So how do you save the banking system in Europe? I guess it starts one bank at a time! So what does that mean ? Well it starts with Basel III ! But what has already occured?
Well the ECB told all countries that their banks need to buy their sovereign debt (which are currently risk free by Basel rules) and that your central banks need to then buy that sovereign debt from their banks in exchange for Euro cash !
Let’s see how that has worked. If interest rates are lower than when issued on the sovereign debt in Europe it increases the price of the bonds and hence the central banks buy it from the bankers at a premium and make a profit !? Of course the best scenerio is when market interest rates come really down on your bonds and the central bank buys back the long term bonds at highly inflated prices ! The US banksters have that option and are using it ! But the bond purchases by central banks in Europe and maybe the USA are not good enough to fix the balance sheets of the banks since they cannot make a great return on the cash they are swapping for the government, corporate or mortgage bonds. So what’s next ? Not enough loans can get made at high enough interest rates to bail out the banksters!! Expanding loan portfolios will not be enough to improve their balance sheets ?!
I think we will therefore see Gold become a Basel III Teir 1 asset. This will encourage banks to hold gold as opposed to the cash that they swapped for the bonds for!
Why ? Well the banking system needs some type of asset inflation to save their balance sheets. If they stock up on gold, given it gets a Basel III zero risk and it rises in price over the next 10 years then they can sell it back to the central banks and get a huge payout. However I am not too sure about huge profits because the bond market is so much larger than the gold market that all that moneu cannot rush there or would it ? However it would be bullish gold ?!
So it will be deflation and financial repression for the working people and gold asset inflation to save the big national banks.