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European Periphery is in Depression

Elliott Morss has a short analysis posted tonight that outlines two characteristics of depressions that are endemic in the periphery of the Eurozone:  massive unemployment and bank runs.  The first is already here and the second could happen at any time.  I have read numerous reports this week about billions of euros being moved from banks in the periphery countries into more secure venues.  Elliott posits that this could escallate into depression era like banking problems and documents the exposures of the major creditor nations (including the U.S.).

Along the same lines, the 5 Min. Forecast has a graphic tonight that follows the same theme:



And what is being done about it?  The ECB (European Central Bank) is piling all sorts of assets onto it's balance sheets to try to soak up the toxic waste.  This isn't getting much main stream media attention, even though the ECB balance sheet has exploded well above the Fed's.  Here is the entirety of a GEI News article posted tonight:

ECB Balance Sheet Explodes 

Econintersect:  The balance sheet of the ECB (European Central Bank) has increased more than 2.3 times between the end of May 2011 and the end of October and would have to grow 6.4 times (from May 2011) if it did no more than fund the rollover of the Italian debt that matures in 2012.  How much more will end up on the central bank balance sheet when the problems in the rest of the EU are addressed?  That is not entirely clear.

One of the reasons for this is that the EFSF (European Financial Stability Fund) is in the process of being levered up to a value over $1 trillion, through the issuance of bonds and other financial engineering efforts (
Reuters).  The exact form that leverage will take has not been decided, according to Reuters.  However, according to a different Reuters article, there has been poor demand for the bonds presented at auction so far.

Edward Harrison, at Credit Writedowns, has this to say, comparing the situation in Europe with that in the U.S.:

When QE3 was a go with the Fed explicitly committing to zero rates for two years, what I call permanent zero, the Fed didn’t have to buy any bonds. The private sector did it for them. Given the size of the Italian market, that’s where the ECB is headed, German political concerns or not. This chart tells you why.

bonds-ecb

 

Mike Norman Economics has reported on the overall balance sheet of the ECB and provides the following comparison to the Fed:

ecb-and-fed-balance-sheets

It is seen that the recent sovereign debt purchases have helped push the ECB balance sheet well above that of the Fed. How high will it go as the sovereign debt burden increases? 4 billion? Even higher?

Der Spiegel has a three part series on the European crisis:  The headlines for the three parts of “Eurozone Considers Solution of Last Resort” are:

Part 1:  Run for Your Lives

Part 2:  The Next Domino?

Part 3:  Printing Money with the IMF

Editor’s note:  Anyone who reads this series, and cannot find additional facts that are contrary to those presented there, will be disabused of any opinion that this crisis will be resolved quickly and probably not without a lot of disruption and carnage on a global scale.  No, this is not going to be 2008 all over again.  It will be different.  At this point we can only hope that 2012 is not worse than 2008.

Sources:  Reuters (bond sales), Reuters (EFSF leverage), Credit WritedownsMike Norman Economics and Der Spiegel