Funding costs are rising for EU banks and interbank lending is beginning to slow. More banks are depositing money overnight with the European Central Bank rather than with other banks. The eurozone is on the brink of a financial crisis and a meltdown in the EU will take down US banks and financial institutions. By Mike Whitney.
A toxic combo of poor economic data in the US and a widening credit crunch in the eurozone has sent stocks plunging for a 4th consecutive week. On August 19, 2011, the Dow Jones Industrials fell 172 points as jittery investors exited equities for the safe haven of cash and government debt.
Global equities have lost more than US$6 trillion in the last month alone while the yield on the benchmark 10-year Treasury dropped to a record 1.99 per cent on August 18. The low yields on Treasuries indicate the growing fear that troubles in the EU are reaching a crisis-phase. Political gridlock has increased volatility and triggered a slow-motion run on the EU banking system. The same process unfolded in the US for a full year before Lehman Brothers collapsed (from July 2007 to Sept 2008) putting the financial system into a death-spiral. Now it’s Europe’s turn.
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