- The world is at the edge of a cliff ! The euphoria in the stock market notwithstanding, nothing has been resolved. The problem is papered over and short-sighted people do not understand what is happening. The Eurozone was about to go belly up and a stop-gap USD funding was instituted. However, a Greek default is still coming. The sovereign debts held by Eurozone banks will be worth 50 cents to the dollar optimistically. These banks are still insolvent! Got physical gold yet? (emphasis mine)
What Exactly Happened Today?
by The Golden Truth
I don’t have time to explain the details, but essentially over the past few days the Fed, ECB, Swiss National Bank and Bank of England have been working in concert in order to make liquidity available to prevent the European banking system from collapsing – similar to what happened here in the autumn of 2008.
To simplify things, what has happened is that European banks have dollar liabilities (shorter term loan funding of various sorts denominated in dollars) that are being used to finance non-dollar income-producing assets (mostly denominated in euros). Greek and Italian sovereign debt securities, for instance. The assets are falling way short of being able to support the cash flows required to fund the liabilities (repos, for instance). So, the European banking system is at the brink of “freezing up” and collapsing.
You can read about the details HERE . In addition, our Fed has made $500 billion swap “liquidity” facilities available for use – this has been in place for awhile. And even more startling, it turns out that some big U.S. banks have been engaging in private market repo transactions with some big Euro banks, who have been using crappy collateral. Zerohedge sourced this article: LINK
I was actually stunned when I saw that because it shows how desperate European banks have become for cash. But why are the big U.S. banks willing to take crappy collateral in exchange? Traditionally repos are done using very short term Treasuries or Agency debt as collateral. Why would U.S. banks be willing to take this shit to keep Euro banks solvent? And why is the Fed extending half a trillion of Taxpayer-backed funding to keep the Euro system from collapsing?
I don’t know for sure, and we’ll never know until everything collapses, but I suspect that if countries like Greece and Italy and Spain collapse, then the big too-big-too-fail Euro banks collapse. And if that happens, I suspect that our too-big-to-fail banks – primarily Citi, JP Morgan and Goldman – would collapse under the weight of a very large amount of credit default derivatives and interest rate swaps that require Euro bank counterparties to be able to fund in the event the default parameters are triggered. In other words, U.S. banks and our Fed are just as desperate to keep the Euro banks alive as are the ECB/SNB/BOE bank members desperate to stay alive.
This scenario is startlingly similar to what happened right before Lehman was allowed to tank, which triggered the big bailouts here. Only this time the scale is Lehman x 50 or 100 because it includes a couple of countries and all of the U.S./UK/European/Swiss To-Big-To-Fail Banks. I also believe that what I just surmised has a very high probability of being pretty close to what is actually going on. It also is interesting to me that some big, anonymous banks/Central Banks are lending/swapping out their gold holdings in order get their hands on badly needed U.S. dollars to meet dollar liquidity needs: LINK
Finally, do not let this latest 2-day smack on the price of gold shake you out of your positions or scare you off from buying more physical gold/silver. This hit on gold, I believe, was nothing more than a coordinated Central Bank intervention in order to get the price lower ahead of all of the above massive fiat/liquidity operations. This is what happened in the summer of 2008 as well. It also means that the global financial system is in far worse trouble than anyone not inside the Central Bank nerve centers realizes.