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The Most Advertised Financial Avalanche of All Time, Yet So Many are Whistling Past the Graveyard
America's banks and the soon to be administered test from across the Atlantic
By Bob Stokes
Mon, 25 Jun 2012 17:00:00 ET
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The 2008 financial crisis came like a thief in the night. Almost no one saw it coming.
 
By contrast, if a global financial meltdown occurs soon, it will be the most advertised of all time.
 
Yet it's remarkable that:
 
Even after the European debt crisis has been in the spotlight for three years, and the U.S. economy remains on the mat, the financial media still churns out news similar to this:
 
Most economists and strategists still think Europe will be able to muddle through its problems as it has for the past few years. And while the majority of them see weak growth in the United States, they don't expect the economy to slip into a recession.
Reuters, June 24
 
A popular measure of economic health is a nation's banks. Leading bankers and market commentators say that U.S. banks are stronger than they were in 2008. Most of America's biggest banks recently passed the stress tests designed by the Fed to reassure investors about the economy. In other words, all eyes are on Europe.
 
A June 9 Reuters headline reads, "Bernanke says Fed to act if Europe crisis deepens."
 
The President of the United States recently said that his administration has been in "constant contact" with European financial authorities throughout the crisis.
 
Moreover:
 
Billionaire Warren Buffett says American banks are in much better financial shape than European counterparts because of measures taken during the financial crisis.
Associated Press, May 7, 2012
 
By stark contrast, the former chief economist of the International Monetary Fund wrote a June 24 Bloomberg article titled
 
U.S. Banks Aren't Nearly Ready for Coming European Crisis
 
So if you're looking for assurances or warnings about the economy, who should you trust?
 
Well, if you read a June 25 Financial Times editorial by billionaire investor George Soros, he says a "fiasco" is ahead if Germany doesn't step up to the financial plate to help debt ridden eurozone nations.
 
But Germans are tired of funding other European Union countries. "German business confidence declined to its lowest level in more than two years." (Bloomberg, June 22)
 
Germany's chancellor has "rebuffed all proposals to help relieve Spain and Italy from the jump in their borrowing costs and has resisted allowing the European Central Bank to step up buying of peripheral sovereign debt." (CNBC, June 25)
 
On June 28, eurozone leaders will hold another summit, no doubt continuing the cycle of handwringing and negotiations that have stretched into a third year – with little to no apparent results.
 
Previous summits have not stopped the sovereign debt crisis from escalating, and EWI doesn't see any reason why this one will either:
 
In January, The Elliott Wave Financial Forecast declared that “economic exhaustion” was Europe’s top export and asserted that the Greek credit crisis would inevitably pass through Europe to the rest of the world...As the availability of new credit diminishes and the income available to service the vast amounts of already outstanding debt vanishes, the sovereign debt implosion will intensify.
The Elliott Wave Financial Forecast, May 2012
 
Meanwhile, demand deposits have been declining at national banks in several European Union nations. These are the deposits that bank customers can withdraw at any time.
 
 
   
So far, the bank runs have come in fits and starts, so that the financial tremors seem merely unnerving. Soon, however, bank deposits will begin a monolithic decline. The resulting chaos should be extraordinary.
Global Market Perspective, June 2012
 
EWI's aim is to keep you way ahead of this financial chaos. Consider this June 15 Yahoo! Finance article:
 
Major ratings downgrades by Moody's will further divide the world's biggest banks based on their strength and access to cheap customer deposits.
 
The ratings, released Thursday by Moody's Investors Service, gave a competitive advantage to "safe-haven" banks that fund themselves with stable, low-cost customer deposits, while worsening the outlook for weaker banks that rely more on capital markets for their funding.
 
Ten years ago, Robert Prechter's New York Times best-seller, Conquer the Crash, noted (p. 180, second edition):
 
In a deflationary crash, many of the safest U.S. banks have a good shot at survival and even prosperity. The reason is that relatively safe banks, if they have the sense to inform the public of their safety advantage, are likely to become even safer during difficult times. Why? Because depositors in a developing financial crisis will move funds out of the weakest banks into the strongest ones, making the weak ones weaker and the strong ones stronger. One of the great ironies of banking is that the more liquid a bank, the less likely it is that depositors will conduct a run on it in the first place.
 
The banking insight above is just one example of how EWI keeps its subscribers ahead of the trend. (For a comprehensive list of the safest U.S. banks, read this free report.) 

 

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Tags: banks, Club EWI, deflation, European debt crisis, European Union (EU), eurozone, International Monetary Fund (IMF), safe haven, soverign debt crisis
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