Guess Who’s Even More Leveraged Than the European Banks?

Phoenix Capital Research's picture

While the world is awash in liquidity, no one seems to notice that it’s actually in the form of leverage or cheap debt, NOT real capital or equity.


The US banking system as a whole is leveraged at 13-to-1. While this is not horrible relative to Europe’s banking system (more on this in a moment), these levels still mean that an 8% drop in asset values wipes out ALL equity.


Then you have Europe’s banking system, which is leveraged at 26-to-1. Anecdotally, this is borderline Lehman Brothers (30 to 1). At these levels, even a 4% drop in asset prices wipes out ALL equity.


Japan’s banks are leveraged at 23 to 1. France’s are 26 to 1. Germany is 32 to 1.


You get the idea.


However, worse than any of these the US Federal Reserve. With $2.8 trillion in assets and only $52 billion in capital, the Fed is leveraged at 53 to 1. Yes, 53 to 1.


My question is: if the Fed prints money for itself… is it “raising capital?” More to the point… if that was true why doesn’t the Fed do it? Why maintain these leverage levels?


Only Bernanke can know… but the rest of us should feel a very serious shudder when we consider that THE bank that’s supposed to bailout the world/ fix the problems plaguing the financial system, is in fact even more leveraged that most of the institutions it’s helping.


Yes, stocks are rallying now based on the view that more QE 3 or monetary easing is on the way… but they’re missing the BIG picture here.


The BIG picture is that there is far too much debt in the financial system. Europe’s getting taken to the cleaners today… but these very same issues are going to spread to Japan and the US in short order. Even China, which is considered THE creditor nation of the world, is estimated to post a REAL Debt to GDP ratio of 200%.


Yes, 200%. China.


So the idea that somehow the world’s going to pass through this current chapter in its history without some MAJOR fireworks/ systemic failure, seems a little too optimistic.


Folks, something VERY bad is brewing behind the scenes. The Sarkozy- Merkel talks, the short-selling bans, the halted stocks, the leveraged EFSF, the hints of QE 3, all of this is telling us that the financial system is on DEFCON 1 Red Alert.


Ignore stocks, they’re ALWAYS the last to “get it.” The credit markets are jamming up just like they did in 2008. The banking system is flashing all the same signals as well.


So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding.

On that note, if you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.


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sellstop's picture

I marked up this chart from The Big Picture:

Djirk's picture

the fed has assets? mark to market bitches

sellstop's picture

Yea, the price of oil is signaling a slow down! LOL And gold and silver are signaling deflation. LMFAO!

e2thex's picture

"... stocks are rallying now based on the view that more QE 3 or monetary easing is on the way?"

Horseshit. You read this crap and you believe it. Stocks are rising because hedge funds are relentless in their shorting.

The Govt is now going after Cohen. The last dance will be with Soros,

Buck Johnson's picture

You're correct, something is lurking behind the scenes that is making everyone ramp up in a sense.  People are forgetting two Friday's ago that Geihtner said that the IMF would help to the tune of 2 Trillion dollars, then we are hearing about QE3 (which is really QE5).  And all the happy talk this weekend and the few days about a deal is close when this afternoon they came out and said a deal wasn't close, etc. etc..  Nobody especially in the EU want to pony up the hundreds of billions (actually a few Trillion) that will be needed to guarantee and slop up the debt and keep things (not better) but from going under for awhile.

They know the end is coming and they are trying to figure out a graceful way out of this mess.

Dugald's picture

A graceful way out? easy, issue each of them with a wheel gun an one round.


There! Solution!

Aquarius's picture

More than delusional @blindman - it is a hoax.

A sick sadistic abuse of the global welfare by those that call themselves "economists". Money or fiat currency is built of bullshit and thus the spun confidence of the yarn. Gold and Silver never change value, it is the clipped coinage that is the game which means of course, the gaming of the productivity of labour by those that have access and influence. When Gold exchanges for US$5,000 pto you know that the USD is underwater along with the sovereign credibility. Let me recommend to you  "Money" The Greatest HOAX on Earth by Merrill Jenkins Senior who has given me the validation necessary to know that the system is bust.

"You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete." -Buckminster Fuller

The system is on auto mode and will change itself - the game is up!

Next time around, don't trust your "leadership" ie Banker, politico. bureaucrat and those CEO's and COO's and CFO's et al.

blindman's picture
MONEY: Before Ron Paul, was Merrill M.E. Jenkins Sr. (M.R.)
MONEY: Before Ron Paul, was Merrill Jenkins (M.R.) 2
MONEY: Before Ron Paul, was Merrill Jenkins (M.R.) 3
MONEY: Before Ron Paul, was Merrill Jenkins (M.R.) 4

blindman's picture

@ a,
thank you for taking the time to respond to
this post. i will find that book.

laosuwan's picture
Guess Who’s Even More Leveraged Than the European Banks?



xcehn's picture

Here's an excerpt from an article that anyone with substantial bank deposits will find useful:

"This is the real problem that the credit rating agencies, mainstream press and politicians are not stating which is that the fallout from sovereign default will not be orderly, yes the actual default process may be orderly, over seen and managed by the ECB with planned haircuts of first 20%, then 40% and then 60%, but the markets response won't be orderly, depositors will panic and pull their funds from those they perceive as having the greatest exposure to a. sovereign debt and b. to sovereign debt derivatives. THIS IS ALREADY HAPPENING. Which is the real reason why the banks are not lending, because they know they cannot unwind their over-leveraged positions in the event of default so have been hoarding cash now in advance of sovereign default."

AvoidingTaxation's picture

It will keep going until it falls off a cliff. 

blueridgeviews's picture

I've been hearing we are weeks away from a collapse for 3 years now.  Sooner or later he must be right, I guess.

In the mean time, all is well in Europe and the US as evident by the market's rise. (tongue in cheek) Hey Caterpillar beat estimates.  Somebody has to be buying their equipment.

What scares me is all the companies buyiong back their stock. That to me signals a slowdown in the economy.

tony bonn's picture

let me add some anecdotal evidence on leverage, solvency, and bank runs.

in metro atlanta, i attempted to cash a check at the bank of the check issuer. sun trust told me that it would charge 5 usd on a relatively small check (under 500 usd). wells fargo told me that it would charge 5-7.50 usd for such a "service".

i asked the wf teller if it were due to bank solvency problems. she squeezed her eyes a little, nodded, and said yes. perhaps she didn't truly understand my question, but she indeed told the truth.

the banks are playing the same game as the cme does with gold and silver. i will repeat this story frequently but the banks are totally fucking insolvent. they can't even cash trivial checks from their own customers' accounts because they have NO CASH!! the previous week it was not a problem.

if you don't think that a major bank run and bank holiday are in your near future, you are a total fucktard.

Lucius Cornelius Sulla's picture

Anyone who puts money in the banking system, other than for transactional purposes, deserves what they get.  Depositors are no more than hedgefund shareholders.  Better to put your money in a well managed and safe money market fund where you have control over what you are invested in.

sellstop's picture

Last April when I cashed in some Silver I went to my local bank and they cashed the check of some thousands without batting an eye. Laid the cool green in my speculative little hand. They are the best little bank in the world. I suggest you buy their stock in large quantities as it is rapidly appreciating and will likely continue to do so in a reflection of their superiority as a financial institution.
Umpqua Holdings.... UMPQ

xcehn's picture

Bank runs are a definite concern in this environment.

sellstop's picture

Why would there be a run on the bank? No one has any money in the banks!

fourchan's picture

thank god the only share holders of the fed are the rothchilds and bilderbergs

Withdrawn Sanction's picture

My question is: if the Fed prints money for itself… is it “raising capital?” More to the point… if that was true why doesn’t the Fed do it?

Oh come on, really? FRNs (or bank reserves) are LIABILITIES from the Fed's perspective. That answers the second question.

Increasing liabilities, if assets stay the same, decreases absolute levels of capital. Increasing liabilities (FRNs, or bank reserves) while increasing assets, decreases relative capital. Either way, the insolvency of the "go to" lender-of-last-resort gets ever closer. (Side point, the GSEs--Fannie and Freddie--thought they too were immune to requirements of solvency and capital adequacy. They, or should I say, we found out otherwise.)

Ultimately, the Fed cannot "print" its way out of its predicament w/o a massive self-check. That may not stop it from trying, however. Mad men do strange things....that's why they're mad.

earleflorida's picture

feedback please:

"Current Bank Regulator's cause critical harm to the Economies" by Per Kurowski 

thankyou `PCR'


Sorry, Phoenix, but you are an ass hat. Go sit in the corner, and mumble away at the walls about your free "reports". If the fucking reports are free, post them here instead of making people subscribe to your "personal information acquisition to re-sell to others" whorehouse website. Make the reports public domain, rather than being an information age pimp. Just sayin'

Sudden Debt's picture

Just add a little bit more. I'm sure they can take it!

NotApplicable's picture

"Only Bernanke can know… but the rest of us should feel a very serious shudder when we consider that THE bank that’s supposed to bailout the world/ fix the problems plaguing the financial system, is in fact even more leveraged that most of the institutions it’s helping."

In this ponzi debt scheme, doesn't the "bailer of last resort" have to be the most leveraged? (it isn't like any of them have any real assets, but merely IOUs backed by guns)

earleflorida's picture

bernanke will know only when he's told

devo's picture

Gold is going to the moon, but nobody will have money to buy it.

topcallingtroll's picture

The fed had to stretch hard and accept huge leverage to keep the world from falling apart.

As to why 53 to 1 and not print up more capital it isnt kosher, mainly because it is too direct, not subtle, and even sheeple could understand what happened and begin to question the very foundation if a debt based economy.

As one central banker said it is the CB's job to lie. It is also the CB'S job to stay out of the limelight and keep most peoole ignorant of, and uninterested in, monetary policy.

The fed prefers to be more subtle. Even if you hate the Fed we have the smartest central bank in the world that has played a bad hand perfectly. The world knows no other country, and certainly not the Euro, could have saved us in 08.

collon88's picture

Exactly what I was thinking.  The author of the article seems to be saying that the FED's so called leverage puts its solvency at risk in the same way as other banks.  I think this is nonsense.  The Fed can increase its capital any time it wants with a key stroke.  That is what they don't want anyone to realize.  Those who do are making lots of money with things the way they are so there is no incentive to expose the scam.  

Let them all fail's picture

Tyler - Will you please stop allowing this guy to post as a contributor, his posts are not nearly up to standard with what the rest of this website provides, thank you.

Rocket-Man's picture

Disappointed every time I read this guy's contributor posts with his newsletter advertisement at the end of every post.  Does he donate a lot to the site or is he one of the "Tylers?"

klwilly's picture

"waiting for the jet-wash to begin"

what does that mean?  

klwilly's picture

"waiting for the jet-wash to begin"

what does that mean?  

hannah's picture

how can you claim the fed is leveraged when the create money from pixie dust....? i dont get that one.

Ghordius's picture

you won't, it does not make sense

the usual "let's look at a central bank's balance sheet" irrelevant point

the only important part of a CB's B/S is the ratio of the reserves and their composition

topcallingtroll's picture

Even that is not important if people dont care and are not paying attention.

barnabeg's picture

This guy never provides sources. I've tried to corroborate his facts and figures through Google searches many times to no avail. If this is meant to be more than just a promotional flyer would be good if he could include links to sources. 

YesWeKahn's picture

Bernanke is bankers's piggy bank.

Winston Smith 2009's picture

"Ignore stocks, they’re ALWAYS the last to 'get it.'"

It's not a matter of not "getting it", it's a matter of them playing the game until the last possible second, luring as many suckers into the market as they can.

Shizzmoney's picture

I saw one chart that says Jan was a chart that compared itself to the "Rich Man's Panic of 1907."

And with the way rich people are complaining today over "regulations" and "taxes"...that sounds about right.

Gavrikon's picture

'And with the way rich people are complaining today over "regulations" and "taxes"...that sounds about right.'

Yeah, it SOUNDS reasonable.  Obviously there ARE some useless regulations that should be shitcanned.  But riddle me this: Any bets on whether or not relieving business regs and taxes would bring a single job back from China?  Color me skeptical.

earleflorida's picture

a one-time corporate tax break exemption that all the k-st boys want via mnc's that gets valued-added attention every decade as clockwork would have it - a broken clock being right twice a decade stuck in a fiscal time-warp is all they ask

brings back ~ 200k +/+ jobs just in time for elections, and then rewinds itself via the south-seas trade winds redux^

ToddGak's picture

Yup.  Not likely to see this headline anytime soon: "Apple, with onerous taxes and regulations removed, opens up new manufacturing facility in Mississippi."

Nobody's creating any jobs until consumer demand returns...and without the liquid that was sloshing around with all the refi's in the mid-'00s, that demand ain't coming back anytime soon.

EB's picture

That $52 billion in capital might be only half, because the FBOG by definition makes surplus equal to capital paid in.  See the announcement at the top here:

There can never be a capital call on any member bank under this arrangement, but it does create the absurd possibility that the Fed has to print money to tighten (pay IOER) in a rising interest rate environment.

eddiebe's picture

Derivatives, baby! QE to infinity or bust.

eatthebanksters's picture

Dalio and Taleb have said simply and succinctly:  deleveraging is what'sgoing on.  No matter what,it's going to be painful for some time.  As Kyle Bass says however, if we manage the restructuring it we be painful, if we don't manage the restructuring it will be VERY painful. 

DarthVaderMentor's picture

Defcon 1 Market Red Alert? Now you are sounding like the imperious Ken Donglicker. How many times has he called for the Tickercon to be at 1? Last time he kept it there for weeks and nothing happened.