on fractional reserve banking and seven hundred percent it's in the reserves on the pension attack on private money creation ok this is our go down with this report and i will be the reason that conventional economists ignore completely a member crew and statement i'm all for including banks where the real thing. why did why the important story about dead in the leverage the reason they ignore that they say that will one person assets is another person is a liability and that's regarding banking as a being into majors between his and borrower so if on the cyber and you're a borrower i give you some money off of how you've got more and we cancel each other out that's not what banking actually is banking is where lending is way banks

have an asset side of the ledger and a lot of bill of these sawed and the liability side is out of plazas and if they equally grow the rest it's in the liabilities number of liabilities and circulation rises which is an increase in the amount of money and it's an increase in the amount of demand ever so that's what this reserve this is the. line that banking the paper is talking about saying that's what the banks actually do now people think what they do is loanable funds thing and if you give it to you and they say the mistrust into major is so they're irrelevant and what he's trying to what the what the objective of that particular paper is in terms of the policy recommendation of which of the chicago plan is to make banks behave the white people think that they're just being into majors between ciphers and borrowers and not being capable of creating money which is what they can do right now but when this report was described as an assault on fractional reserve lending you're saying that that's a myth that yet is a myth that the federal reserve lending itself is a myth this is one thing of myself in the modern monetary theory group of quite

emphatic about when you look at the structure of how banks do double entry bookkeeping on the assets and liabilities side of their account they can't lend reserves which have been deposited with them which is the whole idea of the money multiplier they candle in reserves they borrow from other banks will borrow from the federal reserve so that they can they can but it's feasible but they can't lend reserves that have been deposited with them by somebody walking in and whacking the side of into the system it simply doesn't work in a double entry bookkeeping accounting system law abilities framework ok if you're saying so then what impact would the plan proposed this i.m.f. report have is it a feasible plan if this reality would actually. collapse the growth then this cancel system this is one way why i am skeptical about the large scale change the financial system walked out on much more will of god willing to say we need to prevent the financial sector doing what it does which is damaging right now which is finance speculation on the process but that plan actually said let's abolish the capacity to create money completely so that any money being created be created by

the government system and then the government would effectively have a reserve into which it put money from which the banks could do the could could borrow and then on lend that money but it would be entirely if they didn't have the money in the government account they couldn't lend the money out so they would therefore be intermediaries as they currently regard it as being now one of the dangers that ossie there is that it's actually see it will this is a legitimate capacity of the banks to be able to create money and because they can create money rather than needing to do to borrow what it did in length of pipe i am between what they borrow and what they lend out. you could actually steamy their capacity to be profitable now on it all in favor of profitable banks not in favor of profitable parasites that's what they are right now with the shadow banking system and so on which is they came out bigger than expected to be you know so that's an important part to look at right you can't look at the end mountain of

debt without talking about the liabilities that shadow banking and how you are there for those laws what do they actually find as the shadow banking of shadow banking actually financed true industrial capitalism ready to be a beneficial thing but shadow banking finance the shadow capital what you see them doing is financing mergers and acquisitions type share buybacks speculation on property leveraged buyouts all that sort of nonsense which doesn't add to the productive capacity of the economy and frequently actually destroys the productive capacity so the shadow banking system saw as a sort of a secret call me not a healthy one so the fact that it's increased more then then believe. it's a bad sign and i have a sick economy and if you go back to the nineteenth not in fifty two when the fed reserve began recording the flow of funds data at that stage the the borrowing of the financial sector from the banking sector was equivalent to two percent of g.d.p. will that rise to one hundred twenty percent first by factor of sixty before the

cross is really hit us and then it's now down to about i think about about not one hundred percent of trade a pay all financing speculation that said i i ok well that's enough to make your head spin but before we go i do want to give you a minute to tell us what the heck is going on with your university and why is this change your view perhaps i'm government's involvement in the economy always being. the only people i regard as potentially is more than all the bankers the politicians so i'm not one that believes the government's going to be this beneficence external authority i would rather have the government providing a cash flow when the private sector doesn't do it but not trying to manipulate and fondren markets and what they've done back in australia is try to manipulate and the market which used to be regulated and think well let's deregulate because we're all favor of competition these days and less regulation the more competition a very linear was thinking and what they've done is they've told the universities and in my country that rather than having a limit on how many places like an offer offer as many as you like and what that

actually has done is rather than students saying well i think i might get enough marks to get into sydney university from not sure so all put one bit into sydney but i'll put a couple of bid for u.w. with university of technology and you know. griffith university right all right yeah they're saying everything in sydney and what has happened as a result rather than getting say one hundred students saying they want to do economics with us as a first bid we've got twenty and as a result there's a shadow like i don't know if i were at the department down completely trying to enhance competition it's actually eliminating competition and on top of that as well of course my department is one of the very few you can count them. the hands of you know fingers of one hand how many of the poppins teacher pluralist approach to economics around the planet will one of them we're about to go. ok well i know you're a rock star so i'm sure they'll be a huge demand for you but as far as the kind of this mixed view of really what happens with certain regulations and the government's role it's

a really interesting insight about because reality is that all the students won't get into those great schools in sydney and there will be students for your program but by then it'll be shuttered and they'll have to go back and with selling twinkies selling twinkies if they exist. all right will steve thank you so much for being here it's always such want to hear he's an economist and author of debugging economics. let's round up with loose change before we go dimitri. we need an opportunity to talk about twinkies i've got there were something after an ongoing labor dispute hostess brands a maker twinkie announced that it may be going out of business but now maybe they

are negotiating and it's going to work out but anyway it's leading many to wonder about the future of the cream filled treat. so you know that's your brother or sister. once a troll what's the next question about that sort of question about you know there's . if you could get me you think you'd be hard to support before the talk about this is set up with you people are the worst but the worst of all that is brilliant and chris christie. just spawn so much i mean there's all these local news reports about people hoarding tween there are people trying to hawk them on. and there was one box posted on e bay boxes are up for auction one full box starting bid of two hundred thousand dollars ok you know we don't know what the fate of twinkies is evidently the bankruptcy judge is kind of working out a negotiation between labor and twinkies but that's part of this issue. but between he could find

a buyer even if they do go belly up my question is who cares i'm twenty eight they're going to last forever anyway i think these things are made out of like you know that's what i looked at i looked at that and i heard that they don't last forever actually i don't want you to walk or even a junk scientists said that well that's why you're doing exactly what i was hoping you would which is think these are there from our producer also in koch not on our show she was she was on the lawn of show there are you here for a while and they've been here past what i've been told is the exploration of these things so is that right take a boy and let's see how do you know if. it was going to grow through it. you could have let you know we don't have a problem the rest of us are here. so why hasn't he like it now that was the deliver seven dollars for a box of you know what actually is going to be two thousand dollars i mean this is this is the i'm really hoping that we give the notes if you're under two hundred so you don't you know when i was understands prices and there were two hundred thousand dollars called the opening bid or you know again i mean that you know you

ask anyway. if there are any beds whatever previews are going to be around this thing but will they plan to find a buyer and all of this but i just think it's interesting too that the bakers were going on strike and i didn't realize these were baked i pictured them coming out of a test you were probably big you're exactly right because i know there's no where you're going on screen they're not going to give. me the burgers they're a big big. ceramic tiles get big so they're probably because like that they're like a baker's and they want to see this going to weekend edition i want to give it we're going to follow through on the. traffic controllers. there's some various things in twenty games and all i'm saying is only very high when there's distraction folks we have other stories to do i want to hear for human rights are going to be all right i got all of which are some morning hearings and some of those rides ok we'll leave it there i've got a twenty to finish that's all i have time for thanks 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 you can go like our facebook page tell us what you think about twinkies give us feedback on any show question you misstate you tube dot com slash capital account or on hulu and have yourself a great night. you know sometimes you see a story and it seems so 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 parker welcome to the big picture.

more news today violence is once again flared up. these are the images the world has been seeing from the streets of canada. trying to corporations rule the day.