by Egon von Greyerz

The one Swiss and three US banks that just went under is just a foretaste of what is to come. 

As the US and European banking systems come under pressure, The Everything Collapse will cause a collapse in financial markets of a magnitude that has never before been seen in history. Since the global financial system is a mesh which reaches every financial player in the world, from sovereigns to private individuals, no-one will be able to escape the The Everything Collapse. 

So how will the The Everything Collapse or Bankruptcy start. Well, it has already started but the world hasn't noticed it yet. Four collapsed banks have already been shaken off by investors as a light headache which was cured by a few hundred billion dollars of central bank aspirin. 

As Hemingway said, you go bankrupt first Gradually and then Suddenly.  But no one should be deceived by the gradual phase of bankruptcy or collapse we are in currently. We have just had the final warning. This gradual phase might last a few months or longer  but it is the last chance investors have to put their house in order.  If you wait until the sudden phase, the panic will paralyse you as you wait for a recovery which will not happen. Instead, the horrid losses will just get worse. 

So what will actually collapse? Well that's obvious! The Everything Collapse is primarily a debt crisis. Global debt has trebled in this century and if we include derivatives (a major part of which will become debt), we are looking at up to $3 quadrillion. This is 20X global GDP and obviously of a magnitude that will cause major harm to the world.

US & EUROPEAN BANKS' RISKY BALANCE SHEETS 

As interest rates rise both in the US and EU, outstanding credit is contracting. In the US, the balance sheets for all banks to Tier 1 capital is at a 30 year high. (See chart). This is a precarious level which puts the US banking system in a very fragile position. US banks must now shrink their balance sheets substantially by demanding loan repayments.