Italy: Beginning of The Euro Financial Cliff?

These days, discussions of various global currencies have become about as commonplace as how badly the local sports team performed during the last game. It has become clear, every fiat-based phoney money Ponzi Scheme, based on central banker-created debt money, is nothing more than a planned “race to the bottom”.

Chart Source: The Right Perspective, July 14, 2011
(added by EconMatters)

The European debt crisis sank to new lows with Italy’s largest bank, UniCredit, having its assets seized by an Italian court. Among the walking dead zombie banks of Europe, UniCredit is now one of the worst, an amazing feat these days. But that’s not even the worst news out of Europe. The strongest member of the European Union (EU), Germany, was only able to sell 91% of a five billion Euro government-issued bond deal in mid October.

This is a clear sign that another massive bailout is looming large in Europe or else an EU collapse is imminent. And you can bet the bailout will drag the US Federal Reserve into action as well…meaning higher inflation here.

There’s absolutely no way the Euro is going to hold together. This is by design. When the EU was formed over a decade ago, the central banking authorities encouraged economic integration and a “robust” sovereign debt market. So, they adjusted the banking reserve requirements to allow European sovereign debt to be exempt from a capital charge to banks’ risk-based assets. This encouraged all the European megabanks to leverage their balances sheets to ridiculous heights by purchasing sovereign debt. And that’s EXACTLY what happened.

Have you heard of PIGS? That’s mainstream financial jargon created by those making fun of the lumbering debt monster they created – Portugal, Italy, Greece and Spain. Those countries couldn’t meet the initial strict requirements of the EU, but still managed to obtain billions in funding because of this lunatic central banking policy.

Josef Ackermann, CEO of Europe’s leading bank, Deutsche Bank, said recently, “It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels."  

While the Greek debt problem could be just small enough to be contained by a European bailout fund, there’s little chance such a feat can be accomplished with the more massive Italian debt mountain…plodding along to a refinancing crisis of epic proportions: $192 billion Euro this year, $168 billion next and another $100 billion in 2013. And credit ratings today are no longer based on ability to repay, but simply on ability to refinance. Once somebody large is unable to, like Italy possibly, the financial cliff begins…and it’s STEEP.

The ultimate irony is that regardless of how many days Occupy [insert city name(s)] goes on, the true culprits may never be prosecuted, except maybe a few of their most offending minions like Bernie Madoff and Raj Rajaratnam. So, forget about that, just go get a pie and share it with your good friends.