In a private 54 page report Goldman Sachs is telling its top clients to bet on a massive financial collapse.
The report, which was written by Goldman Strategist Alan Brazil and not meant for the eyes of the public, fell into the hands of the Wall Street Journal at the end of last week.
From the report that the select got on August 16th it is obvious that GS thinks that a huge economic crash is coming, but they do have some nice juicy ideas on how a profit can be turned from it.
This sort of thing has been written about in the past by bloggers, which has always been dismissed as pure conspiratorial fantasy. But this report was written by a top GS analyst.
The report says that throwing more money in the form of debt at the US economy will solve nothing. 'Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world's base currency?' writes Brazil.
On top of that the European debt crisis is just going to get worse, says the report, and there is also a whole raft of European financial institutions that are about to go pop.
The Wall Street Journal says that Alan Brazil believes "as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China's growth may not be sustainable.”
Then Business Insider  summarised Brazil's advice on how to deal with any European economic collapse as follows:
- Buy a six-month put option on the Euro versus the Swiss Franc, thus betting the Euro will drop against the Franc (the Franc being the currency that an official Goldman report recently referred to as the most overvalued in the world).
- Buy a five-year credit default swap on an index of European corporate debt-the iTraxx 9. This is a bet that some of these companies will default, and your insurance policy, the CDS, will pay off.
But are GS alone in thinking that a massive collapse is coming? One would suppose not as all the other financial institutions and government treasuries across the world are all reading just about the same data.
And it comes at the same time as Christine Lagarde of the IMF says we must ditch the austerity drives in favour of debt fuelled stimulus. What? More debt for Europe? Yes, just to save politicians' faces today, they need apparent growth to stay in their cushy posts. Does Lagarde read different economic data to GS staff?
For the rest of us our jobs, houses and pensions are on the line as well as those of our children and grandchildren. But governments and banks don't seem to be helping the little guy much do they?