Let’s rehash the European situation for those who still don’t get it.
Taken as a whole, the US banking system is leveraged at 13 to 1. Leverage levels at the TBTFs are much much higher… but when you add them in with the 8,100+ other banks in the US, total US bank leverage is 13 to 1.
The European banking system as a whole is nearly twice this at over 25 to 1. That’s the ENTIRE European Banking system leveraged at near Lehman levels (Lehman was 30 to 1 when it collapsed).
To put this into perspective, with a leverage level of 25 to 1, you only need a 4% drop in asset prices to wipe out ALL capital. What are the odds that European bank assets fall 4% in value in the near future?
Now let’s consider TOTAL debt sitting on Financial Institutions’ balance sheets in Europe. The below chart shows this number for financial institutions in several major EU members relative to their country’s 2010 GDP.
| Country | Financial Institutions’ Gross Debt as a % of GDP |
| Portugal | 65% |
| Italy | 99% |
| Ireland | 664% |
| Greece | 21% |
| Spain | 113% |
| UK | 735% |
| France | 148% |
| Germany | 95% |
| EU as a whole | 148% |
Source: IMF
As you can see, financial institutions in Germany, France, Italy, Spain, the UK, and Ireland are all ticking time bombs. Indeed, taken as a whole, European financial institutions have more debt than Europe’s ENTIRE GDP.
These leverage levels alone position Europe for a full-scale banking collapse on par with Lehman Brothers. Again, I’m talking about Europe’s ENTIRE banking system collapsing.
This is not a question of “if,” it is a question of “when.” And it will very likely happen within the next 10-12 months if not sooner depending on how soon Greece defaults.
The reason that this is guaranteed to happen before the end of 2012 is that a HUGE percentage of European bank debt needs to be rolled over by the end of 2012.
Between now and then…
- French banks need to roll over 30% of their TOTAL debt.
- Spanish banks and Italian banks need to rollover more than 33% of their TOTAL debt.
- German banks need to roll over nearly 40% of their TOTAL debt.
- Irish banks need to roll over almost HALF (50%) of their TOTAL debt.
Good luck with that.
The situation is no better for European Sovereign states themselves, which are facing their own debt roll over issues at a time when investors are rapidly losing their appetite for sovereign debt.
To wit, Spain, Portugal, and Italy have all relied heavily on the ECB to buy their debt at recent auctions. Germany actually just had a failed debt auction this morning. And in this environment , these nations need to meet the following debt roll over obligations:
| Maturing Debt Plus Budget Deficit as a % of GDP | ||
| 2011 | 2012 | |
| Portugal | 21.6% | 21.0% |
| Italy | 22.8% | 23.1% |
| Ireland | 19.5% | 18.0% |
| Greece | 24.0% | 26.0% |
| Spain | 19.3% | 18.7% |
| UK | 15.7% | 13.6% |
| France | 20.6% | 19.7% |
| Germany | 11.4% | 10.5% |
And this is just maturing debt that’s due in the near future: it doesn’t include unfunded liabilities.
Jagadeesh Gokhale of the Cato Institute puts the situation as the following, “The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”
As I said before, Europe is finished. The region’s entire banking system is insolvent (with few exceptions). European non-financial corporations are running massive debt to equity ratios. And even EU sovereign states require intervention from the ECB just to meet current debt issuance, to say nothing of the huge amount of sovereign debt roll over that is due over the next 14 months.
Again… Europe. Is. Finished.
The Great debt Implosion will hit Europe within the next 14 months and likely much much sooner. When it dues, we will see numerous debt defaults and restructuring on both the corporate and sovereign levels. We’re also very likely going to see significant portions of the European banking system collapse “Lehman-style” along with subsequent HUGE losses of capital.
The impact of this will be global in nature. The EU, taken as a whole, is:
1) The single largest economy in the world ($16.28 trillion)
2) Is China’s largest trade partner
3) Accounts for 21% of US exports
4) Accounts for $121 billion worth of exports for South America
So if the EU banking system/ economy collapses, the global economy could enter a recession just based on that one issue alone (ignoring the other issues in China, Japan, and the US).
Again, we’re in for a rough rough future in the financial system.
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.
When this happens the entire system could go down. I’m talking about bank holidays, sovereign debt defaults, retirement accounts and pension funds wiped out, even food shortages in some areas.
This will NOT be permanent, nor will we enter some kind of Mad Max apocalypse. But there will be temporary shutdowns of the banking system as they work through this mess. And given that most folks rely almost entirely on their credit cards to survive and haven’t prepared at all, things could indeed get very messy at times.
So you NEED to take steps now to prepare for all of this. This includes having some cash on hand as well as actual physical bullion. It also means stockpiling some food and water.
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.
I’ve already alerted Private Wealth Advisory to 12 CRISIS trades (three for Europe, nine for the US) that will all produce HUGE profits as this mess collapses.
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And more…
I can do the same for you. All you need to do is take out a subscription to my Private Wealth Advisory newsletter.
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Best Regards,
Graham Summers
