The problem is that the ECB has got already these enormous
liabilities, and what does it want to do?
What is planning to do is to make its position even worse?
It does not have an escape from the situation, and if the ECB goes, I
think the Euro goes, I think the whole of the Eurozone falls apart
politically, as well as economically, the effect on the global banking
system will be to destabilize that as well.
And I think, at that stage, you'll probably find that markets will
close.
You won't be able to do anything.
I suspect.
They will also close.
Gold and silver markets.
Now, the FED can refinance itself, you can refinance itself, very,
very simply and it does that by lending money to the federal
government, and the federal government applying those funds, back onto
the fed's balance sheet, not in the form of a deposit, but in the form
of equity, so problem-solve, but you don't want to have to do this in
the middle of a crisis.
It's really not the best thing to do.
The problem is far more acute elsewhere.
And I particularly refer to the position of the ECB and the bank of
Japan.
We have seen both the Euro and the Yen collapse in value against the
dollar in recent weeks and the very good reasons for this.
If we look at the Yen, the bank of Japan has tried to draw a line on
Rising yields.
Insisting.
That the yield on the 10-year.
Jgb must not rise above a quarter of one percent.
A quarter of one percent and we've got ready inflation round.
The world raging inflation measured by CPI.
They are clearly drawing a landline in the sand, which means that
there was sacrificed their currency and this is why the Yen has been
collapsing.
Furthermore, the Japanese banks are very highly leveraged that acid
Equity ratio is absolutely staggering.
I mean, I've got I've got the figures here because I've been writing
about this for an article to be published tomorrow mitsu.
He as asset to equity ratio 62 times and you believe that.
So what happens with Rising interest rates, well, obviously their
balance sheets get decimated because on a, mark to Market basis then
their assets are going down.
And insofar as they are invested in bonds.
Now, the point worth making is that not just the Japanese g-sibs, but
everyone else is g-sibs are primarily invested, not in loans to
industry, but in financial assets and Loans, to other people who use
the credit to buy,
Financial assets.
So you've got this huge Great Pyramid and the collapse is mainly in
the financial markets, with financial assets going down the tubes.
And we've seen how this is beginning today.
So when you look at asset to equity ratios of 60 times, just think how
little in terms of non-performing loans and how little in terms of
falling asset values will wipe that out there.
You've got it.
And the, I mean, the Central Bank, the bank of Japan has been doing QE
since the year 2000, it is now heavily underwater on any valuation of
jgbs and also, it's got a substantial amount or a significant amount
of ETFs holding equities.
So it's exposed to a falling Equity market.
And I estimate
That as of last Friday, it is likely that the deficit on its balance
sheet exceeds its Equity by some 140 thousand times.
I think this is just staggering it is absolutely impossible.
Now again the Japanese Central Bank can recapitalize Itself, by the
means I've just suggested but again, you know, it better get a move on
because if it's
going to be in a position to backstop, the Japanese banking system,
then it needs that money.
Now it needs that Capital nut and it doesn't want to see any further
rise in in bond yields.
That's what it's trying that's why it drew the land line in the sand
at .25.
Originally it was at zero.
So this is the Japanese central bank is in a very very serious
problem.
now, we turn to the ECB
I looked at the ratios of the bank's there.
Société générale you believe 76 times assets to equity ratio.
Group ready agricole, 75 times Deutsche Bank 69 times.
After that, we get into sort of slightly more or slightly less surreal
territory.
Let me put it that way.
We're looking at BNP, Paribas r46 unicredit which is the big Italian
Back 40 for Santander the Spanish back 36 in group, which is a
relatively Conservative Business 26 times, you know, these are very
serious issues and they have a difficulty recapitalizing themselves as
individual Banks, which they
Can do, they could do the same situation if you like as the central
bank's.
But the problem is that all the
These banks are at price-to-book ratios which are well under one.
I mean if you look at Sauk Jen that's a discount at 30% to to book
value and group crédit agricole is that's problem.
Actually group Credit Credit, that's 80% discount, that's healing
worse.
I mean, these these figures how do you raise money in these
circumstances?
But it also explains
And why these banks have been buying in their own shares.
But as interest rates, rise, further, which they will do, because of
that relationship between consumer prices rising and in Germany,
producer prices, I think the last figure was up 30% on a year.
For example, you've got an economy that is collapsing.
You are going to get multiple bad debts mounting up.
Now, I mean, and the Central Bank, the ECB and the national
Andrew banks are not in a position to discharge their function of
ensuring that the banking system doesn't fall over.
So I would say that the FED is actually been relatively responsible in
this situation insofar as it doesn't seem to have permitted, it's made
to g-sibs to become so insolvent.
I mean the ranking there is considerably less I haven't got it in
front of me but you are looking at banks with anything between about
eight times assets to equity.
To I think city city is the worst.
Something like twenty plus twenty five.
Something like that.
But the in the the majority of them are in the teens and probably the
low teens.
So I mean that's that's bad that cannot whether the sort of storm that
we're seeing
But it's not half as bad as it is Broad.
And if you're going to try and think, where does this crack, I would
have thought that it'd either cracks in the European Union or it, or
the Eurozone rather, or it cracks in Japan.
But once it cracks, they'll all start falling over.
And that is I think of great concern.
Oh, come on, you know, not the problem is that the ECB has got already
these enormous liabilities and what does it want to do it?
I mean, I had, it hasn't really got any option, but what it, what is
planning to do is to make this position even worse.
It does not have an escape from the situation, and if the ECB goes, I
think the Euro goes, I think the whole of the Eurozone falls apart
politically, as well as economically, and the effect on the global
banking system will be to destabilize that as well.
And I think, at that stage, you'll probably find that markets will
close.
You won't be able to do anything.
I suspect.
They will also.
Close gold and silver markets, both Futures and forward.
And also they will probably
On close the physical Market as well.
You have to prepare for this or tough.
I'm sorry.
But that's that, that is what it amounts to the end.
The only thing to do is not to go and buy a paper gold, not to go by
ETFs, but you have to have the physical, you have to have coins, which
are legal tender.
I mean, I don't know what the legal situation is in America, but in
this country we have sovereigns.
We also have
I think virtually any coin produced by the Royal Mint, which has the
sovereigns head on?
It is legal tender and can be used as money for transactions.
So that is important.
Also, any silver coin produced by them is legal tender so that can be
used as for transactions as well.
So that is important.
So if you haven't got that, when the whole system Falls over,
Not going to get it.
I mean it's simple as that or the only way you will get it.
Subsequently is to make something or to sell something for gold or
silver coin, and that's the only way you'll get it, what the
authorities will do.
In this case, I mean to extent, it depends how quickly things
deteriorate.
I'm tempted to think that it's things will happen in phases, but
probably with not a lot of time in between.
I think the first thing that we see is a crisis in fine.
Natural asset values.
And the banking crisis, the currency is I don't think fall over
immediately but you will find that gold and silver will be very, very
scarce and anything like her current prices.
It just simply won't be available if there is any time between the
between the two.
Then I think what the authorities could well do is they could.
Well, try and stop us owning gold and silver because they would see
that as adding two,
Loss of purchasing power of currencies as people seek alternatives to
using Fiat currencies.
I mean it's happened before.
It happened, famously in 1933 and it happened in John laws, France in
1722 1721.
I mean basically they sent the police round up the troops to, you
know, take any gold silver, jewelry.
Anything off people to stop them using it as as currency and
incidentally to bolster the
You know, the currency all the the assets if you like of of John laws
Bank, what you know, however it went or even though I suppose the
Kings asset.
So governments will resort to anything under these circumstances.
We have to be very wary of that situation.