Did you know that the sixth largest bank in Spain failed in spectacular fashion just a few days ago? Many are comparing the sudden implosion of Banco Popular to the collapse of Lehman Brothers in 2008, and EU regulators hastily arranged a sale of the failed bank to Santander in order to avoid a full scale financial panic. Sadly, most Americans have no idea that a new financial crisis is starting to play out over in Europe, because most Americans only care about what is going on in America. But we should be paying attention, because the EU is the second largest economy on the entire planet, and the euro is the second most used currency on the entire planet. The U.S. financial system is already teetering on the brink of disaster, and this new financial crisis in Europe could turn out to be enough to push us over the edge.
If EU regulators had not arranged a “forced sale” of Banco Popular to Santander, we would probably be witnessing panic on a scale that we haven’t seen since 2008 in Europe right about now. The following comes from the Telegraph…
Spanish banking giant Santander has stepped in to the rescue ailing rival Banco Popular by taking over the failing lender for €1 in a watershed deal masterminded by EU regulators to avoid a damaging collapse.
Santander will tap its shareholders for €7bn in a rights issue to raise the capital needed to shore-up Popular’s finances in a dramatic private sector rescue of Spain’s sixth-largest lender.
It will inflict losses of approximately €3.3bn on bond investors and shareholders but crucially will avoid a taxpayer bailout.
But now that a “too big to fail” bank like Banco Popular has failed, investors are immediately trying to figure out which major Spanish banks may be the next to collapse. According to Wolf Richter, many have identified Liberbank as an institution that is highly vulnerable…
After its most tumultuous week since the bailout days of 2012, Spain’s banking system is gripped by a climate of fear, uncertainty and distrust. Rather than allaying investor nerves, the shotgun bail-in and sale of Banco Popular to Santander on Tuesday has merely intensified them. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers; they took risks in order to make a buck, and they bore the consequences. That’s how it should be. But bank investors don’t like not getting bailed out.
Now they’re worrying it could happen again. As Popular’s final days showed, once confidence and trust in a bank vanishes, it’s almost impossible to restore them. The fear has now spread to Spain’s eighth largest lender, Liberbank, a mini-Bankia that was spawned in 2011 from the forced marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria.
On Thursday, shares of Liberbank dropped by an astounding 20 percent, and that was followed up by another 19 percent decline on Friday.
But we haven’t seen this kind of chaos in European financial markets in a very long time.
Meanwhile, Nick Giambruno is sounding the alarm about a much bigger bubble. At this moment, more than a trillion dollars worth of Italian government bonds have negative yields…
Over $1 trillion worth of Italian bonds actually have negative yields.
It’s a bizarre and perverse situation.
Lending money to the bankrupt Italian government carries huge risks. So the yields on Italian government bonds should be near record highs, not record lows.
Negative yields could not exist in a free market. They’re only possible in the current “Alice in Wonderland” economy created by central bankers.
You see, the European Central Bank (ECB) has been printing money to buy Italian government bonds hand over fist. Since 2008, the ECB and Italian banks have bought over 88% of Italian government debt, according to a recent study.
The moment that the ECB stops wildly buying Italian bonds, the party will be over and the Italian financial system will crash. Unfortunately for Italy, the Germans are pressuring the ECB to quit printing so much money, and the Germans usually get their way in these things.
But if the Germans get their way this time, we could be facing a complete and utter nightmare very quickly. Here is more from Nick Giambruno…
Once the ECB—the only large buyer—steps away, Italian government bonds will crash and rates will soar.
Soon it will be impossible for the Italian government to finance itself.
Italian banks—which are already insolvent—will be decimated. They hold an estimated €235 billion worth of Italian government bonds. So the coming bond crash will pummel their balance sheets.
It’s shaping up to be a lovely train wreck.
And all of this is happening in the context of a global economy that appears to be headed for a major downturn.
From peak to trough the deceleration in global credit growth is now approaching that during the global financial crisis (-6% of global GDP), even if the dispersion of the decline is much narrower. Currently 55% of the countries in our sample have experienced a -0.3 standard deviation deterioration in their credit impulse (median over 12 months) compared to 77% of countries in Dec ’09 when the median decline was -1.4 stdev.”
Of course the last time global credit growth decelerated this dramatically, global central banks intervened on a scale that was unlike anything that we had ever seen before.
More importantly, back in 2009, not only China, but the Fed and other central banks unleashed the biggest injection of credit, i.e. liquidity, the world has ever seen resulting in the biggest asset bubble the world has ever seen. And, this time around, the Fed is set to hike for the third time in the past year, even as the ECB and BOJ are forced to soon taper as they run out of eligible bonds to monetize. All this comes at a time when US loan growth is weeks away from turning negative.
As such, what “kickstarts” the next spike in the credit impulse is unclear. What is clear is that if the traditional 3-6 month lag between credit inflection points, i.e. impulse, and economic growth is maintained, the global economy is set for a dramatic collapse some time in the second half.
There are so many experts that are warning about big economic trouble in our immediate future. I would like to say that all of the experts that are freaking out are wrong, but I can’t do that.
I have not seen an atmosphere like this since 2008 and 2009, and everything points to an acceleration of the crisis as we enter the second half of this year.
The unemployment rate in the eurozone is higher than it has ever been before. This week we learned that eurozone unemployment came in at an all-time high of 12.2 percent for September. Back in January 2012, it was sitting at just 10.4 percent. So anyone that believes that “things are getting better” in Europe is just being delusional. In fact, the economic depression in Europe just keeps getting deeper. The funny thing is that the mainstream media will barely call what is going on in Europe a “recession” even though the unemployment rates in both Spain and Greece are now much higher than anything that the United States ever experienced during the “Great Depression” of the 1930s. There haven’t been as many headlines about the financial crisis in Europe lately because the ECB has been papering over the debt problems of the periphery (at least for the moment), but the economic conditions on the ground for average Europeans just continue to get even worse. Later on in this article, you will read about a 25-year-old Spanish man with three college degrees that moved to London in a desperate search for a job who is now cleaning up poop for a living. The economic collapse of Europe continues to march on, and there is no end in sight.
All you have to do is look at the latest unemployment numbers to realize that things are getting worse in Europe.
In Italy, the unemployment rate is up to 12.5 percent.
In January 2012, less than two years ago, it was sitting at just 8.9 percent.
In Greece, the unemployment rate is up to an astounding 27.6 percent.
Unemployment among the under-25s rose by 22,000 in September to 3,548,000 – nudging up youth jobless rate to 24.1%. In France, the youth jobless rate jumped from 25.6% to 26.1%, while in Italy it increased from 40.2% to 40.4%.
But as bad as those numbers are, they are nothing compared to what is going on in Spain and Greece. In Spain, the youth unemployment rate is up to 56.5 percent, and in Greece the youth unemployment rate is up to 57.3 percent.
And of course unemployment is not the only problem that the European economy is dealing with right now. The following are some more facts about the European economy that show that the economic depression in Europe just keeps getting deeper…
-The number of unemployed workers in Cyprus is now five times higher than it was before the financial crisis of 2008.
-It is being projected that Spain’s debt to GDP ratio will rise to nearly 100 percent by the end of next year.
-The debt to GDP ratio of Portugal is already up to 123 percent.
-The debt to GDP ratio of Italy is already up to 127 percent.
-Even though Greece has implemented a whole host of “austerity measures”, the debt to GDP ratio of Greece is now up to 156 percent.
But what these numbers cannot really communicate is the tremendous amount of pain and despair that millions upon millions of Europeans are experiencing right now.
For example, consider the story of Benjamin Serra Bosch, a 25-year-old Spanish man that moved to London in a desperate search for a job. He has three college degrees, including a Master’s Degree from the IEBS Business School in Barcelona. The following is a rough translation of a message that he recently posted on Facebook…
My name is Benjamín Serra, I have two bachelor degrees and a master’s degree, and I clean toilets.
No, it is not a joke. I do it to pay the rent for my room in London.
I’ve been working in a famous chain of cafes in the United Kingdom since May, and for the first time today, after 5 months working there, I see it clearly. I have been cleaning toilets. My thought was: “I received distinction in my two degrees and I clean other peoples’ poop in a country that isn’t my own.” Well, I also make coffee, clean the tables and wash cups.
And I am not ashamed to do so. Cleaning is a very decent job. What embarrasses me is having to do so because no one has given me an opportunity in Spain. Like me, there are many Spaniards, especially in London. “You are a plague,” I was told once here. And let’s not kid ourselves. We are not young people on an adventure to learn the language and have new experiences. We are immigrants.
I’ve always been very proud, I am not going to deny. Those who know me, you know. And I have to bust out a smile at customers who look over my shoulder as I am simply a “barista” (as they call it here). Some are so outrageous that it makes me want to pull out my University and master degrees and put them in their face. But it would not really do anything. It appears that those titles now only serve to clean the poop that I clean from the toilets in the cafe. A pity.
I thought that it deserved something better after putting so much effort in my academic life. It seems that I was wrong.
As economic conditions continue to decline all over Europe, anger and frustration with the “European experiment” continue to grow. UKIP’s Nigel Farage expressed these sentiments very eloquently during a speech on the 23rd of October when he stated that “what we are saying, large numbers of us from every single EU member state is: we don’t want that flag, we don’t want the anthem that you all stood so ram-rod straight for yesterday, we don’t want EU passports, we don’t want political union.”
Unfortunately, the elite of Europe are so obsessed with their little experiment that the only “solutions” to these economic problems that they are even willing to consider involve even more European integration.
And Americans certainly should not be looking down their noses at what is happening in Europe.
Recently uncovered documents prove that the Obama administration has been working with the Mexican government to increase the number of illegal immigrants on food stamps, and when more illegal immigrants go on food stamps JP Morgan makes more money. As you will read about below, JP Morgan has made at least 560 million dollars processing Electronic Benefits Transfer cards. Each month, JP Morgan makes between $.31 and $2.30 for every single person on food stamps (and that does not even include things like ATM fees, etc). So JP Morgan has a vested interest in seeing poverty grow and the number of people on food stamps increase. Meanwhile, the Obama administration has been aggressively seeking to expand participation in the food stamp program. Under Obama, the number of people on food stamps has grown from 32 million to more than 47 million. And even though poverty in America is absolutely exploding, that apparently is not good enough for the Obama administration. It has now come out that the U.S. Department of Agriculture has provided the Mexican government with literature that actively encourages illegal immigrants to enroll in food stamps. One flyer contains the following statement in Spanish: “You need not divulge information regarding your immigration status in seeking this benefit for your children.” The bold and the underlining are in the original document in case you were wondering. Overall, federal spending on food stamps increased from 18 billion dollars in 2000 to 85 billion dollars in 2012, and at this point one out of every five U.S. households in now enrolled in the food stamp program. When people illegally or fraudulently enroll in the food stamp program, it makes it harder for those that desperately need the help to be able to get it.
It is certainly a good thing to help fellow Americans that are suffering. It is a crying shame that more than a million public school students in America are homeless. That should not be happening in the “wealthiest nation on earth”.
But today we have a system that has turned poverty into big business. According to an article posted on Breitbart.com, JP Morgan has made at least 560 million dollars (and probably much more) processing EBT cards…
A new report by the Government Accountability Institute finds that JP Morgan has made at least $560,492,596 since 2004 processing the Electronic Benefits Transfer (EBT) cards of 18 of the 24 states it has under contract for the food stamp program.
A Daily Beast article provided some more specifics about the monster profits that JP Morgan is making…
Just how lucrative JP Morgan’s EBT state contracts are is hard to say, because total national data on EBT contracts are not reported. But thanks to a combination of public-records requests and contracts that are available online, here’s what we do know: 18 of the 24 states JP Morgan handles have been contracted to pay the bank up to $560,492,596.02 since 2004. Since 2007, Florida has been contracted to pay JP Morgan $90,351,202.22. Pennsylvania’s seven-year contract totaled $112,541,823.27. New York’s seven-year contract totaled $126,394,917.
These contracts are transactional contracts, meaning they are amendable based on changes in program participation. Each month, the three companies that administer EBT receive a small fee that can range from $.31 to $2.30 (or higher depending upon the number of welfare services on an EBT card and state contractual requirements) for each SNAP recipient.
So the more people that are out of work and that need to turn to the government for food, the bigger profits that JP Morgan makes.
What makes all of this even more insulting is that many of the jobs that JP Morgan could be providing to Americans to help alleviate this poverty are being shipped overseas instead. As I noted in a previous article, many EBT card customer service calls are being routed to call centers in India by JP Morgan.
So why doesn’t anyone do anything about this?
Well, it turns out that JP Morgan has the politicians that oversee the food stamp program in their back pocket. The following is from a recent Money Morning article…
And the bank has taken steps to make sure the SNAP program remains a growing source of revenue. JPMorgan’s political donations to the members of House and Senate agricultural committees, the ones with legislative responsibility for the program, soared from just over $82,000 in 2002 to nearly $333,000 as of 2010.
What a wonderful system we have, eh?
And surely JP Morgan just loves the fact that the Obama administration is actively encouraging illegal immigrants to apply for food stamps.
What you are about to read should absolutely shock you. At a time when the U.S. government is absolutely drowning in debt, the Obama administration is making it abundantly clear to illegal immigrants that their immigration status will not be checked when they apply for food stamps. The following is from a recent Judicial Watch press release…
Judicial Watch today released documents detailing how the U.S. Department of Agriculture (USDA) is working with the Mexican government to promote participation by illegal aliens in the U.S. food stamp program.
The promotion of the food stamp program, now known as “SNAP” (Supplemental Nutrition Assistance Program), includes a Spanish-language flyer provided to the Mexican Embassy by the USDA with a statement advising Mexicans in the U.S. that they do not need to declare their immigration status in order to receive financial assistance. Emphasized in bold and underlined, the statement reads, “You need not divulge information regarding your immigration status in seeking this benefit for your children.”
The documents came in response to a Freedom of Information Act (FOIA) request made to USDA on July 20, 2012. The FOIA request sought: “Any and all records of communication relating to the Supplemental Nutrition Assistance Program (SNAP) to Mexican Americans, Mexican nationals, and migrant communities, including but not limited to, communications with the Mexican government.”
The documents obtained by Judicial Watch show that USDA officials are working closely with their counterparts at the Mexican Embassy to widely broaden the SNAP program in the Mexican immigrant community, with no effort to restrict aid to, identify, or apprehend illegal immigrants who may be on the food stamp rolls.
Nearly $75 billion of taxpayer money is spent each year on federal food stamps, and it turns out some of that is alarmingly being handed out to illegal immigrants — people who contribute nothing to the federal tax base in America but who seem to be experts on collecting social welfare benefits of all kinds. If you are working for a living, you are buying food for illegals who are being actively recruited by Obama and the democratic party so that they will vote more democrats into office.
When we reward illegal immigration, what happens?
That’s right – we are just going to get even more illegal immigration.
According to WND, we have already started seeing a huge increase in illegal immigrants coming across the border since Congress began debating the amnesty bill…
Illegal border crossings have doubled, and possibly even tripled, since the latest congressional push began toward comprehensive immigration reform.
In reporting first published by Townhall.com’s Katie Pavlich, border patrol agents in the Tucson/Nogales sector claim illegals are coming here in much higher numbers in just the past few months.
“We’ve seen the number of illegal aliens double, maybe even triple since amnesty talk started happening,” an unnamed border agent said to Townhall. The data from Customs and Border Protection cited in the report shows 504 illegals were detected crossing in that sector between Feb. 5 and March 1. Only 189 were caught on camera, and just 174 of the 504 were apprehended. Of those spotted on camera, 32 were carrying huge packs believed to contain drugs and several were heavily armed.
If that bill is passed, it is being projected that it will bring 33 million more people into this country…
The pending Senate immigration bill would bring a minimum of 33 million people into the country during its first decade of operation, according to an analysis by NumbersUSA, a group that wants to slow the current immigration rate.
By 2024, the inflow would include an estimated 9.2 million illegal immigrants, plus 2.5 million illegals who arrived as children — dubbed ‘Dreamers’ — plus roughly 3.4 million company-sponsored employees with university degrees, said the unreleased analysis.
The majority of the inflow, or roughly 17 million people, would consist of family members of illegals, recent immigrants and of company-sponsored workers, according to the NumbersUSA analysis provided to The Daily Caller.
We have made legal immigration a complete and total nightmare while leaving the back door completely wide open at the same time.
We greatly punish those who are trying to do things legally while at the same time we are greatly rewarding those that are cheating the system.
What kind of sense does that make?
Shouldn’t we insist that everyone come in through the front door?
Linda Vickers, who owns a ranch in Brooks County, which is Ground Zero for the immigration debate, pins the blame directly on talk of ‘amnesty’ and a ‘path to citizenship’ for people who entered the U.S. illegally.
She recalls one man being arrested on her ranch not long ago.
“The Border Patrol agent was loading one man up, and he told the officer in Spanish, ‘Obama’s gonna let me go’.”
Border Patrol agents report that immigrants are crossing the border, and in some cases surrendering while asking, “Where do I go for my amnesty?”
We are already becoming a poverty-stricken nation. We simply can’t afford to feed millions upon millions of illegal immigrants as well.
In the United States today, the amount of money that is deposited in our banks is about 9.3 trillion dollars. If we took every penny of that and used it to pay off the national debt, we would still owe more than 7 trillion dollars.
We are stealing more than 100 million dollars from future generations of Americans every single hour of every single day to pay our bills, and yet everyone seems to think that this is “normal” somehow.
The truth is that what we are doing is absolutely criminal, and we should all be ashamed.
In the end, it should be apparent to everyone that our system is failing. Our government is corrupt, our big banks are consumed with greed and most average Americans are so addicted to entertainment that they have absolutely no idea what is going on.
What would those that bled and died for this country think about what we have become today?
Where have we seen this before? Bond yields soar above the 7 percent danger level. Check. The stock market crashes to new lows. Check. Industrial activity plummets like a rock and the economy contracts. Check. The unemployment rate skyrockets to more than 20 percent. Check. The bursting of a massive real estate bubble pushes the banking system to the brink of implosion. Check. Broke local governments beg the broke national government for bailouts. Check. The international community pressures the national government to implement deep austerity measures which will slow down the economy even more and hordes of violent protesters take to the streets. Check. All of this happened in Greece, it is happening right now in Spain, and mark my words it will eventually happen in the United States. Every debt bubble eventually bursts, and right now Spain is experiencing a level of economic pain that very, very few people saw coming. The recession in Spain is rapidly becoming a full-blown economic depression, and at this point there is no hope and no light at the end of the tunnel.
The bad news for the global economy is that Spain is much larger than Greece. According to the United Nations, the Greek economy is the 32nd largest economy in the world. The Spanish economy, on the other hand, is the 4th largest economy in the eurozone and the 12th largest economy on the entire planet. It is nearly five times the size of the Greek economy.
Financial markets all over the globe are very nervous right now because if the Spanish government ends up asking for a full-blown bailout it could spell the end for the eurozone. There simply is not enough money to do the same kind of thing for Spain that is being done for Greece.
Of course European officials are going to do their best to keep the eurozone from collapsing, but what they have completely failed to do is to keep these countries from falling into depression.
As I have written about previously, Greece has already been in an economic depression for some time.
I warned that Spain, Italy, Portugal and a bunch of other European nations were going down the exact same path.
Now we are watching a virtual replay of what happened in Greece take place in Spain.
Unfortunately, the global financial system may not be able to handle a complete implosion of the Spanish economy.
The following are 12 signs that Spain is shifting gears from recession to depression….
#1 At one point on Monday, the IBEX stock market index fell to 5,905, which was the lowest level in nearly ten years. When it hit 5,905 that represented a drop of about 12 percent over just two trading days. If that happened in the United States, it would be the equivalent of the Dow falling by about 1500 points in 48 hours.
#2 So far this year, the Spanish stock market is down more than 25 percent. Back in 2008, the IBEX 35 was well over 15,000. Today it is sitting just above 6,000.
#3 Spain has banned many forms of short selling for 3 months.
#4 The yield on 10 year Spanish bonds is now well above the 7 percent “danger level”.
#5 Thanks to the problems in Spain, the euro continues to fall like a rock. On Monday it hit a new two year low against the U.S. dollar, and it is near a twelve year low against the Japanese yen.
#6 During the first quarter of 2012, the Spanish economy contracted by 0.3 percent. During the second quarter of 2012, the Spanish economy contracted by 0.4 percent.
#7 Local governments all over Spain are flat broke and need to be bailed out by the broke national government. The following is from a recent CNBC article….
Adding to Madrid’s woes, media reports suggested another half a dozen of Spain’s 17 regional authorities, facing an undeclared funding crisis, were ready to follow Valencia in seeking aid from the central government.
#8 The percentage of bad loans on the books of Spanish banks has reached an 18 year high. European officials have already promised a 100 billion euro bailout for Spain’s troubled banking system, but most analysts agree that 100 billion euros will not be nearly enough.
#10 The unemployment rate in Spain is up to an astounding 24.6 percent. The unemployment rate in Spain is already higher than it was in the United States at the peak of the Great Depression of the 1930s.
#12 The Spanish government has just announced a whole bunch of new tax increases and spending cuts which will cause the Spanish economy to slow down even more. In response to these austerity measures, people are taking to the streets all over Spain. Last week, 100,000 demonstrators poured into the streets to protest in Madrid alone.
Sadly, the nightmare in Spain is just beginning.
If the yield on 10 year Spanish bonds stays above 7 percent, that is going to be a really bad sign. According to the Wall Street Journal, the 7 percent level is key as far as investor confidence is concerned….
Monday’s dramatic market moves suggest Spain may be stuck in a spiral that culminates in a bailout from other euro-zone countries.
“The rise in the 10-year yield well beyond 7% carries a very distinct reminder of events in Greece in April 2010, Ireland in October 2010 and Portugal in February 2011,” said analysts at Bank of New York Mellon. “In each case, a decisive move beyond 7% signaled the start of a collapse in investor confidence that, in each case, led to a bailout within weeks,” they added.
So keep an eye on that number in the weeks ahead.
Meanwhile, the Spanish economy continues to get worse with each passing month.
So just how bad are things in Spain right now?
Just check out this excerpt from a recent article by Mark Grant….
Recently two noted Spanish economists were interviewed. One was always an optimist and one was always a pessimist. The optimist droned on and on about how bad things were in Spain, the dire situation with the regional debt, the huge problems overtaking the Spanish banks and the imminent collapse of the Spanish economy. In the end he said that the situation was so bad that the Spanish people were going to have to eat manure. The pessimist was shocked by the comments of his colleague who had never heard him speak in such a manner. When it was the pessimist’s turn to speak he said that he agreed with the optimist with one exception; the manure would soon run out.
That may make you laugh, but for those in Europe going through these horrific economic conditions it is no laughing matter.
On Sunday, Greek Prime Minister Antonis Samaras actually told former U.S. president Bill Clinton that Greece is already in a “Great Depression“.
Like Spain, the unemployment rate in Greece is well above 20 percent and the youth unemployment rate is above 50 percent.
The only reason the Greek financial system has not totally collapsed is because of outside assistance, but now there are indications that the assistance may soon be cut off.
At this point there are persistent rumors that the IMF does not plan to give any more aid money to Greece unless Greece “shapes up”.
During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that “financial anarchy” is coming to Europe and that there will be “bank runs” in Spain and Italy in the next few weeks. This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using. In fact, if Cramer is not careful, people will start accusing him of sounding just like The Economic Collapse Blog. It may not happen in “the next few weeks”, but the truth is that the European banking system is in a massive amount of trouble and if Greece does leave the euro it is going to cause a tremendous loss of confidence in banks in countries such as Spain, Italy and Portugal. There are already rumors that the “smart money” is pulling out of Spanish and Italian banks. So could we see some of these banks collapse? Would they get bailed out if they do collapse? It is so hard to predict exactly how “financial anarchy” will play out, but it is becoming increasingly clear that the European financial system is heading for a massive amount of pain.
Posted below is a clip of Jim Cramer making his bold predictions during his appearance on Meet The Press. He is obviously very, very disturbed about the direction that Europe is heading in….
But what is Europe supposed to do? Even though “austerity measures” have been implemented in many eurozone nations, the truth is that they are all still running up more debt. Are European nations just supposed to run up massive amounts of debt indefinitely and pretend that there will never been any consequences?
That is apparently what Barack Obama wants. During the G-8 summit that just concluded, Obama urged European leaders to pursue a “pro-growth” path.
Of course to Obama a “pro-growth” economic plan includes spending trillions of dollars that you do not have without any regard for what you are doing to future generations.
In Greece, the recent elections failed to produce a new government, so new elections will be held on June 17th.
Many EU politicians are trying to turn these upcoming elections into a referendum on whether Greece stays in the eurozone or not. If the next Greek government is willing to honor the austerity agreements that have been previously agreed to, then Greece will probably stay in the eurozone for a while longer. If the next Greek government is not willing to honor the austerity agreements that have been previously agreed to, then Greece will probably be forced out of the eurozone.
The following is what John Praveen, the chief investment strategist at Prudential International Investments Advisers, had to say about the political situation in Greece recently….
“If the pro-euro major parties fail to muster enough support to form a coalition and the radical left Syriza party and other anti-euro, anti-austerity parties secure a majority, the risk of a disorderly Greek exit from the Euro increases and could roil markets”
Right now, polls show the leading anti-austerity party, Syriza, doing very well. The leader of Syriza, Alexis Tsipras, has declared that he plans “to stop the experiment” with austerity and that what the rest of the eurozone has tried to do in Greece is a “crime against the Greek people“.
But the Germans do not see it that way. The Germans just want the Greeks to stop spending far more money than they bring in.
The Germans do not want to endlessly bail out the Greeks if the Greeks are not willing to show some financial discipline.
As we approach the June 17th elections, the financial markets are likely to be quite nervous. According to Art Hogan of Lazard Capital Partners, many investors are deeply concerned about how “sloppy” a great exit from the euro could be….
“Next week is only one of the four weeks we have to wait until the Greek election. Every utterance out of Greece makes us think about their [possible] exit and how sloppy that could be”
Most Greek citizens want to remain in the eurozone and most European politicians want Greece to remain in the eurozone, but it is looking increasingly likely as if that may not happen.
In fact, there are reports that preparations are rapidly being made for a Greek exit. According to Reuters, “contingency plans” for the printing of Greek drachmas have already been drawn up….
De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday.
And even EU officials are now acknowledging that plans for a Greek exit from the euro are being developed. The following is what EU Trade Commissioner Karel De Gucht said during one recent interview….
“A year and a half ago, there may have been the danger of a domino effect,” he said, “but today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn’t make it.”
When these kinds of things start to become public, that is a sign that officials really do not expect Greece to remain a part of the euro.
And Greece is rapidly beginning to run out of money. According to a recent Ekathimerini article, the Greek government is likely to run out of money at the end of June….
The public coffers are seen running dry at the end of June, but this will depend on two key factors. First, revenue collection: In the first 10 days of May, inflows were about 15 percent lower than projected but there are fears that the slide may reach 50 percent. The GAO will have a picture for the first 20 days on May 23, while the last three days of the month are considered crucial, when 1.5 billion euros of the month’s budgeted total of 3.6 billion are expected to flow in.
Second, whether the IMF and EFSF installments are disbursed: This is not certain, as the decision will be purely political for both providers and evidently partly linked to political developments. Earlier this month the eurozone approved a disbursement 1 billion short of the 5 billion euros that were expected.
If Greece runs out of money and if the rest of Europe cuts off the flow of euros, Greece would essentially be forced to leave the euro.
So the last half of June looks like it could potentially be a key moment for Greece.
Meanwhile, the Greek banking system is struggling to survive as hundreds of millions of euros get pulled out of it. The following is from a recent CNN article….
The Greek financial system is straining hard for cash.
Consumers and businesses are making massive withdrawals from Greece’s banks — leading to concern the beleaguered nation could be forced out of the eurozone by a banking crisis even before its government runs out of cash.
Deposits are the lifeblood of any bank, and Greeks pulled 800 million euros out of the banking system on Tuesday alone, the most recent day for which figures are available.
If Greece does leave the euro and the Greek banking system does collapse, that is going to be a clear signal that a similar scenario will be allowed to play out in other eurozone nations.
That is why Jim Cramer, myself and many others are warning that there could soon be bank runs all over the eurozone.
And if the “house of cards” does come down in Europe, that is going to greatly destabilize the global derivatives market.
You see, the truth is that the global derivatives market is very delicately balanced. The assumption most firms make is that things are not going to deviate too much from what is considered “normal”.
If we do end up seeing “financial anarchy” in Europe, that is going to greatly destabilize the system and we could rapidly have a huge derivatives crisis on our hands.
And as we saw with JP Morgan recently, losses from derivatives can add up really fast.
Originally, we were told that the derivatives losses that JP Morgan experienced recently came to a total of only about 2 billion dollars.
Now, we are told that it could be a whole lot more than that. According to the Wall Street Journal, JP Morgan could end up losing about 5 billion dollars (or more) before it is all said and done….
J.P. Morgan Chase & Co. is struggling to extricate itself from disastrous wagers by traders such as the “London whale,” in a sign that the size of its bets could bog down the bank’s unwinding of the trades and deepen its losses by billions of dollars.
The nation’s largest bank has said publicly that its losses on the trades have surpassed $2 billion, and people familiar with the matter have said they could over time reach $5 billion.
And if Europe experiences a financial collapse, the losses experienced by U.S. firms could make that 5 billion dollars look like pocket change. The following is from a recent article by Graham Summers….
According to Reuters once you include Spain and Italy as well as Credit Default Swaps and indirect exposure to Europe, US banks have roughly $4 TRILLION in potential exposure to the EU.
To put that number in perspective, the entire US banking system is $12 trillion in size.
Interesting days are ahead my friends.
Let us hope for the best, but let us also prepare for the worst.