Kaiser Report – QE, productivity, debt and size of the financial sector

There you will find another episode of the Kaiser Report from RT international (Russia Today). I found this one quite interesting mainly because Stacy Herbert is present from the beginning until the end of the show, which is not often the case.

In this episode of the Keiser Report, Max Keiser and Stacy Herbert, in a double-header, discuss the evidence emerging that Quantitative Easing is causing deflation as the wealthy delay consumption to participate, instead, in rapidly rising stock, bond and house prices. They also discuss new two reports – one from the IMF and the other from the OECD – that expanding the finance sector is not possible without causing further economic decline. Only austerity for bankers will do and bashing the finance sector into a smaller, more manageable (and profitable) size will save us.

The show is opening with Max Keiser quoting Plato. You know Plato ? Or “Platon” in French. He said that an excess of liberty is also the bright side of an excess of debt. Well this is a quite true statement in the whole word.

Plato says that high level debt is also accompanied with high level of slavery

withFor instance China, and to a less important extent India, are the most important place of origins of financial assets which are borrowed everyday from all rich countries including US, EU countries like France. I watched an interesting documentary about chinese retirees who are getting yields from financial assets all over the world. They go daily to finance centers to watch computer screen which displays their financial yield. Retirement compension and pension scheme do not exist in China, and wages are quite low (around 250$ for a factory worker in Schenzen for Foxconn (maker of many apple products like the Iphone). The combination of low wages and no system of retirement compensation, almost no welfare state combined with a well-spread participation of Chinese retirees to US and EU bonds emissions let us think that it’s mostly slavery which is financing the American and European way of life. This very Plato quotation is interesting and confirmed by the several cultural references including the metaphoric novel “Time Machine” from H.G. Wells.

And Max Keiser, a former broker. Quantitative easing is believed to cause deflation according to Stacy Herbert. I am suprised since I have always thought that increasing the money supply, M1, M2, M3 is provoking inflation not deflation. I recently posted on the link between state’s debt and bailout of banks. According to the banker new clothes, famous book about regulation, the reason why banks use so much leverage is that they’re not afraid of risks because they think they are to big to fail and that they will be bailed out if they’re on the edge to default. Well, this is true but states are finding money on financial markets through the issuance of bonds. So according to another analysis, it might be the market itself which is paying for bank losses. Quantitative easing is another problem. When the use of monetary policy is not enough to get economies to reach a reasonable level of inflation, then central banks are printing money out of the blue through huge programs where they buy bonds to financial entities allowed to buy and sell bonds to the market (Agence France Trésor en France). This has of course an effect on currencies level. So many things to say about debt in all its meaning throughout the world ! QE is an answer when public debts are too important.

Let’s go back to this edition of Kaiser Report. Right after speaking about Plato, Max Keiser and Stacy Herbert are joking about the leather clothes that Ms Herbert is wearing through a comparison with PM of Greece who is believed to always wear such a jacket like bikers. He is compared to a biker by Ms Herbert to run away quickly from creditors. Then Max Keiser speak about greece/EU arguments. He is telling us that Tsipras is blackmailing EU officials and EU presidents to get better deals on debt issue. According to Max Keiser, Grexit (the exit of Greece from the EU) is not a serious possibility, it’s only a way to blackmail and deal thoughly with the EC (European Commission), the IMF, and the EU member states. Well I don’t know for sure whether this vision is correct or not, but for sure, with recent threats from Greece to hold a referendum on the austerity measures (mostly a reduction in public expenditures and important cuts in pension for retirees) demanded by the troïka on July 5th, and the quite likely default of Greece on future June 30th payment towards the IMF, well we can discuss this and doubt about this optimistic vision.

decrease on bonds yields may be caused by quantative easing because most of time, QE effects on bonds market is quite important. Investors and financial companies dealing with bonds tend to sell them to get money from the central bank, and in exchange they purchase stocks or shares. So Bonds yields are going down while shares prices are increasing.

Max Kaiser is telling us that the overall debt in the world is of around 200 trillions $ or 200 000 billions $