good afternoon welcome to capital account i'm laurin the store here in washington d.c. these are your headlines for her to sit on her twenty seventh two thousand and twelve u.s. cyber monday sales top records is online shoppers reportedly shelled out thirty percent more on those web deals than they did in two thousand and eleven using their phones and tablets to buy stuff is this a good thing for an economy in the doldrums or does people buying stuff at wal-mart that was probably manufacture abroad really help we talk to peter schiff and the white house announced president obama will hit the road to sell his plan to avoid the fiscal cliff to the public c.n.n. reports while senate majority leader harry reid today said he is disappointed with

the little progress made in recent debt talks according to the a b c now we know the u.s. public debt is just struck divs where the dollar collapse people like peter schiff have called for we asked them and who does warren buffett think would make a great treasury secretary charlie rose asked. the point to jamie dimon service treasury well i mean you don't actually i think you'd be terrific because i think he i think he if we did run into problems with markets i think he would be the best person you could have in you know the old what are we in an alternative alternate universe the london whale commander in chief would be a great person to graduate to the treasury oh my let's get to today's capital account.

this is after you that the us has been on printing money expanding the fed's balance sheet making money free since the financial crisis how some pundits predicting paper inflation but a funny thing happened on the way to hyper inflation the u.s. dollar index instead of collapsing has gained value since two thousand and eleven instead of seeing interest rates spike we've seen u.s. treasury yields collapse by over sixty percent since the two thousand and eight crisis to a new record lows and we've seen these trends in the face of a public debt that continues to mount and a credit rating downgrade in the summer of two thousand and eleven as we were beginning to be loyal to sleep by the constant hum of fiscal cliff warnings we thought it was worth asking what ever happened to hyperinflation we asked peter

schiff c.e.o. of europe pacific capital and author of the book how an economy grows and why it crashes what about hyperinflation because i just you know this is something that you have been hammering on since two thousand and eight and i know that you're saying you can't predict when this is going to happen but why haven't we seen that happen well you know i guess i still say the hyperinflation is a worst case scenario so i never say that we're going to have it for sure we will have that for sure if we continue to do what we're doing now so which is why you mean that the fed printing money is that what you're basing that on the fed printing money and government growing and trying to keep interest rates at zero if we keep doing this we will eventually have hyperinflation so my bet is that at some point the specter of hyperinflation is so enormous and the dangers are so apparent that will that will change but before we get to that point we're going to have very very high inflation i mean much much higher than anything we had in one

nine hundred seventy s. you know whether or not you want to consider that to be hyperinflation if inflation is thirty percent a year or forty percent a year. you know technically is that hyper inflation probably not it's pretty damn high but i think it's going to get that bad before we actually have enough pressure to do something to turn the situation around and believe me by then it's going to be very difficult that would have been much easier if we did it sooner of course because then it's too late i mean nobody wants to deal with that situation then but what about the role of the banking sector because could one of the things that you're missing be that the vast majority of money isn't created by the federal reserve but by the banking system which generates loans extends credits and that they have been doing this for the same extent that they they did before all the banks are extending a lot of credit thanks to the fed they're extending it to the government they're extending it to buyers of real estate who are buying homes or refinancing their mortgages there's a lot of money being created a lot of that is just going to non productive purposes thanks to the government thanks to the fed but i want to just get back to the the idea of inflation and why

we haven't seen more because you're saying you've been talking about inflation for all these years and where is it well i still believe that there is a lot more inflation then is generally perceived or knowledged by these statistics by the politicians i've been talking about this. that fox news did a presidential poll that they did a couple months ago where they polled over twelve hundred likely voters registered voters and they asked them what their primary economic concern was and by an overwhelming margin they answered inflation so much more than that unemployment and i hear that i mean i need to do that shops can see that prices have risen and many people could argue that the government's inflation numbers are not accurate but this still isn't that one nine hundred seventy s. type of inflation or zimbabwe type hyperinflation well there's a big difference between zimbabwe in the one nine hundred seventy s. but never seen either i mean we're not seen either of those i mean sure higher inflation that may be somewhat then the reported by the government but not the type

of inflation that it seems you've been calling for if you were to measure consumer . rises over the past several years using the same methodology that they used to measure consumer prices in the one nine hundred seventy s. the inflation that we're seeing now will be down much lower than what we saw in the seventy's and by the same token if you measure the inflation in the one nine hundred seventy s. the way we measure it today you would find that there was very little inflation and i nine hundred seventy was either so it's not an apples to apples comparison but the other reason that the inflation hasn't already manifest itself in even higher consumer prices than the ones the government is hiding with you know phony numbers is because of the accumulation of dollars globally because foreign central banks are absorbing so much of the inflation that the fed is creating that money is not bidding up the prices of goods it's bidding up the price of treasuries are the

rights of movies back to security so we're not seeing the inflation's impact fully on consumer prices yet. our creditors the people who have been buying bonds are going to want to get rid of those bonds and buy real stop and read all about inflation is going to hit the united states going to kind of like a tsunami right i mean look at her look at the u.s. is borrowing costs i mean you hear all throughout a chart of ten year treasury yields i mean we've just seen them really decline so why despite the u.s. has continued borrowing despite the downgrade of the u.s. credit rating last summer i mean how do you explain the treasury yields are so low i mean i understand that eventually people may not want us data u.s. government debt but that day seems far away look at a yield like that we don't know how far away that day is it's a mania i mean it's crazy that's what it is in fact the united states is borrowing today at a much lower rate that it borrowed ten twenty thirty years ago despite the fact that it's far less credit worthy than we were ten twenty thirty years ago you know

we were a better risk bad then yet it cost us more to borrow you know it's just like the mentality around the internet. bubble around the real estate bubble fundamental you can't look for an explanation it's your rational irrational exuberance it is a mania it is a bubble but clearly argued that also if the us wasn't buying treasuries if the fed wasn't involved in the bond market that bond yields would actually be lower. no that's impossible the fed the fed is the biggest buyer of u.s. treasuries so if the biggest buyer wasn't there and would have sights is going up but let me explain let me explain let me give you let me let me give you let me let me make the case so one can posit the fed's actions in the bond market are an attempt to prop up asset prices across the economy stocks other things and if the fed wasn't doing this and wasn't using the bond market to do this that asset prices would collapse and in this situation and deal leveraging people would go into cash and they go into cash equivalents like treasuries which are cash equivalent and

people would pour in to a greater extent than now and actually push down even further you know i don't i don't think that would happen i think that one of the assets that would be falling under that scenario would be bonds themselves and i think that's what would be the stock market would be the collapse and bond bond prices and the corresponding increase in interest rates it would be rising interest rates that would undermine the president out of you of stocks and of course you also have to look at the impact that rising interest rates would have on the u.s. treasury if the fed allowed interest rates to rise the u.s. treasury would be and is forced to be would be in a position where they had to default and so i guess i really can't see a big rush to treasuries when the government is defecting because remember in order to avoid to fail we would have to have enormous cuts in government spending i mean what we're talking about right now for this so-called fiscal cliff is tiny compared to the amount of spending cuts or tax hikes that would be required to service the

debt if the fed stopped buying and let interest rates rise but what is there another factor in this that plays a role which is the dollar is the reserve currency i mean even if the u.s. prints to infinity at the end of the day the u.s. isn't zimbabwe it's not argentina there is. the dollar's role in the globe it is it's very important to many different countries that don't have a replacement as of yet so it doesn't all of that kind of complicate an argument that's like oh the u.s. would default on its debt but if we do play into infinity then we will be on. we can't print to infinity and so i think the perception is is that we won't do it i think that people feel that eventually the fed will do the right thing that they they will withdraw their liquidity when the time is right so i think the bet is that we're not going to print to infinity that the fed wouldn't do that but i think far too few people perceive how expensive what the cost would be to withdraw this liquidity that is the problem because that is what the economy depends on it's

a phony recovery it's the economy is only recovering because of the cheap money because of the q.e. and if the fed were to try to withdraw the liquidity it's like pulling the plug you know and the economy is going to die i mean it has to just as phony we need to get rid of it so we can have a real economy arise to take its place but i think people are underestimating around the world just how important cheap money is to our borrow and spend economy and they're overestimating the ability the fed to to withdraw that liquidity and have the economy continue to grow on its own it can't you know the growth that we're having now is not legitimate growth it is simply borrowed money that we're spending and we're counting that as economic growth the fed i believe knows it i think that's the real reason it keeps interest rates so low is because it knows the economy will implode without it it knows that the only thing keeping the banks from failing is cheap money the only thing keeping the real state a cup market from plunging is cheap money the only thing that it that allows the

government to maintain the illusion of sovereignty is cheap money and the idea that the cheap money propecia away but at some point always fasts ideas and you know phony opinions are going to are going to collide with reality and people are going to wake up you know it's going to be like the emperor's new clothes somebody's somebody's big not not me but somebody substantial is going to have to say that you know i don't see anything the emperor is naked and then when that happens that thats it. i would have to wait and see when that day comes but in the mean time that was peter schiff we'll hear more from him after the break also still ahead so we really trust warren buffett suggestion to make jamie diamond the head of the he was treasury someplace like a suggestion from the twilight zone but we'll discuss that in tonight's loose change first your closing market numbers.

well. it's technology innovation all the list of bellemont from around russia we've got those huge earth covered. british stock. market. find out what's really happening to the global economy with. the global financial headlines. mission and free credit a should be free. for charges free arrangement three. free studio type free.

old free broadcast quality video for your media for free. welcome back yesterday was cyber monday and online shoppers while they turned out they spent thirty percent more on cyber monday than last year according to data reported by the wall street journal now retailers were trying to sustain a thirteen percent gain in total thanksgiving weekend spending reported by the national retail federation so is this all a good sign for an economy in the doldrums the o.e.c.d. did after all just cut forecasts for u.s. growth next year from two point six percent to just two percent so is this a good thing all these consumers spending money or does it not do much since chances are many of the goods these shoppers shelled out for on sale were made in

the u.s. because of peterson had to say. consumption is the reward for economic growth or does it cause growth it's production it's because all this stuff was manufactured that we get to consume it and you're right most of the stuff that people bought. black friday or cyber monday was produced outside the united states and so foreign economies generated those bad production and they you know basically sold it to us so the world fortunately we're having to borrow the money to pay for it but also i think if you look at some of the deals that were being offered i'm not even sure how much money a lot of the retailers actually earned because in order to get americans to buy stuff they really slashed prices to the point that they might even sold some stuff at a loss how much sure but they were really giving away the store in many respects so you know they got revenues but did they actually get profits i mean it still remains to be seen yeah and deals are not and the reality is americans can still

continue to buy their stuff on the cheap in part because the dollar has remained strong why do you think that is i mean you've been calling or have called for a dollar collapse in the past oh you know it's only strong in a relative sense i mean if you compared to the euro now the japanese yen has been falling if you look at the dollar compared to good old it's been extremely weak certainly over the last decade now over the last few. months is weakened a bit but it hasn't collapsed and i think it's only a question of time before that apennines i can't tell you exactly how much time but i know it's going to happen i think it's going to happen relatively soon and i also believe that the world looks at the dollar kind of as the best of a bad rod when in reality it's the worst of that bad lot and so i think that we unfairly benefit from this false perception and i think it's more of a self perpetuating situation it's only because people perceive the dollar as safe that they buy it as

a safe haven but it's not really based on on fundamentals it's just it's just the reputation but it's not deserve the main maybe twenty or thirty or forty years ago that was the case but that's not the case any longer and i think when perception finally matches reality you're going to see the dollar not only when we can get real money but weak against other feet out alternatives that i think even though those currencies are flawed i don't think they're as flawed as the dollar here with something like the dollar is strength relative to other currencies and the perception that the dollar's a safe haven even though fundamentally it may not be doesn't that perception matter as an investor because if you're betting on a dollar collapse right now you're going to get crushed the dollar index has been up since two thousand and eleven so when you tell average people well the average person isn't betting on a collapse right now i mean no one is buying you know options that expire next month you know puts on the dollar index or you know maybe some people are best not what i'm advising people to do so i'm not telling people to bet on

a dollar collapse tomorrow i'm just telling people to prepare for a dollar collapse because it's going to come whether it comes tomorrow next month next year you know i'm not smart enough to know that but i can see it coming and know that the only way to prepare for it is to do it as early as possible because if you don't do it too early then you. on the risk of doing it too late of course you can't do it too late you know you know once the train leaves the station if you're not on it you know you're missed it are there other factors too though that people need to pay attention to that can create dollars strength and keep it there though for example something you talk a lot about is debt people need dollars to pay debt so so there is a reason why people would have demand for dollars rather be demand for dollars well but i mean it but we have you know we have to borrow all these dollars and a lot of the debts owed to millie can't be paid unless we print more of them

because we're not you know we're not earning the money we just going to have to create it out of thin air but the perception is is what's driving everything and if you think back to the days of the dot com boom when people were chasing internet stocks nobody cared about the the the weak fundamentals it didn't matter that the companies were losing money it didn't matter you know what their what their business model really was it was just they were a dot com stock and you had to buy it on faith because everybody knew that this was a revolution and it was you know a cyber land grab and you just had to be on the be there and generate revenues and eyeballs and clicks at whatever cost and people bought this and they were buying these companies that ultimately never had a chance of making a profit but it didn't matter because it was the it was the mentality it was you know what people perceived that counted and and as and then as the stocks were going up even some of the doubters who weren't buying them early on because they

recognized the fundamental flaws in their business model that them anyway because the stocks were going up people were making money on paper even though the businesses weren't making any real money you know operating but abu sada perception changed the illusion went away and the bubble burst and the stocks collapsed because we compare this to another currency peter we saw with. and began is performed tremendously well despite some public sector debt expansion japan's debt is more than two hundred percent of g.d.p. so what about other currencies how do you explain that well if you the japanese have a lot of dad but i still think that if you compare apples to apples we're in worse fiscal sapient you know and the fact that the yen has strained thin although it's not strengthening now there's a lot of speculation that they're going to print a bunch again i don't know if that's actually going to happen or not so maybe the market will be disappointed but the fact that the dollar has not been able to gain against the yen shows you how weak the dollar really is. there you go peter chef

author and c.e.o. of euro pacific capital. well there probably is change there's a lot to talk about today dimitri you heard of the top of the show we played this sound bite of warren buffett saying jamie diamond would make an excellent treasury secretary. are we looking at a different planet i can't imagine a worse suggestion so i mean i'm glad that he said it because everyone that has been following warren buffett since at least two thousand and eight knows that this is his m.o. his way which is he would say the right paulson

a blank check not only did he say all right there was a so then he goes on charlie rose to do this that he did it with charlie rose back on october first two thousand and eight right before tarp after they originally didn't pass tarp and warren buffett gets out on national television i can all call him inside those panic because he had just bought some so preferred shares in goldman sachs right and also fargo all that stuff so he's out there with charlie rose and he's talking about how they will agree as you know like hank paulson the swell guy there's no one i'd rather have you know leading the treasury department we should give pretty much a blank check to there's a quarter got now a blank check to a guy like hank paulson because he's got quote the nation's best interests at heart so this is a load of baloney and warm up the ask you this because warren buffett i think proportionately owns j.p. morgan shares and he said that at some point recently so do you think that he's trying to suck up to jamie dimon with a statement like this or do you think he wants jamie diamond out of people you were . when i was at morgan i don't know maybe you because your friends are you know

that they're crazy he probably really he probably really admires him as a. as a as an arc kleptocrat i mean probably respects jamie diamond's ability to extract wealth from the economy through the banking system he's an adroit at it ok and he was i mean i was exceptional he was what's his name's part of the city so but the one thing i want to point out ok so not only in our terms would be horrible i mean he was at the helm of j.p. morgan where he oversaw that huge london whale trading loss being kind of the most notorious lee you know messed up c.e.o. of the year and that even can be awarded but with timothy geithner at least back in the day when that when the ai g. counterparty news came out to me tree i remember going to hearings where members of congress were asking you jamie to our excuse me timothy geithner why shouldn't we have you resigned you know why should you even have your job and neil barofsky in his book of when we interviewed him he said that congress was some of the members were good allies for him in fighting the fed when he was the treasury when he was

sig tarp but look what happens when jamie diamond goes to the hill and sits before members of congress. you're obviously renowned rightfully so i think is me one of the most you know one of the best c.e.o.'s in the country for financial institution jim is this it's a blip on the radar screen and i really appreciate you voluntarily coming in to talk with us but i would like to come away from the hearing today with some ideas on. what you think we need to do. what we maybe need to take apart that we've already done to allow the industry to operate better where you gamble and i would you lose the house ones. in my experience would invest. and this isn't jamie diamond was in trouble and they treated him that way all these guys look i mean think about what these guys are these are politicians they spend their whole career asking for money so they can spend the rest of it running for office all right so let's just go in there for money bags come to congress and just

. by the way come on to them it was like mr tea party are mr tea party whatever like that and now he's saying tell me how we can help free your chains or you can go rampage more i now let's move on because a day wouldn't be complete without talking about the treasury and the fed have you ever heard about the fed challenge here is a q promotional video if you have not. been challenged provide opportunities for students like luke that were the units of. the federal reserve bank of my research and student training. received the only competition and so you can actually get the real understanding to be able to articulate what the american economy is about and what the federal reserve is about . so this is what i have high school and college students act like they are ben bernanke and try to speak in his language and give a ben bernanke he asked types which is ironic because the fed's issues are with

communication one of them today was the one thing annual national finals of the college by challenge you said that was a cute video tell me it was kid about that because that was horrifying to me but you tell me why that was to a mom all their kids get their kid to me there's nothing cute about kids going in i can like court jesters in front of a despotic marks and the the the the the the priesthood the monitor priests yeah look you know what i saw as it was very hurry come i want to i want to go to the last don't really know if we have the last or second this is nuts this is actually kind of crazy is just think about it you actually bring people in drug indoctrinated youngsters into your into your like mecca and you have them perform as though they were you where else does that happen you don't know one company on earth where the management brings in people to act like them that's only unlike the most despotic in the world where you have like established like authoritarian rulers there like to learn the double speak young you've got to get in grain the only thing going so we can only do know we're missing is

a pit full of tigers the snakes to throw. descendants ok fine well maybe you can arrange that it's not the sound of. this i'm going to hear at all to major i just wanted to touch on this because in trade has said that americans can no longer bet on in trade because they see it suited them and trade basically is the new swiss banks they say we don't want american customers we don't want to deal with american regulations so what's going on with all the bloggers during a presidential election where they're going to in trade to see what's going to happen they're going to start making more sarcastic annoying tweets i don't suppose she ever will watch the ball and i well know you're going to take your word for because we're out in time. for out a dime thank you for watching though and make sure to come back tomorrow and in the meantime you know you can follow me on twitter you can like our facebook page you can watch us on you tube comments you can see is an h.d.d. augur hulu and for everyone here thank you so much for watching and have

a great night. it was not the military as army announced today it signed a new contract with a unit of the huge contracting. it was not the alteration to secure and rebuild the devastated country caliber company field touch for years for its contract work in iraq.