Monday, September 19, 2011

Greece to Default? Banks to Get Unlimited Cash.

The talk over the weekend is of the major Central Banks preparing to bailout European banks.

Why now and what is happening?

But firstly, maybe the bigger question is, do you even know it is happening? Remember the fanfare of the $700 billion TARP program in October 2008? The politics and the scaremongering about the TBTF banks.  So why the stealth and quiet announcements of large 'unlimited' dollar funding bailouts to European banks last week?

Maybe because this is the last throw of the dice? If the populous knew what this meant (and many at the top do) then the fan would be hit by undesireable and smelly things.

You see, as reported by Bloomberg, the Central Banks of England, Switzerland, Europe (ECB) and the US Federal Reserve have announced 'unlimited' funding availability for European banks.

The Daily Reckoning explained the banking crisis in Europe like this:
"The problem is the market between banks for overnight cash. At the end of each day banks tally up their deposits and withdrawals. Some have a surplus of cash and some have a deficit. The surplus banks have a choice of leaving it at (in this case) the ECB or giving it to another bank to satisfy their short-term liquidity requirements. They charge a fee on the loan.

But lately, banks have been choosing to forego the fee and deposit at the ECB instead. As a result, interbank lending rates have increased. This signals there is a liquidity issue in the banking system. But really it's a solvency issue.

Everyone knows the French banks are in a spot of bother over their exposure to Greek debt. If the Greeks default, the French (and many other banks) would go close to collapsing."

This concerted action by Central Banks is all about timing. One factor being many of the insurance policies on Greek debt are due on Wednesday, September 20th. If banks cannot re-insure their Greek debt then Greece may not be able to raise cash to pay it's bills as no one will lend to them. The Central Banks might sensing a problem, hence the highly unusual signal of supplying unlimited cash to the banks who are already insolvent.

Yes, insolvent, it's your money and mine that these banks do not actually have.

So if Greece defaults this week, this liquidity measure is likely to stabilize the impending chaos, but maybe not for long. If the problems get stickier, look for all sorts of market mayhem and volatility maybe ending in a complete economic freeze. No banks open, no business happening, supermarket shelves empty in days, police unpaid...it goes on.

Not only are we nearing the end-game, but I urge you to think about inflation again.

Why? Because this move is desperation by Central Banks and is highly inflationary. They bailed out Wall St in 2008, now they are bailing out sovereign nations and the world's largest banks. They will create money out of thin air to achieve this goal.
"Central bankers, are merely creatures, albeit powerful actors, in a system of privilege and legalized looting." (source)

Inflation is a stealth tax. Just look at these figures. The typical U.S. family has gotten poorer during the past 10 years. Adjusting for inflation, median household income fell 2.3% to $49,445 last year and has dropped 7% since 2000. Meanwhile, the share of people living in poverty has hit 15.1% — the highest level since 1993.

These figures show that we may all be poorer than we think. With unlimited money printing, we will all be poorer whether we think or not."

Gold in New Zealand dollars: $2199.10 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $49.33 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

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The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
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