If You Thought 2008 Was Bad… Get Ready

by Graham Summers

Over the weekend it was announced that the European Emergency fund may not be large enough to bailout all of the country’s who are bankrupt in Europe. This is really not a surprise.

Back in 2010 when the bailout fund was first announced I said it would prove to be another “Paulson’s bazooka” effort (in reference to Hank Paulson’s 2008 claim that a blank check to deal with Fannie/ Freddie would be the equivalent of a “bazooka” that would somehow solve those firms’ problems).

The European emergency fund is the exact same idea: that throwing around enough money can solve a debt problem. It’s the big lie: something politicians hope will come true if they say it enough times and loud enough.

However, anyone with a working brain knows there are only two (maybe three) ways to deal with debt: pay it off or default (or some combination of the two). The politicians do not want to admit this because it would mean admitting that they have no clue and that they’ve wasted TRILLIONS of Dollars worth of money.

So here we are, the first wave of the GREAT CRISIS was dealt with by transferring private sector debt onto the public’s balance sheet. Now the second round is hitting and the public sector needs to be bailed out.

So who’s going to do it?

The answer: no one.

Sovereign nations will default whether it be Greece, Italy, Spain, OR the US. There is no way we’ll be paying our debts off. The only reason we haven’t already seen defaults is because the banks won’t take a haircut on their bond holdings.

Politicians who have all been bought out by the banks have fallen for this charade so far. But it won’t last much longer. Banks may get you elected… but they can’t keep you safe from a populace that is rioting outside your door. So the banks will all be taking a BIG hit in the future.

And there’s no shortage of Black Swans to hit either. The Euro problem isn’t going away. In fact, it’s now spread from Greece to Italy and Portugal… the latter county now being officially rated as “junk.”

Meanwhile, China is experiencing a liquidity Crisis on par with the Lehman-collapse. In fact, a recent bond auction there failed to sell EVEN HALF of the bonds offered (there’s not enough capital available).

And then of course there’s the US where we have only 10 days to deal with the debt ceiling before we begin a default.

The next Crisis is literally at our doorstep. And it’s going to kick off another 2008 episode as all the over-leveraged players (read: EVERYONE) will have to sell positions to meet margin/ redemption calls. However, this time around we’ll also see civil unrest as people lose their social safety nets (unemployment, social security, etc).

What will follow will be the equivalent of 2008 all over again, along with food shortages, civil unrest, outbreaks in crime, bank holidays, and the like. It will, in short, be like what’s going on in the Middle East today (though NATO won’t be bombing us).

Which is why if you haven’t already taken steps to prepare yourself and your portfolio for the coming disaster, you need to do so NOW.

See the original article >>