In his farewell interview for the Financial Times, Federal Minister of Finance Wolfgang Schäuble warned of a new global financial crisis predicated upon the Quantity of Money theory that the central banks had pumped trillions of dollars into the financial system that is creating a risk of “new bubbles”. Indeed, many just do not comprehend what is going on and are blaming the new highs in share markets on concerns about the increased risks from the accumulation of more and more liquidity and the growth of public and private debt.
The IMF CEO Christine Lagarde has also gone on record warning of a new debt crisis. The Bank for International Settlements (BIS) has also joined the crowd who see the Quantitative Easing as increasing the risk of asset bubbles. Schäuble has made it clear that he sees the risk is greater in the Eurozone because of the excessive amount of bad loans held by banks.
This is the view that has driven Schäuble calling for the continuation of austerity policy in southern Europe. Schäuble is to be elected president of the new Bundestag at the end of October. The problem with austerity is that this has been directed at the people – not government. The QE policies have brought in government debt, so the added liquidity has FAILED to stimulate the economy and capital has been driven into assets by negative interest rates. Austerity will only further punish the private sector while the public sector continues to spend and then raises taxes maintaining deflation and the negative interest rates rob people of any income from their savings.