Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Gerald Celente: Why You Still Need Guns, Gold, and a Getaway Plan... - 23rd Jun 18
Cheap Gold Stocks Bottom Basing - 23rd Jun 18
A Trade War Won’t Be Good for the US Dollar - 23rd Jun 18
SPX/Gold, Long-term Yields & Yield Curve 3 Amigos Update - 22nd Jun 18
Gold - How Long Can This Last? - 22nd Jun 18
Dow Has Fallen 8 days in a Row. Medium-long Term Bullish for Stocks - 22nd Jun 18
Trouble Spotting Market Trends? This Can Help - 22nd Jun 18
Financial Markets Analysis and Trend Forecasts 2018 - A Message from Nadeem Walayat - 21st Jun 18
SPX Bouncing Above Support - 21st Jun 18
Things You Need To Know If You Want To Invest In Bitcoin Now - 21st Jun 18
The NASDAQ’s Outperformance vs. the Dow is Very Bullish - 21st Jun 18
Warning All Investors: Global Stock Market Are Shifting Away From US Price Correlation - 20th Jun 18
Gold GLD ETF Update… Breakdown ? - 20th Jun 18
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

World Markets Tumble as Clouds gather over Eurozone

Stock-Markets / Global Debt Crisis Sep 13, 2011 - 07:11 AM GMT

By: Mike_Whitney

Stock-Markets

Growing fears of a default in Greece sent markets in Europe and Asia plunging on Monday while yields on "safe haven" US Treasuries and German bund fell to record lows. Nearly 3 years after Lehman Brothers collapsed in 2008, the global economy is now facing a second and more lethal financial crisis that threatens to tear-apart the battered eurozone and drag the world economy back into recession.


Indications that the Greek government will not be able to meet its austerity targets has caused rumblings in Germany where the finance minister is working on a bank recapitalisation plan in case Greece defaults. German, UK and French banks hold hundreds of billions in Greek sovereign debt that will lose significant value if Greece cannot secure new loans from the ECB.

How bad will the fallout be? Here's a clip from Bloomberg that explains:

"BNP Paribas SA, Societe Generale and Credit Agricole SA (ACA), France’s largest banks by market value, are trading at levels that imply a 100 percent loss on Greek, Irish and Portuguese holdings, according to Barclays. In the case of Paris-based Societe Generale, the share price even implies full writedowns on Italian and Spanish debt, according to Barclays." (Bloomberg)

"100 percent loss on Greek, Irish and Portuguese holdings", a total wipeout. Hundreds of billions in sovereign bonds have been converted into toilet paper overnight. If Greece goes under, it could take the EU banking system and a good part of the world's financial system along with it.

Here's more from Bloomberg:

"The 90 banks that underwent European stress tests would face an estimated capital shortfall of 350 billion euros ($479 billion) if Greek, Portuguese, Irish, Italian and Spanish government bonds were written down to market values, according to Nomura analysts led by Jon Peace.

No “practical” amount of capital can prepare them for a large sovereign debt impairment or default, Nomura said in a note on Sept. 7." (Bloomberg)

Where are EU banks going to lay their hands on "350 billion euros"? Their stocks are falling like stones, they've already sold a good portion of their liquid assets, and they don't have a "rainy day" fund they can draw from when the shitstorm hits. So they have no place to turn except the European Central Bank (ECB), and there's no way the ECB can go on a bond-buying binge big enough to keep the banks afloat. The ECB is not the Fed; it would need to get the green light from other the eurozone members to launch a bailout of this magnitude.

Angela Merkel wants to give Greece more time to whittle down its budget deficits, but the German Chancellor is swimming against the tide. 80 percent of the German public oppose more bailouts and want a change in policy. The ECB and EU's austerity measures have only accelerated the pace of Greece's decline.

It didn't have to end this way. EU leaders could have restructured Greece's debts and provided fiscal stimulus to help the struggling country grow its way back to health. But the right-wingers prevailed and demanded belt tightening instead of Keynesian remedies. Their failed judgement has only intensified debt deflation dynamics. Now the window of opportunity has closed and default is unavoidable.

The cost of insuring the sovereign debt of EU governments against default is skyrocketing as panic spreads across global markets. Bank funding costs are also rising sharply while interbank lending slows to a trickle.

The liquidationists have won the policy-battle, but lost the war. A Greek default will send the dominoes tumbling across southern Europe. It's only a matter of time before the eurozone splinters and 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

Ernie Messerschmidt
13 Sep 11, 21:40
good! let the banks fail!

Good! let the European banks fail! Let it spread to America. it looks like good news and progress to me -- time for socialized banking! xx


Post Comment

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

6 Critical Money Making Rules