Debt Based Banking: It's All About to End

This is from a new blog by Andrew Kemp.  He come's out of the gate swinging with this article!  Welome to fray Andrew!

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Business Insider: It’s All About to End
Posted on July 1, 2012

 

 

 

 

“Debt can be expanded at a rate that exceeds the rise in real income in only one way: by lowering interest rates so the same income can support a larger debt.

This is of course the reason the Federal Reserve has lowered interest rates to near-zero with the ZIRP (zero-interest rate policy).

Eventually the buyers of newly issued debt at near-zero (or even negative) yields start to fear they will never get their capital back or they will be paid back in depreciated currency, and so they demand a higher yield. Since income has already been stretched to the limit to support a towering mountain of debt, this rise in yield catapults the borrower into insolvency.

That is Greece, Spain, Italy, and eventually, the entire debt-dependent global Status Quo.

Read more: http://feedproxy.google.com/~r/google/RzFQ/~3/zMwgNsywkWA/why-debt-dependent-status-quo-is-doomed.html#ixzz1zMEaOsMx

“European Central Bank (July 5): ‘ECB to finally drop opposition to zero interest rates‘

ECB president Mario Draghi left room for a rate cut by revealing at last month’s press conference, that conditions that support a rate cut are now in place. Moreover, at the ECB watchers conference in June Draghi argued that the economic outlook had deteriorated and that there was no inflation risk.

With this in mind, the ECB is finally expected cut its deposit rate to zero and the refinancing rate by 50 bos to 0.5 percent. Another LTRO or reactivation of the SMP are not likely. “The ECB risks leaving the impression that it is merely fiddling at the margins.”

 

Fascinating.

Germany is the only one with the cash! With Spain and Cyprus now admitting they are insolvent, along with their banks, and Italy next, we also have Slovenia signalling it will also need a sovereign bailout.

As Business Insider says: “Not even a complete and immediate move towards a fiscal, banking and political union would do anything to resolve Europe’s financial quagmire if Germany is not present.”

“In other words: it all comes down to Germany. Berlin is on the hook for everything. The required funding for the EFSF and ESM emergency funds would, with Spain and Italy moving into roles as debtors instead of creditors, have to come from Germany to the tune of what would fast approach 50% or so.”

“Does anyone think that is realistic? That Germany can make the markets truly, as in for more than a day or so, believe it has that kind of money lying around, and is wiling to gamble it? Or is it perhaps more likely that, if the Germans would even try it, the markets would turn on Berlin the next morning? If you look at bunds right now, there’s no doubt they’re perceived as a safe haven. But what are the chances that perception would last if Merkel agreed to take on the Savior Of All Of Europe part?”

“1) After weeks… months… even years of posturing and denial, Spain and Cyprus became the fourth and fifth countries to formally request aid from Europe’s bailout funds on Monday.

In doing so, these governments have officially confessed to their own insolvency and the insolvency of their respective banking systems.

Meanwhile, Slovenia’s prime minister said that his country may soon ask for a bailout. (Humorously, Slovenia’s Finance Minister denied any such plans.)

Spain’s 10-year bond yield jumped to over 7% again in response, and many Spanish banks were downgraded to junk status by Moodys.

2) Over in the US, the city of Stockton, California filed for bankruptcy this week… the largest so far, but certainly a mere drop in the proverbial bucket.

3) JP Morgan, considered to be among the few ‘good’ banks remaining in the US, conceded that the $2 billion loss they announced several weeks ago might actually be more like $9 billion.

4) The Federal Reserve reported yesterday that foreigners are reducing their holdings of US Treasuries.

5) Countries from Ukraine to Kazakhstan to Turkey announced that they have purchased gold in recent months to bolster their growing reserves.

6) Chile has joined a growing list of countries that has agreed to bypass the US dollar and settle all of its trade with China in renminbi.

7) China has further announced plans to create a special zone in Shenzhen, one of its wealthiest cities, to allow full exchange and convertibility of the renminbi.

8) World banking regulators from the Bank of International Settlements to the FDIC are proposing that gold bullion be treated as a risk-free cash equivalent by commercial banks.

So… what we can see from this week’s events is:

- European governments are insolvent

- European banks are insolvent

- US governments are heading in that direction

- Even the best US banks are not as strong as believed

- Foreigners are abandoning the US dollar and seeking alternatives

- Gold is money

These events are all connected, and the trend is becoming so clear that even the most casual observers are starting to wake up.

When you connect the dots, the next steps lead to what may soon be regarded as an obvious conclusion: the system, as it exists right now, is crumbling.

No amount of self-delusion can make this go away.

Rational thinking and measured action, on the other hand, can make the consequences go away… turning people from victims into spectators of the greatest bubble burst in modern times.”