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by Georgi Stankov Posted on January 21, 2016
Georgi Stankov, January 21, 2016
The Italian banks are all on the verge of collapse after the oldest Orion bank in the world Monte dei Paschi di Siena collapsed yesterday. This is of great symbolic importance although this bank was already in default a few years ago. Now the Italian PM Renzi has proposed to establish a bad loan bank where to put all the bad debts of the Italian banks of about 300 -400 billion euro. This is however not a very good idea as it exists since the 2008 crisis when many such bad loans banks were created in many EU countries such as Germany and GB that still exist as ICU patients in clinical death and none of these bad debts have been resolved.
The total amount of bad debts in the EU is officially given to be more than one trillion but this is only the tip of the iceberg. The biggest Portuguese and Spanish banks are all bankrupt and only two days ago the French president Hollande declared a state of emergency due to the impending financial crash. The biggest British banks are also in default since 2008 and could only survive the last eight years with the help of huge financial injections that tripled the national debt to GDP (more than 300%) of this country and ruined the economy. The British citizens have been degraded to paupers. The pound is now in a free fall:
Deutsche Bank has just announced a record loss of 7 billion euro, worse than during the 2008 crisis when this bank almost collapsed and had to be saved by the German government. It is also embroiled in numerous criminal activities. This bank has been considered since then a potential major default candidate by many experts and I have written on this topic in the past . Deutsche bank is the emitter of a massive amount of derivatives, the total sum of which exceeds twenty times the GDP of Germany, which is the fourth biggest economy in the world and the only halfway sound western economy.
We have the same or even worse situation here in the USA and Canada and the Japanese banks are proverbial as bad debt “zombie banks” since the real estate bubble burst in this country 30 years ago.
In order to understand why this gargantuan debt has suffocated the world economy and has triggered the Greatest Depression of all time contrary to all Keynesian theory, here is a classical chart which gives you the marginal debt, or more precisely, the productivity/ growth gained from each additional dollar of debt. This particular graph deals with private non-financial debt only, but if we consider all the other kinds of added debt the situation will be even worse:
What this chart shows you is that since 2008 the dark ruling cabal and its criminal banksters have passed the debt off as “growth”. Since the 2008 crisis for each dollar growth more than five dollars debt were spent. This is how expensively and destructively they camouflaged the Greatest Depression of all time. It is the nightmare of all accountants and this insane economic policy would have led to the collapse of the western economy long time ago under normal conditions in a competitive free market. But the ruling cabal and their banksters have offset all economic laws of free market competition and turned the economy into a global casino.
As an individual entrepreneur you would not have survived with such policy a single day but if you have the power to rig the whole reality because you control the government, the law and enforcement system and all the financial markets (through rigged electronic trading) you can perpetuate this debt illusion for a limited period of time as this happened since 2008. Now it is pay-day for the dark ruling cabal as the debt bubble has burst this year. The Orion matrix is in a free fall.
The massive bad loans debt involves the entire Orion financial system as the following article below confirms. It quotes William White in Davos, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS). BIS is the central Orion bank that supervises the money transactions of all other banks worldwide. Being a CEO of this bank is equal to having a front row seat in the greatest financial drama of all time. Only the PAT has better seats in the ascended masters’ loge.
World faces wave of epic debt defaults, fears central bank veteran
Exclusive: Situation worse than it was in 2007, says chairman of the OECD’s review committee
The next task awaiting the global authorities is how to manage debt write-offs without setting off a political storm
By Ambrose Evans-Pritchard, in Davos
The Telegraph, January 20, 2016
The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.
“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).
“Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem, too.”
William White, OECD
“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said.
“It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,” he told The Telegraph on the eve of the World Economic Forum in Davos.
“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.”
The next task awaiting the global authorities is how to manage debt write-offs – and therefore a massive reordering of winners and losers in society – without setting off a political storm.
Mr White said Europe’s creditors are likely to face some of the biggest haircuts. European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed.
The European banking system may have to be recapitalized on a scale yet unimagined, and new “bail-in” rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.
The warnings have special resonance since Mr White was one of the very few voices in the central banking fraternity who stated loudly and clearly between 2005 and 2008 that Western finance was riding for a fall, and that the global economy was susceptible to a violent crisis.
Mr White said stimulus from quantitative easing and zero rates by the big central banks after the Lehman crisis leaked out across east Asia and emerging markets, stoking credit bubbles and a surge in dollar borrowing that was hard to control in a world of free capital flows (This dollar borrowing is unwinding now and due to dollar illiquidity we have a rising dollar. In fact the dollar has never been weaker than now. This is one of the many conundrums we observe on the eve of the financial infarct. Note, George)
The result is that these countries have now been drawn into the morass as well. Combined public and private debt has surged to all-time highs to 185pc of GDP in emerging markets and to 265pc of GDP in the OECD club, both up by 35 percentage points since the top of the last credit cycle in 2007.
“Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem too,” Mr White said.
Mr White, who is also chief author of G30’s recent report on the post-crisis future of central banking, said it is impossible to know what the trigger will be for the next crisis since the global system has lost its anchor and is inherently prone to breakdown.
A Chinese devaluation clearly has the potential to metastasize. “Every major country is engaged in currency wars even though they insist that QE has nothing to do with competitive depreciation. They have all been playing the game except for China – so far – and it is a zero-sum game. China could really up the ante.”
Mr White said QE and easy money policies by the US Federal Reserve and its peers have had the effect of bringing spending forward from the future in what is known as “inter-temporal smoothing”. It becomes a toxic addiction (borrowed from me, George) over time and ultimately loses traction. In the end, the future catches up with you. “By definition, this means you cannot spend the money tomorrow,” he said.
A reflex of “asymmetry” began when the Fed injected too much stimulus to prevent a purge after the 1987 crash. The authorities have since allowed each boom to run its course – thinking they could safely clean up later – while responding to each shock with alacrity. The BIS critique is that this has led to a perpetual easing bias, with interest rates falling ever further below their “Wicksellian natural rate” with each credit cycle (The author probably means “credit bubble” as he in fact describes the perpetuation of bubble over bubble in an endless superposition as described by myself in my recent article. Note, George).
“It was always dangerous to rely on central banks to sort out a solvency problem … It is a recipe for disorder, and now we are hitting the limit.”
William White, OECD
The error was compounded in the 1990s when China and eastern Europe suddenly joined the global economy, flooding the world with cheap exports in a “positive supply shock”. Falling prices of manufactured goods masked the rampant asset inflation that was building up. “Policy makers were seduced into inaction by a set of comforting beliefs, all of which we now see were false. They believed that if inflation was under control, all was well,” he said. (The good man is quoting my basic theses on the collapse of the world economy, how the Greatest Depression and the ongoing inflation in the west was camouflaged by cheap exports from China and other countries since 2008. Note, George)
In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style “Fisherite” debt-deflation. (The author is referring to the Great Depression and the subsequent bursting of the debt bubble and the unwinding, write-off of the huge debts. As I told you the word “debt deflation” is a lingusitc monster and should be eliminated from the economic vocabulary. Note, George)
Mr White said the Fed is now in a horrible quandary as it tries to extract itself from QE and right the ship again. “It is a debt trap. Things are so bad that there is no right answer. If they raise rates it’ll be nasty. If they don’t raise rates, it just makes matters worse,” he said. (This is the classical catch 22, I have referred to in the past with respect to this ultimate and irreversible crisis. Note, George)
There is no easy way out of this tangle. But Mr White said it would be a good start for governments to stop depending on central banks to do their dirty work. They should return to fiscal primacy – call it Keynesian, if you wish – and launch an investment blitz on infrastructure that pays for itself through higher growth. (This is utter bullshit that devalues this article significantly. But the author must write it otherwise it would not have been published. He was the only MSM journalist who correctly covered the Greek crisis and presented the view of Yanis Varoufakis. Note, George)
“It was always dangerous to rely on central banks to sort out a solvency problem when all they can do is tackle liquidity problems. It is a recipe for disorder, and now we are hitting the limit,” he said.
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