Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
UK House Prices Momentum Forecast 2019 - 18th Dec 18
Will US Government Shutdown Cause The Stock Market To Crash? - 18th Dec 18
The Coming Financial Storm - 18th Dec 18
Jeff Gundlach thinks that a Stocks Bear Market has started. Is he Right? - 18th Dec 18
Gold’s Not An Investment – You Won’t Get Rich - 17th Dec 18
Stock Market At Medium-Term Lows, Which Direction is Next? - 17th Dec 18
This Stock Will Drive America’s 5G Buildout - 17th Dec 18
Stock Market Turn In The Tide - Have a Happy Bear Market! - 17th Dec 18
How A NASA Scientist Could Trigger The Next Cannabis Boom - 17th Dec 18
iShares Russell 2000 IWM Leading Stock Market Decline - 17th Dec 18
Where is the Dow Stock Market Santa Rally? - 17th Dec 18
With Weaker Climate Consensus, Expect Elevated Climate Change - 16th Dec 18
SMIGGLE Advent Calendar 2018 UK Contents - What You Get Look Inside Review - 16th Dec 18
Is there a Lump of Coal in Santa's Stock Market Bag? - 16th Dec 18
This Market Will Drive Gold in 2019… - 16th Dec 18
Gerald Celente:Central Banks Can’t Stop a 2019 Debt Disaster - 16th Dec 18
Gold Stocks Triple Breakout - 15th Dec 18
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

Eurozone Deathwatch

Politics / Euro-Zone Sep 06, 2011 - 08:31 AM GMT

By: Mike_Whitney

Politics

Best Financial Markets Analysis ArticleThere's no way to overstate the calamity that's unfolding across the Atlantic. The eurozone is imploding. The smart money has already fled EU banks for safe quarters in the US while political leaders frantically look for a way to prevent a seemingly-unavoidable meltdown. Here's an excerpt from a post at The Streetlight blog that explains what's going on:


"...ECB data seems to indicate that monetary financial institutions (MFIs) in Europe have been moving their deposits out of European banks. Where is that money going?....

European banks are shifting their cash assets out of European banks and putting much of them into US banks. ... This has happened at a significant rate, with a net transatlantic flow from European to US banks that probably totals close to half a trillion dollars in just six months.

If you're wondering exactly who has been the first to lose confidence in the European banking system, look no further. It seems that at the forefront is the European banking system itself." ("Europe's Banking System: The Transatlantic Cash Flow", The Streetlight blog)

The spreads on Spanish and Italian sovereign bonds have risen to nosebleed levels while the interest rate on the Greek 1-year bond has topped 70 percent, a tacit admission that Greece has lost access to the capital markets and will default despite the efforts of the IMF and ECB.

The eurozone is experiencing a slow motion run on its banking system. And--while the ECB's emergency loans and other commitments have kept the panic from spreading to households and other retail customers--the big money continues to vamoose as leaders of large financial institutions realize that a political solution to the monetary union's troubles is still out-of-reach.

German Chancellor Angela Merkel has been blocked in her attempt to push through changes to the European Financial Security Facility (EFSF) that would permit it's governors to use billions in emergency funds to bail out underwater EU banks that made bad bets on sovereign bonds. The German parliament (Bundestag) will vote on the issue on September 23 with the future of the 17-member monetary union hanging in the balance. If the EFSF is not given "expanded powers", the bond markets descend into chaos and the confederation will begin to break up.

This is from Reuters:

"Funding market tensions have triggered emergency measures at European banks, with some firms now dumping assets at the fastest rate since the collapse of Lehman Brothers as they seek to build up stockpiles of cash and reduce their reliance on short-term borrowings.

Nervy lenders have sold off billions of euros of "good assets" since the start of August, according to treasurers and business heads overseeing such sales, with some firms also halting new loans to large corporate clients in an effort to preserve cash.

Such a defensive response to the enfolding funding crisis in Europe is the clearest sign yet that credit market tensions - whether rooted in truth or unwarranted investor panic - pose an increasing threat to the global economic recovery, potentially choking off credit to critical engines of growth." ("Banks dump assets as funding worries intensify", Reuters)

It's a firesale, and it's getting worse. The banks have already jettisoned their good assets and are now left with the toxic waste that will fetch only a fraction of their original cost. As the bank run intensifies, the need for cash will increase forcing the ECB to either dig deeper or let the financial system crash.

EU bank portfolios have already been ravaged by the turmoil in the credit markets. Banks have been increasing their overnight deposits at the ECB indicating the fear they have of lending to other banks. Emergency loans have also seen an uptick in recent weeks reflecting the tightening in liquidity and the sharp spike in market stress gauges. The whole thing is getting out of hand fast.

The eurozone was built on the idea that monetary policy and trade laws were sufficient to tie disparate nations together in a makeshift union. No one believes that anymore; certainly not investors. What's needed is a governing body with broad popular support that has the power to implement fiscal policy. But EU policymakers have not even begun to grasp this point yet, which is why the panic will likely continue until the eurozone eventually breaks up.

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2011 Copyright Mike Whitney - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis.
Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Isaac Ben Laurence Weismann
08 Sep 11, 07:24
Completely understanding of real banking "modern arts"

In reality we come right away to a true life without any of those corrupted bankstersystematics. Its a shame that people can't see the whole wood in their own eyes, until they feel it.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules