good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for once it is number twelve two thousand and twelve it's bad interest rate decision day and the fed announced it will expand its bond buying program with forty five billion dollars a month and longer term treasury securities as expected after the conclusion of operation twist at the end of this year speaking of twist though the fed also announced it's now timing interest rate guidance to economic guide posts in these currency wars who's winning who's losing what's the collateral damage the man who wrote the book on it jim rickards is here to discuss plus does devaluing the dollar fuel exports or does innovation and investment do that while if you think it's the latter unfortunately u.s.

corporations cut an estimated one hundred seventy five billion dollars in investment from two thousand and nine to two thousand and eleven according to s. and p. which calls this un says dana will have reported by the wall street journal we'll talk about that and our interview with m.m.t. economist stephanie calton yesterday spurned so many responses six hundred so far it's been less than twenty four hours it instigated so much just gushing we'll talk about it in loose change let's get to today's capital account. ok so today the fed announced it's expanding its bond buying which by now has become a bit of a youn to be quite honest it was expected which is alarming that q.e. infinity has become just that and has become the norm perhaps

a little more earth shattering in fed world is that the fed's change from the fed change from time interest rate guidance to a date to saying this the fed currently anticipates that the exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above six percent and inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's two percent longer run goal a fancy way for saying to two and a half or cent and longer term inflation expectations continue to be well anchored so they're tying the guidance now to economic data so that's a big shift a big change to talk about what all of this means especially in the context of remember global currency wars which he has been talking about for so much longer way before it became in fashion to do so jim rickards is here author of tangent capital partners or excuse me capital partners author of currency wars the book you see there and really the man to talk about the fed with on a day like today so jim rickards thanks so much for being here thank you are great

to be here yet so let's just talk about this fed decision today because the fed now operation twist ending operation twist didn't change the balance sheet in terms of the size it just changed the composition right now they're saying they're just going out right by forty five billion dollars in treasuries and continue that forty billion dollars in mortgage backed security buying so continuing bond purchases but at this point is this just the fed now trying to fight the addiction verse is fighting the treatment there excuse me versus giving out the treatment to the disease it was originally meant to fight what the feds really for the use of depression that they won't use that word we've been depression since two thousand and seven we've had zero interest rates since two thousand they will probably have them until two thousand and fifteen so we're there for the use deflation and depression no. and you say depression because rates have been there for so long that there's just nothing at all that we have a very low growth when you can have growth in a depression the problem is you don't get trained growth trend growth is sort of four four and a half percent something like that we're getting one one and

a half percent sometimes two percent a good quarter so when you're when you're trying grow so it's it's the gap between trend growth and actual growth that is depressionary and also deflationary the fed's fighting that now the fed's very good at telling you what they're doing they spend chairman spend an hour and a half answering questions and told you what he's doing they're very opaque about saying why they're doing what they what they're trying to do the kind of why behind all of this policy is they need to get philosophy increasing bossy just to turn over money how fast you spend the money you know the the money supply is three trillion but i remind people three trillion times zero is zero in other words you have to be three trillion times some velocity to get nominal g.d.p. so as for us it's kind of got to give us a going that's really behavioral psychological so it's a program of carrots and sticks the carrots are negative real rates they want to get inflation above nominal interest rates so that the cost to the bar was actually negative very powerful inducement to borrow and then they want to deliver inflation shock they talked about two percent and you're right through they said well too is

really two and a half but you know what they really want to do is get inflation to three and a half or four shocked people in the bar so do shoot a bar with negative real rates shock you into spending with higher than expected placement in the combinations designed to give last year and that's the sort of secret plan behind it so they think a plan to get that money actually changing hands and does not create inflation as well actually it's the other way around inflation is how you read about austerity if you were to exact if you're worried about inflation you think housing prices are going to grow four or five percent a year you think that new car their refrigerator those prices are going up five ten percent a year you're going to be much more motivated to go out buy it right now people don't worry about inflation they're like that prices are going nowhere maybe they're going down i'll leave my money in the bank and wait what you have to do is shock people the same way i'd better buy it now the price is going up so inflation will increase the velocity but that begs the. question we are seeing flourishing coming from and that's where the currency wars come in because they've tried everything is zero interest rate policy quantitative easing operation twist communications policy now the currency wars and if it doesn't work keep trying to

what we're trying to do is important place in from abroad by cheapening the dollar that's how we get the inflation here so we give the last of the ground that's the feds play i'll figure work that's what they're trying to do you don't think it'll work that's something that you have been saying for a long time you've been critical of fed policy for at least as long as i've interviewed you last year at this time you're saying the fed is insolvent and more and more people and establishment people that i wouldn't expect a really worried about the fed's policies at this point in the unintended consequences that are resulting in sheila bair is one of them this is actually what she was most concerned about when i interviewed her recently of marsh's the former chair of the f.d.a. see right now she's chair of the systemic risk council which is private sector but they're trying to impact public policy here is what she said. moving forward i think the really the interest rate risk and the and perhaps unintended consequences of the spirit attractive period of near zero interest rates that is the kind of the future thing that i'm worried about. that's what she worries about in terms of the

next crisis you say you don't think that policy is going to work to achieve what you think they're trying to do you think they actually have an exit strategy do you think ben bernanke he actually thinks he has one and is it in reality going to work well it's kind of a race between the fed trying to achieve their goals in the whole system imploding because of loss of confidence in the dollar absolutely and actually i that's not a good idea right paradigm it's been interesting to watch these press conferences you know they've just been doing this for a little over a year the reporters are getting smarter and smarter in the rescue tougher questions each go and there were some very tough questions today because one of the reporters a forget the individual's name said you know with that with you know they're turning eighty five billion a month well that's a trillion dollars a year you carried out for two years to two thousand and fourteen two thousand and fifteen that's two trillion dollars on top of the three trillion dollars they already have and the question is does there come a time when you know this is not working but the balance sheets for three trillion four trillion five trillion and there's a collapse of confidence in the dollar and that's that can happen very quickly it's

not something i was thinking of and it was something that just boom can happen just like that and so the question is can the fed is cheap its goals before everyone loses confidence in the dollar in the reserve status of the dollar that's the question so this is again the curse words go around the world the u.s. is trying to cheapen the dollar but it means everyone else has got more has to get more expensive it's a zero sum game that makes their exports more expensive that hurts employment in their countries that can be destabilizing around the world and then you have the chinese if you're saying there were three trillion dollars of assets denominated in dollars and the fed's trying to cheapen the dollar that's like picking your pocket yeah yeah exactly well i want to talk about that because ben bernanke said you know we're not the only ones doing this if you haven't noticed everyone around the world is expanding their balance sheet well yeah no dub and i think everybody has noticed that but also he was saying you know we are not buying as many bonds as many as much debt is the treasury is issuing well yeah that's where foreign lenders come in to write the composition of who is buying and how much has really changed over the last twelve months as of september. as of the treasury's latest figures it said

over the last twelve months that china has holdings have actually declined to the tune of about what one hundred fifteen billion dollars while japan has increased their holdings by a hundred forty seven billion dollars so what is the dynamic of this within the currency wars well that's a very very important point a very important observation chinese are done with the dollars and they're not going to dump what they have they know that would be disastrous in there and they're not going to do that the president could stop them but they're going to buy less and less at the margin so as they generate capital count surpluses they'll use that money to buy other things now the japanese have always done whatever the u.s. one of their our closest ally and go back to the seventy's when nixon one of them to raise the value of the currency they did it so what's happening is you're exactly as the chinese go down sort of phone call the japanese you guys got to dial it up a little bit now the question of political it was totally political this is all being orchestrated great article in the wall street journal about how they all get together for dinner involves switzerland over the rhine river and now all the stuff that's a good example of that but but you know the problem is who's going to actually buy

the treasure i said you want to get inflation about nominal rates a lot of people say well gee if inflation gets to three or four percent aren't rates going to go to five percent won't the bond vigilantes come in and trash the bond market the answer is no this is where financial repression comes in the federal buy it themselves the commercial banks are kept the buyers will just turn to the commercial banks and say you have to buy them or will shut you down to me and solve it we can do that whenever we want and the third leg of the store was japan so between the fed's balance sheet the commercial banking system in japan will be enough buying power to keep a lid on nominal rates bring on the inflation through the currency wars get the negative real ways try to get people lending and spending again so we turn to the old consumption and true of a model yeah yeah the model that has worked so well here is a vast as it were to say yes exactly where does that leave china you say china sitting on all of the dollar reserves they're becoming worth less and at last and last are they losing their currency war while the solution the current who is because they the thing is for them to peg to the dollar you know where your friend the currency were. the dollar all this money print is going to go to china they've

got to print their money to soak it up so they're going to get the inflation that's very destabilizing they are going to let the you want to go up that means the value of their reserves are going down you know ten percent evaluation the dollar or ten percent inflation is a three hundred billion dollar wealth transfer from china an emerging market to the united states which is supposedly a wealthy country so they're not going to stand for that what they're doing is buying gold because they when they're yes they can because that's kind of the head so ok i've got all these dollars and you are devaluing the dollar but what's happening to the price of gold all the price of gold is going up so if you got if i've got a portfolio consisting of dollar and gold in a hedge position you can inflate the dollar all you want to buy gold is going to go up in the choose the kind of balance so the question is how do you get the gold mining three hundred fifty tonnes a year they're importing more than that to become the world's largest producer the world's largest importer the doing and their central bank the central bank transactions obviously kept secret the doing everything they can we actually don't know how much gold the chinese have officially they have one thousand and fifty

four tons my estimate is that they're probably close to the two thousand tonnes i've seen higher estimates just a bit of guesswork although their agents know for sure and you were in hong kong you were just there so you were doing this due diligence and you're really fresh with this information after the break we'll have more because if the fed is trying to devalue is this the way. u.s. growth u.s. exports or is there innovation and investment needs to happen that is not happening more it's a marker and a tangent capital partners author of currency wars after the break also still ahead our interview with and economist stephanie calton yesterday heard so many responses won't discuss change but first your closing market numbers.

you know how 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 everything. you don't know i'm sorry welcome to the big picture. but there's a disconnect about what's officially reported what actually happened we can't accept the stuff that's handed down. to the ok. we're. going to be outdone by. a name we're in

in. the . all right let's just bring jim records right back in a tangent capital partners author of currency wars on this fed decision day we're talking about the currency wars and i want to actually continue on the fed's decision that they announced just earlier because i want to ask about what they said about inflation so they're saying that they're giving they're near zero fed funds rate guidance as long as inflation projected one or two years out doesn't

exceed two and a half percent what kind of leeway does that give them that now they're just saying we just need to be careful of our inflation targets projected two years out well it's a good question and they give themselves leeway in two respects one is you know what what's the meaning of inflation what's the definition of inflation well you have c.p.i. you have p.c. prices deflate as you have private servers but the fed says inflation is what we say it is we're going to collectively come up with their own forward projections so you can have a situation where actual c.p.i. inflation is three percent but the fed saying well long term we think it's really two and a quarter so we're still within this mandate to buy these so you know the eighty billion a month or whatever it is trillion dollars your security so don't rely on c.p.i. as a cap on this it's kind of whatever the side that character in alice in wonderland you know means whatever i say means yeah that's what the fed is saying the chairman of us said that but the other thing is they said they didn't say that they will raise rates when inflation hits two and a half percent rate was the inverse they said they won't raise rates before it hits

two and a half percent but that means it could hit two and a half three three and a half which is what i expect maybe four before they raise rates so they've given themselves plenty of you know it's like putting the brakes on nice you can go a long way before your car stops right they could go right past two and a half percent and the two and a half percent is not a hard number it's whatever they say it is right so this is smoke and mirrors and as we've seen inflation number is different calculations can be changed all the time in order to kind of make it how you can want inflation to look at it and change the composition of it it's interesting they didn't give themselves that kind of leeway with unemployment it was much more specific on unemployment but why. what do bad purchases have to do with unemployment do you think does the fed really think that it's helping unemployment well it's really it's indirect and it kind of goes back to this issue of loss of the and bringing inflation of the economy you know interest rates don't directly affect unemployment but if we can get nominal g.d.p. and get people spending money lending and spending borrowing and spending get nominal g.d.p. to increase then that in theory would produce more goods and services

a little more weighted to you know imports because they're. domestically produced goods because imports be more expensive with the cheaper dollar if you get the kind of production going in theory people are going to start the hires this is in direct benefit down the road but remember with the six and a half percent they said the same thing they didn't say they'll raise rates when unemployment gets to six and a half percent they said they won't raise rates until it does but it could go to six or five and a half or five before they raise rates so they've left themselves leeway on both sides they have tons of leeway to just keep doing whatever it is that they want to do you mentioned devaluing the dollar we've talked about it throughout this conversation is that how you get more exports or do you need innovation do you need the kind of investment that we're just simply not seeing from u.s. corporations right now the the idea of the currents were slower in that you know cheap in the currency and make our exports more competitive in crude to create x. forcing a boeing sells more aircraft or whatever that's true but only to a very limited extent and that's a little bit the cover story what they really want to do is important for a shoot through imports remember the u.s.

is in the importer so maybe it helps or exports a little bit i want to argue that but we import more than we export to what a cheap dollar really does it increases import prices that inflation feeds into the supply chain and gives this generalized pleasure to this let's help exports is it's a little bit of a cover story of the real story is let's important place to higher import prices and a cheaper dollar that's what they're doing yet but to make. the u.s. more competitive in terms of exports in terms of manufacturing those sort of things are we going to need more investment from companies because some figure i'm out there severely under investor absolutely that's another method idea that you promote you know if you. you hope that your currency is not true germany has been an export powerhouse for fifty years and they have a strong currency for fifty years going back to the one nine hundred sixty s. so it's education innovation investment technology good business climate low taxes that's how you promote experts and things are really lacking right now want to leave it there and see how it all shakes out that's all we have time for thank you so much jim where you are.

i love our boat with loose change a new trick a famous a lauren oh no i'm glad you're here because we wanted to respond to a few things you know we don't obviously always respond to actual interviews that we did but yesterday we had stephanie calton on she's an economist she's a modern monetary theory advocate we had a very long and thoughtful and fair discussion about mt we also had an overwhelming response from people who both agreed and disagreed more than five hundred comments in less than twenty four hours on that video on our you tube channel tons of tweets both critics of m.m.t. and supporters we have people posting it on their blogs you can kind of see a collage here a blog post of tweets people saying they loved it they hated it this doesn't make

sense and this makes so much sense to me terry let's talk about kind of just a few of the key themes of the. interview so stephanie colton's main point was that the government is not revenue constrained the government is the monopoly issuer of the currency. which they will that should i think stephanie said it is though a lot of people think that the government is very concerned maybe some people do but a lot of people understand that the government has the ability to print money at least through the central bank one step removed so they understand that. and she made another point which is essentially that the government doesn't need to borrow money from china it doesn't come from china the government doesn't get all of this idea dollars come from china they don't write because naturally we can print our own money that's true but i think that that's an important distinction that i would like to see made which is the distinction between the thing and the value of the thing or the things of value so the dollar is the thing but the dollar has value the dollar doesn't get its value from its from from from from itself it's

a currency it gets its value from people's willingness to use it in transactions so you've got people that are willing to lend let's say china is willing to lend the united states were able to borrow from china that is natural value that currency gets because they're willing to the chinese voluntarily give it value they're willing to hold it there's taxation which is the other side of value coin which is forced value were forcing value into the currency as the sovereign you're saying you must pay me in this currency and therefore i can still value in that thing so i think that's an important distinction to make and they're saying foreign lenders have to see the u.s. dollar is having value and that gives it value not just for lenders everyone every see the caliber of users that use or give the current gives the currency value not the issuer and so their focus on the issuer i think gives a false sense of power and omnipotence to the sovereign that doesn't exist ultimately it's the users in the economy the human beings interacting every day using that currents that gives its value you know what our argument that there is a way that the government has that it's not using in order to get people to be more

employed she was talking about just the waste and production and the waste of labor they could be better utilized and it's interesting too because she wrote a lot of numbers there and she said that you can look at this waste incredible waste of manpower man hours just imagine what people could do yeah and i think that's true there's an idle life is a life wasted but a life spent in wasteful endeavors is a life wasted so and she made a point and you brought it up you said is there a modern economy that you can say practices of. philosophy or something close to it . example she said well china those really resemble anything i think any amount here would support you know you don't want empty buildings because that's where the rubber meets the pavement that has been in your view ideology and what happens in reality one hundred percent because the thing with china is what's their goal their goal is g.d.p. growth and jobs growth is if your goal is growth and jobs then you're not focused on. profitable investment you're not focused on making sure that your investment

for ten thirty whatever period of time it is. turns a profit so what happens. naturally malinvestment and you always do the real economy but the point is in china as an example if the state is directing investments getting all this growth people get jobs that build things that you have massive around us when you do have empty buildings and that to me is a problem is not adequately addressed that there seems to be this desire to live in this theoretical world where things would work if the only way they could right there in reality we often see be so so different and you know not everyone was happy about the interview this often happens it always happens this is the nature of what we do it's the nature of ideology to for sure rarely do we respond directly but this time i do want to respond to mike norman because even after a very fair and open minded discussion with someone ideologically in line with mike norman's views he cannot get off as ad hominem straw man and inaccurate diatribe he's been on against me so a while back he made a video post after we'd had him on our show which included

a completely sexist personal attack on me and then it took a comment i made in a show completely out of context to try to make his point that i'm stupid now i didn't want to dignify his behavior with a response but he's still on it not his blog he responded to you actually dimitri last night saying oh lauren didn't make ignorant comments isn't it wonderful that nature does a better job of regulating our money supply than the central planners he attributes not to me he said you're right laura you're right dimitri that was truly brilliant now the thing is mike norman says i claimed mother nature controls the money supply that was. the video blog he did i did not do that i didn't do any such thing i had made a tongue in cheek comment in a show paraphrasing what our guest james turk had said about the yearly increase in the supply of gold that the way gold is just burst in the earth and the limitations of mining balance with the increase in technology and the population growth has kept the supply constant at one point eight percent yearly versus the dollar supply increases which have been all over the place and at

a higher rate than population growth and new wealth creation so he said gold had better adhere to milton friedman's kay rule that money supply should increase at a constant amount each year to control inflation according to him i made a comment about mother nature and supply and demand as a claim i didn't it was tongue in cheek to paraphrase the gas and get into a follow up question with him and i just keep seeing it taken out of context which i'm just sick of and just for the record if mike wants to misconstrue my comments and continue making ad hominem attacks to make the case that i'm stupid i don't really think that's the strongest way to do so i don't really think that's a strong argument but if you really ask me what's working against him is this. i love being on the show lauren and you know i love talking to you and you are so smart how did you get some more i mean. i've been reading your logic. so i don't know enough said there but to me you challenge him on twitter come on

it's a debate we have those tweets doesn't look like he took you up on that as the offer still stands there were told him to start with his blog the blog post he was unhappy about your phone remarkable because we were extremely magnanimous and we brought on someone who very mary may not agree with on everything and he gave her the florida talk about it so my cousin. called me out on twitter and then i called him and i said listen i tell you what mike if you if you think that you're not getting a fair shake whatever it is or you disagree with me you were also sure for a day ok if you keep bringing up my memory blog you come on the show and all the. so you will have an open debate open discussion on the show he didn't respond the first tweet us again i was like you can back out obviously if you're if you're uncomfortable he didn't respond so my call if you're told to come on the show i'll host a show you can debate me you didn't respond he disappeared you were busy tweeting up until that moment then you just disappeared mike saw you i mean i gave it to you it's out there and let me know yeah and he keeps calling your hero which peter schiff is not here yet isn't actually we challenge him pretty robust labels to

honor lash out so it's a ridiculous because we had peter schiff on the ok we challenged them and so i got a lot of flak from people but so i learned you know and if you know what you're like it's. something a difference between theory and what people believe and reality want to throw at me to say that this sort of issue that mike may have of peter schiff and he should stop using us as a hologram or for his own issues with peter that's not a problem mike that's your issue alright alright we've got to go to make sure we're out of time but thank you 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 a like our facebook page give us feedback on you tube catch a shows you missed also you can see it's an eight on hulu and from everyone here thank you for watching and have a great night. you

know how sometimes you see a story and it seems so for lengthly you think you understand it and then you glimpse something else and you hear or see some other part of it and realize everything you thought you don't know i'm tom harvey welcome to the big picture.