spotfxtrader

I wrote this in response to a friend complaining about Greek irresponsibility.

The other angle is the corruption of the banking system as it’s currently structured and the complicity of the EU so called creditors i.e. Merkel, (where Germany is the main beneficiary of the Euro) in conjunction with the ECB’s Draghi and Lagarde of the IMF.

There is no tangible value backing ‘money’ in the current fiat banking system. Banks create money when they make loans; all money is loaned into existence. This is confirmed in the BofE Quarterly bulletin from just over a year ago here.

This is done at no material cost to the bank, and yet the payment of the interest requires the investment of intellectual or physical labour of the borrower, which is a material cost. Furthermore, the charging of interest (for risk ?) where the bank can suffer no loss and is not being temporarily deprived of the funds extended as credit (since they didn’t exist prior to the inception of the ‘loan’) means that in reality the entire transaction is utterly inequitable. Fraudulent even, notwithstanding its being legally sanctioned.

At the time the ‘money’ is created, they don’t also create the ‘money’ required to pay the interest, so bankruptcies are an absolute inevitability. It’s musical chairs.

Most of the bailout money ‘given to Greece’ has actually gone to the banks because these loans count as assets on the bank balance sheets and if they get wiped out, bank capital will get reduced, which would cause a deflationary spiral and collapse the entire Eurozone banking system. When you consider that the derivatives exposure of Deutsche Bank is $75 trillion, a 20x multiple of German GDP, this will probably happen anyway, eventually. It’s just a bubble in search of a pin.

Bank balance sheet write downs will be the result of any hard default, whereas QE on the other hand is the way to conduct a silent default and is avidly being pursued by the ECB. So default is not a moral issue for them. But basically the EU has attempted to sacrifice the Greek people in order to keep the banking system afloat and allow them to conduct their own soft default while continuing to extract the output of Greek labour to pay the banker’s salaries. OK, I know that’s a bit of a crude characterisation of the situation.

This entire situation is entirely of the making of the collusion of a large number of players, not least the ECB. By preventing a Greek currency devaluation, the Euro itself is ultimately responsible.

Here’s some more light reading.

http://www.zerohedge.com/news/2015-06-29/good-you-alexis-tsipras-part-1

http://www.zerohedge.com/news/2015-06-29/french-economy-dire-straits-worse-anyone-can-imagine-leaked-nsa-cable-reveals

http://www.zerohedge.com/news/2015-06-25/forget-grexit-madame-frexit-says-france-next-french-presidential-frontrunner-wants-o

http://www.zerohedge.com/news/2015-06-12/deutsche-bank-next-lehman

From AEP in the telegraph here

French President François Hollande must now pay the price for kowtowing to the contraction polices of the eurozone. His country is sliding into deflation.

French prices fell 0.6pc in January from a month earlier, and would have fallen even further without one-off tax rises.

Manufactured goods fell 3pc, and clothing fell 15.4pc as retailers slashed prices to offload stock.

France’s core prices have been dropping for months, even if the core CPI index is still just positive at 0.1pc on a year-to-year basis.

This outcome is exactly what the Observatoire Economique predicted a year ago would happen under the eurozone’s contractionary policy structure, that is to say under a triple squeeze of fiscal austerity, passive monetary tightening, and draconian bank deleveraging.

Surprise, surprise, the eurozone M3 money supply has been contracting since March.

People laughed at the Observatoire. Nobody is laughing any more. As the IMF said last night, Europe is one external shock away from a lurch into outright deflation.

“A new risk to activity stems from very low inflation in advanced economies, especially the euro area, which, if below target for an extended period, could de-anchor longer-term inflation expectations. Low inflation raises the likelihood of a deflation in case of a serious adverse shock to activity. In the euro area, low inflation also complicates the task in the periphery where the real burden of both public and private debt would rise as real interest rates increased.”

It is no mystery where that shock might come from. The Fed and the Chinese central bank are tightening into an emerging market storm that is turning more serious by the day.
A long list of countries are having to raise interest rates to defend their currencies, creating a further tightening bias. Some of these countries are coming off the rails altogether.

Optimists have a touching faith in the German locomotive that is supposed to pull the eurozone out of the swamp, but the latest data shows that German wages fell 0.2pc in 2013. Germany too is in wage deflation.

Which raises the question: how on earth are France, Italy, Spain, Portugal, and Greece supposed to claw back lost labour competitiveness against Germany by means of “internal devaluations” if German wages are falling?

This forces these countries to go into even steeper wage deflation to narrow the gap, and that in turn causes debt dynamics to spin out of control as the denominator effect does its worst.
There is a technical solution to this. It is called QE. The European Central Bank can lift the entire EMU system off the reefs by launching a monetary blitz to meet its own M3 growth target of 4.5pc.

Unfortunately, the German constitutional court has just raised the political bar for QE to such a high level that the ECB will have to wait until the shock hits before reacting, and by then it will be too late.

Contrary to widespread belief, there is no treaty prohibition against QE. Mario Draghi has said explicitly that it is “not illegal” and remains an option in extremis.
Maastricht prohibits the financing of budgets but not open market operations (QE) needed to maintain monetary stability.

The alleged constraint is entirely political and ideological, and driven by fear that German Eurosceptics will fight it in the courts.

So we have an impasse. What now happens if the damp kindling wood of eurozone recovery fails yet again? It has Japanisation written all over it.

From John Mauldin’s free weekly letter. Posted here

In my book Endgame, co-author Jonathan Tepper and I wrote a chapter detailing the problems that Spain was facing. It was obvious to us as we wrote in late 2010 that there really was no easy exit for Spain. The end would come in a torrent of misery and tears. Tepper actually grew up in a drug rehab center in Madrid – as a kid, his best friends were recovering junkies. (For the record, he has written a fascinating story of his early life and is looking for a publisher.) His Spanish is thus impeccable, and he used to get asked to be on Spanish programs all the time. Until the day came when the government created a list of five people, including our Jonathan, who were basically named “Enemies of Spain,” and pointedly suggested they not be quoted or invited onto any more programs.

As it turns out, the real enemy was the past government. We knew (and wrote) that the situation was worse than the public data revealed, but until the new government came to power and started to disclose the true condition of the country, we had no real idea. The prior government had cooked the books. So far, it seems it even managed to do so without the help of Goldman Sachs (!)

In about ten days I will be sending you a detailed analysis of all this, courtesy of some friends, but let’s tease out some of the highlights. True Spanish debt-to-GDP is not 60% but closer to 90%, and perhaps more when you count the various and sundry local-government debts guaranteed by the federal government, most of which will simply not be paid. Spanish banks are miserably underwater, and that is with write-offs and mark to market on debts that totals not even half of what it should be. If Spanish housing drops as much relative to its own bubble as US housing has so far (and it will, if not more), then valuations will drop 50%. The level of overbuilding was stupendous, with one home built for every new every person as the population grew. We know that unemployment is 23%, with youth unemployment over 50%. Etc, etc. We could spend 50 pages (which is what I will get you access to) detailing the dire distress that is Spain.

Which brings us to this week. It was only a few weeks ago that most everyone, including your humble analyst, thought that the ECB had bought a little time with its “shock and awe” €1-trillion LTRO. Lots of analysis said there would now be at least a year to put programs in place to deal with the coming crisis.

Yet we may now be fast approaching the Bang! moment when the markets simply refuse to believe in the firepower that whatever governmental entities can muster. It happened with Greece, as it has in all past debt crises. Things go along more or less swimmingly until, as Ken Rogoff and Carmen Reinhart so articulately detail in This Time is Different, we wake up one morning to find that Mr. Market has seemingly lost all interest in funding a country at a level of interest rates that is credibly sustainable. When interest rates ran to 15% for Greece, even arithmetically challenged European politicians could understand that Greece had no hope of ever paying off its debt.

When rates rose last year to almost 7% for Italy and 6% for Spain, before the ECB let loose the hounds of monetization, they were approaching the limits of sustainability. Rates came back down as the ECB either bought directly or engineered the purchase of the bonds of the two countries. But now the LTRO effect appears to have worn off, and yesterday interest rates for Spanish ten-year bonds climbed again to 5.99%. There is a large auction for ten-year Spanish bonds next week, which the market is clearly anticipating with a bit of concern. Meanwhile, Italian interest rates are not rising in lock step, which shows that the anxiety is now clearly directed at Spain. Ho-hum, move along folks, nothing to see here in Rome.

(What follows now is a mix of the facts as I read them and speculation on my part. I admit I may be reading more into the information, as I squint at it at 3 AM, than is justified. But then again, there is a substantial amount of history that suggests I am not totally off base…)
Spain Goes “All In”

I came across this tidbit from typicallyspanish.com, and my antennae started to twitch (hat tip Joan McCullough). The key is the second paragraph. (Hacienda is the common name of the Spanish tax ministry, otherwise known as the Agencia Estatal de Administración Tributaria.)

“Spain led the loss in the number of self-employed workers in Europe in 2011. One in two of the self-employed to lose their jobs in the EU over the year was Spanish. Seven out of ten self-employed in Spain do not employ anyone else. Over 2011 Europe lost a total of 203,200 self-employed workers, 0.6% fewer than in 2010.

“Following the news that cash business transactions over 2500 € are to be banned, Hacienda has said they will not fine anyone who admits that they have been making payments of more than 2,500 € over the previous three months. The cash limit is part of the Governments anti-fraud plans which have been approved today, Friday. Those Spaniards who have a bank account outside the country now face the legal obligation of having to inform Hacienda about the account. The Government hopes its anti-fraud measures will bring in 8.171 billion €.”

My fellow US citizens will be saying to themselves, “So what? We have to report our foreign bank accounts, and any large cash transactions are flagged.” But gentle reader, this is much different. This is new law for Spain, basically currency control writ large, and bells have to be going off all over Europe.

First of all, note that Greece never tried to require its citizens to report cash transactions or to list foreign deposits. This is the new Spanish government revealing serious desperation. The government’s back is to the wall. They have to know they will not collect the taxes they need to generate, but are going to try anyway to demonstrate to the rest of Europe (read Germany) that they are doing everything they can.

In a side note, on Wednesday, Spain’s interior minister introduced new measures to thwart plots using “urban guerrilla” warfare methods to incite protests. And the local papers are printing op-eds by economists talking about how the effort to comply with German austerity demands will just make the economy worse, and that the government is not taking into account the resolve of labor unions to oppose them. “Germany is the problem.” It pains me to say this (truly it does), but this is what we were writing about Greece, not all that long ago. We are seeing footage of demonstrations, verging on riots. It is a familiar pattern.

Second, let’s review what I wrote a month ago. I noted that the LTRO money was being used by Spanish banks to buy Spanish government debt (and Italian banks were buying Italian government debt, etc.). The intention was to help the two countries specifically and Europe in general to finance their debts and allow banks to shore up their capital as part of that effort. But what that does is yield the unintended consequence of making a breakup of the eurozone easier, as it helps get Spanish and Italian debt off the books of German and French banks.

The only reason Germany and France, et al., cared about Greece is that their banks had so much Greek debt on their balance sheets, in many cases more than enough to render them insolvent. Bailing out the banks directly would have been costly, so better (thought the European leaders) to do it with bailouts from funds created with guarantees from the various governments (which is a backdoor way to get it from taxpayers) and the European Central Bank. A crisis was avoided and there was a more or less orderly Greek default – which anybody who bothered to look at the math saw coming well in advance.

A further side note: Spanish-bank borrowing from the European Central Bank doubled last month, “revealing a dangerous dependence on emergency funding that on Friday triggered renewed turmoil in financial markets.” (The Telegraph) And the Spanish stock market is down some 30% over the past year.)

So, in the effort to make sure that everyone pays their taxes and to stop tax fraud, the Spanish government is going to find out which of its citizens have moved their money out of Spain. And let’s be clear, money has been flying out of the banks of Spain and Portugal (and to some extent Italy) as it did, and still is, in Greece.

And it will be easier to track that offshore money than you think. Some people, I am sure, moved their money into cash and then out of the country. But others simply wired the money, thus leaving a trail. Spanish banking regulators can easily require they be given that information, and what bank will say no to the regulators? Spain does not collect taxes from its citizens if they are residents of a foreign country (as the US does), but it can tax everyone who lives in Spain. And if you live in Spain and decide to diversify your risk among a few other countries? I am not sure of Spanish tax law, but I reasonably assume you are supposed to report all your income from whatever source. (Otherwise there would be no one investing with Spanish banks, brokerages, and investment advisors –if it were legal not to report foreign investments, then everyone would invest outside of the country.)

Let me hazard a modest prediction: We will see a rather sudden and substantial need for physical cash in certain other “peripheral” countries, as now their citizens may not want to leave trails as they go about opening foreign bank accounts. What is to keep Italy from doing as Spain has done? Or Portugal? Or France? Or Germany?

Let me be clear about something. I am not suggesting that people should not pay their taxes. If you choose to live in a country, you should pay the taxes that are required. What Spain is trying to do is simply make sure that all their citizens pay the proper amount of taxes. If there was already 100% compliance, there would be no need for new regulations like Spain’s. And the same goes for the US. Our penalties are rather stiff for not paying taxes, more so, I’m guessing, than in most of Europe. I have on more than one occasion noted that the national sport of Italy is tax avoidance.

My friends in Spain tell me a lot of business is done in cash. But that is the case in the US and almost everywhere I go. There are a lot of (ahem) “independent” taxi drivers, services, etc. that do not take anything but cash. Maybe they report everything, but I do not bother to ask. (When I was a waiter in college, did I report all of my tips? I was required to report a minimum amount of income for each hour worked, but did I report everything? Since it has been 40 years and the statute of limitations has run out by now, I might admit to missing a few dollars here and there.)

I imagine there are quite a few Spanish citizens who are not sleeping well this weekend. And more than a few people tossing and turning in other countries as well. If the next month comes and goes without any sign of unusual cash movement in Europe, then I will owe the peoples of peripheral Europe a big apology for doubting their willingness to pay their taxes. Or maybe it will turn out that they were better at “avoidance” than your average American, and planned their movements far in advance…

Let’s get back to the central point. Spain is too big to fail and too big to save. The bond markets are clearly getting nervous, much sooner than was planned. Spain is clearly attempting to demonstrate that it will do everything in its power to comply with the new European austerity rules. Yet Prime Minister Mariano Rajoy has warned that the situation has created “a vicious circle that strangles Spain.”

Rajoy delivered a strongly worded speech to parliament, insisting that it was “as clear as day” that Spain would not need a Greek-style bailout. But in recognition that the country is losing market confidence, he appealed to other European leaders to be “careful with their comments” and remember that “what is good for Spain is good for the eurozone.” (The London Telegraph)

One can look at the amount of money Spain will need to refinance in the coming year and look at their financial ability, then look at how much can possibly be raised by the European community, even under the proposed new structures, and readily come to the conclusion that there is simply not enough money to save Spain if the market goes Bang!

The only possible solution I see is for the European Central Bank to step in with some new program. ECB President Mario Draghi has demonstrated a marked ability to come up with new, creative ways to kick the can down the road. Finding the money to bail out Spain is hopefully in his book of tricks. As fellow central banker Ben Bernanke has noted, Mario has a printing press. And the LTRO showed he knows where it is and how to use it.
“We Are Not Greece”

The German Bundesbank is saying as loudly as it can, “QE? Nein!!” But I count only two German votes among the 23 that compose the board of the ECB. Spain is demonstrating to its European brothers and sisters that it is doing all it can. “We are not Greece” is the clear statement. And “We need and deserve your help.” Yesterday, Rajoy pointedly noted again that “What is good for Spain is good for the eurozone.”

One should not underestimate the willingness of politicians who are viscerally committed to a certain action (in this case European unity) to spend someone else’s money in the pursuit of that action. Especially if that money is a hidden tax in the form of debt monetization.

The markets are moving up the time table on the next large monetization of Spanish (and eventually Italian?) debt. Germans will shout that this is inflationary, and for them it probably will be. But much of the rest of Europe is in the grip of deflation. Spain is clearly in a classic Keynesian liquidity trap. This is what can happen when you have very different economies operating under one monetary roof. This is not simply a banking or sovereign-debt crisis, it is about a massive trade imbalance and huge differences in the productivity of labor. The trade imbalance between the south – Portugal, Spain, Italy, and Greece – and the north (mostly Germany) must be solved before there can be any resolution of the economic crisis. This is Economics 101, which European politicians seem to have slept through.

There will be the attempt to create some sort of fund to buy Spanish debt, but it will prove to not be enough. And given recent market movements, it may not be able to happen fast enough. It will not surprise me if the ECB uses the promise of such a fund as a pretext for acting sooner.

And yes, this will lower the value of the euro. We will have to see how far Europe is willing to push the process. Greece will soon default again (they are in a depression and have a national election in early May), Portugal is still moving toward being bailed out, and the Irish are growing tired of having to repay the British, French, and Germans for bailing out their failed banks. Think bailout fatigue isn’t growing among European voters? Stay tuned…

http://graphics.thomsonreuters.com/11/07/EZ_BNKEXP0711_SB.html

this from zerohedge .

written by Brian Rogers of Fator Securities

http://www.zerohedge.com/news/guest-post-welcome-currency-wars

Wither the Euro

Which brings us to Europe and the highly imperfect Euro. The only solution for Europe is a consolidation of fiscal authority at the national level, something like a United States of Europe. This will allow for the issuance of a Eurobond and allow the proverbial debt can to be kicked down the road a bit further. However, even this imperfect solution will never fly. There were times in the mid-2000s where the powers that be in Europe tried to pass a unifying constitution and they were soundly rejected. And this was when the economy was strong, jobs plentiful and the cost of integration viewed to be relatively light. In the current economic situation, however, integration seems unthinkable. All of the recent local and regional elections in Germany, Finland and elsewhere seem to verify this viewpoint as voters continue to elect politicians who will not support more bailouts or further losses of national sovereignty. Europeans are voting for less integration rather than more so this is a non-starter in my opinion. Which means more EUR weakness and eventually an unwind of the currency union. As investors exit the EUR, some will buy CHF and test the SNB. They lost billions earlier in the year on market interventions. They will lose billions more on this one until they eventually capitulate.

The currency union will fail not because the current political leadership wants it to, quite the opposite, it will fail because the people of Germany are Germans and don’t want to be equal members of a broader European concept called United Europe. Same thing for the Dutch, French, Belgians and others. This will ultimately kill the hope some hold out for the Eurobond concept. No fiscal union.

Print More Euros? Nein!

So the other option is massive printing, aka the preferred option of one Ben S. Bernanke. In my opinion, the ECB is really a proxy for the Bundesbank. The Germans, having a particular history with money printing to solve debt problems, will be loath to support much more printing and the polls in Germany so little support for this “solution.” Trichet will continue to print as the banking crisis worsens but at some point he will simply have to pull the plug and allow the chips to fall where they may. The Germans will not repeat the mistakes of the Weimar Republic, even if it means the breakup of the decade or so experiment called the Euro.

This means a banking crisis is coming. The major European are all under-reporting their exposure to the PIIGS because they are reporting net, not total exposure. They have hedged some of their PIIGS risk in the CDS market but in a modern-day banking crisis, the value of those hedges will approach zero as counterparty risk will surge once one of the main banks begins its death spiral. Redemptions will hit the hedge funds, forcing them to liquidate and further rendering the value of any protection they wrote worthless. A hedge only has value if your counterparty is financially able to deliver on the contract. With Greek paper implying at least a 40% haircut, the big banks in Europe are toast. And that’s only discussing Greece. If Italy comes under further pressure, forget it, game over. Italy is way Too Big To Bailout.

Could the US Fed end up purchasing European sovereign debt in an attempt to prevent a collapse of the Euro? Although it doesn’t seem too likely today, I wouldn’t bet against it completely. If buying more PIIGS debt helps keep the banks alive another day, then buy they will. Don’t be too surprised if it happens. As the Swiss and Brazilians just showed, all options are on the table.

This will affect the US banks as well, particularly the large derivative players. Counterparty risk will surge, funding will dry up and capital levels will be questioned in detail. And this particular leg of weakness doesn’t even consider the capital that may need to be raised from the FHFA lawsuits announced last week.

This will force the US government to enact the bank nationalizing powers of the Dodd-Frank Act to ring fence the good assets (assuming there are some) of the major US banks that come under fire. In turn, this will put significant pressure on the US government as the FDIC is forced to make good on billions of dollars of deposits. In addition to the billions being lost on the GSEs, the government will be forced to spend billions on the banking sector while teachers lose their jobs to austerity. This will further roil US politics as both major parties will want to bailout the banking sector but neither will want to move first! You think we had gridlock over the debt ceiling debate, you ain’t seen nothin’ yet!

He touches on the possibility of the Fed bailing out Europe..
I think the last throw of the dice will be concerted central bank intervention by all the major central banks, but this too will probably ‘fail’, since the whole system is gangrenous and what is needed is not that it be preserved but that the gangrene be excised.

Watch 1.3837.

If Chinabot doesn’t show up right beneath there then look for 1.3693

There’s an anecdote in a book called “What They Teach You At Harvard Business School” by Philip Broughton about a speech given to the students concerning the little things that make a good leader.

He emphasised the difference between the victims at a company, those who blamed others and felt sorry for themselves, and those who tried to make things right. Identifying the victims, or ‘spectacle makers’, was vital, or else they would contaminate everything you did. To illustrate the polluting effect of a whiner, he said: ‘If I had my favourite bowl of ice cream over here and a bowl of shit over here, if I took one speck of shit and put it in the ice cream, would you eat the ice cream?’

In an interview given by Soros to Der Spiegel he argues that unless Germany agrees to fiscal union with the other eurozone members the Euro will break up and there will be a banking collapse. However, what he is advocating is stirring all the PIIGS shit into the ice cream.

We are going to keep throwing good money after bad and work as hard as we can to transfer the debt that is on the banks to the ECB and European taxpayers as long as the voters will let us. This first tranche will be another €109 billion. That will last a few years, and Greece will only have to pay about 3.5% on that debt and the rollover debt, and people who expected to be repaid in that period will see payment extended to either 15 or 30 years.

hahahaha….

you mugs….

Call my chauffeur and get me back to my taxpayer funded penthouse…

June 27, 2011 by guidoromero
As I speculated some two years ago, it seems to me that if anyone should leave the Euro it is Germany. The rationale is that weak members need the union more than the union needs them. Conversely, the union needs strong members more than strong members need it.

Even assuming Greece should leave the union, I don’t see how other weak members could stay on. If Greece goes, borrowing costs will sky rocket for all other weak members thereby hastening their demise. This in turn brings about two dilemmas. First, if all weak members start falling off the wagon then how many members other than Germany might be left? Second, even assuming Greece should go, this will bring about the marking to market of Greece’s debt held by the ECB… which I think should bring about the marking to market of all other sovereign debt held there… in other words this would be the “poof!” moment for the ECB thus the dissolution of the EU…

In my view, the path of least complication is if Germany quits the Euro and the EU

There is actually a faint hope that with the bayonets of the German taxpayers pointed at their arses, the dumbf*ck German politicians might make the right choice. All is now crystal clear; It’s a race to become toilet paper between the Euro and the US Dollar now.

Sorry, second thoughts… Can politicians admit mistakes ?

Oh shit…

From Porter Stansberry in the S&A Digest

Porter Stansberry: The next stage of the crisis is starting now
Monday, June 20, 2011

We’re about to see a return to crisis-like conditions in the world’s credit markets. This will devastate financial stocks. It should also hit commodity prices and commodity-related stocks hard. In today’s Digest, I’ll show you why I believe this will happen.

As longtime readers know, I write Friday’s Digest personally. In general, I try my best to teach our subscribers something useful. I’ve always run my research company with a few simple principles in mind. Among them, I strive to provide you with the information I would expect if our roles were reversed. You should know… abiding by this principle often requires me to share information with you before I can be 100% certain it’s correct.

That’s the case with today’s Digest. I want to show you the warning signs as I see them, right now. I want to guide you through my thinking process. And while I’ll give you my predictions about what these things mean, I hope you’ll realize that, as Yogi Berra famously said, predictions are tough – especially about the future.

The next stage in the ongoing global financial crisis will feature the collapse of both the Spanish and the Italian economies. This should occur within the next six months. Concurrently, I believe the “Chinese miracle” will be unmasked as mostly a fraud powered by a huge increase in bad lending from state-controlled banks.

Ironically, the coming wave of financial trouble will probably force people back into U.S. dollars. Gold will also do well. In the currency markets, I believe the euro will collapse in the second half of this year, as will the Australian dollar, which serves as a proxy for the Chinese economy.

I expect this next “down leg” in the world’s markets to be more severe than the crisis of 2008, because the balance sheets of the Western democracies are now less prepared to manage the losses.

Finally, I believe the euro will simply cease to exist.

The first thing I want to show you is the share price of UniCredit. You have probably never heard of UniCredit, but it is a major European bank, with significant operations in eastern and southern Europe. UniCredit is based in Italy. I’ve been keeping my eye on UniCredit for years, for reasons I’ll explain below. UniCredit is the ultimate “canary in the coal mine” of the world’s global currency system.

Most people don’t know that UniCredit is the direct descendent of Oesterreichische Credit-Anstalt, the largest bank in Eastern Europe before World War II. Translated the name means: Imperial Royal Privileged Austrian Credit-Institute for Commerce and Industry. It was a Rothschild bank. The family founded it 1855, and it became one of the most important banks in Europe.

Credit-Anstalt held assets and took deposits from all over Europe. In 1931, the bank failed as a direct result of the U.S.’s Smoot-Hawley tariff. The act crippled Germany’s economy and led French investors to redeem all the capital they’d lent to the bank. The failure of Credit-Anstalt caused Austria to abandon the gold standard, which set off a series of economic dominoes. Germany left gold… then Great Britain… and finally, in 1933, so did America.

The failure of Credit-Anstalt is what really kicked off the Great Depression. I have long been convinced the failure of its successor bank – now called UniCredit – would presage the next global monetary collapse.

I first began warning investors about UniCredit’s likely collapse and its historic role in the world’s monetary history back in March 2010. Since then, the bank’s shares have grown weaker and weaker. And since March, the shares have fallen off a cliff, hitting lows not seen since March 2009.

The sudden weakness in UniCredit’s shares (down 21% in the last several weeks) indicates to me that big trouble is brewing in Europe. I don’t believe efforts to stop the crisis in Greece will work. The austerity measures undertaken in Ireland, Spain, Italy, and Greece have severely weakened these economies, causing loan losses to banks like UniCredit.

And if there’s a run on UniCredit (and I believe there will be), the losses will be too large for Italy to manage without a huge international bailout. UniCredit has borrowed $300 billion from other European banks. And Italy’s government already owes creditors more than 120% of GDP. There aren’t any easy solutions to this problem.

Another warning comes from a friend who is a senior executive at a major Wall Street bank. He sees more high-yield bond deals than just about anyone else in the world. He told our Atlas 400 group last weekend that credit markets around the world were suddenly shutting down. Yields were moving up. Spreads (the cost to borrow above the sovereign rate) were getting wider for the first time since March 2009.

Why? Because the market knows that the U.S. Federal Reserve is going to stop buying $85 billion-plus per month of U.S. Treasury debt. But the Treasury is going to continue to issue more debt. In total, 61% of the entire federal debt will mature within four years. That means roughly $10 trillion in U.S. Treasury bonds will have to be sold, plus whatever the total deficit adds up to over the next four years – maybe another $6 trillion.

It’s difficult to imagine this amount of Treasury issuance won’t have a big impact on the world’s credit markets because these bonds always sell first and at the lowest yields. As these yields “back up” because of the large issuance, they should drain liquidity away from other issues, causing other bond prices to fall. This will reduce liquidity and make issuing debt more expensive across the credit spectrum.

China’s boom since 2009 was fueled by massive domestic debt issuance, which was unsustainable and is reversing. In addition, one Chinese company after another is being revealed as a fraud – and then crashing. These are not isolated events. I have studied Chinese companies for more than a decade. Out of all the stocks I’ve analyzed closely, I’ve only seen a handful I didn’t believe were fraudulent.

So far, none of the major Chinese banks have come under serious scrutiny. But I believe they will… and I believe major fraud will be discovered. Take the recent weakness in the shares of China Life Insurance (LFC), for example. This isn’t a minor company. It’s a $90 billion life insurance company. As fraud allegations spread into major Chinese financials, the entire underpinning of the Chinese boom will fall apart. It has all been fueled by debt and fixed-asset investments (land, buildings, equipment, and machinery). Consider just a few of these facts…

Fixed-asset investment remains greater than 50% of GDP in China, for the 12th year in a row. No other country has ever had more than nine years of this kind of sustained fixed-asset investment.

In the first five months of 2011, fixed-asset investment grew by 25.8% according to China’s National Bureau of Statistics. That’s $1.39 trillion worth of investment.

Jim Chanos, the famed short seller, says China is currently building 30 billion square feet of commercial real estate. That is enough to provide every person in China with a five-square-foot cubicle.

Jeremy Grantham, one of the world’s most astute investors, points out that China has been purchasing gigantic quantities of raw materials. The scale of these purchases makes them impossible to sustain. China makes up 9.4% of the world’s economy, but it is currently consuming 53% of the world’s cement, 47% of the world’s iron ore, and 46.9% of its coal.

A massive increase in China’s domestic debt fueled this investment. In 2010, for example, Chinese banks extended $55 billion in loans – up 95% from the year before. Now, banking regulators are increasing reserve requirements, greatly reducing the amount of available credit. In May, lending was down 25% versus last year.

With Europe’s crisis heating back up, with credit tightening in the U.S. (thanks to the end of quantitative easing), and with China’s boom unraveling… it’s time to be extremely cautious. I don’t know when it will start… but we’re entering another period of soaring volatility, increasing interest rate spreads, and falling stock and bond prices. How the authorities deal with these problems will set the stage for what happens next. If they try to paper over these continuing crises again – with new money-printing programs from the Federal Reserve – you can expect a massive inflation and what I call The End of America.

Our best hope for more stability and a return to prosperity is for people to realize that bailing out banks doesn’t solve these problems. It only makes them worse. But… I’m not optimistic. In the June issue of my newsletter, Stansberry’s Investment Advisory, I detail my best two new ideas to profit from the next stage of this crisis.