European Bank Runs Could Come to America-Laurence Kotlikoff
By Greg Hunter
USAWatchdog.com
January 11, 2015
Boston University Economics Professor Laurence Kotlikoff says Greece is, once again, in financial trouble and that could set off another global financial calamity. Dr. Kotlikoff contends, “So, you have the same problem. You have a country that is fiscally unsustainable, and they haven’t really been able to get out from under that situation. . . . It sets up a situation where you could have runs on other banks like in Italy, Spain, Portugal, and that could spread to other banks in other countries, including France and Germany. Remember, the big to do about the Cypriot banks that failed and said they weren’t going to pay off the depositors? That led to a major international panic. It was a small country with two relatively small banks.”
So, a daisy chain of defaults and bank runs could happen in Europe. Could it also come to America? Dr. Kotlikoff says, “Yes, it could also come to the U.S. If everybody believes the banks are going to be solvent and they can get their money out, that’s fine. But if everybody starts to run on the banks, you want to run before they do because you want to get you money out before it’s all gone.”
With the price of oil plunging, Russian banks are also at risk. Dr. Kotlikoff says, “There are questions about the sustainability of Russia’s fiscal policy now that oil prices have dropped so much. About 40% of the revenues for Russia come from the oil sector. So, now you see what you say in 1998, which is the concern about Russian banks failing. They did fail in ’98, and there were concerns about the government printing money.” Dr. Kotlikoff goes on to say, “Demand deposit insurance, in the United States it’s FDIC insurance, is not real insurance if everybody is concerned about inflation. If I know prices are going to skyrocket . . . and I think prices are going to be rising rapidly, first thing I want to do is go get that money and buy something real. So, money starts becoming a hot potato. That’s what happens in hyperinflation. . . . We have the basis for hyperinflation given the policies the Fed has been running.”
Dr. Kotlikoff, who was also a top economist in the Reagan Administration, thinks if things get out of control, we’ll get hyperinflation–not deflation. Dr. Kotlikoff warns, “I think it’s already gotten out of control because of the amount of money that has been printed. I don’t think anything fundamental has been done in the U.S. or Europe to address the structural issues. The banking system is in riskier shape than it was. There is nothing in the Dodd-Frank legislation that I see in terms of keeping us from anther meltdown or another run on the banks that we had before. I do worry about that, and I worry that in the U.S. we have no adult leadership in either party. . . . Social security is 33% under-financed, according to its own trustees report. . . . Our entire fiscal enterprise is about 58% under-financed, meaning we need a 58% immediate increase in our taxes to cover all the spending that we have. . . . So, the country is really broke.”
Join Greg Hunter as he goes One-on-One with renowned economist Dr. Laurence Kotlikoff.
