Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What a Major Banking Crisis Would Do To the Gold Price

Commodities / Gold and Silver 2011 Sep 16, 2011 - 11:59 AM GMT

By: Julian_DW_Phillips

Commodities

Best Financial Markets Analysis ArticleLoss of Faith and the Decay of Trust in Measured Terms

With the downgrade of Societe General and Credit Agricole, two of the largest French banks, because of their Greek debt holdings, it is certain that any default by Greece (which still looks more than likely) will trigger major banking crises. Moody's lowered Credit Agricole to Aa2 from Aa1 because of its Greek holdings, and will continue to review the impact of funding markets on the rating. Societe Generale was reduced to Aa3 from Aa2, with a negative outlook, as Moody's re-evaluated its level of state support. BNP Paribas (BNP) SA, the largest French bank, had its Aa2 long-term rating kept on review for a possible cut. French lenders top the list of Greek creditors with $56.7 billion in exposure to private and public debt. BNP Paribas has declined 41% in Paris trading this year, Credit Agricole has fallen 46% and Societe Generale has dropped 55% on escalating concern that the European sovereign debt crisis is turning into a banking crisis.


Deposits by financial institutions in Greek banks, which make up 21% of the total, have fallen by one-third since the beginning of 2010, while those by non-financial firms and residents dropped 9%, according to Bank of Greece data. In Germany, deposits by financial institutions, which account for one-third the total, declined 12% over the same period and 24% since the September 2008 collapse of Lehman Brothers Holdings Inc. In France, where the erosion started last year, the same type of deposits, which make up half the total, are down 6% since June 2010. They have fallen 14% since May 2010 at Spanish banks, where they account for one-fifth of the total. Deposits include money kept in banks by individuals and companies. Most of the short-term funding supplied by financial institutions and money funds is counted as deposits by the E.C.B. and other central banks in Europe. While retail deposits at Italian banks have fallen only 1% in the past year, the outflow of money from financial institutions has exceeded $100 billion, a 13% decline, according to Bank of Italy and E.C.B. data. In Portugal, where banks raised the interest rates they pay savers, non-residents have reduced deposits by 19% since March 2010.

Money Stock (MZM)

The eight largest U.S. money-market funds halved their lending to German, French and U.K. banks over the past 12 months and stopped financing Italian and Spanish financial firms. A survey by Fitch Ratings showed that U.S. money-market funds reduced their lending to European banks by 20% from the end of May through July. The funds cut investments in Spanish and Italian lenders by 97%, to German firms by 42% and to French ones by 18%. The Aug. 22 survey covers almost half the $1.53 trillion assets held by money funds in the U.S.

The trouble is that the interwoven nature of banks holding all sovereign debt is as complex as a spider's web. So if a major bank, or banks, sag beneath such burdens, so will a host of as yet unnamed other banks. This will give new meaning to the word 'contagion'. As it is, the smell of a 'run' on banks is in the air.

Retail and institutional deposits at Greek banks fell 19% in the past year and almost 40% at Irish lenders in 18 months. Meanwhile, European Union financial firms are lending less to one another and U.S. money-market funds have reduced their investments in German, French and Spanish banks. While the European Central Bank has picked up some of the slack, providing about €500 billion ($685 billion) of temporary financing, banks are cutting lending, which could slow growth in their home countries. They're also paying more to keep and attract deposits or, in the case of Italy, selling bonds to retail customers for five times the interest they offer on savings accounts, which will erode profitability. It shows that even European banks don't trust each other anymore, so they're taking their money out of the E.U. system. It's similar to the distrust that happened worldwide in 2008.

In essence, what faith that remains Eurozone is centered in the European Central Bank. To make up their deficits, firms are leaning on the E.C.B. for short-term funding. Borrowing by Italian lenders from the central bank more than doubled to €85 billion between June and August. Greek and Irish banks each took about €100 billion from the E.C.B. in August. Irish lenders also got €56 billion from their domestic central bank. Portuguese banks borrowed about €46 billion from the E.C.B., while Spanish banks took €52 billion in July. What was the collateral that gave the E.C.B. cause to lend? It was government bonds that were not able to raise funds at reasonable rates in the market place. Could the E.C.B. cash in these bonds? It's possible but with the E.C.B. the seller, they would not even fetch a small percentage of their face value.

Will it Get Worse?

With Greece finding it more and more difficult to find the money to manage their awful debt situation as the country is forecast to suffer a 5% recession now the cash flow from government receipts is dropping quickly. The sale of government owned assets is telling a similar story with assets priced at €1.2 billion fetching around €400 million. Let's face it, avoiding bankruptcy is all about an adequate cash flow and that's looking unreachable.

Currency Decline

Market talk is that Greece could leave the Eurozone and its debts behind it, despite Merkel and Sarkozy being convinced it won't. If they do they will have to return to the Drachma! To prevent massive exits of Capital, we have no doubt that they will have to make it a two-tier currency -one for financial transactions at a deep discount to the other [30+%?] and the other at a reasonable level for trade and tourism transactions. Greece will have some of the nicest and low-priced holidays on offer. Remember, runaway inflation starts with stringent liquidity problems!

European and Worldwide Banking System Will There Be a Role for Gold?

The ripple effect of a Greek exit from the Eurozone in a bankrupt state will not only savage their balance sheet but trigger fears in the remaining depositors that their banks could be next. The structure of the banking system is so interwoven that it is possible that it will seize up, if only for a while. Trust in government's finances in the developed world is already at a low. It will take governments to act 'in concert' to save the banking industry, such as we have seen in the U.S.A. but internationally.

This is happening right now!

Failure to do so will result in some spectacular bank collapses. With the monetary system going into shock the need for a reference point for value becomes critical. The head of the World Bank, Mr. Zoellick, called for gold to be used in that role last year. His warnings this week of the dangers facing the world reiterate the depth of the crisis and validate last year's call. We wonder if the global monetary authorities will now listen.

This crisis will change the role of gold in the future

  • Question of Currency Value
  • Gold Price in These Currencies

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2011 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in