STAFF NEWS & ANALYSIS
Euro Bailout: Will Americans be on the Hook to Cover Trillions in European Bank Debt?
By - April 13, 2016

President Barack Obama and Federal Reserve Chair Janet Yellen discussed risks to the economy and progress from Wall Street reform during a rare meeting in the Oval Office on Monday, the White House said. -Reuters

The meetings going on in Washington DC have been the subject of much speculation in the alternative media, especially the one between Janet Yellen, President Obama and Vice President Biden.

Ostensibly, the meetings were to discuss the challenges facing the Fed and to allow Obama to express his appreciation for the job Yellen is doing.

After the meeting, a formal statement was issued, as follows:

“The President and Chair Yellen met this afternoon in the Oval Office as part of an ongoing dialogue on the state of the economy. They discussed both the near and long-term growth outlook, the state of the labor market, inequality, and potential risks to the economy, both in the United States and globally. They also discussed the significant progress that has been made through the continued implementation of Wall Street Reform to strengthen our financial system and protect consumers.”

ZeroHedge wrote, “Here is our modest attempt at translating what was and what was not said: no market crashes allowed until November.”

This may well be true – given the upcoming presidential election – but it brings up a much larger point.

The banking system around the world is extremely fragile and securing credible and calm markets make take considerable doing. The government of Italy for instance, just concluded an emergency meeting with its deeply indebted banks that saw the government agree to a bail out of over euro five billion.

Throughout Europe, the banking sector is in critical shape – and Japan too. The ratio of performing to non-performing loans is critically low. But perhaps the most concerning area is Germany where the Deutsche Bank – of all banks – is said to be in critical condition.

In fact, some alternative media reports regarding the meeting between Obama, Biden and Yellen involved a possible discussion of Deutsche Bank’s solvency.

This is not simply speculation. Not so long ago, there were reports that JP Morgan and Goldman Sachs were involved in negations with Deutsche Bank to purchase their nonperforming loans.

Here, from Bloomberg in early March:

Deutsche Bank AG, the lender exiting some trading operations, is in talks with JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. to sell the last batches of about 1 trillion euros ($1.1 trillion) in complex financial instruments, people with knowledge of the matter said.

What if further purchases were needed?

Is it possible that part of the recent discussions in DC focused on Fed involvement of additional purchases of Deutsche Bank non-performing assets.

The Fed is supposed to tend to US solvency. But during the 2008 crisis, Ben Bernanke reportedly extended trillions in overnight loans to banks around the world, and many of those loans still may not have been paid back. It is said to be one reason among many to be sure, why Fed officials don’t want an audit.

But what if the Fed has now agreed to “backstop” Deutsche Bank loans? Deutsche Bank is a critical bank, perhaps the most critical in all of Europe. Bank insolvency in Italy would already be a disaster, but a declaration of insolvency by Deutsche Bank would be unimaginably worse.

And so, perhaps, it is possible that the Fed will ensure, or help ensure, the solvency of Deutsche Bank. And this of course brings up a larger question – which is whether the  Fed is now to do the same sort of thing in Italy, Greece, Ireland and elsewhere where banks are facing critical shortfalls.

The creation of the euro concentrated money printing power in one place – the European Central Bank. And the problem that has resulted is that the ECB cannot and will not print enough money to debase local currencies.

Ordinarily, countries facing overwhelming sovereign and bank debt would be printing overtime. Currencies would be debased and price inflation would be significant. But the additional money would ameliorate sovereign and bank debt.

The difficulties faced by Europe in the current environment have been seen as intractable. But what if a decision has been taken that the Fed will step in for the ECB? The ECB cannot print the necessary money but the Fed is both less scrutinized and more powerful than the ECB.

Was this what was discussed by Obama, Biden and Yellen? Is it the reason, among others, that International Monetary Fund and World Bank Officials are filing through the White House this week? Has it been decided that because the ECB cannot provide the appropriate liquidity for Europe that the US Fed will do so instead?

This is a damnable economic system in which a very few individuals and entities are in charge of the world`s solvency and will do anything – or virtually anything – to sustain it.

It is hard to think of an activity that the central bankers will not participate in to perpetuate the system as it is. They certainly seem to manipulate gold and silver on a regular basis to lessen challenges to the fiat system.

But now perhaps the time has come for further action.  If the Fed is being used this way, then it is the US taxpayer ultimately, who will pay for the Fed’s generosity. The cost, extracted via price inflation, would certainly run into the hundreds or billions and even trillions.

It will take a lot of money printing to sustain Europe’s banks, and it’s probably not possible anyway. But surely at this point in time anything and everything will be tried to support European banking and sovereign solvency – at least until US elections are done. This would seem to call for additional monetary aggressiveness by the Fed.

For this reason, among others, we’ve written about US stagflation, the idea that (absent a full-on market collapse) price inflation and joblessness – lack of US growth – will  be a predominant economic element going forward.

Conclusion: Those who accept that this environment looks a good deal like the 1970s, will do what is necessary to protect their portfolios and their families by holding onto tangible assets including precious metals. The Fed is in the money printing business and the demands for its services are likely increasing all the time.

Posted in STAFF NEWS & ANALYSIS
  • Hugo

    Hi DB,

    An interesting post from bloomberg on a closely related theme, gold.

    ”Gold standard in Islamic finance ”almost there” for submission”

    ”“We are almost there” with a final proposal, said Mohd Daud Bakar, a Shariah scholar who is writing the draft for the Accounting and Auditing Organisation for Islamic Financial Institutions, the Bahrain-based industry group that sets Shariah standards in finance. ”

    ”The Shariah standard for gold could be applied to products including exchange-traded funds to collateral and security deposits, according to the World Gold Council.”

    ”The gold standard is expected to be completed later this year,”

    Short piece but important since it has two huge themes. Islamic, actually even Shariah law being coming ”fashionalbe” and pricefixing (gold standard)

    http://www.bloomberg.com/news/articles/2016-04-10/gold-standard-in-islamic-finance-almost-there-for-submission

    Regards, Hugo

    • Thanks.

    • alaska3636

      Hugo, you old link-dropper.

      Good to see you.

  • SageOwexford

    Where in the Fed’s fricking charter is it that they indebt our country for the benefit of foreign nations? American taxpayers had better wake up outside of the theater of the Presidential election. We have already been sold down the drain by U.S. officials, now we are going to go down the sewer of European finance. The Federal Reserve will not exist in 5 years. Americans have long memories when it comes to those that put their futures in risk.

    • PatrickHenry1789

      I agree with your sentiment. But most ‘Muricans are only interested in the next [insert favorite sports team event or reality show here] to be bothered with actually finding out what the Feral Reserve does.

      • ThomasJK

        I think much of this comes down to the psychological rope-a-dope power of a strongly consumer/Citizen/voter oriented system. The fact that it is inevitably a disaster in the making just doesn’t matter to a lot of folks. If the Fed and The Treasury can keep finding ways to keep the consumerist hot air balloons flying high with ample credit available with which to keep pumping hot air into the consumers’ credit balloons so that American consumers are able to continue to buy TODAY, how many will really give a flying **** about what this fascist, parasitoidic idiocy is doing to our children, grandchildren and subsequent generations until sometime after it is too late to give a ****.

  • jackw97224

    Well, the criminal, commie/socialist, gd politicians imposed 210 trillions in unfunded liabilities (debt) on defenseless future generations (the biggest crime in the history of Earth), condemned us to be the policemen of the entire Earth and so why not make us the issurer of last resort of fiat, legalized counterfeit currency?

    • nubwaxer

      i just knew from the title of the article it was for the doom and gloom right wing crowd who want nothing more than to undermine trust in government in an attempt to pull it down. the rich would be the big winners when their stooges installed a fascist state run by a strongman like cruz or trump on their behalf.

      • jackw97224

        Well, nub, I am just intersted in facts, not ad hominem attacks. The 210+trillion unfunded liabilities (debt) is fact. The government admitted 19+trillion federal debt is fact.
        Now, if you haven’t listened to the short video on why the government can’t balance the budger by Hal Mason on Youtube, then I encourage you to view it.
        Calling me names is OK as I acknowledge you have freedom but you have no faxtual evidence that I’m doom & gloom or intend to undermine the government. What will happnen in the future I’ll leave to you as I am not a soothsayer.

    • ThomasJK

      Don’t overlook, or take too lightly, the part where after the magic counterfeit fiat money has been conjured into being from the Fed’s magic money hole in the air, it is then laundered through The Treasury and through member banks. Now, if the Fed conjures up a few billion dollars for the Eurozone banks, will it be the Eurozone banks who take care of the laundering part? Would that be US Treasury debt (which will never be repaid) or will it remain just another bogus money entry to the Fed’s balance sheet with the counterfeit dollars flowing through one or more of the Federal Reserve System member banks?

  • PatrickHenry1789

    “ZeroHedge wrote, “Here is our modest attempt at translating what was and what was not said: no market crashes allowed until November.”

    But yet everyone I know that tries to keep up with this circus that is the presidential election has no idea what is going to happen to this country regardless of who the next puppet that lands in the oral office. They don’t seem to realize that it’s just a rearranging of the deck chairs on the USS Titanic sinking in a sea of red ink.

    • Marten

      It is not an “oral office” but a “rectal Office”

    • All I hear from people around me is pointless noise about the election. If I bring up economics they just shrug their shoulders and move on. This next collapse is going to give everyone a crash course in the evil’s of central banks and fiat currencies.

  • Bruce C.

    I find it hard to believe that Yellen and others from the the IMF and World Bank would be seek council from Obama and Biden. Those two are clueless fools, and they would hardly need their understanding or permission to do anything. That’s especially true if the master evil elite plan is to cripple the US and form a world government.

    In fact, if we’re going to entertain such notions, wouldn’t it be more believable that the Fed/IMF/WB would rather cripple Europe and expand US domination writ large? Why would the US care about supporting the EU? In that case I can see Obama and Biden being told what’s going to happen so they can sound informed, but that’s about it.

    • Me_Again

      I can see your points.
      I also add though that Obama and Kerry are forever banging the drum for Britain to stay in the crumbling anti-democratic EU.
      Really there is no advantage to America for us to stay in so why do they always tell us to stay in unless there is another agenda working in the background?
      It is laughable that they do say these things since America would not sign up to or abide by 98% of the EU’s ever closer union ploys.

      • Bruce C.

        My guess is that British “elites” would benefit in the same way as the EU “elites” if the EU stays intact or even continues to circle the drain. The well being of the citizenry doesn’t matter to the “elites” except that they provide the source and means of their own power and wealth. Kerry is an arrogant a-hole and Obama is an ignorant wannabe.

        If Britain doesn’t join the EU it will probably fall apart faster because everyone else will want to leave too. Greece had its chance to lead history again when faced with the option of a “GREXIT” but capitulated, but that may be a blessing in disguise because now everyone sees how staying in has/hasn’t worked out. I truly hope the Brits exit, and I think they will. Cameron’s involvement with the “Panama Papers” may be the last straw for everyone who trusted Europe’s leaders.

    • Mescalito

      They care about helping europe because if europe fails US economy will follow right away. You know that for every dolar americans have in bank there is only half a cent in vaults? If 0,5 % people all wanted their money from banks in the same day they would just run out of every single penny they have.

    • william beeby

      If the Us wants to create a one government world it will find itself on its own after what is has done post 911 . Not many countries would want to join an entity with America at its head these days and it could well be that isolationism is the best bet. It used to be said that the USA could be self supporting in everything it needs but that is no longer the case unless America is willing to turn itself around but that will take one or two decades.

      • Bruce C.

        I think you misunderstand me. I not only don’t want the US to “take over” the world politically, I don’t even think it’s going to happen. All I’m saying is that given the situation it would be EASIER for the globalists to usurp the US government and use it as cover to enslave the rest of the world (more or less.)

        For example, why not use the US military to force compliance instead of dismantling it only to have to rebuild a new “globalist” one elsewhere? Same with currency; why not usurp control of the dollar and force everyone to use it (it’s already about 60% in use now) rather than weaken it and start a new “globalist” currency somehere else? Et cetera.

  • OlenaG

    Europe should sink. I work here and see every single day the arrogance and superiority of Europeans toward America and Americans. When I remind them that they have gotten and continue to receive a free ride because they spend their money on social programs, gut their military’s, and are covered by the American Taxpayer via NATO they really get upset! MOST NATO members, to include Germany, the financial engine of Europe, do NOT even met the agreed upon 2% of their GDP to support NATO.

    Nah is is time for Europe to realize the game is over. They need to support themselves and no longer depend on the U.S. to do it for them. I am not against helping Europe but it is LONG OVERDUE for them to pull their fair share in money to support NATO, to build their military’s, and limit their social bankrupting programs.

    As of right now Europe reminds me of what they truly think about America…P.T. Barum’s quote that there is a sucker born every minute….the U.S.

    • Colm Brazel

      The only ‘social bankrupting programs’ are those that rob the 99% through deflating their money supply. With market place manipulation CB policy has imposed austerity on the poor , crippled free market capitalism with stagflation, stagnation, deflation . At the same time printing money to float trillions in derivatives owned by the 1%. Giving money to the military to spend on making this mess worse but allegedly safer for the 1% is a loser policy that is a recipe leading to economic collapse.

    • James Clander

      The real truth is that the USA is hated around the World & for good reason. It is a bloodthirsty bully that has wrecked the Middle East & everywhere else it has interfered with. Yank go home is a call you should heed.
      Your stupid call for more money for NATO is a cruel joke. NATO is just another arm of American aggression – It should have been scrapped long ago. It’s completely insane to support the lunatic USA inspired plot to encircle Russia.
      The problem with Americans is a mindset like yours. I’m Australian & not proud of our record of following the USA into so many unwarranted Wars. You’re right -the Europeans are much smarter & superior in everyway to Americans.

  • Danny B

    The time for rearranging the deck chairs is long past. Even Deutches bank said that we are past the point of no return. D bank has / had $ 70 trillion in derivatives.
    http://www.zerohedge.com/news/2016-04-11/deutsche-bank-says-world-past-point-no-return-default-cycle

    Italy has the tenth largest economy but, the third largest bond load. No big surprise that they can’t service the debt.

    The CBs are just spouting bogus BS out all of their orifices. NOBODY is buying U.S. Treasury debt. The CBs are buying each others paper; https://srsroccoreport.com/the-crash-of-the-u-s-treasury-ponzi-market-shown-in-two-scenarios/
    Belgium bought $ 400 billion of U.S. Treasuries even they had NO dollar reserves. Ireland bought tons even though they are flat broke.
    Americans will never be on the hook for this “money”. The default cascade will vaporize all public debt / finance. GOV is always behind the curve. That is why private finance always front-runs GOV.

    http://www.zerohedge.com/news/2016-04-11/zirp-nirp-qe-bank-collapse-and-helicopters-coming-too-late-lehman-effect-hits-europe

    • Bruce C.

      You could be on to something. An article just came out that claims Japan may be start having financial problems. The opening sentence reads, “The idea that Japan may be on a trajectory toward sovereign insolvency is beginning to get consideration by the mainstream financial media.” Nobody is claiming anything definitive though, it’s still speculative, so don’t expect the yen to sell off or anything like that.

      http://realmoney.thestreet.com/articles/04/13/2016/when-will-powers-be-notice-japans-insolvent

    • ambrose bierce

      its likely that some or all of those derivatives are now in Chases hands, as they failed their stress test because 80% of all their derivatives are unregistered.

  • malimut@msn.com

    this country is finished all by design

  • Ansen

    Perhaps they were discussing how to handle the Arabian threat to unload their treasuries?

  • cartier112

    Obama, Yellen and Biden now I feel reaaaal comfortable with them running the show. What chance would an ant have?

  • Ambrose Bierce

    The assumption that Fed loans to the ECB are backed by US taxpayers, is an assumption that may be examined. Bernanke’s advisor said recently that the Fed is privately owned and that assumption needs to be examined. If indeed the Fed is privately owned taxpayers are within their rights to refuse that debt. Assume that remark was made angling for a greater clarity on the role of government support for the Feds balance sheet. Though we never discuss issues during a campaign it might be wise to bring it up for debate.

  • duke

    R you kidding. Americans r so dumb and gov knows it they will pay for anything

loading