Alasdair Macleod: All Roads In Europe Lead To Gold

Tyler Durden's picture

Submitted by Chris Martenson

Alasdair Macleod: All Roads In Europe Lead To Gold

This week we bring back Alasdair Macleod, publisher of Finance and economics.org, because, as he puts it "every horror that we discussed last time we spoke is coming about". Especially scary since our previous conversation with him was less than three weeks ago...

Today's interview continues building on his excellent synopsis from last month that detailed the origins of the Eurozone crisis. The fundamental shortcomings warned of at the Euro's creation in 1997, combined with the excessive sovereign debts run up since then, have finally expressed themselves at a scale too large to be contained any longer.

Today, Alasdair details in-depth the huge and serious challenges facing Greece and the major Eurozone countries, and the likely impacts of the fast-dwindling options left remaining.

He sees no happy ending to this story, no outcome in which serious pain and permanent behavior change can be avoided. And for those looking for shelter from the unfolding economic storm, he sees few options besides the precious metals (which he believes are severely under priced at the moment): 

Greece

The Greek situation is entirely predictable: when you force enormous pressures on an economy and try and raise taxes from the private sector -- a private sector which isn’t used to paying taxes because usually they find away around it -- you start cutting pensions, you start cutting this, cutting that, and the people revolt. They haven’t a clue what they are doing, but we get the revolt nonetheless. It looks like nobody there can form a government; and it looks like there will be another election probably in June. That won’t resolve anything unless by some miracle, some sense gets knocked into people’s heads.

 

The other thing, which nobody has mentioned, is that there are about 90 billion dollars in derivative contracts involved in the Greek economy. This is not just government, but also local governments and towns and cities and all the rest of it. The counterparties to this $90 billion must be getting a bit worried about that, I would think because that looks as if it will default.

 

The people who have been most active in getting these derivative contracts going over time have been people like Deutsche Bank, Goldman Sachs and I suppose JP Morgan -- so you can see the problems aren’t just limited to the government and some unfortunate Greek citizens who are caught in the middle of this.

 

We are looking at potentially up to ninety billion dollars worth of derivatives which one side of those transactions is going to default. One side: it is not a balanced figure is it? I don’t know that it is necessarily as bad as that, but it is a problem that needs to be dealt with, addressed and contained. I think what they have to do as much as possible, is to try to work for a sensible outcome in this, which probably will involve Greece leaving the Eurozone, but maybe obtaining help from the ECB to set up a currency board. The reason I say that is that I think for Greece to return to the drachma would be complete destruction. You would have a situation where people who owe money in Euros would still owe money in Euros. If the Greek government tried to change that by law, for starts, that could only apply to loans taken out in Euros in Greece; whereas a lot of these have been taken out in Euros elsewhere in the European Union. In any event, I think if they tried to do a law on this, it would be a retroactive, which would be open to legal challenge.

 

Meanwhile, if you have deposits in a Greek bank, you can be sure the Greek government would say we are going to re-designate those into New Drachmas, which would impoverish the depositors. When it comes to trade, I think everybody would just stay well clear. To go back to a New Drachma, I think is the most destructive path Greece can have. Now, they could do that on the basis that, if the European Union wanted to make an example of Greece, then this is a way in which they could just let them go hang. The importance of that would be that the situation for Greece should be so bad that no other member of the Eurozone would contemplate leaving the Eurozone. That is a possibility. But I think that is less likely than coming to terms in such a way to give Greece an exit. But if they do get an exit, again, they’ve got to have an exit in such a way that it hurts enough and anybody else who wants to take that exit would see, well it is actually probably more painful than staying where we are. It is a very difficult balance to achieve.

 

The people who will do this, I don’t believe are the politicians. It would have to be the sensible people in the ECB and perhaps some of the more backroom boys who could put together some sort of face-saving mechanism without this becoming too much of a political hot potato. It is very, very tricky, it really is, and quite honestly, the way political governance has been going in Europe, the chances of them getting some sort of orderly withdraw in the interest of continuing relationships, et cetera, I think are actually probably slim. That is what we are up against: this is not easy. There is no precedence for this at all and I know that lots and lots of people are saying it has got to return to the Drachma; I just think that a New Drachma would collapse almost immediately. I think that a currency board in the Euro is actually a more sensible result given where we are.  

France

France is a mess. They have outstanding debt of 1.3 Trillion Euros, something like that. Their debt/GDP is around about 85-90% going on a hundred quite rapidly. That is a very liquid and nasty situation. Unemployment is running close to ten percent.

 

It is almost impossible to employ anyone in France because the taxes are so high. Do you know the total tax that you pay as an employer, more than doubles the salary that you pay an individual? This is absolute craziness, but it is been like that in France forever and a day. The result is an awful lot of the market is black market.

 Spain & Italy

Spain is a worse situation. Government debt alone is just under a trillion. A trillion dollars equivalent, I should say, and that is a lot of money. That is a lot of money. Italy is over two trillion dollars. That really is a very, very big one, so this contagion must not be allowed to happen. 

Germany

Their economy is performing reasonably well, but it is not performing well because they are doing well for Europe; they are doing well because they are selling the most cars, machine tools and everything else to China, to Brazil, to Russia. Africa’s a great growth area. Europe, as far as Germany is concerned is dead. Which of course brings us on another question; that is why should Germany continue to support all these bust Europeans? There is a sort of conscience if you like about the last two world wars, but there is going to come a point where that wears pretty thin I would have thought. The trouble is that it is all very well, everyone turning around and saying, Germany has to help. Actually, what they are saying is that Germany’s citizens should give up their savings, their hard won savings to rescue a project, which is obviously dead or deceased. I think Germany really should bust out as soon as possible and I am sure that there are an increasing number of businessmen and bankers in Germany who are beginning to feel that way. 

On Gold

People who have gold or silver, I think actually had a very rough ride over the last couple of months. A lot of them are wondering what on Earth is going on because every time you get good news, gold seems to rally along with equities, but every time there’s bad news and gold actually should be giving you some protection, it goes down the swanny.

 

I think the problem there is that the whole system is run by people who went to college and were taught keynesian economics. In my day, when I first went into the stock market and I enjoyed that first bull market in gold when it went from thirty-five bucks to eight-fifty, the traders and investment managers were all practical people. They all cut their teeth, all learned their trade the hard way. Some of them had degrees in college, but generally it would have been something like classics or history or something like that. If they got a degree in economics, they probably would have left because they never would have understood it in those days. But now it has changed. Everybody who is employed has a degree and if they are anything to do with investment strategy, or the investment business, it is all economics degrees. So they have been brainwashed in the keynesian thing. This sort of neoclassical approach where gold is yesterday’s story, paper money is the future. They really do believe it and it is the opinions of these people who drive the markets in the short term.

The result is that gold and silver have become very, very seriously mispriced. I don’t think I have seen a stretch like this as I can remember; by stretch, the difference between perhaps where it should be. We must be careful not to tell the market what the price should be, but it is so underpriced at a time of enormous systemic stress, that I think when gold and silver snap back into a more sensible, logical valuation relationship with the markets, the move actually could be very, very sharp and quite large. If gold ran up through the $2,000 level very quickly, which I think is a very strong possibility, because it is been held down so much, that could bring other problems. The central banks, who might have sold gold and not told us about it will find that they are embarrassed. I think also the bullion banks in London who operate a fractional reserve system with gold, exactly the same way as to do with any paper currency, will be hurt very, very badly on the run. Any shorts in the futures market equally could be hurt very, very badly. We have a situation, where there is a potential for a huge run in gold and I personally wouldn’t be surprised to see it.  

Click the play button below to listen to Chris' interview with Alasdair Macleod (48m:07s):

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Colombian Gringo's picture

right through the ruins of euro....

Xkwisetly Paneful's picture

Pumping gold since the 70's have anything from Joe Granville?

To his credit, after 40yrs of the same song and dance he has it down pat.

markmotive's picture

Yeah, I got gold.

But IMHO, all roads in europe lead to a new era of European conflict

http://www.planbeconomics.com/

hedgeless_horseman's picture

 

 

All dogs in Argentina lead to US Dollars.

Government uses canines to track down dwindling stock of US dollars now being smuggled to Uruguay.

  

 

In Argentina, the government is using dogs to sniff out US dollars.  

 

As part of a crackdown on tax evasion, money laundering and cash being sent overseas, restrictions are being imposed on foreign currencies, especially the US dollar. 

 

Those restrictions have made the dollar, seen as a refuge from double-digit inflation for many Argentine people, increasingly difficult to find on the streets of the capital.

 

Those who do possess the US currency are smuggling millions into banks in neighbouring Uruguay.

 

In an effort to curb that capital flight, the government of Cristina Kirchner, the Argentine president, has employed dogs to sniff out the currency.

 

  

http://www.aljazeera.com/video/americas/2012/05/201251919351572203.html

Oh regional Indian's picture

Eurozone = Poweder Keg

Greece = Spark

Spain = Fuse

Italy+GB = Da Bomb

USA = Tsar Bomba

BRICS = Wet Powder

Gold = Massive Head Fake

Saviour Investment Play = ?

ori

/wisdom-for-warriors-8/

GetZeeGold's picture

 

 

Crisis? What crisis?

 

I sold all my gold last week and bought shares of JPM.....what could possibly go wrong?

 

Urban Roman's picture

Shouldn't you change your ZH name to GetZeeJPM, then?

GetZeeGold's picture

 

 

Crap.....I totally forgot the /sarc.

 

Thank you Maximus!

Harlequin001's picture

Aaaand he hit the nail on the head.

Germany must leave the Euro first, and the others will follow. If it does, the Euro and all debt denomonated it it will fall in new D'marks thereby wiping out the German target 2 liability and reducing Germany's obligations in euros..

Spain Italy, France and Greece will then be able to adopt their own currencies without the commensurate bankrupting drop against the euro.

Rinse, repeat...

PivotalTrades's picture

How is that any different....Germany leaves and the Euro drops to where the Drachma and Lira would be.

jez's picture

What a mistake! You bought JPM instead of Facebook?

_underscore's picture

You're apparently quite sanguine about any possible effects on the BRICS from a EURO catasrophe, ORI. Haven't you realised that the BRICS will sink like gold in a boating accident if that neat little euqation plays out?

No, thought not. For all the unpleasant possibilities extant in the Euro/USA/UK following a binge of debt fuelled consumption, at least mechanisms & institutions (with their associated checks & balances) exist to mitigate the worst effects,to some extent. I really wouldn't like to be in China/Russia/India when the West stops buying all the crap it does.

Manthong's picture

What does gold and silver smell like?

 

GetZeeGold's picture

 

 

Gold....nothing. Silver can get pretty stanky.....pretty much like a roll of fiat that's been stuck under a matress for a few years.

 

Anything else you want to know?

 

fockewulf190's picture

I love the smell of gold and silver in the morning...it smells like victory...over the Morgue.

jekyll island's picture

Can their dogs smell gold too?  

Nussi34's picture

The Euro brings peace and wealth to Europe!

GetZeeGold's picture

 

 

 

Please put that Euro back in your pocket.....the light is blinding me.

 

BenLightYear's picture

Alasdair don't quit your day job. There are plenty of reasons one could use to validate the ownership of metals however reading and listening it sounds more like its his second week reading zerohedge, pieced together information he gleamed from arguments he probably lost, and gave a couple guys handjobs to get airtime. His statement about he can't remember another time like this. Really? So basically he is saying that when silver was still somewhat recently at 10$ and ounce and gold at 600$ he was trying to hustle in the stock markets and one of his trader buddies forwarded a couple youtube videos ie silver bears, history of money/banking, etc and figured he would jump on the bandwagon. This site surely can find someone other than this guy to promote metals. I understand since Marc Farber reversed his outlook on gold and silver recently you guys have been strapped but come on. In fact I'd be more than happy to write an article for ya guys if ya just want someone to make a weekly case to buy metals. I would even happily accept payment for said writing in bullion, I'd dump it and hold the cash for the current time being but hey I don't like to lose money.

zebrasquid's picture

Faber (not Farber) has hardly reversed his outlook on gold. Seems like you're the amateur with the half-baked opinion.

BenLightYear's picture

Ya gotta read into what he says like a trend...he has clearly stated he sees the price dropping although he is still accumulating. In a couple months it will be where he isn't selling but is currently holding off purchases to get a better price in the near future. Remember he has gathered the following he has in large part due to his position in regards to currency and gold. He has too be careful how he phrases what he says or it invalidates the premise of his views over the last few years. My apologies for misspelling the name. I've been typing for a few hours and sometimes my fingers and my brain don't connect 100%

prole's picture

Typing all day have "ya" you think it's funny to talk down to us? Do you think we are stupid just because you get paid for your trolling and we are here for free, for fun? (we are actual humans) Live it up prison guard, yuck it up with your paid friends, we will survive, arbeit bacht frei.

PS- Could you tell me where exactly Marc Farber "reversed his outlook on gold?" (not that I believe you ever heard of him, or care)

And by what inverted logic/sanity would you think that we would pay, for your trolling? Your posts here are beyond stupid, beyond laughable, not even funny, tell Cass to fire you. Pay for your stupidity, you should have to pay a troll fee to get on zh. It is kind of ironic though,  because we do pay for your stupid trolling.

GetZeeGold's picture

 

 

I've been typing for a few hours and sometimes my fingers and my brain don't connect 100%

 

 

The solution is simple.....Dr. Bob explains. It only costs 5 dollars....or an ounce of silver. Whatever you have handy.

http://www.youtube.com/watch?v=Ow0lr63y4Mw

 

BenLightYear's picture

Care to dispute what I said or just play the you suck routine. Go to google...type faber sees gold and silver dropping in value....maybe 15 different times in the last few months he has made that statement. Try a little harder next time and maybe offer a rebuttal rather than try to make me feel bad that your an idiot.

TWSceptic's picture

"I've been typing for a few hours and sometimes my fingers and my brain don't connect 100%"

 

Your brain cells don't seem to connect very well either.

BeetleBailey's picture

@BenLightYear....

One wonders why you even try to attempt to present any type of argument on this forum.

One also wonders if you flunked a course in economics - or that you took umbrage to MacLeod's assertion that you are Kensyianly brainwashed. Seems you are - deeply. This explains the disconnect of your brain and fingers. Even your bones know you lie.

I type for hours too. No problems here.

Lastly, all of us know that you get paid in fiat currency vs. something that holds value - and can't be printed or conjured up out of thin air.

THAT - is being thoroughly and totally screwed to the wall.

Your "masters" must be proud of you - and laughing heartily at the snow-job they did on you.

BenLightYear's picture

Once again...explain to me where I was mistaken...if I flunked economics and it's quite clear please explain my actual error. Telling me I'm an idiot doesn't prove I'm one. Showing me where I erred does. Try again.

BadKiTTy's picture

And you are ?

The critics chair is the easy one. And offering to write something if you get paid???

Tell you what ...you write it and then we'll vote....

Except you won't.......

K@

BenLightYear's picture

Bad kitty I except said challenge...pick the topic, the parameters, and the side of opinion...I'm willing to let you dictate the entire structure and rules. We can both post it at the top of a new article (the first that falls under the category of your choosing) and we can let the readers decide which is more accurate and informative. Balls in your court :)

BenLightYear's picture

And for the record I make multiple comments on every post on this website that I have time for. I will cede I get a lot of down arrows however rarely if ever recieve criticism in a coherent manner. And of course I would expect to be compensated for my work. I comment and argue for fun. I'm a capitalist not a socialist. I expect nothing for free and expect to be compensated for my effort. Most of the articles I write and are presented on sites such as this are payed for with nothing more than recognition and the good feeling I get from informing. This website is not short on substance in the articles but can often be found lacking in the comments section. Since my opinion would be considered blasphemy here I would expect payment in the form of capital or goods. However like I stated in my previous comment I would be happy to match ya an article written by us both so others could put you in your proper place.

Jendrzejczyk's picture

Hard too believe nobody is going to "except" the challange and go tow too tow wit you're formiddleble brian.

BenLightYear's picture

A little something to think about. If everyone put their investment money into gold and silver and waited for it to appreciate against the currency you would learn a lesson in economics rather quickly. Capital sitting in a safe is detrimental to the economy. Allocating capital in such a way prevents it from entering back into the economy and would shortly grind the economy to a halt. The economy itself can be loosely defined as the circulation of money earned through productivity or capital investment or allocation and the recycling of it into the purchase of goods, services, or reinvestment of said capital. If there are no jobs it stalls the economy. If the money is not put back into circulation it stalls the economy. That is the reason this recession is still ongoing. Because our system of fiat is based on an ever growing economy not only does the economy need to continuously expand through recirculation of said capital but also growth of capital through creation and credit growth. We currently have high unemployment (left side circle of economy) and too much money sitting idle (corps sitting on tons of cash and the rich sitting on tons of cash. Leading the govt to act as the aggregate which history has proven does a shitty job of properly allocating capital not too mentionit incurs debt. I do believe in the govt being AN aggregate because that is how more currency comes into existence but when it is the main or almost only aggregate the economy chokes to death. I implore anyone who wishes do down arrow me to refrain from doing so until they can offer a counter argument to what I just said.

prole's picture

You are fired. You're fired. You are dismissed. Nobody is interested in your trolling or in being talked down to by someone who is himself, if not stupid, then at least disingenuous, dishonest, and trolling. You are fired. Nobody is going to pay for your posts or even read them. But I'll try this once:

If everyone put their investment money into gold and silver and waited for it to appreciate against the currency you would learn a lesson in economics rather quickly

A- We don't care about 'everybody' Do you? I doubt it.

B- Goldbug is an extreme minority position in the US, so what are you worried about"everybody" for? "Everybody" is watching the Kardashians and stuffing their fat asses with Pizza and diet sodas, is far closer to the truth than a "everybody" going long gold.

C- We don't "put investment money into gold" but we do hold gold as money. The reason we do this is not because we "wait for it to appreciate against the currency" we do it because we expect the currency to collapse like Zimbabwe, a nation with more sober and restrained leadership than we now have.

So since your first statement was between idiotic and insane, I couldn't read past it, for fear I might become as dumb as "ya"

 

Absinthe Minded's picture

The money isn't on the sidelines, it's getting invested, in India, China, places like that. Just ask GE, Ford, GM, Caterpillar, they all know that the US is just a carcass now. With a bunch of maggots just sucking her dry.

DoChenRollingBearing's picture

+ 1

And buying Korean bearings...  Keep an eye out...

BenLightYear's picture

Ok let me tear your wonderful 4 pts up.

1st saying the dollar is worthless and everyone should buy gold and silver to save themselves from hyperinflation then EVERYONE'S capital would be sitting in a safe and the convoy would evaporate.

2nd same as the 1st. Obviously you didn't notice you made the same argument on two different points.

3rd gold is not money. It was money. Gold today is an asset. A wealth preserver over time against inflation. However when the rise in the ratio of currency to gold outpaces inflation it is overpriced and will eventually go back the correct ratio. What we are witnessing today. 100 years and it hasnt collapsed. The USD is backed by the US military so until that is no longer the case or until the public loses faith in the currency it won't collapse. Comparing the current US monetary system to Zimbabwe when they experienced hyperinflation clearly shows you have studied neither.

I'm ok with you not reading what I type. I love that you bought silver with both hands at 45$+...the less money and wealth you have the more I have since it's all relative. Nice try buddy.

Marco's picture

The ZH consensus has no solution other than their own brand of hopium (things like "charity will take care of healthcare for the less fortunate", that sort of thing) or worse, plain old embrace of social Darwinism.

In the end ZH gold buggery is about hitching a ride with TPTB to being on the top of the neofeudalist food chain, in a world where automation and peak fucking everything is making labour worthless ... they're not offering solutions for anyone but a small percentage of individuals. To their credit, they don't outright steal anything like TPTB ... to their detriment, they often pretend their cause is somehow a holy one.

At best they are fatalists who see no solution but self-preparedness ... now I'm not saying this is true for gold bugs period, Jesse's Cafe American is one of the best examples of a gold bug with a conscience, just the prevalent ones on ZH.

Jendrzejczyk's picture

The ZH consensus is more like:

Work hard to produce something of value.

Take care of yourself, your family and others in your community.

The corrupt captains of the USS Corputopia are going to run this ship into an iceburg so grab a life jacket now.

 

Marco's picture

As I said, fatalists at best ... social Darwinists at worst.

Jendrzejczyk's picture

If you're the one with the solutions for this cluster, please share.

Marco's picture

On the American side, I think you guys should push RP to ally with the progressives and make change they can agree on (dismantlement of the various wars etc) and leave the rest alone for the moment ... I think in the long term the progressives have it right, but between them can agree on enough to improve the nation in the short term. United they might actually be electable too.

On the European side, we should push the Eurocrats to use the stability fund to be used to guarantee personal savings ... once the danger of bank runs and capital displacement is averted we can let banks go bankrupt a little more gracefully and we can start thinking about offering countries a graceful exit from the Euro (with existing currency holdings being maintained in Euro's to prevent capital flight, but with currency exchanges only allowed to go one way and internal trade only allowed in the new national currency so as to slowly return the country to their new national currency). Austerity for the PIGS and wage inflation for the trade surplus countries will still be necessary ... but there's no reason to let the Eurozone economy implode before doing it, as a whole it's still competitive (ie. it has an external trade balance).

Gold buggery is just a distraction from the real problems of this age ... corruption, globalization and peak fucking everything. It's fine at a personal level, but a gold standard is irrelevant to the problems at a national level and above.

Al Huxley's picture

Marco, if pretty much EVERY FUCKING COUNTRY IN EUROPE IS IN DEBT, then there is no 'stability fund'.  It's an illusion.  First a country has to SAVE more than it SPENDs, Then it has excess capital that it can use as a 'stability fund' or whatever else it wants. 

Marco's picture

Unlike say the US the debt is internal, in trade surplus/balance situation sovereign debt is a fiscal issue ... an issue which through various policies can be can kicked for a long time as Japan has shown. It's certainly not an ideal way to run an economy, but we have bigger fish to fry.

John_Coltrane's picture

"On the American side, I think you guys should push RP to ally with the progressives"  That's really funny.  You must know RP and most on this site are libertarians-but fail to understand the word liberatarian is based upon liberty.  You should have written, "you guys should get RP to sell out to the statists and those who hate freedom but value the illusion of security of the welfare state".

Actually, what we are trying to do right now is change the platform of the republican party to reflect a respect for the individual and freedom.  Its a small but important thing.  We're doing it by taking, contributing funds to libertarian candidates, taking  precinct chairpositions, delegates-and its working.  Thirty years of consistency on matters of freedom such as shown by RP will never culminate in a sell-out to the statists and their supporters, the money trust! 

You statists, like Lenin always believe, "the end justifies the means", while we believe, "the means determine the end".  Think about that and you'll stop your silly trolling or go post on the Huffington post to a more receptive audience of sell-outs.

Marco's picture

And how is that going for you? The Koch brothers trivially used the sentiment to just put more puppets in government ...

PS. I don't believe the end justifies the means, I believe the land belongs to the people.

GetZeeGold's picture

 

 

 

The Koch brothers trivially used....

 

 

OK......I'm hanging up the phone now. Come back when you want to say something rational.

 

Barking Spaniel's picture

Your comments are a distraction from intelligent conversation.

BenLightYear's picture

All of which I agree with aside from your last comment. Seems like they held it together pretty well when the banks should have imploded a few years back.