As we approach 2017, the euro appears far worse than anyone could imagine. The biggest hypocrite is actually Mario Draghi who is outrageously managing the European Central Bank (ECB). To make this as plain as possible, the ECB is the largest individual creditor of the euro countries, and is thus a bank that is undermined completely by the poor creditworthiness of the debtors. If the ECB were to apply its own rules to the banks in Europe that say bail-in, not bail-out, then by its own supervision rules, the ECB is insolvent and should be shut down.
Just look at the data. The ECB has been buying government bonds through its Quantitative Easing (QE) program and the failure of that expanded into other securities that now include corporate junk bonds. Looking at the balance sheet, the central bank currently has receivables amounting to €1,627 billion, of which €1,220 billion are directly attributable to government bonds.
Let’s begin to dive deeper. Of the 19 countries of the Eurozone, the total debt is €9.816 billion. Together, all the Eurozone banks hold €1,695 billion in government bonds. Additionally, there are €1,100 billion in outstanding bank loans. The ECB is already the largest individual holder of government debt as is the Bank of Japan. Neither have anything to show for their QE efforts but failure. Draghi is continuing to buy even more questionable debt to the tune of €80 billion a month, dropping down to €60 billion.
The presumptions that government debt is RISK-FREE is built entirely upon this idea that they can tax. But taxes are at their highs and history warns we have a tax revolution on the horizon. Government debt cannot be looked upon as free of risk when there is no further room to raise taxes. Draghi has placed all his eggs in one basket. Governments NEVER pay off their debts, they only spend more and more. This is a major crisis that seems to be out of focus for the majority of the world and certainly the press who are bought and paid for.
The bottom line: this is not going to end nicely. Draghi has no way out and there is only one end result. As the Eurozone breaks apart, so will the assets of the ECB. Under their own rules, the ECB should now be declared INSOLVENT. The Federal Reserve is not in the same position as the ECB or Japan. Nevertheless, it too will be insolvent if it attempts to follow this path. The Fed only has Federal debt, not state debt which would be more like the ECB.