does some number crunching reporting on the latest financial headlines. good afternoon and welcome to prime interest i know it i'm bob english in washington d.c. area and has a day off and here is the story we're tracking today were to help our stan this has to be the stupid as a place i worked at all those are the words of one standard and poor's executive who was talking about fraudulent ratings assigned to dubious to put it charitably securities during the financial crisis and we know this only as a result of a lawsuit that alleged fraud on behalf of the several ratings agencies now the suit

was settled but not before scathing emails were made public and finally brought to our attention thanks to rolling stones matt taibbi another quote well let's hope we are all wealthy and retired by the time this house of cards alters nice job as in fee now let's get to what's in your prime interest. yesterday i spoke with chris martenson he's the owner of peak prosperity dot com and i asked him about the recent fed decision here's what he had to say. one surprise was bernanke being asked a question about interest rates and he admitted to being

a bit surprised as to why they were rising they were a little confused by that and and that raises a couple troubling questions i think i think it certainly does and you know when we have these stock market corrections a lot of times the money just flows into u.s. treasuries but what we're seeing now is kind of a flow into us the u.s. dollar and some currencies so is this a sign i mean are we just repeating two thousand and seven two thousand and eight now are people hoarding cash. it certainly looks like a dash for cash we're seeing bond sell off we're seeing equities sell off that's across all markets all sectors we're seeing commodities get hit the only thing that's really gaining at this point time is cash so if that doesn't look smell and taste like a liquidity crisis two thousand and eight i don't know what does we'll see if that turns around but for now i think that's going to church and in april of this year you made a rather bold prediction perhaps a forty percent market crash the markets went up in may a bit but then of course they've since corrected and they're still trying to flesh out whether they're going to take out those april highs do you still stand by that

prediction. well i do i had a number of fundamental reasons for believing the stock market was just overvalued relative to the macro conditions there's only so long that markets can remain elevated or separated from their underlying macro trends this has been a very long pronounced period of it it's the best deviation that money can buy but i was seeing that the effects of stimulus were wearing off that the fed's eighty five billion a month was just enough to keep things elevated and should there be any sort of a hiccup in the liquidity flows that's where i was starting to get concerned that there was a chance the possibility of a large market correction the way i saw it was the chance of the market powering a lot higher was less than the chance of the market going down a lot it's just a risk play and so i still think that that's a possibility that's in consideration that we have to look at sure and it certainly seems like the fed has been getting diminishing returns on its ever increasing amounts do you think he's going to go. and reverse course and finally say you know

if there is another market crash that he's going to double the monetary base yet again a larger pattern. he's going to have to the fed is really painted into a corner and of course this painting started all the way back in the early eighty's but greenspan really accelerated in the ninety's all of this can't be looked at nice elation we have to understand that the united states got highly addicted to spending a lot more than it was earning for a long time at the federal level at the national level and so what do we do with that we have both debts and liabilities on the books off the books that really can't be met under current terms we need inflation we need credit growth we need the banking system healthy and the only way to achieve that as far as i can tell is to create even more inflation in the monetary aggregates than we've seen so far and that money has to get out into circulation it's that last part that stumped the fed so far and i think they're going to have to double down well where we see now one

point seven trillion dollars in excess reserves it's lying fallow at the fed. and some people say that's not even a dangerous thing because it's not necessarily translating into very high price inflation right now but you know do you see that this as an eventual disaster just waiting to happen. well it certainly is tinder where do we get the match or not is the question i think we do and my analysis says that look europe is in is in deep trouble every one of the southern european rescue packages was predicated on the idea that we would get growth this only way they work they were basically extensions of loans they were kind of like gigantic rollovers for greece for spain and spain really went all in took their pension assets bought spanish sovereign debt with it took the money from the e.c.b. and used the banks flip that around and bought spanish debt fingers crossed that everything reverses and goes in the right direction and has an unemployment bad loans housing market correction all those continuing unabated for spain so we're going to get to another rubicon moment first for europe they're going to have to

decide is it one more big roll over with an increase in the risk or are they going to cut the losses politically i don't think germany has it right now to. front spain another couple hundred billion or greece or even italy so looking at the interest rates marching across the southern european issues in particular real concern there it says growth is incoming lot of lot of risk there and we're all tied together on this at this point in time and certainly germany doesn't want to pony up another few billion or tens of billions of dollars but what about the e.c.b. i mean mario draghi has hinted that he might even go for something as crazy as a negative deposit rates is it possible that the e.c.b. could simply bail out the entire euro system. well even with the negative deposit rates what he's trying to do there is the money out of hiding right all those excess reserves would certainly come out and try and do something if they if it was you know a huge opportunity cost aside but a direct cost to storing those that's the idea but that's what a obby is trying to do over in japan as well and they're using it the notion of

debasing their people. to get them to take it out of hiding and spend it i guess and what we found is that the ability of the central planners to really affect macroeconomic trends by twiddling at the margins is not it's not good so far what they really have to do is they have to address the underlying structural issues we have too much debt the question is always been who is going to take the losses and that's the next part of the story that's queuing up right now ok and what happens when the fed stops buying bonds i mean they are the largest marginal purchaser of bonds right now and if they do eventually stop i mean is that going to be the rubicon moment for the entire world given that the u.s. dollar is the reserve currency and another question could the u.s. dollar as the reserve currency falter because of that. well the general theory that i'm working under is that what we're going to have is is a general implosion back towards the center you find lots of peripheral markets.

certain weaker elements they all start to fold up first and then it gets back to the center which is the united states let's let's be very clear everybody knows that if the fed stopped printing today there would be tremendous difficulties in both the bond markets the treasury market in particular the mortgage backed security market and by extension the equities markets all of these markets have been elevated by the fed with the intention that if they did it long enough the underlying economy would come trundling along now we were gail ourselves in the u.s. with well we're not as bad as europe we have two percent three percent economic growth but you have to look at that in the context of having deficits that are six seven even eight percent of g.d.p. and without that stimulus we would be in recession how do we have four bad stimulus and those deficit spending sure is easy the fed buys it they've bought half of all the u.s. debt that's been issued since the crisis began and if they stop that we would see interest rates rise interest servicing costs begin to spike for the u.s. we would see gyrations in the treasury market and we've had this wonderful virtuous

circle which has been falling yields chasing people into equities and so we've had falling yields and rising equities but this coin has another side and virtuous side of this coin is the exact opposite it's rising yields and falling equities that's the dynamic we've been in not since yesterday but for about six weeks now well and let's talk about china who is another large marginal purchaser of u.s. debt what do you see in their future because they've been experiencing a lot of price inflation and markets but they also have this short term funding liquidity crisis there isn't enough short term cash to go around especially in their money markets and they're also trying to rein in you know the shadow banking system which over there has kind of gotten out of control what do you see for the future for china. i think as long as china is running a positive export surplus with the u.s. they're going to continue to round trip that money in a sterilized fashion back into treasuries that's what they've been doing i see no no break in that it's been surprising to me the level to which china has been

willing to risk a real banking catastrophe by attempting to rein in the banking shadow banking sector overnight lending rates of twenty five percent this is explored unary they have bar none the largest property bubble i've ever witnessed i think property bubbles are in effect when you get over price to earnings the price to income ratio is of maybe six seven eight six three nine a really positive about a ten were off the charts china has major metropolitan areas dozens of them that are over twenty eight on that measure it's extraordinary so i don't know how they get come down from that chilly but racking up the overnight lending rate to twenty five percent or allowing that to happen i don't i don't know if that's the gentle way to do it so that's the wildcard in the story of china suddenly has a huge liquidity crisis that forces it to put its its abundant reserves and direct them inward into the country that could severely limit their ability an appetite for u.s. debt particularly in a rising interest rate environment it does seem like they're in for not an easy

land landing over there let's get to a crash course series what can the average investor do in this crazy market environment how do you how does one protect themselves well our basic advice has been consistent throughout all the various things that happened over the years the first thing is you get out of debt if you have high yielding debt might as well pay it off that's credit card debt auto debt student loans maybe your mortgage in this environment too even if you've got it at something tasty like four percent that's part one part two there's a lot of great investments you can do investing in your own house there are certain things you can do with energy efficiency that are allies that are in the double digits it's guaranteed as long as you're going to eat or cool your house that you will get a return off of that thirdly we still think everybody ought to have some gold gold is our insurance policy and what is insurance against not inflation. really insurance against financial system instability it's insurance against different types of currency debasement that could lead to who knows what kind of gyrations in currency markets that lead to institutional failures maybe even sovereign failures

if not default things like that so we still think gold has a place in the portfolio and then after that you have to manage your money really really well. now that was my interview with chris martenson owner of peak prosperity dot com coming up don't miss parian six lady interview with adam leave before who reveals the secrets of colbert central banker meetings in switzerland then prime interest group produce or just being underhill and i begin to the nuts and bolts of federal reserve stock market manipulation finally political commentators sam sachs and i do all over ratings agencies for the s. and p. even exist.

download the official publication to yourself choose your language stream quality and enjoy your favorite. if you're away from your television or it just doesn't do so now with your mobile device you can watch on t.v. anytime anywhere. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realized everything you thought you knew you don't know i'm tom harpur welcome to the big picture.

more news today. think these are the images cold world has been seeing from the streets of canada. today. speak your language. program some documentaries in spanish. use the. stories of. the spanish. visit.

the. earlier period interviewed author of tower of she first asked him about the history of the bank for international settlements and here's what he said. well the bank was first set up on a slightly obscure technical mission to manage the reparations payments from germany for the first world war after the war's over in one thousand nine hundred for a decade or so there was a lot of arguments about how much germany should have to pay for starting and fighting the first world war and eventually they agreed something called the young plan and they needed somebody to administer or something to administer the young plan so they set up the bank for international settlements to do that the b.o.'s

but the real reason the b.o.'s was set up was to have a place where central bankers could meet in conditions of secrecy and under very strong legal protection the bank was founded by an international treaty in one nine hundred thirty and it's the only commercial bank in the world that's protected by an international treaty. and that the treaty of versailles. the hague treaty ok or and then in the early one nine hundred thirty s. germany stopped paying reparations so what was the role of the b. i asked once that's happened. the story of what happened after the reparations is symbolic of what the b.o.'s has done through the decades which is continually reinvent itself according to the needs of the times so that germany stopped paying reparations in one nine hundred thirty two in effect so really there was no need for this spring to carry on existing but the bronx swiftly remodeled itself as the prime meeting place for central bankers from around the world and the directors

used to meet every month or so to talk about monetary policy and the international financial situation. well now what were two words a really tough time on you know you mentioned the cross they having to reinvent themselves by nine hundred forty three business volumes bowed to less than five percent of its average pre-war years and during this time the b.a.'s had millions of dollars invested in germany and the payments it received accounted for. eighty percent of its income this f.x. how has interacted with germany during the war yes that's a very good question and it didn't just affect it virtually decided it and controlled the b.o.'s interactions with germany because the b.o.'s after a while was almost wholly dependent on the interest payments it received from the nazi germany for its pre-war investments and here is the story gets quite bizarre because during the war germany kept paying the interest on all those investments

and the money went to the b r yes the b i has distributed that money to its shareholders and included the bank of england so through the b.o.'s nazi germany was funding britain even though the two countries were at war. there and what ways did that be i as a work with the nazi party during the war. where the there was a very strong german presence on the board of the b.o.'s the waterfront the president of the right spank and his deputy and all pool who was the vice president of the right spang would both be i.a.s. directors as well as a man called home and schmitz and herman schmitz was the c.e.o. the boss of the notorious german chemicals company i g farben which ran its own corporate concentration camp auschwitz and also manufactured cyclone b. the gas used to murder millions of jews so germany was very had a very strong presence on the border the b.o.'s the b.o.'s did a lot of foreign exchange deals with a rice spank in the second world war and it also carried our other services for the

for the germans and the relation was so strong that poole who was the vice president of the rice bank actually said the b.o.'s is our only foreign branch. that was adam lee bore author of tower of basel. the federal reserve has pursued many strategies over the past hundred years to achieve its mandates but before the modern two week period the fed most frequently used temporary open market operations such as repos where security is sold with the agreement to repurchase at the following day or even week however in two thousand and nine the fed waded into uncharted waters when it assured in q.e.

it started buying assets permanently keeping them on its balance sheet so temporary open market operations became permanent ones tomos became homos and held for more and pomos we turn to prime interest producer justin underhill justin can you tell us a little bit about this so-called absolutely well it's time that the fed can docks pomo purchases they alert the public in advance and they say we are going to buy this many assets from primary dealers on this day and this time and the question is on those days that the fed conducts these purchases how does that affect the markets and a lot of people allege that this actually pushes up stocks because large institutions that receive the capital injections are able to leverage this money and use it to ramp up equities so i'm going to show evidence from the beginning of the very first q we that this was indeed the case and if we take a look at the market specifically the s. and p. five hundred on the days that the fed did not hold auctions between late march and late july and these are non pomo days in green this is the net number of points and

gained during each hour of the day so for example between twelve and one on these non pomo days the market netted a gain of about ten points not very much at all on the other hand if we look at the . when the fed bought assets we can see a much larger were reined in the net gains and losses so these are pomo days now it's cute the most curious aspect of this is that on the pomo days the market netted almost seventy points specifically on these days and so obviously there is quite a strong effect and this would have been a good trading strategy at the time but once this was the sky varied this edge was pretty much arbitrage out so just to let me ask you a question here is there still a comparison to be made between these promo days non-problem that's a little bit hard to do now because pretty much every day is pomo day and actually in along with the summer solstice i want to wish you a happy pomo day today the fed actually conducted about one point five billion

dollars of asset purchases this morning that's quite a bit yes but i also want to mention that you also wrote a paper about this in two thousand and nine called the grand unified theory of market manipulation and as i was reading this paper there was a quote following it until i read this quote that i want to bring up specifically the quote reads you're talking about interest rates rising to a critical level you said the fed or federal reserve becomes locked in a money printing cycle that will ultimately become hyper inflationary and will result in the federal reserve having to buy every u.s. bond note and bill in order to prevent economic armageddon that comes with a panic exodus from u.s. debt and currency does that scare you some little tin foil hat so me i'll tell you what i still stand by that yes i wrote that four years ago and guess what we've seen a serial money printing cycle by the fed we're now in iteration three q we and we haven't hit that armageddon moment just yet but one point seven trillion dollars in

excess reserves will matter some day mark my words seems really dire but you just it was great thank you. joining me for today's daily duel political commentator sam sex too isn't it too i love my pay at home and as we reported earlier court documents in a private lawsuit against the ratings agencies revealed some rather scandalous content won high ranking s. and p. analysts actually said as you know i had difficulties explaining how we got to these numbers since there is no science behind it those numbers would be used to assign a aaa rating to a security that would amount to a triple zero so i think that both of you and i agree that the rating system is

flawed but how would you fix it in your in your world how would you implement a great rating system central planning or what it's going to say about. these these letters that you get him across or are pretty explosive i think one of them says hey i hope we're all rich and out of here by the time this house of cards they knew what they were doing i look at these rating agencies the same way i look at u.s.d.a. food inspectors and things like that this is this should be something that's nationalized this is should be something that operates on behalf of the public good the government should have more control over who is over what these investments are companies are actually worth not the banks are you actually the u.s.d.a. has a good model how many people die every year as a result of failed inspections i mean at least nobody died in the financial crisis because moody's assigned a aaa security you know something that wasn't even deserving of it well first i

would argue that probably lots of people have died as a result of the financial crisis from the stress caused from foreclosures you know health care losses when they don't have any more money to pay for health care things like that. but yes the u.s.d.a. you. has issues and yes bad food sometimes gets in the market in a kills people there but that's better than the alternative which is trusting these major agribusinesses or trusting these major banks and regulators to police themselves time after time again we see that they can't police themselves a ratings agencies are already believe they are licensed by the security of the securities and exchange commission and they have together a monopoly on the ratings business this is already a nationalized internationalized all its crony capitalism is that they be whatever you ok and again in your central planning universe where you are king of not only our universe and all other parallel universes how would you implement a nationalized rating system that actually works and isn't subject to crony ism in

the government sphere the same way we have implemented most programs that keep a watchful eye over the commons the banking banking sector is just as much a part of the commons as our food as our air as our water it should be regulated and that includes the ratings agencies sam i'm going to rate you right now and unfortunately it's going to be fruitful the. tonight's picture if you want to weigh in on today's show be sure to like us on facebook at facebook dot com slash prime interest and don't forget you can follow sam on twitter at sam sachs and you can follow me at english sam thank you so much for joining me this on . i.

it was a day of revelation and revolution here a prime interest first it took a rock'n'roll magazine to reveal that the s. and p. was as crooked as bernanke is monetary magic wand chris martenson and adam lee bore open our eyes clockwork orange style to the shenanigans of the central banking. system and just being plunged into the protection scheme support for equities markets as for the revolution it will be televised right here on prime interest so stay tuned thanks for watching and make sure to come back monday and from everyone here a prime interest of a great night.