Andy Duncan of FinLingo.com interviewed Claudio Grass, managing director
of Global Gold in Switzerland. Below is a transcript excerpting the main
parts of the first section of the interview on the problems in the European
banking system and what measures might be taken if push were to come to
shove.
What follows is a guest post by Pater Tenebrarum at the Acting Man blog.
A Looming Banking Crisis – Is a Perfect Storm About to Hit?
Andy Duncan: How do you see the current situation in
banking particularly in Europe?
Claudio Grass: One interesting indicator is that today in
certain countries not bankers are making the highest average salaries any
longer , they have been replaced with government servants. Overall I would
say it is bad, but that was predictable. The system and the assumptions the
whole sector is operating under are just not sustainable, and printing money
out of thin air does not create wealth; on the contrary, it is destroying
capital.
All state interventions have backfired and current monetary policy with
low / negative interest rates is putting insupportable pressure on the banks.
Bad actors have been allowed to get away with reckless and catastrophic
positions for too long. The history of bailouts has sent the message that
such actions don’t really have consequences, and therefore my understanding
is that moral hazard and risk linked to it have increased.
Andy Duncan: Do you think we ever actually got out of
the 2008 crisis or do you think that this money printing and quantitative
easing over the last eight years has just been keeping that crisis on ice?
And is what we are seeing now just the crisis trying to reemerge again?
Claudio Grass: The mainstream narrative is that the
sluggish growth we have seen over the last year’s is part of the recovery
process, and it’s only because of unexpected events such as the refugee
crisis, Brexit, tensions with Russia and so on. So these are the excuses that
the economy has been so anemic, and in my view this is a poor excuse for a
failing system.
The problems are structural, and all of the states’ effort to patch them
up are in vain. Therefore QE and low rates are the economic equivalent of an
artificial coma; they didn’t fix any of the problems of 2008, they simply
postponed the inevitable hoping for a miracle.
[…]
Andy Duncan: Deutsche Bank in Germany has been in the
news most recently, and they do look to be in serious trouble. There have
been lots of graphs in newspapers showing a similar share price movement in
Deutsche Bank as compared to Lehman Brothers 8 years ago. Now Deutsche
Bank have this massive 14 billion dollar fine from the US regulators, and
Chancellor Merkel said she is not going to bail them out. If Deutsche Bank
did go bankrupt, do you think that central banks would then just bail them
out anyway?
Claudio Grass: You heard the same message from the
Italian banks. Both countries’ governments have indeed made it clear in
public that there is no chance of state aid and bailouts. However, since the
problems keep getting worse, and the toxic infection in the banking system is
becoming a real issue, I would not be surprised if they reverse their
position and go ahead with more bailouts.
I really believe they are trapped. If they let a bank like DB go under, a
lot of savers will suffer a serious hit; if they bail out it will be at the
expense of tax payers. Letting it fail would be the sound choice, but both
are politically problematic and at the end of the day, it will always be a
political decision.
Deutsche Bank, weekly – not exactly the most confidence-inspiring chart.
DB is one of the world’s largest “systemically important institutions”. If it
were to keel over, will the EU’s bank resolution directive really be adhered
to? – click to enlarge.
Andy Duncan: [….] I would imagine that they will get
bailed out but won’t this cause Chancellor Merkel all sorts of political
problems with the Italians because they have been told that their banks
cannot be bailed out. To your point, isn’t a political decision to bail out
DB just going to create a huge political problem between Italy and Germany?
Claudio Grass: I really believe they will always come up
with a political solution. If they are going to support Deutsche Bank, then
basically they would also have to support the Italian banks. That’s the way
it has been in the past. I think they will stick to the same mechanisms in
the future.
Andy Duncan: What do you think this will do to a
currency like the euro then if the ECB just prints a huge trillion
dollar fest of euro notes to bail all these different banks out, particularly
in Spain and Italy, as well as in Germany? What do you think this will do to
currencies: will the central banks around the world get together to manage
that situation?
Claudio Grass: Most people don’t understand money.
However, it becomes obvious that more and more people feel
uncomfortable when they hear about trillions of currency injected into the
financial system. People are increasingly asking themselves where this money
is coming from, and the explanation they hear is that central banks can
create this out of thin air. I always underline that if we were do the same
on a private basis we would go to jail.
So overall a lot of people have realized that we are in a harsh currency
war for years already, and that everything goes on until it stops. So the
question is how much more can they print in euros before the euro itself is
going down to its intrinsic value of zero?
We can see so many cracks within the euro zone that it is only question of
time when exactly it will break up. I might be that the euro is going to fail
before the euro zone breaks apart as a political construct. Therefore I will
not rule out another euro crisis in the near future.
The following topics are discussed over the remainder of the interview
(the recording continues from transcript at 7:56):
- Could a break-up of the euro zone actually bring down
the EU as well as have terrible repercussions for the banking system?
- As an Austrian economist what should be done in this
situation: should the whole of banking system just be allowed to find
its own feet or or should the chips should just fall where they will?
- How to protect from rapidly depreciating currencies?
Hint: part of the answer is owning physical gold and silver, stored
outside the banking system, ideally in safe and internationally
diversified jurisdictions.
- What is it like to work as a Mises ambassador?
- We have seen different hedge funds pulling their money
out of Deutsche Bank. What activity have you seen at Global Gold, in the
gold market: are more people piling into gold recently?
- We have got this circle of black swans flying all around
the world at the moment, trying to land. When do you think that the big
crisis is going to come? Or can you not predict that? Could it be
tomorrow, in two years or in five years time
Andy Duncan interviews Claudio Grass (continues from transcript at 7:56)
End Guest Post
Pater Tenebrarum is an excellent commentator with a strong focus on
Austrian economics.
Inquiring minds may wish to bookmark his Acting Man blog.
Mike “Mish” Shedlock
