no holds barred look at the global financial headlines tune in to the report on our . hello there i marinate and this is boom bust here are some of the stories we're tracking for you today. you thought the thirteen billion dollars j.p. morgan find was steve well the fed just announced the big banks will have to keep two willing in dollars in cash and liquid assets in order to withstand another systemic financial panic but those wily bank behind this they have a plan figured out already a way to sidestep this buffer we'll tell you all about it and after taking a pummeling overnight the nikkei stock index is sorting out the effects of all they know next to seen charts the volatility in the yen and john mauldin joins us to weigh in on the dangers that lie ahead for the japanese economy lou and finally written little talks about an emerging market political risk from a collapse in the paper gold to the reciprocal of speaking of which will even tell

you where gold grows on trees no lie we're going to tell you where it is let's get to the ship. the greatest chaos during the financial panic came right after the lehman brothers bankruptcy that's when the short term funding market dried up and banks brokers and hedge funds alike all scrambled for cash except for goldman sachs of course as explained by c.e.o. lloyd blankfein in two thousand and nine. the money. which you understand how that occurred and everybody was asked to do it explain you didn't want the money in other words so you're saying it wasn't helpful at the time i didn't realize it was

so pregnant what mr blankfein didn't count on was the freedom of information act bought by bloomberg to the supreme court which would eventually reveal the exact amount of federal reserve money goldman received which was in addition to tarpon f.d.i.c money now here we have a graph that shows goldman borrowed as much as sixty nine billion dollars from the fed during the height of the panic and it's the same story with j.p. morgan city and the other usual suspects. now of course no one wants a repeat of that so regulators at all levels have proposed various measures to strengthen the balance sheet of your favorite too big to fail bank thursday the federal reserve proposed rules that would call it that they call it liquidity coverage ratio now originally part of basel three the fed's version is a bit tougher and it requires the big banks to collectively hold about two trillion in liquid assets in cash bob first in either of us and out of the question is how is this different from other rules such as capital requirements that we currently

have with capital requirements the banks have to go into the capital markets and issue for instance stock equity portion in order for investors to then invest in the company the banks retain that they can also retain their earnings instead of paying them out as as dividends and that can provide a buffer but there is nothing that really says what they get what the banks have to do with that capital once they necessarily get that except when it comes to these other parts and that's where we get these leverage ratios and what the with the fed and the other regulators are saying is that they have to keep on treasury securities cash in high enough amounts that they can survive a thirty day panic whatever that cause of that may be now this probably doesn't come as a surprise to many people but banks are already figuring out a way to sidestep this rule you know can you explain how this is done and also it's important to mention that this rule won't even be fully implemented in till twenty seventeen that's a great point they have five years to do this under basil was going to be an

additional six or seven years which is just insane but anyway the banks have kind of found a way around this to make a long story short they're basically booking loans for an additional thirty days beyond what they would have otherwise to technically comply with the rule but really it will explain exactly how this works in a later show later show now there's another one of the other issues that like allowing securities even u.s. treasuries to satisfy this liquidity coverage ratio is that is this. curators are often hypothecated. now realize provocation is one of those annoying financial terms that even the most seasoned economists need to stop and think about for a second so before we move on here is a quick refresher re i bought occasion is when banks and financial institutions reuse collateral that belongs to their clients to back their own trades and bahrain needs a reminder others have a claim on this collateral it is not the new guy's collateral i repeat others have a claim on this which is where the problems come from during times of crisis now we

have population accounted for half of the activity in the shadow banking system in two thousand and seven and because the collateral is not cash it does not show up on conventional balance sheets bob can you explain to us how real hypothecation comes into play in this new proposed rule by the for sure think of it as a game of musical chairs and it's quite simple the person who gets the chair last the last person standing or sitting in the station is the person who wins and gets the collateral oftentimes these big banks they have incredible oversight that oversight of the regulatory sense but they see what's going on with their clients m.f. global is a good example because j.p. morgan itself was a custodian for them they were a lender they were clearing their trades so they knew all about m.f. global and when m.f. global was going through its final days j.p. morgan managed to grab a bunch of global school lateral securities as it turned out a lot of the customers but even even with the law written the way it was j.p. morgan was able to keep a substantial part of that at least initially until the customers really objected

to it but that's that's a side point same thing in a current future crisis what we could see is something similar is that the big banks will make a grab for collateral and that could actually belong to somebody else and then it takes the courts years and years to figure out you know who really owns title to what and maybe there will be some concessions maybe there won't be it's like the anti hot potato in the sense that you want to be the person of the collateral land . when things go into bankruptcy yeah exactly that well there you have it and as always i'll be tracking this and keeping you posted on the latest. as followers of gold know full well all too well the price of the yellow metal drop thirty seven percent since the high of two thousand and eleven with the biggest rout occurring earlier this year earlier i spoke with rick rule chairman of sprott us holdings about all of this and he had an interesting take regarding the leverage

embedded in the gold market due to a paper gold versus physical gold dynamic here's what he said oh my view is different than most of the quote gold bugs because literally gold bugs my belief is that the collapse in the paper market happened because of leveraged long. financial intermediaries hedge funds banks there was a momentum trade in place where because of very very very low capital costs people could control a billion dollars worth of metal for eighty or one hundred million u.s. dollars and borrow the balance when the trade was going well for them when the momentum was on their side the kerry with regards to the margin interest was very low when gold and silver rolled over and when very recently the u.s. short term interest rates rolled up the margin requirements became very large my belief is that the collapse in the paper market happened simply as a consequence of the unwinding of the leveraged long carry trades in precious

metals the war that we saw i think was very interesting the war between the paper market in the physical market what i think we had was a movement of gold from weekends that is leveraged long hedge funds to strong hands and were the un leveraged individual buyers interest to be a legit chinese housewife but the truth was it wasn't just chinese people buying gold and silver at sprott money as an example. which is our own physical deal or we had it absolutely land office business and physical gold and silver at that point in time people taking advantage of very low priced precious metals buying it as individuals and leveraged for cash classic situation of precious metals moving from weekends that is sclerotic western central banks and leveraged ted funds to strong hands now what about the eastern central banks that and how how much do you see i guess number one how much of a drain in the western central banks do you think has occurred and then number two

are the eastern central banks themselves i know you talked about individuals but are the central banks picking up the slack are they joining the fray as well well the statistics would suggest that they are and i think that's very interesting i think time will tell whether or not they're strong hands you know from reading that my my politics are. most governments but the truth is that the emerging in front of your market central banks have some advantages they were frozen out of credit markets in the early one nine hundred ninety s. i don't think the leverage right i don't think they're under encumbered because they were particularly prudent i think they're under encumbered because they didn't have the advantage that the united states had the united states had the ability to squander its future in debt markets which it took and now you have a variety of frontier emerging markets which are regarded as bad credits that are in fact by every objective measure fairly good credits i hope that the citizens of those countries and the people who run those banks understand the

good fortune they had to be frozen out of credit markets and they constrain their demands for credit and going forward basis let's talk about some of these emerging markets with respect to sprout u.s. holdings where are you and i understand that you have a variety of opinions within your organization but where are you looking to in terms of new frontiers with respect to gold silver palladium platinum the truth is the stuff is where you find it ok and simple yeah. i am much more willing to take political risk than i am technical risk i realize that political risk is real political risk is something that people respond to because it's emotional they can see it on television technical risk you have to work hard to understand and most people prefer not to work. i have experienced personally my worst political risk in the people's republic of kalifornia a lot of money was stolen from me by caucasian people in english according to the rule of law i have by contrast experience very good results in places like

kazakstan and congo but the truth is. that. a political risk is a reality in extractive industries mines oil wells they're fixed targets and they're almost irresistible to governments what you find over time is that a political culture that can't get much worse that's really really really broken and that's often the case with frontier cultures gets better and a political culture that can't get better gets worse the truth is in the united states that there's still a reasonably good future to wreck and the citizens appear to be bent on electing politicians who wrecked it in cultures that have been wrecked the citizens for some point in time at least decide that they would rather build than steal from each other and so obv perversely i have found that after the

political risk has been manifest as an example in egypt right now when prices are at their rock bottom. the the real political risk is often less than the perceived political risk by contrast countries like germany canada the united states countries that are wealthy school erotic and becoming more political often manifest more political risk that is perceived by the market so my attitude towards political risk is very odd. compelling stuff that was rick rule chairman of sprott us holdings. coming up just in shines a light on the yen carry trade and bob talks with john malden about the future of japan oh and we promise to tell you where gold actually grows on trees and we're not going to let you down stay tuned. to. look. we're not psyched to an active camps in atlanta on

a military where patients are forced that the outer amount of the first strike never turned the world's attention to the place and then some jobs gulaga marks mines. look. look. look. look. as if. it was a. very hard to take out. one has never had sex with her three year. old.

look at the polls. today japan's nikkei stock average fell two point eight percent the biggest one day loss in over two months now the yen also strengthened in part triggered by concerns over take cash market in china for more on the end we turn to just in underhill and also it's important to note that there was just a seven point one magnitude earthquake in japan several hours ago but first just in

can you tell us what's going on in the japanese economy right now the japanese export economy so a weaker yen boost exports which then boost the economy and we actually have a chart here of the u.s. dollar versus the japanese yen going from today all the way to two thousand and eight now because this is in terms of the u.s. dollar the higher the line it means a stronger dollar compared to the yen. now just you know how did they hold on during the financial crisis well aaron from two thousand and eight to two thousand and eleven we can see that there is a steady decline in the dollar which means that the young which strengthening over this period of time and we first see the end strengthen right here during the lehman collapse and then another major boost came after the earthquake of two thousand and eleven and fukushima the this brings up an interesting point how would a natural disaster such as an earthquake actually make the currency stronger the strengthening of the end over this period had

a lot to do with the carry trade this is where investors borrow at low rates from countries like japan and then invest this money in another market that yields a higher rate it's usually a straightforward way to make a good return but as the japanese yen strengthened over this period of time investors were forced to undo the carry trade and that meant paying back their original loan in yen in these situations the demand for yen increases creating a cycle called a short squeeze and at this point again down here became the lowest or the strongest it's been in decades while that's interesting now just seen how does it again fared recently with the implementation of abi nomics. they became prime minister of japan and implemented other nomics the yen has weakened the japanese central bank actually said it would double the monetary base over the next two years but it's worth noting that if you think the fed has unconventional policies when it comes to buying mortgage backed securities as part of q.e. japan is even more unconventional without great purchases of corporate bonds and

stocks of individual companies well thank you just in. japan is definitely an interesting case study when it comes to economics and actually bob you yourself you spoke with john mauldin about the japanese economy no yes i certainly did earlier i spoke with john bolton author of the new book code red how to protect your savings from the coming crisis and i first asked him about the effects of deflation on the japanese economy here's what he said. japan for all intents and purposes. no longer is going to be able to go to the market to the world market and borrow money the central bank is locked in of this as the central bank is going to become their buyer blessed resort by the way if i were to be thank god i'm not. but if i were. and i had the choices and the crises of the problems that

he had a do the same thing. understand what he's done is he looked is that of choices and he had a disaster a disaster be used as to see they were all disasters there were no good choices and he chose disaster a which is the least painful to the japanese people that's what politicians do is that you're talking short term or long term both short term long term and that is to. export the one product from japan that nobody wants. we like japanese t.v.'s with like japanese cars a robotics machine tools all sorts of japanese stuff. what we don't want is their deflation and that's what they're going to export and they're going to do this by taking the end to you know they took it from seventy eight to it's now roughly one hundred it's going to go to one hundred fifteen hundred twenty that is going to go one hundred forty that is going to go one hundred sixty there be two hundred and

they're just going to keep at it ten to fifteen percent every year because it's the only way they can get inflation. because they have a dying society and that's really the literally demographically a dying society well that's that's a definition textbook case for deflation so in order to create inflation against that demographic headwind they have to get the inflation in they have to to import inflation if you will and they do that by destroying the value of the currency which by the way he is precisely what bernanke and prudent and others told him to do back in the late ninety's and there is through thousands so it's not like they're not doing anything that other central banks on already doing it's a form of quantitative easing and the corollary the coincidental factor is that their currency gets destroyed. now that's not good for

retirees because that means the cost of their energy the cost of their imports goes up. but if they allowed. interest rates to rise by even two percent then it would take eighty percent of their tax revenues just to pay the interest that's not a working business model i mean two full chapters of the longest chapters in code red or about the situations that is facing japan because if you're an investor in the world today if you're trying to understand what the world is facing you have to understand japan now we spent a good deal of time you know what a whole chapter on greece in endgame because you need to understand greece put greece is it's a rounding error in world g.d.p. at best a microcosm is that it's a good illustration of what can happen to italy and spain and france. but it didn't

make any difference i mean i love the greeks i love athens it's a wonderful place. but it's ten million people. in japan it makes a difference it's the third largest economy in the world. that was john moulden author of the new book code red how to protect your savings from the coming crisis now let's get to today's big deal. today's big deal is all about gold which is a big big deal in india right now especially in light of the fact that there's a shortage of the precious metal a very bad thing just ahead of the do all the holiday season which is the time of year in india when tending then gold tends to go up in terms of buying now in the

second quarter of this year india alone consume fifty percent more gold jewelry think impaired to the year before almost one hundred ninety metric tons in fact and investors likely scooped up physical gold at bargain prices when the price plunged earlier this year now indian buyers face much steeper gold prices in their local markets as compared to prices in london thanks to the tight supply now here to discuss is a man worth his weight in gold thank you bob english was the trees you know they pay about one hundred dollars an ounce for gold in local markets as compared to prices like i said in london knows more under-gardener yes now i know if gold was scooped up around the world at bargain prices why is india. it has to do with the peculiar situation in india that they're facing and i'm going to start somewhere and we're going to get to the first india has to have a current account deficit which means that they're importing more than they're exporting and that everybody wants their rupees in fact they have a trade deal with iran where they're paying for oil in rupees now because they

can't do it through the u.s. banks or even the turkish bank anymore beginning back to the price of gold what india has done to curb this is put a fifteen percent tariff on the gold imports and they're doing this from other places in the east that fifty. percent if you look at the current price of gold let's say it's twelve thirteen hundred dollars that amounts to one hundred eighty two hundred dollars that right there accounts for your price increase ok there you go now china and india they account for sixty percent of all jewelry gold sales globally but what's going to happen if the gold shortage persisted and how will this affect the gold market i think globally the gold jewelry market in india is very important but it's the bullion that is attracting the most actual dollar i would want to say the dollar and the bullion price in gold in dollars which i shouldn't do it's attracting the most gold in the central banks they continue to load up every time people say well the central banks are getting up out of the gold market it turns out to be the opposite case because the central banks they don't they don't report as soon as they buy things

a lot of central banks such as china they simply report later on after they've already gotten several more times than everybody anybody expected now speaking of china it seems like china may beat out india for the first time as the largest gold consumer but like you said it's probably gold bullion right yes the people in china we've talked about this before traditionally very strong in terms of savings they don't necessarily have the financial infrastructure that we have in this country to be able to support savings in institutions in the way we do and. rightfully they turned to gold and precious metals so i'm not surprised to see that ok now gold prices hit a one month trading high of one thousand three hundred forty six dollars an ounce on thursday and if you're a koala bear get excited yes that's right is that koala bear no get this australian researchers they've confirmed that eucalyptus trees contain microscopic gold.

for the gold. and then transfer that gold into their leaves the roots of the trees can dig more than one hundred thirty feet underground in search of water so bob with gold and over thirteen hundred dollars an ounce should we be hoarding koala bear is our whole koala bears or that you can listen to. put them in our pockets and run with you know i don't have to know the exact concentration statistics on that it seems that they're a better indicator of where the gold might be underground but i'm just guessing i can actually give you the exact statistics on that actually ok here i have it here it's five zero let me get this point zero zero zero zero five percent belief ok that is the part that's gold in the leaves so now you know it's not going to be hoarding the leaves but if i do happen to be measuring gold in the leaves of these trees i would assume that there is gold in the earth below and i would be happy to dig it up right and that's you know that gets this the gold discoveries

that they've dropped by forty five percent in the past decade so you know this really is kind of good news for prospectors in terms of where to look for the gold only could be i would say so i mean how could it not be but that's all we have for now but i mean i do want to ask this question actually before you go ok. do you call those two gold. i would really have to say what i had to find out do they i don't think so i think if you're looking very good smile on this one. for it all the time look at that little fuzzy and you don't think that if you start digging around there. for gold no i really don't we're going to buy gold i'm going to go buy gold from the u.s. dealers places where i know it's in great concentration here's my knowledge of human physiology is almost nonexistent but i do know i've been warned about eating sushi especially the larger fish because they contain mercury and the heavier metals tend to stay in our bodies a little bit longer than everything else looks so i leave it to your that i'm told

would actually stay within the koala and they're. or i would not be ordering whatever you think that is you just. go in there you have it that's all we have for now or you can see all segments featured in today's show on you tube at you tube dot com slash boom bust r.t. we also love love love love hearing from you so please check out our facebook page at facebook dot com slash boom bust r.t. from all of us here at boom bust thank you for watching and have a stupendous look at the bank.

i was a new alert animation scripts scare me a little bit. there is breaking news tonight and we are continuing to follow the breaking news. alexander's family cry tears of the why it is great things out there that there has to be adequate regard at the core of what is around a line there's a story sort of movies playing out in real life.

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play british intelligence is exposed to cover up details of mass surveillance operations fearing legal action full overstepping. the costs of membership london is being forced to cough up a staggering twenty seven billion pounds a year behind the emus many regulations. put into the tat such as turkey turns away from its allies seeking missile defense deal with china. clubs all over moscow are you watching r t with me to say it's good to have you with us on this saturday morning. so.