The Euro Crisis by the numbers

(4pm. – promoted by ek hornbeck)

  Slowly, painfully, the world is coming to grips with the realization that the Euro, as we know it, is entering its last days, and what consequences we are likely to see.

 As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.

  A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.

  Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.

  Many people, especially those that trade stocks, have been having trouble believing that the Euro will die. After all, just a few years ago the Euro was considered the alternative reserve currency of the world. So much work and money has been spent on this unproven endeavor, not to mention the complete lack of a “Plan B”, that few could picture its demise.

  Yet, just like the inability of so many to foresee the end of the housing bubble, reality is intruding again. The farther we get down the road of failure, the more clear the picture becomes.

“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”

 – James Carville, Wall Street Journal, February 25, 1993

 The first thing to understand is that the stock market is nothing compared to the bond market.

Governments spend because of the bond market, not the stock market.

 The bond market predicted the 2008 economic meltdown in August of 2007. The stock market didn’t figure it out until 8 months later.

  A stock market crash can cause a recession. A bond market crash can cause a revolution or civil war.

 So when the bond market warning lights come on, you should ignore any happy talk coming from the stock market and take notice.

  Now I’m going to show you some charts compiled by Chris Puplava.

 The headline LIBOR is still relatively low (and extremely manipulated), but European bank liquidity is at crisis levels.

European banks are finding it increasingly difficult to obtain dollars.

 Bets on major European banks having to default are now almost a certainty.

 Investors are fleeing European bank stocks, one of the few areas of the stock market that has woken up to the dangers.

 European banks have found themselves in the same position that Wall Street banks were in back in the fall of 2007 – with Trillion of assets that no one wants.

 European banks are being forced to abandon their efforts to sell off trillions of euros worth of loans, mortgages and real estate after a series of talks with potential investors broke down, leaving many already struggling firms with piles of assets they can barely support.

  Lenders have instead turned their attention to reducing the burden of carrying such assets over months and years, with many looking at popular pre-crisis “capital alchemy” arrangements to minimise capital requirements and boost their ability to use the assets to tap central banks for cash.

  Just like Bear Stearns, Wachovia, and Washington Mutual before them, European banks can’t price their assets to what the markets will bear because it will mean instant insolvency if they did. So they “mark-to-myth” instead, hoping against hope that the asset markets will turn around before they are forced to declare bankruptcy.

  Some banks have gone to extreme measures to sell assets, such as lending money to the buyer so they can buy those distressed assets and get them off the books.

 Probably the most disturbing event of the past week happened at the core of Europe. Germany’s bond auction was an outright failure.

 Germany failed to get bids for 35 percent of the 10-year bonds offered for sale today, propelling borrowing costs in Europe higher and the euro lower on concern the region’s debt crisis is driving away investors.

   “This auction is nothing short of a disaster for Germany,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said by e-mail. “If the strongest nation in Europe has this kind of difficulty raising capital, one shudders concerning the upcoming auctions in other European nations.”

 To put this into perspective, recall how so many policy-makers and economists are calling for Germany to “save” the Euro. Germany is the most credit-worthy member of the union.

  So if Germany can’t find enough investors to buy its own debt, how could it possibly borrow enough to save the rest of Europe? The answer is obviously: it can’t.

 The failed German bond auction was followed by a Spanish bond auction that saw yields surge to a level exceeding the point where Portugal and Ireland were forced to seek bailouts. Italy’s bond yields are even higher.

 While everyone is focused on the financial troubles in western Europe, Hungary came begging to the IMF this week. This threatens to open up another “front” in the economic crisis.

 ”Hungary is a warning sign,” said Neil Shearing of Capital Economics. ”It is the country where the risks are most acute in the region, so this is where you would expect trouble to start. We fear this may spread to Ukraine and the Balkans. Eastern Europe has enormous external financing needs for the banking system. They won’t be able to roll over debts if there is a credit freeze in western Europe.”

 I got news for you: credit is already freezing in western Europe. Eastern Europe depends on western Europe for credit, and Austrian banks are already pulling back from the region by order of the Austrian government.

 That’s just Europe. What do we have to worry about in America, right?

Well, consider that the derivatives market (Remember the derivatives market? That thing that caused AIG to fail, not to mention Enron and LTCM. That huge market that Congress refused to regulated after the 2008 economic shock. Remember that?) is between $250 Trillion and $707 Trillion in size (depending on who is counting).

  Those numbers hopelessly dwarfed the GDP’s of Europe and the United States combined.

 Consider that 94.4% of that $250 Trillion in derivative contracts were sold by just four banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion.

  Those are Trillions with a T. Their exposure to the derivatives market increased $5.3 Trillion in just the first quarter of this year. The overall derivatives market increased a record $107 Trillion in the first half of the year – more than the GDP of the entire world.

 You read that right: $107 Trillion in just 6 months.

The bankers are absolutely bat-sh*t insane! In the face of an economic crisis they’ve doubled down their bets. They’ve gambled the entire world’s economy for bigger bonuses, as if their bonuses will be worth anything if they crash the world’s economy and bring down the Euro.

 Now consider that more than $26 Trillion of derivative contracts involve foreign exchanges – i.e. insurance against currency fluctuations. Now consider that Morgan Stanley, with $69 Billion in assets, has sold $1.6 Trillion in foreign exchange derivative contracts.

  How quickly do you think Morgan Stanley will go under if/when the Euro does? Can you say “AIG”?

 We don’t have to wait to see “contagion” spreading around the world from Europe’s economic troubles. Everything from credit at U.S. companies, to Latin American currencies, to Chinese labor unrest can be linked to the Euro’s death throws.

 Because this is as much a political crisis as an economic one, it is impossible to make accurate long-term predictions. However, in the short-term it is safe to say that there will be a rush for dollars. Already low interest rates on Treasuries will get even lower, but this will not spill over to more risky credit. Only the safest of investments will be bought.

  A rising dollar and collapsing economies in Europe means our export market will shrink. That means more layoffs in America. A world already saturated with over-production from China means the price of consumer goods will fall even further.

  In other words, having ready cash will be good. Needing a job will be bad.

 Just talking about this gives me a deja vu feeling.

The size of the problem is almost beyond comprehension. After all, we are talking about multiple countries going bankrupt and the failure of the second-largest currency in the world.

To think that the problem could be even larger than the 2008 crisis, when the only sector of the economy that has recovered is corporate profits, leaves one thinking “This can’t be true. They can’t have done this to us again.”

 And yet the numbers speak for themselves.

 The car’s brakes have failed on this curvy road and the people driving the car are the ones who decided to stomp on the gas peddle rather than fix the brakes. It would take brilliant leadership to keep the world economy from ending up in the ditch again, and our political leaders seem to be nothing more than puppets of the psychopathic and self-destructive banking system.

  I suggest you put on a seat-belt, because even if we make it past the next turn, this will not end well.


Skip to comment form

    • gjohnsit on November 27, 2011 at 14:42

    If the impossible (the failure of the Euro) can happen, how safe is the dollar in the long term?

  1. …I don’t know if this phrase is yours, but it is truly excellent:


    On the other hand, the entire financial world looks like “Grimm’s Fairy Tales” to me.

  2. deliberately engineered financial crisis.

    Hey, worked over here in 2008.

  3. I don’t see how a sovereign can be a sovereign if it does not have its own currency.  Maybe we will see the rise of sovereign currencies again and maybe these currencies will be actual non-debt currencies.

    It is long past time for debt based currencies to end.

    • banger on December 1, 2011 at 00:42

    The Euro-crisis is forcing the international elites to create a viable and unified monetary and political framework for the global empire to form coherent and robust institutions. I felt this coming for some time. If they all combine and become united then the misdirections and stage magic will work very well. As some have said the actions of the actors to create a united front in handling the situation is psychological–but that’s all the whole system is anyway–so I think today’s actions which I think were logically required are a step towards global financial health.  

  4. Because the euro is going to be under serious assault very soon. This can’t be allowed to unravel into a “euro run on the bank.” The TBTF banks must let “them?”* skeptical withdrawlers  know that there’s no need to worry (they can have dollars if they want), so (by inference)it’s just plain hunky dory to keep those euros and sleep tight. But if they really want to, they can take those dollars anyhow. In other words, chill out cause Uncle Sam has his fingers on the keyboard to make everybody happy.

    * “them?”- the TBTF banks themselves wrapped up in their own unfathombalbe conundrum of hierglyphic finance. Known in antiquity and modernly as the GOLDEN FLEECE.  

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