Gold Research Videos

In this video Pedro Schwartz, professor of Economics at Madrid’s San Pablo University, and Alasdair Macleod of the GoldMoney Foundation talk about the debt crisis in Europe, with special emphasis on Italy and Spain. Schwartz says he witnessed many crises in Spain, but also how they were overcome. If the newly elected government does the right thing then the Spanish economy and society could function again, he states. While he has no faith that they will do the right thing, he thinks that circumstances might force them to be more responsible.

Macleod and Schwartz agree that it would be healthier in the long run if the European Central Bank did not monetise government debt, and forced governments to make painful decisions. Schwartz thinks that insolvent countries should be allowed to leave the euro for a while with the option of reentering again later. During that period local currencies – the drachma in the case of Greece – should be used as parallel currencies in co-existence with the euro, as currently practiced in some Latin American countries. Greek bondholders should take losses for making bad investments.

Macleod states, that the problem with financing Europe’s debt is basically that the central bank can’t support sovereign debt by printing money. Schwartz brings up the possibility of severe cuts in state expenditures to create budget surpluses. As opposed to Italy, for Spain the problem is not so much the public debt, but rather the private debt. However the private debt will become public debt, if it’s too large for the banking system to handle independently – as seen in other countries since 2007. Spanish banks are in deep trouble because of their real estate exposure and it will take a lot of time to write down bad loans.

Schwartz talks about the connection between savings and investment, a point that is often overlooked in his view. There is no opposition between savings and consumption, as savings will eventually be used for consumption. Schwartz says that a change in mentality has to come about with regards to savings, especially when it comes to the issue of retirement. People will have to save more from much earlier in order to have a comfortable retirement.

Talking about labour laws, Schwartz states unemployment in Spain is leading to tragic social consequences. He points out that the official youth unemployment rate in Spain stands at 46% – the highest level in Europe. Our fractional reserve banking system requires a lender of last resort because the leveraging and multiplication of the base money supply puts normal checking accounts at risk. However the bailing out of bankrupt companies and countries is a different story. America’s current dollar policy will not spur growth, but will instead lead to more imbalances, and as a political consequence, contribute significantly to the further decline of the west.

This interview was recorded on November 15 2011 in Madrid.