August 15,
2012 By gpc1981
http://albertpeia.com/europesbailmario.htm
‘For
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Mario
Draghi claims he can save the Euro.
I
don’t buy it… even for one second. As far as I can see the ECB has one of two
“Bail Mary” options. They are:
1)
Massive money printing and buying of sovereign debt
2)
The issuance of Euro-bonds along with across the board banking backstops.
As I
noted in a recent
article, #1 is impossible. If the ECB does this it will implode the bond
market, which means GAME OVER for all intervention. Look at the impact QE had
on Treasuries and you’ll see what I mean. And that’s Treasuries we’re talking about… not PIIGS
debt.
Now
let’s consider the ECB’s second “Hail Mary” option:
the issuance of Euro-bonds and across the board backstopping of EU banking
deposits.
For
starters, Angela Merkel has said that there will not be Euro-bonds for “as long
as [she] live[s].” This is not a bluff. The issuance
of Euro-bonds goes against the German constitution. If Merkel were to even consider
this option she would likely be kicked out of office (remember she’s up for
re-election next year).
This
would also result in
As
for backstopping EU deposits… no entity on earth has the capital to do this.
Total Eurozone deposits stand at €15 trillion. Even
deposits at the current EU “problem” countries (
Again,
in very plain terms, NO ENTITY on planet earth has the money needed to backstop
banking deposits for the PIIGS, let alone the entire EU. So scratch that idea
off the list.
What
does this leave?
It
leaves us precisely where we are today. Where is that?
|
Bailout Entity |
Remaining
Firepower |
|
EFSF bailout fund |
€65 billion |
|
ESM |
€700 billion assuming |
|
IMF |
€38 billion (maybe) |
|
ECB |
Technically, the ECB could print a couple hundred
billion Euros, but doing so would have severe political and monetary
ramifications so this option is questionable. |
|
|
If it ratifies the ESM it’s on the hook for €190 billion Euros as well as the nearly €1
trillion it’s committed to EU bailouts already. German GDP is only €2. 89
trillion. So the country is already getting close to its own solvency crisis. |
The
above is not opinion or idle conjecture; these are all verifiable facts, which
is why I believe Mario Draghi is bluffing when he
says the ECB can act and that its actions be “enough.”
Indeed,
as a merely philosophical inquiry, ask yourself, when has a Central Banker said
“believe me,” and proven to be correct about anything in the last five years?
So if
you somehow think the EU is going to work everything out, you might want to
think again. Indeed, I’m already preparing my Private Wealth
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Graham
Summers
Chief Market Strategist