Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

European Debt Crisis Worse than 2008

Interest-Rates / Credit Crisis 2011 Sep 09, 2011 - 02:08 AM GMT

By: Dr_Jeff_Lewis

Interest-Rates

While the US markets were closed on Monday in observance of Labor Day, it became grossly apparent that the European debt crisis would be far worse than the American financial crisis of 2008.

Astute investors will notice something vastly different from the European implosion.  Whereas fixed-income securities, primarily US Treasuries, became more attractive to investors as the equity markets tanked in 2008 and 2009, the same isn’t happening in Europe.


As European shares were pummeled in holiday trading in the United States, yields on fixed-income securities rose. 

Typically, the relationship between fixed-income and equity is one of inversion.  When stocks tank, fixed-income rises in value and yields fall.  When fixed-income products fall, stocks rise.  Stocks are considered part of the “risk-trade,” whereas debt is considered a safe-haven investment.

Crisis in Confidence

To see yields rise in Europe while equities fall should indicate to investors that this most recent crisis is fundamentally related to surging debt loads.  The previous go-to safe haven of corporate and government debt simply isn’t safe; there is no way to know which policy decisions may leave some European governments broke and others with a bailout.

Additionally, friendly relationships between EU-represented governments are strained.  Furthermore, corporate giants, which were at worst competitive allies (the largest banks in Europe), now have little confidence in one another. 

Rumors swirl about which European banks are on the brink.  On August 19th, the European Central Bank became a proverbial holding tank for scared investors.  In one day, the ECB accepted $152 billion in overnight deposits, three times the average for the rest of the year, indicating that banks favored zero returns over risking a loan to competing banks, if only for a single day.

PIGS Terrorize Banking Industry

The PIGS group of nations—Portugal, Italy, Greece, and Spain—are the most damaging to bank balance sheets.  In a note to clients, US financial services companies have sought to identify the total possible loss to the European banking sector.  The European Banking Authority reveals that European banks hold roughly 500 million Euros of Greek, Italian and Spanish debt.  Greek debt totals to just under 100 million Euros, while Italy and Spain are on the hook for 317 billion Euros and 280 billion Euros respectively.

Willingness to make banks whole on their sovereign debt holdings isn’t yet clear.  ECB officials have repeated that investors should not expect perpetual involvement by the ECB.  Interestingly, the statement came as the ECB doubled its purchases of Italian debt.

The Fed remains interested in European banking woes.  In a series of statements from early 2011 to today, the Federal Reserve noted that European and American banks would be treated as equals.  The banking business is interconnected, as European and American investors hold countless money market funds and cash instruments, which are invested in debt securities all around the world.

Even though the solution to the European debt crisis has yet to be established, investors should infer from previous bailouts that the next step is inflation.  There is simply no other solution, if one can even call it that.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- 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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

6 Critical Money Making Rules