LET EUROPEAN BANKS CRASH !!

Banks in Europe are technically insolvent. They have huge debts that they cannot pay and governments are doing the bidding of the banks by transferring these debts to the public and then imposing austerity measures. Banks have found innovative ways to sell their debt back and forth to each other without having to increase their reserve requirements in any way. For example, Deutsche Bank has three trillion euros in debt that is supported by less than one and half percent of tier one capital. (Tier 1 capital is the core measure of bank's financial strenghth from a regulator's point of view. It is composed of core capital which consists primarily of common stock and disclosed reserves or retained earnings, but may also include non-redeemable non-cumulative preferred stock).

Banks in Europe are without collateral whatsoever. They are only supported by the illusion of whipping these debts in the Euro money laundering system (European Stability Mechanism) to keep themselves going. In other words the same debts that are swapped amongst banks are swapped again into a newending facility that is collaterized by the same banks. At this time gold is the only unimpingeable collateral to solve the fact that none of the banks have any collateral that is worth anything in the resell market.

In the meantime, people are increasingly suffering from austerity measures and their tax burden is going up substantially. Countries don't even know how much debt their banks have. It is part of what is called the shadow banking system. Furthermore, at any time banks are in a position to flash debt that they say they just found as a scare tactic to get citizens and governments to sign off.

The case of Iceland is a good illustration of what should be done: Back in 2008, Iceland's economy suffered a meltdown with its banks defaulting on $85 billion. The currency collapsed, the economy collapsed. After it was determined that banks could not be saved, the government intervened. It ring-fenced domestic accounts and shut out international creditors. Iceland's central bank prevented the sell off of krona through capital controls, and new banks were created that were controlled by the state. In 2009, Iceland's citizens took to the streets and demanded action of the government against those they saw as responsible for the crisis. The government responded,putting people before markets, and now Iceland's economy is outgrowing the Euro Zone, and on average the' developed world.

Just like Iceland, governments in Europe would be well advised to allow banks to crash. Until that happens, there is going to be more debt servitude, more problems like we are seeing now, more austerity, and more social unrest.