The ECB’s Balance Sheet Is Literally a Work of Fiction

by Phoenix Capital Research


As noted in numerous articles, the entire European banking and corporate system is over-burdened with debt.

Jagadeesh Gokhale of the Cato Institute puts the situation as the following, “The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”

Put another way, for Europe’s Government to fund all the entitlements they have, they would need an amount equal to 400% of GDP to be sitting in the bank collecting interest.

Virtually NO European country is running a surplus, let alone has an amount equal to 100% of GDP let alone 400% of GDP sitting around.

How come no one is openly admitting this?

The reason none of this shows up is because Europe’s accounting for unfunded liabilities as well as its accounting for banking liabilities. As noted by Mark Grant, the ECB even ADMITS that it doesn’t record most of the garbage it owns:

Recognition of assets and liabilities

An asset or liability is only recognized in the Balance Sheet when it is probable that any associated future economic benefit will flow to or from the ECB, substantially all of the associated risks and rewards have been transferred to the ECB, and the cost or value of the asset or the amount of the obligation can be measured reliably.”

So the ECB has openly admitted: “we don’t actually count something as an asset or liability unless we believe it should be.”

In other words, the ECB’s balance sheet, which backs up the entire EU banking system it essentially a work of fiction. Unless the ECB officials feel like admitting something is an asset or liability, it doesn’t exist.

At this point, no sane person could possibly invest in Europe. And given that EU bureaucrats are now proposing STEALING depositors savings, I can’t think why anyone would have a bank account there either.

At the end of the day, this is all you need to know about Europe’s Crisis:

1)   The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).

2)   This banking system is officially leveraged at 26 to 1. Realistically it’s likely closer to 50 to 1.

3)   The ECB’s balance sheet is entirely made up based on how the ECB feels like valuing what it owns (how’d that concept work out for Wall Street banks in 2008?)

4)   Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany).

So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1…

And all of this is occurring in a region of 17 different countries none of which have a great history of getting along… at a time when old political tensions are rapidly heating up.

To be clear, the Fed, indeed, Global Central Banks in general, have never had to deal with a problem the size of the coming EU’s Banking Crisis. There are already signs that bank runs are in progress in the PIIGS.

Thus, the World’s Central Banks cannot possibly hope to contain the coming disaster. They literally have one of two choices:

1)   Monetize everything (hyperinflation)

2)   Allow the defaults and collapse to happen (mega-deflation)

If they opt for #1, Germany will leave the Euro. End of story. They’ve already experienced Weimar and will not tolerate aggressive monetization.

So even the initial impact of a massive coordinated effort to monetize debt would be rendered moot as the Euro currency would enter a free-fall, forcing the US dollar sharply higher which in turn would trigger a 2008 type event at the minimum.

In simple terms, this time around, when Europe goes down (and it will) it’s going to be bigger than anything we’ve seen in our lifetimes. And this time around, the world Central Banks are already leveraged to the hilt having spent virtually all of their dry powder propping up the markets for the last four years.

Given what is happening in Europe right now, we wanted to alert investors to a major development we’ve noticed in the markets.

The markets look to be setting up for the next Crisis. Indeed, multiple metrics we track are flashing RED ALERT.

To read more about this… 


Best Regards,

Graham Summers

Chief Market Strategist


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  • Michael F Rivero

    The problem I have with this article is that it blames
    entitlements for the financial problems and ignores the fact that by design, private central banks issuing the public currency as a loan at interest create more debt than they create money with which to pay that debt. No matter how hard people work, no matter how much they sacrifice, the debt always grows faster than the available money supply. Private
    central banks issuing the public currency as a loan at interest are pyramid or Ponzi schemes, able to perpetuate only by ever increasing amounts of borrowing which creates new money, part of which is siphoned off to pay the interest on the old money. This system must always collapse when no new borrowers can be found. And every such system HAS
    crashed. There is no nation enslaved to a private central bank issuing the public currency as a loan at interest that is not drowning in debt. The United States fought a revolution to be free of such a predatory system, only to be sold back into the clutches of the scam by corrupted politicians. Because of globalism, the system as a whole is on the verge of collapse at the same time and the money-junkies that own these
    private central banks issuing the public currency as a loan at interest are now down to stealing money from the people to prop the scheme up just a wee bit longer. This is a failed system, and what is worse, the creators of this system KNEW it would ultimately collapse, but set it up anyway, knowing that future generations would pay the price when it all
    collapsed, long after the creators of the scam were dead, having happily gone to their graves after lives of unearned wealth and luxury.