Feel like every day Europe is juggling hot potatoes? You are not alone. As the following graphic summary from Citi's Matt King (whose insight into Europe, liquidity conduits, shadow banking and a comprehensive picture of modern financial "innovation" has rapidly become second to none) shows, the hot potatoes are getting hotter by the minute, and are flying ever faster and higher. But the kicker: King has the best punchline on Europe we have yet encountered: "Losses are unquantifiable" Q.E.D.
Passing The Potato
Europe - and no less most of the developed world - is caught in a self-reinforcing deleveraging process.
They are caught in a vicious triangle.
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Asset Prices Are Overbaked
Asset prices are reconnecting with the real world, but the debts are hard to eliminate.
When Asset values drop, the debts remain!
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Chipping Away - Deleveraging has Barely Started
Shifting from Private to Public balance sheets - Creating new risky assets.
Merely shifting from one pocket to the other creates MORE problems
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But Who Will Buy The 'Hot Potatoes'?
Required Premium is greater than the Sustainable Premium; and Spain and Italy (among others) are getting uncomfortably close to the the cliff...
Individual Rationality May Be Collectively Disastrous
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...Which leaves question of: Going Concern or Gone Concern? for Spain - but this is far more than a Periphery Problem.
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Losses Are Unquantifiable - And Highly Profitable!
Source: Citi