Reggie Middleton on banking problems

Financial analyst and investor Reggie Middleton — author of the BoomBustBlog.com — discusses the problems in our banking system with GoldMoney’s Alasdair Macleod.

Reggie states that the current zero-interest rate policy being pursued by the Federal Reserve (often referred to as “ZIRP”) is masking problems with banks, but not solving them. He points out the basic truth that money-lending institutions make money off of interest, and that as long as rates remain artificially suppressed, this will constrain lenders’ profits. This is an issue all over the world — something that makes investing in this sector tricky.

Middleton argues that the European situation is particularly fraught, on account of their being “too many chiefs and not enough Indians”; in other words, too much politics. He argues that European Monetary Union was destined to fail from the beginning, given the sharp contrasts in economic profiles between member states.

Alasdair and Reggie also discuss potential problems banks and other financial institutions could have with derivatives. Although Reggie views these tools as a necessary part of finance, he thinks that it is “very, very foolish and unrealistic to rely on liquidity as a given”, considering the way in which derivative netting links institutions across the world. He views owning physical precious metals as a crucial means of insuring against problems in the banking system.

This podcast was recorded on 30 August 2012.

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FinanceAndEconomics

Alasdair started his career as a stockbroker in 1970 on the London Stock Exchange. In those days, trainees learned everything: from making the tea, to corporate finance, to evaluating and dealing in equities and bonds. They learned rapidly through experience about things as diverse as mining shares and general economics. It was excellent training, and within nine years Alasdair had risen to become senior partner of his firm. Subsequently, Alasdair held positions at director level in investment management, and worked as a mutual fund manager. He also worked at a bank in Guernsey as an executive director. For most of his 40 years in the finance industry, Alasdair has been de-mystifying macro-economic events for his investing clients. The accumulation of this experience has convinced him that unsound monetary policies are the most destructive weapon governments use against the common man. Accordingly, his mission is to educate and inform the public in layman’s terms what governments do with money and how to protect themselves from the consequences.

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