Tony D -- Operation Phoenix

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Subject: Tony D

Author:
Allen Currie

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Date Posted: 13:07:00 05/18/12 Fri

Tony
Sorry I have been so long in responding but I am now way back in the bush in isolation with no phone, electricity, internet, TV, etc. (I still get radio, when I have time to listen.) I get out about once a week (more or less)I don't want to be any where near the fan. Grin

I have never been to Oz, and there are two things I think will effect the speed of the contigation as it hits. There is no doubt in my mind that it will hit. The first is the attitude of the people. The banking system survives at any time, but especially now with all the world financial system bankrupt since Aug 17, 2008, on the confidence of customers. (that they will get their money back) That confidence is a pretty fickle thing at best, but some societies are more excitable than others. On the other hand every society tends to get upset when you take away all their money and/or benefits they feel entitled to. Look at Greece. The population is bound and determined they won't accept "austerity" There is NO comprehension or thought that things could (and would) be much worse under bankruptcy. Greece has much further to fall. (that does not consider whether the current solutions are the correct medicine for the problem. The time for austerity and government interference was in the years leading up to now. )

The second thing to really effect how fast your banking system collapses is the systemic risk within your banks themselves. I am not really familiar with the details on Aussie banks, but the world banking system has a huge systemic risk. Derivatives alone (which are actually loans in disguise in that they are obligations to pay) apparently run over a quadrillion dollars (maybe 1&1/2) in value. With the world GDP running at maybe 2% of that, can the banks pay? Especially in their current VERY weak or bankrupt state. Ignoring the derivatives for a moment, think about daily cash flows between banks, just for clearing daily issued checks. If bank A fails to pay for the checks written by their customers, will bank B be able to survive that hit? If neither Bank A & B pay what they collectively owe Bank C, what are its chances of C's survival? It becomes a row of dominoes.

Are Aussie banks isolated? No. What percentage of your GDP is exported? I would guess +/- 10%. They are relying on foreign banks to pay, never mind businesses that are writing checques daily. Add all these factors together, especially the confidence factor, and Oz cannot stand alone.

Last Monday alone I understand that at least 700 million Euros or about 1 billion dollars moved out of Greek banks through withdrawl of deposits. Banks don't keep that sort of cash on hand. They keep about 4% of their deposits in obligations by other banks to be repaid tomorrow. The actual cash on hand is miniscule. They have to be flying planeloads of cash in hourly. And a lot of that cash is not going back to some other bank so that the countries banking system balances out. (Bank A's cash moves to B and B's cash moves to A) Most of it is winding up under peoples mattresses because they fear that Greece will go back to a very worthless Drachma. To any thinking Greek it is better to be safe than sorry and they have more confidence in the Euro than a possible Drachma. With all their money loaned out in 30 year mortgages or something, the banks cannot pay immediately whether they are solvent or not.

With confidence in banks and governments failing around the world, and especially the news that has been floating around recently about Spain, even those who do not understand things financial found it was easy to guess that Spain was next, and that one is also underway by now (Friday). Next is probably Portugal and one of the ex USSR countries, Romania or Hungary or something. Neither France, Italy, nor England are immune to a bad balance sheet, so a lack of confidence is highly likely to spread. Eventually they will take down the best financed country, even Germany. (And Germany has been weakened by taking over East Germany plus all the money it has been throwing at Greece, et al.)

Unless they get this lack of confidence in the banking system stopped, soon it will jump the Atlantic. (No matter how many Euros are currently fleeing to the "safety" of the US dollar.) How this will come to Oz is not at all clear to me. Probably through the financial routes associated with hydrocarbons.

What boggles my mind is how little attention is paid to the bank run by our local media and how little importance is attributed to it. They are all European problems but with no expected result here in North America. I occasionally get an hour or so of Aussie rebroadcast and it seems the same there. The "experts" are as obtuse financially as Joe Sixpack. A bank run is hell on wheels to stop, and it accellerates exponentially.

On the other hand, markets can remain irrational longer than you can remain solvent. Never-the-less, I have dropped promoting novel in favor of finalizing my own preparations.

Allen

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