Monetary

Guess How Many Nations In The World Do Not Have A Central Bank?

OctopusCentral banking has truly taken over the entire planet.  At this point, the only major nation on the globe that does not have a central bank is North Korea.  Yes, there are some small island countries such as the Federated States of Micronesia that do not have a central bank, but even if you count them, more than 99.9% of the population of the world still lives in a country that has a central bank.  So how has this happened?  How have we gotten the entire planet to agree that central banking is the best system?  Did the people of the world willingly choose this?  Of course not.  To my knowledge, there has never been a single vote where the people of a nation have willingly chosen to establish a central bank.  Instead, what has happened is that central banks have been imposed on all of us.  All over the world, people have been told that monetary issues are “too important” to be subject to politics, and that the only solution is to have a group of unelected, unaccountable bankers control those things for us.

So precisely what does a central bank do?

You would be surprised at how few people can actually answer that question accurately.  The following is how Wikipedia describes what a central bank does…

A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state’s legal tender. Examples include the European Central Bank (ECB), the Bank of England, the Federal Reserve of the United States and the People’s Bank of China.

In the United States, we are told that we have a free market system.  But in a true free market system, market forces would determine what interest rates are.  We wouldn’t need anyone to “set interest rates” for us.

And why have we given a private banking cartel (the Federal Reserve) the authority to create and manage our money supply?  The U.S. Constitution specifically delegates that authority to Congress.

It is not as if we actually need the Federal Reserve.  In fact, the greatest period of economic growth in U.S. history happened during the decades before the Federal Reserve was created.

Unfortunately, a little over 100 years ago our leaders decided that it would be best to turn over our financial future to a newly created private banking cartel that was designed by very powerful Wall Street interests.  Since that time, the value of our currency has diminished by more than 96 percent and our national debt has gotten more than 5000 times larger.

But despite all of the problems, the vast majority of Democrats and the vast majority of Republicans are not even willing to consider slightly curtailing the immense power of the Federal Reserve.  And the idea of getting rid of the Fed altogether is tantamount to blasphemy to most of our politicians.

Of course the same thing is true all over the planet.  Central banks are truly “the untouchables” of the modern world.  Even though everybody can see what they are doing, there has not been a single successful political movement anywhere on the globe (that I know about) to shut a central bank down.

Instead, in recent years we have just seen the reach of central banking just continue to expand.

For example, just look at what has happened to some of the countries that were not considered to be “integrated” into the “global community”…

-In 2001, the United States invaded Afghanistan.  In 2003, Da Afghanistan Bank (who picked that name?) was established by presidential decree.  You can find the official website of the bank right here.  Now Afghanistan has a modern central bank just like the rest of us.

-In 2003, the United States invaded Iraq.  In early 2004, the Central Bank of Iraq was established to manage the Iraqi currency and integrate Iraq into the global financial system.  The following comes from the official website of the Central Bank of Iraq…

Following the deposition of Saddam Hussein in the 2003 invasion of Iraq, the Iraqi Governing Council and the Office for Reconstruction and Humanitarian Assistance began printing more Saddam dinar notes as a stopgap measure to maintain the money supply until new currency could be introduced.

The Banking Law was issued September 19, 2003. The law brings Iraq’s legal framework for banking in line with international standards, and seeks to promote confidence in the banking system by establishing a safe, sound, competitive and accessible banking system.

Between October 15, 2003 and January 15, 2004, the Coalition Provisional Authority issued new Iraqi dinar coins and notes, with the notes printed using modern anti-forgery techniques, to “create a single unified currency that is used throughout all of Iraq and will also make money more convenient to use in people’s everyday lives. Old banknotes were exchanged for new at a one-to-one rate, except for the Swiss dinars, which were exchanged at a rate of 150 new dinars for one Swiss dinar.

The Central Bank of Iraq (Arabic: البنك المركزي العراقي) was established as Iraq’s independent central bank by the Central Bank of Iraq Law of March 6, 2004

-In 2011, the United States bombed the living daylights out of Libya.  Before Muammar Gaddafi was even overthrown, the U.S. helped the rebels establish a new Central Bank of Libya and form a new national oil company.

Central banks are specifically designed to trap nations in debt spirals from which they can never possibly escape.  Today, the debt to GDP ratio for the entire planet is up to an all-time high record of 286 percent.  Humanity is being enslaved by a perpetual debt machine, but most people are not even aware that it is happening.

It is time for an awakening.  We need to educate as many people as possible about why we need to get rid of the central banks.  For those living in the United States, my previous article entitled “On The 100th Anniversary Of The Federal Reserve Here Are 100 Reasons To Shut It Down Forever” is a good place to start.  In other countries, we need people to write similar articles about their own central banks in their own languages.

The global elite dominate us because we allow them to dominate us.  Their debt-based system greatly enriches them while it enslaves the remainder of the planet.  We need to expose their evil system and the dark agenda behind it while we still have time.

The Central Banks Are Losing Control Of The Financial Markets

Dollars And Euros - Public DomainEvery great con game eventually comes to an end.  For years, global central banks have been manipulating the financial marketplace with their monetary voodoo.  Somehow, they have convinced investors around the world to invest tens of trillions of dollars into bonds that provide a return that is way under the real rate of inflation.  For quite a long time I have been insisting that this is highly irrational.  Why would any rational investor want to put money into investments that will make them poorer on a purchasing power basis in the long run?  And when any central bank initiates a policy of “quantitative easing”, any rational investor should immediately start demanding a higher rate of return on the bonds of that nation.  Creating money out of thin air and pumping into the financial system devalues all existing money and creates inflation.  Therefore, rational investors should respond by driving interest rates up.  Instead, central banks told everyone that interest rates would be forced down, and that is precisely what happened.  But now things have shifted.  Investors are starting to behave more rationally and the central banks are starting to lose control of the financial markets, and that is a very bad sign for the rest of 2015.

And of course it isn’t just bond yields that are out of control.  No matter how hard they try, financial authorities in Europe can’t seem to fix the problems in Greece, and the problems in Italy, Spain, Portugal and France just continue to escalate as well.  This week, Greece became the very first nation to miss a payment to the IMF since the 1980s.  We’ll discuss that some more in a moment.

Over in Asia, stocks are fluctuating very wildly.  The Shanghai Composite Index plunged by 5.4 percent on Thursday before regaining all of those losses and actually closing with a gain of 0.8 percent.  When we see this kind of extreme volatility, it is a very bad sign.  It is during times of extreme volatility that markets crash.

Remember, stocks generally tend to go up during calm markets, and they generally tend to go down during choppy markets.  So most investors do not want to see lots of volatility.  Unfortunately, that is precisely what we are witnessing all over the world right now.  The following comes from the Wall Street Journal…

“Volatility over the last days has been breathtaking, especially in bond markets,” said Wouter Sturkenboom, senior investment strategist at Russell Investments. He said that it rippled through equity and currency markets, which overreacted.

The yield on the benchmark German 10-year bond touched 0.99%, its highest level since September, before erasing the day’s rise and falling back to 0.84%. The 10-year U.S. Treasury yield, which hit a fresh 2015 high of 2.42% earlier Thursday, recently fell back to 2.33%. Yields rise as prices fall.

Sometimes when bond yields go up, it is because investors are taking money out of bonds and putting it into stocks because they are feeling really good about where the stock market is heading.  This is not one of those times.  As Peter Tchir has noted, the huge moves in the bond market that we are now seeing are the result of “sheer panic in the market”…

In a morning note before the open, Brean Capital’s Peter Tchir wrote: “It is time to reduce US equity holdings for the near term and look for a 3% to 5% move lower. The Treasury weakness is NOT a ‘risk on’ trade it is a ‘risk off’ trade, where low yields are viewed as a risk asset and not a safe haven.” And Tom di Galoma, head of fixed-income rates and credit at ED&F Man Capital Markets, told Bloomberg, “This is sheer panic in the market from the standpoint of what’s been happening in Europe … Most of Wall Street is guarded here as far as taking on new positions.”

But this wasn’t supposed to happen.

After watching the Federal Reserve be able to successfully use quantitative easing to drive down interest rates, the European Central Bank decided to try the same thing.  Unfortunately for them, investors are starting to behave more rationally.  The central banks are starting to lose control of the financial markets, and bond yields are soaring.  I think that Peter Boockvar summarized where we are currently at very well when he stated the following…

I’ve said this before but I’m sorry, I need to say it again. What we are witnessing in global markets is the inherent contradiction writ large that is modern day monetary policy where dangerously ZIRP, NIRP and QE are considered conventional policies. The contradiction is simply this: the desire for higher inflation if fulfilled will result in higher interest rates that central banks are trying so hard and desperately to suppress.

Outside of the short end of the curve, markets will always win for better or worse and that is clearly evident now. The ECB is getting their first taste of the market talking back and in quite the violent way. In the US, the bond market is watching the Fed drag its feet (its never-ending) with wanting to raise interest rates and finally said enough is enough. The US Treasury market is tightening for them. Since mid April, the 5 yr note yield is higher by 40 bps, the 10 yr is up by 55 bps and the 30 yr yield is up by 65 bps.

And if global investors continue to move in a rational direction, this is just the beginning.  Bond yields all over the planet should be much, much higher than they are right now.  What that means is that bond prices potentially have a tremendous amount of room to go down.

One thing that could accelerate the global bond crash is the crisis in Greece. Negotiations between the Greeks and their creditors have been dragging on for four months, and no agreement has been reached.  Now, Greece has missed the loan payment that was due to the IMF on June 5th, and it is asking the IMF to bundle all of the payments that are due this month into one giant payment at the end of June…

Greece has asked to bundle its four debt payments to the International Monetary Fund that fall due in June so that it can pay them in one batch at the end of the month, Greek newspaper Kathimerini reported on Thursday.

The request is expected to be approved by the IMF, the newspaper said. That would mean Greece does not have to pay the first tranche of 300 million euros that falls due on Friday.

Greece faces a total bill of 1.5 billion euros owed to the IMF over four installments this month.

Of course that payment will not be made either if a deal does not happen by then.  And with each passing day, a deal seems less and less likely.  At this point, the package of “economic reforms” that the creditors are demanding from Greece is completely unacceptable to Syriza.  The following comes from an article in the Guardian…

Fresh from talks in Brussels, Tsipras faced outrage on Thursday from highly skeptical members of his own Syriza party. A five-page ultimatum from creditors, presented by the European commission president, Jean-Claude Juncker, was variously described as shocking, provocative, disgraceful and dishonourable.

“It will never pass,” said Greece’s deputy social security minister, Dimitris Stratoulis. “If they don’t back down, the country won’t be lost … there are alternatives that would cost less than our signing a disgraceful and dishonourable agreement.”

Ultimately, I don’t believe that we are going to see an agreement.

Why?

Well, I tend to agree with this bit of analysis from Andrew Lilico…

The Eurozone does not want to make any compromise with the current Greek government because (a) they don’t believe they need to because Greek threats to leave the euro are empty both because internal polling suggests Greeks don’t want to leave and because if they did leave that doesn’t really constitute any threat to the euro; (b) because they (particularly perhaps Angela Merkel) believe that under enough pressure the Greek government might collapse and be replaced by a more cooperative government, as has happened repeatedly before in the Eurozone crisis including in Italy and Greece itself; and (c) because any deal with Greece that is seen to involve or be presentable as any victory for the Greek government would threaten the political positions of governments in several Eurozone states including Spain, Portugal, Italy, Finland and perhaps even the Netherlands and Germany.

Furthermore, it’s not clear to me that the Eurozone creditors at this stage would have much interest in any deal based upon promises, regardless of how much the Greek had verbally surrendered.  Things have gone too far now for mere words to work.  They would need to see the Greeks deliver actions — tangible economic reforms and tangible, credible primary surplus targets and a sustainable change in the long-term political mood within Greece that meant other Eurozone states might eventually get their money back.  That is almost certainly not doable at all with the current Greek government.  The only deal possible would be with some replacement Greek government that had come in precisely on the basis that it did want to do a deal and did want to pay the creditors back.

On the Syriza side, I see no more appetite for a deal.  They believe that austerity has been ruinous for the lives of Greeks and that decades more austerity would mean decades more Greek economic misery.  From their point of view, default or even exit from the euro, even if economically painful in the short term, would be better than continuing with austerity now.

You can read the rest of his excellent article right here.

Without a deal, the value of the euro is going to absolutely plummet and bond yields over in Europe will go through the roof.  I am fully convinced that this is the beginning of the end for the eurozone as it is currently constituted, and that we stand on the verge of a great European financial crisis.

And of course the financial crisis that is coming won’t just be in Europe.  The global financial system is more interconnected than ever, and there are tens of trillions of dollars in derivatives that are tied to foreign exchange rates and 505 trillion dollars in derivatives that are tied to interest rates.  When this giant house of cards collapses, the central banks won’t be able to stop it.

In the end, could we eventually see the entire central banking system itself totally collapse?

That is what Phoenix Capital Research believes is about to happen…

Last year (2014) will likely go down in history as the “beginning of the end” for the current global Central Banking system.

What will follow will be a gradual unfolding of the next crisis and very likely the collapse of the Central Banking system as we know it.

However, this process will not be fast by any means.

Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).

There will be Crashes and sharp drops in asset prices (20%-30%) here and there. However, history has shown us that when a financial system goes down, the overall process takes take several years, if not longer.

We stand at the precipice of the greatest economic transition that any of us have ever seen.

Even though things may seem very “normal” to most people right now, the truth is that the global financial system is fundamentally flawed, and cracks in the system are starting to appear all over the place.

When this system does collapse, it will take most people entirely by surprise.

But it shouldn’t.

All con games eventually fall apart in the end, and we are about to learn that lesson the hard way.

How Far Will Stocks Fall This Time When The Fed Decides To Slow Down Quantitative Easing?

Bear Market - Photo by Appalachian EncountersWhen QE1 ended there was a substantial stock market correction, and when QE2 ended there was a substantial stock market correction.  And if you will remember, the financial markets threw a massive hissy fit a few months ago when Federal Reserve Chairman Ben Bernanke suggested that the Fed may soon start tapering QE3.  Clearly Wall Street does not like it when their supply of monetary heroin is interrupted.  The Federal Reserve has tricked the American people into supporting quantitative easing by insisting that it is about “stimulating the economy”, but that has turned out to be a massive hoax.  In fact, I just wrote an article that contained 37 statistics that prove that things just keep getting even worse for ordinary Americans.  But quantitative easing has been exceptionally good for Wall Street.  During QE1, the S&P 500 rose by about 300 points.  During QE2, the S&P 500 rose by about 200 points.  And during QE3, the S&P 500 has risen by about 400 points.  The S&P 500 is now in unprecedented territory, and stock prices have become completely and totally divorced from reality.  In essence, we are in the midst of the largest financial bubble this nation has ever seen.  So what is going to happen when the Fed starts pulling back the monetary crack and the bubble bursts?

A lot of people out there are claiming that the Federal Reserve will never end this round of quantitative easing.  They are suggesting that the Fed may hint at tapering from time to time, but that when push comes to shove they will just keep printing more money.

There is just one big problem with that theory.

The rest of the world is watching, and they are very troubled by quantitative easing.  Therefore the Fed must end it at some point because they desperately need the rest of the world to keep playing our game.

Our current economic prosperity greatly depends upon the rest of the planet using our dollars as the reserve currency of the world and lending trillions of dollars to us at ultra-low interest rates.  If the rest of the world decides to stop going along with the program, the system would come crashing down very rapidly.

That is why it was so alarming when China recently announced that they are going to quit stockpiling more U.S. dollars.  For a long time China has been warning us to quit recklessly printing money, and now China is starting to make moves that will make them more independent of us financially.

If the Fed does not bring quantitative easing to an end soon, other nations may start doing the same thing.

So the Fed knows that they are on borrowed time.  Faith in the U.S. financial system is declining very fast.

But the Fed also knows that ending QE3 is going to be very tricky for the financial markets.  The other times that the Fed has ended quantitative easing, it has turned out to be very painful for Wall Street.

So this time, the Fed seems to be trying to do what it can to use the media to mentally prepare investors ahead of time.  For example, the following is what Jon Hilsenrath of the Wall Street Journal wrote just a few days ago…

Markets are positioned more to the Fed’s liking today than they were in September, when it put off reducing, or “tapering,” the monthly bond purchases. Most notably, the Fed’s message is sinking in that a wind down of the program won’t mean it’s in a hurry to raise short-term interest rates. Futures markets place a very low probability on Fed rate increases before 2015, in contrast to September, when fed funds futures markets indicated rate increases were expected by the end of 2014. The Fed has been trying to drive home the idea that “tapering is not tightening” for months and is likely to feel comforted that investors believe it as a pullback gets serious consideration.

In case you missed the subtle messages contained in that paragraph, here is a rough translation…

“Don’t worry.  The Federal Reserve is your friend and they say that everything is going to be okay.  Investors believe what the Fed says and you should too.  Pay no attention to the man behind the curtain.  Tapering is not tightening, and when the Federal Reserve does decide to taper the financial markets are going to take it very calmly.”

The Fed (and their messengers) very much want to avoid a repeat of what has happened before.  As you can see from the chart posted below, every round of quantitative easing has driven the S&P 500 much higher.  And when each round has ended, there has been a substantial stock market correction.  The following chart was originally produced by DayOnBay.org…

Chart By DayOnBay

And of course the chart above is incomplete.  As you can see below, the S&P 500 is now sitting at about 1,800…

S&P 500

So let’s recap.

From the time that QE1 was announced to the time that it ended, the S&P 500 rose from about 900 to about 1,200.

When QE1 ended, the S&P 500 fell back below 1,100.

In a panic, the Federal Reserve first hinted at QE2 and then finally formally announced it.  That round of QE drove the S&P 500 up to a bit above the 1,300 mark.

Once QE2 ended, there was another market correction.  The S&P 500 fell all the way down to 1,123 at one point.

In another panic, the Federal Reserve first announced “Operation Twist” and then later added QE3.  Since that time, the S&P 500 has been on an unprecedented tear.  At this point, the S&P is sitting at about 1,800.

And of course those massively inflated stock prices have absolutely no relation to what is going on in the U.S. economy as a whole.  In fact, the truth is that economic conditions for most of the country are steadily getting worse.  Just today we found out that for the week ending November 30th, U.S. rail traffic was down 16.3 percent from the same week one year earlier.  That is a hugely negative sign.  It means that the flow of goods is slowing down substantially.

So the Federal Reserve has created this massive financial bubble that is totally disconnected from reality.  The only way that the Federal Reserve can keep this bubble going is to keep printing lots more money, but they also know that they cannot do that indefinitely because the rest of the world is watching.

In essence, the Federal Reserve is caught between a rock and a hard place.

When the Fed does ultimately decide to taper (whether it be December, January, February, etc.), the consequences are likely to be quite dramatic for the financial markets.  The following is a brief excerpt from a recent article by Howard Kunstler…

But even in a world of seemingly no consequence, things happen. One pretty sure thing is rising interest rates, especially when, at the same time as a head-fake taper, foreigners send a torrent of US Treasury paper back to the redemption window. This paper is what other nations, especially in Asia, have been trading to hose up hard assets, including gold and real estate, around the world, and the traders of last resort — the chumps who took US T bonds for boatloads of copper ore or cocoa pods — now have nowhere else to go. China alone announced very loudly last month that US Treasury debt paper was giving them a migraine and they were done buying anymore of it. Japan is in a financial psychotic delirium scarfing up its own debt paper to infinity. Who’s left out there? Burkina Faso and the Kyrgystan Cobblers’ Union Pension Fund?

The interest rate on the US 10-year bond is close to bumping up on the ominous 3.0 percent level again. Apart from the effect on car and house loans, readers have pointed out to dim-little-me that the real action will be around the interest rate swaps. Last time this happened, in late summer, the too-big-to-fail banks wobbled from their losses on these bets, providing a glimpse into the aperture of a black hole compressive deflation where cascading chains of unmet promises blow financial systems past the event horizon of universal default and paralysis where money stops moving anywhere and people must seriously reevaluate what money actually is.

What Kunstler is talking about is something that I have written about previously many times.  When QE3 slows down (or ends), that is likely going to cause the yield on 10 year U.S. Treasuries to rise substantially, and that would have a whole host of negative consequences for the U.S. economy.

Most notably, it would threaten to blow up the quadrillion dollar derivatives casino that Wall Street usually manages to keep so delicately balanced.

The truth is that we are going to have massive problems no matter what the Federal Reserve does now.

If the Federal Reserve keeps wildly printing money, our financial system will become a massive joke to the rest of the planet and other nations will stop using our dollars and will stop lending us money.

That would be absolutely disastrous.

If the Federal Reserve stops wildly printing money, the massive financial bubble that Wall Street is enjoying right now will burst and we could have a financial crisis even greater than what we experienced back in 2008.

That would also be absolutely disastrous.

So does anyone out there see an easy way out of this under the current system?  If you think that you have such a plan, please feel free to share it below…

Is The End Of The Euro In Sight?

The future of the euro is hanging by a thread at the moment.  The massive debt problems of nations such as Greece, Italy and Portugal are dragging down the rest of the Europe, and the political will in northern Europe to continue to bail out these debt-ridden countries is rapidly failing.  Could the end of the euro actually be in sight?  The euro was really a very interesting experiment.  Never before had we seen a situation where monetary union was tried without political and fiscal union along with it on such a large scale.  The euro worked fairly well for a while as long as everyone was paying their debts.  But now Greece has collapsed financially, and several other countries in the eurozone (including Italy) are on the way.  Right now the only thing holding back a complete financial disaster in Europe are the massive bailouts that the wealthier nations such as Germany have been financing.  But now a wave of anti-bailout sentiment is sweeping Germany and the future of any European bailouts is in doubt.  So what does that mean for the euro?  It appears that there are two choices.  Either we will see much deeper fiscal and political integration in Europe (which does not seem likely at this point), or we will see the end of the euro.

That status quo cannot last much longer.  The citizens of wealthy nations such as Germany are becoming very resentful that gigantic piles of their money are being poured into financial black holes such as Greece.  In fact, it is rapidly getting to the point where we could actually see rioting in the streets of German cities over all of this.

All of this instability is creating a tremendous amount of fear in world financial markets.  Nobody is sure if Greece is going to default or not.

Without more bailout money, Greece will most certainly default.  If anyone does not think that one domino cannot set off a massive chain reaction, just remember what happened back in 2008.

Bear Stearns and Lehman Brothers set off a chain reaction that was felt in every corner of the globe.  All of a sudden credit markets froze up because nobody was sure who had significant exposure to bad mortgages.

Today, the entire world financial system runs on debt, so when there is a credit crunch it can have absolutely devastating economic consequences.  The financial crisis of 2008 helped plunge the world into the greatest recession that the globe had seen since the 1930s.

In the old days, nations such as Greece that got into too much debt would just fire up the printing presses and cover over their problems with devalued currency.

Well, those nations that are using the euro simply cannot do that.  The government of Greece cannot simply zap a whole bunch of euros into existence in order to solve their problems.

Right now, major European banks are holding massive amounts of debt from various European governments on their balance sheets.  Most of these European banks are also very highly leveraged.  Even a moderate drop in the value of those debt holdings could wipe out a number of these banks.

The head of the IMF, Christine Lagarde, recently told Der Spiegel the following….

“There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken”

Unfortunately, what Lagarde said was right.  You see, the financial system in Europe is a “confidence game” and a “crisis of confidence” is all that it would take to bring it down because it does not have a solid foundation.

Just like the U.S. financial system, the financial system in Europe is a mountain of debt, leverage and risk.  If the winds start blowing the wrong direction, the entire thing could very easily come tumbling down.

Over the past couple of weeks, the outlook in Europe has become decidedly negative.  For example, one senior IMF economist is now actually projecting that Greece will experience a “hard default” at some point in the coming months….

I expect a hard default definitely before March, maybe this year

If Greece defaults, that would mean that the bailouts have failed.  That would also mean that several other nations in Europe would be in danger of defaulting soon as well.

The consequences of a wave of defaults in Europe would be absolutely staggering.  As mentioned above, major banks in Europe are deeply exposed to sovereign debt.

Regarding this issue, Deutsche Bank Chief Executive Josef Ackermann recently made the following stunning admission….

“It’s stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels.”

Yes, you read that correctly.

There are quite a few major European banks that are in imminent danger of collapse.

Even though there hasn’t been any sovereign defaults yet, we are already starting to see massive financial devastation in Europe.  Just check out some of the financial carnage from Monday….

*The stock market in Germany was down more than 5%.

*The stock markets in France and Italy were down more than 4%.

*Royal Bank of Scotland was down more than 12%.

*Deutsche Bank was down more than 6%.

*Societe Generale was down more than 8%.

*Italy’s UniCredit was down more than 7%.

*Barclays was down more than 6%

*Credit Suisse was down more than 4%.

*The yield on 2 year Greek bonds was up to 50.38%.

*The yield on 1 year Greek bonds was up to 82.14%.  A year ago it was under 10%.

Just like in 2008, banking stocks are leading the decline.  We have another major financial crisis on our hands and there is no solution in sight.

As the financial world becomes increasingly unstable, investors are flocking to gold.  In case you have not noticed, gold is up over $1900 an ounce again.

So what comes next?

Well, on Wednesday Germany’s constitutional court is scheduled to announce its verdict on the legality of the latest bailout package for Greece.  The court is expected to rule that the bailout package is legal, but if they don’t that would be really bad news for the euro.

However, whatever the court rules, the reality is that the turbulent political atmosphere inside Germany is probably a much bigger issue as far as the future of the euro is concerned.

Right now, Germans are overwhelmingly opposed to more bailouts.  German Chancellor Angela Merkel’s political party just suffered a resounding defeat in local elections in Germany, and many within her own coalition are withdrawing support for any more bailouts.

This is going to make it very difficult to save the euro.  At this point, Germans have very little faith in the currency.

Just check out what Bob Chapman of the International Forecaster recently wrote about the current atmosphere in Germany….

76% of Germans say they have little or no faith in the euro, up from 71% two months ago. This is what we have been stating for ten years. Long-term 69% to 71% have never wanted the euro. The poll is not at all surprising. The Germany people are saying we have put up with the euro and euro zone for long enough – we want out now.

Germans are also very much against even deeper European economic integration.  For example, recent polling found that German voters are against the introduction of “Eurobonds” by about a 5 to 1 margin.

But Germans are not the only ones that are tired of the euro.  The countries of southern Europe have come to view the euro as a “straightjacket” that keeps them from having the financial flexibility that they need to deal with their debts.

Many people living in southern Europe consider the euro to be a financial instrument that allows nations such as Germany to have way too much power over them.  Just check out what Professor Giacomo Vaciago of Milan’s Catholic University recently had to say….

“It’s clear that the euro has virtually failed over the last ten years, even if you are not supposed to say that. We pretended to be Germans, but it was an illusion”

But if the bailouts fall apart and the euro collapses, we are going to see nations such as Greece fall into total financial collapse.

Just how desperate have things become in Greece?  Just consider the following excerpt from a recent article by Puru Saxena….

In Greece, government debt now represents almost 160% of GDP and the average yield on Greek debt is around 15%. Thus, if Greece’s debt is rolled over without restructuring, its interest costs alone will amount to approximately 24% of GDP. In other words, if debt pardoning does not occur, nearly a quarter of Greece’s economic output will be gobbled up by interest repayments!

Without help, there is no way that Greece is going to be able to avoid a default.

Sadly, Greece is far from the only major financial problem in Europe.  Portugal, Ireland and Italy also have debt to GDP ratios that are well above 100%.

As mentioned earlier, this is a massive problem for the financial system of Europe, because nearly all of the major European banks are leveraged to the hilt and they are massively exposed to government debt.

If you don’t think that this is a problem, just remember what happened back in 2008.

Back then, Lehman Brothers was leveraged 31 to 1.  When things turned bad, Lehman was wiped out very rapidly.

Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.

Overall, the entire global banking system has a total of 2 trillion dollars of exposure to Greek, Irish, Portuguese, Spanish and Italian debt.

If European countries start defaulting, the dominoes are going to start falling and things will get really messy really quickly.

There are two things that could keep defaults from happening.

Number one, Germany and the other wealthy nations in the eurozone could just suck it up and decide to pour endless bailouts into nations such as Greece and Italy.

Number two, the nations of the eurozone could opt for much deeper economic and political integration.  That would mean a massive loss of sovereignty, but it would save the euro, at least for a little while.

Right now, the political will for either of those two choices is simply not there.  That does not mean that the political elite of Europe will not try to ram through some sort of a plan, but the reality is that Germans are already so upset about what has been going on that they are about ready to riot in the streets.

Yes, the end of the euro is a real possibility.

If the euro does collapse, it would likely cause a financial panic that would make 2008 look like a Sunday picnic.

So what do all of you think about the future of the euro?  Please feel free to leave a comment with your thoughts below….