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I continue to see articles in the media claiming that Europe’s problems are
solved. Either the folks writing these articles can’t do simple math, or they don’t bother actually reading any of the political news coming out of Europe [so let me present 3 data points that guarantee Europe will collapse at some point in the near future]. Words: 722
So says Graham Summers (http://gainspainscapital.com/) in edited excerpts from his original article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Summers goes on to say, in part:
Below are 3 data points that guarantee Europe will collapse at some point in the near future:
Fact #1: EU Banks, as a whole, are leveraged at 26 to1
This is, of course, is based on the assets the banks are reporting. According to independent sources, the leverage levels are in fact far, far, greater than this – although 26 to 1 is already bordering on Lehman Brothers’ leverage levels.
As far back as September 2011, PIMCO’s Co-CIO, Mohamed El-Erian (one of the most connected of the financial elite) noted that French Banks were running REAL leverage levels of almost 100-to-1…”indicative of a BB rating, which is fundamentally inconsistent with sound banking operations”. He adds that bank equity now trades at a 50% discount to tangible book value on average, while the ratio of market capital to total assets has fallen to 1%-1.5%, compared with 6%-8% for “healthier banks.” [A such,] the “official” leverage level of 26 to 1 is definitely much, much lower than the REAL leverage levels…
Fact #2: One Quarter of the ECB’s balance sheet is PIIGS debt
As part of its moves to save the system the ECB has gorged on PIIGS debt. Today, one quarter of the ECB’s balance sheet is PIIGS debt. Care to take a guess at what these assets are valued at? I guarantee it’s nothing near their real market values.
The ECB managed to swap out its Greece debt into new debt that would not take a hit should Greece default – but it won’t be able to do this with the remainder of its PIIGS’ debts. Indeed, it’s not even going to try. Instead, the ECB plans on shifting any of the losses from these debts on to the 17 individual EU national banks according to their size which means that Germany’s Bundesbank would face the largest exposure.
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So the ECB goes over Germany’s head to gorge on garbage debts from the PIIGS… and then decides that should these debts prove worthless, it’s Germany’s problem. What could possibly go wrong here? Hint: Germany bails on the Euro…
Indeed, Germany has already put up a firewall that would allow it to walk on the Euro at any point. Obviously it doesn’t want to, but when the ECB tries to shift the losses from its PIIGS exposure (this will happen and they will be MASSIVE losses) onto Germany’s shoulders, Germany will have no choice.
Fact #3: Even after all of its interventions and purchases, the ECB is far too small to contain this mess (ditto for the Fed)
Have a look at the following chart and tell me that the ECB or Fed could contain this mess.
I know many of you are thinking “the ECB or Fed could just print money.” That answer is wrong. If the ECB chooses to do this, Germany will walk, end of story. They’ve already seen how rampant monetization works out (Weimar).
If the Fed chooses to monetize everything to hold things up, then the U.S. Dollar collapses, inflation erupts creating civil unrest, interest rates rise killing the banks, U.S. corporations and the U.S. economy… all during an election year. Good luck with that.
Remember, the Fed’s QE 2 program which was a mere $600 billion (to bail out Europe the Fed would need at the minimum $2 trillion) pushed food prices to all time highs and kicked off riots and revolutions around the globe. Imagine what $2+ trillion would do.
Again, Europe cannot be saved. It’s too big and too leveraged. End of story. The collapse will come and when it does the Central Banks will not be able to contain it. If you’re not already taking steps to prepare for the coming collapse, you need to do so now.
*http://www.zerohedge.com/contributed/2012-12-22/three-data-points-prove-europe-cannot-be-saved (To access the article please copy the URL and paste it into your browser.)
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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