hard work is a big issue. good afternoon oh welcome the prime interest i'm perry and boring here and washington d.c. here's the issues that we're tracking today. maybe we buy more maybe i'm talking about bonds ben bernanke and the f.o. and c.n.n. today and the pace of q.e.

purchases would depend on labor market and price inflation developments the vague new england to give the fed up with central exit later in the year something that it's been hinting at but an employment report this morning missed expectations so it looks like the fed maintains considerable wiggle room to keep the printing presses rolling for now we'll talk about our previous monetary regime under voice with author ben studio and a bit. the new york minutes has been shaved down to a chicago millisecond and that's just about all the time it takes for high frequency trading algos to front run trades at the chicago mercantile exchange futures markets from gold to crude oil to soybeans have been game to this way for years gold knight gary gensler was already pushing the c.f. to feed implement new oversight of high speed traders this was after last week's a.p. twitter hack that sent markets plummeting in just a minute but it's got this in more on today's daily dual and. that is the head of

fannie and freddie mel watt is the president's nominee to leave the federal housing finance agency the representative from north carolina would replace ed demarco who has been criticized by democrats for resisting measures to help homebuyers at the expense of taxpayers watch will likely feed were the market didn't know much as the mortgage giants are being wound down now and get to what the new your prime minister. in two thousand and eight during the worst financial crisis since the great depression then french president and u.k.

prime minister called for a new bretton woods an overhaul of the global financial system they evoke to the memory of the one nine hundred forty four conference here representatives from forty four nations tracks to new hampshire to design a new monetary system for the post war two era. for the label a break from the world. all agreements must be ratified by the governing bodies of the nations and bar before becoming a back. why was it so important to establish stabilization of the world's currency as well for one the memories of world war one still lingered specifically the unintended consequences of the peace treaty that the treaty contributed to germany's bankruptcy hyperinflation and economic collapse which is why when designing the post world war two economic structure the focus was on reconstruction rather than reparations the key goal of britain woods was to ensure

a stable global currency regime that would help all sides rebuild their economic structure earlier we talked and steel the author of the new book the battle of britain woods i asked him if today's currency wars bear any resemblance to the currency wars of the one nine hundred thirty you know what is the issue there might have been last year seems to have broken down as you know there was a lot of buzz surrounding the i.m.f. spring meetings last week over whether japan my kick start a new international currency war but here's the fundamental problem over the past few months you've heard a perfectly rational sober and. anomic commentators arguing that the dollar is overvalued that the euro is overvalued that the end is overvalued the pound sterling is overvalued these four currencies alone represent over half the global economy they can't all be overvalued yet if policymakers in each country pursues higher net exports through currency depreciation some of them at least are going to be disappointed and that's when you run the risk of over protectionist measures no

this is precisely what f.d.r. as treasury department was trying to stop permanently in the one nine hundred forty s. words but we have a graph here a central bank assets of the percent of g.d.p. europe and the u.s. share of central bank assets are steadily increasing over the past six years and japan's are projected to reach sixty percent or higher makes a quantitative easing itself as a relatively recent phenomenon officially chasing back to japan and shoot outs and wind is it possible that balance sheet targeting or q.e. itself is a manifestation of new monetary regime and not unlike britain we're in uncharted territory is quantitative easing is a reaction to the fact that official policy rates have zero in all these key economic areas so if policymakers want to provide more stimulus they have to use unusual means the interesting thing is that under the treasury department's philosophy back at bretton woods in the one nine hundred forty s.

this would have been impossible because they were determined to institute a fixed exchange rate system where it would be really impossible for central banks to operate in such an uncoordinated manner all during birth and wards of the us heavily advocated for fixed exchange rates but now we see politicians calling for floating exchange rates whether we're criticizing switzerland for putting to the hero or china for paying to us dollar why have we seen such a drastic shift in attitude well actually the attitude has been very system. what we saw in the one nine hundred forty s. at bretton woods was a more competitive dollar which is exactly what we're looking for today in the one nine hundred forty s. all the market pressure on the u.s. dollar was upward so by obliging other currents currencies to fix to the u.s. dollar we were actually hoping to beat the u.s. dollar and down over the past ten years of course we've seen downward market pressure on the u.s. dollar baeza be some key emerging market currencies particular in particular

china's currency so when countries like china peg to the u.s. dollar they're actually keeping the u.s. dollar higher which is why we support floating exchange rates now as opposed to the fixed exchange rates we supported in the one nine hundred forty s. what do you think of the outcome of all this quantitative easing well i think we see the risk of a sort of uncoordinated on the ground wing of the international monetary system you you had after financial crisis world leaders like britain's gordon brown and france's president sarkozy calling for a new bretton woods but we're seeing less and less coordination over time and that could kick start a currency war as countries try to increase net exports through depreciation put again if they're unable to do that then they may pursue more overt protectionist trade barriers i like to talk a little bit more about the history of britain why it's and from the description

and your book that there seem to be quite the political and they're taking even in the choice of location and why why is it that this global economic conference took place inside a small unknown town in new hampshire. president roosevelt was determined not to make the mistakes that president wilson made after world war one in particular not securing republican support for the league of nations so new hampshire had a republican senator. toby who is going to be in a difficult primary battle and president roosevelt thought well if i can help this isolationist charles toby when his primary campaign he might become a convert to the cause as it were support for a new international monetary agreement and convert some of his republican colleagues and you know that's exactly what happened. but this happened in one hundred forty four and by war today and tell nine hundred forty five so why did

this gathering take place for a post war two economy before the war even ended well president roosevelt in particular was not interested in international monetary figures was very interested in sending a political message to the enemy axis powers that it was the united states and the allies who had the compelling post-war vision he actually believed that this would help bring the war to a successful earlier conclusion. there are also some major political figures that participated in the conference one of them was john maynard keynes who represented the british interest and then harry white representing the interests of the americans both seemed like i'm likely diplomats how did their personalities play out in the conference they couldn't of contrast to the more hairy hairy dexter why it was the son of lithuanian immigrants his father where the hardware peddler john maynard keynes was born of upper middle class cambridge academics and when they

came together it was quite explosive and they actually had to go she for two years in the run up to bretton woods and they fought fiercely about whose plans would win the cain's plan or the white plan at one point in one thousand nine hundred eighty three keynes gets fed up with wife who is jewish and yells at him this is intolerable throws this plan on the on the floor and yells this is yet another toy to which harry dexter white responds we will try to produce something which your highness understand. well i've found it surprising that the us solved britain as such a thing. during the great and white conference britain had suffered major blowback staring the war and just a few months earlier of a near bankruptcy in the us supplied them with billions of dollars and bailouts lend lease act why why i have brought in such a threat to do that remarkable harry dexter white from the time that he arrives at the us treasury in one nine hundred thirty four is convinced that britain is the natural geo political rival of the united states actually in

a memo in his arc from one thousand thirty six years before bretton woods in which he writes the more sterling entries there are in the world the more powerful position england will be around the conference table when a conference of benchley takes place so he was a term and to best the british at bretton woods and bretton woods was really part of a larger geo political agenda that f.d.r.'s treasury had which was to eliminate britain as an economic and political rival in the post-war world and if that happened yes in fact the british agreed to a sort of faustine bargain with the united states the united states provided limited financial assistance to britain in the form of lend lease in a post-war transitional loan in return for which the british agreed to three things to eliminate imperial trade preference this is the arrangement by which britain gave self privileged access to the markets of its colonies and dominions it agreed to make the pound sterling fully convertible into u.s. dollars again at a fixed exchange rate which was a mortal threat to british sultans it because they had so few dollars and so little

gold and finally they would have to accept the u.s. dollar as the global unit of account after the war but as british delegate lionel robbins put it at bretton woods we needed the cash while it sensed the u.s. close the gold window and one nine hundred seventy one we have seen geomagnetic progression and the dollar debt white kept the u.s. dollar as the reserve currency there really wasn't any alternative in fact harry dexter wyatt had said before congress in one thousand nine hundred. five when he was trying to convince congress to ratify bretton woods that it was inconceivable that there could ever be a time in which the dollar would not be backed by gold heap you believe that if such a thing work to happen the dollar would no longer maintain its privileged place in the international monetary system but because there was no alternative the world as it were gave the u.s. dollar a second chance and i think it was paul volcker who in the one nine hundred eighty

s. sort of restored international confidence in the dollar and kept the international system from on rubble. paul volcker a combo's accomplish this by raising short term interest rates to over nineteen percent in one thousand nine hundred one which eventually quit turmoil and volatility in the bond markets and created a name for him as a price inflation fighter a legacy that still earns him praise today that would then steal author of the book the battle of bretton woods stay tuned as we faithfully breakdown money and no that doesn't involve italian motor cars there might be more bad backs and you would think then producer bob inglis and i will discuss the fed's announcement today and this is exactly when ben might strap on his tightening tool belt we should be in a for quite a ride when interest rates inevitably rise wasso reveal who wants to put a good housekeeping seal of approval on every age fifty algo no really finally it

will take a look at the justice facebook earnings. free . free. free. free free. free. free. free zone.

for your media. free video card. you might have seen one of these cruising the streets as the feel five hundred the first models entered this in every way and nine hundred fifty seven could go from zero to sixty mph in a whopping twelve seconds a few years ago the u.s. treasury thanks to tarp intervention guided chrysler into a merger with now the new and improved five hundred accelerates along u.s. story i don't know much quicker six point seven seconds but there is another in the monetary world with more torque and acceleration potential than

a humble car could ever generate so let's break down and figure out money or currency investopedia says a government declares a currency to be legal tender despite the fact that it has no intrinsic value and is not backed by reserves historically most currencies were based on physical commodities such as gold or silver but. money is based solely on faith so why would anyone value this paper money well for one thing governments make them legal tender meaning all debts but most important taxes must be settled and them big coins the open source internet currency are another example of it particularly because they have no such official backing talk about faith. after world war two when the us dollar became the official world reserve currency britain was agreement fix the price of gold at thirty five dollars an ounce and other countries were pegged to the dollar and specific ratios this was not technically

a monetary system since governments but not ordinary citizens could regime dollars for gold but at the current as the cost of the vietnam war escalated there was a run on us gold and other countries realize that president nixon was spending far too many dollars in what could be redeemed in gold so what the nixon do well and nine hundred seventy one he permanently severed of a link between the dollar and gold when he closed the gold window. i have directed the secretary of the treasury to take the action necessary to defend the dollar against the speculators i have directed secretary connally to suspend temporarily the convert ability of the dollar. or other was. and late one nine hundred seventy two and i.m.f. committee on finance ministers and central bankers met to discuss monetary reform and according to an a.p. report the committee of twenty eight will be working to build a more flexible system and in the dollars of one special status as the chief

reserve currency but that happened because the most important commodity in the world which is crude oil would be rising all only and u.s. dollars whether this was by design or accident of this would allow the u.s. . price inflation to be contained in an essence and exported inflation to its trade partners so what has been the net effect of dylan king the dollar from gold well since one nine hundred seventy one the us dollar has lost more than eighty percent of its value and the supply of money has inflated upwards of nine hundred percent we'll have to wait to find out but one wonders if the slope on this chart can accelerate forever and that's how we break down the money.

it is time now for our daily joining me is prime interest producer great to be here again with you perry and thanks so much for joining me so exciting things happening today the kind of yeah well the federal open market committee released their announcement today said the labor markets have shown improvement some improvement there preparing to encrease or reduce purchase a hits so what does that mean they're going both ways you know they like to do that they don't like to scare the markets too much so what they've done here ben bernanke and some of the other governors and epilepsy voting members have hinted that they're going to finally raise interest rates we're going into your five near zero interest rate policy but they might do it by the end of the year so this little sentence series but inserted into their announcement which comes out about every six weeks and so we might see interest rates rising later in the year and that has tremendous consequences for the markets and that's one of the things that we're going to be covering here of course while i have great news for you ok i know

how much you love the fed ok you can now live at the fed and where is this antenna thing the downtown fed building a private retail or a private real estate company has an old fed building and they're renovating it and it's going to be called the last of the reserve and it costs about twelve to eighteen hundred dollars to stay there and are they keeping any of the old remnants from the old federal reserve there are there yeah they're doing it in a way to preserve a lot of the store called purposes and parts of the building i wonder if it's going to be haunted by the ghosts of the differences someday i guess we'll have to say i'm wondering at. you can call the fed in washington have them just print you the money to pay for the rent well that would be one way of going about it here it could be securitized somehow and sold off rated by moody's and sold off to investors in china or somewhere. well also and chicago high frequency changers

on the chicago mercantile exchange are gaining information before the markets by renting server space directly from the exchange in the data center it's so they're getting a lot of heat for this where you. i think it's important for people to realize that high frequency trading of what is this exactly. a lot of these programs reside on the actual floor of the data centers so we have the new york stock exchange we know that he has a big presence in stocks but it's also in the futures industry and in chicago this is this has to do with the chicago mercantile exchange we have these girls which apparently have been front running trades for years and coincidentally or not coincidentally enough actually yesterday gary gensler who's the head of the c.r.t.c. was pushing for a resolution or something this you have to see that would monitor. and try to rein them in and this is after last week's and he was going to well this is this and he said this a couple years ago he said he wants to put a good housekeeping stamp of approval on every i'll go i just literally impossible

leave it up to him to figure out no so we have the capacity to do. certainly doesn't at least goes crying to the senate budget committee again for funding this year well i think you know what's really important to understand is that these companies who are engaging in this are trading and milliseconds and macro seconds so we're talking about thousands of a second billions of a second and ever firm is in this in this market space and they have the ability to take advantage of the lane see issue at the c.m.e. all they have to do with update their servers to be a part of it it's an arms race and you have to figure that the people who are making. most money. firms and all the big banks like goldman sachs have to have their tentacles into this goldman sachs is one of the largest traders historically they have been and what what's on the opposite side are the exchanges they have to make sure they're required by law to make sure that there's a fair market for the people like you and me who might want to buy futures

contracts or stocks but they're only getting a limited investment revenue stream from the space that they're lending out so it doesn't seem like it's that balance because the money isn't a they're lending the space that millions of other gaming billions on the order of probably an order of magnitude of difference to me i want to say is that they're you know they're lending the space and which may or may not give them information beforehand we're showing the evidence of it but we heard from someone at the c.m.e. saying that this isn't all the time and it's not to malign all of two strategies that they're not all they're not all causing much market disruptions but one of the arguments against them that they tout is they say they provide liquidity and when we saw it i think we have a graph of this if we can go to a graph of last week's twitter a.p. fiasco the dow jones this is actually a seventy five hundred crashed about one percent within a couple of minutes and then it recovered over the next few minutes and this is something that was affected the futures markets and also the stock market and it

was all based on somebody you have to twitter account which is kind of ludicrous for the whole reason why their rate they're releasing server space so they can have direct access to the c.m.e. so now we're harking on them for using that information that they're paying for well that's true but the exchanges are the regulators doing doing their job by allowing this to happen in the way that it's happening and that's the already well i think what's more important is the infrastructure of these exchanges who's sitting on the board of these exchanges to see i mean has one of the largest boards in existence you should see it's not only that this is an issue that goes way before. high frequency trading was ever in existence and the infrastructure of the of these companies to begin with can be questionable well if you look at the new york stock exchange it's a it's a public company now but it was operated a lot differently what it was just it was just a member exchange ever since it came became public that's when it started having to

please the shareholders that's when it started having to generate revenue and that's when it started renting out leasing it's server space next to each of the firms right next to its status enters all right well let's move on to facebook just release their quarterly earnings today and they parts were good parts are about to happen. ok it looks like there is a beat in a miss one hundred one point four six billion in revenue from thirty eight percent from q one two thousand and twelve ok so this was a beat and analysts were looking for share of thirteen cents they only got twelve cents you know big well i think you know the problem with facebook is when you have an i.p.o. the stock is supposed to go up and there are so many problems at the stock down right now and that's why investors are suing face what they're saying that more exotic bird and company didn't provide adequate disclosures but it's all because they're losing money not the point that goes back to when they issued their i.p.o. there were a lot of traders who had no information for days because well the system wasn't.

there a lot of trading problems the day of the the day of the i.p.o. so there was that and i think the underwriters being sued separately for that you know we're going to see what happens with facebook. thanks for joining us now to that oh. it was a ho hum day at the fed but that didn't stop us. i'm deconstructing the fed nine speak chairman does like to have in bonds and hold them do you can't. we also discuss the flamboyant keynes and his u.s. rival harry white as they duke it out in the woods of bread and for the future of currency we broke down feel money enclosed by only looking at the frequency which

which trades can be made when you're sitting next to the exchange data server and it's pretty high which margin like a virgo might be after a b n m and sun as facebook earning and speaking of which be sure to follow us on facebook at facebook dot com prime interest thanks for watching and make sure to come back tomorrow and all of us here at prime enjoy as have a great night. you

know how 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 that everything is i don't know i'm tom harpur welcome to the big picture.

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