by Jeff Berwick, The Dollar Vigilante:
There is much going on in Europe and most of it very bad. When we add what’s going on in Europe to what’s happening in Britain, the US and China, we end up with a comprehensive portrait of a world plunging off a precipice.
Of course if you’ve been visiting us regularly, you’re quite aware of the disasters of 2016. They are a continuation of 2015. We’ve been warning about it tirelessly for over a year now.
I first realized what was on the way when I began researching Shemitah. There was a pattern of crashes and panics associated with Shemitah years going back for decades. And the same thing has occurred with Jubilee. We’re more than halfway through Jubilee 2016 now and anyone with eyes to see can tell that this is an unusually chaotic and volatile year – just as we predicted.
In this article, we’ll focus on Europe’s challenges – and disasters. A lot of the unraveling is being triggered by problems in Italy and Germany.
The country’s economic system is about to collapse along with its failed banking system which is so overloaded with debt that it can’t survive without a huge government bail out. Italy’s non-performing bank loans are over 20% of GDP. The country’s public debt is above 130% of GDP. An EU-approved plan earlier this year to restructure the banks has stalled.
There’s talk now of balancing the budget with corporate tax hikes and also of setting up a “bad bank” that can remove the worst investments from the rest of the banking sector. But these actions need to be done quickly.
They are considerably complicated by the EU’s authority over Italy and, not to mention, will not actually fix the problem. An increase in corporate tax hikes would further destroy the economy and major businesses would see decreases in sales and/or move out of the area. And a “bad bank” is essentially just an accounting gimmick to make things appear better but fixes nothing.
The Italian government would like to provide funds to the banks without having investors share losses. But the EU now has bail-in rules that mandate investors take part of the losses. The EU’s presence while Italy struggles to salvage its sinking banks is reminiscent of the iceberg blocking the forward progression of the Titanic. If Italy doesn’t actually hit the iceberg, it may simply sink, and take the EU down with it. What Brexit hasn’t entirely accomplished yet (the ruination of the EU), Italy could.
The situation is further complicated by elections in the fall involving government-sponsored constitutional reforms. These reforms are gradually taking on aspects of a referendum on the government itself. Italy’s now most-popular party, the populist, Eurosceptic Five Star Movement, is actually agitating for a referendum on Italy’s position as regards the euro and possibly the EU.
Just as Italy threatens to destabilize Europe, so does Germany, the EU’s staunchest supporter. This destabilization comes from Deutsche Bank. Its shares have hit historic lows and its market value has nearly halved in 2016. Deutsche is not alone in its relentless devaluation – Credit Suisse is in a similar position.
But given that Deutsche was considered one of the top three global investment banks for a six-year period until 2014, its current fall is startling.
Its collapsing share price doesn’t just reflect day-to-day management but the bank’s whole posture including notably its insane derivatives exposure. Somehow Deutsche has managed to amass nearly $30 TRILLION in derivatives debt. That’s trillion with a “t.” That’s nearly 10 times the GDP of Germany. Deutsche wants to “sell” some of this business now. Good luck!
Of course, when it comes to Deutsche, the bad news doesn’t end with its impossible-to-contemplate derivatives business. For all its size, Deutsche is not that diversified. It’s a huge investment bank. It has little consumer exposure, not much of a wealth-management business. It rises and falls with the German economy and with the larger European economy. Considering that the EU continues to travel through the arc of an unadmitted quasi-depression, Deutsche is not going to see revenue rebounding any time soon.
The BBC actually says Deutsche Bank is “the most dangerous bank in the world.” The IMF calls Deutsche Bank the “riskiest” of the big banks whose failure could bring the entire system down. Deutsche’s plan to sell one billion of shipping loans is reminiscent of steps that Lehman took just before it collapsed.
I’ve said recently that what we will see in Europe will just be a rolling series of crises that could leave the entire EU in ruins. And it’s not just the EU. It’s not just America or China. It’s the whole word that is headed over the edge of the precipice. That’s one reason gold and silver are up so sharply and will surely continue to rise.
And as I’ve often pointed out, we’re not even at the end of the Jubilee year yet. As October looms, things are going to get even more tense and chaotic. Right now if you’re reading this, you have a tremendous opportunity to take metals positions that can provide a big-time payout if the world’s economy continue on its current disastrous path.
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