Wednesday

There is Only So Much Central Banks Can Do

“You hit the wall, Eric, when problems in the banking system are allowed to manifest themselves -- where some bank finally realizes, ‘Hey, we don’t have any capital here and we just can’t keep going on pretending that we are solvent when we are insolvent.’ And as we see this constant deterioration in the economic data, I think it will become apparent to everyone that things aren’t working.

If stocks start going down, of course it imperils all paper assets, and the banking system owns nothing but paper assets. My biggest concern in the financial arena has always been that the banks end up with problem loans. In Spain something like up to 25% of all loans are problem loans. You just know there is no way for the banks to survive without the support of the central banks, and these central banks are getting extended here. There is only so much they can do.

So you will see something (shocking) in the financial system -- maybe it’s in the stock market, maybe it’s some bank going down. The valuations are bearing no relationship to what the underlying fundamentals are today, so something is going to break somewhere along the line.”

- Eric Sprott via King World News: