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America's in greater trouble than people realize because of extreme speculative excess. Toxic derivatives impose crushing burdens. The Comptroller of the Currency estimates banks held $176 trillion of them at the height of the 2008 debt crisis. Today, US banks hold $249 trillion, 41% more.
Moreover, America's crushing federal debt exceeds 118% of GDP. Add unfunded liabilities and it's over $120 trillion. Totals rise despite imposed deficit reduction measures and proposed new ones. Over $1 trillion added annually compounds an already unmanageable burden.
Expect international creditors to balk. Borrowing will get tougher. Economic decline will follow. A burgeoning new debt crisis will dwarf 2008. Its effects will spread globally.
Progressive Radio News Hour regular Bob Chapman believes "Europe still does not have a longer-term structural solution to its debt crisis and none is in the offing."The Eurozone's crisis is undermining the entire continent. It has global effects. Worse yet, he learned, "the Bundesbank usually holds back bonds for market making operations." It only sold about half its latest issue. "If the crisis continues to deepen, Germany and the other eurozone nations will have to reexamine where they are headed."
Eurozone 10-year debt costs close to 7%, the highest level since the euro's creation. The 2% spread between France and Germany's unprecedented. Bond markets can't function without ECB help. Sovereign government debt is unmanageable. Increasing it makes it worse.
Italy's largest bank, Unibank, has $51 billion to refinance. Its bond yields now yield over 10%. Only the ECB can bail them out like the Fed does for Wall Street.
Besides what Eurozone countries have to refinance next year, banks have to roll $720 billion of their own at high rates. Moreover, troubled sovereigns need around $6 trillion to avoid default. Solvent countries can't provide it without going broke. Neither can the Fed, ECB or IMF.
Capital flight is also an issue. In 2011, Greek banks lost 20% of their deposits. Will Italian and Spanish ones be next? Smart money says so. World leaders grope for solutions. Good ones aren't being chosen "The situation is unsustainable," says Chapman.
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