good afternoon and welcome to prime interest i'm harry i'm boring here in washington d c let's get to the day's headlines. for you mom and dad once in a while that's what the world's most powerful monetary manipulator told princeton grads over the weekend that would be chairman ben bernanke he was a princeton professor himself other pearls if you uniform isn't dirty you haven't been in the game well after four and a half years of near is zero interest rate policy eighty eight and my friend dana were afraid to see just how dirty the chairman's uniform is but this point but don't worry i've heard channeling poet robert burns and the chairman close and true truman ask fashion give him hell and that's about what we can expect when the fed

tapers away the punchbowl i'll be talking about the fed and gold with peter schiff in a bed and prime interest producer justin underhill will present a chart to explain just exactly what the fed has been doing. q e. and in the u.s. the big banks have had to submit a living a wills to regulators this is basically a blueprint for their wind down should they become insolvent or maybe i should say more insolvent but the central banks of central banks which is the bank for international settlements just came out with its own plan for how to deal with too big to fail and simple they say to solve the creditors of the positives take the onset i was cyprus and force the creditors to recapitalize a new banking entity but this presupposes the creditors have the money to do this after all is too big to fail goes down worst feeling all is not well in the land. and here is a saying that. i

. don't want is the largest commodity market in the world according to the world gold council there are more than one hundred fifty thousand tons of gold in existence of that central banks hold of thirty thousand tons and there are volts however central banks have started lending some of their gold to boy on banks banks that are licensed to deal in gold and silver this is not a very transparent process central banks publish gold per they publish their gold purchases and sales but they do not release any statistics on the amount of gold loaned and swapped into the market by central banks i spoke earlier with peter

schiff the founder and c.e.o. of your euro pacific capital and he gives us the breakdown of the relationship between boyan banks and central banks. the central banks own gold i mean all all the major central banks still whole goal i mean it's the only monetary asset that banks have other than other fiar currencies so gold is still functioning as a reserve i believe that most central banks don't have enough coal as part of their reserves they have too much of other central banks ious but to the extent that the central banks have the gold the way they trade it with one another is through these bullion banks and of course if they want to loan their gold out to generate a return because if you have dollars for euro's or yen you can make loans and you can earn interest although the interest that banks are now is quite low many of them that will buy longer term bonds to get more interest but if you

have gold there's no way to earn any interest on your gold deposits unless you can allow them to be loaned out and i think the the bullion banks facilitate central bankers loaning out their gold but part of the problem is once they loan their gold out and they still counted as if they own did you know what happens if they can't get it back because the whoever borrowed it from the central banks has sold it and they don't own it either so they have to get it back in order to return it to the central banks i mean this process is done through the gold carry trade which was developed in the one nine hundred eighty s. and central banks are ninety on the gold reserves by leasing it out to the boy banks so you know what brought about the need for the gold carry trade whereas central banks in need of money. well central banks are always trying to generate profits i mean most of the central banks pay the profits over to the government but they're able to keep a certain percentage of those bankers have pretty lavish lifestyles but there also

are people who believe that there's something more sinister going on that the central banks are trying to depress the price of gold and one of the ways they do that is by may. there are billion available to speculators who will borrow it and sell it into the market therefore depressing the price because they want to maintain you know a lower gold price so that there is more of a false sense of confidence in defeat them that they're all profiting from and something really interesting in the markets right now that we're seeing as record low gold prices but record high premium prices for delivery have gone this is this is a sign that the commodity exchange of markets and bonds and peter is that they don't have the commodities to back up the trades where we don't have record low prices i mean not even close i mean the price of gold has come down recently but it's nowhere as they were record low gold is still pretty high but what you're saying about premiums is true you know i run a physical precious metals company euro pacific precious metals and when the price

of gold dropped sharply what was a month or two ago there was a big spike in the premiums that we were having to pay to buy gold and silver bullion especially in the smaller denominations and what else quiet small bars the premiums were much higher and that's because the investing public responded to the lower gold price by wanting to buy more gold but there wasn't as much gold being fabricated min's hadn't made it manufactured it so the premiums went way up because demand went up and you know over time now that that premium is started coming down because maybe the men can try to ramp up production to meet the increased demand all of the liquidation was coming from the speculators who never really take physical delivery you have a lot of people who owned exchange traded funds or people who had futures positions

they were swearing off their positions or selling off their e.t.f. holdings they never had a physical delivery they didn't get physical delivery or so they didn't have any physical gold to sell they just had paper gold but to sell. when the paper market drove down the price of the real market and all that extra demand was too much it overwhelmed the physical supply and so the physical market never saw as big a price decline because some of it was offset by the increase in the premiums for those products yet i want to go and see what another factor is that with interest rates being low and they've been low for several years now you know what these banks were doing is taking it that the gold selling it and then using that money to buy something safe like a government blinds but now that's obviously not profitable with interest rates being so low so are we seeing the boy banks selling the gold and use that money to buy something less risky army even more reluctant what well i think they're buying things that are more risky i mean they can't do anything so-called safe because

there's no yield i mean if they if they just plough their money they get by leasing their gold in the u.s. treasuries they're barely going to get any yields and i think they're taking a tremendous amount of risk of course the biggest risk of all might be that they never get their gold back because that's going to be the problem if you've leased out your gold you don't actually have it what you have is a promise to be repaid your gold just like when anybody makes a loan you run the risk that the borrower doesn't pay you back so if you're a central bank and you've loaned out your gold you run the risk that whoever borrowed from you can't pay you back and you know if there's a rush to for the central banks to get that gold back up prices could go magically as banks look to replenish reserves that were lost they thought they had a but maybe they didn't because a loan went bad or maybe whoever was short of that gold and they need to return it to the central bank they need to go to the market and buy it and the price could be a lot higher well according to the world gold council central banks have been

buying increasing amounts of gold recently do you think we are why do you think this is despite the fact that central bankers are openly hostile sicko. well they might be openly hostile but privately they know that they need to own it you know i think that they're trying to keep this system going to have system going but they have to know that it's going to come to an end some day and they want to make sure they have as much gold as possible when it does you know whoever has the most gold when the music stops is going to win and i think a lot of these emerging markets know that better than any of the central banks because they they are swimming in paper reserves and they barely have any gold and so they really need to take any opportunity they can to try to convert what could be worthless paper into very valuable gold and markets of this year j.p. morgan as settled a k.o.i. case was dismissed the class action lawsuit against a few morgan h.s.b.c.

allies they were suppressing and manipulating the price of silver on the contacts however the district knowledge that j.p. morgan had the ability to influence prices the banks did not dispute you could it be you know that j.p. morgan you know has special privileges to manipulate manipulate the price of commodities well they can go to the fed discount window so they can get money for you know cheap from the fed and they can use it to short gold and silver if they want so they certainly can influence the markets in the short run i think over the long run it's not going to make a difference i think the price of gold is going to go up regardless of what individual banks might try to do to influence that price in the short run where they're trying to suppress it or they're trying to make it go up and you know they're trying to make a profit for themselves to do so if the bank can influence the market to profit then it's going to do so the problem is the central bank shouldn't be giving out

money to certain organisations that they could use to try to generate a profit i want to end that practice that's why i think we should go back to a gold standard where you don't have the. that you don't have free money being given out by the central banks to all the banker friends you have real money that has to be earned has to be mined it can't just be created out of thin air ah by government and give it out to their friends and how likely do you think it is that will ever return to a more stable monetary system i think is very likely i mean if you look throughout modern history the gold standard is the norm currencies are an aberration the one thing that's different about this particular time period is that this experiment in five currency is world wide see historically it's only been individual nations that have been dumb enough to embark on a system they've always and in ruins the whole world is now repeating this failed

experiment but it's still going to end in failure and i think once it does the world will turn to sound money again because that is what's work it's proven to work you know if you believe in capitalism if you believe in freedom and limited government then you have to believe in sound money in the gold standard because the two are are mutually incompatible in that it's money that enables governments to grow to these enormous size as they could never finance these massive deficits governments could never be so big if we were on a gold star that was a choice that nixon made in the united states in one nine hundred seventy one he either had to stop growing government and balance the budget or take us off the gold standard and he took he chose the latter we went off the gold standard so government could do didn't have to shrink they can keep on spending money they can keep on running deficits but if we stayed on the gold standard we could have done all of any of that we would have been forced to balance the books slash government

spending and government would be much smaller today had we done that and america would be far more prosperous unfortunately we're about to have a complete economic collapse because of all the damage that has been done to our economy for these forty some years that we've been a lot of monetary system. and there was peter schiff president of euro pacific capital and euro pacific bank and stay tuned because prime interest producer justin underhill is going to answer the one that point seven trillion dollar question where did all the money printing go then a prime interest producer bob english and i will go at it over iraqi oil right and a european the m.p.'s who called the banking system a criminal counterfeiting handle. are.

old. technology innovation all the developments around russia. the future are covered. mission is free accreditation free in-store chargers free arrangements three risk free studio types free. downloads free broadcast morning videos for your media projects and free media gone to r t v dot com. here is mitt romney trying to figure out the name of that thing that we americans call a dollar. i'm sorry i missed the guy who cares an awful lot about what you sorrow are a fool you know what kind of cells in your neighborhood all want usa to feature

a song be on limbaugh all the crystal ball consumers at least some other people. are going to support you to distract us from what you and i should care about because they're a profit driven industry that sells a sensationalistic garbage he calls it breaking news i'm happy martin and we're going to break that. please please. please please. please. let's. see.

i. i i. it's time the federal reserve engages in quantitative easing and expands the monetary base the monetary base is the sum of currency in circulation plus the reserves of the banking system and it is one of the few things that a central bank can control directly but where exactly is all the newly created money going for more on this i turn to private interest producer justin underhill. the scene could you tell us exactly how the federal reserve is defying science sure well the first law of thermodynamics states that energy matter can't be created or

destroyed it can only be transformed and that's in other words you can't make something from nothing and yet this law seems to apply everywhere except when it comes to the federal reserve and we can see this in the graph of excess reserves at the fed and when the federal reserve system was created it was all member banks had to keep a certain amount of cash on hand in reserve at the fed and banks could not get interest on this amount that they had at the fed because things shouldn't be getting paid to stay solvent yet in two thousand six hundred pressure from lobbyists lawmakers agreed to make interest payments on reserve money at the fad and this was slated to go into effect in two thousand and eleven but the start date was actually moved forward when tarp launched and it launched the payments on interest on reserves in two thousand and eight and as soon as the fed started paying interest on those reserves at above market rates you can imagine what

happened reserves went up but you might not be able to imagine by how much this graph shows access reserves that are held at the fed and this is above the required . amount required before two thousand and eight reserves were fairly minimum because there is no incentive for banks to keep their money at the fed but and in august of two thousand and eight reserves were approximately two billion dollars that's accessors after interest payments were launched in october reserves shot up to about two hundred sixty seven billion dollars and then just a few months later in january of two thousand and nine they were at eight hundred and forty three billion dollars and they just want to reinforce that in just a period of six months reserves shot up by more than forty thousand percent and the amount at that time sitting in the fed was more than what congress had approved for the bailout or for the obama stimulus and if that's not enough

reserves continued to go up over the years and right now they are one point seven trillion dollars now the fed did explain the reason for paying interest on excess reserves in the two thousand and eight press release they stated that this would permit them to expand their balance sheet so how exactly does it do that well when the fed expands its balance sheet and this is this line is the monetary base it buys things mortgage backed securities treasuries this is been done by digitally creating money and when this money enters the system it has the potential to cause price inflation and the monetary base from two thousand and eight to now has increased by approximately two point four trillion dollars. but if the fed is taking in large amounts of money in the form of reserves or reserves then that might counteract the inflation price inflationary effects of money creation so that's a two point four trillion dollar increase in in the monetary base and

a one point seven trillion dollar increase in excess reserves to offset now each time the monetary base increased from q one q e two q e three. pretty much increased accordingly and this is because the fed was pumping a lot of money into the primary dealers at the fed and crediting accounts of banks at the fed which directly go into the access reserve accounts now the fed has had to pay interest on all these excess reserves so for those who say that this money hasn't had much of a cost they're not taking into account the fact that the fed is currently paying about three point eight billion dollars a year to the banks on these reserve and all once interest rates rise the fed will have to maintain higher interest on excess reserves to make sure that the money doesn't just flow out into the system and the bottom line is that the fed is currently paying banks right now to do nothing with their money this is so

interesting and we have to make them part instinctive between monetary policy and fiscal policy right now you talk about monetary policy but does this affect fiscal policy and respect to the debt ceiling and the deficit well periodic leave the fed makes remittances to the treasury appears back all of its profits to the treasury every so often and with that one is taking out its money it's taking out some of its profits to pay the interest on on accessories or so what its remaining to the treasury is somewhat less because because of this payment system you know senator bob corker i don't resent hearing he confronted bernanke you about the issue of increasing payments on issues on the interest of excess reserves. were. returns on the reserves as you pull your. market rates will bring exactly what they could be getting in the market in the commercial paper market anywhere else. you're seeing is the fed really paying market rates. the fed in order to encourage banks

to keep their money parked at the fed has to pay above market rates and that's comparable to other riskless securities and if you look at. what the general collateral repo rate is what the fed is paying right now it's similar to that but it's actually they're paying it's still substantially different they're paying double the general collateral report rate so that's about they're paying about two point two five zero point two five percent thank you so much for a understand thank you. joining me now is bob great to be here tell me we're not done talking about central

banks or central bankers so well we have a clip from godfrey boyle me he's from the united kingdom independence party he said some rather unheard of comments on the floor of the european parliament the first clip he's talking about fractional reserve banking it being a criminal scandal. all the banks are broke. and roll bank of scotland they're all broke while they broke to god it is a some sort of tsunami that broke because we have a system called fractional reserve banking which means that banks can lend money that they don't actually have it's a criminal scandal and it's been going on for too long. the ron paul somewhat yeah. it's been going on for hundreds of years here is the issue with fractional reserve banking is that there are what's called maturity mismatches in other words the bank you put money in your checking account the bank can loan that

money out for two years five years ten years but you can withdraw that money tomorrow so the very nature of a fractional reserve banking system is that the rug can be pulled under. ok so that the broken. pulled from underneath it at any time and that means that it's inherently set up for the requirement of moral hazard it's built into the cake here . but isn't this how we get liquidity in the market well you get liquidity i mean why is liquidity necessarily an end to itself and they gets back almost hit t.v. is high frequency trading a good thing because it adds liquidity i mean it's dubious really ok in the next clip from from this member of parliament he goes even farther and he calls counterfeiting. we have counterfeiting sometimes called called to save easing but counterfeiting by and the other name the altar official printing of money which of any ordinary person did go to prison for a very long time yet governments and central banks do it all the time central banks

repress the amount of interest rates so we don't have the real cost of money. this raises a very interesting point and an important one is that what is the cost of money well those are prices that are baked into interest rates interest rates tell us you know demand and supply for money and unfortunately when the central banks go about their monetary manipulation schemes of keeping near zero interest rates for four and a half years these market forces disappear and we end up with a really distorted market it was really interesting i had the opportunity to go to a meeting at the federal reserve and i actually asked the question do they believe in price fixing and i said no. we don't do that i said well what about setting interest rates is that fixing the problem right me and they all looked at each other and couldn't even answer the question they were stunned by how to answer that i posed as a question you know essentially that we're seeing is happening and u.k. as well so another question though is that you know we're and completely switch topics here ok why do we go to war with iraq you know back in two thousand and

three many speculated that it was for oil. to me that his goal was the straits of hormuz which is one hundred seventeen eighteen nineteen million barrels a day of the world's crude oil. goes out to markets i said we're going to war with iraq why. he said i don't know the truth is about the middle east it is had there been no oil layer it would be like africa nobody is threatening to intervene in africa iraq was the chosen vehicle to do something big and bold to take one of the centers of the arab world the government bring about regime change turn it into a democracy and then based upon that that would become a model for historic change throughout the part of the world which is essentially has been the least successful part of the world now richard haass he was

a close adviser to senator are secretary of state colin powell he might have had that nail on the head with this one because today the new york times reported that it's not the united states who are the biggest benefactor from iraq oil but it's china they are the largest importer of iraqi oil. out of everyone so sorry that's all we have time for today you can follow us on facebook at facebook dot com slash prime interest please please follow bob on twitter at english p.r.i. and you can follow me at perry an r.c. thanks for joining bob i do. now it was a suspect day here at prime interest we were incredulous at our beloved chairman's

candor to the senior class at princeton i think he calls his mom before each phase of serial money printing and we couldn't believe what peter schiff said about what central banks are doing with gold would you trust the new york fed with seven thousand tons of the yellow metal how about one point seven trillion and digital cash only twenty five basis points separate us from serious price inflation and godfrey bloom which shocked us with his comments on the european banking system seems outrageous central bank is not a local phenomenon finally we push the envelope and we ask why the u.s. went to war with iraq and apparently it was not all about the oil thanks for watching make sure you come back tomorrow everyone at prime enjoy as i'm hereon boring have a great night. the

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