It has now been nearly one year that I have been writing about the debt issues in Europe. In our monthly economic update The Seven Signs of a Changing Economy, posted at http://www.wealthstratgroup.com/, I have detailed how inter connected the banks of the world are. German and French banks hold very large amounts of debt from Greece, Portugal, Italy and Spain.
Where the U.S. banking system comes in is the guarantee they have made to the German and French banks in the event of Greece, Portugal, Italy and //or Spain defaulting. JP Morgan Chase and Goldman Sachs announced they alone have guaranteed over $5 TRILLION in default guarantees.
If Greece defaults the first domino falls pushing the next over, etc. Because of the uncertainty surrounding the change in leadership and cost cutting measures being scoffed at the governments of Italy, Spain and France are having to pay higher interest rates to borrow, which in turn increases their deficits and debt making them bigger and bigger risks.
It appears The European Monetary Union (EMU) is down to two choices. They can choose to split up, which in itself could be a financial disaster, or they could print money to back stop the lesser quality countries like Greece.
There is just one problem with that.......printing money by the EMU was specifically banned when the EMU was created! Can that be changed? At this point there does not seem to be any other way out of the maze! Unfortunately, the unintended consequences of this could be just as disastrous and ineffective as our QE-1, QE-2, Operation Twist, ....and QE-3 to come!
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