In the following video Chris Martenson - economic analyst at chrismartenson.com and regular guest contributor to Zero Hedge, and James Turk, Director of the GoldMoney Foundation talk about the problems facing the eurozone as well as the global economy. Chris Martenson points out that the whole world simply has too much debt. This is why he believes that there won’t be a real solution to the euro crisis. The big question will rather be who will take losses on the debt, which can’t possibly be repaid. The lack of political leadership and unwillingness to accept reality is contributing to this crisis. Additionally, the monetary tools central banks have traditionally used to revive economies are starting to show less and less effect. In Martenson’s view, the financial sector has become way too large and interlinked across borders, so that a default by one country could bring down the whole financial systems, because credit default swaps would get triggered and could bring down the writers of those derivatives.
James Turk mentions that today, commercial banks as well as central banks are leveraged at unsustainable levels. While both agree that it makes sense to get back to less risky traditional banking and a sound money system, Martenson raises the question of how it will be possible to bring the leverage down to prudent levels again and how to get rid of the huge amount of complex derivatives. That said, Martenson argues that the gold standard has been proven to be a working monetary system with automatic leveling functions. As a result of the coming structural changes to our monetary system, both men recommend owning tangible assets. They point out, that those who act first have a great advantage.
Martenson talks about the misallocation of capital, which occurs when money is being mispriced. The debt bubble was allowed to grow over the last 40 years and is now starting to burst. Due to cheap money, speculation and leverage have grown enormously. The tech stock and housing bubbles were the latest examples of that. He hopes that we will get rid of the unrestrained money systems with all its imbalances and return to some sort of gold standard system. The accumulation of gold by central banks hints to the fact that gold will play a bigger monetary role in the future.
Talking about European Central bank policy, Martenson speculates that the ECB could be revealed as a “paper tiger”, that is unable to stop speculation against European bonds. This could lead to an escalation of the euro crisis if the ECB does not follow the unprecedented example of the Fed in buying up massive amounts of sovereign debt, even though this violates its rules. He wishes more people took the time to understand basic economics; the illusion that government can pay for something without having to collect taxes in the same amount has been created by the constant accumulation of debt. But since debts can’t be grown forever we are now in the early stages of finding that the idea that we can always expand and that debt doesn’t matter is wrong. Martenson is afraid, that our society as a whole is not prepared for this paradigm shift yet. He believes that resource efficiency and access to resources will be much more important in the future.