in egypt president morsi cancels the power grabbing to two weeks of protests and while the referendum on the new constitution will still go ahead next week after hundreds of thousands rally near the presidential palace on friday. the media frenzy pushing britain's royal pregnancy story into overdrive speculation suspected suicide. by. the u.s. and britain. in the cold weapons. to make the case for an intervention. how washington to deal with the fiscal cliff and what will happen if the white house and congress fail to find a solution capital accounts next on r.t.

. good afternoon welcome to capital account i'm laurin mr here in washington d.c. these your headlines for friday december seventh two thousand well it's jobs day u.s. jobs numbers for november came in better than expected with the b.l.s. report showing one hundred forty six thousand jobs were added much more than expected and the unemployment rate fell to seven point seven percent but why did the rate went down because more people left the labor force and when you look at the lack of exciting increases in wages that also comes out in this report what should we really make of it all and what does it portend for housing which our guest barry habib mortgage exact thinks has been a bright spot for the economy we'll hear from them plus brace yourself the f one c meets next week and some are forecasting the fed may announce more bond purchases

after they do so so what is the antidote to unhinge money printing and centrally planned price fixing could gold play a role john butler is here to counter some claims we heard on this show earlier in the week and our trip down memory lane with author kevin phillips on his account of seven hundred seventy five lead to some questions on the economic history of the time of the war will respond to your feedback let's get to today's capital account . it's that time again next week the federal open market committee meets and some anticipate we could see an announcement for more bond purchases after they do so to allegedly continue trying to boost the economy to help with that we grow we keep

saying but it is the fed's manipulation of interest rates and involvement in the economy actually doing the opposite to growth is it hurting growth to lay it out john butler is here he's founder of m. four a capital and author of the book you see here the golden revolution and he is here to spell it out so first of all mr butler thank you for being on the show thank you learned pleasure yet it's always a pleasure and i want to start with this fascinating chart because this is something that you included in your recent writing and it is really a loss for to have ok it is a u.s. domestic investment net of depreciation so essentially as you explained it to me this shows that businesses aren't investing enough to keep up with how the country's capital stock is depreciating it sounds alarming but what exactly does this mean. well it means that growth in future that is not just cyclical even structurally that is potential growth is going to be weaker now the capital stock

is the engine is the factory is the motor is all of the above for the economy and if it shrinking it produces alas the problem is the united states' economy in the recent years has been consuming its capital stock that's like burning furniture to heat the whole according to a famous economist leunig von misses it's very counterproductive and i believe the fed is directly contributing to this capital consumption by keeping interest rates artificially low so that there is little incentive to say and the lack of savings implies a lack of investment not even enough reinvestment to cover for depreciation that's what's happening here the fed doesn't even seem to acknowledge it or realize it well i think that's very interesting because the per section is that what the fed is doing is it's doing it to strengthen the economy to help boost growth but you're saying in fact it is directly because of the fed that this dynamic is going on that

we just saw the depreciation and investment and so you're saying that actually they are responsible for further depressed growth down the line. well they're partially responsible i mean don't get me wrong there are a number of structural issues with the us economy i don't want to assign one hundred percent of blame to the head but it's a nuff boy that the fed certainly needs to reevaluate what it's doing and to change tack now you could argue the opposite well gee john if you're so smart the fed should raise interest rates to an outrageous level no i'm not saying that at all i'm saying the fed should step back stop manipulating interest rates let the free market determine what level is a sensible level to clear out past malinvestment just stimulate savings in a raise the savings rate and to rebuild the capital stock using new technology human ingenuity and move forward in

a real way the way that america used to well that's pretty well set i can't really argue with you too much there when we talk about the antidote to the fed's manipulation of the economy of prices into their money printing some people say hey her as he needs to be tethered and some people suggest a commodity or gold earlier in this week i was talking to barry eichengreen he's an author of golden fetters he's author of exorbitant privilege also a professor at u.c. berkeley now that interview you watching you were fired up about it so first here's why he said that gold could not be a reserve currency let's take a lesson. about. gold doesn't really have the liquidity that importers and exporters and financial market participants require. the hybrid how do you respond to that issue of the lack of liquidity. well anything which is marginalized by legal tender laws an existing monetary convention is not

going to be as liquid as that which is enforced as legal tender and which as a legacy of the bretton woods agreements is the global reserve i mean with all due respect to barry his reasoning here is tautological it's circular the fact is if something is accepted as a global reserve it is more liquid he's reasoning in a circle that said don't get me wrong the united states' economy is large obviously the volume of dollars circulating is large as a result of that but in one thousand nine hundred forty four when the bretton woods agreements were negotiated the united states was essentially fifty percent one half of the entire global economy and today it's slipping below twenty percent and it's being overtaken by the rapidly growing brics brazil russia india china south africa and so this idea that the u.s. by definition is the largest deepest most liquid market so largely just

a matter of convention and if the dollar loses confidence of people is competence in the dollar as a stable store of value they'll use it less and less it will depreciate in value gold will go up in value wait long enough gold will be more liquid and we'll have a lord your market capitalization than us treasuries may take a few years but we're going to get there wow but does that is it going to require a change in law because taxation is another way that people and forces have a currency you can't pay your taxes in gold you alluded to some lies and some things that does need to change. well law is itself a convention imagine that the brics that i just mentioned started to demand a gold instead of dollars in exchange for their exports well the world would have to start coming up with an awful lot of gold and they wouldn't be too bothered about holding dollars is that a change in u.s. law no it can happen entirely externally to the united states and for that matter i

don't want to single out the united states europe dark many countries like the us that import way more than they export that are printing a lot of money to try and stimulate growth and the fact is if those countries that are net exports that are net savers to the rest of the world if they start to demand gold they force the issue and the u.s. will have to respond other countries will have to respond and if they respond by changing their laws to try and deal with that situation well that changes the convention goldish remodelled ties and we're back on the gold standard and and why might it be more desirable for countries that are not export or is that are surplus countries why would gold be more desirable to them as a currency versus countries like the us that run enormous trade deficits wouldn't they really benefit from staying on the out currency and to eternity and really not ever want to move away from it. look if you could trust and currency there wouldn't be

a problem with it but we can't trust in the our currency and we can see day to day practically why we can't trust in the our currency into the fed will probably give us yet another reason not to trust and the currency at their next meeting the fact is be our currency is a moving target it is worth exactly what the issuer wants it to be worth no more no less they control it but if the rest of the world does not like the way it's being controlled if they don't trust the way it's being controlled well they prefer to use something else that cannot be arbitrarily devalue they cannot arbitrarily manipulated that cannot be defaulted on you can't a fault on gold it is what it is it was created by whatever god mother nature call it whatever you want and so there's a reason why the world ended up on the gold standard not just in the nineteenth century but has used gold and perhaps a lever of course and other metals and substances as money since the dawn of time and there's a reason why it is the exception not the rule to global monetary arrangements

throughout history well in terms of that it accepts and it's interesting because professor i can green says. currency may not be ideal but it is the best option we have far better than the gold standard let's take a lesson. but that doesn't mean tying monetary policy to gold would be desirable that just means that. it's a mistake we could make along with many other possible mistakes. so what i have to say about that. well i would argue it's a very selective reading of history if you take a broader look at history and that can include the twentieth century for that matter gold has been a far more stable store of value gold has presided over by far the most productive rapid growth that the world has ever seen in history according to all available statistics and data so he must be reading the data very very selectively or he's

looking at it with an eight priori conclusion which i would argue is a logical fallacy so again don't get me wrong we have various respected scholar in this field but i think he's approaching it with a set of assumptions which i would argue is not appropriate given what we are learning practically day to day about what a moving target the yard currency is and how the world is demonstrably coming to disregard it as a trustworthy stable store of value today well thank you for bringing us that outside perspective and a different analysis of all of this john but i appreciate you being on the show thanks so much he's founder of amp our capital and you can go read his book it's the golden revolution. and still ahead we'll take a trip down memory lane with author kevin phillips on his accountant seven hundred seventy five some of what you didn't hear yesterday in here feedback the first your closing market numbers.

choose your language. with no introduction and still some. choose the consensus you. choose to tell us what you think great. choose the stories did you. choose to access to your. sometimes you see a story so you think you understand it and then. you hear or see some other part of it and realize that everything you. are welcome to the big picture.

the five. ok so now for that jobs report we got today a hundred forty six thousand jobs were added in november according to the bureau of labor statistics this was better than expectations superstorm sandy not taking the toll perhaps people works that during and the unemployment rate ticked down to seven point seven percent the lowest rate reportedly since two thousand and eight but it was driven by a drop in labor force participation we've heard that one before it comes up time and time again so no maybe not as exciting as this report seems on the surface in

fact and what does this mean for other areas of the economy like housing earlier i asked very bibi's vice president of residential finance corporation he's a mortgage expert i asked first for his reaction to these jobs numbers. the numbers are really disappointment in my opinion because when you as you said earlier seven point seven rate of unemployment three hundred fifty thousand people leave the workforce how easy is that to do when if you don't look for a job in four weeks you're considered not seeking a job so you're really statistically it looks like it's a better number at seven point seven percent but these should toggle back are above eight percent remember we had hurricane sandy and that may have caused people to have other things going on or preclude them from continuing their job search now as far as one hundred forty six thousand jobs are concerned so break down the paths very quickly three hundred fourteen million americans when you take the percentage of those who are employed and you take the fact that we have six tenths of percent increase in population from births three tenths from big immigration and one

hundred twenty five thousand jobs per month just so you can keep up with population so one hundred forty six is hardly going to make a dent long term in the employment gap we have right we're treading water a little better than treading water i guess with a number like one hundred forty six thousand so i know you've been very bullish or it's a pretty bullish i guess on the housing recovery but it sounds like that enthusiasm and enthusiasm has been tempered a little bit from what i've been hearing you say by the fiscal cliff. and concerns that a deal won't be done and also some less than ideal jobs data from jobless claims so factoring in the latest jobs report which you say is kind of a disappointment how would you define your current howdy outlook on housing and so-called recovery. the basics for a great housing market are there you've got a tremendous amount of pent up demand homes are priced appropriately now underwriting is good and rates are phenomenal six million people between the ages of twenty five and thirty four living at home when you compare him to rents the

cost of a home is very favorable but there are a lot of wildcards out there first off the mortgage deduction is one that's now in jeopardy it's going to play well in the media and play well for people say we want to move the mortgage deduction why only twenty six percent of taxpayers actually utilize the mortgage deduction so you know if you're a lawmaker you could say well now i can see my constituency might be able to live with this because only twenty six percent of people take advantage of it and i think that that would be a difficult thing there might be some alternatives there you should certainly keep it for the first time homebuyer but if you want to tinker with it well hopefully it's part of a grand scheme but maybe have it sunset after five years that would actually give people incentive to buy another home the other things on housing the fiscal cliff certainly is going to play into this now because when you think about when individuals are subject now to two percent higher in payroll tax plus increased marginal tax rates for going into a household earning seventy to one hundred thousand dollars

a year that means it will cost you two hundred seventy five dollars per month more in taxes that's the equivalent of your mortgage payment going up by two percent so it will and can have an impact hopefully this gets remedied probably will get kicked down the road though yeah exactly we haven't had too many positive examples in her recent time to go off of when it comes to lawmakers coming to a very kind of organized plan shall i say also i want to go ahead and put. if that if they would just put what's good for the country ahead of personal ambition we get four i think it was john close john kerry who said we know what to do we know what the right thing is to do we just can't figure out how to get elected after we do it exactly great words so then given not just down but also you said you know there are some some good signs and when you say you know there are people that maybe want to buy homes these these people that are living it maybe their parents' home that are in their twenty's or thirty's but i want to know how

are they able to afford it i want to show you this crap that is a trend that you can also call from the b.l.s. numbers and zero had to did so you look at total jobs and the increase in their growth has been going up as an upward trend but when you look at average hourly wages the increase year over year in the us has been on the decline and so now it's one point three percent year over year that they're increasing not even keeping up with inflation how does that affect housing in terms of the pool of people who can buy a house. it's an awesome chart of god's sight it's such a good chart and something i've been speaking to and it's so well illustrated here the first thing you have to think about this is bad for the economy because while the spin doctors talk about hey jobs are growing wages are decreasing there's no wage pressure inflation which keeps inflation though there is an output gap there's a lot of capacity out there so that's going to also keep inflation that what this tells us is as far as housing specific goes it's somewhat mitigated because this tells us that interest rates will probably remain low mitigating some of the loss

in wages and it also plays well for housing because rents are in high demand rents are increasing so it really over time points to housing is a very strong alternative if you have a job if you have a job that's the key thing also one thing that i thought was interesting chris whalen was on this show mid november he's an investment banker and and i know my buddy you know i'm much more bearish on housing than you i would argue and he said that really housing. in terms of improvement really vary by region let's take a listen what he said certain markets that are attractive have bounced back a bit but by and large the dearth of financing the lower population of the smaller population of potential homebuyers and other factors i think are going to limit the gains you're going to see in housing ok so he's saying it's spotty you know and he said somewhere like the northeast there's a backlog of foreclosures there are people that want to move down in florida because they're retiring so how do you weigh the regional concerns where where are

things bad and weighing down a recovery in your view ok i agree with chris that real estate is extremely regionals very local so you it depends much on the local dynamics that said i disagree with the bearish outlook the what he mentioned earlier about rents that speaks to improving real estate prices when he talks about the first time home buyer we're seeing a lot of strength in the first time home buyer when he speaks to the overhang of foreclosures well when you think about it the fact that foreclosures aren't being distributed on the market is rapidly actually supports housing prices thanks can't do that because they're their capital account they can't they can't knock down their capital account that quickly so they can't hold those out or go unload those as quickly but while it's an overhang it's diminishing think about it two years ago thirty three percent of all transactions involve foreclosure short sale today that's less than fifteen percent of my forecasts are it's less than ten percent in

two thousand and fourteen so that that is being eliminated from the marketplace in an orderly manner ok so you think that the tail winds essentially are going to outweigh the headwinds chris whalen name so then i want to ask you when we talk about a recovery though are we talking about a recovery to where housing once was prior to two thousand a are we talking about a new normal just recovering relatively relatively speaking towards the lows we saw since the crash well well. we've got an awfully long way to go but back to those incredible boom years remember you had seventy percent homeownership today it's you know in the low to mid sixty percent homeownership range i think that the recovery is certainly in the works and you can have a healthy sustainable outlook but lauren relatively speaking even if you had three or four percent appreciation the average person puts ten percent down on their own it's like a forty percent return on your down payment and again while i'm bullish i'm not saying it's not without some wild cards have regulatory wild cards you have

potential issues with f.h.a. tightening these are things that are out there that can cause some turbulence and some issues but overall i don't see a housing market that gets depressed i see the upward momentum being stymied put some speed bumps in front of it but you should still see some healthy sustainable improvement in home prices throughout the country it's really been the bright spot of the economy. i was very a baby with this view on housing and jobs vice president of residential finance corporation. all right let's wrap up with your feedback it is friday and you know something amazing happened this week on

a new show dealing with the topical issues and delving into them we inspired a conversation about history and we got kevin phillips on about his book seven hundred seventy five he's a former republican strategist turned off their prolific author and also critic of politics and the economy as well but mike cliburn responded regarding the revolutionary era said the intolerable acts were part of the revolutionary era and the main tipping point factors that led to war after the war when representatives of the new country went to paris to negotiate the treaty of paris they were hoping for economic freedom they came away from the table with much more my take on the whole era is that columnists were basically looking for economic freedom and use every tool they could they could to sway the hearts and minds of the colonies to support a revolution so there's one of our viewers takes on that period but it does bring me to philip's analysis of some of the economic factors that did contribute and lead to war some that don't get as much play as say taxation without representation

here is a little snippet of some of what he said that was an error on the show starting with the british control of trade in the colonies. it was seventeen sure of them all for water things had to go through london and of course what that meant was more and more of the process so dealing in the trade. i've been given the british model. words and credit was a major war you're doing business that is not the structure of the modern economic country supporters. so this became infuriating as the colonies got more and more popular issue. so control over trade the issue of debt also control over their currency and over monetary affairs the colonists didn't have that because of british regulations so really interesting economic history that we got into with kevin phillips that we didn't air on the show but it is going to be

on our you tube channel so check in there probably sunday and we'll post it's a good solid chunk ten minutes or so getting into that moving on i don't want to belabor this this you know guess who was wonderful and so nice to come on this show but john galt said of barry eichengreen he said i could read his your typical academia status notice how he placed all the blame on the free market for the two thousand and eight meltdown and no blame on the government and the fed and their large roles in setting up the crisis i was a little disappointed that lauren didn't call him out on that and let it slide well i apologize for disappointing to you know we can only get to so much can only really delve into so many different aspects of somebodies argument i hope though that addressing at least some of i can greens points again today with our guest john butler makes you feel a little less disappointed we try to not disappoint here meanwhile bill marcus said of our guest last week william janeway who talked about how bubbles sometimes are important to innovation he said this family fellow doesn't know what he's talking

about the dot com bubble was coincidental to the rise of the internet it would have happened and was happening anyway the dot com bubble was just some fat pig vulture capitalist parasites trying to make a quick buck off the back of it bubbles are a sign of an economy out of control perhaps but we think the distinction one needs to draw when speaking about both is between price bubbles and credit bubbles the law. better case being the really ugly ones ok in the later case leverage is used to take advantage of rising asset prices ponzi schemes develop and then the carnage of a popping of the initial bubble spread to the rest of the economy and you can get what we saw in the one nine hundred thirty s. and potentially what we are seeing today so not all bubbles are created equal we would argue long we're too said what an interesting guest and for me unknown he was talking about kevin phillips we also broke down gresham's law and word of the day and he asked how does gresham's law work in politics the good ones leave in the bad

ones day they need thing that is exactly it so gresham's law which has to do with how bad money how bad money drives out good money essentially applies to politics in the same way the good ones leave maybe we're seeing that in the fiscal cliff debate who knows we're out of time though that's all we have time for today thank you so much for watching be sure to come back next week and in the meantime you know you can follow me on twitter at lauren lyster you can like our facebook page you can see the address there you can catch any shows you missed give us feedback that i respond to at youtube dot com slash capital account as i said this weekend check back in for the unseen footage with kevin phillips diving into history you can also watch us on h d at hulu dot com capital dash account but from everyone here have a great. the

problem is going to be to be able to eat food into the. elite. don't speak your language any blood they will or no idea. what this.