I have to admit, I am pretty sick of writing about Europe, particularly since nothing has changed over there in the last month.
Instead what’s happened is that Mario Draghi issued a borderline ridiculous statement that he somehow will be able to fix the EU’s solvency Crisis.
The actual speech started with a philosophical inquiry comparing the Euro to a bumblebee. I kid you not:
I asked myself what sort of message I want to give to you; I wouldn’t use the word “sell”, but actually I think the best thing I could do, is to give you a candid assessment of how we view the euro situation from Frankfurt.
And the first thing that came to mind was something that people said many years ago and then stopped saying it: The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now – and I think people ask “how come?” – probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis. The bumblebee would have to graduate to a real bee. And that’s what it’s doing.
The first message I would like to send, is that the euro is much, much stronger, the euro area is much, much stronger than people acknowledge today. Not only if you look over the last 10 years but also if you look at it now, you see that as far as inflation, employment, productivity, the euro area has done either like or better than US or Japan.
The first two paragraphs are absolutely stunning. A grown man, in charge of one of, if not the largest banking system in the world, rambling about bumblebees. A mid-? level manager at a small company could get away with this rhetoric, but we’re-?talking about one of the single most powerful men in the world. It’s simply stupefying.
Draghi then rambles on about how great the Euro is and how it’s so much better than the US or Japan using various metrics. I have no comment on Japan as that country is heading into its own debt implosion. However, to argue that Europe is on sounder footing that the US today overlooks glaringly obvious financial, economic, and most importantly, cultural differences.
Europe, in its simplest form, is a collection of countries, none of whom have a long history of getting along (WWII was just 70 years ago) all with various levels of insane entitlement spending (even Germany sports Debt to GDP levels about 200% when you include unfunded liabilities).
On top of this, the entire European banking system is leveraged at nearly Lehman Brothers levels... and that’s based on the banks on in-?house risk models. Asking a bank to determine its leverage levels based on its own in-?house risk assessments is like asking a raging drunk to determine the health risks related to his drinking.
I’ll explain that last one.
Executive compensation at banks is very closely tied to earnings... which are largely based on lending activities. So bank executives are highly incentivized to push for aggressive lending practices that downplay the risks to the loans.
This is why Europe’s housing bubbles dwarf that of the US. It’s why European banks are likely really sitting on leverage levels closer to 50-to-1. And it’s why Mario Draghi is talking out of his backside when he says EU is much stronger than the US.
Bear in mind, I’m not arguing that the US is somehow a banking or monetary utopia... but the US at least did attempt to recapitalize its banks after 2008 and the US has seen some movement towards the deleveraging of the private sector (in fact it’s one of only three major economies in the world that did this, the others being Australia and South Korea):
With that in mind, I remain thoroughly convinced that Europe is heading into a banking crisis that will make 2008 look like a joke. 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 How to Play the Collapse of the European Banking System 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.
This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com [9]
Good Investing!
Graham Summers
PS. We also feature numerous 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.