Today’s news (out of Europe): Banks and bondholders may be forced to write down 50-60% of Greece debt which should send shock waves across the banking sector and global markets. European banks are leveraged 25 to 1, that’s double of even U.S. banks! To give you an idea of just how bad this is, Lehman was leveraged 30 to 1. However, the most important thing to remember is the 25 to 1 leverage number is based off of what the banks say their asset values are, now does anyone honestly believe that the banks are being honest with these numbers? Total official debt for financial companies (excluding derivatives) in Europe is 23 TRILLION!!! That is 43% more than the entire European annual GDP!
Since a bailout from Greece’s neighbors is politically impossible, would have to assume that these type of write downs being talked about would make European banks insolvent as the numbers just don’t add up. Which is probably why gold this morning is up $57 per ounce and silver is up $1.55.
Questions Investors Should be Asking Themselves
How long after Greece officially defaults with bondholders taking a 50-60% loss will we hear other nations requesting the same type of rescue package?
How long until investors loose complete faith in the EU and jump ship?
IF, and it’s a very big IF, governments try to recapitalize banks, this will lead to a domino of downgrades and even more chaos in Europe. Will Europe collapse or print print print?
Charles Hugh Smith put it best yesterday when he said,  [su_quote]The dominoes of debt are toppling in Europe, and there is no way to stop the forces of financial gravity. [/su_quote]
For the past 2 years, we have seen crisis and postponement in Europe, fake fixes, proposals, and speeches from European leaders.
The trend of March 2010 to August 2011 was that when the Greece crisis was on the front pages of the news, global markets went down and gold and silver went up. This trend was broken in September, but as of today, it appears to be back in tact, perhaps the trend was only broken due to the huge run up in silver and gold during the summer. Or perhaps it was that certain powers that be didn’t want $2,000 gold and $60 silver in the face of a Euro collapse. Either way, it appears the trend is back and the demand for physical metal is overwhelming the fractional reserve gold paper trading and leasing supported by the biggest banks on earth.
As far as the timing, the powers that be have showed an incredible ability to postpone the inevitable, however, with economies slowing and stimulus increasingly unpopular with voters, puts the sovereign debt crisis reality check sometime between now and the end of next year. This is why we are sending an urgent alert to all of our members and their families to keep their wealth away from Europe, anything held in Euros, in our opinion, is extremely risky.
Overall Europe is in very bad shape when you take a look at the books.
  • Nations like France and Italy spend more than 14% of their GDP just on pensions to retired government workers.
  • In order for EU nations to pay for their unfunded promises of national health care, pensions, and other social programs, each EU nation would need at least 400% more than their current GDP!
  • Germany, the so called economically strong nation in the EU, has unfunded liabilities of more than 7 trillion Euros, with their official debt to GDP ratio at 78%. However, when you actually include what they really owe, debt to GDP is 284%.
  • Even German ex-central banker, Axel Weber, has warned that Germany is much worse than people believe.
  • They live beyond their means, especially the southern nations. Greece for example has increased salaries for state officials by 76% since the introduction of the Euro, wages overall have increased by 42%. The easy credit and low interest rates have given fiscally irresponsible nations a false sense of how much debt they can afford.
  • Spain and Portugal will not meet their deficit reduction targets this year or ever, in our opinion.
  • Italian Government is on the brink of collapse.
  • We are getting reports that bank runs in Greece have already begun, one report stated that this morning over 5,000 customers lined up in order to make withdraws. Up to half are transferring their wealth out of the country.
When you look at Greece, their debt chart trajectory looks a lot like the U.S. Greece has seen a 46% increase in government debt in the past 4 years, the U.S. has seen an increase of 72%. Yes the U.S. is worse, however, the U.S. can print the world reserve fiat currency, Greece can’t.
In our opinion, the dominoes have begun to fall, first Greece, then the banks, then the Euro. The great sovereign debt crisis of 2012 has begun. Are you ready?