Unfortunately Professor Werner’s interview was cut somewhat short, and there was no time to go into further detail about the root causes of “the next banking crisis” as he saw it.
To summarise, Professor Werner stated that by not addressing the “root causes” of the 2007-2008 financial crisis, that is, that we allow private banks to create money when they issue loans, we leave ourselves prone to a wider crisis.
Werner goes on to say that the next financial crisis may arise from the problems one might see when analysing the single largest item on any bank’s balance sheet, the government debt they hold.
The Bank of England and the European Central Banks are providing a practically unlimited amount of funding, with the rules on collateral a bank must put up when being offered this support eroding, putting most of the banks on Europe on what he calls “Life Support”.
Professor Werner feels, as do I, and a number of public officials and bank regulators, that our next banking crisis will be a crisis of Sovereign Debt, whereby the ability for governments to repay will be brought into question, due to the drop in economic demand we are seeing, and that cuts to reduce deficits are not being met by an increase in demand from the drop in interest rates. The validity of the pound and the euro itself may be brought into question in the next banking crisis.
How long will it be before governments realise the banking system we operate is inherently unstable, and can only end in catastrophic failure?
The full interview can be found here….