How do you top off a global debt bubble? If the EU doesn’t hang together, surely they will hang separately… Who stays or who goes, seems almost academic, at this point. Everybody is going to get hit with the same slime, loaded with shrapnel. This is a global party and no one can opt out.
They have a lot of levers, tricks, games and illusions to maintain the appearance of normalcy, for a long time. The fed has been funnelling cash and liquidity, to the EU. Businesses and individuals are scrambling to protect themselves, based on reports of cash flowing out, in what amounts to an electronic bank run. That has been going on for probably 2 years or more.
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August 6, 2012
“And it’s why I’m more concerned now than I was in early 2008. No joke. What’s coming will be truly horrific. I believe we have, at most, maybe 9-10 months to prepare for all of this (possibly less). ”
Many people have been writing in to ask me, “why are you focusing on Europe so much? Who cares about Spain?”
The short answer is that everyone should care about Spain. Spain could potentially take down the banking system in Europe, which would mean the US facing a Financial Crisis at least on par with 2008.
How would this unfold?
To understand this, you need to understand how the European banking system works. By now everyone knows that many European countries have massive debt problems: Portugal, Italy, Ireland, Greece, and Spain, the infamous PIIGS.
Well, when these countries issue debt, it is mainly the European banks that buy it. So let’s say Spain issues €5 billion in new debt. Most of that will be snatched up by Spanish banks or some other European financial entity.
This bank will then park this debt on its balance sheet as a “senior asset” or an asset that has the least amount of risk (I realize this sounds insane given how bad Spain’s finances are, but this is how the banking system’s “risk models” work).
The bank will then use this Spanish bond to backstop loans to Spanish businesses, developers (not so much any more) even student loans: pretty much every other type of loan the bank might make.