that may create a potential regulatory cliff for investors threatening that they may fall off unless they seek the safety of government debt i'm talking about changes in f.d.i.c deposit insurance as just one example and while investors may be perched on what we're calling a regulatory cliff of sorts big banks are able to crawl back from the ledge with the help of timothy geithner's treasury geithner is making some major moves before he heads for the door and one which we've seen recently is the final word that foreign exchange swaps from dodd frank derivatives regulation are exempt for context according to bloomberg big banks like u.b.s. and deutsche bank lobbied for this exemption and here is a sense of why foreign exchange contracts were the second largest source of derivatives trading revenue for u.s. bank holding companies in the second quarter the company's reported three point one billion dollars in revenue on trading of foreign exchange derivatives foreign exchange swaps and forwards are part of a four trillion dollar global daily market for foreign exchange but is that really

all because actually it could be more than that our guest put together this chart showing outstanding over the counter derivatives take a look ok so making up the largest swath of that is interest rate swaps three hundred seventy nine point four trillion dollars there but does this exemption that timothy geithner gave to forex swaps essentially exempt interest rate swaps to now for ex wops and forwards are a thirty one point four trillion dollars but did timothy geithner just essentially grant an exemption for more than four hundred trillion dollars and over the counter derivatives making up sixty four percent of all outstanding derivatives well joining me from miami to explain is bob english he's contributing editor for a zero hedge guess contributing editor for economic policy journal dot com and he's going to help us sort all of this out so first of all bob thanks so much for being in studio in miami today thank you very much it's great to be here again it's great to have you. let's back up to what i was talking about kind of in the beginning. of

my intro about kind of a regulatory cliff that may force investors into government debt so let's kind of look at what could go into this so we have the f.d.i.c unlimited insurance on non-interest bearing transaction accounts that is set to expire december thirty first two thousand and twelve now bank of america had a report that there had reported on saying that there's about one point six trillion dollars in deposits that fall under this umbrella so do you think there will be an impact on investors from this change and what do you anticipate it to be . i think you'd be naive to think that there's not going to be some kind of some kind of effect especially when you consider the amounts that we're talking about one point six trillion dollars that was previously guaranteed by the government no certainly not going to be guaranteed by the government so what are people going to do with that. a lot of that money is probably concentrated in too big to fail banks and maybe some people are content to leave it there but i think a large amount of that is going to be headed for short term treasuries and t.

bills maybe money market funds and so it's going to put downward pressure on the already near zero yields that we're seeing right now so another version for uncle sam and you mentioned money market funds in there and actually we've seen some failed attempts by the f.c.c. to impose new regulations on money market funds post-crisis they have not been successful but coming up the soon the ball is going to be tossed to another agency this is this is a group that was set up by dodd frank and it's called salk and january eighteenth two thousand and thirteen is when public comment ends on new proposals that they have for money market funds why are they proposing what could happen and what do you think the impact would be. well yes it's unfortunate for ms shapiro who just departed the c.c. that she wasn't able to get the reform she wanted maybe it's better for the money market fund investors and maybe not so the ball is essentially been kicked into the

court of the financial stability oversight council that you mentioned and they are now in charge of implementing their own reforms if the f.c.c. does nothing over the next few months so the most likely scenario is that we're going to get some kind of floating net asset value for money and money market funds with that means as me historically money market funds have been held pegged at one dollar and what we would see now is they could rise above or below that and it would be very easy for some of these more conservative money market funds to break the book in the early days after this announcement if they're not guaranteed in some way aha so the concern would be that money market funds would break the buck what impact do you think new regulations would have on where money market funds are invested well again it's not that dissimilar from what the f.t. i see is doing with the expiration of this on limited guarantee on demand accounts and we're going to see a group of investors we don't know how big it's going to be but the money market

fund industry is about three trillion dollars or so probably a decent percentage of those investors or want to go somewhere else that's a little bit safer and maybe we're going to see that flight into t. bills once again once again another point scored for uncle sam and then basil three capital requirements now we've seen these postponed they were supposed to be going to be implemented at the beginning of next year and now it's been pushed out possibly six months but does this play end terms of impacting the kind of. investments that banks will hold or increasingly hold. definitely the rhetoric about basil three has been they want to make the banks safer whatever that might be and they're trying to increase the strength of the regulatory capital that means the investments that the banks have and a lot of that is going to be forced into more safe investments and by definition

the people who are forming these definitions say that safe investments are government bonds maybe in greece and portugal and spain but definitely the u.s. the u.k. germany etc so it sounds like there are a number of tailwinds for u.s. government debt do you expect treasury yields to just continue to have really low record lows that are being set next year in two thousand and thirteen and also is there any element of this that you think is intentional. to your first question i think it's going to help keep you down somewhat we can't say for sure that there's not going to be some cataclysmic event that's going to precipitate flight out of the dollar or scare out of especially longer term bonds of the u.s. but in the lower tenors say definitely t. bills and maybe up to two three five years these bonds are definitely going to have . some support from all these new measures that are coming into play and as to the

second part of your question it's difficult for me at least to think that some of this is an intentional if you look at japan and i know the west has looked at japan for years they have this incredible debt to g.d.p. ratio and a lot of people have been made foolish over the last ten years predicting their imminent decline so and they're a culture which the local population saves a tremendous amount of their money in the government bonds and so i think some of this is forced you talked about the regulatory cliff you could also think of it as a forced savings cliff where people are being herded into government securities in . forced government savings cliff all of them to uncle sam and to give a little credence to why the treasury might have been tipped off to be worried about this i mean let's look at the issue of foreign exchange swaps with timothy geitner just gave the final word that he is exempting from dog derivatives regulation the new ones and look at this from from j.p.

morgan's complaints are concerns about volcker rule they said in their letter foreign exchange swaps and forwards are the means by which foreign investors convert local currencies into u.s. dollars so that they can purchase u.s. government debt obligations as such liquidity in those products affects liquidity and u.s. government debt obligations that we believe may reduce liquidity in those products and that in turn may reduce liquidity and u.s. government debt obligations so there is kind of a banking bankers case saying hey better exam these are roles the ability in the liquidity in your debt is going to dry up. yes and it's pretty interesting that it almost recollects the so-called paulson's bazooka when he was threatening that the entire financial system would collapse if we didn't in the tarp of course he ended up using tarp for different reasons than he had stated at the time but if we with respect to the specific treasury decision by geithner to exempt foreign exchange

swaps and forwards the proposal was actually put into place just in the air in april or may of two thousand and eleven and back then they gave a totally different reason somewhat specious saying that these products settle differently than other derivatives but when it comes to j.p. morgan we find out the real reason which is if you don't exempt this foreigners are going to buy our debt and you're going to have problems and not typically or we don't know about foreign exchange swaps if they're going to be exempt from the volcker rule right that that is correct now the volcker rule is a little bit different animal that has to do with the proprietary trading of banks but a very similar proposal is being made to exempt these same products in the volcker rule which means that if it actually happens that banks could trade in foreign exchange swaps and forwards and as will probably get to some other products yeah ok and also they have a little bit more time to possibly lobby for these exemptions because we know that the volcker rule final draft is delayed yet again. the reports at least so let's

talk about this exemption for foreign exchange swaps and forwards because is it is simple as exempting what according to your chart from the b. i asked numbers which we can bring up again as a simply a thirty one trillion dollar outstanding derivatives market or does this impact more broadly interest rate swaps and without getting into too much detail how does it. sure going back to the april may original proposal by by the treasury bruce crafting you also blogs zero hedge came up with an excellent example that showed step step by. how foreign exchange for words can or basically interest rate. and you can create synthetic interest rate swaps from these instruments so instead of just a thirty billion dollar notional product we're actually exempting about three hundred eighty billion for a total of four hundred ten times four hundred ten trillion should be true enough

billion and that is a huge number so essentially timothy geitner in his final out there because we know he's not going to stay and we had a really whole areas plasma graphic that you're going to love bob of him kind of as these are in front of the treasury but essentially he just to be clear exempted arguably interest rate swaps that the largest swath of derivatives from derivatives regulation sure and just to be to clarify most of dodd frank is still going to have it's incredibly squelching effect on the financial community it's going to make it harder for smaller players to enter but this is an example of how the crony banks to get their way with the friends of geithner at the end of the day there you go and when we get back let's talk some more about some a guy in his buddies were to talk a little about ben bernanke he after the break with bob inglis contributing editor for zero hedge gas contributing editor for economic policy journal dot com and

still ahead is he an accurate gauge of america's economic health we think it's time for a reality check and google's meddling around with your privacy again we'll explain their latest business venture and change but first our closing market. if. it's fifty fifty to sixty it's easy to shift to. meet.

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all right let's switch gears from the treasury to the fed our guest has been decoding for some fed speak regarding inflation targets for fed chief ben bernanke he and his vice chair janet yellen what does rhetoric like this translate to let me give you an example of something janet yellen said recently in a speech and i paraphrased a bit but she said to put it simply if two percent inflation is the committee's goal two percent cannot be viewed as a ceiling for inflation two percent must be treated as a central tendency around which in place ten fluctuates all right so what does that mean and why should we care and does this represent some kind of impact the major thing that we need to be thinking about we're looking at fed policy let's ask bob english because he is the one who's been reading these tea leaves so bob the the fed tealeaves you've been reading the fed speak you've been decipher and with regards to how they're talking about their inflation target. what's the translation why does it matter well first yes you should care everybody should care about price

inflation but a little bit of background here the fed does not have an official inflation target that it must meet but there's an unofficial one of about two percent and that's talked about quite often but there's been a change in the rhetoric by bernanke and some of the other fed members going back to at least what we've been covering the economic policy journal since about november two thousand and eleven hinting that there might be an official target that the two percent might be raised and janet yellen was giving some more clarification when she spoke a couple of weeks ago that instead of looking at the month to month rate we're going to have to look at a central tendency which could be interpreted as an average median. basically if the fed sees a spike in c.p.i. or c p it's going to it's could easily discount it and so we might have a three to six month horizon over which the fed will be basing its decisions on.

what that means is it's going to broadcasting that it's going to be reacting slowly to price inflation so that should be a concern to all of us what do you think this will translate to or could translate to in a way that would that would make me actually concerned about this. well let's say the c.p.i. comes in two percent one month and then it's three percent the next and then back to two point five but then three point five something like that might not necessarily trigger a fed action to rein in its easing measures or quantitative easing what we might see is the fed just waiting another few months to see what happens and in that scenario it's easy for things to get out of hand before the fed actually acts things could get out of hand in the fed wouldn't do anything about it people do think that the fed is going to do more though nonetheless we keep hearing this and front page on the wall street journal today is that stimulus is likely in two thousand and thirteen bond buying is expected to continue and the conjecture is on the form or function it could take. well the operation twist is set to expire at

the end of the year and that's where the government or the fed sorry is buying longer term treasuries and is short and is selling it short of david treasuries and the speculation is that the flow from that let's say it's thirty or forty billion dollars a month is going to be matched by a new program of outright purchases the argument could be made that twist is somewhat sterilized but these will be outright purchases meaning that there's going to be new money hitting the hitting the at least the banks reserve accounts so the they could purchase new treasuries but i suspect that they might actually be purchasing more mortgages and this kind of ties into the wind down that we're seeing with fannie and freddie right now the treasury has directed that they wind down their performance at fifteen percent a year instead of ten percent and that decree came out a couple of months ago so who's going to buy all these extra mortgage backed securities that are coming on to the market it would make. sense that the fed

itself would. find all over addiction to and on bob english we've got you we've got ben bernanke and janet yellen as dr evil and many me behind me and that. is where we're going to end on thank you so much for being on the show today bob thank you. all right we have a reality check tonight because today we saw the headlines touting the news of u.s. g.d.p. growth revised upward to two point seven percent that's up from the initial estimate of two percent which we saw last month ok great news right well there were some calls yacht's in the revisions that were widely reported but we ask what does this

mean at all this idea of g.d.p. as a gauge of the economy's growth and health well maybe not much if you consider what bill bonde or told us a few weeks ago. the g.d.p. numbers are to be the biggest frog in economics you know it pretends to tell you people think it says are you getting better or not is a g.d.p. growing or is it not but you know if i pay you to cut my log and you pay me to cut your log you know the g.d.p. will go up but is anything different anything at all. no if you mo mylan imo years nothing has changed in terms of really the economy and all the commerce department g.d.p. numbers are revised at least twice and sometimes these are visions can be pretty large for example in the fourth quarter of two thousand and ten the final report showed three point one percent growth when the numbers were later revised in the summer of two thousand and eleven this quarter changed to two point three percent growth it's pretty sizable and it also depends on who is calculating the figures

and based on what you see each quarter shadowstats for example releases its own g.d.p. numbers this number is supposedly adjusted for what john williams at shadowstats thinks is an accurate measure of inflation and as you can see his view of g.d.p. he hasn't negative territory this is the official one so but perhaps more meaningful is to step back and think about what is worthwhile in an economy as robert f. kennedy so eloquently did at the university of kansas in one nine hundred sixty eight and we should consider this. no product. and think a red avatar an amulet of clear or a way of carnage with the growth of the product is not about the hope of our children a problem they have never had paid for the joy of their play. eloquent words to end on so as many look to g.d.p. is an indicator of health for the u.s.

economy recall that economic wellbeing not to mention a distinction between sustainable and malignant growth is not what g.d.p. is intended to measure and that is a reality check. let's wrap up with loose change dimitri google has come out with a new worldwide alternative reality game called ingress the games designed to allow people to move to real world scenarios while collecting pockets of energy through their android phone here's a sneak peek. i know that many tools will be needed to fight this one you just have to know where to look and what you see order. matter into our world and there are.

certain sections. i don't even really get it and the game hasn't been profitable to google so why i promote it. to collect data it's google's way of collecting data not only does the game like that about what businesses you visit but it also requires a constant reporting every g.p.s. location and it could help the mega search engine fill in empty spaces in its mapping data information is the name of the game do you think people are that big of suckers that they don't realize everything that they're doing and that some kind of new venture like this is can help or so that they have i will tell your motive but you know what i was like thinking about this. when i began to use social media location to location based applications blah blah blah was very hesitant nervous but what always happens with the knowledge is that you get so used to it you just become accepting and part of that isn't just convention it's also usefulness this

stuff is really useful having this information is very useful one of the benefits of the data they're collecting is you can find let's say routes that are behind seven eleven to get you know like or through a forest trail that you just can't on google maps and like i'm not saying it doesn't come with a cost that maybe you are i don't know but i go through the t.s.a. body scanners are you all of the ways in which isn't saying i never go through those body scanners right but i have more patients than i do i'm probably most of our viewers i'm sure they don't either but let's move on because this is the age old question how much money does it take for people to be happy what would you say well a study was conducted by scandia international shows the overall price of happiness in u.s. dollars is one hundred sixty one thousand dollars now some countries put that number higher in dubai was two hundred seventy six thousand singapore two hundred twenty seven thousand hong kong close to two hundred thousand bucks overall one hundred sixty one thousand dollars to make sure what you think about that number without salary make you happy sounds about right i mean look at the price or. i

don't. care i think. if you give me one hundred thousand dollars after taxes here in d.c. i mean look i mean it's good work i can go to dinner. are you some recent close j. crew are going to. rise it's good doing and michelle obama is recommending it and there's one thing obama administration's been right on been j. crew upper middle class it's affordable it's good it's not going to matter he still it's still pretty expensive really sorry lauren i'm sorry mrs english is not good enough for you but you know jake was not a four bozo designer off it i was saying it's not. ok you have turned loose change into a commercial but i would just say that i was just being very aspirational in my price tag. right nothing wrong with that let's move on to some cool aspirations that we had to have the show reach as far as we can and today it reached to the new york times page to none other than paul krueger men's blog so we interviewed peter

schiff earlier this week on hyper inflation and take a look at how it made it into paulk rubin's post he kind of indirectly gave us props in his recent op ed titled the conscience of a liberal he said colin roche catches the t.v. host actually putting shift on the spot pointing out that you've been predicting that hyperinflation since two thousand and eight was going to happen so where is it a good question well. props lauren you're the only hostess to admit that hyperinflation may not happen as far as i know i don't know about the rumor that i was really going to review but paul krugman you're not going to get the way that he's a guy it's a big mistake an article point that out or i used to give you an inch and you took fifty football fields right so all right thank you for mentioning us we would much notice but you know what i'm going to let you get away with a little more of the real. krugman and what i would like to say that this has ignited it peter schiff paul krugman debate because peter's fireback so hey great

to have them both on but that's it for today that's all we 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 lauren lyster you can like our facebook page watch us on you tube or hulu and have a great night. little . live. little.

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