An Unfolding Economic Collapse?
I’ve been on a bit of a hiatus lately due to some work related commitments, but still staying abreast of what’s occurring in the world.
The biggest issue we face is the unfolding economic situation and the focus is now revolving around what’s happening in Europe. What’s occurring is a both a sovereign debt crisis and a banking crisis. The sovereign debt crisis was spawned largely by the transfers of debts from the banking systems to certain governments in the Eurozone. Now sovereigns like Greece and Italy are in trouble, and the banks that thought they were covered via the backdoor bailouts and forced austerity measures are now also in trouble. After having saddled these governments in debt and austerity in an effort to preserve themselves, the banks are now finding that there’s no more blood in the turnip and they may have to take some losses. The only problem with that is that both the French and German banking systems have a lot of exposure to Greece in particular and although US Bank exposure is supposed to be “manageable”, exposure to other countries which may wind up defaulting may be an issue. That doesn’t factor in the largely unregulated derivative exposure tied into all of this that no one has a real handle on. The bottom line is that the problems of Europe will be washing up on these shores soon enough. This is not a crisis of the Eurozone alone, but is worldwide in scope.
Basically, much of the banking system worldwide is insolvent and lacks sufficient assets to cover deposits, so depositors’ money is at risk. In Europe, in what appears to be shades of the Great Depression, there are bank runs quietly occurring as those who are in the know withdraw their money to seek safety. US Treasurys have been the main beneficiary of this flight to safety, but that’s only a temporary haven as the problems we have here aren’t much different than those in Europe. Our sovereigns within the borders of the US are the states and many of them are in a fiscal straight jacket.
From what I can see, there’s not much that can be done at this point and I just get the feeling that the powers that be are about to pull the plug now that some have safely gotten onto lifeboats. Unfortunately, most of the rest of us are have seats in steerage and many are blissfully unaware of what’s getting ready to go down.
Here’s a trader sounding the alarm during a BBC interview. Personally, this guy strikes me as a bit suspicious as he willingly admits that he’s looking to make money from a down market and I don’t put people past making comments that setup the sort of “tradeable” fear and panic that allows some to make money while sewing panic among others. This works in the reverse as well (think booming housing and stock markets of the recent past). Plus a search on the web turns up little on what exactly his background is. Notwithstanding that, he makes some good points about how traders generally think. The comments about Goldman Sachs ruling the world while millions of people are about to get fleeced of their savings is something to take note of. The latter has been occurring all along even as we speak.