There’s a lot of dangerous-sounding news going on right now in Europe, the United States, the Middle East, and even the Philippines. Don’t get too worried about any of it for now, as we are not currently in or even close to the bust phase of the boom/bust business cycle.
Eurozone
Starting with the Eurozone, rumors are starting to become more insistent that Deutsche Bank, one of the most interconnected banks in all of Europe, is broke. They’re saying this is Europe’s “Lehman Moment.” Not quite. While it is true, as it is always true, that banks are broke because bank liabilities are always 10 times their assets, there is no immediate danger of a systemic banking collapse in Europe right now, though it will come eventually. The European Central Bank has so much excess liquidity in excess reserves from years and years of money printing that if there was ever any real trouble at Deutsche Bank, the ECB would figure out a way to hand any amount of money over to it, after of course first insisting on no bailouts and saying again and again that every bank is on its own. But in the end they will be rescued, no question.
It is unlikely that there is any existential pressure being exerted on Deutsche Bank right now anyway because money supply is still growing in the Eurozone. Severe and systemic banking crises almost always occur when money is tightening, and we are currently on a major upswing. The Savings and Loan crisis of the 1980’s was brewing for years but did not fully unraveled until August 1987 when Congress bailed out the sector for nearly $11 billion. August 1987 happened to be a time when money supply growth had suddenly stopped, leading to the October 1987 crash.
