deleveraging. and he projected -- i guess he has sold more bonds than anybody in the history of the world. he says that families have to take more money than they used to control their debt, pay down their debt. the governments absorb huge amounts of debt which have got to be reduced, leaving less money to be spending the economy for consumption. would you agree that the deleveraging process is going to take many years, and do you have an opinion? and will that deleveraging process mean whatever the growth rate would be, it would be somewhat lower? >> yes, senator. we think that the deleveraging process is holding down consumer spending now. and that is part of why the recovery is proceeding slowly. how long it will go on for is very difficult for us to know. we have a project under way trying to examine the causes of the slow economic recovery. we're doing that partly just to inform you, but partly to inform ourselves so our future economic forecasts will benefit from a better understanding of jus

banks are not deleveraging. the u.n. banks now are taking a chance being freed by the european banks. >>> yes, how mump are they going to be doing it? >> it's going to shrink over the next 12 to 18 months. the impact could be 12% to 15%. of course, this will make a difference to other banks which are not shrinking actually. >> yeah. where are they going to shrink? which businesses are they cutting out? >> mainly financing, wholesale financing, financing to corporates and mostly u.s. dollar-dominated financing. french banks have restricted access and do the russian behind them. >> stephane? >> good morning alain. stephane in paris. do you thing it could be a danger fehr you look at it. they wart to force the french banks to split their retail banks and banking activity. it's very much in focus. >> the debate over refinancing, you're right, is gaining momentum in france. the thing is so far the french regulator has been very close to the french banks. if the new socialist government takes over in may, maybe they could make

the best place to be invested in the moment and that deleveraging in french and german banks is likelyher. joining us is chris wheeler, banks analyst. thank you for joining us. this is the week before the ltro. the next batch of ltro here. it's undoubtedly saved us from a financial systemic collapse. i suppose the issue we're now wondering about is how do we, is this now the only funding for banks and how must we win them off at some point in the future? >> you're right. obviously a 38% rise in the bank sector since the ltro effectively and that shows how important it was to shore up the liquidity with the banks. yeah, just been with clients this week asking the same question. it's three-year money. what happens in the meantime. it is a matter of trying to get themselves sorted out in terms of loppinger trm funding needs hopefully it has been busy and manage what is going to be clearly an uptick in funding longer term for banks as a whole. >> yeah, because obviously what some of them are doing, italian banks are using money to buy debt. people are viewing this as a leave it option on,

deleveraging is good for bondholders. it's not necessarily good for equity holders and it can be good for sectors as part of deleveraging. so, you know, it means different things for different areas, and actually the diversification and divergence within europe is going to remain very, very big indeed. >> if i'm right, our panel thinks -- they're actually thinking it's going to be replaced some hohow, some way. is that part of us not being able to wean ourselves? >> we look at spain. spain is still financing a primary deficit. until you get some economic growth, you're not going to see a realistic decline in debt burdens. they're going to remain unsustainable. it's going to be the same thing. you don't have the same deficit but a very, very heavy debt burden, high yields out in the curve as has already been pointed out. it's a good step in the right direction, but it is not the end of the problem. >> we're just looking at, you know, italian and spanish banks, of course, have been the people that have used most of the fund

part of that is a deleveraging of public sector debt.ou have a high budget, plan can demand market confidence and provide a platform of stability. the other thing that we need to better understand is the deleveraging happening in the financial system. i like to see more attention over the next few weeks. there is the organization of european finance which has began. they have taken action to protect themselves. how will this be unwound? there is uncertainty this year. it is inevitable after a big banking crash. we have done a lot of work and looking at how we can better protect our banking system. we have me to the point or we should tell everyone what we want to do. this will provide a platform for investment. i think we need to restore some confidence in the ability of the multilateral organizations to work effectively. we should come on in talk about imf resources. i think this would also be a way of demonstrating that the world wants to help. it is when the most disappointing features that we have not been able pick of the free trade

consumers have got to be under the caution knife, as sometimes deleveraging continuing. >> yeah.here are two things. one is the lack of confidence, the sense that we're not out of this. maybe now is not the time to spend. but the second thing is the squeeze on real living standards from high inflation and very low wage rises. over this year we're expecting to see that ease a bit because inflation's going to come right dow unless there's a war in iran or something. so we -- we should see a bit less of a squeeze on household incomes. and so by the end of the year, i'm expecting to see them be a little bit better. >> john, good to have you on today. john giev, former governor of the bank of engrant. jackie, and i'm ross. "squawk box" kicks off. we hope you have a profitable day. bye for now. the dow 13,000, the dow hit that for the first time since may of 2008. they couldn't hold that level, closing a bit short. >>> watching, president obama expecting to introduce a taxover haul and crude oil prices pulling back a bit from a nine-month high but geopolitical concerns remaining high.

servicing requirements as interest rates has come down so it probably means a less protacted period of deleveraging than some of the experts previously felt would be the case and globally hig globa in doubt and hard landing stories and central blanks globally are easing or will be easing and finally the seriousness and speed with which the europeans have addressed their issues, both bank liquidity and the sovereign debt crisis is surprising. you've got a much improved backdrop and investors are still in denial. we look at the flows of funds and find very little to lead us to conclude the average investor has begun to move into the equity market. >> tom: marshall, with that in mind let's get to how you are positioning with you with your with energy and there's equipment and service. we don't know what prices will be over the next several quarters and we don't know where are refinery margins will be. >> tom: what about emerging markets. you mentioned the talk about hard landing in china. you're a fan of emerging markets. can you stomach the volatility. >> the way to avoid it is to pick the margin tha

the first one was saving and deleveraging for households. that is not true in all countries, but it is true in many countries where the savings rate has considerably declined, and in the case of the united states, it is clear that it was too low and consumers have to adjust and have to have higher savings. the savings rate has increased back but the result of this is if you think about where it is going to come from, consumers are going to supply a smaller proportion and something else has to take it back. what that something else is or will be is not entirely clear. there was hope that it would be exports, but it is is not happening. if you want to go back to the same output trend, what i you going to replace -- what are you going to replace? that will be an issue in the u.s. for a long time. it is in other countries as well. the u.s. is the best example. the second factor, which is also slowing the recovery, is consolidation. the news in terms of the fiscal consolidation is very good in the sense that nearly all of the countries, with the

american households have been deleveraging. they've been trying to reduce their debt before they go back to consume. that was really achieved by last october and november. and we began to see a big increase in consumer borrowing, the most positive sign for a strong recovery we've had yet. at the same time hanging out there are two very large potential negatives. one is the potential of a financial meltdown in europe, which i think is the largest and then, more immediate we are now seeing rising oil prices and the possibility that we could have a sustained period of $130, $140 per barrel of oil that will cut consumpti consumption, slow the economy. you have these two forces that are competing with each other, one to drive the market up and the other to keep it from moving up. >> robert, you have something interesting at work here which is in the u.s. you are paying 9% on your credit card bill and the market was relatively flat. do you put the money in the market and make nothing or pay down your debt? it would seem obvious. >> y

what year are we in the deleveraging? >> it's difficult to judge but it looks as though in the states we're probably in year two or three of seven or eight. in the uk probably in year two or three of eight or nine. there's a long way to go. we're not done yet. >> chris, it's courtney here in the united states. i'm looking at your latest note and you suggest that we should dial back the risk in january and february and, of course, we're just in the very beginning of february. can you explain why you think this is a favorable tame to do this right now when we're still in the midst of this stealth rally? >> yeah, i mean, our view is this rally is probably overstretched itself. it's gone too far too fast. equities were attractive back in the beginning of october when we initially moved overweight and i think everyone is bullish now. everyone is positive. everyone believes the european crisis is fixed at least in the immediate future in terms of that liquidity provision. so our models are flagging a warning for risk aversion.

so the t three rs have been so r able to hold the 3-ds in check, deleveraging, deceleration and dysfunctionanalty. >> so is this going to continin, these three rs? do i want to buy stocks or should i wait because of the 3-ds. >> we believeve the profit numb will come in lower, in our humble opinion than the street is expecting. if this keeps going gangbusters, people will have to rethink low profit. morgan stanley's chief strategist, he's looking for profits to grow 2.7% this year. >> that's not much. >> no. the street is looking for if . >> 9% -- >> we are looking for 2.7. next year another 11. we are looking for only 3%. you put those two years together. at the end of 2013 we look for the s&p to earn -- it earned last year $97. we looker for it to earn $103 in 2013. so at the end of 2012, if you put $103 times 12 that puts the market well below where it is today at 1350. >> i hear you saying we are looking at a global slow down. things are better in the u.s. but we have a global slow down and it is about to impact corporate earningshich has been the strongest part of the recovery. >> the driver

roseman said that he worked to deleverage the firm. can you testify upon the ratio that actually existed there while you were there and whether you believe the leverage of the firm materially changed under mr. corzin snechlt. >> i think the important point is not only what is the leverage but what encompasses the leverage. a year before, that all of the leverages that existed was extremely liquid securities and was well presented to the rating agencies that we were holding treasuries, we were holding treasuries, abc notes and what have you, that were very short-dated in nature. after mr. corzine joined, the composition of a leverage changed. that's the important point. >> were you there in august of 2008, he came in the spring of 2010. you say that started to change. did this window-dressing issue begin to arise as well at that time? >> i would say when we speak in terms of window dressing it is pretty common practice across the street to bring the leverage down at the reporting periods. i would also say -- >> but this is 34% higher. >

so the three rs have been so far able to hold the three ds in check, deleveraging, desell letter racial and disfunctionality. >> do i want to buy stocks or wait? >> the profit number will come in lower in our humble opinion than the street is expecting. this going gangbusters, people will have to rethink the lower profit. morgan stanley's chief strategist, he is looking for profits to grow 2.7% this year. >> that is not very much. >> no the street is looking for 9%. >> 9%? >> 9%. we are looking for 2.7. next year, another 11, consensus, we are looking for only 3%. you put those two years ago, at the end of 2013, we are looking for the s & p to earn, earned last year, $97, looking for it to earn $103 in 2013. at the end of 2012, if you put 103 dollars times 12, that put the market well below where it is today, 1350. >> what i hear you saying, we are looking at a global slow down, things are better this u.s., we have a global slow down it is about to impact corporate earnings, which has been the strongest part of the recovery. >> the driver. >> you are staying is not priced into the marke

the problem it's got is it needs to deleverage particularly in the housing sector and that is puttingressure and the level of it debt on growth so growth is weak and i think the institute is correct to say that it's not just a question of trying to meet fiscal targets but it's also a question of getting growth going. that depends on two things, being xcompetitive which irelan is getting more competitive. if you talk about devaluation, ireland is achieving that, and having growth in the rest of europe that ireland can sell to and that's the issue, the problem they've got. if they see no more growth in europe over the next two years instead of just this year then ireland will not be able to at this point to grow and that's the issue and they need more measures at home but also measures in europe across the board. >> a number of things it talks about, the sme, large private contracts, they need a more intensive structure for people unlloyd to provide certificaser time to design more force of the labor market intervention. the nec has come up with a whole se series of things they think ir

the consumers in the process are still deleveraging so things like the payroll package extension i think are very good because they put more money in the consumers pockets and enable them to delever, get their financial house more in order and ultimately spend some of the decision connectionary income on goods and services. and that's what creates jobsment we know how to hire. we don't need tax credits to hire people. we need orders. and you know that's going to come as businesses are, know how to create jobs. what we need is our customers to want to buy and then we can respond to the demand small. >> john, thanks. john faraci. >> susie: distinguishing between "wants" and "needs"-- it's a tough budgeting lesson, even for adults. but its not hard to teach, if you start early. with tonight's "kids and cash," here's alisa weinstein, author of "earn it, learn it". >> let's say you've begun your kids financial education, and she now knows the three classic money buckets: saving, sharing and spending. you put a portion of your money in your piggy bank, your savings account, or your pillowcase

because of deleveraging. he projected, i sold more bonds than anybody in the history of the world, he says that families have to take more money than they used to to control their debt, pay down their debt. the government's absorbed huge amounts of debt which has got to be reduced, leaving less money to be spent in the economy for consumption. would you agree that the deleveraging process is going to take many years? do you have an opinion? and will that deleveraging process, whatever the growth rate would be would be somewhat lower? >> yes, senator. we think that the deleveraging process is holding down consumer spending now. and that is part of why the recovery is proceeding slowly. how long it will go on is very difficult for us to know. we have a project under way trying to examine the causes of the slow economic recovery. we are doing that partly just to inform you and partly to inform ourselves so our future economic forecasts will benefit from a better understanding of just what has been going on in th

what banks are doing, it literally is flat, it's going nowhere and banks r this is the age of deleveraging, look at what banks are doing, they are selling off assets and closing offices and cutting down. they need to improve their equity, reduce their leverage, the stocks are so low, they do not want to dilute shareholders, so they are trimming assets. >> and despite the better jobs performance, you are worried about consumer spending and income? >> i am, because if you look at the jobs a lot of them were low paying jobs, medical. you and i say physicians, look what they get paid, but most jobs are people changing bed pans in nursing homes and things like that. you look at the hospitally industry, those are waiters and bus boys and people flipping hamburgers in mcdonald's, look at what consumers did in december. their after tax income was up half a percent and they saved it all. people bought their christmas presents starting in over-the-counter and -- in octo and retailers pulled the sales forward going into january, it will be weak. >> you make strong cases, i'm not in your camp, but you

they're deleveraging much like the consumer.pply is detracting. >> wait a minute, you just said if the financials take a hit, you want to be buying the financials. >> specifically. >> are you afraid that the dividends are not going to materialize in the financials? we've got the stress test happening in march. you've got basel 3 on the horizon. do you think we'll see dividends from the financials this year? >> i focus on the financials from an income perspective, and i focus on the debts. i'm hiappy with the higher capital ratio. >> do you have an answer to mari maria's question? >> we've stayed away from the financials. they've run up in the u.s. the bank stocks in the u.s. until today were up 14%. in europe, they were up 25%. so they've run up. you've had five weeks in a row. the markets are due for a breather, please. it was overbought, if anything. one little message to every man watching this show, if your wife, girlfriend, daughter or mother says they don't want something for valentine's day, they don't mean it. >> they al

that was is the government stepped in aggressively to keep the growth going so they could begin to deleverage. >> and we have seen the stimulus package work. ezra kline, thank you for your time tonight. appreciate it. >>> now to sam stein, political reporter for "huffington post." the politics of this, pretty ugly. it is easy for the republicans to go out and distort the deficit numbers, don't you think? >> yeah, and i think ezra hits all the right points. the difficulty is spelling out the math here and how obama inherited a lot of the problems. also, you know, one of the simpler ways to solve the deficit problem is to get people back to work and inject more government spending. going through that cycle though is a tough sell for the american public because the republicans have made it difficult to argue for more stimulus. we're in a cycle where he gets blamed from the debt and prohibited from doing anything to solve it. >> you pointed out in your work today, in "the washington journal," donors are -- not the wall street journal, the pap, but the wall street donors, the people that work on w

they were concerned about fiscal tightening in the u.s., weak housing market and deleveraging from the consumer. also strange financial post "significant downside risk to the economy." also concern that consumer spending growth could slow. there were few members on the upside said job gains could lead to higher incomes and therefore higher spending. inflation overall expected to remained subdued, but of course the hawks expressing their concerns. just a couple quick notes on the staff forecast because it's something that's followed by many of the fed members, the staff lowered in the face of this higher -- better than expected economic data, they lowered their near-term gdp forecast. they still expect the economy to gain in 2012 and 2013. takeaw takeaway, brian, some members see additional qe. a number open to it. there's a couple hard core guys already pencilled it in. >> more on that in a second. we have breaking news right now. government has just rested in the case of the $7 billion ponzi scheme, scott cohn with breaking news. >> the government has moments ago rested its case in ho

deleveraging is not nearly as far along. >> what about these guys? >> so i'm on the titanic and you're on -- >> the disaster that killed 800 people. so the debt situation is still very bad. the political uncertainty, the inability to make -- we've got the end of year is enormous and we've got major drag on growth. >> agreed. >> because of that. >> hold that thought. very good distinction to make, by the way, between debt as all of us have come to talk about it, which is not the debt you're talking about. you're talking about people's debt, household debt, the degree we are indebted as individuals. being a much more serious problem, perhaps, than our national debt. stay where you are. richard, great to see you here. that's a great tie. we'll talk about that when we come back. will cain and diane swonk. it happens to be my tie he's wearing. >>> americans want this economy fixed and they are ready to hit the ballot box to do something about it. is your vote going to make any difference and what's going to make you vote one way or the other when we come

but from our point of view, larry, we go out and try to pick what's going to work in a deleveraging environmentappens if inflation picks up, what happens if deflation occurs. we're not sure, but we have to assign higher probabilities to both. so you take a company like genuine parts. they sell consumables. that is, parts for cars. 250 million in the united states. a billion in the world. they are consuming energy. what happens when the price of energy at the pum subpoena $5? >> and? the answer is? >> i think you're going to still drive and you may have to eliminate some discretionary spending. you'll cut back on your car parts. but general parts is selling at $60 a share, $4 in earnings and they have a growth rate of 10%. they pay a 3% dividend. that is a very good way to maintain wealth and preserve it over a long period of time. >> that's an interesting point. people will still drive. jobs are being created. the economy is getting better, not worse. incomes are going up. and there are some people who argue the oil pry rise, let's exclude a war in iran. that would mean all bets are off. $200 i

when you look at europe, people are expecting a slowdown based on bank deleveraging and fiscal austerityin the u.s. we're going to have strong but really sub trend growth, something in the 2.5% or 3% range. enough to buoy the global economy and to be a good destination to earn capital from the emerging markets. but the emerging markets are the growth space. the size of those markets, can you deploy capital effectively in the emerging markets. guys have had a great success doing that so far. >> the large global macro plays i think the biggest trade on january 1 was short the euro. >> right. >> have you read through the quarterly letters, year end letters, everybody wanted to be short the euro. do you get a sense that's the big sort of global one-off trade? >> it's easy off and performance of ect index which includes macro players suffered relative to other strategies in january because of the trade-off in the dollar and the rally in the euro. i think the real turning point in europe, there's two. one was political. i think major shifts in the last quarter of last year. and to the second t

when the banking industry is retrenching and deleveraging there's less of that available to them.ge cap companies, some middle cap companies can access the bond market which has been incredibly strong since the crisis. that's been really where you've seen the greatest of credit availability. so for smaller companies, the -- and we've heard this from the administration. you know, the credit formation in the small business sector is really the problem facing the country when the banking industry -- >> is that where you're going to be focusing your practice in part? on those companies that are unable to vaz capital efficiently and there are are in distress? >> it's probably where the greatest opportunity lies is where -- where the credit system has withdrawn from providing continuous credit to a given sector of the economy. that's where you're going to find the greatest opportunity. >> david, how are you finding things macro when you look at the u.s. this year. >> you've had me on your show before. it's a great question to ask me because you know i'm not going to give you an answer.

you would think that we've made enough of a base and saved some money, deleveraged a little, you would hope. >> and if oil prices continue to climb like this. it that really cuts into the consumer's pocket. it was above $102. >> becky and i read morning money every morning. >> you think i don't read that? i didn't read it this morning. >> this morning one of the reports, though, was about how february numbers, job numbers, are going to be an abomination. >> well, it's based on the philly fed index. there's a jobs component and that has been very closely tracking the private sector jobs number and base d on yesterday' philly fed numbers they are looking at this and thinking, okay, this spells a 50,000 number for february jobs and that could be really concerning. is it february jobs or january jobs? the number we get -- february jobs that we get in march. >> so you saw oil. look at the ten-year note which continues to do absolutely zero. it's been at 2% for so long. i wonder how long that lasts. let's look at the dollar whether it's up based on this whipsaw that we've been seeing with wh

banks are deleveraging like mad because they're being told to. >> they're being told to and that's what the cycle wants them to do. spent the last ten years leveraging. you can't lend more and delever at the same time. >> why are they saying it? >> it's the political thing to say. >> silvia, you can't -- every finance minister says it but do you think in reality they understand the double speak? >> reporter: i think they do understand the double speak. they do understand, let's say, the quandary the banks are in. they do understand that on the one hand they ask for higher capital ratios and higher capital requirements. on the other hand we're telling them, yes, raise your capital that way but please don't run down your balance sheet. i think something has to give somewhere along the line. either the banks have to be recapitalized in a different way, the requirements have to be loosened, or money has to come to the industry directly. we can do this, the bank for -- the european bank for reconstruction but it's a clumsy way. you really want the banking sector to supply your economy and no

i think we are just in the beginning of the deleveraging cycle. the private sector started a few years ago because of the financial crisis. now the public sector is being forced, government sector is being forced to delempverage. the jobs picture is improving. >> we always look at these reports week to week and month to month but we're still talking about something that takes years. >> it does. and there are structural problems that will be an impediment to getting the unemployment rate down to something i think would make all of us feel comfortable. there's a skills gap, an education gap, the fact that mobility has been hampered by the jobs crisis -- i mean by the housing crisis, so i think there are issues that will mean we're going to have a slower pace of decline. >> let me talk about this, the jobless rate as it pertains to the presidential election, because that obviously is a huge topic of discussion. is it possible the rate ticks back up again before the election? >> you know, it is historically the case that you often see an uptick in the

calling for principal reductions from the beginning of the crisis as the key way of helping the deleveraging of getting recovery in both -- human terms and getting people to be able to stay in their homes but also macro economically. so that part of it seems good. the question is, is it sufficient and you seem skeptical of the settlement. i want to hear your feelings about it. >> there's a bunch of different ways you can look at the settlement. what sit for? what sit supposed to do? if you look at it does it help those that are victims? a little bit. does it deter future abuse in this? probably not. i mean, the -- basic estimate is that it is $2,000 the banks have to pay per loan for fraudulently claiming that they had read the documents, knew that they owned the home, were ready to foreclosure. i teach property law. this is a basic rule of law violation. and if it is -- if the banks can get off with jpmorgan, one of the most powerful organizations in world history, says okay, just $2,000, we don't have to pay attention if we are fraudulently foreclosuring on somebody, that's cheap. a politi