Friday, June 1, 2012

The Scariest Outcome Ever Imagined

From Zero Hedge and Raoul Pal

  • We don’t know exactly what is to come, but we can all join the very few dots from where we are now, to the collapse of the first major bank…
  • With very limited room for government bailouts, we can very easily join the next dots from the first bank closure to the collapse of the whole European banking system, and then to the bankruptcy of the governments themselves.
  • There are almost no brakes in the system to stop this, and almost no one realizes the seriousness of the situation.
  • The problem is not Government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives…
  • Yes, that equates to 1200% of Global GDP and it rests on very, very weak foundations
  • From an EU crisis, we only have to join one dot for a UK crisis of equal magnitude.
  • And then do you think Japan and China would not be next?
  • And then do you think the US would survive unscathed?
  • That is the end of the fractional reserve banking system and of fiat money.
  • It is the big RESET.

It continues:

  • Bonds will be stuck at 1% in the US, Germany, UK and Japan (for this phase).
  • The whole bond market will be dead.
  • Short selling on bonds - banned
  • Short selling stocks – banned
  • CDS – banned
  • Short futures – banned
  • Put options – banned
  • All that is left is the Dollar and Gold


  • We have around 6 months left of trading in Western markets to protect ourselves or make enough money to offset future losses.
  • Spend your time looking at the risks of custody, safekeeping, counterparty etc. Assume that no one and nothing is safe.
  • After that…we put on our tin helmets and hide until the new system emerges
  • From a timing perspective, I think 2012 and 2013 will usher in the end.
  • You have to understand that a global banking collapse and massive defaults would bring about the biggest economic shock the world has ever seen.
  • There would be no trade finance, no finance for farmers, no shipping finance,  no leasing, no bond market, no nothing.
  • The markets are at the frankly terrifying point of realising that LTRO, EFSF, QE etc are not going to prevent this collapse..
  • The next phase as Spain and Italy go, will be the nationalisation of banks and the assumption of the bank debts on Government balance sheets.

  • Then expect to be shut out of financial markets……

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