good afternoon to welcome to prime interest i'm harry and boring and washington d.c. and here's the story that we're tracking today. it's good news for jobs or is it the two headline numbers from this morning big employment report beat expectations but about two thirds of those games were in leisure and hospitality temporary work or retail sectors well regardless of this the federal reserve which keeps a very close tabs on this report will take notice of the improvement in unemployment which ticked down to seven and a half percent which this is just one percentage point above where the fed would start to consider slowing down and eighty five billion dollars per month the money printing program. just a few weeks into her new role as i.c.c. chairwoman mary jo white is confronting some very tough issues that her predecessor

table first it was the jobs act and now it's money market reform and her interim predecessor at least being walter how to save this on the subject. i would much prefer to see a proposal be put out by the f.c.c. and by the end i think virtually everyone if not everyone on the upside agrees with the pressure to reform them all tied trillion dollar money market fund industry and the evidence is a key part of the shadow banking system that sees the financial panic we'll talk to stim aggressive and more with the former o.m.b. director david stockman and a bit finally a little birdie told us that one has added in i.p.o. experts a payroll that's right cynthia gaylord hails from morgan stanley and her seventeen years investment banking experience include work with facebook and linked in investors and facebook to love i.p.o. are still reeling in from a disappointing star in mixed earnings results hopes are that twitter will be able to tap

a new. revenue streams with out drawing user anger all right let's get to what's in your prime minister. david stockman was president reagan's budget director from one thousand nine hundred one to one thousand nine hundred five prior to that he was a member in the u.s. house of representatives and after his time in the public sector he worked on wall street he ended up and private actor equity and as a part of that he became the c.e.o. of collins and aikman which is an auto supplier he has released a new book called the great deformation and where she's highly critical of the establishment and the federal reserve now some of his his biggest critics include

mark thoma an economics professor at the university of oregon and he wanted stockman with the wit not of the day award and of course paul krugman called the book cranky old man stuff. but on a more serious no in two thousand and seven he was indicted on charges of conspiracy securities fraud and obstruction of justice for his work at the auto supply company he faced thirty years in prison the charges were eventually dropped though now i've got some exclusive and cite from stockmen on this case along with his take on the fed's expansive monetary policies you might be interested to hear his side. it was a rogue prosecutor who had no experience in the financial markets she had prosecuted drug cases and murder cases didn't understand that detroit was going through a meltdown i owned an auto supplier layout in my book that it was insanely leveraged it pushed it way too far i was in the bubble like everyone else the company

collapsed but it collapsed due to too much debt due to too much participation in this whole massive leveraged spree that we've had nationwide for the last couple of decades that's not a crime that's basically stupidity mine i paid the price by losing a lot of money and after a couple years demonstrated the justice department that this road prosecutor had no clue what she was talking about they withdrew their case and they even allowed four or five people who work for me to withdraw their pleas on the grounds that there's nothing wrong had been done so this is what happens but the larger point is that our whole system is been in a bubble for several decades now everyone gets caught up in it we become a bubble deniers that's where washington is today and clearly that's where the fed is and we're heading for the third bubble collapse this century and that is going

to be a real tragedy when it happens well i'm sorry that you had to go through that but i'm happy to see that you've rebounded from it and i do want to touch on some of these bubbles in monetary policy like you're starting to mention now we have here a graph showing the dramatic increase in the monetary base due to the fads and to see enter vention after remains as a result of the lehman bankruptcy of a fad dramatically increased short term lending at the time the overnight funding markets had virtually shut down posing systemic risk and if one doesn't believe that the fed should step down as you've suggested what do you think would be an alternative solution. well the fed should have allowed the market interest rate to rise that would have forced the last standing gambling houses like goldman and morgan stanley to file for bankruptcy they were totally would totally insolvent that's what the market is supposed to do historically that's how excess leverage excess risk taking has been purged in clans from the system bernanke he panicked

and he it creased the balance sheet of the fed in seven weeks by nine hundred billion that's incredible you know that's six seven hundred million dollars an hour for seven weeks straight and that nine hundred billion panicked expansion of the balance sheet to try to flood wall street with cash was equal to the entire balance sheet growth of the fed for his first ninety four years so if that isn't bordering on lunacy i don't know what is the idea that somehow the last standing gambling houses in wall street were going to fail and then this was going to spread is a contagion to the rest of the main street economy is an absolute urban legend i documented in my book the main street banks were not in trouble there wouldn't have been a run on the bank there was no great depression two point zero around the corner that's just. eroni is fears and false scholarship from the one nine hundred thirty

s. and so we were sold a bill of goods and we ended up basically disabling the free market in the fundamental disciplines that a capitalist financial system requires so you don't think that the entire brains that somewhat have collapsed at the fact that step in no i lay out in detail that if you look at the main street banks community banks regional banks in the united states at the time they had something like twelve trillion dollars worth of assets less than two hundred billion or two percent consisted of toxic assets that were falling. and value all the rest of it was basically whole loans of one type or another that probably would have generated some losses over many years but there was no immediate down happening in these banks there wouldn't have been lines you know it's a teller window all of this was just a lot of below it was it had told by the panicked man in washington namely bernanke

the am a couple of people on the fed and paulson and the goldman i again running around with their hair on fire on the third or the treasury building just one of the great it was i called it a coup d'etat and i use the words vice of lee because effectively that's what it was washington didn't have a clue bush was in the dark the congress was buffaloed in a field people basically did a very terrible thing why i really appreciate your comments on that we recently interviewed she was bear who asked we asked her her solution for resolving the banks during a crisis and this is what she had told us. so i think the only viable strategy if one of them failed now would be his control the holding company continue to be healthy parts of all the arms into nickels underneath and but then put all the equity and secured debt in receivership. to restrict. how feasible do you

think it is that have an orderly liquidation product process that doesn't pose a systemic risk and is this solution a too big to fail well it agree with her in as a matter of fact my book to try to explain this history and remember it's an eighty ninety year revisionist history names eighteen villains and eighteen policy heroes and of my eighteen heroes the first one is carter glass who created the fed and not a monster that exists today who created glass steagall and not. that kind of wall street gang houses to develop that we have today and the. last hero is sheila bair who tried to stop the most extreme part of the nonsense that was happening and do away to all nine and she simply got shoved aside by. under obama and by paulson under bush because what's good even though sheila bair knew more about

the real sadness of the banking system as head of f d c as a long time practitioner of policy in washington then all the rest of these wall street characters combined and what happens that's why i call it a coup d'etat she is ignored she is told to keep quiet while the interlopers from wall street do the damage that they did and. i would i would agree that she will bear has provided great leadership with her work at the f.b.i. see i wanted to get your take on her generation which is inheriting a very rough economic future and i don't know if may or may not be available to them yet they're paying end of inheriting unsustainable amounts of debt including federal debt personal that there is that over a trillion dollars in outstanding fixed it loan debt and unemployment among young people as high as twenty seven percent you know what would be your advice to young people who have. employment. well they should be appalled by what

their current generation is done we have had a party for the last thirty years when i first was in the reagan house the debt of the public and private total credit market debt of the united states was five trillion it's fifty six trillion today a ten fold increase in thirty years the economy is grown by four times the best we've had a massive leveraged buyout everybody gorged on business households consumers governments and now all the due bills are following the generation that's going to inherit this mess i don't know what i could tell them except they need to start standing up for their own future and throw the bums out who are running the system today they deserve to be thrown out and they don't deserve to be making policy any longer well on that note i've also heard you say that after seeing balance by a republican president that there's really not much hope for free market policy in

the governing process so if you are someone that wants to live in a free country which would have to include a free economic society what would your advice to young people when you entertain the idea of going elsewhere. no because i think we're probably the cleanest dirty shirt in the neighborhood europe is far worse they're far over more over the deep end in terms of the unfunded ot of their welfare state and the crushing burden it will impose on young people where as as it is here japan is you know on the verge of bankruptcy as a practical matter in the great house of cards and come tumbling down in due course so this is a worldwide problem because the leaders in every country of follow the same money printing borrowing debt fuel economic policies that have

give the economy a boost for a while then become addictive and finally become totally debilitating and that's where everything is landing at the current moment. that was david stockman author of the great deformation and former director of the office of management and budget up next i'll talk to our tea party third just seen about the monetary base the money supply and the difference between the tale and then our t.v. producer bob english and i will take a look into the greatest two minutes in for it's a kentucky derby and present our own horse race what we call the banker's cup dating.

old. technology innovations all the developments around russia. the future covered. they all see themselves as dying swans in their dreams. but only one in a thousand will ever make it to the top. they're ready to give their lives for the chance to die on stage if only once. not even broken wings can deter them. for generations at the marine ski theatre ballet sweat and tears on a. potentially deadly blizzard taking aim for the northeast it's expected to hit stunning in

a few hours from new york to maine we have team coverage of the storm. but what we're watching is the very heavy snow moving into boston properly or today it was very sticky you can see it start to become much more time to read. and there's still a lot of snow out here at least for snowball fight. d.c. it is been a pretty incredible day there and the record so far throughout what's been like bilbies like three drivers listens to the urgency here except just. today the unemployment rate dropped from seven point six percent to seven point five percent and with federal reserve dual mandate of maximum employment and price

stability of employment continues down this downward trend for the rest of the year it's possible that the fed will slow down its expansion the monetary base this could enter actually a fact of the money supply as well while for more on monetary base we're going to turn to prime interest producer justin underhill just seem thanks for joining me thanks for having me. can you explain what is the difference between the monetary base and the money supply because they seem similar it might be confusing people get them confused all the time so the monetary base is currency in circulation that's coins and bills as well as reserves held by the banking system is the things that much of the fed can control directly and that's through issuing more bills that's why if you look at a bill close up it says federal note or by digitally creating money through cutting the reserves. of member bank accounts at the fed but if you look at our

bills they call them interest know exactly how many measures the money supply are there right so that there is also the money supply which is currency in circulation so that's similar to the monetary base but it's also savings accounts checking accounts as as well but not reserves of banks which is a key difference and there are several different measures one measures and one which is currency just currency in circulation as well as checking accounts very liquid and there's two which is one plus savings accounts things that are less liquid and then there's three also which includes two plus things like repose and large time deposits which are a little less liquid and three however has not been calculated by the fed sends two thousand and six they used to report on it but then they stopped because they determined it to not be useful one and two and three and repros i think we're talking about current one measure about these more than others yes so when people

refer to some money supply they often refer to m. two and we have a graph here of monetary base versus money supply and as you can see here money supply the monetary base in two thousand and eight drastically increased and two thousand and eight it's tripled. and that tripling has had quite an effect i should note that there are two scales here the monetary base is substantially lower the money supply well the fed controls the monetary base which influences the money supply increasing the money to be should theoretically increase the money circulating in the economy and you would expect it to be amplified by the banking sector as much money is created in dodging as you through critics by traditional banks banks can lend in london lend up the monetary base the fed can indirectly influence bank lending by keeping interest rates low. oh which means that banks need to lend more and take on riskier investments to try to

maintain their net interest margin but while the base has tripled we have seen the money supply increase substantially but it hasn't increased at the same rate we haven't seen an unprecedented expansion of the money supply which you might have expected when there is you might have expected some sort of amplification we haven't seen the inflation or even hyperinflation that somehow did well the monetary bit was increasing we're just seeing why haven't we seen a more drastic increase in the money supply or one of the reasons that we haven't seen more drastic increase in the money supply is because of interest on excess reserves now this was something that the fed started in two thousand and eight during the crisis and it sounds exactly like what it is the fed started issuing interest on excess reserves that banks held and that basically meant we saw us huge spike up in excess reserves held there and these are two thousand and eight there are currently one point seven trillion dollars being held accessors that's a huge amount and that's just money sitting there it's not circulating through the

economy right now but with that we've seen about a two trillion dollars spent in the monetary base which has meant that it's sort of created sterilisation effect. all this is a whole nother topic that we just don't have time again today we're going to save it for next time thank you so much for joining me to explain monetary monetary expansion in the money the money supply thank you so much. up next a. the daily walk joining me is our team producer bob inglis once again alone and

we're closing the week with our best to all yet i hope. we have you big things coming up this weekend on saturday is the one hundred thirty ninth running kentucky derby at churchill downs is also known as the greatest two minutes in sports the kentucky derby was first held in eight hundred seventy five but today is expanding this huge race over one hundred fifty five thousand people are expected to be at the race the winning horse is guaranteed at least one hundred five million dollars but there's a lot more money at stake than just that last year at the derby one hundred eighty seven million dollars with that on can you tell us a little bit more about bidding process ok you know i'm a betting man right and somebody in the office but me that i couldn't relate the betting process to the shadow banking system so that's what i'm going to try and do that ok just stick with me this may take a few leaps of logic but we have the new york racing association and if you want to bet on a horse you can deposit money through your checking account or

a credit card and what do they do with that they have to put it somewhere and a lot of times if they want to earn it at a rate of interest they will have to deposit this money with a big bank that might end up doing the repo with this money or a complex financial track what do you mean by repo repurchase agreement and it's part of the shadow banking network so stick with me here that's when i lend you money and then you give me a collateral and you agree to repurchase it at some later time so basically i hold the collateral and you get the money in the meantime and there is an interesting historical parallel with this in washington d.c. right here with the d.c. metro system and this comes by way of economic policy journal march of two thousand and nine and used to write for it and the d.c. metro system put money that prepaid prepaid money on deposit with the scandinavian bank and the scandinavian bank entered into these complex repo transactions with g. when it blew up the d.c. metro system could not get their money back. so all i'm saying is if you put money into the betting system in new york racing association it's very possible that that

money is becoming part of the shadow banking system but it is too right that horse racing is the only on line betting only legal online betting i mean there's still some offshore stuff that you can do and you know if you happen to know a bookie that's all done by telephone and words and what not but you know i think we have our own horse race that we've been talking here about we've come up with a couple of names so we're going to have the bankers. first up is bernanke you last stand ok bernanke he's last in many have compared this smallish but tolerable thoroughbred to the horse that cited him irrational exuberance but there are a few critical difference between the two bernanke is less standard b.l.s. has added a number of payrolls to the team recently and has the second most well capitalized racing team ever at least on paper now they've been known to handle each other's team others teams outfit and ominously there are rumors that underneath the team stalls at thirty three liberty seat street in new york city lies the biggest cash

of tungsten ever assembled now bernie comes from a problem of stallions tracing back to nine hundred thirteen but a curious trait of this line is that they are very slow to react to turns in the race track especially when he is into the final stretch so don't count him out though because even at seventy one odds he has been known to hyper accelerate into the finish to boot bernanke is a crowd favorite as well coiffed as well quite silver mane shimmers in gleams on sunny days all right well that sounds and process of but i have my money on diamondback now diamondback is known as one of the best known representatives of the wall street line thoroughbreds but he actually arrived by way of chicago now his father the daily bell ringer was known as a real skull cracker into the finnish diamondback used to go by another name obama's favorite banker but his owner was forced to change it. name after a series of stumbles on the track most notably after he blew four billion dollars

on the london mayor tant turned out to be a portly clydesdale diamondback is a well sponsored by his friends in congress and his legendary unstable hold the largest collection of manure swap derivatives and the world he is a generally well tempered but he's easily annoyed when others get in the way he's fast out of the gate and if he can keep his rhythm he tends to out run the competition by the sure momentum and the crowd loves the bill but at a five to one odds he is the front runner of this race but he say about that i think you have a decent shot but i i think we're going to let the viewers maybe participate in this and check out our twitter facebook page and see who they like the best and then monday we will have our race and a winner will be announced all right so stay with us will be back next monday thank you have a great weekend enjoy the derby and thanks for joining me on the day we do bob

thank you as always. it was off to the races today as we question the surge in employment statistics and watch the s.c.c. fast track new money market reform. and who can wait for twitter for ray and to the public capital market we're pulling for the x. morgan stanley banker to deliver a twitter i.p.o. cup final and we also talk with david stockman who warned about systemic risk in the celebrating debt burden and then we broke new ground with prime interest producer justin underhill hitting the. monetary base against the broader money supply. and the final lap we talked of the old warhorses bernanke you've last say

and diamondback things are joining me make sure you come back on monday when we reveal the winner of the banker's cup raise that's our show for today be sure to follow us on facebook facebook dot com slash prime interest and you can follow me on twitter at perry and artsy from all of us here at prime interest i'm perry and boring have a great night. here

is mitt romney trying to figure out the name of that thing that we americans call a dollar. i'm sorry i mean the guy here's an awful lot of money you sold art school you know what kind of money there are terror cells. no one wishing to feature is a monkey on liberal democrats. can you believe the voters. are going to look at you to distract us from what you and i should care about because their profit drove. industry that's all the sensational is the garbage he calls it breaking news i'm happy martin and we're going to break that.

the song.

the. only one i dream of becoming a famous ballerina is still with a crown mission to think to say. oh it's just right now i really want to dance the kind of twine and that cracker i love that i want you know i dreamed of being.