The Banking System In Crisis
This is the most overlooked, or perhaps I should say, misrepresented, story that is out there.
We are looking at a situation that could be catastrophic and few are truly talking about it. Instead, they are providing false information about what is taking place. This is providing a great deal of misdirection.
Essentially, we are looking at a European banking system that is in crisis. At this point, nobody is aware who is truly exposed to this, hence liquidity dried up. When investors are unsure about the state of things, they tend to pull back with their money. Banks are exactly the same.
The evidence of this is in the RePo market.
To alleviate this, the United States Federal Reserve is stepping in with a boatload of money. Reports are they will dump $500B into this market by year-end.
This, of course, gets the charlatans like Peter Schiff on television calling it "QE4". This is not quantitative easing. QE is done when the economy is sluggish and the central banks wants to kick start it. This is done with a coupling of interest rate decreases.
The Fed has acknowledged the U.S. economy is strong. They also did not lower interest rates in their last meeting. Instead, they held firm.
Thus, what is taking place is not QE like the "experts" are calling it on television. Instead, this is the Fed providing liquidity to the overnight market since banks are refusing to lend to each other. This is causing the markets to freeze up.
Why won't the banks lend to each other?
Here is the core of the issue. European banks, led by Deustche Bank, are in a great deal of trouble. Unlike the banks in the United States, European banks failed to solidify themselves after the last financial crisis. A decade later, these institutions are in bad shape.
The problem gets really bad if it spreads beyond the borders of Europe. At this moment, since banks are unaware of what exposure everyone else has to Europe, they are unwilling to lend, even overnight.
Hence, we see the freezing of the market.
Calling what the Fed is doing "quantitative easing" is extremely dangerous. This situation is much worse. It is going to require all sides to come together. It is one of the reasons why Trump suddenly made nice with China. Banks in both countries are going to have to work together on this.
If European banks do fall off the cliff, this could spell a great deal of trouble for the global economy. We will see very quickly who has exposure meaning institutions from around the world could be battered overnight.
This would send panic throughout all markets, causing distress everywhere.
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