National and International News, Politics, Polls, Bundesliga, Champions League
 
Picture
_  By Peter B. Meyer – 4th of December 2011

  This is a bold conclusion but nothing more than the truth based on recent facts.

 With Europe on the brink of collapse, economies all over the world could only be a few weeks away from an economic crash! The situation in Europe is so dire, French President Nicolas Sarkozy recently begged China for a handout. But even China has given up on Europe, saying, "It is up to European countries to tackle their [own] financial problems."

There simply is no way to avoid a second financial crisis. It's not a matter of "if," but when...

When banks loan money to a sovereign borrower, they understand it will receive interest payments for as long as the sovereign borrower remains solvent, after that… nothing. That’s the deal. It’s a contract. It’s not a moral obligation. It is not the sovereign borrower’s fault that the banks didn’t demand a collateral before extending the loan. It is the lender’s responsibility to collateralize his loans, not the borrowers.
_ Greece should have defaulted long ago. The country has a mountain of debt, and no way to pay it back. So why do European leaders keep lending Greece money?

“European governments aren't trying to save Greece; they're saving banks that were dumb enough to have "invested" in Greece!”

The Greek government keeps just 19% of all the bailout money that's supposedly for Greece; everything else goes to "financial institutions" and the ECB. Why is 81% of Greek bailout money going to "financial institutions," when the country has massive debt and expenses to pay? Because the Greek bailout is secretly another bank bailout!

Papademos PM of Greece and Draghi (ECB) are keeping Greece afloat just long enough for the banking industry to minimize their losses on sovereign debt before the beginning of the new fiscal year in January 2012.

Banks are nervously taking advantage of this rapidly closing window of opportunity... “France's biggest bank, BNP Paribas just sold European sovereign debt for an €600 million LOSS! Germany's Commerzbank took a loss too, as it cut exposure to Greek and other European bonds by 22%. And Barclays cut exposure to Greek and other European bonds by 31% in just three months”. Those big banks that are willing to accept huge losses right now proves the fact they are desperate to unload European government debt. Almost certainly, they know a Greek default is imminent, which could result in even bigger losses!

So Europe is in trouble. The problems stem from trillions of Euros in European sovereign bonds, plaguing the banks' balance sheets.

When the euro was created in January 1999, regulators wanted to develop the sovereign debt markets and promote tighter economic integration across Europe. To encourage banks to buy sovereign debt, the reserve requirements for holding these bonds were waved … Banks didn't have to set aside any capital to protect themselves against potential losses in sovereign debt. In other words, the banks even could lever up.

The global central banks now work together to paper over Europe's problems, by printing money out of thin air. What about liquidating real assets, perhaps some gold, to help fund the bailout?

"German gold reserves must remain untouchable," said Germany's Economy Minister Philipp Roesler. Germany wouldn’t use gold reserves as collateral for the bailout. He also negated calls from the G20 for Germany to post its gold as collateral”.

"Germany's gold and foreign exchange reserves, administered by the Bundesbank, were not at any point up for discussion”.

In Europe, as well in America, bond investors would have been reassured. They would know that they’d get their money back. The ECB would buy Italy’s bonds, and Greece’s bonds, and Spain’s bonds... It would buy everyone’s bonds. Bond investors anyhow would get their money. They would stop increasing interest rates. Italy could cover its losses. Everyone would be better off… or not?

It all seems so simple. Why don’t the Germans get it? Germany’s leaders are afraid of hyperinflation. Not many Germans are still alive who remember it, but the bad experience of hyperinflation of the early ’20s is nonetheless alive! They still remember that their money was worthless! And that’s why the Germans fight hyperinflation. Depression will lead to money printing, which eventually leads to hyperinflation.

Moreover… Greece isn't the only European country in trouble... Italy, Ireland and Portugal are on the brink of default too. The financial situation in Italy is so bad; on instruction of the ECB, Mario Monti replaced Berlusconi.

Spanish and French bond yields recently soared to record highs, which means they're getting more and more desperate for people to lend them money.

The total American exposure to the unfolding European debt crisis could be as much as $4 TRILLION... that's THREE times bigger than the subprime crisis in 2008!

And now… Greece is out of money and out of time. It will fail to pay its $20bn debt bill from November through January causing a default.And when Greece finally does default, panic will spread through the rest of Europe and the world… Fasten your seatbelts!

Euro, Eurozone, Debt, Credit Crunch, Germany, European Central Bank, Financial In

 

 


Comments




Leave a Reply