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ECB Banking Standards and Other Great Works of Fiction

Phoenix Capital Research's picture




 

 

As noted in numerous articles, the entire European banking and corporate system is over-burdened with debt.

 

Jagadeesh Gokhale of the Cato Institute puts the situation as the following, “The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”

 

Put another way, for Europe’s Government to fund all the entitlements they have, they would need an amount equal to 400% of GDP to be sitting in the bank collecting interest.

 

Virtually NO European country is running a surplus, let alone has an amount equal to 100% of GDP let alone 400% of GDP sitting around.

 

How come no one is openly admitting this?

 

The reason none of this shows up is because Europe’s accounting for unfunded liabilities as well as its accounting for banking liabilities. As noted by Mark Grant, the ECB even ADMITS that it doesn’t record most of the garbage it owns:

 

Recognition of assets and liabilities

 

An asset or liability is only recognized in the Balance Sheet when it is probable that any associated future economic benefit will flow to or from the ECB, substantially all of the associated risks and rewards have been transferred to the ECB, and the cost or value of the asset or the amount of the obligation can be measured reliably.”

 

So the ECB has openly admitted: “we don’t actually count something as an asset or liability unless we believe it should be.”

 

In other words, the ECB’s balance sheet, which backs up the entire EU banking system it essentially a work of fiction. Unless the ECB officials feel like admitting something is an asset or liability, it doesn’t exist.

 

At this point, no sane person could possibly invest in Europe. And given that EU bureaucrats are now proposing STEALING depositors savings, I can’t think why anyone would have a bank account there either.

 

At the end of the day, this is all you need to know about Europe’s Crisis:

 

  1. The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).
  2. This banking system is officially leveraged at 26 to 1. Realistically it’s likely closer to 50 to 1.
  3. The ECB’s balance sheet is entirely made up based on how the ECB feels like valuing what it owns (how’d that concept work out for Wall Street banks in 2008?)
  4. Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany)

 

So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1…

 

And all of this is occurring in a region of 17 different countries none of which have a great history of getting along… at a time when old political tensions are rapidly heating up.

 

To be clear, the Fed, indeed, Global Central Banks in general, have never had to deal with a problem the size of the coming EU’s Banking Crisis. There are already signs that bank runs are in progress in the PIIGS.

 

Thus, the World’s Central Banks cannot possibly hope to contain the coming disaster. They literally have one of two choices:

 

  1. Monetize everything (hyperinflation)
  2. Allow the defaults and collapse to happen (mega-deflation)

 

If they opt for #1, Germany will leave the Euro. End of story. They’ve already experienced Weimar and will not tolerate aggressive monetization.

 

So even the initial impact of a massive coordinated effort to monetize debt would be rendered moot as the Euro currency would enter a free-fall, forcing the US dollar sharply higher which in turn would trigger a 2008 type event at the minimum.

 

In simple terms, this time around, when Europe goes down (and it will) it’s going to be bigger than anything we’ve seen in our lifetimes. And this time around, the world Central Banks are already leveraged to the hilt having spent virtually all of their dry powder propping up the markets for the last four years.

 

On that note, if you’ve yet to prepare for Europe’s BIG collapse…we’ve recently published a report showing investors how to prepare for this. It’s called What Europe’s Collapse Means For You and Your Savings and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

You can pick up a free copy here:

http://gainspainscapital.com/what-europes-collapse-means-for-your-savings/

Best Regards,

Graham Summers

PS. We also offer a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a copy of this report at:

http://gainspainscapital.com/gpc-inflation/

 

 

 

 

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Mon, 03/25/2013 - 19:45 | 3374740 SKY85hawk
SKY85hawk's picture

Guess which other 'world power' omits unfunded liabilities!  

But, they do produce GAAP financial statements, if you know where to look at 'em.

I don't but Eric Sprott does.

 On Jan. 17 the Treasury Department reported its GAAP)-based budget deficit for 2013. It reported a $1.2 trillion ($1.2T) cash deficit, which is a measure of the change in the present value of future liabilities, such as Social Security, Medicare and Medicaid payments, and civil service pension plans, that the government must pay. In 2011, the total deficit was $5T. In 2012, it was $6.9T. Yet, Congress is haggling over how to save $100B. This is a $16T economy.

Source: http://seekingalpha.com/article/1248151-eric-sprott-central-bankers-are-gaming-gold

Mon, 03/25/2013 - 19:05 | 3374272 are we there yet
are we there yet's picture

If you want to loose sleep, consider that the most valuable thing in your banks vault, is your safety deposit box's contents.

Mon, 03/25/2013 - 16:29 | 3374032 JosephConrad
JosephConrad's picture

This situation evolved fom the Wealthy U.S. & E.U. THUGS & THIEVES stealing more of their countrymens' Taxes than they could carry! The banking and financial instrument fraud of 2000-2013 - if rationally adjudicated - would require C-level executives of every major US & EU Bank TO GO TO JAIL! Further, it's becoming clear the ECB & IMF 'bankers' are FOOLS & just plain STUPID. Each of their solutions has failed save their success at lining their PERSONAL & FRIENDS' POCKETS! How do we know this? Cypus is one of scores of national banking systems shown and known to be HIDING THE STOLEN TREASURE of the US & EU Wealthy.  

Mon, 03/25/2013 - 15:03 | 3373665 slightlyskeptical
slightlyskeptical's picture

Choice 3. Monetize everything and eliminate fractional reserve banking. No hyper inflation or deflation.

Mon, 03/25/2013 - 14:04 | 3373286 Fuh Querada
Fuh Querada's picture

Moslem Matrimonials! Join free now!

Do NOT follow this link or you will be banned from the site!