Yesterday I published the assets/liabilities of the
European Central Bank as provided by them. I provided some analysis that I
thought was relevant as I also asked all of you to look at the numbers
yourself. To be quite open; I was stunned by the data they provided and shocked
by the implications. I had not seen the data in any other source or commented
about by anyone and the subject, while admittedly complex, and perhaps made
more complex by design, is a huge wake-up call for anyone investing in Europe.
The
ECB lists, as of the end of the 1st quarter of 2012, 16.304 trillion Euros ($
21.032 trillion) in assets and 17.334 trillion Euros ($22.631 trillion) in
liabilities. It is right there in black and
white as I showed in the ECB provided data that I presented yesterday. However
when you get to their consolidated balance sheet you find the numbers they
bandy about in public to be a ledger of 3.240 trillion Euros ($4.00 trillion)
and you catch your breath and pause. Utilizing normal American accounting
practices this variance would be impossible and yet here it is; staring us all
right in the face.
“Europe has put a ‘stop payment’ on our reality check!”-The Wizard
I can report that I did hear from a number
of large institutions yesterday that also looked at the numbers themselves and
were stunned. Conversations were held, questions were asked and I think an
accurate summation of the conversations was that everyone was in some state or
another of astonishment. The numbers were not my numbers after all and while
many good issues were raised in terms of how to properly analyze the data that
was presented there was a clear sense that we were being duped by the European
Central Bank and played for suckers.
“Reality is the leading cause of stress among those in touch with it.”
-Jane Wagner
Forget
that the liabilities are greater than the assets and forget that that both have
increased rather appreciably in the last several years and just concentrate on the size of the
numbers presented and then ask the central questions; who is responsible for
these assets and liabilities and where are they counted? We know that they are
not counted at the ECB as they are not a part of their consolidated balance
sheet. You may ask how this is possible and I re-print, once again, the
applicable note from the ECB:
“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
there is the rationale, like it or not, but then where are these
assets/liabilities counted? We are talking about $21.032 trillion in assets
here and $22.631 trillion in liabilities which are larger numbers that all of
the GDP of Europe. We can
surmise that the ECB does not count these loans, securitizations and collateral
as they belong to a given nation or a bank guaranteed by the nation or the
securitization is guaranteed by some country but the rub is the country doesn’t
count them either. When
a European nation reports out its debt to GDP ratio I knew that they did not
count contingent liabilities and I knew that government backed bank bonds were
not included and I knew that regional debt guaranteed by the government was not
included but this, and the sheer size of it, had lain underneath everyone’s
radar.
Think
of it; twenty-two
trillion dollars worth of assets and liabilities and accounted for nowhere. No need to worry anymore about
Target2; a mere tuppence at one trillion dollars, a decimal point. Just exactly
what these assets and liabilities might be is anyone’s guess. Just which
nations generated them is also anyone’s guess as no data or explanation is
provided. Just what any country’s real debt to GDP ratio might be if these
assets/liabilities were included in the equation is also anyone’s guess but I
think it is safe to assume that the numbers would be off the charts; far off
the charts.
“Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.”-Sigmund Freud
You
know, these are not blue fairies or gnomes or elves that have gone missing. These
are twenty-two trillion dollars ($22 trillion) of loans and securitizations and
mortgages that are found and accountable for by no one. These are real assets and real liabilities that have been turned
into cash by the ECB and it causes me to wonder just how accurate the Money
Supply numbers are for Europe with
this amount of cash being pumped into the system. I also wonder what anyone’s
real balance sheet looks like and I wonder what kinds of losses are being
incurred and by whom. To be quite forthright, and in my opinion, this seems to
me not just the rigging of the game or the gaming of the system but something
far past that; something out beyond the realm of the credible and of real world
experiences.
This
is what we are investing in when we buy European bonds? This is where we are
putting our client’s money? I don’t know; they may have gone mad but I have
not.
Have
you?
“An error does not become truth by reason of multiplied propagation, nor does truth become error because nobody sees it.”
-Mahatma Gandhi
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