Choosing Your Poison!…” As I have tried to write all along, the problems were glossed over and dead bodies swept under the rug.”
By Bill Holter
GoldSeek.com
Tuesday, 3 March 2015
The revelation over this past weekend by Hypo Alpe-Adria has been called by some as Austria’s “Lehman moment”. This may very well be on a micro scale, I believe it to be the Credit-Anstalt moment on a macro scale. If you recall history, Austrian bank Credit-Anstalt was the first domino to fall in 1931 which spread across the globe and tipped the banking system into default mode.
There are many similarities to the world today as compared to that world of 1931. Debt had become prevalent leading into the stock market panics of 1929. Margin debt had exploded and caught many offside just as it did in 2007-2009. The more recent episode had even more leverage via the use of derivatives, I point this out because the “leverage ratios” are far higher today than they were 80 years ago.
The world was also in the midst of currency wars. Back in the 1930′s, the global economy had slowed (just as it has today) and consumption was not keeping up with production. This same anomaly exists today in the zones (think China and Asia) where production has been moved to lower costs. What happened in the 1930′s was considered a time of “beggar thy neighbor”. Countries purposely weakened their own currencies in order to undercut the sales price of goods produced by other countries. This morphed into trade wars and ultimately WW II. Other similarities were the fact that after 1929, unemployment rose, economic activity slowed and the financial sector was being squeezed with weakening and defaulting loans. Current day by no means is a carbon copy to where it was back in 1931, but there is a definite “rhyme” to it.
So, what exactly does the current “Hypo moment” mean? For one thing, it means that nothing was really fixed from the last episode. If “things” were good and getting better, how could a bank which was recapitalized (at the bottom) …fall even further? The answer of course is the economy and financial systems are not “better”. As I have tried to write all along, the problems were glossed over and dead bodies swept under the rug. Hypo, is simply the tip of the iceberg and a harbinger of more, similar things to come.
I would be remiss if I did not mention one major difference between the 1930′s, the days of Lehman collapsing …and now. The most dangerous “cure” undertaken in 2008 and onward is governments and their central banks putting their own balance sheets on the line. You see, this did not happen in the 1930′s, if a bank went bad …it went under. Yes, captains of industry did make efforts to save things but the federal government largely stayed out of it. Not so today. Almost nothing was allowed to go under up and until Lehman was “allowed” to fail. No one (very few) dreamed how quickly and completely credit dried up after Lehman failed. THIS is the reason nothing else was allowed to fail afterward, fear of a domino effect taking everything with it.
The Rest…HERE
