The World is Bankrupt Now

Richard Salbato

The real world banking system, the Rothschild bankers, the Federal Reserve and IMF know that the world is broke but pretend that it is not in order to hold together a little longer to make as much money as possible until it fails. I really do not mean money but power, buy buying up commodities like water, electric systems, gas and food. They did the same thing in 1982 when all the socialist nations in South America were bankrupt but they kept it a secrete long enough to drain them of natural resources.

The 1982 Latin American Bankruptcy

In 1982, when the Latin American debt crisis effectively blew up the American banking sector, it was about the worst possible banking crisis in modern US history. Our conclusion was that seven out of eight US money centre banks were actually underwater.

It was so bad because everyone down from Mexico to the southern tip of Chile went bankrupt. Paul Volcker, the chairman of the Fed, called central banks and ministries of finance all around the world on that critical Friday in August 1982.

What the New York Fed had to do was arrange for all the foreign banks to keep credit lines open to the South American banks, knowing full well that all these American banks were actually bankrupt. And we also could not tell the outside world about the situation because if you go out and say “American banks are bankrupt” – the next day they will be bankrupt.

And so we had to come up with these stories that “Well, there are some Latin American problems, but they’re all good debt, not bad debt,” and we had to lengthen the clean-up process; it was a very difficult period for US central bankers and bank regulators in general… So by keeping this myth going, that everything is fine… we had to do that for a very long time… the whole process took about 13 years...

The 2010 European Bankruptcy

As was the case with the U.S. banks back then (and now, but that’s another story), the simple, undeniable fact is that any number of eurozone countries – as well as many of the world’s largest developed nations – are bankrupt. As in, technically unable to pay back their debts – at least in currency units with the same purchasing value as they hold today.

The following chart, from European Commission data, gives a sense of the problems now weighing on Europe.

But that doesn’t give anywhere near the complete picture, because when you add in the unfunded obligations of these countries, the actual liabilities as a percentage of GDP soar.

As it is at hand, I’ll use the situation in the U.S. as an example by pointing out that while total U.S. federal debt is now on the order of $14 trillion – which is closing in on 100% of GDP – when you add in all the unfunded liabilities, the number is actually more like $100 trillion.

Given their even more socialized economies, the aging European countries are in even worse shape.

And it’s not just the governments, but the large banks with hundreds of billions of exposure to the unpayable debt of the governments, and to that of the indebted public. That any number of Europe’s banks are deeply underwater tacitly adds even more liabilities onto the backs of the eurozone countries.

When you add up their total debts – including the governments and the private sector – as the McKinsey Global Institute did, debt across Europe is now running at all-time record levels… and it’s not just the small countries in trouble, with Spain at 340% of GDP, and France and Italy at about 300%. Even Germany, the paradigm of European financial health, is at 275%. The UK, which just offered to lend its Irish neighbors on the order of 3 billion pounds, has a debt-to-GDP ratio of a jaw-dropping 470%... meaning they’ll have to borrow it first.

The long and short of it is that the only real strategy left to the European governments is to lie, and lie convincingly, that all is well and that all can be managed. 

The scale of the problems, however, means that they will have to keep at the deceit for years… maybe even another decade or more, all the time hoping their economies recover to the point where tax revenues and/or inflation can reduce their debt loads to manageable levels.

Unfortunately, with the speed that information travels at these days, keeping their lies undiscovered is a false hope. And the consequences of being exposed for the deadbeats and frauds they are will be both sharp and devastating, as the bond markets demand higher and higher interest rates in order to finance and roll over the unpayable debt.

"Germany cannot keep paying for bailouts without going bankrupt itself," said Professor Wilhelm Hankel, of Frankfurt University. "This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings." 

In Spain and Portugal

“Spain and Portugal are now at record wides, suggesting that contagion fears haven't been assuaged by Ireland's bailout," said Markit analyst Gavan Nolan. Five-year credit default swaps (CDS) on Spanish government debt rose to 350 bps, according to data monitor Markit. This means it costs 350,000 euros to protect 10 million euros of exposure to Spanish bonds. Portuguese CDS also hit a record at 545 bps.”   

 In Italy

The good news is that Italy, euroland's third largest economy, is not like Greece or Ireland. No major housing bust, no major banking implosion, at least not yet. The bad news is that Italy is like Portugal, which also has so far escaped housing and banking problems of Greco-Irish proportions, but is growing so slowly that its tax revenues might fall short of covering its IOUs. The worse news is that Italy's economy is almost half-again as large as Spain's, and troubled Spain is a country deemed too big to fail, but which the euro zone can't command sufficient resources to save..

In Belgium

"Belgium could rank as the newest member of the soon to be renamed to PIGIBS debt bailout club, that could see its bond yields surge far higher than current rate of 3.70% over the coming weeks. .

But today we are focusing only on the eurozone; tomorrow our attention will likely be back on the United States.

So what should one make of the whole thing?

Nigel Farage, a member of the European Parliament, reveals the institution for the sham it is.

He essentially accusesng the European Council of being a bunch of liars and damning them as the statist scoundrels they are. In other words, whereas these meetings usually proceed based on dull protocols and institutionalized civilities, Mr. Farage delivers a stinging rebuke.

To recap, what is required to keep the eurozone together at this point are:

· Big lies, delivered convincingly.

· A gullible bond market.

· Time. Lots and lots of time.

· An economic recovery.

Considering that the debt problems are not isolated but widespread in almost all of the world’s major economies, the nearly daily revelations about that debt and the knock-on gyrations that show up in CDS and bond markets should not be viewed as inconsequential or short-term in nature.

Rather, they are correctly viewed as a popping of the rivets on the hull of the SS Eurozone. The pressure is growing stronger by the day and, before this is over, the eurozone will break apart and sink.

That I am convinced that this is so comes from my firmly held belief – based on the data – that there is no way for the debt to be resolved with good money. Thus all that is left is the deceit that it can be. With that as official policy, the scam cannot continue for long.

Today it is the eurozone, but tomorrow attention will switch back to the poor financial shape of the United States – or maybe head around the globe to Japan, or even China. The only thing certain in this uncertain world is that this crisis is far from over.

Anyone that tells you it is, is lying.