Jim Cramer’s declaration of ‘we’re saved’ aside, Houston, we have a problem.
Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding.
The European Central Bank admitted it had held meetings about providing emergency funding to the region’s struggling banks, however City figures said a “collateral crunch” was looming.
“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” said one London-based executive at a major global bank.
Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.
So, what precisely does this mean? It means that the banks one ability that they have used since 1659 to control people and governments, the ability to create money and control the quantity of it in our system, is nearly gone. How is this, you ask?
While it is popular vernacular to refer to what has been practiced by Ben Bernanke’s Federal Reserve and Central Banks across the world as ‘printing money,’ that is a misnomer. What they truly do, is issue DEBT. Our worldwide monetary system is based upon nothing but the issuance of DEBT. This means there has to be a BUYER of debt somewhere, some place, in order for money to either be printed (physically) or put into someone’s bank account electronically.
‘Printing’ or more accurately termed ‘raw printing’ is what happened in Weimar Germany and in Argentina. This is when governments just run a printing press with NO promise to pay ANYTHING at any time, merely for the sake of fooling people into continuing with commerce as usual. That doesn’t last very long, and we get the much feared monetary phenomenon of hyperinflation.