three year olds to tell us much anymore at this point because the fed has so distorted that market one of many markets they that they've distorted so badly but as you rightly note june nineteenth and twentieth of two thousand and thirteen with fed taper talk wasn't just bonds that sold off everything sold off we saw stocks bonds and commodities all take big hits at that point time that could be a measure of front running i think it was more a measure of the extent to which people had somehow thought the fed was always going to just continue with the free money forever even the thought of the fed stopping the free money obviously is going to have huge impacts for all sorts of markets the equity market in particular is really very much hinged at this point on the idea that the fed will print and print more. now or the rise in prices bond prices in the fall and yields is this a sign of economic weakness in your opinion. well i think there's a couple of things going on one of the first of all this is a global story now and we have to look at the flood of liquidity that's been put

across the entire globe and we watched it washed into places very beneficially like turkey like india like venezuela like argentina now that that's starting to wash back out it's a very virtuous cycle as it starts to come back in where is that money when it starts to rush out of those peripheral places well it rushes back into the core so i'm expecting to see things like rises in treasury bonds in the united states to actually reflect a lot of money coming back looking for a place to go and let's be honest a lot of big money is very uncomfortable rushing into equities at these prices we even saw a recent things where we saw the short term money the thirty day and under paper at the treasury go negative for periods of time which means that people trust that source of getting their money stored in back from the government more than they trust other institutions so in this story i think we have this huge flood of liquidity that went out and now it's coming back in and that's going to impact treasury prices maybe even equities for a bit chris why is this happening i mean why would bond prices go up if the fed is

just adding liquidity by swapping newly printed reserve money for existing else that's basically i think you just an asset swap. well it is but let's look at the two assets being swapped i mean if you're pimco for instance and you're holding out a mortgage backed security yielding four and a half percent say and the fed comes in takes a billion dollars of those off your hands gives you a billion dollars well you're pimco you're not in the business of holding cash so what do you do with it well you've got to go put it to use somewhere and so you will find the next best yielding asset you can buy which might be something you'll in only four point four percent or four point three percent and so on so the more that the fed is out there removing these so-called assets which are really dead instruments from the market it's very good prices it just means that the institutions that they take those from which by the way it's not you and me these are all very big money center and the primary dealers banks in the in the like they have to do something with that money so off they go and they put it to use in the best place they can and if they're in the business of owning debt instruments they just have to buy another one and that just puts more buying pressure somewhere in

the debt market could be municipal could be corporates could be treasuries could be foreign bonds doesn't matter it goes into the debt market somewhere drives them all up by extension chris a lot of smart people they think the fed doesn't have these nickel powers that the media tends to ascribe to it and they can put liquidity out there but in a big economy such as the u.s. they can't control where that liquidity goes how do you see this. well i think that's largely true but first of all when you're printing trillions and nobody is saying boo and by nobody i mean europe japan all are giving the united states a free pass and doing something that a smaller country like that of his whaler would just love to be able to do which is just monetize all of its fiscal deficits and then some and and so what's it through while you're doing that in nobody is pushing back i think the fed tusks have mythical powers they can distort the prices of things all across the landscape but can they actually override the larger market itself and the answer is no and

all we have to do is go back to the two thousand and eight minutes right in two thousand and seven people were ascribing the same mythical quantities and qualities to greenspan at that point time you know it ran interest rates down to that then unheard of level of one percent we had this extraordinary housing boom it was going to be houses forever that was the narrative two thousand and eight columns didn't start to break we now see the minutes of the fed they were far more confused than most of the blogosphere that i was reading at that point in time they were actually behind the ball they didn't understand it kind of all you think you need to do is look at two thousand and eight c. are these really an impotent individuals who have really incredible powers the answer was no in two thousand and eight i'm not sure why people would suddenly think that the last six or seven years has have changed that to any degree chris let's move forward to the real economy now all of the major investment banks there dropping their growth estimates for the first quarter and morgan stanley is even under one percent is the u.s. economy really that bad. well it really is we've we've had

a lot of weakening conditions for a while and so this is a really interesting story you know the two thousand and fourteen opens up and we saw u.s. stocks for five straight weeks start to reflect these increasingly negative. economic variables that we're looking at which were just united states in origin this is a global market now so we saw a weakening in japan we saw china weakening we saw europe obviously still mired and very weak in many ways so that was for five weeks and then mysteriously for two weeks we saw the s. and p. shrugged all of that off rally to brand new highs on an intraday basis yesterday and this is despite the continued deterioration in the macro data the most macro of them all might be g.d.p. yes we're seeing a renewed calls for lower and lower g.d.p. as we go forward but corporate earnings as well have been eroding steadily on a forward guidance basis when we look at estimates and things like that and i think in two thousand and fourteen u.s. equities are going to be lucky to post any earnings growth at all so chris is the

fact that the fed is draining liquidity from the market by slowing down the pace of carry a part of the slowdown overall. it is but you know it's going to be very muted at first it i don't think it's going to have a lot of realistic impact as when we look at you know the typical numbers bandied about is that is the fed had at one time an eighty five billion dollar q.e. program but it had much more than that because it was rolling over its mortgage backed security remittances it was closer to ninety ninety one billion for quite a number of months so we would expect ninety billion schooling out into the market in many cases what was happening was to the extent that a big money center bank was having assets taken off its balance sheet they would take that money and just roundtrip it and put it back at the fed in what are called excess reserves so we can see that if the fed put out a trillion maybe a hundred billion of that didn't show right back up at the fed on its balance sheets over another side of the set of books so there was really it's just a portion of the q.e. that's going out into the wild but just that alone i mean oh you know we say only one hundred billion these are huge numbers here and they had extraordinary impacts

on everything except puzzling the commodities during that whole run but stocks and bonds both of them absolutely got wildly inflated by even the smallish repeatedly speaking amounts of the fed q.e. program they were leaking out and had to go out there and do something in the financial world chris we have to take a quick break but don't go anywhere and you out there don't go anywhere as well chris martenson is sticking around and we'll have more with him after the break and in today's big deal edward harrison and i discussed the collapse of one of the oldest and arguably the most well known exchange for back on mt gox and as we had to break here's a look at some of our closing numbers the bell stick around. more

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back now with chris martin then to continue our conversation now chris i want to start off by asking you you mentioned stocks before how can stocks you know continue to go down if you know we have this multiple expansion going on where how is this possible. well aaron the fundamentals are still really really poor you know one of the things that happened when the fed was out there buying all these assets and the money much of it did leak into equity markets not just here but all across the globe obviously you know the top one percent or fraction of one percent made out very well in that story but underneath that any organic lasting sort of durable economic gain has to include broad participation we peek under the covers we discover it's not just you know the under fifty percent on the socioeconomic strata

that are having trouble here there's trouble all of up and down the entire what we call middle class and upper middle class chain at the store in time we see that you know we had recently unexpected plunges in retail sales we saw home sales are now down quite a bit the market index for housing is down starts of plunge auto sales are down durable orders are down we see wal-mart giving negative guidance all of these things are just actual indicators that five years of money pumping has done a lot for equity prices but it hasn't done a lot for the underlying economy and the reason for that is honestly in two thousand and eight we should have let a lot of things burn down including all of the outlandish steps that probably should have been made and couldn't be repaid and because we didn't go through that creative destruction then we've limped along and we have really really low growth so equities at this point in time are coasting on some very high corporate earnings but they are so far out of the historical band of what's normal anybody who's buying equities at this point is really counting on i think first and foremost that

the fed is omnipotent they have their backs in the fed won't allow stocks to go down but history says that's a really poor bet to make so chris do you expect the fed to continue to scale back you re at the same pace or do you think that the economic path will change the pace of this taper overall. oh i have the same expectation everybody does which is that the fed is going to blink and panic at the first sign of trouble we only had almost a four percent down draw in the s. and p. from all time highs you know and coming into this last little week period which only lasted two weeks i think there was some official panic behind the scenes even at that minor amount so we're in a world now where down drones are allowed where where it seems like any weakness has to be combated immediately i think the fed has gone from being relatively interventionist to being a daily interventionist in all sorts of markets i think that this does not bode well at all for the markets because everybody's expecting counting on the fed to be able to manufacture reality and they're not going to be able to do it so where do

you see the u.s. economy heading in two thousand and fourteen. well i think it's still weak for a whole lot of very good reasons and the biggest one is that we haven't really worked down the levels of debt that we needed to work down we look at from the depths of two thousand and nine to current corporations have taken on all little over two trillion dollars of brand new debt many cases they've used that to buy their own equity shares which seeks to drive up earnings per share makes things look good but it's not really the same thing is as truly growing your topline revenues and so what i'm expecting is that this weakness is finally going to catch up with us listen if this was just normal we're going about it the normal pace where you would expect a recession to show up this many years after recovery and the equity markets are actually priced for perfection they're priced for some set of conditions which aren't there in the macro data right now and i don't think we're going to show up and press what about bonnie what's your prediction there. of they're the biggest

bubble of the malls in bond yields i cannot believe that we have triple c. junk rated corporate debt trading with a five handle meaning it's in the five percent yield zone it's an extraordinary rate we've never seen anything like that before and those are also priced for perfection and so what we have is is a condition where you know in the last ten years all across the globe we've seen debt levels just climb higher and higher and higher at more than twice the rate of the underlying economy that's the condition we've been in since about one thousand nine hundred my large macro environment analysis is simply this you cannot is an individual or a state or country or globe continually grow your debts at twice the rate of your income right now we're trying to grow them at roughly three times the rate of our income it's just not going to work out that seems reasonable to say with now what about us consumer price inflation or thoughts there. well i think it's a horrible measure i think it's heavily manipulated if we can use that word here and and it really undercounts a lot of things i mean a simple example is the united states spend seventeen percent of its money on

health care and when you look at it it's seventeen percent of the gross domestic product but the c.p.i. only weights it a little over four and a half percent and by under weighting something that's very expensive and growing at much faster rate obviously undercount inflation so i don't just look at the c.p.i. that's a single measure of inflation inflation to me is anytime you have too much money chasing too few things i think we've seen a lot of inflation in stocks i think we've seen inflation in bonds i think we've seen inflation in housing prices which is also going to revert we've seen obviously anything that the top one percent loves which might be things like very expensive diamonds in a paintings and gold stream fives also have been going up a lot in price so we have inflation you have to look for at the right place now since that is the monopoly supplier reserve of reserves it control over and i rates by simply fixing the fed funds rate and that's the rate at which the reserves are lent now the fed doesn't control long term interest rates is that where you see the fed losing control on the long end of the curve well eventually that the fed is

going to lose control that they'll lose it on both ends of the curve i mean one fictitious myth out there is that the fed drives these things they tend to follow these things the fed back in the seventy's eighty's and ninety's we saw this time and time again that when the market starts to move up and we see short term rates moving up the fed will step in and announce a quarter percent hike because you know want to get in front of that claim that they're the ones that were driving that but that's not really the case now basically investors they front run the fed's rate hikes by sending yields up anticipation of that of those rate hikes now can't the fed use its forward guidance to angkor interest rate expectations by signaling that rates will remain at zero no matter what. well certainly they can and this will continue until it won't the fed absolutely will not all on its own raise interest rates that would be a stone cold killer here not just for the fiscal situation of the u.s. government but it would kill all sorts of things that the fed desperately wants not

to be killed borrowing they want to see a result of borrowing not just at the corporate level they want to see individuals doing it they would love for individuals to be borrowing against assets particularly homes they want to see home prices going up none of these things that the fed wants or anyway along with rising interest rates are higher interest rates the fed is really in a box on this one my prediction is that it will be some time but eventually maybe two thousand and fifteen sixteen but at some point interest rates start to go up and when they do it will be a self reinforcing spiral in the other direction it's going to be very unpleasant so if inflation rises doesn't this automatically need to demand destruction without any wage or critical earth basically what i mean is and how do people pay for stuff at higher prices unless they're making more money. well and this is a very good point and a lot of people you know tune back to our most recent experience with inflation and say well that's what it'll be like which was the seventy's where you had a wage and a price spiral at the same time when you just have a price spiral and there's no wage spiral let's be clear wages for for most

everybody are completely dead in the water on a real basis that's a recipe for stagflation it's a recipe for as you would mention is prices rising people's incomes stay flat all they get squeezed discretionary income which is why we advise people asperity people should not be holding is a lot of debt or any debt if they can afford to do that at this point because when you do have rising prices and a flat income debts a stone cold killer in that regard most of the benefit of the fed money supply supply in this past four or five years is really gone to an exceptionally small and very tiny elite creswell they have one minute left but i want to quickly ask you if inflation leads to demand destruction and i imagine a eventually a recession does that basically means their rates are here to stay in the long rates and therefore eventually stay low just like in japan. well that would be the idea of bench really though you have to look at who's holding all of the debts and so on you know one part of this analysis i don't think the u.s. federal government is in any position to dial back its free spending ways and for

a lot of reasons you know most of the federal government deficit at this point is mandatory which means it's fixed barring some big change in laws i don't think that's going to happen so i do think the federal government's going to want to keep spending the question is can the u.s. government continue to spend at five hundred six seven hundred billion maybe even a trillion dollars above what it is taking in and have the fed perpetually monetized that the answer's no sooner or later that comes to an end and when that interest rates will go up irrespective of what real demand is you know for consumer goods and all of that there's a whole monetary experiment running here which your listeners would be well advised to understand we've never been here before the fed is conducting not just the biggest monetary experiment but the biggest social experiment ever conducted so a little caution is warranted chris thank you so much for your time on your insight and breaking down this rather one topic for us thank you you thank. that was chris martenson trend forecaster and founder of prosperity dot com time now for today's

big deal. and harrison joins me now mr edward harrison to discuss the crumbling of mt gox two of the cryptocurrency is in the midst of a crypto collapse you like that a lot. now mt gox was the largest exchange for the coins but on monday it abruptly stopped trading now if you go to the website all you get is a brief message informing visitors that mt gox has closed all transactions but no much more you're not going to find much more there now this isn't the first time that mt gox has faced problems on february seventh it stopped withdrawals from its trading accounts and a document that's now floating around the internet says that the company has lost upwards of seven hundred forty four thousand big clients given the number they're turning out maybe that's just seventy seven hundred forty four thousand nothing and

now this is all due to theft is what that document floating around online says however this hasn't been confirmed by cox this does not bode well for the world you know big corn or crypto currencies for that matter can you tell me what's happening right now at mt gox what's going on no one knows what's going on there. originally speaking there was some sort of attack you know that i could deny services. and people were talking about affecting everyone about. you know for a long time the word allow people to withdraw their money from their that wallets and so basically what happened is this time went on everyone else came back to normal and. just sitting there they said there was a problem with a big call and you know the algorithm but that. it wasn't the case and what we have learned over time is the something specific to mt gox in terms of its controls its

technology things that it's been doing and potentially that there's fraud or theft . you know could potentially be bankrupt they've lost tons of money for the people who trusted their money to mt gox now do you think the fraud or theft is on in the hands of mt gox or they've been hacked what do you think it sounds like they've been hacked basically you know that they're now we're just running away with. poor systems someone got into the systems and they were able to make off with that money and you know mt gox basically is. a big problem and you know people they want their money back i mean for me basically what it boils down to is it's kind of like you know this is what happens when you have a new technology you know before everything gets sorted out there's some messy situations that think back to the internet bubble days the internet is here to stay

as we know now it's much bigger everything is happening over the internet we've been getting t.v. over the internet like house of cards but in one thousand nine hundred you had companies like world com who were supposed to be the next big thing and as it turns out that was a big fraud and the guy who ran world com bernie ebbers went to jail so right and so you know you have those kinds of things but. which was a part of world com those assets were sold on and they're actually a big part of the now netflix debacle you know because basically you know comcast own those assets as you can see the assets go on well and we could talk about this forever but that's all for now you can see all segments on today's show on you tube at you tube. dot com slash boom bust r.t. we also love hearing from you so please check out our facebook page at facebook dot

com slash boom bust r.t. and also tweet us at aaron aid at edward and it's from all of us here at boom bust thanks for watching see you next time check out. winter is when the sahara comes to life. oasis palm trees are being harvested. people are waiting for the biggest event of the yeah. the desert festival. this is true and that is. leading camel races have spent the last year preparing for the grueling marathon. the day before the race there's a heavy sound still overcoming the power of nature is a never ending challenge. a desert went to the nazi.

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transit. your best way to the heart of moscow. demonstrators in ukraine south to far the country's new leadership pushing for greater autonomy and protesting against the neo nazi groups that are gaining momentum there. you. know when we take a closer look at one of the main forces of the former opposition the hard line right sector which may soon become part of ukraine's new interior ministry. the diplomatic route with the u.s. adds fuel to weeks of anti-corruption protests in venezuela where america now expelling three diplomats in retaliation for the same move by caracas. plus religious tensions run high in london with a local community organizing christian street patrols in response to a muslim initiative set up earlier.