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The Eurocalypse Rant: The Consequences of Foolish Monetary Policy

The Eurocalypse Rant: The Consequences of Foolish Monetary Policy

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So its only too natural that the answer to Is The Entire Global Banking Industry Carrying Naked, Unhedged “Risk Free” Sovereign Debt Yielding XXX%?

My quick answer is NATURALLY !!! Any extra Euro of deposit in a bank gets marginally invested in those gov’t bonds, I’d say it’s almost the analog of the law of conservation of Energy in Physics as gov’t debt is the biggest and most liquid debt instruments.

If the banks didn’t then the states would never been able to borrow money in the first place.

The reason??? Because if most people don’t know that their pension funds and life insurance are invested in bonds, they ignore even more that their deposits are invested indirectly in those very same instruments, even though most would say “No!” if they had the choice !!!

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I would also add that an indirect effect of recapitalizing banks, and ever-adding debt is to make banks even bigger and more cannibalizing. After all, banks revenues should be proportional to their deposits and to existing debt. When this is the only thing growing faster than anything else, it is hardly surprising that banks profits (becoming acknowledged paper and virtual profits as opposed to real losses) and bankster’s revenues and bonuses are going higher and higher.

If people don’t want bankers to be rich, don’t bank! Move your money out of your bank. If you think footballers or rock stars are too well paid, don’t watch football or buy rock records! So basically the drug addict is complaining that the drug dealer is too rich.

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Financial assets are not worth what we think they are. One should include deposits in the financial assets category.
The only way is for everybody to acknowledge that.

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There is no magical number like 100%, 120% debt to GDP ratio that makes things SUDDENLY unworkable… It’s the realization of all this by investors, individuals and bankers alike.

Actually I am must more pessimistic than you, Reg. I’ve been thinking for a while, USSR 1989 or better put, Capitalism 2012. In USSR in 1988 nobody had a real clue that everything would be over in less than a year. I think it’s the same here. People don’t disappear, all factories don’t close, but a massive change and chaotic transition occurs. I expect the same in Europe, with some revolution or coups in some countries, big institutional changes, massive defaults and bankruptcies in both banks and (the leveraged) corporate sector, returning to some state-nations, or forming of several blocs, but EMU won’t exist as it is even in 1 year (most realistic analysts say 5 years..). As you demonstrated, I think it goes further than EMU and we can include UK, US and perhaps even Japan; all the western world with it, with a short 1-2 year lag at the very most. I’m not forecasting (nor hoping for) war, but that’s become my main scenario.

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