Today the man who first predicted Greek bank deposits would be stolen warned King World News that all hell is now breaking loose and this crisis will rock the global financial system to its core.
James Turk: "The inevitable finally happened, Eric. The Greek financial system is collapsing. We can’t say yet that it has “collapsed” because we are not there yet. The collapse is just beginning. At this time, we do not know where all the pieces will fall….
Continue reading the James Turk interview below…
I’d like to go back to the 2008 crisis to put what is happening in Greece into perspective. The collapse of Lehman Brothers in September 2008 is widely used to define the date of that crisis. But the writing was already on the wall that an earth-shaking financial event was due even before Lehman collapsed. So where did the 2008 financial crisis actually begin?
Was it the collapse of Bear Stearns earlier that year? The bank run at Northern Rock in the United Kingdom the year before? Or even before that bank run began, maybe it was the collapse of two hedge funds heavily invested in real estate?
All Hell Breaking Loose – This Crisis Will Rock Global Financial System To Its Core
So you can see that I am making two points about the horrific problems now underway in Greece. The knock-on effect from Greece will inevitably rock the global financial system to its core just like those first tremors in 2007 eventually led to Lehman in 2008. And second, we may need to wait a year or two before we see the full fury of the storm that is coming.
In the meantime we need to look for weak links in the chain to better understand the underlying problem. In 2008 it was anything related to real estate.
The question running through my mind now is whether the weak link this time around will be the euro? Will it collapse and set off a chain of debt defaults and in turn unleash a wave of derivative explosions tied to euro debts and euro interest rates?
The European Central Bank Is Insolvent
These are still unanswered questions, but we can start digging for evidence. The first place to look of course is the European Central Bank. If we apply normal accounting principles, it is insolvent.
Greece owes €115 billion to the ECB. Some €89 billion are the weekly loans the ECB made to fund Greek banks as depositors there withdrew money. The remaining €26 billion is Greek government paper purchased by the ECB. These debts are worth next to nothing, regardless of the outcome of the Greek referendum, for the simple reason that Greece does not have the financial capability to repay these debts.
The problem is that the ECB only has €98 billion of capital and reserves according to its latest weekly balance sheet, which is €16 billion less than what Greece owes it.
Theft Of Greek Bank Deposits
In Cyprus the ECB stole the money deposited in Cypriot banks, and that is what I have been expecting to happen in Greece. But there is a problem now that the politicians and eurocrats have allowed the problem to drag on for too long.
Since first discussing with you three months ago the possibility of a Greek "bail-in”, so much money has left the Greek banking system that it would be difficult to foist a bail-in on Greek bank depositors. You will recall that only deposits of €100,000 or greater were taken in Cyprus, and most of that supposedly came from Russian oligarchs, the major customers of Cypriot banks.
But in Greece, most of the big deposits have already exited. So will the ECB take money from anyone who has money left in Greek banks, even small savers and people on pensions?
If not, the ECB will need to be re-capitalised, and that means getting more money from eurozone taxpayers. But here’s the rub, Eric.
The EU itself already has loaned about €170 billion to Greece. So how are the politicians going to sell a big tax increase to the European electorate to cover all the bad loans they made to Greece, let alone cover the ECB’s exposure to Greece?
Germany Says Enough Is Enough
To give you an indication of the ire that is building, a leading politician in Merkel’s coalition recently said that “we will not let the exaggerated electoral pledges of a partly-communist [Greek] government be paid for by German workers and their families.”
So what will the ECB do if it cannot itself be returned to solvency with the bailout it needs from European taxpayers? One thing it could do is reduce what it owes. It could cancel all the euro banknotes issued by the Greek National Bank.
Will The ECB Simply Say €45 Billion Of Greek Banknotes Are Worthless?
Most people are not aware that the central bank in each eurozone country issues banknotes. In the image of the banknote below, we can clearly see a “Z” before the serial number. This note was issued by the Belgium central bank.
Any banknote with the letter “Y” means it was issued by the Greek central bank, and there are €45 billion worth of these notes. So the ECB can reduce its exposure to Greece by recalling all euro banknotes with the letter “Y” and stating that they no longer have any euro value. Its €115 billion of loans to Greece are reduced to a much more manageable €70 billion, which from an accounting point of view would keep the ECB solvent.
By simply declaring that euro banknotes with a letter “Y” are no longer interchangeable 1-for-1 with other euro banknotes and no longer have any euro value, the ECB would be doing what other countries have done many times throughout monetary history. They initiate a currency recall with the old currency being made worthless.
CAUTION – Desperate Times Call For Desperate Measures
Will the ECB take such a desperate measure? Or will it take other desperate measures that we can’t even conceive of at present? Unfortunately, we don’t know, but history is always a wonderful guide.
But the clear lesson from history is to avoid counterparty risk as a financial crisis starts unfolding. So avoid fiat currency, which is backed by nothing but the hollow promises of central banks and politicians. Hold physical gold and physical silver instead." ***The remarkable audio interview with Michael Pento has now been released, where he discusses the coming carnage in global markets, what investors can do to protect themselves, and what to expect from gold and silver, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***KWN has also now released one of the most important and powerful interviews that Dr. Paul Craig Roberts has ever given. Dr. Roberts discusses why the Greek tragedy is one of the most important and pivotal crises that the world has ever faced, as well as the desperate moves being made by Western central banks in global markets ahead of the resolution of this crisis, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Bill Fleckenstein – This Is Only The Beginning Of A Massive Global Crisis And Full-Blown Panic, Plus A Bonus Q&A CLICK HERE.
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The audio interviews with Michael Pento, Dr. Paul Craig Roberts, Rick Rule, Nomi Prins, Gerald Celente, Bill Fleckenstein, Stephen Leeb, Andrew Maguire, Eric Sprott, Robert Arnott, David Stockman, Chris Powell, John Mauldin, Egon von Greyerz, Dr. Philippa Malmgren, Marc Faber, Felix Zulauf, John Embry and Rick Santelli are available now and you can listen to them by CLICKING HERE.