Europe In Crisis, Trouble For US?

A must read from The Golden Truth blog to understand what is happening behind the scenes in Euroland and our banking world.
Looks worse than 2008 when they let Lehman go.  Prepare yourselves!


The Golden Truth


THURSDAY, SEPTEMBER 15, 2011

What Exactly Happened Today?

I don't have time to explain the details, but essentially over the past few days the Fed, ECB, Swiss National Bank and Bank of England have been working in concert in order to make liquidity available to prevent the European banking system from collapsing - similar to what happened here in the autumn of 2008.  To simplify things, what has happened is that European banks have dollar liabilities (shorter term loan funding of various sorts denominated in dollars) that are being used to finance non-dollar income-producing assets (mostly denominated in euros).  Greek and Italian sovereign debt securities, for instance.  The assets are falling way short of being able to support the cash flows required to fund the liabilities (repos, for instance).  So, the European banking system is at the brink of "freezing up" and collapsing.

You can read about the details HERE  In addition, our Fed has made $500 billion swap "liquidity" facilities available for use - this has been in place for awhile.  And even more startling, it turns out that some big U.S. banks have been engaging in private market repo transactions with some big Euro banks, who have been using crappy collateral.  Zerohedge sourced this article:  LINK

I was actually stunned when I saw that because it shows how desperate European banks have become for cash.  But why are the big U.S. banks willing to take crappy collateral in exchange?  Traditionally repos are done using very short term Treasuries or Agency debt as collateral.  Why would U.S. banks be willing to take this shit to keep Euro banks solvent?   And why is the Fed extending half a trillion of Taxpayer-backed funding to keep the Euro system from collapsing?

I don't know for sure, and we'll never know until everything collapses, but I suspect that if countries like Greece and Italy and Spain collapse, then the big too-big-too-fail Euro banks collapse.  And if that happens, I suspect that our too-big-to-fail banks - primarily Citi, JP Morgan and Goldman - would collapse under the weight of a very large amount of credit default derivatives and interest rate swaps that require Euro bank counterparties to be able to fund in the event the default parameters are triggered.  In other words, U.S. banks and our Fed are just as desperate to keep the Euro banks alive as are the ECB/SNB/BOE bank members desperate to stay alive.

This scenario is startlingly similar to what happened right before Lehman was allowed to tank, which triggered the big bailouts here.  Only this time the scale is Lehman x 50 or 100 because it includes a couple of countries and all of the U.S./UK/European/Swiss To-Big-To-Fail Banks.  I also believe that what I just surmised has a very high probability of being pretty close to what is actually going on.  It also is interesting to me that some big, anonymous banks/Central Banks are lending/swapping out their gold holdings in order get their hands on badly needed U.S. dollars to meet dollar liquidity needs:  LINK

What would be frightening to me with these gold swap transactions is that there is a high probability that a lot of this gold being leased out may actually be coming from the same HSBC vault that "safekeeps" the GLD gold.  HSBC is one of the largest LBMA depository banks, which contain a large percent of the world's 400 oz. gold bars.  This is exactly why Hugo Chavez wants Venezuela's gold removed and delivered to Venezuela.  Remember the CNBC video in which Bob Pisani is standing in the HSBC vault and supposedly picking up a bar from the GLD "allocated" section?  Remember how that bar was NOT actually a bar on GLD's gold list but was purported to be a GLD bar?  More than anything else you read, that event underscores why you can't trust ANY of the gold in that HSBC vault and you can't trust that GLD truly has 100% backing of unencumbered bars (i.e. leased out or used in derivatives deals).

I said in my original GLD research report back in Feb 2009 that one day we'll wake up and the price of gold will be up $200 and the opening price of GLD will be down 50% (you can see that report HERE ).  What is happening right now in the financial system is exactly the kind of scenario and events that I envisioned would cause GLD to ultimately be exposed for what it is.  We could be closer than any of us realize to this type of situation actually occurring.  In other words, if you own GLD and think that you own gold, you don't.  Get rid of your GLD and buy the real stuff.

Finally, do not let this latest 2-day smack on the price of gold shake you out of your positions or scare you off from buying more physical gold/silver.  This hit on gold, I believe, was nothing more than a coordinated Central Bank intervention in order to get the price lower ahead of all of the above massive fiat/liquidity operations.  This is what happened in the summer of 2008 as well.  It also means that the global financial system is in far worse trouble than anyone not inside the Central Bank nerve centers realizes.