This article is based on an interview by Andy Duncan (FinLingo.com) with Claudio Grass, managing director of Global Gold Switzerland, a precious metals boutique designed to offer rock solid solution during a harsh (banking) crisis.
How do you see the current situation in banking particularly in Europe?
One interesting indicator is that today not bankers make the highest average salaries any longer but they have been replaced with government servants. Overall I would say it is bad, but that was predictable. The system and the assumptions underlying the whole sector is just not sustainable, and printing money out of thin air does not create wealth as it meantime is clear that it is destroying capital in the form of savings. All the state interventions have backfired and the current monetary policy with low / negative interest rates are putting an insupportable pressure on the banks. 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.
Do you think we ever actually got out of the 2008 crisis or do you think that this money printing and quantitative easing has just been keeping that crisis on ice?
The mainstream narrative is that the sluggish growth we have seen over the last year’s is a part of the recovery process, and it’s only because of unexpected demand such as the refugee crisis, tensions with Russia and so on. So these are the excuses that the economy has been so asthmatic, 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 vein. Therefore QE and low rates are the economic equivalent of an artificial coma so they didn’t fix any of the problems from 2008, they simply postponed in the enitable hoping for a miracle.
Deutsche Bank in Germany has been in the news most recently, and they do look to be in serious trouble. There has been lots of graphs in newspapers showing a similar share price movement to Deutsche Bank as compared to Lehman Brothers 8 years ago. Now Deutsche has 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 would go bankrupt, do you think that the central banks would then just bail them out anyway?
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 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 that 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 even more tax payers. If they fail it will be a sound choice but
both are politically problematic, and, at the end of the day, it will always be a political decision.
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 solution of bailing out going to create a huge political problem between Italy and Germany?
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.
What do you think this will do to currencies like the euro if the ECB just prints a huge fest of trillion 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?
Most people don’t understand money. However, it becomes more and more obvious that people feel uncomfortable when they hear about trillions of currency checked 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 will 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 hard 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 which 0? We can see so many cracks within the Eurozone that it is question of time when exactly it will break up. I might be that the euro is going to fail before the Eurozone breaks apart as a political construct. Therefore I will not rule out another hard euro crisis in the near future.
Listen in to the interview to hear the remaining discussion about the following topics:
- Could the Eurozone 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 chip 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.
- How is it to work as a Mises ambassador?
- We have seen in the last week different hedge funds pulling their money out of Deutsche Bank. What activity have you seen at Global Gold, in the gold market: are people piling into gold more in the last week?
- We have got this circle of black swans flying all around the world. At the moment, when do you think that the big crisis is going to hit? Or can you not predict that could it be tomorrow / in two years / in five years time?
(go to 7 minutes and 56 seconds)