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Europe’s Bazooka Will Fire Blanks… Good Luck Killing the Crisis With That

Phoenix Capital Research's picture





 

Europe continues to take a page out of Hank Paulson’s “Crisis Combat” booklet, by unveiling one monetary “bazooka” after another. Obviously, EU leaders didn’t notice that Paulson’s “bazooka” completely failed to stop the 2008 Crash.

 

Even more strangely, they keep pulling out bazooka after bazooka, first unveiling the EFSF which was supposed to raise €1 trillion but failed to raise even €10 billion without having to intervene in its own bond auctions.

 

Then came the ESM, which was supposed to be another mega-bailout fund, which as before, is having trouble raising funds. After all, if one bailout fund is a dud, why would launching another fix anything?

 

Oh, and I forgot to mention that both bailout funds will be leveraged… which Europe obviously doesn’t have enough of already (the EU banking system as a whole is leveraged at 26 to 1. Lehman Brothers was at 30-to-1 when it imploded).

 

Indeed, you don’t even need to look at the math (though the math is impossible and makes the premise of “saving Europe” even more insane) to know that this can’t work. Which is why the idea that the EU as a whole can create mega-bailout funds to put up a “firewall” around its banking system is outright absurd.

 

The EU is 27 countries. Of these, only 17 use the Euro. And these countries have a long, bloody history of political conflicts with one another. We’ve already seen hints of this with Germany calling Greece a “bottomless hole” to which Greece responded by portraying German politicians as Nazis.

 

Spain, France, and the others aren’t exactly the best of friends either. And as their respective economies collapse at varying speeds (even Germany posted negative QoQ GDP for 4Q11), political tensions will rise even more rapidly.

 

So in the end, Europe’s bazookas will be firing blanks (assuming they even can fire at all, which their respective efforts to raise capital call into doubt). Which brings me back to one of my central themes for Europe: that you cannot band together such disparate economies and cultures in one monetary union and expect it to work.

 

Again, this is common sense. And when we add in the math, it becomes even more clear just how insane these political proposals are.

 

Consider Germany, for instance. As I’ve noted for months now, that country sports a REAL Debt to GDP of 200% (from former Bundesbank officials’ own admissions) when you include unfunded liabilities. And Germany is somehow going to bailout Italy or Spain (which both sport REAL Debt to GDPs north of 300%)?!?

 

Again, the whole thing is absurd. The entire European financial system is just one big house of cards, propped up by the hopes that the ECB can hold this thing together.

 

But it can’t. Europe isn’t the US. And the ECB isn’t the Federal Reserve. What I mean is that you can maybe fool investors into believing that a financial system is fixed if you’re only dealing with one country and one Central Bank. But when you’re dealing with 17+ countries, many of which have their own national Central Banks, and you’re trying to save this system with a larger regional Central Bank (the ECB) the whole thing is impossible.

 

Indeed, because of its interventions and bond purchases, ¼ of the ECB’s balance sheet is now PIIGS debt AKA totally worthless junk. And the ECB claims it isn’t going to take any losses on these holdings either. No, instead it’s going to roll the losses back onto the shoulders of the individual national Central Banks.

 

How is that going to work out? The ECB steps in to save the day and stop the bond market from imploding… but the minute it’s clear that losses are coming, it’s going to roll its holdings back onto the specific sovereigns’ balance sheets?

 

So… PIIGS debt is essentially just a monetary “hot potato” that the various Central Banks in Europe are tossing around? And this is supposed to save Europe? Good luck with that.

 

On that note, I fully believe the EU is heading into a Crisis in the May-June window of time. We have a confluence of negative factors (monetary, political, technical, etc.) hitting during that window of time, which is unlike anything I’ve ever seen before. And unlike the 2008 Crisis, the Central Banks won’t be able to rein this one in.

 

Why? Because Europe’s banking system is $46 trillion in size. And the Fed and ECB are already leveraged to the max having spent all their ammunition combating the Crisis this far.

 

So if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called Surviving a Crisis Four Times Worse Than 2008 and it’s chock full of information on how to not only survive but thrive during if this particular black swan (or any of the others lurking in the system) comes to pass.

 

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com under the OUR FREE REPORTS tab.

 

Good Investing!

 

Graham Summers

 

PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com

 

 

 

 

 

 


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Mon, 07/09/2012 - 04:54 | Link to Comment JenniferS
JenniferS's picture

EU creditor economies are determined first to lose their 3A and risk a domestic economic crisis before resorting to Eurobonds (which already exist from the back door). All this for the sake of not admitting to the problems and entertaining false hopes that they are a special case (in comparison to debtors) just like Greece. They will bend over backwatds and do anything in the end but that will come at high cost to the EZ and mostly to them. Some people take a long time to learn their lessons like those who take several cash loans till pay day at time and can not repay them or those who complaining about McDonalds making them fat. We must not forget that the root cause of the Eurozone crisis is a divergence in private sector competitiveness between north and south. What happens in the public sectors and where debts are shifted or cancelled is of little relevance and will in no way provide a durable solution. We must stop talking about government debts and deficits as they are next to irrelevant when it comes to the Euro crisis.

Wed, 03/28/2012 - 19:27 | Link to Comment Coldfire
Coldfire's picture

I'm with Graham on the outcome, but the timing is anyone's guess.

Wed, 03/28/2012 - 19:01 | Link to Comment skepticCarl
skepticCarl's picture

Mr. Graham, you have been proclaiming Europe a lost cause for 2 years now, always inisisting that the math is irrefutable.  Well, here it is, March 2012, and Europe is still functioning.  It is in recession, but that is hardly an imploded condition.  200 million Europeans get up and eat and work and play everyday.  Now, your timeline gets us until early Summer.  Here's my call:  In mid summer, when there have been more silly bailouts, work-arounds, and other such bazookas, Europe will still be limping along, unimploded.  And, you will provide us another article, predicting a dramatic collapse, in a few more months, after the London Olympics.  This will go on for perhaps years.

Wed, 03/28/2012 - 18:32 | Link to Comment SAT 800
SAT 800's picture

"This report is 100% free". It's also 100% useless and I need you to pay me for the time I'm going to waste reading it. But, other than that, have a nice day.

Wed, 03/28/2012 - 18:27 | Link to Comment SAT 800
SAT 800's picture

Hank Paulson's Crisis Combat efforts weren't directed at stopping or preventing a Crash, but to save his friends whom he played handball with at the New York Athletic Club; it worked fine. As George Carlin observed, it's a big club; and you ain't in it.

Wed, 03/28/2012 - 18:26 | Link to Comment Zero Govt
Zero Govt's picture

"After all, if one bailout fund is a dud, why would launching another fix anything?"

Political Hopium is a heady mix of self-delusion and collectivist delusion..

Welcome to the EC/EU/ECB

..never a foot planted on solid ground outside their ivory towers in 30 years..

Comrades living the dream, bankers fueling it

Cue: Train Wreck

Wed, 03/28/2012 - 16:04 | Link to Comment newworldorder
newworldorder's picture

The math does not matter in Europe. The can has been kicked down the road for a minimum of three years and the FED has started buying Euro Union country bonds.

Wed, 03/28/2012 - 15:42 | Link to Comment Sudden Debt
Sudden Debt's picture

Stuff like this brightens my day :)

But somehow people call me a pessimist when i tell them stuff like this. Not like anybody has a clue about what I'm talking about because most comon people don't read this stuff in the newspapers.

Wed, 03/28/2012 - 18:24 | Link to Comment SAT 800
SAT 800's picture

Have you still got the Silver in the trunk of your car? I liked that part.

Wed, 03/28/2012 - 13:22 | Link to Comment Dingleberry
Dingleberry's picture

Did europe get a vasectomy?

Wed, 03/28/2012 - 13:08 | Link to Comment falak pema
falak pema's picture

Can you imagine the scam in western countries : releasing the strategic oil reserves to fight Oil Oligarchy spike in oil prices. As if the 40 days resserves will change a Ten year trend now getting hotter and hotter as the net export land model starts drying up ...Can these people believe their own lies or is the WEST's planning horizon 40 DAYS....???

Wed, 03/28/2012 - 17:25 | Link to Comment Boxed Merlot
Boxed Merlot's picture

40 days?  I didn't realize there was that much foresight. 

I'm impressed.

What's for dinner?

 

 

Wed, 03/28/2012 - 13:25 | Link to Comment pashley1411
pashley1411's picture

Europe specializes in "going over the top" moments.

Wed, 03/28/2012 - 12:47 | Link to Comment Piranhanoia
Piranhanoia's picture

A bazooka was designed so that a soldier could get a shot with a projectile at close range at something large, armored, armed and would easily defeat said soldier.  If the soldier came out of hiding to use his bazooka,  he would usually have one chance before the tank or their backup would be keen upon taking him out at all cost so as not to lose said tank.

Seems the same now.  It is a desperate move to kill something that will certainly kill you.  Only when it was invented, like now,  it didn't work all that well.  Many thought it was suicide. 

Wed, 03/28/2012 - 12:39 | Link to Comment HD
HD's picture

Firing blanks isn't all bad. After all, it lets them fuck more people...

Wed, 03/28/2012 - 18:30 | Link to Comment SAT 800
SAT 800's picture

Firing blanks can be extremely useful; if they make a loud bang and a big flash; they can be instrumental in "manufacturing consensus"; eg. brainwashing.

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