Spot The Looming Crisis

Tyler Durden's picture

Yes, we all know that Europe is in deep, deep, trouble, and we all know that Europe has a major fiscal deficit issue which is why well over half of the Eurozone is effectively locked out of the capital markets, and only has funding courtesy of various back door Ponzi schemes funded by the ECB, and we also all know that on a consolidated basis Europe's debt/GDP is very high. But the truth is that at least Europe is taking small steps to rectify its historic profligacy and is at least pretending to be implementing austerity (in some cases actually truly doing so). How about the US. Well, the chart below should answer that particular question. Because while the consolidated GDP of the US and Europe are nearly identical, they differ very materially in terms of both fiscal deficit, and total Debt/GDP. The chart below shows precisely where the differences lie between the United States of Europe and the United States of America.

Hint: higher and right-er are bad-er.



Ironically while the financial sectors of both the US and the Euro Area are nearly identical in their liability composition, where they differ is in the amount of deposit buffers backing the financial system: in Europe deposits are nearly three times greater than the US! Of course, this is a double edged sword: on one hand it means banks have a greater cash-based capital buffer - US banks would die to have the nominal amount of European deposits - but it also means that European banks have a far greater propensity to bank runs (as we have witnessed) since in Europe the shadow banking system is far less developed, and by implication it also means that Inflation in Europe is a far, far greater risk. Perhaps the Bundesbank, for all the criticism it gets day in and day out, is spot on in its unwilliningess to cede to the ECB's endless money printing demands. Actually scratch the "perhaps."

Source: Citi