Europe Starting to Look Ever More Wobbly

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The Wall Street Journal reports that European banks are getting very, very nervous:

As the crisis deepens, even European central banks are considering the possibility that one or more countries could leave the currency bloc, according to people familiar with the matter, a scenario that until a week ago seemed to many as implausible.

Overall, European banks appear to be growing increasingly wary of lending to each other, even on a short-term basis. Deposits parked at the European Central Bank’s overnight deposit facility jumped Tuesday to €90.5 billion….While the amount of funds parked in the ECB facility ebbs and flows over the course of each month for technical reasons, it has historically been a good proxy for how fearful banks are about lending to each other—and about the financial crisis intensifying.

….The defensive moves have the potential to put further pressure on those economies by reducing the already limited supply of credit. This occurred at the outset of the U.S. financial crisis in 2008, deepening the recession. One official said the situation in Italy is being monitored “moment by moment.”

This is really not good. Banking crises tend to move slowly at first and then gather speed seemingly from nowhere before finally imploding. That’s how, say, Lehman Brothers can be just a wee bit shaky one week and then a week later be close to bringing down the entire global financial system. When the breakdown of trust happens, it happens very, very quickly.

And just to add an American spin here, this is really not the time to be dicking around with Treasury’s ability to sell U.S. bonds. Maybe this is all just a false alarm, but then again, maybe not. And if it’s not, America needs to be ready and able to provide a financial backstop to the world without a bunch of squabbling congressmen getting in the way. That’s part of the responsibility that comes with being a superpower.

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Fact:

In-depth journalism that investigates the powerful takes real money and is so damn important right now.But it doesn’t take a Mother Jones investigation to know that billionaires and corporations will never fund the type of reporting (like they do politicians) we do that exists to help bring about change. Instead, our mission-driven journalism is made possible by people power, and has been for 46 years now since our founding as a non-profit.

In “TITLE TK” Monica Bauerlein writes about the perilous moment we’re in, and why it’s so important that we raise $325,000 by the time November’s midterms are decided so we can be ready to throw everything we have at the big issues facing the nation no matter what happens. Please help MoJo’s people-powered journalism with a donation today.

$400,000 to go!

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