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Guess Who’s Even More Leveraged Than the European Banks?
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.
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Good Investing!
Graham Summers
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If only the Federal Reserve Corporation had not directed so much of this escapade and influenced the propogation of FASB standards, they could fool the markets on 53 to one leverage.. If only the Federal Reserve Corp. had not directed the Mark To Market rule paradigm, they would have limited bailout $ they've based FASB standards allowing bailouts...
Oh, that's right, the Class A shareholders to the Federal Reserve Corp., ARE, the bailout reciepients.. okay, I get it.
I thought 2012 to 2014 is when the real fireworks begin ...$17 Trillion of debt needing rolling over to be serviced by only $12 Trillion of available credit ....a 30% shortfall in cash/funding which includes Chinas near $3 Trillion of reserves all loaned out even if the Chinese are in a confident mood to do so (highly doubtful!)
...which all portends to a major contraction in economic activity globally in the next 2 years... Valhalla made very real
Given the Eurozone cash problems and US States already crumbling here in 2011 maybe the fireworks will kick off a lot earlier
No bad thing... sooner these global bankrupts go to the wall the sooner the cleansing of absolute crap begins (capitalism does work.. kicking cans just delays and increases the debt dynamites explosive force)
How's your market warning trigger Mr Summers? ..is it still firing (blanks) as it has past couple of weeks!!
I still haven't bought any food to stockpile, ammo for security or Boeing shares and never will.. i've complete faith in the free market which will still work (supply) even in a Great Depression unlike that corrupt crumbling calamity Govt and its monopolist bum-chums (Big utilities, healthcare, Pharma, oil, banking, pensions, insurance, MIC, Boeing)
I agree with you in the 2012-2014 time frame. However, why did the NYSE cut the Limit Down %? Yes the recent rise defies belief and yes TPTB will do everything to keep the game alive and you cannot fighth the FED.....is that enough to remove the possibility of a disorderly sell-off?? Is it only a Flash Crash when it rallies back in minutes? What happens when its locked limit? If its such a thinly traded computer dominated market do we leave to a few responsible prop desks to not pile on if this things starts breaking down? My guess is that they are drooling over their desks every day waiting for the jet-wash to begin.
i'll take you up on one point, the myth you "cannot fight the Fed"
The Fed is no different to all other Central Banks. Their market interventions are simply pissing away huge sums of money with very short-term effect and zero lasting effect on the economy. QE1,Lite and 2 had no effect on GDP stumlation or unemployment as was Bens promised aims (fails on both counts). Yep Ben has kicked the can down the road, propped up the drunken bankrupts of Wall Street and Washington but has he changed anything but the date of reckoning??
As for Bens impact on currency rates like the ECB, Swiss and Japanese CB's interventions recently he's poured $Billions down the toilet to blip the currency for a few days before it continues on its merry path. How has Benny Bucks done shoring up US property and toxic MBS's?? Crap and crap again. How about The Feds recent illegal market rigging smackdown in Gold? He certaily knocked a $100 off the price but looks like today, a few weeks after the criminal price fixing, Gold is back on its trend skywards (a finger in the air to all counterfeit wealth central bwankers)
So regards not betting against the Fed with its diabolical record you'd be a fool to back these total losers on anything quite frankly!
The Fed is not only incompetent it is impotent .....and has become a target of ridicule, comedy and black humour which will eventually be outright anger before its criminal monopoly is torn to shreds at long last