michael young is a financial guru and a commodities trader and certainly knows an awful lot about the economy yesterday today and tomorrow and he's with us right here on public exposure michael welcome back to the show  good is the economy the jobs report just recently came out president said it's really fine we know that may not be true the the the economy is there some growth happening i mean g d p is plugging along at about one and a half percent and the economy is growing jobs the last report you know adjusted it was around ninety thousand interims a real jobs added to the economy on a month to month basis the problem is that the economy is not growing fast enough to really add the number of jobs we need to replace what was lost from two thousand and eight two thousand and nine and that's a major issue for the economy should we just admit that those days are gone well yeah we might have to admit that they're gone and the bigger issue is that nobody asked this question but i think it's pretty relevant when say they say well we created ninety thousand jobs this month but nobody talks about what those jobs pay and the bulk of those jobs don't pay enough for a family of four to live on and if you look at what was released from the census bureau this week which was shocking statistics in my in my opinion from zero seven from zero seven to two thousand and eleven the net worth of the average american family dropped from two hundred twenty eight thousand to one hundred seventy four thousand so their net worth was cut by something like forty five percent and that incomes at the same time the net incomes in the country fell by about four thousand dollars a year so against this backdrop and in particular the segment that was really hurt was the age group twenty five to forty four so those people are the backbone of what we need for economic growth in the country and they simply aren't earning enough money to fuel the kind of growth that we would need and it's particularly shows up in housing we're we're still struggling to get anything close to even half a million starts which is pretty dismal to begin with but even that is very difficult for the economy to achieve let's go to that demographic group that you were talking about the ages twenty five to forty four that their income drastically went down correct here's what i'm thinking in a few years they're not going to be forty forty more they're go fifty five or they're going to be sixty and they're going to be nearing retirement age they're probably not going to be able to retire but if they don't have a job who's going to support that well that is a major issue not only for that generation but for the boomers that are retiring now i turn sixty next year unfortunately and i'm going to be retiring sometime between sixty five and seventy if i'm on a normal trajectory my wife is going to retire some time soon as tons of our generation a lot of us are going to be you know changing over from what we've been doing to something else and there's just not enough people or enough income sustain the payments the transfer payments and the government's promised us so i think this is going to be a major issue what is really surprising is in this presidential campaign the two major candidates running for president neither one are talking about the promise of security and how we fund the transfer programs and how we make sure that happens and politicians running for the u s senate the congressional race something here and you talk about this major issue for the american people it's very it's almost nonexistent well but i hear one side saying that you know we have paid into it so it's ok and the funds are there we just shouldn't borrow against it and that and people been talking about that for a long time others are saying hey we need to take a percentage of it although they're not saying this is much anymore when you take a percentage of it and allow it to be invested privately but the problem is that it wasn't invested the problem is the taxes that were paid so secret taxes went directly to the treasury once they got to the treasury there was no division of those dollars they were spent toaster trust fund are now government bonds that are issued by the government and so it's kind of like they have taken the money and spent it and now they have this major problem about how to make up the transfers and nobody has an answer yet to how to do and the answer is going to be obviously going to have to raise your time and age and cut benefits there's no other way around it there are many many economists that say that we shouldn't really worry about debt too much it depends on how large the debt is you don't have to worry about it too you can't pay it back well we are if you're is now experiencing that particular problem and it also becomes a problem when the interest payments are larger than what you have in europe in your budget and the united states will be very shortly spending close to fifty cents on every dollar it takes in on interest income so it does become a problem and while i so for gosh thirty years now trading futures exactly would you prefer to trade the past yes it's much easier it's always easier looking backwards it's much harder to determine you know what will happen in the future and then things happen like you would not expect like i would never have dreamed that the federal reserve would finance sixty eight percent of federal spending from a way to today the federal reserve has literally bought sixty percent of the american debt that's why interest rates didn't rise in spite of all this massive borrowing i help me understand it how is it that the federal reserve has funded our sixty percent of our government and congress went out and spent let's let's just make it easy let's say the group does say the federal budget does to make it easy as one trillion dollars they raise that money to the trillion dollars that they're about to spend they raise through taxes and through borrowing and when they can't borrow without impacting rates the fed would step in and buy the difference so every time they come to an auction with securities the fed would stand in the auction and bid and take down a certain amount of the auction and they were able to do that successfully by expanding the fed's balance sheet by this incredible number and keeping long rates low which the objective of the policy was to try to restart the economy from of extremely leverage position so that rates didn't rise and choke off whatever nascent recovery was underway it's very dangerous because when you monetize that level of spending it does two things that you risk massive amounts of inflation down the road but two there's a there's a moral hazard in that you don't there's no check on congress to stop spending they continue to spend as as though there is no check if the fed stayed away from the bond market the bonds would legitimately begin to go down in price to reflect the additional supplies that are coming interest rates would rise and congress would at some point would have to slow down but there are economists on both sides of the aisle it's conservative and liberal who say that the government needs to spend that they shouldn't check their spending their image or or i works and it's still not it's still not creating the growth in the old in the old economy if you put in a dollar of debt you've got about two point five percent bang in g d p so it was like one dollar two and a half ratio up now it's the other way you put a dollar of dead and they are barely getting a half a percent growth so it's like diminishing returns the more debt you're adding in the problem the less you're achieving so the economy it's going to need some sort of central bank who funds them and they they fund themselves through other banks through other banks but they basically create they well they create reserve fractional banking and they create they create money themselves they don't need anyone to give the money they create money all right so the fed is it's funded by banks and then they turn around and loan money to to the banks from now at basically zero percent and then the banks when they need to get bailed out go to the u s taxpayer then they get bailed out and well there are several vehicles that the fed would use if they were doing direct assistance to the banking industry like they did in two thousand and eight they're not currently those programs have been somewhat scaled back because the banking industry doesn't need them at least a mystically so tarp has been pretty much folded up and put away why would the banks need anything because they're getting money at zero percent on they're not loaning it to exactly the banks are able to borrow money at zero on loan  whatever they can find out there are at a card rates are enormous these days so they've got a pretty good spread it's pretty outrageous and they're doing pretty should be doing fairly well now i mean they can stay out of europe and speculation yeah well somebody will check for like forty dollars the other day and so i went into their bank to cash it because you know i just didn't i wasn't close to my own and they sell fine here's thirty four dollars they said when he made his forty dollars he said well we're charging you six dollars to cash a check i said on your bank so i said give me the check back exactly the fees that the public is getting charged now are exorbitant it seems to me that all of this is incredibly wrong that the bad boys the bad actors of the economy primarily have been banks and those tied in with  state in california well all of us who put money into chase if you have an account there you may or may not have had your funds traded in london recently those deposits there's no guarantee once they're going to chase there's no guarantee where those deposit and that's the issue is that you know if chase it's not so much the chase manhattan or j p morgan chase lost whatever the number is whether it's two billion or seven billion that's not the issue in my mind the issue is that the seven billion dollars in deposits that j p morgan had available to it were not invested back in the domestic economy on productive economic uses they were speculating in european debt and they lost two and a half billion dollars now they claim that they're still making loans  the really good bankers they're trying their best to improve to make the american economy improve that the point i have is that there's actually no way people sitting in new york will care what happens in pew well i'm just not going to happen so we've got to find some way in my opinion if you want to have growth in the in the united states we've got to and national banking and we've got to create regional banks again that are responsive to the economic and social needs in each region they serve and that system worked really well in this country for a long time so reinstating plastic was not enough no you've got to i think you've got to put up barriers to where they can operate and i think regional banking would be a good step i mean one way to go and i think you have to divide you know securities trading from banking and let them if they want to trade in point time the american taxpayer doesn't sure deposits in j p morgan chase branch banking right and so it seems to me that just from someone looking at it at the outside that i basically am insuring j p morgan chase is the usual issue as you just don't know since there's no transparency we don't know if the deposit base was used to fund those trades in london or what or whether it was something else the issue is is that i  mean the since two thousand and eight the regulators have been trying to get a handle on these over the counter derivatives and trying to write rules that would prevent this kind of trading from occurring in taking this kind of exposure into the u s banking system the problem is that these banks refuse to believe that there's enough that there's enormous risk here so they continue to do these leveraged trades in their london branches and by making the branch offices they're not under the guise of or under the regulation of s f they in london or the is if a is the financial services authority in great britain and they're offshore enough so that there's no regulator that can really tap in to see what they're doing there's no transparency we still don't know in the j p morgan trade for instance who the counterparty was or what the size of the trade was you know these in the congress i listened to the testimony for two hours not one of these geniuses that represent us in the congress and if they'd asked to the counter party was or how walked how large the losses i didn't hear at one time or in the senate side for that matter and look could it have been because the banking industry was funding all of their campaigns or it is i mean it's shocking i mean it's really distressing as a citizen when i found out i went back and looked and for the financial services industry has given to congress over five and a half billion dollars in donations in the senate banking committee alone donations did you say b billion five and a half billion you know oh my gosh and in the senate banking committee alone the number is seven hundred million dollars and i've listened to the rip the republican senators questioning jamie dimon and i was appalled and they were asking well can you tell us what we should do to regulate you i mean excuse me right now having heard this and watching a little bit of jamie dimon who you know looks great on television and brought it like he was supposed to do what does this mean to me here on main street well the as you say what's happened to the most american consumers is you're paying very high interest rates for the loans that you can get from the banking system and you're paying very high fees to do business with them and that's what it means so the economy is choked because of financial services no that's just symptomatic of one of the issues that we're facing if you if you talk about the banking industry there are much broader issues that we're going to american economy probably primarily related to wages i think but and very short break we're very fortunate have michael young with us  financial guru and i say that because he's got thirty years of trading futures and so he's had to stay up on every aspect of the economy and he is talking with us right here about the future of our own economy while we review the past  everybody will die and so eventually the debts going to be liquidated at some point and there will be growth again but the problem is the overhang like it and the generation that needs to spend money and the ages eighteen to thirty is that demographic they're so burdened with student loans that the debt load is so heavy and so massive a lot of them are now living at home with their parents so their debt from student loans is owed to the u s government for the most part the u s government has gone and sold its debt significantly to china and other people i mean around the world why don't we do all just forgive each other's debts and start over with i mean the value of that would be worthless you can't do that stamp because that would be like resetting the banking system that we want to do that how much are we wor now i don't think we have a net worth i think we have a negative net worth ok so would it be better digs to started zero than in the whole we may end up doing that i don't know but it is the issue of the amount of debt i mean it's striking to me that when you talk to the american people about the level of federal spending in the level of federal debt i mean the deficit numbers in one year are so staggering i mean it's hard for me to get my mind around a figure like three and a half trillion dollars how much money that actually is when you think about we've added almost six trillion dollars in four years to the national debt which is equivalent to what we've spent in the last in the previous two hundred twenty i mean these numbers are beyond shocking and then you look at what the fed balance sheet has done and pretty soon you begin you begin to kind of begin questioning whether or not these are solvable numbers and at some point in time it's going to have to be dealt with but the outrage is in my opinion is that nobody in washington thinks it's a problem apparently because they continue to operate the government on continuing resolution after continuing resolution which means no one's doing the hard work of budgeting at all is to simply take the last year's spending add ten percent pass another resolution out the door they go so there's no check on spending whatsoever the fed is helping to fund almost seventy percent of what they're spending so there's no impact on interest rates for misbehavior so at some point someone's got to say to these people hey you guys know what you're doing i mean here's maria cantwell she's running for reelection this year i've not heard one commentator not one newscaster ask her why there's not been a budget in the senate for three years and up in a budget they were the senate has not passed a budget in three years so we're just they just operate on a continuing resolution and that the house of representatives of course goes along with it because they don't want to shut the government down and so they just continue to pass these clowns i mean there are some smart people in congress it sounds like the beginning of the spending ball it won't stop now what if we were to turn to people who we have turned to in the past for help into europe or are they just too far gone i mean germany seems to be propping up your right now  somewhat to their chagrin yeah and the germans have limits i mean the german economy is not the size of the united states economy i mean it's about the size of california in terms of g d p so which is the fifth largest economy in the world exactly but it's you're asking a lot of the german people to take on the guarantee of all of europe and while debts that have been created the structural problems in europe are going to be very difficult and wind and i don't know i don't know how they will be unwound and it's a very big problem well here in the united states when we got in our financial difficulties and then so much of it tied to mortgage backed securities unwinding was something that we absolutely refused to do right was that because if we started unwinding things we would find out who the bad actors are that's part of the problem part of the problem is that the the amounts involved may be too staggering to can to imagine they were originally the numbers being bandied around now about spain and italy to bring them up to snuff just in the first round of banking exposure of something like six hundred billion dollars the numbers i keep hearing out of europe on the derivative exposure are more in the trillions of exposure and and it may be symptomatic of what we saw both with m f global and with j p morgan chase that these this thing through the the beginning of the trades that are coming on wound and you can see how to do how devastating they are i mean these things are these  and no one knows because there's no transparency in that market no one knows what these people have done or how much exposure the rest of the banking system but i've heard that the european banks have levered themselves up as much as forty to fifty to one on their asset base and if they've done that they're toast then it's very difficult well but then again the other thing is this what i'm what i'm trying to hear it is a shell game or or a good house of cards it just seems like they're just trading paper and they're not trading real dollars until they come to the taxpayer and they say hey i need help well no they're taking real losses i mean the problem is the real losses for what what do they know they're taking our paper losses i mean they're  net worth of they took these losses would they be out of business oh ok well they can't have that apparently i mean i personally think that's one solution to the problem but the policymakers in europe don't think that's an issue at the correct way to solve the problem so they're in favor of taking money out of the treasuries of these countries or creating money in the e c b and that's a problem because the e c b has limits about how much it could borrow that's the european central bank and the problem is that the governments are beginning to run to each other now that have no money anyway so the bottom line is they're now resorting to the age old principle of printing money and putting it in the banks you know well i've got a nine year old daughter and every now and then she'll be running along and she'll trip and fall and i'm not there to catch her all the time what it seems like to me is that all of the banks are asking to be caught all of the time to keep themselves from falling and how can we continue to do that why don't we just let them go where there are many financial commentators in the world who don't understand why we're doing what we're doing in europe why the governments there are doing what they're doing i think the choice they have is too painful the policymakers are looking  possible range of choices and they're saying if we write these banks down the cost is too painful to society they're not going to do that so they're trying to muddle through and fund these banks and and write the losses off as they go the problem is that no one knows how deep the hole and it appears to be getting wider and bigger well the other thing is that the demographic of the world population is significantly changing most of the wealth that was created in the world at least a relatively recent times was post world war two that's right and those people are gone and the baby boomers are retiring and they need to be supported instead of supporting what they have before this seems to me to be a black hole and we can't get out well there is there are solutions but you can't just if you make a generalization and throw up your hands and say we can't deal with this then that's not a good answer and that will work so then you have to say or what policy decisions can be made to get us down the road to solve the issues before us and the european policymakers are trying to do that i personally think it's a failing policy i think in the long run they're going to end up exactly what you're suggesting they're going to end up writing these banks off and writing them down if this happens it will impact growth tremendously and already the slowdown in europe is beginning to impact our companies because procter and gamble for instance announced today that their growth rates are going to be significantly below what they were forecasting and that's all coming they said from currency translations and lack of growth in developed countries code word europe so american companies that do business in europe and there's a lot of them that make profits there for general motors i b m the list is endless and it's one of our biggest markets and it's basically on its basically not functioning and we can't look to china anymore to bail us out because china's economy itself is not going to support the rest of the world wide the chinese i am really the transparency in trying to is very difficult to know what's exactly happening there the best guess of what i can tell from our analysts that we listen to tell us that there is still growth happening in china at around seven and a half to a percent g d p growth which is still fairly good growth but you don't know the quality of the growth and you don't know where it's happening again that's an economy that's difficult to judge i mean i complain in the united states about what we've done to our wage levels here because the thing that's really impacting our ability to grow our economy and my thesis is you have to grow wages before you can grow the economy in china they have a system there that they don't necessarily care about what they pay you every week from there or from people that are simply overworked and have no hope i mean this is not a i don't think a good comparison to the western economies china so that's why i'm saying in discussing the chinese economy it's more difficult they've made a lot of money because their wages are very very low and they're able to sell in the american market a very good prices so they made a lot of cash all right so if you were getting out of college today with a business degree what would what business would you go into here's our state's farming farming i said that last time i was here yes and i still believe that the the best place to make a serious net worth increase is in the in farming the exponential demand is there the government wants to help you farm and help you get into the subsidies i mean it's a decent business to get in and it's a growing industry and if you're smart you can make you can do very very well so you know i kidding about that are you know i'm not a very serious about farming it's it's it's i think one of the great growth industries in future because if you look at the demand for feed grains in the world it's incredible and we've been very lucky because our technology has been able to produce bumper crop after a bumper crop but one of these days we're going to crop it or do a drought or something and you're go is natural gas there's been a lot more natural gas even the prices are down on it is natural gas going to be replacing oil and is that important to us it could if again if policymakers made a concerted decision to do something smart to change our dependency on foreign oil natural gas would be a very viable alternative there is technology now that we could adapt boone pickens talks about this where we could adapt to our fleet of trucks and buses almost immediately to switch from diesel to natural gas the problem is that there's not the will to do it i frankly don't understand why isn't there the will to do it you know it's a very good question i think that you need to ask the policy makers people like cantwell when they're not asking for subsidies to switch over because we could really and a lot of our dependency on middle eastern oil which is a huge foreign policy problem force and national security issue for us so it's just a lack of political will i think we need some leadership i think we need new leadership in the country i think these people that can't pass budgets in three years and i don't care with democrats republicans who are willing to look at new energy policies president obama promised us he was going to look at seriously finding new alternative energ know what we got was celera that went bankrupt and now we're still driving around in cars using gasoline where we have ten seconds left you have a solution all of our economic problems in ten seconds i think we need do is raise wages get jobs that we shipped overseas back into this country as quickly