Over the past few months, there has been a lot of speculation regarding a new financial crisis. For the time being, there seem to be several indicators of this looming threat, albeit no major shockwaves have occurred just yet. Zerohedge mentions how the biggest risk is “contagion undermining the core of the financial system.” The financial ecosystem as we know can topple at any moment, thanks to the domino effect.
The year 2016 has been a mixed bag for the financial ecosystem so far regarding news headlines. Most of them are negative, and there does not seem to be any improvement in sight just yet. The latest European crisis comes in the form of Italian banks, all of whom will be forced to come up very creative solutions to sort out their problems.
Plenty of Warning Signs For a Financial Collapse
But the list keeps on growing, as UniCredit has proven to be in very rough shape right now. Wells Fargo, on the other hand, has too many fingers in the Italian pizzas, and defaulting loans in Europe will hurt the bank globally. There is also the Brexit, of which the full ramifications remain unknown at this time. All of these elements combined can create the proverbial “perfect storm” for a financial collapse.
If that was not enough, European banks can now use customer funds to make themselves healthy again. Do keep in mind funds will be taken from very wealthy clients first, rather than the average person on the street. But at the same time, this goes to show the traditional solution of helicopter money is no longer a plausible option either.
There is also the growing rumor mill regarding the Deutsche Bank and their “too big to fail” position in the derivatives market. Many bank users are confident in the institution, and for now, it looks like everything is fine. Then again, the bank has put a lot of its eggs into this basket, and the derivatives market is a very volatile one right now.
Without confidence by the public – misguided as that may be, in some cases – things would have collapsed a long time ago. A lot of money that is labeled as “debt” in the world can’t be paid off because it simply does not exist. Banks have been given too much power to leverage their trading activities. All of the physical currency in the world today would not make up their exposure by any means.
Very few people seem to be paying attention to all of these warning signs right now. In the end, they may not matter at all, as it is possible the ecosystem will truck on for a while. But these problems will not go away on their own, and addressing them seems all but impossible right now. At the same time, people may look back on the impending financial collapse in a few years from now, and say “We should have seen it coming”.
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