Humans are by nature somewhat myopic. We tend to focus primarily on what is right in front of us and filter out things further removed. As a result, we can sometimes overlook important factors.
As Americans, we generally devote most of our attention on American policy. We follow political maneuverings in Washington D.C., study the Fed’s most recent pronouncements and track the US stock markets. But we also need to remember there is a whole wide world out there that can have a major impact on the larger economy and our investment portfolio.
One factor that could potentially rock the world economy that a lot of American may not be aware of is the mess in the European banking system.
How an Economy Grows a... Peter D. Schiff, Andre... Best Price: $1.49 Buy New $7.89 (as of 02:15 EDT - Details) In a recent podcast, Peter Schiff talked about the impact the European Central Bank could have on the economy. Mario Draghi’s comments indicating he plans to hold interest rates at zero for another year roiled the markets. But that’s not the only issue facing the eurozone. As economist Dr. Thorsten Polleit noted in a recent article published by the Mises Wire, many euro banks are in “lousy” shape.
So what? you might ask. Well, the European banking system is huge. It accounts for 268% of gross domestic product (GDP) in the euro area. If the sector collapses, that’s bad news for the broader world economy.
One of the biggest problem children in European banking is Deutsche Bank. As of March 2018, the German giant had a balance sheet of close to 1.5 trillion euro, accounting for about 45% of German GDP. Polliet described this as an “enormous, frightening dimension.”
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