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 backed 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 less 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 few months in fact while 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 this secret duration spending cuts that the last congress put off in this new years deal what doesn't define space and time though are seemingly crazy ideas being discussed about padding the treasury's pockets was a trillion dollar platinum coin or two. full with the reality of tax hikes that were passed when a few nuggets from the fed minutes which are out today and we have left off 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 happy new year to you know what let's talk about what you dubbed the

fiscal cliff let 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 an 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 and i think one or two percent of g.d.p. will be the impact and it depends on what two months from now whether or not then the impact becomes more and then we go into recession but right now looks like we'll just have a slow growth period followed by. more slow growth or recession one of the other because when you say this is going to dock with one or 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 that really kind of you heard. any bad outcome 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 right 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 in the second what's called the sequester the sequester a second time twister got it wrong million times i'm sure now then my next question then. 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.i. 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 get them to vote

or rather they had a very smart there 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 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 environment the government multiplier is very large and so that works in both directions stimulus

you know to the 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 and you know austerity gets you in the deep recessions and that's what's happening all throughout their 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 you know. spain are probably the closest. only until the end of two thousand and thirteen i think 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 by just. that 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 or added one hundred forty eight thousand in november which was revised and it suggests 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 and 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 cycle you might get some minimal for. as they prepare for

a potential cut in consumer spending but beyond that it's really just nonsense and then we 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 another is trying to do so again this time. we don't know what kind of mess this will create but one solution that has been slow to drink could exploit a loophole in the law that allows it to mint platinum coin trillion dollar because they can give any value that they want to it in some people who said they'd 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. words in terms of the debt ceiling is that when the government issues liabilities in this particular form that is. certainly in the public we don't like it 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 fall. artificial constraint in order to keep government from spending too much money but isn't that constrained i mean if you're going to have 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 the comes out 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 and germany they're having debt ceiling debates as the german government has eighty percent debt to g.d.p. and they're saying no we have to stay below that you know of course not because they're not three mornings borrowing in dollar coins with. as much of a deficit problem any other country with you know there are eighty percent spain's and nine hundred percent france is that eighty percent so you know those are the debates that are going on there the united states is having a debate that completely illegitimate and it really you know we should see down 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 lie but they're just walking liabilities are saying we're not going to have bomb by that is what 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 that you know of course that will tip us into recession but you know that's the whole. well it's not about the debts and the debt ceiling it is a kind of sharper trying the thing 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 spain has five percent in terms of their yields 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 the housing prices fall and so they're going to need more capital and i'm out of time but you're saying the spells sovereign bailout in two thousand thirteen i think it's 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. government no longer represents the. people who are going to take care.

in the traditional belief in the us to come up. the way our economic system. is not. going. up. up. i. have. a plan i. let me let me i want it all let me ask you

a question. here on this network is what round in the day we have our knives out. of the sight of space to get married at the rate we're being i can't wait to talk about your name let me .

good. glenn. 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 that right 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 i regret 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. reason i mean just a just a posthumous grudge that 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 state is true that we have to do this because it's the rule because in the movie he's after john bell john for 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 i don't. and it's preposterous and you have to be sympathetic to the german version because there is tons of great poverty that's because this petty crime is 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 is. going on all over the country in every conceivable way whether 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 all the engage everyone is engaged and the miniature revolution x. is 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 jeffrey well you know what they're going to we're doing i know we're going to hear a lot of our you know akhet so that you don't know your lawn or you know i have every shower that i run a contractor but really i mean it's become this way i mean in american life today we have something like a hundred years of craft 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 that the public sector and total one person movember three go this way for them from the exam and examine their laws

well that's a question i have for you because you say you know the example that the movie gives in the violent revolution doesn't work that's not successful what is successful is more this moral revolution when job their 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 the special interests for reelection anymore right willow 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 it 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 that consciousness

dawns on especially on the public sector servants and 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 there i do think what is 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 a law is a fair. writer and economist was kind of born of that same period same same same generation they were both from the bros you know french liberals of the time when i was one was a humanist a writer a novelist that 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 it is a relationship between between government control and despotism and the poverty that results we've seen that since two thousand and eight well that's one question that i want to ask about because if you see me another movie that was out in two thousand called beasts of the southern wild. oh my gosh you're so good you have to see it are you kidding it was a male thing with you know what that mean i felt that this was a movie ok so it's a it's a fantasy that there is a community living in the 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 what's important is that you protect yourself you care for your survival you don't worry about the government coming to save you rather is a scene if you have time to play it that the dad teaching his daughter how to fish . man. you don't have to learn how

to feed yourself. you got to bow your fists ok to shoot punch in. case you have to whack him when you come out. 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 sure whatever the morale is 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 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 i mean. these films 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 to control their own laws so they can build a prosperity for them and they will keep watching movies and o.s.'s and the reality of our economic situation thank you so much jeffrey terry is 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 dragons all right. we have long known that pimco is bill gross is not the biggest

fan of easy fed policy is even afraid of minutes of interest groups would be fifty two hundred basis points higher which means prices would be perhaps forty six percent lower so yes the so the significantly influencing the bubble you know both bones and scars well in his letter 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 why its balance sheets and i think it's on what's going on 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 get. i don't know killed they got they got hit on that pretty bad that was like the whole. center fielder the son metaphor

that he used but i and i sympathize this because i had a much more profound pleasure in mind said after two thousand a year in the crisis i thought that the base money supply increases going to be like a big problem so i'm not you know my criticizing from the from the standpoint of saying i'm all knowing but i think these guys are actually i think bill gross for example is this 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 had 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 list is this is the thing we had colin on call talked about yes and i've talked about before and i believe it and we've talked 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 physically do because the banking sector is what we rely on to increase the money supply much of the baggage of the financial sector in general so that's really where the inflation the reflection of economic kind of you can come from and i think that we have a lot more debt to work through and a lot more confidence to 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 what not 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 were delinquent and i got the reins but i was kind of wild that was much later long no doubt was when i when you want to leave you know you know these are the little growing assuming of the very young that i mean 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 at lauren lyster and you can go like our facebook page there is the address give us feedback and you shows us that you tube dot com flash 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.