We were looking for the weak point in the mountain of debt that was growing year by year, with global public and private debt at about three times the world's GDP. What would cause a crisis, such as the subprime crisis in 2008? As we can see, it was a Black Swan, external to the economy, that turned everything upside down: the coronavirus. Having said that, it would be completely unfair to blame it for everything, because it was mainly a trigger. In a growing economy with little debt, a "shutdown" of one or two months is largely absorbable. But such a level of indebtedness, such laxity on the part of central banks, such persistent negative rates were untenable. Had it not been for this virus, another disturbing factor would have brought down the house of cards.

For the time being we are seeing stock prices fall, businesses closing and production lines shutting down, but things are not going to stop there. What will be the next sector exposed to the crisis? We're in a debt crisis, so let's find out who's the most indebted... European banks, good one.

The risk is very present because European banks have not learned the lessons of the 2008 crisis, unlike the American banks: the leverage of the four major French banking groups (BNP Paribas, BPCE-Natixis, Crédit Agricole, Société Générale) is around 1/25, compared to 1/12 for their American counterparts, as we mentioned earlier. It's no better for Italian, Spanish, or German banks (the Deutsche Bank!). This means that they have 25 euros of commitments for 1 euro of "cash". An insane ratio: a dry loss of only 1/25th of their balance sheet, or 4%, would consume all their equity capital and technically bankrupt them. Lehman Brothers' leverage at the time of its collapse on September 15, 2008 was of the same order: 1/31. US banks are at half that level, which is much less imprudent, although the risk remains.

The profits proudly announced by the French banks come essentially from their capital market activities, but with this crisis they will obviously collapse, without excluding that accidents of the "Kerviel" type may occur... This is therefore the sector to watch in the coming months, because just as the coronavirus was a trigger, its elimination once the period of containment is over will not make the debt problems disappear as if by magic.

This crisis also shows a staggering acceleration in the loss of credibility of central banks. They can promise hundreds of billions of dollars like the Fed, but the stock markets don't care and continue to fall. If they announce too little (the ECB on March 12), the markets get upset and fall, as well. The truth is that central banks are stuck. Their key rates are already at their lowest level, so they have no wiggle room, except to keep the printing press turning over and over again...

The immense monetary printing that lies ahead, along with a collapse in output due to containment and then recession, brings us into an inflationary scenario, as we have shown. At that point, interest rates will inevitably rise, causing the entire mountain of debt to crumble. The banks will then have massive recourse to taking money from their customers' bank accounts in order to bail themselves out, as permitted by the BRRD directive, the danger of which we had shown as early as 2015. Technocrats and bankers had of course foreseen this type of scenario. So you, too, must be far-sighted (gold, gold, gold!).