or is that we're tracking for you today first up u.s. prosecutors have reached a settlement over fraud claims b.n.p. perry box that will see the french firm temporarily banned from trading in u.s. dollars i repeat banned from trading in u.s. dollars i mean this is a pretty big deal and we'll look into its implications on the global banking system then poland roche's on the program today colin is sitting down with me to discuss the u.s. economy are we finally thawing out after a brutally rigid start to the year will discuss coming right up and in today's big deal edward harrison and i are talking about the current conflict in iraq and help the potentially imperiled the oil markets he won't want to miss a moment to it. our

lead story today american banking exceptionalism in the framework of the b.n.p. dispute now right now french bank b.n.p. perry ball is being investigated for a laundry money for the sudanese and the iranians u.s. authorities are looking into whether b. and p. evaded u.s. sanctions between two thousand and two and two thousand and nine and whether the bank stripped out identifying information from wire transfers in order to pass through the u.s. financial system without raising any red flags and allegedly covering up forty million dollars in transactions now u.s. regulators are currently working out settlement terms with the banks which are expected to amount to roughly eight or nine billion dollars in fines the fines will settle charges that the bank was doing a legal business however on top of the cash payments the french bank is also being pressured to plead guilty. to

a crime that crime scene conspiracy to violate the international margins the economic power act now a guilty plea will consequently allow regulators to temporarily bore b.n.p. from processing any dollar payments at all now this is a very big deal the ability to process and move money in u.s. currency is vital and i mean to be n.p. the department of financial services is also weighing whether to bar dollar clearing for the whole bank or just certain units more closely responsible for the alleged money laundering now if regulators were to ban all of b.n.p. from processing in dollars they would likely go out of business so yeah like i said big deal now understandably french authorities are livid and they're saying that they can't understand what b.n.p. did wrong in the first place as the bank hasn't broken any french laws now journalist felix salmon recently wrote in the financial times the following no other country can get away with this what we are seeing is unapologetic american

exceptionalism manifesting as extraterritorial power mongering using financial regulation as a vehicle for international power politics is extremely effective it is also very cheap compared with say declaring war now i have to say i agree with felix completely what the us is doing is tantamount to what our dear friend mr jim workers calls financial warfare now here's the question why are laws set up in the first place to keep order to help the system operate smoothly and to bring justice to those who are wronged so then why aren't americans and america banking laws used in a way that makes the financial system safer why aren't laws implemented to protect us citizens from predatory financial behavior as opposed to just benefiting us national security objectives this is not only hypocritical it's also dangerous.

because. economic growth in the u.s. was extremely poor in the first three months of the year but now all of the economic signs that we've seen lately they reveal a distinct spring and summer thawing which i guess is a good thing but cullen roche is here to tell us what these signs mean and how to interpret them now colin spent several years that merrill lynch global wealth management and he's founder of or can financial group and a blogger at the finance a pragmatic capitalism dot com now i started off by asking him about the recent positive data on the u.s. economy take a look. call in the data coming out of the us has been rather good as of late so are you surprised by this at all i don't think that the data from q one is anything to get too alarmed about i think that what we're seeing here is you know we live in

a huge crisis and i think it's important to keep things in perspective in terms of looking at the bigger picture here and when you think of the really the economic progress we have to think of it in terms of of a gradual improvement coming out of the sort of crisis that we are in because what's happening really is that the markets are are have seen such a huge amount of slack that the economy is really gradually reducing the amount of slack and so i think it's a bit of an error to focus too much on how bad things have been and really to think of things in terms of how much better they can potentially get and you know i think that some people will probably think of that as sort of a naive way but that's the way that markets tend to look at the economy and i think that you know we're trying to translate the perspective of the economy to the markets you have to be sort of forward looking you can't harp too much on what has happened in the past and so it's important to sort of focus on you know what is the economy in a situation more attention to get better or are we really in

a situation when. permanent decay or department deterioration and i think that the data that we've seen in the last few quarters and you know especially the data that has shown that you know the last few weeks in the last few months is showing that things are actually gradually improving and i think that that's consistent with sort of the longer term trend that we've seen since two thousand and eight two thousand and nine we had just this sort of epic collapse in the economy now looking back at q one was especially poor and we spoke to mark chandler earlier and he suggested that because of health care expenditures q one g.d.p. could be revised down to as low as a change of minus two point zero percent so how do you reconcile those dismal numbers with what we're seeing now. yes so you know we're seeing just a lot of claw back here in q two i think the g.d.p. is expected to come in at three point six percent right now we've seen you know big gains in i track rail traffic very closely we saw big did be in q one in rail

traffic and we've seen now in nearly a consistent for an entire quarter of double digit growth and rail traffic we're seeing jobless claims that recovery lows which means that people are filing fewer jobless claims are insurance claims and you know them yesterday we had the p.m.i. reform which was you came in a fifty seven and a half it's one of the is one of the highest readings you've had in the last few years so i think that it's you know again it's a mistake to focus too much on what happened in q one and you know really chalk that one up as probably sort of an anomaly in terms of some you know rare or whether or currents is and some of the other you know the as mark mentioned the health care issues and i think they're going forward that things are improving and i think that you know we're not in really booming economic environment we are in one that is proud you will be improving its slowly but surely getting better than then we've been in now inflation has been ticking up as of late as well so should the fed be worried about inflation now with unemployment at its present level. yeah

i think it would be a big mistake for the fed to assume again that you know this is a very rare economic environment this is not your you know your nine hundred ninety s. this is not your one nine hundred eighty s. and this is definitely not the one nine hundred seventy s. it's a very unusual economic environment where we're coming out of a credit crisis that's entirely unique and so i think the fed has to view this as its own environment and you know in a situation where we have for instance the use six unemployment rate over twelve percent and you know you have still inflation is you know that the core rate is still about two percent i mean this is an environment where you have a huge amount of slack in the economy and when you have that sort of slack in the economy. it would be very unusual to see a demand call inflation that is sustained i think for several quarters or several years and so i think that although some of the inflation numbers have ticked up lately in the recent data i think it would be

a big mistake to assume that this is something that's going to become sustained going forward just because you know although things are getting better we're still in a very very sort of tepid week in bahrain and i think that if the fed were to tighten sharply i think that you could easily see a reversal of some of the positive economic trends that we've seen and so yeah i think that i think that the you know the saying that the tapering is not tightening is it is pretty accurate in that the fed should sort of hold the line here or not you know jump to any conclusions that inflation is going to become a sustained event here. now if and when the fed decides to hike rates what mechanisms do they have available and can you explain this in layman's terms please . yes so this confuses a lot of people i think that if you if you read some of the new york fed's research over the last few years the you know kind of get a better grasp of this and what the fed is doing right now is they're paying interest on excess reserves and what that allows the fed to do is to maintain

a substantial balance sheet but still hike rates if they need to do so instead of you know we hear a lot about the fed funds rate and really the the fed funds rate in the current environment with the with the fed's balance sheet the size it is it's sort of a non issue when the fed decides to raise rates if they want to raise interest rates tomorrow to let's say one percent what they would actually do is they would start bank paying banks one percent on their excess reserves and that would be a defacto fed funds rate increase to one percent so the fed still has the mechanisms to raise rates and tighten the economy if they want to. so you know it would be a mistake to confuse the size of the fed's balance sheet with the in. billeted to tighten the fed doesn't have to reduce its balance sheet to zero for instance to tighten rates it's a this is a whole new environment where you know we're in a post two thousand environment where you're paying interest on excess reserves that gives them the extra tool to be able to tighten rates even if the balance

sheet is two or three or four or you know one hundred trillion dollars so that's the policy variable that they'll use or the policy tool that they'll implement to tighten rates if and when they need to but you know again going back to you know sort of the weakness in the economy i would be very shocked if they were they raise rates any time in the next probably the next year at a minimum my guess is probably i've actually been on record saying that we're likely to go into the next recession with rates at zero so i don't see a rate hike in the foreseeable future and that was colin erosion founder of or can financial group. time now for a very quick break but stick around because when we return marshall are back is on the show now marshall has a keen understanding of the global financial system and he's telling me his thoughts on the fed's efforts protect u.s. financial institutions following the crisis and in today's big deal edward harrison

and i are talking about the current conflict in iraq and what effects it has can and will have on the markets also remember you can see all segments featured in today's show on you tube at youtube dot com slash boom bust our teeth and on who out who dot com slash boom dash bust but before we go here are a look at some your closing numbers of the bell stick around. ukraine and the prospects of peace in preliminary talks of

a limited nature are underway to avoid an all out civil war so it remains to be seen whether the regime in can be serious today one thing is certain violence only divides ukraine. you know general macarthur once said americans never quit that was when there was something worth fighting for before a fraud was the only way of life post gold standard abandonment and bankruptcy before the population group morbidly obese down in bargain cans of processed food bought at the company's store wal-mart where their food stamps what the furthest before the arrows were filled the patriotic scoundrels demanding perpetual war which can never be funded by a low wage high food stamp economy. welcome

back to the show now the fed has been working overtime to protect us financial institutions from harm ever since the financial crisis hit the united states back in two thousand and seven but how do the feds efforts gone overboard that's the question now i discuss this very topic with marshall ora back of the institute for new economic thinking marshall has over thirty years of experience in investment and management business and a keen understanding of the global financial system but hold on the u.s. is not the only country bailing out its banks an economy china is giving significant support to its economy in order to prevent a hard landing now i spoke to marshall about both these issues and i started by asking marshall whether he thought the fed's moppin. in protecting banks was market manipulation or crony capitalism is answer yes and yes take

a look. in principle i have no problem with the idea of the fed being counterparty of last resort i think given that we have this highly secured system and given that the ultimate risk is always going to be counter party risk it makes sense to incorporate the central banks in there as the ultimate backstop because they alternately create the currency and therefore they can make the credible guarantees and if we had for example the central banks acting is as guarantors or dealers of last resort in nineteen in two thousand and eight then this disaster that we saw in the credit default swaps market likely wouldn't have occurred to the same degree the problem is there's a quid pro quo that the minute you start seeing certain forms of collateral being posted you want to actually start getting on these banks and making sure the there's nothing going wrong and making sure that the activities that they're involved in are not contributing to more financial instability. in fact fifty years ago suggested that all banks be forced to go to the discount window because he

thought that would provide an early warning signal for the central bank to find out if there was something going on in the banks but the. smiths said played kid gloves with with the the banks for a long time and they have far too much political influence so it does lead to this very incipit form of crony capitalism now timothy geitner is a robert rubin protege who says that yanks are a critical part of the economy and he writes in his new book stress test that government had no choice but to take over and bail out the banks because your to do so would have meant another great depression so is he right well he's been very cautious short about this for a long time look he he's right that banks play a vital role but he i think he sets up a false dichotomy and he's persistently done this from all the time that he was in office the notion is not on bailouts of the kind that we had versus not. doing anything nobody said that you should just accept the most extreme libertarians and

you should just let the banking system go but there were other alternatives we use other alternatives in the 1930's we we nationalized and restructured a series of banks and directly are the swedes and the norwegians to the same thing so there was no reason why we couldn't actually downsize the banking system protect the depositors and actually do a load to their. restructurings on all the banks that would put a much better way to go that option was never accepted because i think like many of the other rubin it was too in thrall to the ideas of wall street and therefore never considered it seriously. now china china has had spectacular credit growth since the great financial crisis and it's been using these shadow banks basically local government financing vehicles to cover up how much debt government has taken on to keep up to keep growth up so what is going on here can you explain this to me . well first of all it's important to note that their shadow banking system is not like ours it's not

a well regulated security securities market it really is more like the the early twentieth century version of loan sharking so it's got a natural built in instability which i think is highly problematic so if you take a step back for a moment. there's three phases or three aspects of the chinese economy there's the state run sector there's also a. state directed sector with the so-called state owned enterprises which is a legacy of the communist system and then you have this this wild west division so the state sector is more like what you had in japan in korea in the one nine hundred fifty s. and sixty's heavily state directed but it's private sector driven the problem is in the is in the the wild west free total free market area we see that in real estate speculation and you see it in other forms of credit in the shadow banking system and what happens is that the way that the chinese authorities have traditionally dell. with this is that whenever they start seeing signs of debt deflation dynamics

taking over in the private sector they use the state owned elephants the state owned enterprises the so-called white elephants to stabilize the economy and actually prevent it from collapsing which is why for example you're starting to see some somewhat better data right now that they mobilize the state of the economy which is not really profit sensitive and they keep the show on the grow longer term that's that's not sustainable but it can go on for a lot longer than people think because it is still ultimately a communist economy it's not a private sector economy the private market economy. you know the financial times put up some big stats on china last week and it says that total debt to g.d.p. and china's economy rose from one hundred thirty percent in two thousand and eight to more than two hundred twenty percent in two thousand and thirteen now it also says that assets in the formal and shadow banking sector increased from around ten trillion dollars to as much as twenty five trillion dollars so and meaning china

created credit equivalent to the entire entire u.s. banking system in just five years wow but here's the question is this true. you know you've got to be very careful about a lot of the the data with china. you know i think what is the churchill said about the. inside of. the problematic but there is no question that there has been a very very substantial build up of private sector debt and more warning is that there has been a very very large build up of foreign debt and people like george soros for example have pointed this out and it is going to create a longer term instability in the economy and i know the prime minister says that he thinks that there will be a hard landing and i used to hear it for instance like that from the japanese authorities in the in the late one nine hundred eighty s. when i was living in tokyo so. i don't take that very seriously but it is a built in stability and it's quite extraordinary because you do have this large

degree of financial deregulation that's taken place and that's whenever you have you have large debt build up. now michael pettis is that china will rebalance the economy and this means growth slowing considerably over the next decade but some are even predicting a crash or a crisis of some sort so how do you see this playing out. he's right that when you have you have capital expenditure as a percentage of g.d.p. in china it's about fifty percent i think it's just under right now and i think it's been as high as fifty five percent and so this is saying that you've got to have a much higher consumption component going forward and he's right about that but you know even if you take an economy from fifty percent of g.d.p. were capital is fifty percent of g.d.p. capital expenditure and you take it down to thirty five percent you know you run a real risk of some debt deflation could start to develop and you could get that hard landing so managing that is

a very very challenging thing for the chinese they've been able to do it so far in the way i've described earlier they were effectively mobilised why the elephants with this within the state assumed a lot of the municipal and state debt and that's one of the reasons why you had this huge buildup and debt but how long could that go on i mean it's definitely not sustainable over the longer term but as i pointed out it could go on longer than people think it may be another two or three years before we see this hard landing that many people have been predicting for a while now earlier in the year we had a mini crisis in emerging markets and the slowdown in china was in part to blame but things have turned around quite a bit so what impact do you see the slowdown in china having on emerging markets and will there be a major crisis. well the slowdown has occurred already as a result of the slowdown which is already occurred in china if china is. and continues to show some improvement. the recent data suggests then that i think will

have a positive impact on the emerging markets which have not performed very very well obviously they would be they have their leverage to some degree to the chinese economic cycle so to the extent that china beijing is able to keep the show on the road i think you won't have a prolonged crisis in emerging markets and bear in mind that in many of these emerging markets the problems were a function of political instability same places like turkey for example. so much of it is very much locally domestically driven but from an economic standpoint as you suggest china is going to be the key variable and it looks like it's improving right now. that was marshall are back from the institute for new economic thinking time now for today's big deal.

big deal time with the one and only mr edward harrison and today i want and i are discussing iraq on the subject ok so everyone seems to be talking about iraq these days and the apparent jihadist insurgents taking over key cities there so you know this is threatening instability in the country but here's the question for you and for me and why we're talking about this is this an economic story you know i mean this is an econ show so why should we be talking about this story with you know next at this point it's not an econ story yeah ok so the question is how will it become the story which would be what should we care about i think the interesting bit is is oil basically i mean does iraq not that big a country economically speaking around the global stage but it has a lot of oil and because it has a well that means that it can have a disruptive impact on oil markets and in particular i think the country that we really need to look at in terms of disruption is the one that marshall was just talking about china china gets

a lot of oil from iraq and they are very much dependent upon oil in terms of their manufacturing sector as he was saying they're just coming out of you know it's sort of slow down and they're starting to pick up again but we don't want to see from a global economy perspective is china hit the skids as a result of. skyrocketing oil prices and that's really i think where we have to look in the first puss now obviously if oil prices go up it's going to affect the global way there were there will be implications but like you said china is going to be at the worst will they have a contingency plan will they start getting oil from elsewhere what will happen there well you know it's a global market they can get oil from other play. i think eight percent of their oil comes from iraq but in terms of contingency it's not just china that we have to think about it's also all the countries that are affected by china and in particular i think that you can no yeah exactly there's the fragile father earlier this year we're talking about emerging markets crisis we're talking about brazil south africa. with lots of color in. indonesia and

in those countries and those countries are actually going to be negatively impacted by what happens in china as a result of the fact that they have huge current account deficits their fiscal problems and importing inflation in terms of higher oil prices going to really impact them in a negative way now devil's advocate there were you know we've seen time and again that financial crisis is and how much you know political political decisions and policy concerns basically play into financial crises and how that goes out from there so do you think the politics affect the economy and that the politics and the political games that will need to be played here in iraq will affect the economy more than just the oil situation you know that's the thing is that you know even though we want to talk just about economics here the reality is that you know politics do impact economics and vice a versa so what happens in it potentially could have negative implications on

economics just because of the politics for example you know what does iran do in this the latest i heard was this is that the syrians actually did airstrikes in the run up and they killed scores of people as a result of that we know that there are relationships between the syrians and. russians there's the iranians in terms of you know their ability to have germany in that particular sphere if iraq in some way becomes destabilize so all these things have to enter into the picture and this is the scenario when all of these things underwear this really matters for us and. you know here's the question though how far. does the price of oil have to go go up before this becomes a seriously big problem globally well you know the interesting bit from all of the crises that we've seen since we've gotten onto currency you know in the seventy's every single wall and except for the wall that was from the nasdaq bubble has been has had a component that was the oil shock related seventy three you know seventy nine and

we had the two oil shocks in the seventy's then we had another one with the gulf crisis in ninety ninety one and again we got one forty seven in two thousand and eight wow also today if we get up to one forty seven this time i think that would be a big problem things will be prominent i'm sure this isn't the last time or time as thank you have all of the time by the way that's all for now you can see all of the things that you've seen today on you tube dot com slash mumbai start phase and it's up on facebook facebook dot com slash mumbai started tweet us at erin aid at edward n.h. from all of us here at boom bust thank you for watching shall. try to. pull out of.

the store every minute. oh well. like. let's say. sometimes for nothing. just you still can still be. good. did you see the state. t.v. . but it was. live .

science technology innovation all the list of elements from around russia. his name was. he was nazi germany's minister of propaganda the myths that he created exist to this day. eucharist google's propaganda was both actually trying to denigrate other nations while at the same time raising ordinary german soldier students to. keep its use of goebbels knew precisely what the masses need to hear in order to make them follow him he was like the kite paper from the fairy tale that made the rats fall to the tune of despite. the myths created by the chief nazi ideologist bound for tal soil in the west we have to fight these myths today in memory of those who walked in the second world war.

libyans are voting for a new parliament but few are expected to turn out during the worst security crisis in years and public apathy towards the embattled government. that's just human rights watch reveals shocking details of the use of detainees by uncountable militias across libya. russian lawmakers were repealed permission to deploy troops ukraine at a move to support peace efforts the council of europe tells r.t. it's a positive step. and in iraq battles with militants over a key oil refinery leave dozens dead as u.s. advisors start propping the beleaguered army.