"How Tomorrow Could Trigger the “Most Violent Economic Shock in History”
Saturday, December 3, 2016 16:41
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By Nick Giambruno
“It was the one moment that convinced Hitler suicide was better than surrendering. On the morning of April 29, 1945, the bodies of Italian dictator Benito Mussolini and his mistress were dumped like garbage into Milan’s Piazzale Loreto. A large mob of Italians quickly gathered. They pelted the former leader’s corpse with vegetables. They spat on it. They urinated on it. Some even emptied their pistols into his lifeless body. After a few hours, the crowd hung the bodies from a metal girder at a nearby gas station for all to see.
I walked through Piazzale Loreto during a recent trip to Italy, which is suffering its worst economic downturn since 1945. And I realized that Italians are angrier now than they’ve been since they hung Il Duce up by his heels.
Italy has had no productive growth since 1999. Real GDP per person is smaller than it was at the turn of the century. That’s almost two decades of economic stagnation. By any measure, the Italian economy is in a deep depression. And things will probably get much worse. It’s no surprise Italians are in a revolutionary mood.
The Five Star Movement (M5S) is Italy’s new populist political party. It’s anti-globalist, anti-euro, and vehemently anti-establishment. It doesn’t neatly fall into the left–right political paradigm. M5S has become the most popular political party in Italy. It blames the country’s chronic lack of growth on the euro currency. A large plurality of Italians agrees. M5S has promised to hold a vote to leave the euro and reinstate Italy’s old currency, the lira, as soon as it’s in power. That could be very soon. Given the chance, Italians probably would vote to return to the lira. If that happens, it would awaken a monetary volcano.
The Financial Times recently put it this way: “An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period. It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.” If the FT is even partially right, it means a stock market crash of historic proportions could be imminent.
Here’s how it could all happen: Tomorrow, Italian Prime Minister Matteo Renzi’s current pro-EU government is holding a referendum on changing Italy’s constitution. In effect, a “Yes” vote is a vote of approval for Renzi’s government. A “No” vote is a chance for the average Italian to give the finger to EU bureaucrats in Brussels. Given the intense anger Italians feel right now, it’s very likely they’ll do just that. According to one of the most recent polls, the “No” camp has 54% support and all of the momentum. Even prominent members of Renzi’s own party are defecting to the “No” side.
If tomorrow’s referendum fails, Renzi has promised to resign. Even if he doesn’t, the loss would politically castrate him. In all likelihood his government would collapse. (Italian governments have a short shelf life. There have been 63 since 1945. That’s almost a rate of a new government each year.)
One way or another, M5S will come to power. It’s just a matter of when. If Renzi’s referendum fails tomorrow—and it looks like it will—M5S will likely take over within months. Once it’s in power, M5S will hold a referendum on leaving the euro and returning to the lira. Italians will likely vote to leave. Italy is the third-largest member of the eurozone. If it leaves, it will have the psychological effect of yelling “Fire!” in a crowded theater. Other countries—notably France—will quickly head for the exit and return to their national currencies.
Think of the euro as the economic glue holding the EU together. Without it, economic ties weaken, and the whole EU project unravels. The EU is the world’s largest economy. If it collapses, it would trigger an unprecedented global stock market crash. That’s how important Italy’s December 4 referendum is. It would be the first domino to fall.
December 4 referendum fails > M5S comes to power > Italians vote to leave the euro currency > European Union collapses. Almost no one else is talking about this. That’s why I just spent several weeks in Italy, taking the pulse of the country.
“If This Happens, Italy’s Banking System Becomes ‘Insolvent’”
“Europe is “screwed.” That’s what Steve Eisman thinks, at least. If the name rings a bell, it’s because Eisman was one of the few major investors who saw the last housing crisis coming. He famously made a huge bet against the U.S. housing market. When housing prices tanked, Eisman pocketed more than $1 billion. The actor Steve Carrell played Eisman in the Oscar-winning film “The Big Short.”
A few weeks ago, Eisman hinted at his new big short: Italian banks. Reuters reported yesterday: “Nobody is going to invest in the Italian banks unless they trust their balance sheets,” said Eisman, adding that Italian lenders have been “very slow” to recapitalize and sell off troubled assets. “In the Italian system, the banks say (assets) are worth 45-50 cents in the dollar. But the bid price is 20 cents. If they were to mark them down, they would be insolvent.” In other words, Eisman thinks Italy’s banking system is a ticking time bomb. And it’s only a matter of time before the “market” realizes this. He told the British newspaper The Guardian: Europe is screwed. You guys are still screwed.”
Eisman isn’t the only one betting against Italian banks, either. Reuters reported: “Data from the Italian market regulator shows “significant short positions” in Banco [sic] Popolare Di Milano and Banca Carige, while the regulator has restricted short-selling in shares of floundering Monte dei Paschi since July. There is also evidence that investors have taken short positions in Italian government debt on a scale not seen since the euro zone debt crisis of 2011/2012.”
Bill Gross is worried about Italy’s banking system, too. Gross is one of the world’s most respected investors. He founded PIMCO, one of the world’s biggest money managers, and now runs Janus Capital. You may also know Gross by his nickname, “The Bond King.” This morning, Gross told Bloomberg that Italy is becoming a “basket case” due to its troubled banks.
In short, Italy is teetering on the edge of a cliff. If a banking crisis unfolds, Italians and people across Europe will undoubtedly suffer. But an Italian banking crisis could also reach you if you live on the other side of the world. We’ll explain why today. We’ll also tell you about an event taking place tomorrow that could set off a full-blown Italian banking crisis. But let’s first look at why Eisman, Gross, and so many others are worried about Italy.
Italian banks are in worse shape today than they were before the 2008–2009 financial crisis. The Financial Times reported last week: “The woes of the banks stem from the Italian economy, which never recovered from the most recent crisis. Gross domestic product per head is 9 percent smaller in real terms than it was in 2007 and is stuck near the levels of two decades ago. Italy staggers under an aging population and the second highest public debt load in Europe, at more than 130 per cent of GDP.”
That’s not the only problem. According to Business Insider, the country’s banks are sitting on €360 ($384) billion worth of impaired loans. About €200 ($213) billion of those loans are “non-performing,” meaning they’ll likely never be paid back. For perspective, Italian banks have €225 ($240) billion in equity on their books. In other words, Italy’s banking system is drowning in debt.
Italy’s biggest banks are seeking life support: The Financial Times explains: “UniCredit, the country’s largest bank, is seeking to raise €13bn capital, and Monte dei Paschi, its most troubled large bank, may close a €5bn combined debt-for-equity swap and capital increase this week. But these sums are small compared with the system’s needs and the worst problems are concentrated in the smaller banks.”
But there’s a problem. Italy’s government might not be able to stop its troubled banking system from collapsing under the weight of its own debt. The Financial Times went on: “If the government were to inject capital into the banking system, EU rules would require- at the very least- that subordinated creditors be converted to shareholders. This would be politically explosive.”
Italian banks have long sold their own shares and debt to their retail customers as an attractive alternative to savings products, a disgraceful practice that should never have been allowed. It means that ordinary Italians, many in retirement, have already suffered as bank shares have fallen. They will suffer much more in a bail-in.
What’s worse, Italy is running out of time. Italy will hold an important constitutional referendum on Sunday. If Italy votes “Yes,” Italy’s current government will stay in power. If it votes “No,” a new radical government could rise to power in Italy. And MarketWatch reports this could trigger “a possible chain reaction of political upheaval, market instability and economic uncertainty.”
A “No” vote could also accelerate the banking crisis in Italy. Business Insider explained: “Now comes the nightmare scenario: If Italian premier Matteo Renzi loses his constitutional reform referendum on December 4, the markets may turn against Italy. The referendum asks whether Italy should reduce the power of its Senate and concentrate more power in Rome vs. the regions. A “yes” vote would make Italy’s government less sclerotic. A “no” vote leaves the status quo in place. Put another way, Italy’s government could have a tough time saving its banking system if the Italian people vote “No” tomorrow. And, based on the latest polls, it looks like Italy will go in that direction.”
The European Central Bank (ECB) is bracing for the worst: Reuters reported on Tuesday: “The European Central Bank is ready to temporarily step up purchases of Italian government bonds if the result of a crucial referendum on Sunday sharply drives up borrowing costs for the euro zone’s largest debtor, central bank sources told Reuters. The ECB could use its 80-billion-euro ($84.8 billion) monthly bond-buying program to counter any immediate, further spike in bond yields after the vote, smoothing market moves and supporting bonds, according to four euro zone central bank sources who asked not to be named.”
Unfortunately, emergency measures by the ECB won’t prevent an Italian banking crisis. At best, they’ll buy Italy and the rest of Europe time.
Chart of the Day
Italian banks are buried under a mountain of bad debt. Today’s chart shows the percentage of non-performing loans (NPL) for five of Italy’s biggest banks—UBI Banca, UniCredit, Banca Intesa, Banco Popolare, and Banca Monte dei Paschi di Siena. (Again, these are loans where the borrower has stopped paying the bank.) The column on the far left is the average NPL ratio for other European banks. You can see that Italy’s banking system is in far worse shape than the rest of Europe. Its banks have about twice as many bad loans as the average European bank.
These efforts might postpone a banking crisis in Italy. But they won’t fix Italy’s problems. You see, Italy’s banking system is broken beyond repair at this point. Like Eisman suggested, it’s only a matter of time before the rest of the world wakes up to this.”
- http://www.caseyresearch.com/
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And this concerns you how, Good Citizen? In a word: derivatives. The global banking system is so interconnected that a failure of, say, Deutsche Bank, would have catastrophic effects on European and American banks like these:
• Goldman Sachs- $47.7 trillion
• Bank of America- $53 trillion
• Citigroup- $56 trillion
• JPMorgan- $78.1 trillion
Here we see fraud in its most-elementary form. ‘Legitimate’ bookies never bet in their own “market”. Even in the world of quasi-illicit gambling, it is recognized that allowing this would allow bookies to rig their own gambling. But not in the world of “banking” and “derivatives”. Here the biggest bettors in this fraudulent gambling (by many orders of magnitude) are the bookies themselves. (Numbers from October 2015, undoubtedly much higher today.)
Like dominoes, if the Italian banks collapse, they’d drag down Deutsche Bank and the rest of Europe with them, who then in turn would collapse the American banks into instant insolvency and bankruptcy. Meaning, lights out for the global, and local, financial system as we know it. Look at the numbers involved, this is what these psychopaths have done… Brace for impact!
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BIN NOTE: If by now you haven’t figured out that Facebook and Google are in cahoots with the corrupt government, then I feel for you, but for those who are well aware of the issues it’s high time you switched over to Seen.life. It is a website that is similar to Facebook but without all the censorship.
Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2016/12/how-tomorrow-could-trigger-most-violent.html
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if you think hitler comitted suicide you are nutty as a fruitcake,
Yeah , what about all of those photos of him as an OLD man living in Argentina and Paraguay that have surfaced fairly recently ?!!!
Tomorrow never comes
I remember when you had to exchange currency at the borders of European countries upon entering. It did take time but Europe was much more lively, happy, and passionate. Now the people are fed up… with the ease of the euro came a monster. Every country needs to go against the NWO EU BS.
Hey Nick you are on a roll dude ~ spot on ~ so give us your take on the other Euro-Nations please…
I believe they are just as deep in the kak…..And the alien onslaught is really gonna screw with their economies…
You know ~ The Failed W
You are starting to sound like a MSM outlet. We were supposed to believe that Brexit would be the trigger to a global financial collapse. Hasn’t happened yet. The markets run on consumer confidence.
Consumer confidence is 100% what has caused the stock market rise triggered by the Trump election that MSM said wouldn’t happen. MSM predicted that IF Trump won the markets would crash.
I’m going to bet that after this democratic vote in Italy there will be smoother government operation, and a better economy.