but were financial debt crimes sector first of all so there's been a big little loops this week reinhart and rogoff yes we made a microsoft excel blunder in our debt study and it makes a notable difference so this is common reinhart and ken rogoff and they wrote a book which is now basically the policy template before there was a cyprus template there was the reinhart and rogoff template the book is called this time is different and they said that any time sovereign debt gets up to ninety percent of g.d.p. it causes basically economic disaster do low growth rate well there's a there's a lot of different things you can say in response to this you know my primary response to this would be that you've got some academics guys who are not in the market who don't have real jobs who are poring over data who are looking at textbooks and come up with a theory that they have a predisposition toward proving and they're willing to overlook actual facts to get to the goal line of proving a theory that turns out that the facts cited were wrong the conclusions were wrong the title of the book is wrong

but were financial debt crimes second person of all so there's been a big little hoops this week reinhart and rogoff yes we made a microsoft excel blunder in our debt study and it makes a notable difference so this is common reinhart and ken rogoff and they wrote a book which is now basically the policy template before there was a cyprus template there was the reinhart wrote off template the book is called this time is different and they said that any time sovereign debt gets up to ninety percent of g.d.p. it causes basically economic disaster do low growth rate well there's a there's a lot of different things you can say in response to this you know my primary response to this would be that you've got some academics guys who are not in the market who don't have real jobs who are poring over data who are looking at textbooks and come up with a theory that they have a predisposition toward proving and they're willing to overlook actual facts to get to the goal line of proving a theory that turns out that the facts cited were wrong the conclusions were wrong the title of the book is wrong a

rogoff and reinhart showed that. >> if you look at rogoff and reinhart, what they say, you have to consider gross debt where over 100%. >> economists who have studied sovereign debt tell us that letting total debt rise above 90% of g.d.p. creates a drag on economic growth and intensifies the risk of a debt-fueled economic crisis. >> stephen: yes a debt-fueled economic crisis. that would plunge us into another great depression. and drag the entire world down with it. not only, not only has congress been inspired by rogaine and braveheart's math, their work has influenced international budget slashers like e.u. economics commissioner olli rehn, former european central bank president jean-claude trichet, bundesbank president jens weidmann and lord lamont of lerwick who is not only the former chancellor of the exchequer for the united kingdom but gets killed by larry mary in the next season of down ton andy. of course, the left wing ivory tower academia-holes out there couldn't stand that conservatives like crockett and tubbs here were right so they proved them wrong. >> the economic theory und

what actually happened what was the flaw in an article called how much unemployment was caused by reinhart and rogoff arithmetic mistake so university of massachusetts economist thomas herndon michael ash and robert pollan refer to us have. looked at the data and it turns out that the initial results were driven by simple computational and transcription errors the most important of these errors was excluding four years of growth data from new zealand in which it was above the ninety percent debt to g.d.p. threshold when these four years are added in the average growth rate in new zealand for its high debt years was two point six percent compared to negative seven point six percent that reinhart and rogoff had entered in their calculation so if we restore those years in fact there's very little correlation. to lead to their causation which they say is the high debt it's inconclusive you don't know whether the high debt causes unemployment or whether the unemployment causes high debt what we do know is that policymakers and bureaucrats who follow this prescription and imposed austerity in co

what actually happened what was the flaw in an article called how much unemployment was caused by reinhart and rogoff arithmetic mistake so university of massachusetts economist thomas herndon michael ash and robert pollan refer to us have. looked at the data and it turns out that the initial results were driven by simple computational and transcription errors the most important of these errors was excluding four years of growth data from new zealand in which it was above the ninety percent debt to g.d.p. threshold when these four years are add it is in the average growth rate in new zealand for its high debt years was two point six percent compared to negative seven point six percent that reinhart and rogoff have entered in their calculation so if you re store those years in fact there's very little correlation. to lead to their causation which they say is the high debt it's inconclusive you don't know whether the high debt causes unemployment or whether the unemployment causes high debt what we do know is that policymakers and bureaucrats who follow this prescription and imposed austerit

what actually happened what was the flaw in an article called how much unemployment was caused by reinhart and rogoff arithmetic mistake so university of massachusetts economist thomas herndon michael ash and robert pollan refer to us have. looked at the data and it turns out that the initial results were driven by simple computational and transcription errors the most important of these errors was excluding four years of growth data from new zealand in which it was above the ninety percent debt to g.d.p. threshold when these four years are add it isn't. the average growth rate in new zealand for its high debt years was two point six percent compared to negative seven point six percent that reinhart and rogoff had entered in their calculation so if we restore those years in fact there's very little correlation to lead to their causation which they say is the high debt it's inconclusive you don't know whether the high debt causes unemployment or whether the unemployment causes high debt what we do know is that policymakers and bureaucrats who follow this prescription and imposed austerity i

but were financial debt crimes sector first of all so there's been a big little loops this week reinhart and rogoff yes we made a microsoft excel blunder in our debt study and it makes a notable difference so this is kind reinhart and ken rogoff and they wrote a book which is now basically the policy template before there was a cyprus template there was the reinhart and rogoff template the book is called this time is different and they said that any time sovereign debt gets up to ninety percent of g.d.p. it causes basically economic disaster do low growth rate well there's a there's a lot of different things you can say in response to this you know my primary response to this would be that you've got some academics guys who are not in the market who don't have real jobs who are poring over data who are looking at textbooks and come up with a theory that they have a predisposition toward proving and they're willing to overlook actual facts to get to the goal line of proving a theory that turns out that the facts.

but were financial debt crimes second person of all so there's been a big little loops this week reinhart and rogoff yes we made a microsoft excel blunder in our debt study and it makes a notable difference so this is kind reinhart and ken rogoff and they wrote a book which is now basically the policy template before there was a cyprus template there was the reinhart and rogoff template the book is called this time is different and they said.

but were financial debt crimes second person of all so there's been a big little loops this week reinhart and rogoff yes we made a microsoft excel blunder in our debt study and it makes a notable difference so this is kind reinhart and ken rogoff and they wrote a book which is now basically the policy template before there was a cyprus template that was the reinhart and rogoff template.

but were financial debt crimes second person of all so there's been a big little loops this week reinhart and rogoff yes we made a microsoft excel blunder in our debt study and it makes a notable difference so this is kind reinhart and ken.

at the same time, paul crudeman writing alongside reinhart and rogoff saying the tool was really just a tool for people to police their own political agenda. who is right in the great austerity debate? e-mail us, worldwide@cnbc.com. tweet us, @cnbcwex. reinhart & rogoff have been under tremendous pressure so they're coming out now with a joint editorial. and they're saying it's politicians fault using it for their own agenda. but i have to say, reinhart and rogoff thems themselves were pretty vocal when it comes down to what the austerity meant and the need to be austerity minded. i understand what they're saying, but it's still an incredibly difficult situation. >> yeah. and as you say, the uk actually really done a lot of cutting. they cut a lot of investment spending. they cut the wrong -- and exactly. and even though it hasn't been that austerity, there has been a net shift towards -- >> yeah. cut growth drivers in the future instead of spending that day. >> yeah. on that note, as you said, sending your thoughts on the program, who is at fault here? who is right? what side of the

he chose the reinhart/rogoff study. the first he sees is the crucial column in their data, the one that averages the growth rates of countries with debt to gdp ratios of 90% is wrong, it's got a mistake. the average should have contained data from rows 30 to 49, but instead only averaged data from 30 to 44. five missing rows, all because of a typo, apparently. it meant poor belgium, for instance, was left out. not only that, the author selectively omitted a number of countries in the post-world war ii era, canada, denmark, australia, austria. so, here's the punch line, if you correct the spreadsheet error and put the intentionally omitted countries back into the data set, the entire statistic falls apart. instead of countries with the dangerous level of 90% debt to gdp having a negative growth rate of .1%, they have a modestly positive growth rate of 2.2%. that is a big freaking difference, the difference between recession and recovery, which means the intellectual cornerstone for the arguments about austerity coming fr

but we're financial debt crimes second person of all so there's been a big little loops this week reinhart

stunt economic growth is full of distortions exclusions and frankly outright lies reinhart and rogoff both of whom teach at harvard left out important evidence from their final analysis and in one instance even forgot to calculate a whole line of data in the spreadsheet they used in their experiment although both professors have publicly defended their work in the week since herndon announced his findings rebuttals have fallen on deaf ears the tide is turning just last month treasury secretary jack lew called on his european counterparts to abandon their foolish budget cuts and focus instead on solving that common continent's ongoing unemployment crisis even global markets agree in italy this week because of the election of an anti austerity coalition government confidence was restored worldwide in italy that southern european nation can now borrow at the lowest rate since twenty eight. it should be as obvious to washington as it is to the rest of the world austerity is a complete and total failure on friday just in time for john boehner and company to fly home for recess congress adm

but we've examined the rogoff-reinhart study. we've looked at it. rogoff and reinhart used a higher figure because they compared countries around the world, and that was the numbers that they had, the total gross debt. and based on the gross debt when it reaches 90% of g.d.p., you begin to have economic decline. our growth -- our percentage of gross debt to g.d.p. is 104% -- 104%. and i contend, i believe, that the projections for growth for the last four years have all been higher than the growth we've actually seen. in fact, it's been much lower than projected, even by the president and the congressional budget office. so it appears to me that that growth debt figure being over 100% is indicative of a slowing growth. but others instead of rogoff and reinhart have done studies. europe has high debt rates. per capita we have more debt than any country i in europe, me than greece. the studies in europe -- the international monetary fund, the european central bank, the bank for international settlements -- all have economists and they're concerned abo

i don't know whether to be optimistic because the more time that passes from the crisis the less reinhartiety gets and consumers get. i don't know whether that should make me positive or they just need to give it some room to go. maybe that's going to happen eventually. >> well, i hope so. i know the issue is a really interesting point. it suggests debt levels get high there is an exertion drag on the economy. the private sector has delevered but the public added up debt even faster. federal government debt is over 100%. this is not mattering. it's not a drag on the market. what it does suggest, if you don't address fiscal issues over the long term it is going to act as an anchor on about it this year or next year. i do worry about it over the longer term. >> you probably have plans tonight with the wife. you must be celebrating this whole market master thing. you make reservations? >> we're all set. we're going to have the fine dinner. >> i'd pop some bubbly. congratulations. >> thanks again. >>> you can't start your traiting day without jim cramer's stocks to watch. we'll head down to t

there are plenty of economics out there including the reinhart study you know about that says we're down about a million jobs or more this year alone because of our debt being at these unsustainable levels. really 100% of our economy when you include -- [inaudible] so, no, we absolutely have to come up with a plan to deal with this problem. we risk another downgrade. we are right now probably the least dirty shifter in the closet -- shirt in the closet for a while globally, but that's not something you want to depend on in order to prop up our treasuries and prop up our economy and keep interest rates relatively low through aggressive action by the fed that will eventually have to be dealt with. so i'm very concerned that if we don't deal with these issues that we will not sew the robust recovery we all open for. we're living through the weakest economic recovery since the great depression by any measure, jobs, gdp. i know people were kind of excited until last month, but i really continue to have serious problems. certainly, you have to have concerns. i mean, what we saw in that report

and the question i have for steve is ultimately between ken and reinhart does it undermine the study?eresting is there is a peer review process in academics economics. and i do not know the extent to which that paper went through it. the error was found by three researchers trying to duplicate the results. set the spreadsheet and how the process works. the question is why it took so long. >> everyone we all come at it from the belief structures. maybe 90% is the threshold. everybody looks at it and says, see, they're wrong. we all know you can't spend as much as you want. the money is better served in the private sector. this is very unfortunate. we say forget about it. it's all hog wash. it's not. >> how long have i told you that the economics nobel prize isn't even a nobel prize. dismal science. we have people in talking about like it's physics or molecular biology. >> let me ask you a question. if you asked a physicist how long it would take -- >> physics, okay. >> what would he say? you assume a value, joe. >> you have no particle act accelerator. you can find out certain things a

i would, again, make the point to you that since there are questions about reinhart-rogoff, austeritymarkets. a calm europe, lower yields in italy. give a decent backdrop and people looking for a return, you come to a america apparently. >> yeah. it's funny, page 1 of the journal is,000 europe is crippling profits. another page is how china is crimping profits. >> no, certainly not. and you know, i think the other subtle thing here is after cypress and other things, people have a greater respect for the rule of law in america. if i'm going to have any of my assets confiscated in whole or in part, i'm going to get a fair hearing on it. it's not going to be some unelected officials without a court order coming in and saying we're taking 10% of what you got. >> finally, a lot of the big winners today are the googles, the microsofts, companies where the argument is they may be a growth company, they may not be a growth company but the incremental free cash flow change might mean a higher dividend, might mean a bigger buyback. some of the large caps are moving on that, art? >> well, i thin

went into the tidal basin to today the scandal is dead ken rogoff and carmen rogoff and then carmen reinhart cheat on their excel sheets for debt was i really prefer fanny fox. it was a lot more fun. but let's start with the rogoff, rinehart controversy today. did the premise of the great peril and the priority of debt that we all, not we all, that many people except for five years ago, was it exaggerated? let me start with you, mr. comptroller? >> i think the debt and deficit issues our series issues, particularly over the longer-term. as we have doneoimlation, we show that theecent actions by the congressnd the administration have brought the deficit down over the next few years. but in 2016 it begins to increase. we have a huge wave of demographic changes occurring where almost in today's society, we have about 8000 people a da 6 between now and 2029 on average will be 10,000 people turning 65 a day. so those demographics are going to hit the medicare, social sturdy and job programs and it's going to cause the deficits to increase in future. so while we've taken some short-term action wou