Vatican Banker on Financial Crisis

Tedeschi comments on the steps taken by the world's financial system.  Excerpts:

...Ettore Gotti Tedeschi has been head of the Vatican's bank, known as the Institute for Religious Works, since 2009. He has a long career in finance, having served as the head of Banco Santander, the largest private bank in Europe, as well as on the boards of some of the continent’s leading financial institutions.

He is known as a staunch capitalist with a deep concern for the Church’s social teaching. He is also a former professor of financial ethics at the Catholic University of Milan.

Writing in the Jan. 14 edition of the Vatican newspaper, L’Osservatore Romano, Tedeschi warned of the growing influence of “Keynesian” economic theory on both sides of the Atlantic.

John Maynard Keynes was a prominent 20th-century economist whose theories were widely embraced by world powers to jump-start their economies after World War II.
Tedeschi cited a 2009 book, "Where Keynes Went Wrong: And Why World Governments keep creating Inflation, Bubbles and Busts," by the American economist and philosopher Hunter Lewis.

He said Lewis had spelled out the "doctrinal errors and practical disasters" of Keynes' theories.

In simple terms, Keynes taught that in times of economic crisis, consumer demand must be stimulated by government investment and an "attitude of saving" must be discouraged, Tedeschi wrote...

Tedeschi warned that these policies are leading to a "nationalization" of private debt in the U.S. He also criticized the government bailouts of private banks that offered too much credit without adequate guarantees. This too is leading to increased government control of the economy in the U.S. — a “nationalization” that is being paid for with newly printed currency.

In Europe, he said, the issue is the opposite. Because of the lack of widespread private debt, a "privatization" effort is being enacted to absorb the large public debt of banks and businesses.

This also is Keynesian policy, which "perseveres against the scorned savings," Tedeschi said...

Although the alternative to zero interest in such a situation is economic collapse and eventual default, the zero-rates "are not sustainable and are dangerous," Tedeschi warned.

"They destroy savings, which is an essential resource to create the base for bank credit; they promote speculation on real estate and securities, create illusory artificial values rather than scaling them down; they push consumption to more risky debt; they alter the market with artificial values and thus lead to belief that the very markets do not know how to correct themselves..."

"Someone," he said, "is hoping for new taxes to sustain a new statism that reinforces a rather weak political class in the whole western world."