tracking for you to death. we're talking about inversion transactions on the show today and it's the growing practice in where u.s. based companies buy smaller foreign companies in order to legally aboitiz pain taxes and jamie diamond has given it two thumbs up it will explain coming right up then what role do our political institutions play in our economic development there in our shame over the author of why nations fail is weighing in on the subject you won't want to miss my interview with him and in today's big deal edward harris and i are discussing the brics new development bank china's rise and the role of geopolitics in development you know what i want to miss a moment and it all starts right now. with.

our lead story today economic patriotism so what is economic patriotism well according to u.s. treasury secretary jack lew it's keeping your multinational corporation on american soil tuesday the obama administration called for immediate congressional action to stop u.s. companies from using cross border mergers to escape the country's tax system and a letter to top congressional tax writers secretary lew wrote we should prevent companies from effectively renouncing their citizenship to get out of paying taxes we should not be providing support for corporations that seek to ship their profits overseas to avoid paying their fair share of taxes inversion transactions the is the term that is used to describe corporate mergers designed to legally avoid paying taxes and has become increasingly popular over the past couple of years particularly in the pharmaceuticals industry new york based pfizer recently attempted to move its. tox address to the u.k.

by purchasing a london based astra zeneca and companies like minneapolis based medtronic seven pennsylvania based mylan have announced plans to move their legal addresses outside of the us as well inversions u.s. based companies purchase a foreign company and then switch the legal address to take advantage of the foreign jurisdictions more favorable tax laws however in many cases the company's executive team remains in the u.s. the obama administration has proposed an initiative that would make it effectively impossible for a u.s. based company to purchase a smaller foreign competitor simply to take advantage of the organization's address the proposal would save seventeen billion dollars over the next decade according to the administration so it's not peanuts now j.p. morgan c.e.o. jamie dimon has weighed in on the issue as well saying he's very much ok with companies using tax avoidance tactics if it's done in the name of serving investors and saving them tens of billions of dollars he said the real problem is that the tax code is just too complicated and it's not c.e.o.'s trying to shirk their

responsibilities during a media conference call dymond said quote you want the choice to be able to go to wal-mart to get the lowest prices companies should be able to make that choice as well lou has also stressed the need for more comprehensive tax reforms now in the globalized the psyche that we live in today it's becoming more and more apparent that corporations operate across the boundaries as such a c.e.o. must decide the best location for his or her corporation to be domiciled if a c.e.o. is ideological ideology is ideological morals conflict with their role and responsibility to implement high levels of strategy then it could become a real problem basically it's much more of a moral decision then a business decision luckily for j.p. morgan that's not an issue though because they have mr diamond.

what role do our political institutions play in our economic development to dictatorships promotor hender economic growth and does democracy really do a better job of growing an economy i spoke with professor darren asha mobilier the author of why nations fail and an expert in understanding how political and economic institutions can lead to economic success i asked him to explain his research showing democracy which has a robust and sizable pro growth effect take a look at what he had to say. i think what we're talking about here is that you've been in a fairly well functioning institutional structure like the united states. the institutional rules if they can meet bet it is transparency if there is cronyism political connections then there are going to be decisions that distort the allocation of resources then don't be utilised the cost of the of the economy is the best we've also have this perspective to do in a ship the in the market equations are the ones that are most troublesome from the

point of view of economic growth because they're not going to create a level playing field for all of beating the sort of they're going to be where companies and businesses the dictator or the or other sort of powerful members of the government that are not accountable they were for one reason or another and then when you have a transition from a regime like that we don't want to see that's going to create greater openness it's going to create economic reform it's going to create. a platform for a more efficient allocation of resources but that's extensionally what we buy into data and the reason why this is actually important is because for a reason that i haven't for some reason that i haven't fully thought there is this . almost consensus because that's what we did for the present perhaps you. could give us democracy is not good for better or is this you rather good when you look at the data was it seems to be fairly clear now regarding democracy in

a paper published recently by martin guillen's a professor at princeton university and benjamin page a professor at northwestern university looked at the u.s. political system now their conclusion was quote i'm going to do this to economic elites and organized groups representing business interests have substantial independent impact on u.s. government policy while mass base interest groups and average citizens have little or no independent influence now it sounds to me like political connections are actually undermining us democracy so are you at all concerned that this is what is happening in the us. well i think i think that that is what i was sort of referring to as the fourth line is that you know if you look at the way that people used describe the us system it used to be sort of this view of dad in the u.s. the common man have. a column and has a political voice has a say in what policies get this side that it's sort of an open system which is not

capture and i think we have all away from that to some degree because of political collection because of lobbying because of campaign contributions and i think there is more of a concern both you know we do in the general public and also in academia as. shown by jules and agents work or laurie bark health work. the voice and the whole union of the interests of the wealthy count somewhat more than the middle class or the poor and i think that it's true there is a real danger for this to become more widespread and really undermining. us don't want to see the reason why i think we are not a point of crony capitalism is because when you actually look at it. it's not as if there is a unified interest of the rich in the united states if you look at the financial industry you know we've talked about it you know there are certain things the financially this few benefits if you if you sort of start regulating finance in

general every financial institutions but when you come to broader decisions within the economy they're something different voices you know i think silicon valley works with wall street true very big powerhouse in terms of economic wealth a lot of power but the practically everyone thinks song goes out as if we are becoming an oligarch high society with one group. of marginal as well defy interests and it's coming to dominate politics but having said that i'd be the pattern would money starts mattering so much more in all of its is real and it is concerning and it is part of a slippery slope that might become more and more costly for the united states. derren what should we as citizens do to ensure that mass based groups have as much a voice in policy as special interest groups do. i think political participation is the only way to live with. the evidence of that i look up to for getting the ration

and also understanding how this process can be slowed down or prevented the reverse is the beginning of the century when there were similarly creve. the power of moneyed interests the power of large corporations and this was also accompanied by a lot of. decisions the government was taking down were really favorable to the trust so of the day and you had a senate that was very much abused to be captured by the robber barons. on the united states come out of that but a common and i think the ass it is because citizens ordinary people. walk will be used the media the media exposed what was going on. be called started because of the protests and because of discontent that people felt like the

populist movement and then urging the progressive movement the tube sufficiently popular for all parties have to respond to it and they had to change their tune of the head to fuel characters such as teddy roosevelt or tough or who will some who are much more of foremost who are willing to take on the trust and who will lead to actually undertake fairly important reforms in how the senate was organized whether we were regulating businesses will do we were taxing income and so on but i feel if you look at it that was all because of popular mobilization so i think people being aware that there are orphan dangers for us democracy people be aware that there is an unfair and it's that's being built up in this because some people have access to political voice and others dawn is the first and last important step in what we're fighting to a solution. that was. professor of economics and the author of why

nations fail. time now for a very quick break but stick around because when we return we're bringing you part two of my interview with victor she victor believes that central planning on a state level could lead to terrible expensive economic debacle and he's telling us why right after the break and then in today's big deal edward harris and i are discussing the role of geopolitics in economic development and remember you can see all segments featured in today's show on you tube you tube dot com slash the thirty and on hulu dot com slash boom dash bust but before we go here are a look at some of your closing numbers of the bell.

despite all the democracy slogans that read hard from the white house and you seem to believe that deep down the u.s. administration has a sort of cultural bias towards iraq believing that arabs or you iraqis on simply not capable of democracy in the middle east is that it's been the site for multiple competitions by great powers and empires no real ability to consolidate legitimate nation states except under military dictatorships i think if these parts of the world were left alone a little bit more by the rest of us it's possible that we might see more successful democratic experiment. right. see. the first strike. and i think picture.

on a reporter's twitter. and instagram. to me and the. unlock. your friend posts a photo from a vacation you can't afford. and different. the boss repeats the same old joke of course you like. your ex-girlfriend still tends to rejection poetry keep. ignore it. we post only what really matters at r.t. to your facebook news feed. so you put all the bankers into a circular firing squad put all the bankers to jamie diamond to lloyd blankfein to

bob diamond put them into a circular firing squad and give them all paul ince let's get rid of all the laws we've got to turn the system up this cancer of the marriott tragedies of the world . with. the welcome back to the show now before the break you heard from darren i was a mobile about the important link between democratic institutions and economic growth however one of the fastest growing economies in the entire world is china a country with major central planning by the state strong leadership under xi jinping could lead to much needed reforms that will set the foundation for future growth at the same time could central planning lead to terrible expensive economic debacle if that's the big question victor she professor of economics at the university of california san diego believes the latter so i asked him if he's worried about china's growing indebtedness

a result of rapid credit growth here's what he had to say. if you talk to anybody in the chinese government say yes yes yes you know the previous administration made a huge mistake with the massive stimulus in two thousand and eight two thousand and nine. you know that has led to even officially recognize sixteen trillion room in the local government. so that's you know two two and a half three trillion dollars and officially the real number is well over twenty trillion of the so that's three and a half or trillion dollars is a huge amount of what's very disappointing is that they're doing the same thing here so much like soviet plan economy in order to reach the growth objective of seven point five percent this year they're all. during the chinese government the very strong central government is ordering the central bank to front money to give to your commercial banks so that commercial banks can provide ample

loans to these major state sponsor investment projects including even more high speed rail so there's already the highest density of high speed rail in the world in china they're going to do even more. you know a lot more those towns a lot more bridges to nowhere and so on so forth the latest figure that was just announced last night was that of the chinese banks bided trillion roman be in this you know financing just in one month just in the month of june so two trillion sites you know three hundred billion dollars in the space of one month i mean that's just unheard of in human history. they're doing the same thing again wow now are you concerned about the health of china's banks senate shadow banking sector particularly. i am very concerned i mean so the basic problem

is that ultimately whether this is service or so that the chinese government like to say well we don't have a big problem you know our credit to g.d.p. ratio so this is the ratio of how much debt that governments farms and individuals oh to the banks you know relative to g.d.p. it credits g.d.p. ratio right now it's about two hundred thirty percent to two hundred fifty percent the chinese going to say you know fine it's in this region but you know look at the u.s. the u.s. is also a two hundred fifty percent. you know europe is even higher than the japan is like over three hundred percent we don't have a problem but i would say that actually they do have a problem this is quite it's very serious one and the reason is because the u.s. debt is mainly over by the government and the government only has to pay truly low interest rates so if you look at like the u.s. government issues of one year bond it pace less than point five percent in interest

on an annual basis whereas the chinese government when even the government is issuing the bond it has to pay four percent interest and when i talk about chinese corporates they have to pay seven percent interests eight percent nine percent interest some of the real state developers are actually even borrowing money at twenty percent so that interest payment requirements in china is much much higher in china than in the case of the u.s. which has a japanese government when it issues it has twenty basis point in interest. so it's much more sustainable actually in a more developed countries with his interest rates are so low the chinese government or the chinese corporates when they borrow money to pay much much higher interest at a time where their margins are shrinking. and growth is declining right so you can say chinese growth is you know why sir three times as. u.s. pro but chinese interest payments are ten times higher than u.s.

interest payments so this is the problem this is what makes chinese a lot less than it would suggest and. these other more developed countries so i'm quite we're i mean it makes sense you know the numbers just don't work out in your favor you're borrowing in china but there's no question of debt levels in china become a problem the government can turn to financial repression as they did and as they have in the g seven and i mean interest rates in china are much higher than in japan europe and the us like you said but if they did socialize debt losses by taking real interest rates to negative levels do you think capital flight would become a problem. i think definitely so this is this is why the it can't let rates go down too much right so those are there the really trapped in between a rock and a hard place and as we say here in the u.s. so they have two options basically one is as you suggest they can lower rates to

a truly low or negative level but if they were to do that. wealth is extremely concentrated in china the rich people of china will immediately take their money and we're talking about trillions of dollars out of china i mean despite capital control there are just thousands of channels for people to get the money out of china including bribing chinese government officials to turn a blind eye to that moving money out of china. you know in the matter of months you can see hundreds of billions even over a trillion dollars dollars leaving china of you know two offshore locations on the other hand if they don't let rates go down then the you know maybe even in response to capital flight increased interest rates in china which is really one of the positive response you can have when you're facing now for flights then you would see massive bankruptcy of a lot of companies they have chosen so far for middle road right now which is to

maintain rates at a relatively high level. and that's causing a lot of difficulties or so it was the housing market is going down with no end in sight a lot of risk at the upper smaller wall or else it will proceed going bankrupt some of the large as silly as there's a major steel company in northeastern china is on the verge of bankruptcy if they say oh we three billion u.s. dollars actually creditors so you're really have this kind of problem and i think this problems going to get much much worse as we go forward because you know high rates high interest rates is going to affect more and more companies. especially when you have this kind of economic slowdown that's already in progress so that i think they're really trapped in the very difficult position choosing between either capital flight and mass bankruptcy. tough place to be one final question victor what about the currency if china were to decrease rates the peg would come under

pressure and a depreciating renminbi would have the u.s. crying bloody murder now. you know i mean the u.s. lots of complaining about this but i think frankly it's it's kind of a silly issue i mean china is already becoming uncompetitive because of high rising labor costs and that would happen anyway because it was shrinking population game china so you know if they were to devalue the currency by ten percent twenty percent it really doesn't have a big impact on it and of course also china's competition is not with the u.s. really with countries like mexico and the jimmies yes so bay on the margin have some impact on those countries but it's not really going to have any impact on us. that was victor she professor of economics at the university of california san diego time now for today's big deal.

big deal time now with edward harrison and today we're discussing the brics new development bank china's rise and the role of geopolitics and development now i highlight of this topic over the past two days because it's clear the brics are trying to circumvent two institutions based here in washington d.c. the world bank and the i.m.f. so edward can you give us your geo political analysis on you know what the brics are trying to do here well yeah i think you are spot on about being circumvent those two institutions because if you think back to. one thousand nine hundred eight the asian crisis things like basically the i.m.f. came in and hammered a asia in general and specifically you know countries like south korea etc and so forth and impose great costs and so you know they're within the emerging markets

community there's a great desire to move away from the i.m.f. and to a degree the world bank as well and. you know the head germany of washington d.c. and it's right and so the brics given that they are the leading emerging market countries have now come together and sort of solidified this this desire in the in these institutions that are so i completely agree with what you're saying so part of this decision has to do with these nations feeling that their increasing economic and political strength is not fairly represented in institutions like you said the u.n. i.m.f. and world bank and china is arguably the biggest player in the brics nations and has become and has been making big moves searching for resources around the world now in fact that search has. china in conflict with its neighbors so can you tell me about this conflict you know some of the neighbors so it's interesting i saw something in the f.t. that was talking about this financial times. they did a survey and they found that basically all of the neighbors of china are now

thinking that you know a military confrontation is this potentially they're talking about. oil rigs in offshore areas where potentially they're actually. waters we were talking about you know malaysia indonesia those kinds of countries so all in all i think that what we've seen therefore is. people wondering in asia whether or not we used to have a fall of the u.s. umbrella but now china is the dominant player here the u.s. is sort of receding into the woodwork is there going to be a military confrontation well it's clear that china you know is flexing its military muscle but however buston and sustainable is the chinese economy and i mean especially in light of shadow banking that's a massive issue there right the interview that you just had with victor she shows. there are some serious problems in china the interesting bit is that if you go back to the depression and one hundred twenty nine with the united states being the

world's major creditor china is today's world's major creditor so if you look at who actually took the losses during the great depression it was the united states that massively lost when all of the the debtors default to the creditor nation actually didn't make out well same thing could happen with china and who knows what that means in terms of geo political stability now r.t. correspondent paul scott reported yesterday that russia sees this as a move towards a multi-polar world away from the u.s. dollar but i find this concept of multiple errors you know interesting especially since that's exactly what the international community and institutions in the international un the i.m.f. the world bank were trying to do that's the whole point of this that's what right has to be so what do you make of the. the idea of bricks being this new poll in the whole international realm we'll see here's the thing is my question about you know the circumvention that you were you've been talking about these past few days is

are they getting into bed you know jumping out of bed with the us and jumping into bed with china you know will we see what's going on in indonesia with regard to the so-called threat of china in asia is it the case that the brics bank is actually going to be as but as people make it out to be. sure that's actually the case so we'll just have to see but in terms of multiple liberty i think that it is a positive step in that direction and it is according to robert harding of the f t probably the most significant geo political move in terms of multiple areas since the beginning of bretton woods now we know that the brics term that came from jim o'neill's paper or initially that he coined out and there was no s on it was just brett but now twelve years later you have thirteen years later you have south africa joined so the question here is what do you make of this term especially given that there might be new members coming in with fifteen seconds i'm sorry i love to get your take i think it was you know he put it together he coined it he

never thought in his wildest dreams that those would actually come together politically right now they have because of the need for multiple liberty and now we have them to new and i'll be more of it that's all for now thank you as always we love hearing from you please check out our facebook page and please tweet us at marinated at and word and it's from all of us here boom bust thank you for watching we'll see you next time. this is about making the business survive.

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i. an israeli strike on a beach kills four palestinian children as they played football in the meantime a short humanitarian ceasefire has been agreed upon by both sides off the. force. crusader america slaps russian energy giants with another more painful set of sanctions with europe holds back uncertain if it wants to follow suit. and warns washington that the penalties will backfire as he wraps up a tour of latin america with a pile of lucrative kong.