​World’s Central Banks ‘are gambling immense amounts of money’

The banking system is completely dysfunctional, and it is going to lose legitimacy as we are nowhere near the solution of the too-big-to-fail problem, Robert Pringle, chairman and founder of the Central Banking Journal, told RT.

It was never supposed to force the Central Banks to gamble on such an enormous scale as is happening today, Pringle, author of the Money Trap said on RT America’s show Boom Bust.

RT:What are the problems of the current banking system?

Robert Pringle: The problem with the banks is that [the system] is completely dysfunctional. There are huge megabanks that receive major public subsidies. That itself is simply wrong, the public in the end will get fed up with this. The system is going to lose legitimacy, because they all were rescued as they had to be of course in the crisis, but seven years later we are nowhere near the solution of the too-big-to-fail problem. That is the most obvious issue.

Underneath it is the whole system in which we rely on credit, especially in the UK, but also in the US and other countries. We rely on pumping up credit to get the real economy moving. And the problem is that we have to pump up the credit too much in order to reduce unemployment. We are going into the same thing again. In a London property market we have 18 percent annual price rises, the average price of a house in London has gone up to half a million dollars. Obviously we are moving to another boom and bust period. It’s not just the property prices, in many emerging markets you are also getting this. Stock markets are at an all-time high. And yet many people fear a crash. We are gambling immense amounts of money, 4 trillion dollars on the FED balance sheet. I respect central bankers for what they are trying to do, but it was never supposed to be like this; it was never supposed to force them to gamble on such an enormous scale.

This is what I call a money trap. My book is called the Money Trap because the system is set up in such a way that people, governments, banks, and major actors think that they can do well in such a system with free capital movements, free exchange rates, liberal environment, but they neglect international stability. In my view there is no stability for an individual country without paying attention to international stability. Managing stability has got to be secured internationally, as a condition for securing it in any particular country.

RT:What do you make of Europe’s new banking regulatory regime?

RP: It’s making progress, and everybody says they should do much more: a single supervising mechanism must be set up much sooner, it’s taking too long. But it’s politics which is driving this, and considering how much they’ve already done, I’m much more optimistic than many commentators that Europe is getting itself together painfully, slowly. They are proving that a fixed exchange system can work with great pain. What I would propose to the world is not a big euro, you would have an international monetary standard that the countries would voluntarily join because of the benefits of joining. It’s not a kind of single currency like the euro at all. Nevertheless, the euro area has shown that countries can live with such an exchange rate. I know that unemployment is incredibly high in Italy and Spain, but they are making progress. Adjustment is taking place. The Anglo-Saxon commentators tend to underestimate the progress that these peripheral countries are making.

RT:What about geopolitics? Do you think geopolitical power is shifting away from the US and western Europe or that the West is consolidating economic and political power?

RP: I would like to answer this question from a particular angle. I think there’s no doubt that China and the emerging markets are going to be the world’s leading [economies]; the increase in world GDP and demand is going to come from the huge emerging markets. But what they want is a fair international monetary system. I was talking to a former deputy governor of the People’s Bank of China a couple of weeks ago in Vienna and he said that the current international monetary system has to change if China is to remain part of it. It has to change, the reliance on one currency – the USD – has to change and the new powers including India, not only China, are going to use their muscle, their geopolitical weight to push for change, to push for reform. Right now the US is by far the world’s most powerful country, it can lead the reform, and the US is still in a strong position. I remember when the UK had a problem with sterling as a reserve currency – we waited far too long before agreeing to negotiation on the problem of the sterling as a reserve currency, it was already in decline. The USD is not yet in that position. The US can now get a good deal from the world, including China and other countries if it proposes serious negotiations on the future of the international monetary system. The former deputy governor of the People’s Bank of China demanded the US and other countries should be subject to rules on fiscal policy and supervision from the international community. I said, come on, is China really willing to obey such international rules – you haven’t signed up to the rules on climate change that other countries are signed up to. He said, I can’t speak for the Chinese government, but I believe that in future if we had a fair international system where we would all be subject to the same rules, China would also agree to that. This is an example that geopolitical power is moving. The best thing the US and Europe can do is to recognize it and anticipate it and lead it and manage the process. So far there is no indication from the US administration that it’s thinking along these lines at all.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.