The
Truth About Europe That No One Is Talking About
By Graham
Summers
2
November, 2012
I
realize that the situation in Europe can be very confusing. Aside
from the fact that we’re dealing with over 20 different countries
all with their own respective economies and debt issues, we also have
the European Central Bank and the numerous bailouts and bailout funds
(the LTRO 1 and 2, the EFSF, the ESM and now the OMT) to keep track
of.
So
for clarity’s sake, I’m going to explain Europe’s problems in
simple terms.
The
first thing you should know is that European banks, taken as a whole,
have far more leverage than their US counterparts. According to the
IMF, US banks are leveraged at 13 to 1.
European
banks are leveraged at 26 to 1. Put another way, they have $26 in
assets for every $1 in equity.
Think
of it this way, imagine if you had $100K in the bank and you borrowed
$2.6 million to buy homes and other items. Do you think you would be
in a stable financial condition?
That’s
Europe’s banks on the whole.
However,
we also know that the IMF only reports based on known assets or the
asset levels that the banks admit. How many times in the last few
years have we found out that banks were being honest and open about
their risk levels?
Never.
So
you should use the 26 to 1 leverage level as the minimum.
Reality is likely far worse. Which means… European banks
are insolvent.
Outside
of this, European nations are also bankrupt. I realize that everyone
likes to focus on Debt to GDP levels, but the reality is that
European banks owe far more when you account for unfunded
liabilities.
I
know the same is true for the US, but the US’s unfunded
liabilities pale in comparison to Europe’s. As far
back as 2004, we know that:
Country
|
Debt
to GDP Including Unfunded Liabilities
|
Greece
|
875%
|
Spain
|
244%
|
Italy
|
364%
|
France
|
549%
|
Germany
|
418%
|
EU
as a whole
|
434%
|
US
|
400%
|
So,
we have a bankrupt banking system in bankrupt countries.
Now
for the zinger…
This entire financial system
is based on the assumption that European sovereign bonds are still
risk free.
So
you have bankrupt nations, selling bonds to insolvent banks, which
then use these bonds to leverage up to over 26 to 1 (by the way,
Lehman was 30 to 1 when it blew up).
And that’s the
ENTIRE European financial system.
I
hope this clarifies why Europe is doomed. It is absolutely 100%
impossible for Europe to get out of this mess unless the entire union
suddenly started growing its GDP at over 10% for a decade.
That
will never happen.
My
advice to everyone: trust your gut. All of the accounting gimmicks
and bailout ideas will never work for the simple fact that the system
in Europe is totally broke. The US’s financial system, while
problematic (that’s putting it lightly) is nothing compared
to how bad Europe is.
In
simple terms, this time around, when Europe goes down (and it will)
it’s going to be bigger than anything we’ve seen in our
lifetimes. And this time around, the world Central Banks are already
leveraged to the hilt having spent virtually all of their dry powder
propping up the markets for the last four years.
On
that note, if you’ve yet to prepare for Europe’s BIG
collapse…we’ve recently published a report showing investors how
to prepare for this. It’s called What Europe’s
Collapse Means For You and it explains exactly how the
coming Crisis will unfold as well as which investment (both direct
and backdoor) you can make to profit from it.
This
report is 100% FREE. You can pick up a copy today at:
Best
Regards,
Graham
Summers
PS.
We also offer a FREE Special Report detailing the threat of inflation
as well as two investments that will explode higher as it seeps
throughout the financial system. You can pick up a copy of this
report at:
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