What Europe fears, and the reason that the EU members on the Ireland negotiating team “went berserk” when Ireland raised the prospect of a haircut (losses) for the failed bank’s bondholders, is that the contagion will spread from the periphery to the core.
That is, that the disease will progress from the outside in.
The strange market counter currents that we began tracking a couple of weeks ago are still with us and getting stranger by the day.
At this point I am quite concerned about another major banking crisis, quite similar to the one that nearly took down the system in October of 2008. The evidence is mounting.
Here are the similarities:
- The dollar is rapidly strengthening.
- Treasury notes and bonds are firm.
- Credit default spreads are blowing out on Irish, Spanish, Greek, Italian, and Portuguese debt.
Here are the differences:
- Gold and silver are holding quite firm (they got crushed in Oct ’08), especially in euro terms.
- Libor and Ted spreads have not even budged and remain near all-time lows.
- There are no currency swaps by the Fed to foreign central banks.
So this isn’t an exact repeat of 2008, but there are enough similarities that I am paying very close attention to what is transpiring over there. The difficulty here is that so much is shielded from view, we have to rely on correctly reading the tea leaves.
by former_user 
