i don't understand gold yes that's what our beloved fed chairman actually told congress today maybe that's why germany wants three hundred tons of it back that would be the goal of the fed is holding on its behalf we have just one word for you finance minister. tungsten but don't worry chairman bernanke he assured the s. and p. five hundred now it all time highs that the monetary q.e. stimulus will continue until the economy can stand on its own feet anthropomorphization is quite quaint for an economy tradition isn't it we debunk the likes of bernanke you can talk about the mortgage jubilee with economist stephen king later in the show and jamie dimon can't seem to find its share of that isn't in the hot seat j.p. morgan is about to shell out a few hundred million and a settlement with the federal energy regulatory commission that would be for allegedly manipulating energy markets in california enron style barclays already settled for four hundred thirty five million dollars and

a similar settlement for j.p. morgan what amounts to well just one sixtieth of a twenty six billion dollars in revenues reported last friday no word yet on how much it actually profited from allegedly bilking american idol with the subprime is back the consumer financial protection bureau just strengthen mortgage underwriting standards if you don't fund fall under the new rules don't worry that's because the guy who helped write the rules that this you have to be just went private and he started a company that will service the very market his old regulatory body no excludes and yes even providing an interest only financing because it worked out so well in two thousand and eight you can't make this stuff up breaks down the boom bust cycle later in the show. and here's what's in your interest.

when it comes to economic textbooks in economics schools of thought we hear a lot about keynesianism but there are actually many more flavors available in the economic marketplace earlier i spoke with professor steve king author of the bunking economics and i started out by asking him what he describes as the different economic religions. all start with the dominant one which is called neo classical and that school of thought includes people who in the media would be called kinds and want to pull krugman and at the other extreme they'd be cold what is turn fresh water economists. supposed to salt water a lot crude and they're also on a classical by start from the same basic idea of how the economy operates and how

people behave in the economy simply have different nuances of want to strangle the other when they call themselves kinds again these are people who've been told kinds as he was interpreted by polls samuelson and there was such a reaction by the aca lots of kinds to samuelson's what they saw as complete distortions of kinds that another group broke away completely and call themselves opposed kinds again and i buy some souls much more in the original works the kinds did and the see had upon uncertainty as neoclassical which is the the largest group . which is a protest group that goes back to kind of talking about uncertainty and being out of equilibrium and then there is an austrian school of thought which comes out of people. mazas and so on. and. they're actually close in since their theory of value to the new york classical zz but they're closer in terms of how they talk about instability and capitalism and disequilibrium. and the

behavior of finance to the post so this is quite a quite a mistake and a very very hard to get reconciliation across that the austrians they they talk a lot about the ordinal value of various things ordinal value preferences and the marginal in the marginal person how does that fit into the kinsey and world or the post keynesian will go well that's quite consistent because the neo classical zone and the austrians both believe that people are out there is utility maximov so there's and the firms are out there as profit maximizes and we have to work from the individual level up to understand the economy and that's how they think about it the post kinds against don't really have a coherent theory of value like that but in fundamentally that is objective factors in the economy cost of production determine processes profit you take the whole idea that you can maximise a saying as being a naive view which which doesn't take account of uncertainty about the future and you you can't maximise what you've done and therefore you have to behave in the

face of uncertainty and therefore you'll take rules of thumb and you'll extrapolate current conditions and so on and you'll go with the hood so that is much more an idea of being able to find sure in your how you slot into society in the neoclassical and the austrian view we're supposed cans of much more lock it aside it's an uncertain world out there and you know people go in group behavior much more socially clos aren't in how they think they will behave and people behave in the face of fundamental uncertainty about the future so they able to extrapolate they want they won't be behaving behave sensibly given what they know but what matters most is what they've done but let's talk about the role of banks it seems that they are excluded in a lot of these models and this is something that you talk a lot of yeah this is not being able to do the point which would you would think the crazy people would be the ones who say you can analyze capitalism without including banks state money well you're right and they're the classical they dominate the professions so the standard theory of the bank is to the crew. runs to

crimes and so on and why beck and samuelson as well said you can model capitalism as if there are no banks no dead and no money and we all do bottom and we're saying that i capitalized on you know what if you're analyzing interesting little fictional world but it's not the real world so you must include banks state and money in the way a model of the economy and when you do that of course the blood banks to has dramatic effect upon how the economy help writes and that's what i fundamentally analyze what we actually have a chart here of yours and it is a u.s. private debt to g.d.p. ratio that has five years in private debt reached record highs starting with this graph in one thousand twenty days so are you still expecting to see a private debt deal leveraging what would trigger this. i'm just working with richard by going the in the governor woods foundation right now to reveal all of those figures because we found him actually including some bank that i shouldn't include in the profit at this we're going to be changing that child has some point but yes there is we have got to a level of debt in terms of the private sector which is probably three times the

level which i think is sustainable in the long run so we're going to see de lay bridging which is roughly equivalent to one is she had a driven out of the economy but there can be periods where people go back into borrowing money again and one reason we're actually seeing a bit of a boost to the economy right now is people are really very sickly businesses are borrowing money again so does this have anything to do with fed policy i think the fed policy is encourage people back into debt again i mean for fundamentally don't realize this but a major reason why the economy's recovered to some it's very very monitor great growth is that by all the stimulus that the gov the states pumped in it slowed down the road to profits take the day laboring and then and carriage people back into bed to buy shares and bought property and so on and that's actually giving a debt finance boost the economy that is making things better than they would be without the debt finance boost but of course we're getting back into the assignments territory again yes and what do you think the trigger event will be if any that causes this actually to leverage is that a crisis of confidence confidence in the u.s. dollar is. it in europe is a china it could be but it's a real hell of

a hell of external thing but can also be the internal one the. because when you're borrowing money and you spending additional borrowed money is stimulating the economy but at some point people start to worry about the difference between their income and the level of that they've got and so if you get over locked in smoke able to take on more debt then that can cause a downturn and that itself can happen simply out of things like that as did during the property bubble people borrowing money to buy houses and lots of people losing money on that tried they only managed to get out of there because they could refinance as a camera gave a vehicle to arizona i said once once you get a full training that rite of growth and have a process that can trigger people to stop losing money and then the borrowing the acceleration of borrowing which is necessary to keep it going on slows down and so simple slow down the right of growth all the change and it can be enough to trigger a downturn and that's what happened back in two thousand and again in two thousand and six with the housing market it took to two thousand and eight before the right

of change of debt went from free rausing to folding and then when that happened that's when the downturn could write and specially we saw with the fed in two thousand and four two thousand and five keeping interest rates really low record almost record low at the time one percent for over a year and now we're almost five years into zero interest rate policy what effect where can we go from here is the fed stuck in a perpetual cycle well because the fed want to which i think they should have done they should have actually got in there and rescued the debt is not good the credit is to try to keep the banks alive the the lousy dead rather than getting the debt is out of a debt i should never have been tossed to in the first place and so they're on main just thinking i can do it by increasing the reserves of the of the banks and by not directing money to main street rather than wall street we're going to continue folding back into this crossers and they don't only way that they're proles she has worked has been fighting us a process that was a deliberate policy yes and they have that when we see rising stock market prices we. we have

a graph here it's the ratio of margin debt on the new york stock in to g.d.p. as well as the doug jones industrial average and you might recognize this. almost fell over one hundred. because you could do in the back to the one hundred twenty s. and it was a similar story this will go by as i think this goes back to the forty's or fifty's but it's the same story exact the margin debt drops the level of stock prices and it's a positive feedback loop if you if you see those. willing tack on modern day to gamble on it because you tack up the modern day to leverage up the asset process but the positive feedback loops just like it was a sound a concept where somebody puts the mark too close to the speaker and what happens is goes when and then a bright and that's what we see happening in the roses in the folds of the positive feedback between the level of leverage in the level of asset process it's all about the liquidity it's all about leverage and unfortunately we have let the banks get away with the dramatic lee excessive levels of leverage which works for

a while and then causes a collapse and that's why why the amount of capital of society what is the right way to run a capital is so i go to constrain the banks and how do we do that from a regulatory perspective i think regulators can do what i think regulate is too slow moving this to be to get seduced by the banks of a thomas and they happened with the regulators and since the great depression what i prefer to do is to set up rules that a quarter of them about the maximum amount of leverage that a bank for a particular topic purchase so i have what i call one thing a cold pill which stands for property income limited leverage over. from and that is to say that rather than banks being lending supposedly on the income of the bodies for a property then that some of the land is also controlled. between the income of the property itself and the amount of money back in the lane so i give you a preview right now you're not competing over some property insurer in washington somewhere and the property and fifty thousand dollars a year in ranch. that's irrelevant to us and the e.u.

and i will fight over it by getting trying to get high leverage with the same income and the one of us would win where they want to go the hadal of the leverage from a bank which makes us want. what i want to do is change of the side the banks can only wind up to a maximum of sight ten times the rental income of the property so their property on fifty thousand dollars a year most either of us could borrow is fos million dollars and then if you want to get it more than i do what you've got to do is save more money. so that's that's what i want to do all i want to stop the positive feedback between the leverage and asset processes and you can do a similar thing on share markets as well steve king this has been fascinating thank you so much for joining me you're welcome. coming up herion breaks down the boom bust cycles so pour yourself a tall glass of animal spirits then i do all steve keen on an ancient tradition with a new twist called the mortgage jubilee. syria

and reversed momentum rebels are now killing one another in alienating the people they claim they're fighting for the assad regime has regained lost ground and is on the offensive in the meantime western powers are showing reluctance to provide arms to the rebels is it now time to consider a process to stop the violence and talk peace. speak to language. programs and documentaries in arabic it's all here on. reporting from the world talks about six of the interviews intriguing story for you to. introduce the arabic for a visit arabic. told you my language as well but i will only react to situations i have read the reports . no i will leave that to the state department to comment on your latter point

completely so it's if. they do no more weasel words when you need a direct question be prepared for a change when you plunge be ready for a bad. result of speech and down the freedoms of past. senators warn mccain they can't well in king recently introduced the twenty first century glass steagall act to rebuild at the wall between commercial and investment banking this bill would reinstate regulations that were repealed in one thousand

nine hundred ninety that some have fingered as the cause of the great recession senator warren was recently interviewed about this legislation and feel strongly that these regulations need to be put back in place. are going to have fifty nine thirty insurance you're going to have savings accounts and checking accounts they really do have to be rolled off remember we have three years following the passage of quiet in which we had. a number of thank the whole. cycle from seven hundred ninety seven to nine hundred thirty three went away and. so let's break down the boom bust cycle that senator warner referenced the boom bust cycle as a time period characterized by sustained increases and several economic indicators followed by a sharp rapid contraction some schools also call the business cycle theory and there is debate among what spurs these peaks and troughs in the economy the

austrian school of economics says the boom a stimulated by the federal reserve a stunning blow interest rates and is perpetuated by federal reserve fractional reserve banking which allows banks to expand credit be on their own assets and customer funds this additional creation of cheap money encourages investments that would not look profitable otherwise these mal investments grow stimulating the bubble as prices and inflation rise eventually this expansion of credit over reaches the capacity of cap. but all and labor and the economy and the bubble pops leading us into a recession economists dr mark four and wrote that during the housing bubble interest rates on thirty year conventional mortgages were at their lowest levels ever during the post gold standard era when interest rates fall asset prices and real estate prices tend to rise and vice versa in other words the fed's low interest rate policy stimulated borrowing that was steered towards the housing market coupled with other government policies such as tax breaks and government

sponsored credit corporations a bubble was created eventually the high prices couldn't be sustained and the bubble popped in two thousand and eight another side of the story is told by economists who believe that the boom bust cycle is mostly attributed to psychological factor is a subset of neoclassical economist claim that the boom is driven by overconfidence in the market as investor confidence increase is they take on riskier investments this leads to a collective consciousness among investors of fueling speculative behaviors and the bubble grows then a critical event turns investors confidence sparking an economic downturn exaggerated by negative economic reports and media coverage the economy enters recession or depression the argument is that the housing bubble was driven by increased confidence in housing and the media brought speculative attention which encourages real estate to rise and the bubble started to inflate as investor confidence grew spearing asset price inflation and the housing markets with this

rise cannot go on forever investor confidence eventually dropped contagion caught on and brought the economy into a recession to get historical perspective let's take a look at a graph of u.s. g.d.p. the shaded areas represent economic recession and as you can see each recession is preceded by an area. a period of growth these are the business cycles the boom and bust. periods and the economy all this graph only goes back to the one nine hundred seventy and fed responses to economic downturn since then have been to spur the expansion of money and credit in the economy but it has had marginally diminishing refer facts we can see that each recovery never reaches the of what was before. the fed is currently injecting eighty five billion dollars a month into the economy but economic indicators portray an economy that is simply limping along. so getting back to the glass steagall bill some believe there should

be a divide between investment banks and commercial banks when this law was repealed in one thousand nine hundred nine and then they will holding companies to all in both securities firms and herschel banks senator warren herself has stated that the repeal of glass steagall was not the proximate cause of the financial collapse leading to the bailouts however we might agree that it was the icing on the cake and that's how we break down the boom bust cycle now let's get to today's daily tool. thank you joining me for the duel is steve king author of economics thank you for joining me here welcome our first topic you were in a little bit of a duel yourself with paul krugman would you care to enlighten us with what is this

all about all of began last year when i was speaking at the institute for new economic thinking conference and berlin christmas supposed to be there as well so we had to exchange papers and my pipe said that christmas publish a paper originally called the i mean ski couth theory of debt and i said we didn't mean well then minsky was the guy gave us the first sure thing fischer talk about it called that is what caused the great depression he said it was too much debt and fall in process at the same time so people reducing their debt levels process fell even faster and it got out of control because income fell faster than debt and the huge process and that was his explanation minsky developed further to say that capitalism has an inherent instability with its financial system and i've built a mathematical model of that but we also saw in the twenty's the federal reserve kept interest rates pretty low and we saw some would argue especially austrian that it was the federal reserve that blew the bubble does minsky have

a place outside. fed i mean they're not in center i'm working on the sets right now with the with the governors what foundation and what's called the dead economics program and we found the same cycles occurred in the i mean hundreds every ten twenty years so this is a description of capitalism with or without a government sector in fact the miscues point if you what the government does is provide it provides spending when there's a downturn that would enable corporations to pay their debts so it actually minimize the damage. it's worse than the idea in century without the government spending because then when you will fall into debt all there's nobody to pump you out of that again what we saw in the especially during the civil war we had the national banking acts and we saw a cause i federal reserve system or at least the prototypical central bank started and it was based on the buying of treasury debt and that was exchanged between banks is apostle and we also had moral hazard the government also build out a number of banks during these financial panic i would say what the federal reserve

does it's simply institutionalize moral hazard in fractional reserve which already existed certainly that i think the fed reserve has done a lot of that not to greenspan right now it's gone astronomical on on the institutional moral hazard the moral hazard it was just in banking because banks profit by creating debt and that can persuade us to borrow borrow money. buying into the mississippi scheme or anything like that long before you can talk about clearing houses for banks right i'll do it and that's what the naive view is of people you know the austrians at one extreme you yeah that the other side it's all the fault of the government sector without the government everybody gets that nostalgia section of supply and demand and nothing goes wrong with that that works with that vision it's got some sort of sense not a lot but some sense in a production world banks and have surprise constraints of supply and demand banks create money by double entry bookkeeping so when they double book and keeping. double the books. ok let's move on to another topic and i have ok you're talking

about the jubilee can you explain what this is for our viewers historically and michael hudson is the expert on this of course as we interviewed earlier if you go back. that they had a. they realize that debt tended to grow as exponentially compound whereas aquaculture productivity rose and then flattened out and what they have basically is there's a market as i could call this the right to take all the graphs showing exponential did. more draws of productivity and then bang they cut the date back to zero again so every fifty is notable schol day it was institutionalized in those societies we can't do that now because rather than money lenders lending money to peasants which was a problem back then we now have banks which is not only lent money to borrow was they've also sold that debt to people who thought i was cyprus scramble the whole thing together so i want to unscramble that egg and reduce the level of profit did but you can't do it just bob all of the dead how do you do securitize the entire market

what you have to do is buy the debt back off the public using the federal reserve capacity to create money and they certainly have the capacity to look at the capacity so what they could do is transfer out the giving money to the banks which is what's going on the quantitative easing they could do what another hole is now calling quantitative easing for the public and the. aaa and was a good that was what tarp was supposed to be for in the yeah place yeah it was a hell that's how it more good news because if you if you bought if you could get the money to the public i would give it on the condition that if you have dead you must pay your debt down no choice so if you're in debt you've got to pay that down but if you're not in did you get a cash injection comp and sightsavers for the fact the need to have bought off the banks gets reduced in value so scientists don't lose what you actually basically doing is re setting the system to have more money and listed it created money because we a lot of thought to much debt created money to be made by the banks but doesn't this just in the in general more moral hazard in other words people understand that

there's going to be this true believe me and they'll just be more likely to take on more debt in the future will hold that it will be explicit out of control how much banks going to lend. that's again. the property income limited leverage for real estate. is that the share market or controlling margin debt to make dividends rather than by a strong share process you have to force the banks to limit their lending to the income earning capacity of whatever spain went for who gets to be in charge of forcing these banks and. this is there anyone who is part enough to do this the judge is the best because the simple rule says you can't. the rental income of property any more than that your boss spend six months in the klang on something like that a little bit arbitrary in other words these are thresholds that you're saying are important but why not go to eleven or twelve times or eight times ultimately being not a bad idea you have to have to make it sustainable the some level and i'm afraid you're at some point bankers have to be sold no deal. they've been thought you go to

saying deal or no deal let's push it further and push it further some point saying look we know what you guys are all about you might think it's arbitrary. ok i'm going to quote you on that arbitrary is not bad thank you steve keen for joining me if you want to wait on today's show be sure to like this on facebook at facebook dot com slash prime interest you can follow steve keen profile steve keen and you can follow me at english p.r.i. thank you for joining me for today's daily duel you're welcome. and it was a revision as the day here at. the grand we began with the great band of great ally that congress the going to have itself couldn't wrap his beard around the gold

brick stuff that holds our don't tell fannie and freddie stuff time is that what it is and this time the leverage will be televised speaking of the leverage that special thanks to that stephen king for helping us the vulcan decades of suspect economic taxonomy all thanks for joining us today make sure you come back tomorrow from everyone at prime interest i'm terry i'm boring i have a great time. i've seen the per session of the cross many times it doesn't matter if there's snow a heat wave or hail stones people keep on going i don't expect anything i just want i told myself i keep on going as long as my heart told me to that's all i want to

at the moment he had a hand send so my cheese cd i'm carrying these sayings on my shoulder. do you want me to put a bandage here no that's fine a lot of people were so exhausted they could barely walk their feet hurt and some of them fainted who were evacuated three to wanted to keep going i don't know what tomorrow will bring. do we speak your language anything about the will or not of the. news programs and documentaries and spanish more matters to you breaking news a little tonnage of angola's kidneys stories. you hear. the choice all teach spanish find out more visit eye to eye all tito is calm. you know sometimes you see a story and it seems so for like sleep you think you understand it and then you

glimpse something else you hear or see some other part of it and realize everything you thought you knew you don't know i'm tom harpur welcome to the big picture. book. right on the street. first street you and i were. i think the church. played live on our reporters whether lincecum live live in the live in la live. live

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a little more freedom for not only this russian opposition blogger it's released with travel restrictions before his appeal is heard this a day after being handcuffed in court. u.s. whistleblower bradley manning faces the very real prospect of a life behind bars after a judge refuses to drop the charge against some of aiding the enemy. israel reels over an imminent e.u. financial blockade affectively cutting off settlements built on palestinian land from any sort of year fenian funding. and as the economic desperation wasn't enough for believed spain crowds have poured into the streets over the revelations of not school ruction at the top of the ruling party.