Has the crash begun? The similarities between the current market environment and those seen in the 2008 economic crisis are scary to say the least. Investors are panicking and for good reason – signs that another Lehman-style crisis may be on the horizon.

Deutsche Bank is the one in question. This German banking powerhouse has had its liquidity called into question and is now on the fence, being attacked from all sides as article after article is released pointing to the dangers the bank now finds itself in.

As we reported yesterday, this uncertainty had a dramatic effect on the stock price of the bank, causing it to crash by 10%, dragging it down to levels not seen since the last economic crisis.

The immediate risk that has so many investors on edge is the fact that Deutsche Bank has €350 million in maturing Tier 1 coupons due in April, and even more in the future. The question of whether they will be able to repay this is what has investors so worried.

The attacks have been so fierce and so successful that Deutsche Bank has been forced to issue a press release defending their positions and the fact that they do have the liquidity to meet debt demands in 2016 and going forward in 2017:

Frankfurt am Main, 8 February 2016 – Today Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) published updated information related to its 2016 and 2017 payment capacity for Additional Tier 1 (AT1) coupons based on preliminary and unaudited figures.

The 2016 payment capacity is estimated to be approximately EUR 1 billion, sufficient to pay AT1 coupons of approximately EUR 0.35 billion on 30 April 2016.

The estimated pro-forma 2017 payment capacity is approximately EUR 4.3 billion before impact from 2016 operating results. This is driven in part by an expected positive impact of approximately EUR 1.6 billion from the completion of the sale of 19.99% stake in Hua Xia Bank and further HGB 340e/g reserves of approximately EUR 1.9 billion available to offset future losses.

The final AT1 payment capacity will depend on 2016 operating results under German GAAP (HGB) and movements in other reserves.

The most worrisome aspect of this press release is the fact that the 2017 projections do not take into account the recent significant losses that the bank experienced in 2016. This means that they are in a much worse position than they were, but whether or not it will affect them in a major way going forward is yet to be seen.

This is just another similarity to the 2008 economic crisis, as that was the last time a major developed market bank was forced to defend itself in such a manner.

Going forward, we can expect the German government to step in and attempt to stave off further collapse of the Deutsche Banks stock price and stem the outflow of liquidity. Banning short selling and jaw boning aplenty are just some of the first steps that we will see.

As in the past, Central Banksters, politicians, and the media will continue to report that all is well, nothing to see here, move along. Yet, there may be no looking back now. This can of worms has been opened and there may be no putting the lid back on – the contagion will spread.

Originally posted at Sprott Money February 10, 2016

Today’s Fed and other model based central banks are, to my way of thinking, the ones that have more and more become “increasingly addled”. Their genetic makeup, like that of Delos Roman, seems to have been determined at origin and has since been centered on changes in the policy rate and the observation that higher short rates slow economic growth/temper inflation, and that low (or negative) interest rates do just the opposite. In recent weeks markets have witnessed Mario Draghi of the ECB speak to “no limit” to how low Euroland yields could be pushed – as if he were a two-time Texas Hold Em poker champion. In turn, Janet Yellen at the Fed, at least temporarily, halted their well-advertised tightening cycle at 25 basis points, followed a few days later by the BOJ’s Kuroda and a 5-4 committee vote to enter the black hole of negative interest rates much like the ECB and three other European central banks.

….continue reading HERE

A friend of mine just emailed me the chart below. Considering the fact that we just witnessed 7 full years of ZIRP (zero interest rate policy), I probably shouldn’t be surprised just how massive the investor migration into risk assets, like junk bonds and leveraged loans, has been. But I am.

….read more HERE

Chances are you’ve never heard of William White. 

You might have heard of the organization that he used to manage—the Bank of International Settlements (BIS). 

The BIS is often called the central bank of central banks; their role is essentially to facilitate international financial transactions among the world’s central banks. 

So they are a major component in the international financial system, just like the IMF and World Bank. 

William White is a central banker who used to be on the BIS management committee. And this makes him a key member of the global financial establishment. 

It’s not too often that central bankers are particularly transparent with the public. 

Ben Bernanke famously told the world in July 2005 that there wouldn’t be a nationwide decline in home prices in the United States. 

Then just a few months later when home prices did fall, he told Congress that the adverse effects of the housing market were ‘contained’ and wouldn’t affect the broader economy. 

He was dead wrong on both accounts. And one of the biggest financial crises in history broke out shortly thereafter.

 
Central bankers seem to always miss the crisis just around the corner. 

That’s pretty scary given that they have the power to dominate and control just about everything in the entire economy. 

And despite a serial track record of failure, we’re just supposed to trust them to be smart guys. It’s madness. 

A few days ago, however, William White gave an interview stating some things that you never hear coming out of the mouth of a central banker. Ever. 

According to White, the global financial system is dangerously unstable. 

“The situation is worse than in 2007,” he said, and went on to explain that central banks no longer have the ammunition to fight off a major crisis. 

He railed against the mountain of government debt that has accumulated worldwide, saying that “it will be obvious in the next recession that many of these debts will never be serviced or repaid.” 

White also suggested that banks, particularly in Europe, will have to be recapitalized on an unimaginable scale. 

And due to all the new regulations, it will be depositors who have portions of their accounts confiscated by the state in order to fund the bank bailouts. 

William White is not alone. 

Michael Bury, the man who made $100 million betting against the last housing crisis, sees the same thing. 

In an interview last month, Bury spoke about the “absurdity” of the massive level of debt in the system, and the Federal Reserve’s pitiful balance sheet. 

When he gave the interview, the Fed’s balance sheet was leveraged 77:1. Today, barely a month later, it’s over 100:1. Incredible. 

Financial markets have been in panic mode since the beginning of the year. 

Just in the first few weeks of January, US stocks are down more than 10%. In China, the epicenter of the chaos, stocks are down 20%. 

Commodity prices continue to fall. Pessimism abounds. 

Look, maybe this is it. Maybe the global financial system has truly reached its limit. 

Maybe the world has realized that the path to prosperity is not in conjuring money out of thin air, raising taxes, or going deeper into debt. 

Maybe people have finally figured out that an insolvent government and insolvent central bank cannot possibly continue to underpin the entire financial system. 

Or maybe not. 

Maybe this will all be forgotten in a few weeks. And this coming Christmas no one will remember the great crisis of January that almost was. 

But to me the incredible thing is how much panic there has been, particularly in banking and financial markets, just at the mere HINT of problems in the system. 

It’s a clear indication of how quickly people can lose confidence and an entire system can become unglued. 

Maybe things drag on like this for years, with government continuing to pile up debt and central banks continuing their slide into insolvency. 

Maybe interest rates can become even more negative, and banks can become even less liquid. 

But one day that confidence will turn. And as this month shows, it can all happen in an instant. 

Look, I’m an optimistic guy. 

Crisis always brings opportunity for those who can see the obvious realities. And I think what’s starting to unfold is tremendously exciting. 

Economics isn’t complicated. The Universal Law of Prosperity is very simple: produce more than you consume. 

Governments, corporations, and individuals all have to abide by it. Those who do will thrive. Those who don’t will fail, sooner or later. 

When the entire financial system ignores this fundamental rule, it puts us all at risk. 

And if you can understand that, you can take simple, sensible steps to prevent the consequences. 

We’ll discuss some of these steps in upcoming letters.

Until tomorrow, 

Simon Black

Founder, SovereignMan.com