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The Truth About Europe That No One Is Talking About
Published : November 05th, 2012
765 words - Reading time : 1 - 3 minutes
( 3 votes, 5/5 ) Print article
 
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I realize that the situation in Europe can be very confusing. Aside from the fact that we’re dealing with over 20 different countries all with their own respective economies and debt issues, we also have the European Central Bank and the numerous bailouts and bailout funds (the LTRO 1 and 2, the EFSF, the ESM and now the OMT) to keep track of.

 

So for clarity’s sake, I’m going to explain Europe’s problems in simple terms.

 

The first thing you should know is that European banks, taken as a whole, have far more leverage than their US counterparts. According to the IMF, US banks are leveraged at 13 to 1.

 

European banks are leveraged at 26 to 1. Put another way, they have $26 in assets for every $1 in equity.

 

Think of it this way, imagine if you had $100K in the bank and you borrowed $2.6 million to buy homes and other items. Do you think you would be in a stable financial condition?

 

That’s Europe’s banks on the whole.

 

However, we also know that the IMF only reports based on known assets or the asset levels that the banks admit. How many times in the last few years have we found out that banks were being honest and open about their risk levels?

 

Never.

 

So you should use the 26 to 1 leverage level as the minimum. Reality is likely far worse. Which means… European banks are insolvent.

 

Outside of this, European nations are also bankrupt. I realize that everyone likes to focus on Debt to GDP levels, but the reality is that European banks owe far more when you account for unfunded liabilities.

 

I know the same is true for the US, but the US’s unfunded liabilities pale in comparison to Europe’s. As far back as 2004, we know that:

 

Country

Debt to GDP Including Unfunded Liabilities

Greece

875%

Spain

244%

Italy

364%

France

549%

Germany

418%

EU as a whole

434%

US

400%

So, we have a bankrupt banking system in bankrupt countries.

 

Now for the zinger…

 

This entire financial system is based on the assumption that European sovereign bonds are still risk free.

 

So you have bankrupt nations, selling bonds to insolvent banks, which then use these bonds to leverage up to over 26 to 1 (by the way, Lehman was 30 to 1 when it blew up).

 

And that’s the ENTIRE European financial system.

 

I hope this clarifies why Europe is doomed. It is absolutely 100% impossible for Europe to get out of this mess unless the entire union suddenly started growing its GDP at over 10% for a decade.

 

That will never happen.

 

My advice to everyone: trust your gut. All of the accounting gimmicks and bailout ideas will never work for the simple fact that the system in Europe is totally broke. The US’s financial system, while problematic (that’s putting it lightly) is nothing compared to how bad Europe is.

 

In simple terms, this time around, when Europe goes down (and it will) it’s going to be bigger than anything we’ve seen in our lifetimes. And this time around, the world Central Banks are already leveraged to the hilt having spent virtually all of their dry powder propping up the markets for the last four years.

 

On that note, if you’ve yet to prepare for Europe’s BIG collapse…we’ve recently published a report showing investors how to prepare for this. It’s called What Europe’s Collapse Means For You and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at:

 

http://gainspainscapital.com/eu-report/

 

Best Regards,

 

Graham Summers

 

PS : On that note, we just published a Special Portfolio of unique inflation hedges: investments that will not only maintain their purchasing power but will outperform even Gold and Silver as the Fed and ECB debase their respective fiat currencies. We’re talking about investments of extraordinary value that 99% of investors are unaware of: asset plays trading at massive discounts to their underlying values. The kind of investments that can show you double-digit returns in a very short period. This portfolio will be made available only to subscribers of our Private Wealth Advisory newsletter. The last time we opened a similar portfolio, we saw gains of 28%, 41% and 42% in a matter of months. We expect similar returns this time around as well.

 

To find out more about Private Wealth Advisory and get on board for this Special Inflation Portfolio… Click Here Now!

 

 

Data and Statistics for these countries : France | Germany | Greece | Italy | Spain | All
Gold and Silver Prices for these countries : France | Germany | Greece | Italy | Spain | All
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Phoenix Capital

Graham Summers is Chief Market Strategist for Phoenix Capital Investment Research, an independent financial research firm based in Charlottesville VA with clients in 56 countries around the world.
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