good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are headlines birth thursday january third two thousand and twelve economist nouriel roubini known as dr doom predicts it won't be long before there's another crisis in the west two months and back to seeing as this is when congress must deal with the debt ceiling and those seaquest ration spending cuts this shouldn't come as a major revelation so in the meantime from tax hikes to trillion dollar coin ideas edward harrison is here to discuss what is likely to be the fallout from what he calls the fiscal cliff left and les miserables it is a hollywood blockbuster meant to show off a list actor singing chops or is it actually

a valuable lesson in the economic misadventures of stated them very relevant today while jeffrey tucker argues the latter will hear why business week's cover feature is babies crying on capitol hill but what about a study that finds babies born during recessions are more likely to be delinquent teens no word on what happens if they get elected to office we'll have more in loose change plus we'll talk sped minutes an inflationary dragons' let's get to today's capital account. nouriel roubini has an op ed in the financial times today saying the deal reached in washington on new year's day kept the u.s. from falling off the you know what however given the dysfunctional nature of the

american political system it won't be long before there is another crisis cue months in fact well that's not exactly rocket science given that we all know in two months the new congress will be faced with raising the debt ceiling and dealing with the sea crest aeration spending cuts that the last congress put off in this new year still what doesn't define space and time though are seemingly crazy ideas being discussed about padding the treasury's pockets with a trillion dollar platinum coin or two couple of fantastical with the reality of tax hikes that were passed so when a few nuggets from the fed minutes which are out today and we have liftoff now make no mistake the lawmakers on capitol hill may be the babies but we want to know if we're going to be the ones left crying ever harrison is here to tell us he's founder of credit write downs and i'm so happy on the show thanks for being here happy new year to you let's talk about what you do the fiscal cliff left which i like that's cute it's a miniature fiscal cliff you say it was an inverted there is

a little bit of a mini crisis so what do you think is going to be the impact of these tax hikes that were passed on the richest americans those making more than four hundred thousand dollars a year in income and also of course all americans who don't have a payroll tax holiday anymore that's over what's going to be the macro impact one or two percent of g.d.p. will be the impact and it depends on what happens two months from now whether or not then the impact becomes more than we go into recession but right now it looks like we're just have a slow growth. followed by. more slow growth or recession one of the other because when you say this is going to dock growth one to two percent i mean the economy is only growing low single digits in the u.s. so i mean does this really kind of move the u.s. back a notch does it really kind of story. that. from what happens two months is definitely going to be the sort of thing that could put us over into recession and you know in

particular you could get a much bigger sort of impact as a result of the payroll tax hike really hits the middle class rate word hurts and that could potentially be the sort of thing that has a very big multiplier so you know two months from now we're going to see how congress deals with the debt ceiling and the second what's called the sequester restoration twister i got it wrong million times i'm sure now then my next question then is since the bush tax cuts are now permanent for most people is that a good thing because it's always better for that money to be in the hands of the private sector than going to government coffers or is it bad because the c.b.s. says that hey we're looking at four trillion dollars added to the budget deficit as a result what are located sort of from the specter of that is that right now what the economy needs is you know more hands in people's pockets more. or really had a very bright idea that i was

a celebrity. and they're getting. you know over time if you need to control inflation or to slow the economy when we get there when the unemployment rates three percent then maybe taxes will change but until then i think this is a good thing and you know if you're thinking about stimulus at the end of the day i think americans have decided over the last three or four years that they prefer tax cuts to government spending in terms of stimulus and so that's what we're getting i mean isn't there an argument to be made that always that money will be more efficient in the private sector then and then in the government you can make that argument but i think what we've seen is actually especially in the debt deflationary environment you know in a post fiscal crisis post. the financial crisis. vironment the government multiplier is very large and so that works in both directions stimulus you know to the up

a multiplier there but we've seen and this is what we're seeing in europe right now is that the downside is that when you cut government spending it has a huge multiplier effect you know austerity gets you into deep recessions and that's what's happening all throughout the periphery right now well in europe where you also have different situations in each of these different countries that kind of have unique situations but i do but you know. spain is probably the closest to the united states in that regard and i think it's the who released the paper that says that in a financial crisis the economic multiplier of government spending is higher than it would be otherwise and as you know the i.m.f. is always right historically has always been right on the mark i do want to ask though about the fed minutes that came out because there were a few fed officials a few after voting members that thought asset buying will be warranted only until the end of two thousand and thirteen and we're going to see q.e. come to an end this year. that's. been. i don't know what they.

think that the economy is in much better shape than it is in fact i think that the economy or market it's really just it's false for them to say that because we know for a fact that they've point blank that we are targeting the unemployment rate for the median forecast from the fed itself to the unemployment rate isn't going to reach the target level that they're looking for at least for another two years so the concept that they will stop just is ludicrous and the target is six and a half percent meanwhile it's interesting because we did get the a.d.p. payrolls out today and this is a private sector gauge of job growth that's sometimes on the mark sometimes off from the b.l.s. numbers that come out tomorrow it showed two hundred fifteen thousand jobs were created in december are added for. one hundred forty eight thousand in november which was revised and it's objets job growth last month was more than analysts were anticipating now i've seen some argue that this means that employers weren't so

concerned about the fiscal cliff my question is on this issue of the uncertainty surrounding tax hikes and regulation if that has been overstated the impact that that has on a small business owner that's looking to hire has it been overstated or is that a very valid concern valid argument was a valid argument but it has been overstated i think that basically really the driving force of the economy is the consumer and the consumer goes out and spend then people are going to go higher in order to meet that spend and so at the end of the day you know if you're going to cut taxes that's a positive thing it's going to raise taxes that's a negative thing in terms of consumer spending that's really what it's all about and to the degree that people have some leeway in terms of deciding you know their inventories you might get some minimal effects as they prepare for a potential cut in consumer spending but beyond that it's really just nonsense and

we're do mention that a lot is hanging on the two months from now the debt ceiling debate and of course in two thousand and eleven if that's any guide it was a disaster they didn't have a deal until very late in the game the u.s. credit rating was downgraded by at least one major ratings agency and others threatened to do so again this time. we don't know what kind of mess this will create but one solution that has been floated to it is that the treasury could exploit a loophole in the law that allows it to mint platinum coin trillion dollars because they can give any value that they want to it in some people have said hey make a trillion dollar coin have the president ordered it to be deposited into the fed the fed can put in the treasuries account and bam make a couple of those babies and the treasury can pay its bills debt ceiling raised or not. why is this getting any traction i'm sorry this sounds crazy to me. because the whole debt ceiling debate is crazy basically you know you have the government's balance sheet which has liabilities that are either in bonds or more

and some other form and what we're saying in terms of the debt ceiling is that when the government issues liabilities in this particular form that is bonds. certainly in the public we don't like that and therefore we're going to hold that constant what the platinum coin does is it shows that this is just a you know it's a it's a false narrative it's sort of an artificial constraint in order to keep government from spending too much money but isn't that constrained i mean if there's going to be one person that agrees with you as a former fed official an economist joseph gagnon i've actually interviewed him before he was quoted in washington post saying i like it there is nothing that's obviously economically problematic about it talking about this trillion dollar coin idea but ever the thing that i comes up to me is and i understand the argument about accounting and this is just kind of the cold hard facts about money creation the stone age but doesn't that not take into account the fact that we're all human beings we all make decisions based on psychology and behavior and to everybody

that's kind of watching this i mean could it freak people out that the government is just printing trillion dollars they're going to end up causing a bank account it should freak them out the so-called leader of the free world is having this ridiculous debate do you really think that in switzerland in germany the debt ceiling debate as the german government has eighty percent debt to g.d.p. and they're saying no we have to you know stable that we know of course not because they're not three mornings darling in dollar coin with. as much of a deficit problem any other country with. their eighty percent spain said nine hundred percent france is that eighty percent so you know those are the debates that are going on there the united states. having a debate that's completely illegitimate and it really you know we should see because of this i mean it's completely irresponsible the point that i was making earlier is that you know what would happen with

a trillion dollar coin is they're just replacing one they're just walking liabilities are saying we're not going to have it but we're going to the trillion dollar coin liability so the real question is if you want to cut spending if you want to make sure that the government's not you know spending out of control then that's for congress to do go out cut the spending you know of course that will tip us into recession but you know that's the whole point it's not about the debt ceiling the debt ceiling is a kind of starter trying to quickly before we go because you want to mention it europe it's not over in two thousand and thirteen you say there are still issues you're looking at spain why well you know basically spain has five percent in terms of their a yield right now the deposits are coming back to the banks everything's hunky dory but the reality is that spain has a deficit they're going to continue to have to have funding needs they also have their regions that are locked out of the debt market they also have the banks which have housing prices that are falling and so they're going to need more capital and

i'm out of time but you're saying this spells sovereign bailout in two thousand thirteen i think it's a spell solvability not just for spain but potentially for italy as well there you go europe is not over it's not out of the woods not even at all thank you edward harrison founder of credit write downs still ahead because bill gross warns investors about lurking inflationary dragons will discuss his advice in today's lease change and might les miserables provide insight into our current economic woes jeffrey tucker is here to explain after the break but first your closing market numbers.

i mean. you know sometimes you see a story and it seems so for langley 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 knew you don't know i'm tom harvey welcome to the big picture. the worst you're going to save. the white house to the day a radio guy and pull out a bale of minestrone cause they all want to watch quote we're about to go good you've never seen anything like this i'm cold.

les miserables is a newish american movie of the musical based on the historical french novel written by victor hugo published in eight hundred sixty two it's a thoughtful commentary on the politics and society of early eight hundred france detailing intense poverty but is it rife with economic messages for today will the story follow john bell john who spent one thousand years in jail for stealing a loaf of bread this guy there is arch nemesis he has to do hard labor to he cannot escape this path because he breaks parole and inspector job after him and this is the fate of another poor soul fantine she works in a factory she cannot change her destiny she gets fired because she has

a kid she turned to prostitution ends up getting sick and dying now there is also a revolution based reportedly on the real life paris uprisings of eighteen thirty two which was anti-monarchy insurrection led by student groups that failed now that's a twenty second cliff notes version to fill in the holes and tell us why there are so many lessons to heed from this today is geoffrey tucker executive editor of the love a fair books thank you for being here it's so nice to see you could to read into the movie and weren't you hired to write a very thoughtful piece about how it's relevant today so what do you think is a modern economic message to take away from lame is well it's a story about liberty versus power and so many ways represents the modern state i mean pursuing this for example asleep no reason i mean just a just a posthumous grudge there really makes no sense whatsoever and so many of the modern stuff this way and regulatory apparatus and drugs i mean all the things that

it's doing it's almost like an inertia an unquestioning status to religion we have to do this because it's the rule because in the movie he's after john bell john jr are breaking his parole for stealing a loaf of bread and that's his. one main goal in life regardless of the fact that anybody watching can say ok this is absurd. it is proposed and you have to be sympathetic to the german version because there was a time of the great poverty that this petty crime was committed you know twenty years ago it's a little bit disproportionate to hound a guy for the rest of it's his last so jump on john's face is this decision he says don't want to live a good life to live a life of freedom to have something i can call my own or do i want to just comply and obey and my contention is that many americans are now feeling the same same thing like many people living under desperate to despotism and all times in all places we have to decide but in what way in modern us culture because obviously we don't have people in prison mostly twenty years first one of them brought out life

tomorrow as a result and you know fleeing to really destitute france not run monarchy is in order to run our lives so whatever the cause dramatically it's a little more petty but you know the sort of federal code of subject conduct nobody could possibly ever comply with that no business could possibly ever comply with this thing and now we have breaking bad as the phrase goes going on all over the country in every conceivable way whether it's pot smoking or downloading illegally online or just trying to run your business make a profit without paying relentless attention to the regulators i'm not really sure that it's possible in modern america to really succeed in the enterprise and that you decide to go in the only way we're always right and all engage everyone is engaged and there's a miniature revolution x. it's not like paris you know eighteen thirty two but there's a little micro revolutions going on all the time you simply can't comply with all the dictates of leviathan and expect to live and have a have a thriving business enterprise or an economy without that and so i think the ample

of what you do you separate well you know what they're going to be doing i know we're going to hear a lot of our you know akhet so that you don't know you're latino you know i have every story that i read a contract but really i mean it's become this way i mean in american life today we have something like a hundred years of crap. the regulations that are going to ruin them and it's not possible there's a kind of represents in a way this this rule of compliance this idea that we have to comply and that is and it's very interesting in the film because he you know he pursues this almost as his faith like he has to believe in the no matter what and when he's touched fundamentally. active. it becomes a problem for him because then he asked a question from what is he really about my hope is the public sector and total one person who venture you go this way to and from the examine examine their laws well

that's a question i have for you because you say you know the example that the movie gives is in the violent revolution doesn't work that's not successful what is successful is more this moral revolution when job they're part of the state realizes wait this doesn't make sense and i'm doing has this kind of moral epiphany so do you think in the u.s. for example to give that comparison that no amount of occupy wall street protesting or any other protesting will we see will make the kind of mark that it will make when a politician looks himself in the mirror and goes away i can't live with myself pandering to these special interests for reelection anymore right where law and i think i've been involved and this activism for liberty my entire life and the longer i have what i see is that ultimately i think we're facing a moral crisis and the solution will be more when there won't be through armed revolution or even much through political activism we have to finally the absurdities of this current system have to be confronted and once that consciousness dawns on especially on the public sector servants then we will begin

to see a collapse of the regime and i think that's actually what's going on right now that's interesting you think is happening i do think a lot of the connection because you seem to making between statism and poverty because you talk about the poverty that really hits you in the face what about that connection and also how it was allows a fair. writer and economist was kind of born of that same period same same same generation they were both in the french liberals of the time when this one was a humanist a writer a novelist the other was an economist a legal theorist but they were both giving it the same message that if you want if you want economists to thrive and civilizations to grow you have to let people be free you have to permit them to pursue their own interests without your credit dictate and they were both fighting against this kind of despotic system this is why i think this film speaks to a very important especially i think it's very interesting for everyone to look at that the intense poverty that you see in the film it's just repeating you know like

. you know it's just shocking but yes there's a relationship between between government control and despotism and the poverty that results we've seen that since two thousand without one question that i want to ask about because have you seen another movie that was out in two thousand called beasts of the southern wild. oh my gosh it was so good you have to see it are you kidding it was one thing what they were but you know what they mean i felt that this was a movie ok so it's a it's a fantasy that there is a community living and by you in the south they have a massive storm they're told to evacuated an air supposed to evacuate but they believe this is our home this is where we want to stay and what's important is that you protect yourself you care for your survival you don't worry about the government coming to save you rare is a scene if you have time to play it the dad teaching his daughter how to fish. you know be that a man and a baby so you don't have to learn how to feed yourself. he got

a bow you. have to whack him when he come up. oh. so they're living this kind of libertarian. life in my view the way that i read it but it's also coupled with they're totally poor they're they're broke i'm through with them or i was there with the. right i don't regulate it so is it a more complex conversation then just like liberty equals prosperity where i mean there has to be capital accumulation of private property all these things go into making a civilization we've learned this but apparently we haven't learned it entirely because since two thousand and we've done nothing but grow the state you know and intervene and prevent people from finding their way out of the recession and that's really the essence of what they call stimulus it's not stimulus it's the opposite and i think it's wonderful thing that the so many movies are coming out like in two thousand and twelve kind of the subsequent events at me. like hunger games dark

knight rises so many are about this great struggle between between liberty and power between despotism and you know the desire of people to control their own laws so they can build a prosperity for the watching movies and i think the reality of our economic situation thank you so much jeffrey terry's executive editor of la is a fair book. let's wrap up with loose change dimitri what do you say let's talk about inflationary dragon all right. we have long known that pimco is bill gross is not the biggest fan of easy fed policy is given the fed admits that interest groups would be

fifty two hundred basis points higher which means prices would be perhaps four to six percent what were so yes so the significantly influencing the bubble you know both bones in stocks well a newsletter this month he warned of inflationary dragons telling investors ultimately government financing schemes such as today's q. ways are england's early seven hundred south sea bubble and badly dmitri we were just talking about inflation yesterday and inflation calls that didn't play out do you think that ultimately it's at the implications further down the road when the fed and whites balance sheets and you know i think it's one of the down the road these guys say i was surprised that. i think they put on their inflationary trade in like two thousand and eleven go now and they did get. i don't know killed they got they got hit on that pretty bad that was like the whole. center fielder of the sun metaphor that he used but i and i sympathize this because i had

a much more profound pleasure in mind said after two thousand and eight during the crisis i thought that the base money supply increases going to be like a big problem so i'm not you know i'm not criticizing from that from the standpoint of saying i'm all knowing but i think these guys are actually i think bill gross for example is is expecting inflation to come earlier sooner and faster than i am i don't mean well yeah i mean the universe is the growth we should get you want to get whatever i mean i don't have a tractor bill gross does but i'm saying i think that there's a case to be made for the deflation the asset price deflation that we still have where a more to unwind i think of a point if the fed came out and at the end of the air like a few fed officials said hey then that will happen well yeah well i mean. i think that the markets you know this is this is the thing we had colin on calling talked about yes and i've talked about it before and i believe it and we talk about this jim grant i think that the fed is much more in the business of. open mouth policy in terms of expectations then it is anything to that they can physically do because the banking sector is what we rely on to increase the money supply much of the

budgets of the financial sector in general so that's really where the inflation the reflation of economic going to be can come from and i think that we have a lot more debt to work through and a lot more confidence the build up we've actually see that dimitri we're out of time but i just want to ask you about this story we can't play any clips or anything but according to a new study it found that babies born during recessions turn out to be more delinquent teens and they found this across the board regardless of you know whether you were born to middle class family or poor family or whatnot they looked at i think the eighty one recession and they they said it could be comparable now you know i have to say does this because we were born and i would i were you know i was i you were delinquent you were not going you were raised i was kind of wild that was much later long no doubt was when i when you was a very big know you know these are the little group. of the very young that we weren't didn't bring him along. all right we'll leave it there that's all we have time for thank you so much for watching be sure to come back tomorrow in the meantime you know you can follow me on twitter out lauren lyster and you can go

like our facebook page there is the address give us feedback any shows you made that you tube dot com on slash capital account had just an h.d. on hulu and on t.v. now to and from everyone here thank you so much for watching and have a great night. a little worse for the little. one for the. radio guy. what. did you never seen anything like. something law is beneath.

thousands of meters of ice under a rock. the level. that is a law and for many of the a but dangerous even to those who keep it at a distance was was

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