Here is the video of an interview I did with Max Keiser on the situation in Europe. A lot of our discussion revolves around why the Germans actually do want a cohesive Europe but feel compelled to pursue the present policy path. We also discuss the advancing bail-in plans in Europe and the advent of wealth taxes as a talking point in the crisis.
The video starts out talking about paper gold in America and a stampede into physical gold in India. My part picks up about halfway through.
One point I don’t make clear in the video is that I don’t support quantitative easing anywhere it is being employed. I understand why central banks do it. With interest rates at zero percent and a mandate to support the economy, they have to do something! And I often point to statements by Fed Vice Chair Janet Yellen or posts by Economist Tim Duy for why QE is being employed because I believe they have cogent, logical reasoning. But I see QE as a version of trickle down economics that is not about the real economy. Basically, the central bank ‘prints money’ and swaps this new money for existing financial assets. Doing this simply changes private portfolio preferences and has no direct effect on the real economy. So those most affected are asset managers, banks and hedge funds and the change in their portfolio preferences trickle down into the real economy to the degree QE has any beneficial effects whatsoever.
We have a private debt overhang in many developed economies right now that requires more writedowns. What most governments are trying to do is to socialize some of the losses from those debt writedowns onto the public balance sheet and to artificially prop up the companies affected by those credit writedowns. However, if you want to deal properly with a private debt overhang, you really need to write unpayable debts down and allow the resultant increases in private net savings from deleveraging to work their way through the economy without trying to ‘interfere’ with the adjustment process. Austerity is an attempt to interfere with this process. Austerity – as Andrea Terzi just explained – through the attempt to reduce government net deficits, is in effect an attempt to reduce private savings. See my post on national accounting from 2012 for a full rundown on why this is so.
I’m going to leave it there for now and let you watch the video.