Signs Of Financial Turmoil In Europe, China And The United States

Earth In Peril - Public DomainAs we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe.  In Greece, a full blown bank run is happening right now.  Approximately 2 billion euros were pulled out of Greek banks in just the past three days, Barclays says that capital controls are “imminent” unless a debt deal is struck, and there are reports that preparations are being made for a “bank holiday” in Greece.  Meanwhile, Chinese stocks are absolutely crashing.  The Shanghai Composite Index was down more than 13 percent this week alone.  That was the largest one week decline since the collapse of Lehman Brothers.  In the U.S., stocks aren’t crashing yet, but we just witnessed one of the largest one week outflows of capital from the bond markets that we have ever witnessed.  Slowly but surely, we are starting to see the smart money head for the exits.  As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.

I don’t think that most people understand how serious things have gotten already.  In Greece, so much money has been pulled out of the banks that the European Central Bank admits that Greek banks may not be able to open on Monday

The European Central Bank told a meeting of euro zone finance ministers on Thursday that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday, officials with knowledge of the talks said.

Greek savers have withdrawn about 2 billion euros from banks over the past three days, with outflows accelerating rapidly since talks between the government and its creditors collapsed at the weekend, banking sources told Reuters.

All over social media, people are sharing photos of long lines at Greek ATMs as ordinary citizens rush to get their cash out of the troubled banks.  Here is one example

And if there is no debt deal by the end of this month, the Greek debt crisis is going to totally spin out of control and financial chaos will begin to erupt all over Europe.  But instead of trying to be reasonable, EU president Donald Tusk “has delivered an ultimatum to Greece”, and it almost appears as if EU officials are more concerned about winning a power struggle than they are about averting financial catastrophe…

EU president Donald Tusk has delivered an ultimatum to Greece, claiming the country must ‘accept an offer or default’ at an emergency summit set for Monday – in a last-ditch effort to stop the debt-stricken nation crashing out of the euro.

‘We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default,’ Mr Tusk said today.

His comments come as Greek Prime Minister Alexis Tsipras warned that his country’s exit from the eurozone would trigger the collapse of the single currency.

‘The famous Grexit cannot be an option either for the Greeks or the European Union,’ he said in an Austrian newspaper interview.

‘This would be an irreversible step, it would be the beginning of the end of the eurozone.’

While all of this has been going on, the obscene stock market bubble in China has started to implode.  Just check out the following numbers from Zero Hedge

As the carnage began last night in China we noted the extreme levels of volatility the major indices had experienced in recent weeks. By the close, things were ugly with the broad Shanghai Composite down a stunning 13.3% on the week – the most since Lehman in 2008 (with Shenzhen slightly better at down 12.8% and CHINEXT down a record-breaking 14.99%).

Under normal circumstances, numbers like these would be reason for a full-blown financial panic over in Asia.  But these are not normal times.  Even with these losses, stock prices in China are still massively overinflated.  For example, USA Today is reporting that the median stock over in China is “trading at 95 times earnings”…

Margin debt in China has soared to a record $363 billion, according to Bloomberg, and the median stock in mainland China is now trading at 95 times earnings, which even tops the price-to-earnings multiple of 68 back at the 2007 peak.

That is absolutely ridiculous.  When a stock is trading at 25 or 30 times earnings it is overpriced.  So these numbers that are coming out of China are beyond crazy, and what this means is that Chinese stocks have much, much farther to fall before they get back to any semblance of reality.

Meanwhile, in the U.S. money is flowing out of bonds at a staggering pace.  The following quote originally comes from Bank of America

“High grade credit funds suffered their biggest outflow this year, and double the previous week (and also the biggest since June 2013). High yield outflows also jumped to $1.1bn, the biggest since the start of the year. However, government bond funds suffered the most amid the recent spike in volatility, with outflows surging to the highest weekly number on record ($2.7bn). This brings the total outflow from fixed income funds to almost $6bn over the last week, the highest since the Taper Tantrum and the third highest outflow ever.”

What this means is that big trouble is brewing in the bond markets.  This is something that I warned about in my previous article entitled “Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode“.

For the moment, U.S. stocks are doing fine.  But just about everyone can see that we in a massive financial bubble that could burst at any time.  Presidential candidate Donald Trump says that what we are witnessing is a “big fat economic and financial bubble like you’ve never seen before”

Yesterday during an interview on MSNBC, presidential candidate Donald Trump said he has some big names in mind for the Treasury secretary if he wins the White House. “I’d like guys like Jack Welch. I like guys like Henry Kravis. I’d love to bring my friend Carl Icahn.” He also opined on the economy and the stock market, admitting that the Fed has benefited people like him but that the economy and is in a “big fat economic and financial bubble like you’ve never seen before.

Ron Paul also believes that this financial bubble is going to end very badly.  Just check out what he told CNBC earlier this week

Despite record highs in the market, former Rep. Ron Paul says the Fed’s easy money policies have left stocks and bonds are on the verge of a massive collapse.

“I am utterly amazed at how the Federal Reserve can play havoc with the market,” Paul said on CNBC’s “Futures Now” referring to Thursday’s surge in stocks. The S&P 500 closed less than 1 percent off its all-time high. “I look at it as being very unstable.”

In Paul’s eyes, “the fallacy of economic planning” has created such a “horrendous bubble” in the bond market that it’s only a matter of time before the bottom falls out. And when it does, it will lead to “stock market chaos.”

Yes, this financial bubble has persisted far longer than many believed possible, but all irrational bubbles eventually burst.

And you know what they say – the bigger they come the harder they fall.

When this gigantic financial bubble finally implodes, it is going to be absolutely horrifying, and the entire planet is going to be shocked by the carnage.

The Last, Great Run For The U.S. Dollar, The Death Of The Euro And 74 Trillion In Currency Derivatives At Risk

Dollars Euros - Public DomainAre we on the verge of an unprecedented global currency crisis?  On Tuesday, the euro briefly fell below $1.07 for the first time in almost a dozen years.  And the U.S. dollar continues to surge against almost every other major global currency.  The U.S. dollar index has now risen an astounding 23 percent in just the last eight months.  That is the fastest pace that the U.S. dollar has risen since 1981.  You might be tempted to think that a stronger U.S. dollar is good news, but it isn’t.  A strong U.S. dollar hurts U.S. exports, thus harming our economy.  In addition, a weak U.S. dollar has fueled tremendous expansion in emerging markets around the planet over the past decade or so.  When the dollar becomes a lot stronger, it becomes much more difficult for those countries to borrow more money and repay old debts.  In other words, the emerging market “boom” is about to become a bust.  Not only that, it is important to keep in mind that global financial institutions bet a tremendous amount of money on currency movements.  According to the Bank for International Settlements, 74 trillion dollars in derivatives are tied to the value of the U.S. dollar, the value of the euro and the value of other global currencies.  When currency rates start flying around all over the place, you can rest assured that someone out there is losing an enormous amount of money.  If this derivatives bubble ends up imploding, there won’t be enough money in the entire world to bail everyone out.

Do you remember what happened the last time the U.S. dollar went on a great run like this?

As you can see from the chart below, it was in mid-2008, and what followed was the worst financial crisis since the Great Depression…

Dollar Index 2015

A rapidly rising U.S. dollar is extremely deflationary for the overall global economy.

This is a huge red flag, and yet hardly anyone is talking about it.

Meanwhile, the euro continues to spiral into oblivion…

Euro U.S. Dollar

How many times have I said it?  The euro is heading to all-time lows.  It is going to go to parity with the U.S. dollar, and then it is eventually going to go below parity.

This is going to cause massive headaches in the financial world.

The Europeans are attempting to cure their economic problems by creating tremendous amounts of new money.  It is the European version of quantitative easing, but it is having some very nasty side effects.

The markets are starting to realize that if the value of the U.S. dollar continues to surge, it is ultimately going to be very bad for stocks.  In fact, the strength of the U.S. dollar is being cited as the primary reason for the Dow’s 332 point decline on Tuesday

The Dow Jones industrial average fell more than 300 points to below the index’s 50-day moving average, wiping out gains for the year. The S&P 500 also closed in the red for the year and breached its 50-day moving average, which is an indicator of the market trend. Only the Nasdaq held onto gains of 2.61 percent for the year.

There’s “concern that energy and the strength in the dollar will somehow be negative for the equities,” said Art Hogan, chief market strategist at Wunderlich Securities. He noted that the speed of the dollar’s surge was the greatest market driver, amid mixed economic data and concerns about the Federal Reserve raising interest rates.

And as I noted above, when the U.S. dollar rises the things that we export to other nations become more expensive and that hurts our businesses.

This is so basic that even the White House understands it

Despite reassurance from The Fed that a strengthening dollar is positive for US jobs, The White House has now issued a statement that a “strengthening USD is a headwind for US growth.”

But even more important, a surging U.S. dollar makes it more difficult for emerging markets all over the world to borrow new money and to repay old debts.  This is especially true for nations that heavily rely on exporting commodities

It becomes especially ugly for emerging market economies that produce commodities. Many emerging market countries rely on their natural resources for growth and haven’t yet developed more advanced industries. As the products of their principal industries decline in value, foreign investors remove available credit while their currency is declining against the U.S. dollar. They don’t just find it difficult to pay their debt – it is impossible.

It has been estimated that emerging markets have borrowed more than 3 trillion dollars since the last financial crisis.

But now the process that created the emerging markets “boom” is starting to go into reverse.

The global economy is fueled by cheap dollars.  So if the U.S. dollar continues to rise, that is not going to be good news for anyone.

And of course the biggest potential threat of all is the 74 trillion dollar currency derivatives bubble which could end up bursting at any time.

The sophisticated computer algorithms that financial institutions use to trade currency derivatives are ultimately based on human assumptions.  When currencies move very little and the waters are calm in global financial markets, those algorithms tend to work really, really well.

But when the unexpected happens, some of the largest financial firms in the world can implode seemingly overnight.

Just remember what happened to Lehman Brothers back in 2008.  Unexpected events can cripple financial giants in just a matter of hours.

Today, there are five U.S. banks that each have more than 40 trillion dollars of total exposure to derivatives of all types.  Those five banks are JPMorgan Chase, Bank of America, Goldman Sachs, Citibank and Morgan Stanley.

By transforming Wall Street into a gigantic casino, those banks have been able to make enormous amounts of money.

But they are constantly performing a high wire act.  One of these days, their reckless gambling is going to come back to haunt them, and the entire global financial system is going to be severely harmed as a result.

As I have said so many times before, derivatives are going to be at the heart of the next great global financial crisis.

And thanks to the wild movement of global currencies in recent months, there are now more than 74 trillion dollars in currency derivatives at risk.

Anyone that cannot see trouble on the horizon at this point is being willingly blind.

This Is The Beginning Of The End For The Euro

The Euro - A Woman Rides The BeastThe long-anticipated collapse of the euro is here. When European Central Bank president Mario Draghi unveiled an open-ended quantitative easing program worth at least 60 billion euros a month on Thursday, stocks soared but the euro plummeted like a rock.  It hit an 11 year low of $1.13, and many analysts believe that it is going much, much lower than this.  The speed at which the euro has been falling in recent months has been absolutely stunning.  Less than a year ago it was hovering near $1.40.  But since that time the crippling economic problems in southern Europe have gone from bad to worse, and no amount of money printing is going to avert the financial nightmare that is slowly unfolding right before our eyes.  Yes, there may be some temporary euphoria for a few days, but it is important to remember that reckless money printing worked for the Weimar Republic for a little while too before it turned into an utter disaster.  Now that the ECB has decided to go this route, it is essentially out of ammunition.  The only thing that it could potentially do beyond this is to print even larger quantities of money.  As the global financial crisis begins to unfold over the next couple of years, the ECB is pretty much going to be powerless to do anything about it.  Over the next couple of months, we can expect the euro to continue to head toward parity with the U.S. dollar, and eventually it is going to go to all-time lows.  Meanwhile, the future of the eurozone itself is very much in doubt.  If it does break up, the elite of Europe will probably try to put it back together in some sort of new configuration, but the damage will already have been done.

Over the next 18 months, the European Central bank will create more than a trillion euros out of thin air and will use that money to buy debt.  The following is how this new QE program for Europe was described by the Telegraph

“The combined monthly purchases of public and private sector securities will amount to €60bn euros,” said Mr Draghi at a press conference following a meeting of the ECB’s governing council.

“They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation,” he added, meaning the package will amount to at least €1.1 trillion.

Mr Draghi’s package of asset purchases, including bonds issued by national governments and EU institutions such as the European Commission, is intended to boost the eurozone’s flagging economy and to ward off the spectre of deflation.

When you print more money, you drive down the value of your currency.  And the euro has already been crashing for months as you can see from the chart below…

The Euro Is Collapsing

As I write this, the euro is down to $1.13.  And most analysts seem to agree that it is likely heading even lower.

How low could it ultimately go?

One prominent currency strategist recently told CNBC that he believes that it is actually heading beneath parity with the U.S. dollar…

The euro plunged to an 11-year low on Thursday, after the European Central Bank announced that it would begin a 60-euro monthly asset purchasing program. But it could still have a ways to fall.

Brown Brothers Harriman global head of currency strategy Marc Chandler predicts that the euro, which fell as low as 1.1362 on Thursday after trading near 1.4000 in May, is heading below 1.0. That widely watched level is the point at which it will just take a single U.S. dollar to purchase a euro, a condition known in the currency markets as “parity.”

I totally agree with Chandler.

In fact, I believe that the euro is ultimately going to break the all-time record low against the dollar.

I also believe that the current configuration of the eurozone is eventually going to fall to pieces.  The euro may survive as a currency, but Europe is ultimately going to look a whole lot different than it does right now.

In fact, we could see things start to come apart for the eurozone as soon as Sunday.  If Syriza wins a decisive victory in the upcoming Greek elections, it could create all sorts of chaos

The polls put Alexis Tsipras and Syriza ahead of the ruling New Democracy party of Greek Prime Minister Antonis Samaras.

Tsipras has vowed to convince the ECB and euro zone to write down the value of their Greek debt holdings to allow him to increase public spending and stimulate job growth.

“There is a good chance they could win, and if they begin moving away from fiscal austerity, other members of the EU are going to say: ‘No more lending, no more life support.’ On Monday morning you’ll know,” De Clue said.

But of course Europe is far from alone.  Financial problems are erupting all over the planet, and central banks are getting desperate.

Over the past week, seven major central banks have made moves to fight deflation.  But the more that they cut interest rates and print money, the less effect that it has.  And eventually, the people of the world are going to seriously lose confidence in these central banks as they realize what a sham the system really is.

I think that these recent words from Marc Faber are very wise…

My belief is that the big surprise this year is that investor confidence in central banks collapses. And when that happens — I can’t short central banks, although I’d really like to, and the only way to short them is to go long gold, silver and platinum,” he said. “That’s the only way. That’s something I will do.”

So what do you think?

Do you agree with Marc Faber?

And what do you think is next for the euro?

Do you agree with me that it is going to record lows?

Please feel free to share what you think by posting a comment below…

What In The World Just Happened In Switzerland?

Swiss Francs - Public DomainCentral banks lie.  That is what they do.  Not too long ago, the Swiss National Bank promised that it would defend the euro/Swiss franc currency peg with the “utmost determination”.  But on Thursday, the central bank shocked the financial world by abruptly abandoning it.  More than three years ago, the Swiss National Bank announced that it would not allow the Swiss franc to fall below 1.20 to the euro, and it has spent a mountain of money defending that peg.  But now that it looks like the EU is going to launch a very robust quantitative easing program, the Swiss National Bank has thrown in the towel.  It was simply going to cost way too much to continue to defend the currency floor.  So now there is panic all over Europe.  On Thursday, the Swiss franc rose a staggering 30 percent against the euro, and the Swiss stock market plunged by 10 percent.  And all over the world, investors, hedge funds and central banks either lost or made gigantic piles of money as currency rates shifted at an unprecedented rate.  It is going to take months to really measure the damage that has been done.  Meanwhile, the euro is in greater danger than ever.  The euro has been declining for months, and now the number one buyer of euros (the Swiss National Bank) has been removed from the equation.  As things in Europe continue to get even worse, expect the euro to go to all-time record lows.  In addition, it is important to remember that the Asian financial crisis of the late 1990s began when Thailand abandoned its currency peg.  With this move by Switzerland set off a European financial crisis?

Of course this is hardly the first time that we have seen central banks lie.  In the United States, the Federal Reserve does it all the time.  The funny thing is that most people still seem to trust what central banks have to say.  But at some point they are going to start to lose all credibility.

Financial markets like predictability.  And gigantic amounts of money had been invested based on the repeated promises of the Swiss National Bank to use “unlimited amounts” of money to defend the currency floor.  Needless to say, there are a lot of people in the financial world that feel totally betrayed by the Swiss National Bank today.  The following comes from an analysis of the situation by Bruce Krasting

Thomas Jordan, the head of the SNB has repeated said that the Franc peg would last forever, and that he would be willing to intervene in “Unlimited Amounts” in support of the peg. Jordan has folded on his promise like a cheap suit in the rain. When push came to shove, Jordan failed to deliver.

The Swiss economy will rapidly fall into recession as a result of the SNB move. The Swiss stock market has been blasted, the currency is now nearly 20% higher than it was a day before. Someone will have to fall on the sword, the arrows are pointing at Jordan.

The dust has not settled on this development as of this morning. I will stick my neck out and say that the failure to hold the minimum rate will result in a one time loss for the SNB of close to $100B. That’s a huge amount of money. It comes to 20% of the Swiss GDP!

Most experts are calling this an extremely bad move by the Swiss National Bank.

But in the end, they may have had little choice.

The euro is falling apart, and the Swiss did not want to be married to it any longer.  Unfortunately, when any marriage ends the pain can be enormous.  The following comes from CNBC

How do you know you’re looking at a bad marriage?

Well if one or both of the spouses can’t wait to get out as soon as the smallest crack in the door opens, you have a pretty good clue.

Something like that just happened in Europe as we learned the real reason why so many traders were still invested in the euro: They had nowhere else to go.

As the Swiss National Bank unlocked the doors on its cap on trading euros for Swiss francs, the rush to exit the euro was faster than one of those French bullet trains.

But this move has not been bad for everyone.  In fact, for many of those that live in Switzerland but work in neighboring countries what happened on Thursday was very fortuitous

“I heard the news this morning. I’m so happy!” Vanessa, who refused to give her last name, told AFP outside of one of many mobbed exchange offices in Geneva.

She has reason to be extatic: she is one of some 280,000 people working in Switzerland but living and paying bills in eurozone countries France, Germany or Italy.

These so-called “frontaliers”, or border-crossers, are the biggest winners in Thursday’s Swiss franc surge, seeing their incomes jump 30 percent in the blink of an eye.

In normal times, things like this very rarely happen.

But in times of crisis, things can change very rapidly.  We are moving into a time of great volatility in global financial markets, and great volatility is often a sign that a great crash is coming.

This move by the Swiss National Bank is just the beginning.  Expect more desperate moves on the global economic chessboard in the days ahead.  But in the end, none of those moves is going to prevent what is coming.

And one of these days, another extremely important currency peg is going to end.  Right now, the Chinese have tied their currency very tightly to the U.S. dollar.  This has helped to artificially inflate the value of the dollar.  Unfortunately, as Robert Wenzel has noted, someday the Chinese could suddenly pull the rug out from under our currency, and that would be really bad news for us…

In other words, the SNB is no People’s Bank of China type patsy, where the PBOC has taken on massive amounts of dollar reserves to prop up the dollar.

Will the PBOC learn anything from SNB? If so, this will not be good for the US dollar.

So keep a close eye on what happens in Europe next.

It is going to be a preview of what is eventually coming to America.

Russia Is Doing It – Russia Is Actually Abandoning The Dollar

Vladimir PutinThe Russians are actually making a move against the petrodollar.  It appears that they are quite serious about their de-dollarization strategy.  The largest natural gas producer on the planet, Gazprom, has signed agreements with some of their biggest customers to switch payments for natural gas from U.S. dollars to euros.  And Gazprom would have never done this without the full approval of the Russian government, because the Russian government holds a majority stake in Gazprom.  There hasn’t been a word about this from the big mainstream news networks in the United States, but this is huge.  When you are talking about Gazprom, you are talking about a company that is absolutely massive.  It is one of the largest companies in the entire world and it makes up 8 percent of Russian GDP all by itself.  It holds 18 percent of the natural gas reserves of the entire planet, and it is also a very large oil producer.  So for Gazprom to make a move like this is extremely significant.

When Barack Obama decided to slap some meaningless economic sanctions on Russia a while back, he probably figured that the world would forget about them after a few news cycles.

But the Russians do not forget, and they certainly do not forgive.

At this point the Russians are turning their back on the United States, and that includes the U.S. dollar.

What you are about to read is absolutely stunning, and yet you have not heard about it from any major U.S. news source.  But what Gazprom is now doing has the potential to really shake up the global financial landscape.  The following is an excerpt from a news report by the ITAR-TASS news agency

Gazprom Neft had signed additional agreements with consumers on a possible switch from dollars to euros for payments under contracts, the oil company’s head Alexander Dyukov told a press conference.

Additional agreements of Gazprom Neft on the possibility to switch contracts from dollars to euros are signed. With Belarus, payments in roubles are agreed on,” he said.

Dyukov said nine of ten consumers had agreed to switch to euros.

And Gazprom is not the only big company in Russia that is moving away from the U.S. dollar.

According to RT, other large Russian corporations are moving to other currencies as well…

Russia will start settling more contracts in Asian currencies, especially the yuan, in order to lessen its dependence on the dollar market, and because of Western-led sanctions that could freeze funds at any moment.

Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies, and to set up accounts in Asian locations,” Pavel Teplukhin, head of Deutsche Bank in Russia, told the Financial Times, which was published in an article on Sunday.

Diversifying trade accounts from dollars to the Chinese yuan and other Asian currencies such as the Hong Kong dollar and Singapore dollar has been a part of Russia’s pivot towards Asian as tension with Europe and the US remain strained over Russia’s action in Ukraine.

And according to Zero Hedge, “expanding the use of non-dollar currencies” is one of the main things that major Russian banks are working on right now…

Andrei Kostin, chief executive of state bank VTB, said that expanding the use of non-dollar currencies was one of the bank’s “main tasks”. “Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan [renminbi] is a priority on the agenda, and so we are working on it now,” he told Russia’s President Vladimir Putin during a briefing. “Since May, we have been carrying out this work.”

“There is nothing wrong with Russia trying to reduce its dependency on the dollar, actually it is an entirely reasonable thing to do,” said the Russia head of another large European bank. He added that Russia’s large exposure to the dollar subjects it to more market volatility in times of crisis. “There is no reason why you have to settle trade you do with Japan in dollars,” he said.

The entire country is undergoing a major financial conversion.

This is just staggering.

Meanwhile, Russians have been pulling money out of U.S. banks at an unprecedented pace

So in March, without waiting for the sanction spiral to kick in, Russians yanked their moolah out of US banks. Deposits by Russians in US banks suddenly plunged from $21.6 billion to $8.4 billion. They yanked out 61% of their deposits in just one month! They’d learned their lesson in Cyprus the hard way: get your money out while you still can before it gets confiscated.

For those that don’t think that all of this could hurt the U.S. economy or the U.S. financial system, you really need to go back and read my previous article entitled “De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar“.  The truth is that the U.S. economic system is extremely dependent on the financial behavior of the rest of the globe.

Because nearly everyone else around the rest of the planet uses our currency to trade with one another, that keeps the value of the U.S. dollar artificially high and it keeps our borrowing costs artificially low.

As Russia abandons the U.S. dollar that will hurt, but if other nations start following suit that could eventually cause a financial avalanche.

What we are witnessing right now is just a turning point.

The effects won’t be felt right away.  So don’t expect this to cause financial disaster next week or next month.

But this is definitely another element in the “perfect storm” that is starting to brew for the U.S. economy.

Yes, we have been living in a temporary bubble of false stability for a few years.  However, the long-term outlook has not gotten any better.  In fact, the long-term trends that are destroying our economic and financial foundations just continue to get even worse.

So enjoy the “good times” while you still can.

They certainly will not last too much longer.

18 Signs That The Banking Crisis In Europe Has Just Gone From Bad To Worse

With each passing day, the banking crisis in Europe escalates.  European banks are having their credit ratings downgraded in waves, bond yields are soaring and billions of euros are being pulled out of banks all across the eurozone.  The situation in Europe is rapidly going from bad to worse.  It is almost like watching air being let out of a balloon.  The key to any financial system is confidence, and right now confidence in banks in Greece, Italy, Spain and Portugal is declining at an alarming rate.  When things hit the fan in Europe, it is going to be much safer to have your money in Swiss banks or German banks than in Greek banks, Spanish banks or Italian banks.  Millions of people in Europe are starting to realize that a “euro” is not necessarily always going to be a “euro” and they are starting to panic.  The Greek banking system is already on the verge of total collapse, and at this rate it is only a matter of time before we see some major Spanish and Italian banks start to fail.  In fact it has already been announced that the fourth largest bank in Spain, Bankia, will be getting bailed out by the Spanish government.  It is only a matter of time before we hear more announcements like this.  Right now, events are moving so quickly in Europe that it is hard to keep up with them all.  But this is what usually happens in the financial world.  When things go well, it tends to happen over an extended period of time.  When things fall apart, it tends to happen very rapidly.

And at the moment, things across the pond are moving at a pace that is absolutely breathtaking.

The following are 18 signs that the banking crisis in Europe has just gone from bad to worse….

#1 Moody’s has announced that it has downgraded the credit ratings of 16 Spanish banks.  Included was Banco Santander, the largest bank in the eurozone.

#2 Shares of the fourth largest bank in Spain, Bankia, dropped 14 percent on Thursday.

#3 Overall, shares of Bankia have declined by 61 percent since last July.

#4 Shares of the largest bank in Italy, Unicredit, dropped by about 6 percent on Thursday.

#5 According to CNBC, a Spanish bond auction on Thursday went very poorly….

The Spanish Treasury had to pay around 5 percent to attract buyers of three- and four-year bonds. The longer-dated paper sold with a yield of 5.106 percent, way above the 3.374 percent the last time it was auctioned.

#6 The yield on 10 year Spanish bonds is back above 6 percent.

#7 In recent days, about eight times more money than usual has been pulled out of Greek banks.

#8 Fitch has slashed the long-term credit rating for Greece from B- to CCC.

#9 The European Central Bank has cut off direct lending to at least 4 Greek banks.

#10 According to a recent German documentary, financial records at the Ministry of Finance in Athens are being stored in garbage bags and shopping carts.

#11 The euro hit a 4 month low against the U.S. dollar on Thursday.

#12 It has been announced that the Spanish economy and the Italian economy are officially in recession.

#13 The Spanish government is becoming increasingly concerned about the bad loans that are mounting at major Spanish banks.  The following is from a recent Bloomberg article….

The government has asked lenders to increase provisions for bad debt by 54 billion euros ($70 billion) to 166 billion euros. That’s enough to cover losses of about 50 percent on loans to property developers and construction firms, according to the Bank of Spain. There wouldn’t be anything left for defaults on more than 1.4 trillion euros of home loans and corporate debt.

Taking those into account, banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group. Plugging that hole would increase Spain’s public debt by almost 50 percent or force it to seek a bailout, following in the footsteps of Ireland, Greece and Portugal.

#14 Civil unrest is rising to dangerous levels in Italy.  The Italian government has assigned bodyguards to 550 individuals and has increased security at about 14,000 locations in response to recent violence related to the economic crisis.

#15 Governments all over Europe are rapidly making preparations for a Greek exit from the euro.  The following is from a recent article in the Guardian….

The British government is making urgent preparations to cope with the fallout of a possible Greek exit from the single currency, after the governor of the Bank of England, Sir Mervyn King, warned that Europe was “tearing itself apart”.

#16 According to CNBC, the banking crisis in Europe is beginning to affect global trade….

The euro zone debt crisis is affecting trade as companies shy away from dealing with firms and banks in countries deemed at risk of contagion, a senior banker said on Thursday.

#17 Moody’s downgraded the credit ratings of 26 Italian banks on Monday.

#18 Moody’s has announced that it is reviewing the credit ratings of 114 more European financial institutions.

Newspapers all over the globe are speaking breathlessly of a potential Greek exit from the euro, but it is very unlikely to happen before the next Greek election on June 17th.

The rest of Europe is going to continue to financially support Greece until a new government takes power.

If the new government is willing to accept the previous bailout agreements, then financial support for Greece will continue.

If the new government is not willing to accept the previous bailout agreements, then financial support for Greece will stop.

If that happens, the bank runs in Europe will likely become a lot worse.

But for now, Greece almost certainly has at least one more month in the euro.

Beyond that, there is no telling what is going to happen.

Greece is the first domino.  If Greece falls, you can count on others to eventually start tumbling as well.

The second half of 2012 is going to be fascinating to watch.

Hopefully things will not be as bad as many of us now fear they may be.