Unknown Territory

EU Debt CrisisBy Greg Hunter’s USAWatchdog.com 

I was surprised to see the Dow only off a few hundred points yesterday considering all the problems European Union finance ministers are having getting a sovereign debt rescue plan together.  A 200 point loss on the Dow dramatically underestimates the amount of damage that could be done if the EU debt crisis goes haywire.  Maybe everyone is thinking the Federal Reserve will ultimately backstop Europe but, then again, the Fed can’t bail out every bank.  One thing is for sure, gold is flashing a bright yellow warning as it rocketed up around $50 yesterday and kept going higher in overnight trading.  Sovereign debt haircuts are looking like they will be at least 50% for most of this debt.  Dr. Marc Faber of Gloomboomdoom.com says Greek debt should be written down “at least 80 to 90 percent.”  With the amount of leverage in the banks (credit default swaps), the real losses could be astronomical, not just in Europe but in the U.S. as well.

Yesterday, French Prime Minister Francois Fillon reportedly warned fellow lawmakers of dire consequences if a debt plan is not reached.   Mr. Fillon said, “We are living in crucial times. If the summit is a failure, this could tip the European continent into unknown territory,” the sources from the ruling UMP party quoted the prime minister as saying during the meeting.  “Pressure does not stop growing on the eurozone and the whole of the global economy,” the sources quoted him as saying. “It is undeniable that the forecasts for global economic growth are undergoing brutal falls.” (Click here for more on that story.)

 Some are saying the EU is doomed to fail because of how it is set up.  Economist Martin Armstrong says there is one currency but many debts.  At least in the U.S. there is one currency and one very big debt.  In the short run, it means the U.S. is better off than the EU, but the longer run is a different story of course.  In the end, there are only two outcomes for debt–it gets repaid or it defaults.  Printing lots of money and causing extreme inflation is a form of default.  Former Fed Chief Alan Greenspan summed up the EU crisis nicely yesterday in a CNBC interview when he said, “At the outset of the creation of the euro in 1999, it was expected that the southern Eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn’t,” Greenspan said. “Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits.”  

Don’t start chanting U S A, U S A because America is not that much better off than Europe, according to Mr. Greenspan.  The story went on to say, “He also expects the European crisis, coupled with a failure to address the U.S. budget deficit, may be severe enough to cause a bond market crisis if the market suddenly decides the U.S. is more like Greece than not. “It is very difficult to predict when a bond crisis could happen,” he said. But getting an agreement on the U.S. budget will be difficult, he added, because Washington is the most polarized he’s seen it in his career.”  (Click here for the complete Greenspan post from CNBC.)

The European Financial Stability Facility, or bailout fund (EFSF), will likely come to the rescue in the near term, but the bailout facility is woefully underfunded.  It has about $600 billion (440 billion euros) in assets, but many financial talking heads are claiming the EFSF will be pushed up to $1 trillion.  I don’t see how even that is going to be enough because Italy and Spain alone have $3.4 trillion in sour sovereign debt.  It seems to me that the EU is fractured and adrift without direction.  Calling what could be coming “unknown territory” is just a polite way to say we are heading for a total breakdown of the world monetary system.

Comments
  1. PatriotRider

    Can you say meltdown?

    There is NO solution to this crisis. If there was, it would have been implemented long ago.

    Central banking, the creation of the Fed, and an economic paradigm that predicates economic growth on the issuance of debt without the currency pegged to gold is a worthless failure. You cannot solve a European debt crisis by the issuance of more debt, extreme writedowns or money printing (inflation/hyper-inflation). Now couple this situation with derivatives on the order of 600 to 900plus trillion and a moron can see where this is all going. But the politicians, economic elites just try to keep the game going.

    Well not for much longer. They are witnessing the consequences of their policies. Look at Greece; dictated austerity measures have sent the economy into a final death spiral, resulting in less revenue to the government to pay off it’s debts, thereby missing it’s GDP targets, resulting in greater EU demands for more austerity to meet those targets, and so on, and so on….get the picture?

    We are witnessing the slow motion crash of the old paradigm, and if you are not getting ready for the new paradigm you will be in a heap of trouble. New paradigm; currency backed by gold, silver or a basket of comodities with the new western currency(s) not being able to be expanded without 100% backing of comodities.

    Keep up the good work Greg. I enjoy checking out your blog everyday to get the truth that is missing in the MSM.

  2. Art Barnes

    Greg, the market is a fiction now that does not represent the real world, but a make believe play world which is only designed to continue a bull run for the elite. A 200 point downward pullback after last week’s rally and Europe’s issues plus our “gang” (committee) working on the deficit is a joke. The market is off (or over valued) by at least 40 percent or much more. If ever the MSM stops seeing a buy signal behind every tree and the little guy figures it out look out, it will fall like a rock. Shameful how the MSM is allowing the American people to think all the trouble is about Europe when, in fact, we are so overextended here, the system crumbling at the corners, can’t feed our people or give them jobs, how can such a farce stand much longer? I am always struck by the staying power of the elite and the MSM’s in perpetuating bullshit on the people, frankly, I blame the people for being so stupid. But I do believe in the old saying “you can fool some of the people some of the time but you can’t fool all the people all of the time”. Sooner or later the people will come to see that the MSM has and is lying to us and simply protecting the elite. Try telling a out of work person or a person working two jobs and is still at poverty level that all is well here in the good old USA and “just go shopping”.

  3. Brad

    Hi Greg,
    Unknow territory is vague and soft, yet Fillon must know the reality. There is a telling article in markamerica.com on the run on Greek banks. They are being cleaned out of cash one depositor at a time in ever-longer queues. There was a bailout payment either sent or contemplated of 100 billion euros for Greece but consider that recently some wealthy Greeks have already sent 200BN to Swiss banks. Same currency, the Euro, but they fear waking up to the CLOSED sign on the front door of their local bank. Europe has already fallen off the cliff but just hasn’t hit the ground yet.

    • Greg

      Good info Brad. Thank you for posting it here!
      Greg

  4. norcar survivor

    Greg
    I see bad times ahead for Americas future. Watching the outbreak of violence in Oakland last night demonstrates how volatile the situation is between law enforcement and the protesting community. The issue for the protesters is that they are at present a curiosity of the common man. We watch from the sidelines and wonder “What next” Well we have been talking for some time now about the coming financial collapse and I believe that when this happens, the common man will have something in common with the protesters. This group of scattered protesters throughout the U.S. have a common thread in that they have no unifying leader or demand except just being there with their anger at the 1%. Most of the people out there haven’t a clue how the percentages work in our economy. It’s just a reason to get out and protest. That will change when the bottom falls out and the common man gets involved. We who make up the 48% who have worked for a living and have seen our jobs go away and our currency devalued know the score and the real value of what we are losing. When we hit the streets there will be unity and it’s name is poverty. Misery will be our chant and things will get interesting for the law enforcement officials because the numbers will be unbelievable. I’m not just speaking protesting. I’m speaking about normal citizens showing up all over the country demanding answers and action.
    We have that chance next November to do it the right way and if that doesn’t work, well we have a history in this country of handling things on a first name basis. Voting is a peaceful way to demonstrate our intentions. If that fails then I don’t want to see the next wave. It wont be pretty for anyone.

    • Art Barnes

      As long as fiat money is the name of the game nothing will change, the fiat game is up and over. The next election is about more elected officials who believe in fiat. When you don’t produce anything and your work has no value, fiat is your game. Try having people actually making something useful and getting something in return worth something; fiat, I think not. Fiat simply fails as anything not real can’t last. Gold or commodity exchange has always worked as you can’t just say I have 40 apples in the bag when there are only 20.

      • Denarius

        Art, you may like these quotations which
        seem to resonate with your post :

        “Soviet economics is quite simple, really. We
        pretend to work, they pretend to pay us.”

        “Everything tends to become unreal
        once the money becomes unreal.”

  5. Matslinger

    Nothing is happening that hasn’t been planned…
    When the time is right, and paper profiteering can be no more,
    the Rothschilds will pull the plug, and thrust the planet into
    Global anarchy, (just Like Mayer Amschel Rothschild planned it 238
    years ago). I’ve yet to see one high profile blogger have the courage to assign blame for our economic nightmare where it belongs,
    “On the Rothschild Zionists”.

    • Greg

      Matslinger,
      I rarely put comments like this on the site because they do not hold up to scrutiny. There are many top bankers in the world that are not “Zionists.” This is a complicated problem that took many years to develop. It was not caused by one race or religion. It was caused by greed and criminal activity. There is plenty of blame to go around for all races and religions under the sun.
      Greg

  6. Diane Carol Mark

    Hi Greg,
    An article posted on how BoA ($75 trillion) is shifting derivatives from its Merrill investment banking unit to its depository arm which has access to the Fed discount window and is protected by the FDIC. JP Morgan is doing the same with $79 trillion. In comparison, total GDP of US is $15 trillion.

    http://dailybail.com/home/holy-bailout-federal-reserve-now-backstopping-75-trillion-of.html

    “What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan. Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.”

    So, it looks like we’re wired into this mess through some fancy accounting plays, and certainly, we the citizens, shouldn’t be responsible for any of it. This will come up right somehow, someway, someday.

    :) Diane

    • Greg

      Diane Carol Mark,
      This news makes me both sick and scared. Thank you.
      Greg

  7. RP

    Seems like the leadership of the US could find education in the problems that European countries are having. But it appears our leadership is following in the same footsteps that the leaders over there followed. Spend now, run up debt, let the future generations fix the problems we create today.

    We see many protesting “Wall Street”,for whatever reason they may have. But what we need is this same type of movement protesting the debts our leaders are running up without recourse. Not until government begins to fear the people will government change its ways. Right now, I believe most Americans fear the government more than the government fears them and as long as that is present, nothing will change until a crisis creates the change, and that is too late.

  8. Martin Huffman

    The problem with any of these countries using fiat money is, the longer they fight to keep it up and running, the harder and more damaging the crash will be when it does happen. They are better off getting a new system ready, then let the old one crash, then put the new system to work. But we can see someone doesn’t want the old debt system to go away, and they in turn are making this situation much more worse than it really needs to be.

  9. Miro Markovic

    Greg, I want to complement your cartoonists. They are so much in agreement with your written words and excellently complement everything you say. It is almost an art. I have not seen these samples of great spirit before. What a great minds they have, wow!

  10. Shawn In San Jose

    The Euro is toast. The question is when. The powers that be are going to to everyting possible to forstall the inevitable. The longer they fight the more damage they do to the regular guy or gal on the street. The saddest thing of all is how the media keeps printing articles that say “IF” Greece defaults. It should be resoundingly clear by now that a default is inevitable.

  11. nm

    “The European Financial Stability Facility”

    This is what Martin Weiss had to say about the EFSF:

    1) If Sarkozy bails them out with French money, France loses its triple-A credit rating, and it’s game over for Europe.

    2) Why? Because Europe’s bailout fund, the European Financial Stability Facility, REQUIRES its donors to maintain a triple-A, and France is one of the biggest donors. So if France is disqualified, the entire European bailout scheme falls apart.

    Full article below:

    http://jhaines6.wordpress.com/2011/10/23/today-armageddon-for-europe-from-money-and-markets/

    • Greg

      NM,
      You have come up with a winner here. Great info!! Thank you. Martin Weiss is a smart, clear talking guy.
      Greg

  12. jay

    greg, were at the top of the hill with only 3 trees to climb,and millions wanting to climb a little higher…soon there will be nowhere to go but down.

    • Greg

      Thank you Jay and Comeon for the analysis.
      Greg

  13. Comeon

    Come on Greg.

    What part of “RIGGED” don’t you understand? That libertarian kid at Occupy Wall street said it best. They know when the market is going to go up and it is going to go down and make money each way. The rigged casino is loaded deck that makes any pit boss in vegas blush. Enough of the great collapse bull. It already collapsed with silver at $50 per oz and gold near $2000 per oz. They got the thing rigged. The next collapse will be when millions decide they had enough and bum rush the stock exchange. I thought that moment would be pushed off, but it may come sooner. who knows. Suppose it just matter how much anger, hopelessness, and pain is out.

  14. Steve

    I found your site after searching Google for news on the EU debt crisis. I must say that I found some of your posts very informative, but don’t understand the overall tone of doom and gloom! What gives?

    Let’s face it, there has and always will be bad things happening in the world, but the US isn’t going anywhere and neither is Europe.

    So I don’t have to post two comments. I wanted to touch on your gold and silver advice from a few other posts. First, gold and silver is a fools investment for one main reason. It is a 100% manipulated market and anyone that thinks they can protect themselves by investing in gold or silver is crazy.

    In theory it sounds good, but in actuality it is not going to happen – as too many conditions need to be present.

    The powers that be control the gold and silver markets and everyone else is a pawn on their quest to get richer. The price can plummet to below what someone paid for it and if that person needed US dollars – they basically would be screwed when liquidating to raise cash. Plus, gold and silver can drop to a price point that if the dollar was devalued – the dollar would still be worth more then the gold or silver that person holds.

    Advising or stressing the importance of AG and AU is actually a disservice. Food, land, supplies and learning a skill that will be valuable is a much better hedge.

    • Greg

      Steve,
      You say “don’t understand the overall tone of doom and gloom! What gives?” and in the same comment you also say “Food, land, supplies and learning a skill that will be valuable is a much better hedge.” My question to you, “What gives?” I have no problem with folks stockpiling food and water and learning a skill but these things go hand in hand with precious metals. You are ignoring a 5,000 year history of gold and silver as money. I am not talking about GLD or SLV either. I am talking about coins in hand. If you are holding paper money you do so at extreme peril.

  15. M SMITH

    Greg, the real theme that the OWS’ers need to focus on was in a article by the Golden Jackass. http://news.goldseek.com/GoldenJackass/1319659200.php. Jim is right about the way corruption has been the maintained for decades because of the actions that congress took to protect the club as Armstrong has continued to point out in his many writings. Both mem know that there will be no stopping the manipulators from looting the wealth of all savers unless they take advantage of the low prices of physical gold/silver and take delivery of their insurance.

    Here is a link to a story of a young man who bought gold and the prices took a nose dive leaving this young man mad at the person he had taken the advise from. This is a very good story that many may relate to. http://www.caseyresearch.com/cdd/opportunity-repeat-good-mistake#section0.

    Gerg, Europe has not saved the Euro, only prolonged its life for a while & the dollar will see its day soon aslo as people see the effects of inflation on how they spend changes faster each day. Runs on the banks have began, the fuse is getting shorter by the minute.

    • Greg

      Thank you M Smith! We love jim Willie!!!
      Greg

  16. jay

    barter has been the way of capitalism sence cain and able.
    and gold is and always will be the # 1 barter tool. i will always be able to get what i want if i have enough gold,not true with paper money.

  17. Denarius

    jay, you may be surprised at how little gold may be needed.
    The story is told that in Zimbabwe’s extreme inflation, bread
    was unavailable no matter how many $Zim was being offered.
    Then some one arrived with a single gold coin and all were
    amazed at how many loaves suddenly appeared.

    As far as barter goes, a poster I read some years ago stated
    that, “Silver coins simply make barter extremely efficient.”
    Task your search engine with “fractional silver coins” and
    see a whole new world opened to you. It did for me.

    As far as Steve, above, is concerned, I guess he is suffering
    “normalcy bias” – the expectation/assumption that the future
    will be no more than an extension of the familiar past. That may
    work for most of one’s life until there is a paradigm shift, such as
    now, when a credit/liquidity crisis morphs into a currency/solvency
    crisis. Happens about every three hundred years, rain or shine.

    Here is something that may add perspective :

    Gold is the currency of Kings,
    Silver is the currency of Gentlemen;
    Barter is the currency of commoners,
    Debt, aye, debt be the currency of slaves.

    It is no co-incidence that, throughout history,
    slavery was the rule and freedom the exception.

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