I met up with some German colleagues of mine from the finance world the other day.
We began to talk about Duetsche Bank (DB) and how, at least from this side of the Atlantic, it looks like a massive accident waiting to happen.
It has $47 trillion exposure in the derivatives markets, according to Zero Hedge, JPMorgan and the Wall Street Journal. The GDP of Germany is $3 trillion. The GDP of the entire European Union is only $14.6 trillion.
I had assumed this was a major issue in Germany.
But I was shocked to hear that not only aren’t the Germans worried about it, but they have little concerns for the trouble Europe is in. Remember, Italian, Spanish and Portuguese banks are very unstable and there’s Greece, Brexit and the Syrian and North African refugee problems.
And aside from Germany, the European economy is not doing well.
My associates pointed out that DB is just fine. And then they dropped the bomb; something I hadn’t worked through regarding Europe. DB and other German banks are the financial power of all of Europe now. This financial crisis has consolidated power rather than allowing it to disperse.
If the banks in most EU nations are teetering, there’s no way the governments can expect them help buy government bonds and dole out loans. Quite the opposite. The governments are having to bail out the banks.
And DB is the lending source for these governments to prop up their economy.
The game only a few see
The Germans were very calm about the numbers I was throwing at them and my hand wringing over the amount of exposure not only DB, but all the other banks that work with DB.
They brushed the concerns aside and simply told me that they will make their money from all these countries over time and there’s no way DB isn’t going to get paid, unless Europe collapses.
This is the government version of what Bob Livingston has been saying for years: the world is running on debt, not money, and that means the “banksters” rule the day.
From what it sounds like in Europe, that trend continues. One bank is essentially running Europe.
But you should know that this manipulated global economy is running out of legs.
Here’s an excerpt from a research report written by an Archers Daniel Midland analyst:
The global economy has been “financialised.” When sanity prevailed, financial markets were primarily a reflection and facilitator of the global economy. Now that it’s been financialised, we have a sort of ‘upside down’ casino in which financial markets act as the primary support mechanism and tend to lead the economy.
When the global economy is excessively dependent on the financial system, the feedback loop between loss of confidence in financial markets and the economy in general is obviously dramatically greater.
The result of a decade and a half of central planners “saving the world” and extending the cycle is a minefield for investors as the battle between the forces of deflation and inflation only intensifies.
Another troubling sign
Just recently JPMorgan settled a probe into its hiring of “princelings” in its China offices. Princelings are Chinese relatives of powerful government and political players. Basically, they would hire these people at huge salaries to help grease the skids of business dealings in China. Or, what most average people call bribery.
The fine? $264 million.
But as usual, settling the case also meant that DoJ, the SEC or the Federal Reserve (the three parties that got paid a piece of the settlement) can’t file any criminal charges against the bankers involved in setting up a massive illegal operation that spanned the two largest nations in the world. Why should anyone suffer for being a go-getter?
Once more it goes to show that the bankers still hold sway over individuals and nations around the world.
But there is a pendulum to events that can’t be discarded. It may not be the time frame you hope for, but these things shift. And when the pendulum swings back the other way — it can only be artificially suspended for so long — there will be blood.
That’s why it’s important to stay liquid not in the Fed’s cash, but in hard assets.
For the risk markets, avoid the big banks and insurers. Solid utilities are a good choice, as are companies that have been around for more than a century and have seen the worst the markets (for now) can throw at them.
No doubt big banks and insurers will be strong in coming quarters, but there will be a reckoning in coming years that will affect every aspect of the economy. And the more debt (aka, modern “wealth”) you have, the more trouble you are going to be in.
— GS Early