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
Mish…do you really think that there’s a significant chance that they won’t bail them out? Is not the underlying big lie inherent in the current system that the banks are somehow properly regulated and standing on their own in a free market?
Also, how would you say that the coming crisis (assuming you think one is inevitably due) is similar and different to the 2008 crisis.
Thanks!
If I seriously thought for 1 second that Merkel (or any other politician) *wouldn’t* bail them out, I’d be selling all my PM Monday morning.
And that sh!t ain’t gonna happen.
Did not the IMF warn us over a year ago that bail-ins were going to be the preferred methodology to handle the large broke banks. The problem for them is they must do it coordinated over all connected banks at the same time…and then promise to never do it again. I’m sure everyone will believe THAT. Ultimately they want to find the least obvious and disruptive way to pass the cost of these failed banks and DEBT onto the backs of the population as a whole…..not including the very, very rich of course, as they must be insulated from the bulk of the losses as they are our ruling elite…and as Eric Holder told us, we can’t afford to allow that class of people to come under too much scrutiny or attack as it might damage system credibility!
At this point it SHOULD be obvious to any observer that the primary problem we currently face is not debt, but confidence. Sadly, our perpetrators understand this but see confidence as a simple commodity that can be bought, sold and traded. In reality, true confidence is created from nothing but positive experiences. Yes it can be artificially enforced or enhanced by propaganda, but it is the weakest and least stable of any confidence, and as such is fragile to the exposure to reality. Reality is blaring in all of our faces now and propaganda is losing effectiveness very quickly. Even while many deny the reality that they are seeing, none the less, they ARE seeing it and know it in their heart, even IF they can’t admit it. Our economic statistics, their absolutes in extreme are one reality. Our current political contest is another.
The perpetrators are attacking Trump in hopes of stopping him with personal attacks. They are screaming that his words are inciting violence and economic fear, not understanding that Trump can’t be destroyed as he is just the voice of our discontent. We don’t care what they call him…..really I don’t think we care if the worst is true, because it is irrelevant. He is our ONLY means of stopping this juggernaut of corruption, criminality and deceit.
Good comment mad man, you could have your own blog.
However, the banks are a minor problem compared with that really big elephant in the corner:
I’m talking about ww3. The Russians expect that Hillary will start ww3 and they are preparing for it. They don’t want that, and that’s why they prefer Trump. They perfectly understand someone who only wants to help his own country.
Everything is designed to be a component of our demise, not an actual cause. The cause is that which precipitates those components to exist and fail. That cause doesn’t want to be identified directly. It can effectively hold power without ever publicly wearing the crown and robes.
We are chasing failing banks and corruption and Russians and Muslims and Chinese and all the rest, while those instigating these problems sit and watch….and laugh.
“At this point it SHOULD be obvious to any observer that the primary problem we currently face is not debt, but confidence.”
It is the DEBT. PERIOD.
Debt and confidence are synonymous, they are based on trust and faith.
Whether debt is used to ruin confidence or whether confidence ruins the meaning of debt (which is the name of fiat) and its structure, is another question.
Personally I think that debt is the enabler, without the force legitimised behind and by debt, there could not be the trickery that has lawful semblance attached to it.
You cannot deal with the abstract of confidence easily, but you can legislate on debt and it will be understood and effective.
They can print money to cover debt but they can’t “print’ confidence. Once confidence is gone, the debt becomes the falling blade no matter how much they print.
I have seen this time and again, and not always to do with money – people create obligation, they sell obligation, they ask for commitment in a continuous exchange. The confidence is in the idea, the project, the result.
Financial debt does work along the same lines, fiat and monetary expansion, and credit also, but it involves a third party, law. That law enforces redemption according to numeric calculation, and so you may have all the confidence in the world as to your ability or direction, but it has to fit in with that third party. If you are in debt and you cannot repay, the calculator will claim your business and property, ruining your possibilities and dashing your confidence.
That level of leverage is taken advantage of by some, either for commission and profit or even as a speculation on your failure. Those taking on debt are often fooled into a false confidence that the instant success of having money brings. We know in reality however that in financial debt people have tied their future to the calculator, and with the fiat credit cycle, they may be left with their pants down, and not only due to lack of prudence.
In society which competes (for housing for example) people are pushed out unless they compete using the ‘facility’ of debt. So you could say debt skews confidence into a false math, which printing cannot rectify as it breaks the moral framework of the competition itself. The fact that it does this after encouraging aberration initially is just symptomatic of how debt might be construed as the cause of the distortion, and eventual loss, of confidence, and due primarily to its poor resolution which is derived from the leeway that fiat and central banking allow.
“Printing” has nothing to do with it.
ECB can “print” to their hearts content … but when the defaults show up …. and they will … Crisis on hand … no matter who is holding the debt. Taxpayers will be forced to bail out ECB.
The problem is not confidence, it is piss poor underwriting by the banks. Giving credit to those with no capacity to repay will lead to crisis sooner or later.
The debt level is too high (for weaker EU countries). Over and above capacity to service it.
If there is a bailout I expect gold to be the beneficiary
I can see how gold could see a real bump in price, but is it not our government that is the problem and do they not decide ultimately what any exchange rates will be through transactional controls, taxes or whatever. It’s difficult for me to imagine a government desperate to retain control allowing gold to compete with ITS currency. Do we dare forget why gold was left behind in the first place?
But how does “gold to be the beneficiary” actually work? I do own both gold and silver, but how does that help me at Jewel? There is a long line from the farmer to the store and how would that work if the dollar/euro is collapsing? How do we purchase gasoline, clothes, electricity, etc. with gold or silver?
You can purchase anything you want with BitGold.
Today – Right now
BitGold is real physical gold
The Fed part of the problem that’s going to erupt:
“Despite the fact that rates were not raised at the September FOMC meeting as we predicted, the truce at Federal Reserve has never been more tenuous and appears to be on the verge of an outright civil war,” Doug Roberts, chief investment strategist at Channel Capital Research, said in a note. “The truce between hawks and doves is now being renegotiated.”
http://www.cnbc.com/2016/10/21/janet-yellen-could-be-on-the-verge-of-starting-a-civil-war-at-the-fed.html
Why would the brilliant US regulators press a fine of $14 billion against Deutsche Bank if they also believe DB poses systemic risk? Why would they not invent an excuse to eliminate such additional pressure on DB?
I think I would be far better to arrest the key players, unlike what was done in 2008/9
The $14T fined DB is part of an escalating financial war. The EU never objected to the Apple-Ireland tax agreement when it went into effect years ago, but has now decided to impose a retroactive tax because the EU underestimated Apple’s success. Rule of man is quickly replacing rule of law.
Intrinsic value – what a quaint idea.
It’s the cousin in quaintness to Generally Accepted Accounting Principles (GAAP) which, whilst not lacking for quaintness, remain generally unacceptable.
I wonder if there is really honour between thieves, certainly not amongst the political or banking fraternity – both dreaming of unassailable power and their next machiavellian move. Institutions today do not serve the people, they are self serving – so expect fireworks and certainly not any utopian dream of global hegemony or even agreement on how to act.
This will change only when support for the hierarchy can be withdrawn by millions of citizens by removing money from circulation. It is happening already so after the hatchet job on the convertibility of notes to precious metals they are desperate to ban cash. I guess they will die trying 🙂
I think it was Mao who said that all power is derived from the barrel of a gun. It is not gold, paper or digital currency that will prevail, but the barrel of a gun. We know who has the guns and is willing to use them. We will transact in any medium they dictate.
The point is, we are not suffering from a financial or currency crisis, it is a GOVERNMENT crisis.
The exact quote is “Political power grows out of the barrel of a gun”.
Notice he was talking about political power. It was 1927 and he was encouraging his followers that in order to take the outright political control, the armed struggle is an absolute necessity.
Obviously, it worked for him.
As long as politics controls the military and about everything else in our modern world, I would say that pretty much covers all power. Given the vast amount of guns in private possession, I would submit that it is THEY who will be perceived as the threat that our government finds necessary to suppress. I’m only assuming that our current government is a bit more organized and equipped to repel a civil uprising China of a hundred years back. There is no surprise to their desperation to outlaw guns, considering they really don’t seem to give a damn about people murdered in the streets of places like Chicago every day.
Exactly; good point angry man. I used to live just outside Chicago. Keep in mind all those murders generally take place around Obama’s old neighborhood. That Chicago gun control is really working out well. Funny thing is, apparently those people still haven’t figured out how the DNC is screwing them over. I think they like all the murders to use as an excuse for more “common sense gun control”.
Bankers have been attempting to bail out bankers with the printing press for years. However, the models bankers use are so looney tunes that bankers wind up creating a new banking crisis instead.
Of course, if bankers were prudent stewards of the deposits entrusted to them, banks would not need bailouts every few years. Many bankers are de facto gambling addicts who bet other people’s money on silly derivatives and sub prime loans.
The final outcome could be total digital transactions. It would make NIRP so easy but we would all be slaves, not knowing what our labour is worth when an arbitrary percentage is confiscated monthly from accounts.
That is where this is finally heading. Just give it time.
Then chip every human. No passports, plastic cards just a planet of battery hens.
The final outcome could be total digital transactions. It would make NIRP so easy but we would all be slaves, not knowing what our labour is worth when an arbitrary percentage is confiscated monthly from accounts.
That is where this is finally heading. Just give it time.
Then chip every human. No passports, plastic cards just a planet of battery hens.
You will be assimilated! Resistance is futile.
Speaking of theft, inexpensive fiat is the ONLY ethical money form for government use else the taxation authority and power of government is misused to benefit private interests such as gold owners and money hoarders.
Yes, fiat creation for the private sector (Open Market Purchases, Interest on Reserves, the Discount Window, etc.) is theft too but the solution is to ban that and other privileges for lending institutions such as government provided deposit insurance*.
*It’s now obvious in retrospect that a monetarily sovereign government should itself provide accounting and transacting services in its fiat (e.g. a Postal Savings Service or equivalent) for all citizens, their businesses, etc. That service should make no loans nor pay interest. This is the only way we can truly have 100% private banks with 100% voluntary depositors.
Money hoarders? It’s called saving and used to be a virtue.
Aka capital formation.
The result of thrift.
Is it now a sin against the system and it’s masters?
Is it now a sin against the system and it’s masters? The_Fish
Speaking of sin, see Mathew 25:14-30.
And yes, capital formation is good but at some point some of the financial capital needs to be invested, lent out or consumed.
When interest rates are positive all savers in a stable institution are not dissimilar to the servant with 5 bags of gold. The institution organises distribution to business and individuals for a positive return and then distributes the income thereof, minus costs, to the saver.
NIRP/ZIRP and the attempt by the masters of the system to make up=down and down=up is the problem.
Savers (cash hoarders?) are the only ones exhibiting discipline that might just help right the system when the masters begin to see the error of their ways.
If we go along with it we’ll just encourage the b@stards and the outcome w8ll be ever more dire.
NIRP/ZIRP and the attempt by the masters of the system to make up=down and down=up is the problem. fish
The MOST sovereign debt should return, being risk-free, is 0% else we have welfare proportional to wealth, not need. And obviously, the shorter the maturity of the debt the more it should cost; hence negative interest rates on sovereign debt are perfectly natural.
Recall the Tequila Crisis in 1994. (Great interview by Russ Roberts @ econ talk with Trader who was there as Mexico devalued their peso) Low and behold! Larry fU summers was there and got the U.S. Gov to backstop 50bil. The trader states this was a game changer in bankster culture. Now they understood they could take huge risks with out hesitation as Uncle Sam would be helping if need be.
Of Course DB will be back stopped! go to EconTalk and listen to last weeks piece, incredible!!
Yes, everyone wants to buy gold. Most buy the electronic bytes & paper of the ETF’s labeled
“physical gold”. I found one selling unallocated gold whose owner’s name rhymes with the famous Canadian Cold Corp & whose financial statements are audited by the owner rather than an external auditor; then there are more sophisticated scams, all of which my analytical instinct having been trained in Wall St can pick up. Can you? I have even seen an endorsement of storage in Singapore where the MAS has allowed huge amounts of Carry Trade, borrowing USD which will have to be paid back while a leading bank with only mortgages & small business loans vs casino operations is stuck with 500 branches in Malaysia where loans are not being repaid besides participating in Chinese banks where
the “Roach Motel” nature of state control hinges upon a secular debt of $30 Trillion which
shot the balloon of the eponymous China-India SE Asia Infrastructure Project subscribed by everyone but Obame. As with Spanish sovereign debt in cyclical default ever since 1857, there are always new Rubes to get in for an eighth more yield…
It’s the old story: paint it black & bury it in the garden, hoping your neighbour does not have a metal detector.
I guess I had never paid enough attention to the lyrics.
We have recent evidence of what will happen to gold in a banking crisis. Gold will go up for awhile, and then when Armageddon doesn’t come, it will drop again. If DB starts going tits up, I’d expect that cycle to happen again, only quicker, because of recent memory.
Instead of a bailout, I’d rather see the German government take over DB and write down its obligations in an orderly manner. DB being very international, the government can write off debts to foreigners first thereby minimizing the political blow back on the current administration.
Agree. Gold goes up DURING the crisis phase.
Then it will be at the mercy of deflationary forces from the coming asset repricing (lower).
“Looming Banking Crisis?”
The G20 did not change the rules for bank depositors in November 2014, just for the fun of it. G20 knew a banking crisis is coming.
Congress did not put the tax payers on the hook for the derivatives banks, such as Citi and JP Morgan, just for the fun of it. Congress knew a banking crisis is coming.
In 2005, congress changed the bankruptcy rules, as they knew a crisis was coming when the housing bubble would finally burst.
Looming banking crisis? Yes. The question is how soon it hits and who it hits.
the Euro-zone may not be able to survive a banking crisis. To say the Euro-zone is a dysfunctional mess is an understatement and the truth is many of the member countries rile at the idea of increasing the power of politicians in Brussels. Adding to the Euro-zone’s woes of economic stagnation is contagion flowing from slowing economies across the world and a growing refugee crisis.
This has created conflict between not only countries already beleaguered by slow growth, high unemployment, and deficit budgets and their better off neighbors, but groups within many of its members. Below is a further look into why things are not expected to get better anytime soon.
http://brucewilds.blogspot.com/2015/11/euro-zone-remains-dysfunctional-mess.html
Mish, I registered just to say how much I like your blog. Zero Hedge included so many of your articles that I finally had to come to the source, and I haven’t been disappointed.
Pater Tenebrarum == Father of Darkness, someone needs his spiritual orientation adjusted
Very Good
Excellent in fact
I give you an A+ for latin