Felix Zulauf, Chairman of Zulauf Asset Management, and James Turk, Director of the GoldMoney Foundation, talk about the debt crisis spreading from Greece to the rest of Europe. Felix is very euro-sceptic because of the imbalances between saver nations of the euro-core and the debtor nations of the euro-periphery. Felix sees politicians lagging reality, always two steps behind and how this will put the entire banking system at risk. This will also have political consequences.

They talk about the ECB. They explain how its sovereign bond buying has left its balance sheet in disarray, with negative equity capital. Felix believes that in theory a central bank can survive without equity capital, but from the point of view of credibility a solid balance sheet is a must. A possibility would be for the ECB to increase its gold reserves.

They explain that given the huge outstanding debt austerity measures will not be enough and governments will resort to more money printing. More printing and more debt will not lead to a solution. Felix sees deflationary pressures but expects monetary policy overreaction and currency debasement, as well as negative interest rates to push gold prices much higher.

They discuss the current economic situation and similarities with 2008. Felix explains that Greece is bigger than Lehman and thus we can expect more market turmoil than in 2008. Felix also explains that he expects higher gold prices in the coming months. Felix quotes Einstein’s definition of insanity: “doing the same thing over and over again expecting different results”.

This interview was recorded on Septemeber 30th 2011 in Vienna.