Keiser Report: Gold-for-Bonds & Debts-for-What?!

 

The problem is you can’t do that, because the moment you do that, Italian banks and other European banks which hold its debt, suffer massive losses. And basically, then you have the insolvency issue of the banks.

 

And the sovereign has to step in anyway which makes this problem worse. And this relationship, this very toxic relationship is very dangerous. And I think that lies at the heart of trying to resolve this European debt crisis.

 

 

Max Keiser: Alright Das, you’re talking about the circularity that’s going on here.

 

Sovereigns bailing each other out, and borrowing from each other to bail each other out.

 

In the broader context going, looking at this over a 30-year period, let’s say… when interest rates in the world particularly, as said by the Federal Reserve in the United States, hits 15 or 16 percent, this was the beginning of a 30-year bull market in bonds which is to say that interest rates over 30 years have been trending lower.

 

And this circularity was able to continue because there was always a higher bond price to raise the collateral and bail you out.

 

But starting in the last few years, when interest rates had zero, there’s no place to go to keep this circularity or as some might call it the Ponzi scheme going.

 

So central banks are engaged and getting things like quantitative easing which are an attempt to force interest rates below zero.

 

But there are limitations to that, especially when they are taking it out at the hide of the general population who’s now in open revolt.

 

So, are at th…inflection point now, interest rates are at zero. You can’t extend and pretend.

 

The Ponzi scheme is finished. So… and it’s social revolt around the world. The policy makers understand that they’ve been flamed a global revolution in this way.

 

 

Satyajit Das: Well, I think this is the thing that they don’t get because I think the key here is that they think they’re all powerful.

 

And to some extent, the last 30 years have sort of diluted themselves into thinking that. ‘Cause remember we’re talking about a period of history which really goes back a long way as you say but probably goes back to the post-war era.

 

Or firstly, you know, you do a bit of fiddling on the budget, you do a bit of fiddling on monetary policy and some are mysteriously, you know, you could seem to be able to control the economy.

 

And obviously, once Mr. Greenspan got to power in the Federal Reserve in the United States, he sort of appeared to be, as you remember, his nickname was the Maestro.

 

He could sort of manipulate the economy. So they don’t actually get the fact that they only have very few policy deals.

 

Number one: the budget. Well the budget, unless you can borrow and spend, and now they can’t borrow, they’ve got a problem.

 

And the other is, as you correctly point out, monetary policy and once rates go to zero.

 

I mean, basically, all quantitative easing to me is because you can’t change the price, you change the volume. That’s basically all it is.

 

And you’re absolutely correct. They’re running out of runway now. And this is the fascinating thing about Europe ’cause I hear constantly enough from people.

 

Look. It’s all very simple. If the ECB could just print money, everything would be absolutely, totally fine.

 

And I could say, “Well, hang on. Let’s back up a stage here.”

 

The first thing is, if the ECB could print money, does that change the stock of debt in any of these beleaguered economy? And the answer is no.

 

The second, how does it help the banks which are holding this debt?

 

Simply because, this we know. This debt can’t be paid and at some point in time, these leveraged institutions are gonna have to take a write-off. And they’re not capable of doing that.

 

Third, how does it help these economies grow? Because we all know we need a bit of growth to get out of this.

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