IMF executive Lipton has said European countries could be swept into a downward spiral of collapsing confidence, stagnant growth and rising unemployment.
Press TV: How will the downgrades affect Italy and Spain if they want to get loans?
Max Keiser: First of all, I think it's important to remember that just a year ago or so the rating agencies were telling the European nations that they needed to impose austerity or their ratings would be cut. So, the European nations imposed austerity and as a result their economies are shrinking. Now, the rating agencies are coming back to say, well, we're going to cut your ratings because your economies are shrinking because of the austerity measures that we recommended. Remember, these were the same rating agencies that only a few years ago were giving securitized packages of collateral debt obligations that were 98 percent triple C-rated junk a AA rating equivalent to the highest possible sovereign debt rating. So, clearly the rating agencies themselves are doing somebody's bidding. My guess is that they're doing the bidding of the hedge funds and the private equity groups and Wall street who need something new to trade to make the same kind of bonuses that they made over the past few years. So, by downgrading sovereign debt you increase volatility; this will create enormous trading profits for Wall Street and the City of London and that's the only real driving force here. The economies themselves have cash, that's not the problem. The issue is that they're being occupied by traders and private equity hedge funds who are playing with these countries' economies like they were toys and people are getting hurt, but, no, there's no political will to stop it.Press TV: Let's speak about the French economy now because we know of course that the downgrading has also included France - How would it affect the French economy ahead of its first large scale bond auction we're going to be expecting on Thursday?
Max Keiser: Well, the French cost of funding today got cheaper. Bonds rallied on this news from the rating agencies. So that should tell you the disconnect between the rating agencies and reality. Anyone who plays with any stock in the rating agencies is an idiot because any European nation can issue a rating opinion on US debt and say, well, it's really BBB minus or BB minus - it's really junk. Any nation can do that and so the fact that they don't, shows you incredible asymmetry in the global banking system to favor a very small clique of hedge funds in the city and on wall Street who are simply playing trading games with these countries' sovereign debt. Unfortunately, people are getting hurt, but it's a collateral damage that they don't fact into their equations.
Press TV: Let's refer to something said by the IMF's director manager and it's been in the news today - He said that a rise in liquidity would help banks deal with this crisis. Do you think more fiscal consolidation here is going to help?
Max Keiser: Liquidity is one of those buzz words that is used to deflect attention from insolvency. The various countries have an insolvency problem, brought about by going back to the year 2000 when Greece joined the Euro Zone, for example, Goldman Sachs hid billions of dollars of debt for them as a precursor to join the Euro and they set the stage for this crisis. Now people are suing Goldman Sachs for committing financial fraud, as they rightfully should. Liquidity or illiquidity is not the issue at all, that's just used as an excuse to create more debt that is used to create more fees that is used to create more bonuses. The problem is accountability in the banking sector. Until bankers start going to jail for committing financial fraud, the crisis will continue as I've been saying on this show for four years now.
Press TV: Do you think the Euro is doomed and would you agree that the impact would be huge, much huger maybe than the world can now perceive?
Max Keiser: Well, the Euro still has Germany and Germany benefits from the cheaper Euro in its export business... and it's Germany's call. I think Germany will tease this out for as long as it can to get the benefits of a cheaper Euro and then come in at the last moment and save the day. I think the US dollar is much more problematic. I personally own Euros and I would not touch US dollars. Now, it's important to remember that up until recently the markets used to have what are called bond vigilantes. This is when governments came in and flooded the markets with cash as they've been doing for the past few years it would be inflationary and that would be bad for the bond market. But the governments now are the biggest buyers of bonds; it's called quantitative easing. So, you no longer have bond vigilantes so you have no price signals in the bond market that tell you anything. This is what accounts for people sleeping through this crisis. The only market that seems to be aware of the crisis is the gold market, which continues to make new highs in Euros and made new highs in every single currency last year because the gold traders, or the gold vigilantes, know that these policies are going to lead to hyper inflation in many countries and the price of gold will ultimately, against all these currencies, double and triple again. Source/video