What happens when you attempt a cold shutdown of one of the biggest debt spirals that the world has ever seen? Well, we are about to find out. The politicians in Europe have decided that they are going to "take their medicine" and put strict limits on budget deficits. They have also decided that the European Central Bank is not going to engage in reckless money printing to "paper over" the debts of troubled nations. This may all sound wonderful to many of you, but the reality is that there is always a tremendous amount of pain whenever a massive debt spiral is interrupted. Just look at what happened to Greece. Greece was forced to raise taxes and implement brutal austerity measures. That caused the economy to slow down and tax revenues to decline and so government debt figures did not improve as much as anticipated. So Greece was forced to implement even more brutal austerity measures. Well, that caused the economy to slow down even more and tax revenues declined again. In Greece this cycle has been repeated several times and now Greece is experiencing a full-blown economic depression. 100,000 businesses have closed and a third of the population is living in poverty. But now Germany and France intend to impose the "Greek solution" on the rest of Europe. This is going to create the conditions needed for a "perfect storm" to develop and it means that the European financial system is heading for an implosion of historic proportions.
The easiest way to deal with a debt spiral is to let it keep going and going. That is what the United States has done. Sure, "kicking the can down the road" makes the crisis much worse in the long run, but bringing the pain into the present is not a lot of fun either.
Europe has decided to do something that is unprecedented in the post-World War II era. They have decided to put very strict limits on budget deficits and to impose tough sanctions on any nations that break the rules. They have also decided that they are not going to allow the European Central Bank to fund the debts of troubled nations with reckless money printing.
Without a doubt, this is a German solution for a German-dominated Europe. Germany does not want to pay for the debt mistakes of other EU nations, and so they are shoving bitter austerity down the throats of those that have gotten into too much debt.
But this solution is not going to be implemented without a massive amount of pain.
In fact, this solution is going to make a massive financial collapse much more likely. The following are 17 signs that the European financial system is heading for an implosion of historic proportions....
#1 As noted above, when you reduce government spending you also slow down the economy. We have already seen what brutal austerity has done to Greece - 100,000 businesses have shut down, a third of the population is living in poverty and there is rioting in the streets. Now that brand of brutal austerity is going to be imposed in almost every single nation in Europe.
#2 As the economy slows down in Europe, unemployment will rise. There are already 10 different European nations that have an "official" unemployment rate of over 10 percent and the next recession has not even officially started yet.
#3 Before it is all said and done, the EU nations that are drowning in debt will likely need trillions of euros in bailout money just to survive. But at this point Germany and the other wealthy nations of northern Europe are sick and tired of bailouts and do not plan to hand over trillions of euros.
#4 The European Central Bank could theoretically print up trillions of euros and buy up massive amounts of European sovereign debt, but this would go against existing treaties and most of the major politicians in Europe are steadfastly against this right now. But without such intervention it is hard to see how the ECB will be able to keep bond yields from absolutely skyrocketing for long. In fact, without massive ECB intervention it is hard to see how the eurozone is going to be able to stay together at all. Graeme Leach, the chief economist at the Institute of Directors, said the following recently....
"Unless the ECB begins to operate as a sovereign lender of last resort function, with massive purchases of eurozone public debt, the inexorable logic is that the eurozone will break up."
#5 European leaders are hoping that the new treaty that was just agreed to will be ratified by the end of the summer. In reality, it will probably take much longer than that. German Chancellor Angela Merkel has made it clear that the solution to this debt crisis is going to take a long time to implement....
"It's a process, and this process will take years."
Unfortunately, Europe does not have years. Europe is rapidly running out of time. A massive financial crisis is steamrolling right at them and they need solutions right now.
#6 Sadly, the cold, hard reality of the matter is that none of the fundamental problems that Europe is facing were fixed by this recent "agreement" as Ambrose Evans-Pritchard recently noted in one of his columns....
There is no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking licence for the ESM rescue fund, and no change in the mandate of the European Central Bank.
In short, there is no breakthrough of any kind that will convince Asian investors that this monetary union has viable governance or even a future.
Germany has kept the focus exclusively on fiscal deficits even though everybody must understand by now that this crisis was not caused by fiscal deficits (except in the case of Greece). Spain and Ireland were in surplus, and Italy had a primary surplus.
#7 Nobody wants to lend to European banks right now. Everyone knows that there are dozens of European banks in danger of failing, and nobody wants to throw any more money into those black holes. The U.S. Federal Reserve and the European Central Bank have been lending them money, but a lot of European banks are already starting to run out of "acceptable forms of collateral" for those loans as one Australian news source recently explained....
"If anyone thinks things are getting better, they simply don't understand how severe the problems are," a London executive at a global bank said. "A major bank could fail within weeks."
Others said many continental banks, including French, Italian and Spanish lenders, were close to running out of the acceptable forms of collateral, such as US Treasury bonds, that could be used to finance short-term loans.
Some have been forced to lend out their gold reserves to maintain access to US dollar funding.
So will the U.S. Federal Reserve and the European Central Bank keep lending them money once they are out of acceptable collateral?
If not, we could start to see banks fail in rapid succession.
Charles Wyplosz, a professor of international economics at Geneva's Graduate Institute, is absolutely certain that we are going to see some major European banks collapse....
"Banks will collapse, including possibly a number of French banks that are very exposed to Greece, Portugal, Italy and Spain."
#8 Not only does nobody want to lend money to them, major banks all over Europe are also dramatically cutting back on lending to consumers and businesses as they attempt to meet new capital-adequacy requirements by next June.
According to renowned financial journalist Ambrose Evans-Pritchard, European banks need to reduce the amount of lending on their books by about 7 trillion dollars in order to get down to safe levels....
Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade.
When nobody wants to lend to the banks, and when the banks severely cut back on lending to others, that is called a "credit crunch". In such an environment, it is incredibly difficult to avoid a major recession.
#9 European banks are absolutely overloaded with "toxic assets" that they are desperate to get rid of. Just as we saw with U.S. banks back in 2008, major European banks are busy trying to unload mountains of worthless assets that have a book value of trillions of euros. Unfortunately for the banks, virtually nobody wants to buy them.
#10 European bond yields are still incredibly high even though the European Central Bank has spent over 274 billion dollars buying up European government bonds.
Up until now, the European Central Bank has been taking money out of the system (by taking deposits or by selling assets for example) whenever it injects new money into the system by buying bonds. That makes this different from the quantitative easing that the U.S. Federal Reserve has done. But at some point the European Central Bank is going to run out of ways to take money out of the system, and when that happens either the Germans will have to allow the ECB to print money out of thin air to buy bonds with or we will finally see the market determine the true value of European government bonds.
#11 Bond yields are going to become even more important in 2012, because huge mountains of European sovereign debt are scheduled to be rolled over next year. For example, Italy must roll over approximately 20 percent of its entire sovereign debt during 2012.
#12 Once the new treaty is ratified, eurozone governments will lose the power to respond to a major recession by dramatically increasing government spending. So if the governments of Europe cannot spend more money in response to the coming financial crisis, and if the ECB cannot print more money in response to the coming financial crisis, then what is going to keep the coming recession from turning into a full-blown depression?
#13 Credit rating agencies are warning that more credit downgrades may be coming in Europe. For example, Moody's recently stated the following....
"While our central scenario remains that the euro area will be preserved without further widespread defaults, shocks likely to materialise even under this 'positive' scenario carry negative credit and rating implications in the coming months. And the longer the incremental approach to policy persists, the greater the likelihood of more severe scenarios, including those involving multiple defaults by euro area countries and those additionally involving exits from the euro area."
#14 S&P has put 15 members of the eurozone (including Germany) on review for a possible credit downgrade.
#15 The stock prices of many major European banks are in the process of collapsing. If you doubt this, just check out the charts in this article.
#16 Bank runs have begun in some parts of Europe. For example, a recent article posted on Yahoo News described what has been going on in Latvia....
Latvia's largest bank scrambled Monday to head off a run among depositors who were gripped by rumours of the bank's imminent ruin.
Weekend rumours that Swedbank was facing legal and liquidity problems in Estonia and Sweden sent thousands of Latvians to bank machines on Sunday, with some lines reaching as many as 50 people.
The Greek banking system is literally on the verge of collapse. According to a recent Der Spiegel article, the run on Greek banks is rapidly accelerating....
He means that the outflow of funds from Greek bank accounts has been accelerating rapidly. At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion -- by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum. Savings fell by a further €5.4 billion in September and by an estimated €8.5 billion in October -- the biggest monthly outflow of funds since the start of the debt crisis in late 2009.
#17 There are already signs that European economic activisty (as well as global economic activity) is really starting to slow down. Just consider the following statistics from a recent article by Stephen Lendman....
In November, French business confidence fell for the eighth consecutive month. In October, Japanese machinery orders dropped 6.9%, following an 8.2% plunge in September.
South Africa just reported a 5.6% drop in manufacturing activity. Britain recorded a 0.7% decline. China's October exports fell 1.7% after dropping 3.8% in September.
Korea's exports are down three consecutive months. Singapore's were off in September and October. Indonesia's plunged 8.5% in October after slipping 2% in September. India's imploded 18.3% after being flat in September.
Are you starting to get the picture?
Europe is in a massive amount of trouble.
The equation is simple....
Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions
Unless something truly dramatic happens, the economy of Europe is a dead duck.
There is no way that Europe is going to be able to substantially reduce the flow of money coming from national governments and substantially reduce the flow of money coming from the banks and still be able to avoid a major recession.
Look, I want it to be very clear that I am in no way advocating government debt in this article. It is just that under the debt-based monetary paradigm that we are all operating under, there is no way that you can dramatically reduce government spending without experiencing a whole lot of pain.
An economic "perfect storm" is developing in Europe. All of the things that need to happen for a major recession to occur are falling into place.
So does anyone out there disagree with me? Does anyone think that Europe is going to be just fine?
Please feel free to leave a comment with your thoughts below....
Michael… For a man with an education you do way too much bible thumping. It amazes me that educated people, who understand science, and can see the facts, still fail to see the forest through the trees. When I was three years old I thought that everyone was on TV. I could see people on TV and assumed that because I could see them, they could see me. Eventually, after my stupidity was pointed out a few times, I realized that I was simply wrong. Since then I’ve been wrong on several other occasions, but it gets easier to admit it each time it happens. You should try it… Or find a good drug… Either would present a far greater sense of reality.
Jim:
When people ask me a question about my faith I am going to give them an answer.
And in my many years of investigation, I have found that logic, reason, science and all the evidence points to the fact that Christianity is true.
Michael
Your statement is not true. There is in fact some evidence which points to Christian belief as being not only false but harmful. But I think your error is due more to inattention to the quality of your writing, as you are writing, than it is due to insincere intentions on your part. I think what you have probably really done, instead of having engaged in investigation, is selectively concentrated on identifying ideas which support your belief. You need to look at things anew. Examine ideas for the purpose of discovering what is wrong with them, or, at least, examine them to understand what is true, and not merely believing those to be correct which tend to support your beliefs.
Jim, Yes, you have been wrong on many occasions since then. This is yet another. Please share what you believe and what you base it on. You see, it’s not the Christian only, who has to provide evidence for their beliefs ( thats a common misconception ), it’s also applies to all other worldviews, even yours, whatever that may be.
Get over it.
Jim, I also used to be a skeptic and disbelieved in God the Creator. When I actually started investigating (one example among many: actually reading Darwin’s Origin of Species from cover to cover, looking for scientific, quantitative data) I found that evolution is like the emperor’s new clothes…without hard, empirical substance. Likewise other theories that try to debunk Christianity and God’s miracles…they are not based on rigorous, exacting historical research. I am a Christian, and traditional Catholic, precisely because I use logical reasoning …not in spite of it.
The interesting thing about history repeating itself is that you don’t know it was repetition
until well after the fact.
While the repitition may have similarities in the aftermath; while still engaged their are just too many different variables to know exactly what the outcome will be. Everyone has fingerprints; but their all different.
Michael seems to know a good deal about this European crisis – I do not. What I do know is that like it or not; their is one country in the world with valuable paper; the USA and countries still trust our paper; worthless or not – which is why we were able to basically give the ECB 7 Trillion — in DOLLARS.
Which brings me to my next point about the dollar. You like to say; and imply, that the printing of more dollars in some way debases
the currency in some way. Were it actually backed by something of value; I would agree – but we are talking about the worlds reserve currency – a fiat money with only one value and that my friend is perception. They/We THINK it’s valuable & as long as that is in place; the Fed can and will print, digitize and otherwise guarantee greenbacks and the whole world will continue to gobble them up in their various forms.
It will work, until it stops working. Know one knows when the Dollar will be abandoned. My bet is that the dollar will be in trouble the day the world believes that Europe has stabilized. As painful as What Europe is doing, they are headed in the right direction and light years ahead of the U.S.
The next Step is to take you to WAR!!!!!!
Remember, the country that Controls Eurasia…WINS!!!
Country that Controls EURASIA wins on The Grand Chessboard as ZBIG put it.
The next step is WAR!!!!!!!!
Greece was forced to raise taxes and implement brutal Austerity measures?
Brutal? Really? Could you point those out?
I guess it’s brutal for Greek standards of socialism but for the real world? I don’t think so…. considering how they ended up where they are in the first place.
http://www.guardian.co.uk/business/2011/nov/01/greece-austerity-measures
Granted… they can’t print up money like the U.S. does but their Govt. has had it pretty cushy for quite some time.
the end is here… we are a failed species, obviously. not just some men, all men want to watch the world burn, so hurry up already.
Out of the frying pan and into the fire.
Things are just fine, go back to sleep, and sleep sound, quiet and confident in our political leaders to make the best decisions, in our best interest.
Nighty-Night
http://surviving12-21-2012.blogspot.com
#17 “There are already signs that European economic activity (as well as global economic activity) is really starting to slow down….”
And yet we are media-fed economic statistics everyday that proclaim personal spending has been steadily increasing, along with record-breaking holiday-sales numbers.
Admittedly, I’m not easily convinced of conspiracy theories, but I am not convinced these numbers are accurate, but falsely inflated to spur economic activity akin to “everybody else is spending, why aren’t you?”
Exactly who is spending at record levels? It sure isn’t me, my family, neighbors, friends, co-workers or anyone else I know, and I have a feeling this is true for the majority of the U.S. population.
The Euro is still more expensive to buy than years ago. Go to finance.yahoo.com and check the exchange rates of 5 years back.
And to give you an idea:
20 years ago the DM traded at between 3.5 and 5.2 to the HK$. 1 EU= DM1.95.
And now 1 EU gives you HK$10.1, compared with the time of EU introduction of HK$ 6.50.
Before I buy into EU and get rid of my other currencies the EURO needs to fall much further.
What do you mean by “brutal austerity” in Greece?
That they have to pay tax now?
Mega Fail: 17 Signs That The European Financial System Is Heading For An Implosion Of Historic Proportions
————————————————-
If you you think that everybody can be fooled continuously than it is all right. But now is not the case. Consciousness is rising very fast. Soon no body can fool the others.
Future looks dim of USA and City not of EU
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Hello out there,
I am from Germany(sorry for my bad language)
The people in Germany have 19 Billions of Euro!!!! the Goverment can “steal” us!
They have the Right to do that in our Groundrights!!!
So if trouble comes ,Germany get(takes) this money and finsh Euro!
Good luck to all of u
Many of you commenters are mistaken. Although it certainly doesn’t help the situation, European government debt and socialism is not what is causing “Europe’s” economic system to collapse.
U.S. government debt and socialism is not what caused the “too big to fail crises” in the U.S. in 2008 – the European Crisis is a repeat of that, and 2008 will be repeated in the U.S. (but it will be fatal next time) since absolutely nothing was done to prevent it from happening again – we should wonder why nothing was done.
Europeans are being attacked by banksters through derivatives in the attempt to make debt slaves out of them so to cause enough suffering that the (it already exists) one world currency will not only be welcomed, but will be demanded.
The ones profiting from this gambling and the attacks on taxpayers may not be aware that the one world currency is the reason banksters are being allowed to continue gambling, but the ones who have control obviously do – it’s the age-old plan of their master.
In Iceland the attack didn’t work, the people told the banksters to go f***-off. The people were well informed of the con so their politicians could not obey the criminal banksters that were bribing or threatening them without risking their necks. Also, there were not any Icelanders willing to don the black storm trooper riot gear to do violence against their own protesting fellow citizens.
In Europe and the U.S. there are plenty of ignorant non-thinking order takers willing to do violence against their innocent and for the most part peacefully protesting fellow citizens.
There is no rule of law for the people who own this financial system or for the thousands of politicians, regulators, police, military, etc. who work for them and benefit from it.
Noticed how there is a rule of law for the rest of us though? The number of laws and regulations for us to obey keeps increasing at a very high rate.
The end-game will be the full implementation of the one world currency, and most people will gladly accept it in the mistaken belief that it will stop the misery – that is the reason the financial chaos has been engineered.
Why would there not be any regulation of derivatives knowing that they are destroying the economic system? Who rules over the regulators – Congress? (Not the EPA.) Who rules over Congress? – we the people? – Yea right.
Ever heard of the Golden Rule? He who has the gold makes the rules. In this case “they” incredibly have been able to convince everyone that their paper is gold. Who do I speak of? What kind of people are they?
Wake up before you are dead! “They” will kill you, they love to kill etc., etc., etc..
Hey Theeconomiccollapseblog,
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Great Job!
In America: governments, businesses, individuals are now buried under a mountain of debt. A mountain of debt that will never be repaid.
Who will borrow when they can’t make the payments on the debt that they have already? The math alone calls for a system reset, a debt jubilee.
Investors are already losing… in a rigged monetary casino that rewards usury, speculation, and currency manipulation while looting main street.
There is a moral principle that debts should be honored. That is, debts between businesses that buy and sell real products, not bundled ponzi schemes, debts between individuals, between friends and businesses that know each other to be rational and moral, debts based on investments where there is a rational expectation of return.
There is also a moral principle that unjust debts should be cancelled, and usury legislated against. Debts that are ‘odious’, debts based on fraud, debts to dictators, debts arranged by oligarchs without the consent of the general population (the 99 percent who have been left out of the equation), debts based upon compound interest upon compound interest, that should have been written off long ago, the debts need to be cancelled in a general jubilee. Think outside the box. It’s time for a jubilee.
All of this has been ‘made’ to be so confusing that no one can come up with an answer to solving the debt problems of the world. Gadaffi had one for the African nations, and look what happened to him. Every nation printing their own debt free money as it was before the world had a central bank/federal reserve should be the answer used to solve this banksters debt problem. Let any country attempt to try that and watch NATO come right in and disrupt the country saying their leader is killing people so that they can bomb the crap out of everyone and take the nation over, set up a central bank and rob the people of that nation into poverty. Look at Lybia and find the real truth about what happened there and you will see the same people are leading the world into the same kind of conflict.
True. Syria, Iran, and Russia are next – actually they’re already being worked on.
That’s real smart – messing around with Russia. The people who have overthrown the U.S. Government are completely insane.
Lennie Pike – Your right. I read your comment after I made the one before this. That is one reason they killed Gadaffi. He was going against the one world currency and those that were/are forcing it on the world at this time.
John F. Kennedy also tried to interfere with their plans for a one world currency. This plan is not something they have just come up with. It was probably discussed at Jekyll Island in 1913 and even before that.
The Governments have to acknowledge a terrible fact to help the economy and our future as humans:
There are too many people in this world
The planet was sufficient for up to 3000 million persons. We are 7000 million. Poverty has increased and will accelerate, the economic system will deteriorate further very fast and the sustainability of our lovely Earth will die and thus we humans.
I wonder where the bright minds that can look a bit farther than their noses are ? .….clearly not in any government that can be seen.
On my part I ask for pardon to my grandchildren. The world you are to live in will be sad and terrible.
The planet is not sufficient? WROOOOOOOOOONG!!!
There easily could be “sufficient” for 100 thousand million. What, are you saying that God would not make possible the care of his creations – Human Beings? He promised to give us our “Daily Bread”
Poverty is caused by selfish assholes that “want the whole scene for themselves baby”, and they use the threat of violence carried out by their agents to get it. Their cowardice and hypocrisy prevents them from carrying out the actual violence themselves.
“Now you’re out”
There could be peace, and plenty to go around if it were not for these few sick pricks.
Your English ain’t bad, but not good enough. We Americans – mostly Christians still, don’t put up with that crap as well as the rest of the world does.
[...] *”Mega Fail: 17 Signs That The European Financial System Is Heading For An Implosion Of Historic Propo…” [...]
The answer is simple and inevitable. Pay off the debts with devalued curremcy. Simply print Euros until it drops to some realistic value. It is 40% overvalued. A Euro should only be worth about $US0.9
It’s a no brainer not a crises. Anyway, it will happen.
Gold is the perfect greater fool investment. There’s always a greater fool who thinks it’s worth more. Aged single malt scotch makes more sense.
[...] zero for the financial crisis is going to be in Europe. As I have written about previously, the European financial system is rapidly coming apart at the seams. The euro continues to drop like a rock, and banking [...]