Earlier this year, I noted that the European debt crisis was mimicking the US’s 2008 banking crisis almost to a T. Greece was the “Bear Stearns” issue: a minor player that was swallowed up in the drive to maintain the appearance of stability.
Then came the $1 trillion bailout, the equivalent of the Fannie/ Freddie “blank check”: a massive sum of money thrown at a problem meant to convey the illusion that the powers that be have everything under control and that systemic risk is non-existent.
During the time of my first article, I stated that all we needed now was a “Lehman event” the event which proves beyond all doubt that contagion is occurring and that the entire system is at risk.
Well, it looks like we’re about to get it.
The ink on the Ireland bailout is not even dry and already Portugal, Italy, and Spain are crumbling. The market is no longer buying the “it’s only this particular country’s problem” jibe. The notion of systemic risk is finally beginning to dawn on investors. And as 2008 proved, once panic hits, it hits in a BIG way.
Indeed, as ZeroHedge recently noted, the yield on the latest Ireland bailout involved interest rates for the country at 6.7%, a full 1.5% higher that the interest demanded of Greek debt. In other words, the IMF and EU view Ireland’s bailout as more risky than that of Greece.
Does Ireland look worse than Greece to you?
Country | GDP | Deficit/GDP | Debt/GDP |
Greece | $329 billion | 15.4% | 126% |
Ireland | $227 billion | 12.2% | 65% |
So not only is Ireland deficit-to-GDP and debt-to-GDP ratios lower than Greece’s but the country’s actual GDP is smaller, so we’re talking about a lower nominal amount of money here too.
And yet Ireland is considered MORE risky than Greece?
Let’s be blunt here. Ireland is not riskier than Greece; it’s simply getting bailed out later in the game, when the world has begun to realize that all of the bailout funds are basically getting flushed down the toilet and ultimately default is the only real solution. None of this money is going to be paid back… so the higher interest rate is an attempt to recoup as much as possible before the inevitable default hits.
And Spain and Italy are next.
In plain terms, we are literally on the brink of the “Lehman” event in Europe. Everyone, even the dumbest bulltard on the planet, are beginning to wake up and realize that the plain obvious fact that you cannot solve a debt problem by issuing more debt. This has NEVER worked in history. It won’t now either.
I’ve been warning about the return of systemic risk for months now. If you haven’t already taken steps to prepare by now, WHAT ARE YOU WAITING FOR? Do you REALLY think the European debt Crisis will be “contained”? Last time the word “contained” in reference to a debt crisis was in the US in early 2008.
How’d that work out?
Good Investing!
Graham Summers
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I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).zerohegde.com
