Will the Global Financial System Survive? What are the Triggers for a Crash?

In view of the public debate they have raised in Germany, Matterhorn Asset Management is extremely pleased to feature the below written interview Lars Schall did, on our behalf, with Marc Friedrich and Matthias Weik this past week. German economists Friedrich and Weik co-authored two books which unfortunately are still only available in German. In their latest publication, “Der Crash ist die Lösung”, the economists explain from a German and International perspective, in easy to understand language, why “The Crash is the solution” and why this crash will be more catastrophic than the previous one. They describe based on solid economic fundamentals why a ‘final financial collapse’ is on our doorstep.

Lars Schall: What are the most crucial weak spots in our financial system? And why is it that the financial sector is so powerful vis-à-vis politics?

Marc Friedrich: The most crucial weak spots in our financial system are:

  • Japan’s gigantic debt;
  • China’s shadow banking system;
  • The completely opaque derivatives market;
  • The immense and rapidly growing global debt;
  • The global banking sector as a whole.

The financial sector is so powerful vis-à-vis politics because a very unhealthy one-sided relationship exists between the political system and the financial industry. Let’s take a closer look: How does a government fund itself? It collects taxes, and it sells government bonds. Who buys these government bonds for the most part? Banks and insurance companies! So who holds the reins here? It’s the creditor, of course, who gives the commands and who says which laws can and cannot be passed against him. This is also the reason why nothing has changed since the crisis in 2008. The hand that gives is always above the hand that takes. Moreover, the financial industry has succeeded in establishing structures outside of the law and saturating itself with cheap money from the central banks. This has made them even bigger, more powerful and, most importantly, more systemically important, which has only increased their ability to coerce governments and citizens when the next crisis comes.

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