by Ed Hamler
If you are one of the many leaders of Europe or the United States still clinging to a self induced denial concerning the need for an emergency restoration of the Glass-Steagall Act, I kindly ask you to check yourself into the nearest mental institution where you will be safe from having to make any leadership decisions from here on out. But, before you do that, forward this message to the more sane among your caliber so real leadership can be taken in the coming days. What follows is for those who are committed to making the shift to restore Glass-Steagall ON AN EMERGENCY BASIS.
Since Lyndon LaRouche’s warning on May 26, 2012 that the entire Eurosystem has died in the wake of the Bankia crisis in Spain, everything has played out exactly as Mr. LaRouche warned. For clarity, the transatlantic economy is in a general breakdown crisis, not a recession or even a depression, but a GENERAL BREAKDOWN CRISIS. This means that the rate of the collapse of the entire system will continue to exceed the rate of the attempts to overtake the collapse by way of bailout or any other monetary mechanism. If you propose a bailout today, tomorrow that bailout will be obliterated by the rate of growth of the debt. The next day, that debt will require a new bailout, that will subsequently be overtaken by more and more debt that is orders of magnitudes more unpayable.
This is the hyperinflationary breakdown crisis we saw in 1923 Weimar Germany, and now just as then, no bailouts or even monetary contingency plans can do anything to stop this crisis. The process will continue until we restore Glass-Steagall, or until we’re all dead.
That is the character of the breakdown of the transatlantic system.
On May 9th the Spanish government made a commitment to bailout the newly nationalized Bankia to the tune of 4.5 billion euros, but no sooner than that commitment was made, it was revealed that an additional an
19 billion was already needed just after two weeks, on May 26th, an increase of 500%.
The next day, Bankia was promised the additional 19 billion euro bailout by the Spanish government to reach a total bailout (so far) of 23.5 billion. But again, as soon as this was announced, the Spanish government realized they did not even have the money to issue the bailout. The Spanish government's bank bailout fund that handles such contingencies, the FROB, only has 5.4 billion euros after all its earlier bailouts, and 1 billion of that is already committed to the Banco de Valencia. So it is 14.6 billion euros.
So, how are they going to bailout the bank? Sacrifice the sovereign debt of the country. The Spanish government has decided to bail out Bankia with 19 billion euros in government bonds, which Bankia can then use as capital assets. This is backdoor money printing by another name. And the whole sham will blow up in the government's face the second Bankia needs to make those bonds liquid... if not earlier. In fact, it now appears that less than 24 hours after this crazy scheme was floated by the Spanish Government, it was shot down.
On top of this it turns out that the 19 billion euro bailout Bankia demanded from the Spanish government, comes from the fact that the bank discovered that it actually had 13 billion euros more in toxic assets than it had previously realized or admitted, 9.7 billion of which is in the real estate sector. So that now brings the total bad debt on Bankia's books from 27 billion to 40 billion euros.
But despite the growing mountain of bad debt that, everyday now, overtakes these bailouts, the insane denial in the European leadership has compelled them, not to stop this process immediately with a Glass Steagal reform; that would be an act of sanity, but rather, to actually propose up to 60 billion euros of government bonds to recapitalize the entire Spanish banking sector, committing a sovereign government, and its people to honor the debts of a dishonorable system. But even if that were adopted, it would also not be enough: Spain’s Regions also have some 140 billion euros in unpayable debt on their books; other European countries are rapidly following Greece and Spain into insolvency, because the debts they owe the banks are also unpayable.
And then there’s the proverbial godfather of bad debt: the derivatives bubble, sitting on top of this mountain of transatlantic debt, making this a crisis not merely of Europe but of the United States as well as the Federal Reserve has poured billions into the European system and derivatives bubble more generally. Noone even knows the size of that bubble, let alone how to keep it afloat.
The breakdown crisis is here. It’s not something that is “coming”, but it’s here now.
Already major financial institutions and national governments are admitting this reality, with Lloyd’s of London and the Swiss National Bank announcing that they have contingency plans in place in preparation for a European blowout. Unfortunately those contingency plans are, at this point meaningless and won’t work.
A Feature article in today’s Huffington Post: “The End of the Euro” sums it up quite nicely, “In every economic crisis there comes a moment of clarity. In Europe soon, millions of people will wake up to realize that the euro-as-we-know-it is gone. Economic chaos awaits them.”
But well before the people of Europe and the United States suddenly awake from the slumber of denial and complacency, leaders of the world must make a commitment to put the solution in place now, and declare “There are no contingency plans, there is only Glass-Steagall!”
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