Is Europe set to declare a Chapter 11 in early 2012?

November 22, 2011 — LONDON – Panic is spreading says Steen Jakobsen, chief economist at Saxo Bank. Steen eyes the perfect storm including a potential “Chapter 11” call for European banks. This morning there is too much bad news. US Super Committee failed to find the $1.2 trillion US Dollar needed to stop the automatic spending cuts being initiated from 2012, but the more acute problem being the expiration of the payroll tax and the emergency benefits by year-end 2011. It now looks less likely a deal can be struck as Congress now have even less incentive to find common ground ahead of next year US election. The immediate impact could be a full one percent slower growth in the US – Goldman Sachs provided this excellent graph detailing the potential negative impact: The number could be -2.0% to -0.5% in first two quarter of 2012 – again underlining our believe in an economic perfect storm as the most likely scenario. The debt crisis is taking a new negative turn – as seen in prior liquidity crisis’ the EMG Europe bloc comes under attack and this morning there are two extreme worrisome news pieces out. Hungary have submitted formal request to the EU and IMF for help. Hungary feels this is needed to secure risk-free growth for the economy – talks should be concluded in early 2012. Austrian banks told to limit lending to the east: Basically, they need and want to protect their AAA and they seem to believe, rather naively, that the best way is to cut lending to their EEC bloc lending. Again the credit-cake is getting smaller. The Belgian chief government negotiator asks to quit. Keep an eye on Belgium rates today – they have risen from 3.6% in early October to now close to the magic 5.00 which spells trouble, with capital T. –Global Economic Analysis

Bond yields: The cost of borrowing money to service soverign debt obligations in Europe is skyrocketing and was already at a crisis point by May of 2011. The sitituation has only grown progressively worst with time. Italy currently has $2.2 trillion in gross external debt, far exceeding the IMF’s current available resources of about $540 billion to effect a bailout. The point of no-return that was only once looming for Greece is now threatening the entire EU. –The Extinction Protocol 

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