Dec

14

 The Bundesbank is now in the same position that the Federal Reserve/U.S. Treasury were in the 1920s. As Pater Tenebrarum notes:

The BuBa is making up for the gaping hole left by fleeing depositors and the lack of access to wholesale funding in the euro area periphery's banking systems. It is basically a stealth bailout of the periphery's banks. In principle this does not represent a problem, since most of the deposits have fled to Germany where they are now funding the German commercial banks.

To maintain how the administrative gold standard was in the 1920s, the Federal Reserve/U.S. Treasury (they were as collaborationist then as they are now) had to swallow European paper and sh*t gold. No one in the North Atlantic (except Americans and Canadians) could ask for gold in exchange for the paper issued by the central bank/Treasury, yet the central banks of all the countries were able to continue the fiction that international trade balances were being settled in gold at the pegged price of the administrative standard. No one in the non-German countries in euro-Europe can now ask for and get a commercial loan if they are not a government-sponsored enterprise already in debt, yet the paper currency issued by the Greek central bank remains legal tender in Stuttgart.

According to a study from the BIS:

the scale of the 2008-09 banking crisis, as measured by falls in international short-term indebtedness and total bank deposits, was smaller than that of 1931. However, central bank liquidity provision was larger in 2008-09 than in 1931, when it had been constrained in many countries by the gold standard. Liquidity shortages destroyed the international monetary system in 1931. By contrast, central bank liquidity could be, and was, provided much more freely in the flexible exchange rate environment of 2008-9. The amount of liquidity provided was 5 ½ - 7 ½ times as much as in 1931.

Kyle Bass says the European banks are 3 times as leveraged as those in the U.S. and have not recapitalized even as the U.S. banks have added nearly $1 trillion to their capital. According to S&P, total bank liabilities are €23 trillion for the eurozone and €8 trillion for the UK, Sweden, and Denmark.

What if Lehman/Bear Stearns and FNM/FRE were not the Credit Anstalt but merely the Rentenmark crisis– not 1931 but 1923/4?

And then, Mr. Bass reminds us, there is situation of Japan– something that actually is "different" this time.

p.s. And then there is China– as Mr. Hendry and Professor Mundell predicted.

 


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