On Friday, Dennis Gartman of the Gartman Letter directed our attention to the following chart from this month’s Forbes Magazine:
In Gartman’s eyes the chart neatly sums up the problem currently facing sovereigns, particularly European ones.
The point being, if sovereigns are the last resort for supporting the banking system, it’s not exactly good when your banking debt outweighs gdp by more than 850 per cent, as it does in the case of Ireland.
Gartman puts it as follows:
A chart that we ran across in the most recent edition of Forbes caught our eye and helped explain to us why it is that the EUR is so weak relative to the US dollar and why it was that we were right in issuing our WATERSHED shift in sentiment in favour of the dollar relative to the EUR nearly eight weeks ago… and would that we were still officially short of the EUR given that we got a bit too “cute” in our trading and tried to time the market one bit too much, but that’s another story for another day.
The data in question tallies the total debt of various nations around the world, lumping total bank assets of each nation’s five largest banks and sovereign debt together and then comparing that total to the GDP of the nation in question. Europe’s problems literally leap off the page.
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Europe, simply put, is indebted at levels we find stunningly high; shockingly high; problematically high and very likely insolvably high. Iceland saw itself devolve into banking/economic chaos a year and if the trend in Europe continues as it has, others shall follow in Iceland’s place. It really can’t be otherwise.
Related links:
800 years of financial folly – FT Alphaville
Europe is Lehman-fied… – FT Alphaville