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The most obvious trick left in the book, therefore, is to inflate us out of
this mess. With the enormous amounts of public debt being created at
the moment, years of deflation a la Japan would be catastrophic.
http://www.arpllp.com/core_files/The...ter%200309.pdf
(short fair use cuts below )
“European Commission officials have estimated that “impaired assets”
may amount to 44pc of EU bank balance sheets. The Commission
estimates that so-called financial instruments in the ‘trading book’
total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU
bank balance sheets.
In addition, so-called ‘available for sale instruments’ worth £4trillion
(4.5 trillion euros), or 11pc of balance sheets, are also added by the
Commission to arrive at the headline figure of £16.3 trillion.”
Not much of a cushion left
Citibank has calculated that it would only take a cumulative increase in
bad debts of 3.8% in 2009-10 to take the core equity tier 1 ratio of the
European banking industry down to the bare minimum of 4.5%1. By
comparison, bad debts rose by a cumulative 7% in Japan in 1997-98.
One can only conclude that European banks are very poorly equipped
to withstand a severe recession. Seeing the writing on the wall, they are
left with no option but to shrink their balance sheets.
this mess. With the enormous amounts of public debt being created at
the moment, years of deflation a la Japan would be catastrophic.
http://www.arpllp.com/core_files/The...ter%200309.pdf
(short fair use cuts below )
“European Commission officials have estimated that “impaired assets”
may amount to 44pc of EU bank balance sheets. The Commission
estimates that so-called financial instruments in the ‘trading book’
total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU
bank balance sheets.
In addition, so-called ‘available for sale instruments’ worth £4trillion
(4.5 trillion euros), or 11pc of balance sheets, are also added by the
Commission to arrive at the headline figure of £16.3 trillion.”
Not much of a cushion left
Citibank has calculated that it would only take a cumulative increase in
bad debts of 3.8% in 2009-10 to take the core equity tier 1 ratio of the
European banking industry down to the bare minimum of 4.5%1. By
comparison, bad debts rose by a cumulative 7% in Japan in 1997-98.
One can only conclude that European banks are very poorly equipped
to withstand a severe recession. Seeing the writing on the wall, they are
left with no option but to shrink their balance sheets.
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