The crisis that began to be visible in statistics in the euro area since 2011 is worsening and a violent crash will occur in 2018.
It will cause a recession in the United States in late 2019 and 2020.
Several concordant indicators justify these predictions …
The evolution of the curve representing the difference between the yields of Notes at 10 years and at 2 years shows cycles that have followed each other for decades,
The low points correspond to the zero, that is to say to a flat rate curve: the long and short rates are at the same level.
The yield curve can be reversed, i.e. short-term rates can be higher than long-term rates when investors invest their money in short-term treasuries because they fear the arrival of a recession which occurs a year and a half later.
These cycles were prompted by FOMC members who raised the Fed’s base target on 10-year Notes yields to fight against inflation or against money bubbles (since 2000).
The cause of the current decline in the yield spread between the 10-year and the 2-year Notes is new because it is caused by the crisis that is developing in the euro zone, and not by the situation in the United States,
The consequences of the crisis that has been occurring since the summer of 2011 are clearly visible in this graph 4, as shown by the abnormal fall in 10-year note yields that should have remained in the 3% band.
This € -crisis is caused mainly by the European banks that do not respect the prudential rules of debt of Alan Greenspan: the leverage must be less than 10 (the debts of the banks must be less than 10 times the amount of their true equity).
Indeed, the American big banks too big to fail almost all respect this rule which is not the case of many European banks,
Indeed, the US authorities have intervened energetically to impose on the managers of their banks to respect this prudential rule of indebtedness, which was not the case in Europe as shown for example by the leverage of Citigroup and Société Générale (whose data cannot be calculated before 2014),
As the euro-zone banksters do not respect this prudential rule of indebtedness, the ECB must lend them hundreds of billions of euros that it does not have!
This gap (Spread) between the ECB’s availability of banks (in the form of loans and securities purchases) and its main means of financing is increasing each time the crisis increases.
It became strongly negative at the close of the last balance sheet on December 29th,
Since the euro-zone banksters do not respect the prudential rules of indebtedness, they lend too much money to their clients in relation to the amount of their equity, which causes a monetary hypertrophy: the M3 money supply is greater than the GDP annual flow whereas it should not exceed 78% of this GDP,
This monetary bubble is located mainly in the M1 aggregate because this aggregate represents more than 40% of the GDP whereas it should not exceed 13% of the GDP as it is the case in the United States and … as it was the case before the adoption of the euro,
According to the figures published by the ECB, money creation in the euro area is therefore approximately 3 000 billion euros, but it is also necessary to take into account the almost 500 billion Swiss francs that have taken refuge in Swiss banks (after the figures published by the SNB) but which can return easily and quickly in the euro area,
Massive money creation and banks on the verge of bankruptcy is a particularly dangerous explosive cocktail.
The only prior art known is that of Germany between the two wars, as rightly remarked and described by Pierre Jovanovic in his book (in French) Hitler or the revenge of the printing press.
This monetary bubble has developed since the adoption of the euro. It must necessarily burst one day.
The future is by definition uncertain, but it is difficult to consider other solutions to the monetary hypertrophy that has developed in the euro zone and which is still lethal in the long term, as the term has become very close.
The beginning of the end should occur with the fall of Italian banking dominoes that have more than 200 billion euros in bad debt. It will be transmitted in the euro area, which will no longer be manageable.