New DVDs By Michael Snyder
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 The global economy is heading for a massive amount of trouble in the months ahead. Right now we are seeing the beginning of a credit crunch that is shaping up to be very reminiscent of what we saw back in 2008. Investors and big corporations are pulling huge amounts of money out of European banks and nobody wants to lend to those banks right now. We could potentially see dozens of “Lehman Brothers moments” in Europe in 2012. Meanwhile, bond yields on sovereign debt are jumping through the roof all over Europe. That means that European nations that are already drowning in debt are going to find it much more expensive to continue funding that debt. It would be a huge understatement to say that there is “financial chaos” in Europe right now. The European financial system is in so much trouble that it is hard to describe. The instant that they stop receiving bailout money, Greece is going to default. Portugal, Italy, Ireland, Spain and quite a few other European nations are also on the verge of massive financial problems. When the financial dominoes start to fall, the U.S. financial system is going to be dramatically affected as well, because U.S. banks have a huge amount of exposure to European debt. The other day, I noted that investor Jim Rogers is saying that the coming global financial collapse “is going to be worse” than 2008. Sadly, it looks like he is right on the money. We are in a lot of trouble my friends, and things are going to get really, really ugly.
The sad thing is that we never have recovered from the last major financial crisis. Right now, the U.S. economy is far weaker than it was back in 2007. So what is going to happen if we get hit with another financial tsunami? The following is what PIMCO CEO Mohamed El-Erian said recently….
“What’s most terrifying, we are having this discussion about the risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time then the fiscal deficit is at 9 percent and at a time when interest rates are at zero.”
Can things really get much worse than they are now?
Unfortunately, yes they can.
Not that things are not really, really bad right now.
In Los Angeles earlier this week, approximately 10,000 people lined up for free turkey dinners.
So how many people will be lining up for free food when the unemployment rate in the U.S. soars into double digits?
Right now there is so much economic pain in America that it is hard to describe. According to a recent report from one nonprofit group, 45 percent of all people living in the United States “do not have enough money to cover housing, food, healthcare and other basic expenses”.
If this is where we are at now, how much trouble will we be in as a nation if a financial crisis worse than 2008 hits us in 2012?
The primary cause of the coming financial crisis will almost certainly be the financial meltdown that we are seeing unfold in Europe.
The economic downturn that began in 2008 caused the debt levels of quite a few European nations to soar to unprecedented heights. It has gotten to the point where the debts of many of those nations are no longer sustainable.
So investors are starting to demand much higher returns for the much greater risk associated with investing in the bonds of those countries.
But that makes it much more expensive for those troubled nations to fund their debts, and that means that their financial troubles get even worse.
Over the past 12 months, what we have seen happen to bond yields over in Europe has been nothing short of amazing.
Just check out this chart of what has been happening to the yield on 2 year Italian bonds over the past 12 months.
And keep in mind that these bond yields have been spiking even while the European Central Bank has been buying up unprecedented mountains of bonds in an attempt to keep bond yields low.
There has been a fundamental loss of faith in the financial system, and it is not just happening in Europe.
Just check out this chart. As that chart shows, credit default swap spreads all over the globe are absolutely skyrocketing and are now higher than we have seen at any point since the great financial crisis that shook the world during 2008 and 2009.
Panic and fear are everywhere – especially in Europe. In fact, it looks like a run on the banks has already begun in Europe.
The following comes from a recent article in The Economist….
“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”
Nobody wants to lend money to European banks right now. There is a feeling that they are all vulnerable and could fail at any time, and this lack of confidence actually makes that possibility even more likely.
The following is a short excerpt from a recent CNBC article….
Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.
And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.
So what can be done?
Well, in a different CNBC article, Mitchell Goldberg was quoted as saying that even “a bazooka” is not going to be good enough to fix this situation….
“It’s too late for a bazooka,” said Mitchell Goldberg, president of ClientFirst Strategy. “Now we need inter-continental ballistic missiles. This is getting worse very quickly.”
This is kind of like watching a horrific car wreck happen in very slow motion.
The financial system of Europe is dying and everybody can see what is happening but nobody can seem to find a way to fix it.
Not that we are solving our own problems here in the United States.
The vaunted “supercommittee” that was supposed to get a handle on our debt problem was a complete and utter failure.
Barack Obama has shown that he has no clue what to do when it comes to the economy, and Ben Bernanke has been preoccupied with roaming around the country trying to get people to feel more “warm and fuzzy” about the Federal Reserve.
The Federal Reserve actually has more power over our economy than anyone else. But instead of fixing things they only keep making things even worse.
The only people that the Fed seems to be helping are the banksters.
What you are about to read should really, really upset you. According to a recent article in the Wall Street Journal, the Federal Reserve has actually been tipping off their upcoming moves to top financial professionals. In turn, these financial professionals have been using that information to make a lot of money for themselves and for their clients….
Hours after an Aug. 15 meeting with Federal Reserve Chairman Ben Bernanke in his office, Nancy Lazar made a hasty call to investor clients: The Fed was dusting off an obscure 1960s-era strategy known as Operation Twist.
The news pointed to a boom in long-term bonds.
It was a good call. Over the next five weeks, prices on 10-year Treasury bonds soared, offering double-digit returns in an otherwise dismal year.
By the time the Fed announced its $400 billion Operation Twist on Sept. 21, the window for quick profits had all but slammed shut.
Ms. Lazar is among a group of well-connected investors and analysts with access to top Federal Reserve officials who give them a chance at early clues to the central bank’s next policy moves, according to interviews and hundreds of pages of documents obtained by The Wall Street Journal through open records searches.
You just can’t make stuff like this up. The corruption at the Federal Reserve is totally out of control. After nearly 100 years of total failure, it is time to shut down the Federal Reserve.
Not that Barack Obama should get a free pass for the role that he has played in this economic downturn. He inherited a complete mess from Bush and has made it even worse.
Today, millions of business owners are so frustrated with Washington D.C. that they don’t know what to do.
For example, one business owner down in Georgia has posted signs with the following message on all of his company’s trucks….
“New Company Policy: We are not hiring until Obama is gone.”
The business environment in this country becomes more toxic with each passing year, and the federal government has already strangled millions of small businesses out of existence.
In addition, politicians from both parties continue to stand aside as tens of thousands of businesses, millions of jobs and hundreds of billions of dollars of our wealth get shipped out of the country.
During 2010, an average of 23 manufacturing facilities a day were shut down in the United States. We are committing national economic suicide, and the top politicians in both political parties keep cheering for more.
Well, millions of ordinary Americans can see what is happening and they are preparing for the worst.
The following report comes from an article that was recently posted on the website of the local CBS affiliate in St. Louis….
A chain of three stores that sells survival food and gear reports a jump in sales to people who are getting prepared for the “possible collapse” of society.
“We had to order fifty cases of the meals ready to eat to keep up with the demand in the past three months,” said manager Steve Dorsey at Uncle Sam’s Safari Outfitters Inc. in Webster Groves. “That’s not normal. Usually we sell 20 to 30 cases in a whole year.”
So are you prepared for the coming collapse?
If you still have a great job and things are still going well for you, then you should definitely be thankful. Compared to the rest of the world, most of us are incredibly blessed.
But let there be no doubt, the U.S. economy is going to get a lot worse in the years ahead.
Just because you have a job today does not mean that you will have one tomorrow.
Just because you have a nice car and a big home today does not mean that you will have them tomorrow.
We all need to try to become a lot less dependent on “the system”, because “the system” is failing.
A whole lot of trouble is coming.
You better get ready.
 Do you hear that sound? It is the sound of Europe being hit with a cold dose of financial reality. The air has been let out of the balloon, and investors all over the world are realizing that absolutely nothing has been solved in Europe. The solutions being proposed by the politicians in Europe are just going to make things worse. You don’t solve a sovereign debt crisis by shredding confidence in sovereign debt. But that is exactly what the “voluntary 50% haircut” has done. You don’t solve a sovereign debt crisis by pumping up your “bailout fund” with borrowed money from China, Russia and Brazil. More debt is just going to make things even worse down the road. You don’t solve a sovereign debt crisis by causing a massive credit crunch. By giving European banks only until June 2012 to dramatically improve their credit ratios, it is going to force many of them to seriously cut back on lending. A massive credit crunch would significantly slow down economic activity in Europe and that is about the last thing that the Europeans need right now. If the deal that was reached last week was the “best shot” that Europe has got, then we are all in for a world of hurt.
On Monday, investors all over the globe began to understand the situation that we are now facing. The Dow was down 276 points, and the euphoria of late last week had almost entirely dissipated.
But much more important is what is happening to European bonds.
Investors are reacting very negatively to the European debt deal by demanding higher returns on bonds.
Perhaps the most important financial number in the world right now is the yield on 10 year Italian bonds.
The yield on 10 year Italian bonds is up over 6 percent, and the 6 percent mark is a key psychological barrier. If it stays above this mark or goes even higher, that is going to mean big trouble for Italy.
The Italian government just can’t afford for debt to be this expensive. The higher the yield on 10 year bonds goes, the worse things are going to be for Italy financially.
Of course it was completely and totally predictable that this would happen as a result of the “voluntary 50% haircut” that is being forced on private Greek bondholders, but the politicians over in Europe decided to go this route anyway.
Major Italian banks also got hammered on Monday. The following is how a CNN article described the carnage….
Shares of UniCredit, the largest bank in Italy, sunk more than 4% on Friday in Milan and were down nearly another 6% Monday. Intesa, the second-largest Italian bank, slipped 7% Monday, while Mediobanca, Italy’s third-largest financial institution, fell about 4%.
The financial world can handle a financial collapse in Greece. But a financial collapse in Italy would essentially be the equivalent of financial armageddon for Europe.
That is why Italy is so vitally important.
Another EU nation to watch closely is Portugal.
The yield on 2 year Portuguese bonds is now over 18 percent. A year ago, the yield on those bonds was about 4 percent.
In many ways, Portugal is in even worse shape than Greece.
A recent article by Ambrose Evans-Pritchard discussed the debt problems that Portugal is faced with. The following statistic was quite eye-opening for me….
Portugal’s public and private debt will reach 360pc of GDP by next year, far higher than in Greece.
Like Greece, Portugal is essentially insolvent at this point. Their current financial situation is unsustainable and politicians in Portugal are already suggesting that they should be able to get a “sweet deal” similar to what Greece just got.
You see, the truth is that what this Greek debt deal has done is that it has opened up Pandora’s Box. Most of the financially troubled nations in Europe are eventually going to want a “deal”, and this uncertainty is going to drive investors crazy.
There is very little positive that can be said about this debt deal. It has bought Europe a few months perhaps, but that is about it.
As the new week dawned, financial professionals all over the globe were harshly criticizing this deal….
*The CEO of TrimTabs Investment Research, Charles Biderman, says that the big problem with this deal is that the fundamental issues have not been addressed….
“The euphoria about the latest euro zone bailout will fade quickly, as investors realize that the underlying solvency issues have not been addressed”
*Bob Janjuah of Nomura Securities International in London was even harsher….
“This latest round of euro zone shock and awe is, in my view, nothing more than a confidence trick and has possibly even set up an even worse financial outcome.”
In fact, Janjuah says that the debt deal is essentially a “Ponzi scheme”….
This latest bailout relies on the market not calling what I see is a huge “bluff”, because if the market does call it, the bailout simply won’t be credible or even deliverable. It is instead akin to a self-referencing ponzi scheme, and I can’t believe eurozone policymakers have even considered going down this route. After all, we all have recent experience of how such ponzi schemes end, and we all remember how eurozone officials often belittled and berated US policymakers for their role in the US housing/CDO/SIV financial bubble.
*The chief economist at High Frequency Economics, Carl Weinberg, is calling the European debt deal a scheme “of Madoffian proportions“….
“Now they (EU Leaders) are keen to tap into resources that are not their own to fund this crazy scheme of guarantees, leveraged off guarantees to sell bonds and bank shares that no one may want to buy, (in order) to restore value in the banking system destroyed by other bonds that no one wants to own right now. This is a construct of Madoffian proportions”
Even George Soros is criticizing the deal. George Soros is saying that this European debt deal will help stabilize things for a maximum of three months.
Of course with Soros there is always an agenda and you never know what his motives are. Perhaps he is honestly concerned about the financial health of Europe, or perhaps he is trying to feed the panic to get Europe to crash even faster. With Soros you never really know what he is up to.
In any event, the crisis in Europe is already claiming financial casualties in the United States.
MF Global, a securities firm headed up by former New Jersey governor Jon Corzine, has filed for bankruptcy protection.
As a recent CNBC article noted, the firm failed because of bad debts on European sovereign debt….
The bankruptcy protection filing from MF Global — a mid-sized trading firm run by former New Jersey Gov. and Goldman Sachs CEO Jon Corzine — only helped amplify the realization that more difficulties remain. MF Global got into trouble mainly because Corzine made tragically wrong bets on European sovereigns that unraveled when it became clear that bondholders of Greek debt will not be made whole as the nation tries to make its way out of its fiscal morass.
As time goes on, there will be more financial casualties. The truth is that someone is going to pay the price for the financial foolishness of these countries in Europe.
Politicians in Europe did not want to increase the “bailout fund” with any of their own money, so they are going to go crawling to China, Russia and Brazil and beg those countries to lend them huge amounts of money.
This is incredibly foolish, and it is already fairly clear that China is going to play hardball with Europe. China has Europe exactly where China wants them, and China will likely demand all sorts of crazy things before they will lend Europe any cash for this bailout fund.
As a recent CNN article noted, Europe is going to be in a lot of trouble if they can’t get money out of China, Russia and Brazil….
The hope is that China and other sovereign wealth fund will invest in new special vehicles that will allow the EFSF to add leverage to increase the amount of funding available.
Without the help of China, Brazil, Russia and others, Europe is back where it started. And it still seems clear that the stronger northern European nations aren’t keen on the idea of a full bailout of their southern siblings.
What a mess.
It is a comedy of errors for the politicians over in Europe. They can’t seem to get anything right. In fact, everything that they do seems to make a financial collapse in Europe even more likely.
Keep a close eye on the bond yields over in Europe. Especially keep a close eye on the yield on 10 year Italian bonds.
A massive financial storm is coming to Europe.
It is going to rock the entire globe.
Now is the time to make certain that your financial house is not built on a foundation of sand. Get your assets into safe places and keep them safe because the road ahead is going to be quite rocky.
 Most people have no idea that Wall Street has become a gigantic financial casino. The big Wall Street banks are making tens of billions of dollars a year in the derivatives market, and nobody in the financial community wants the party to end. The word “derivatives” sounds complicated and technical, but understanding them is really not that hard. A derivative is essentially a fancy way of saying that a bet has been made. Originally, these bets were designed to hedge risk, but today the derivatives market has mushroomed into a mountain of speculation unlike anything the world has ever seen before. Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion. Keep in mind that the GDP of the entire world is only somewhere in the neighborhood of $65 trillion. The danger to the global financial system posed by derivatives is so great that Warren Buffet once called them “financial weapons of mass destruction”. For now, the financial powers that be are trying to keep the casino rolling, but it is inevitable that at some point this entire mess is going to come crashing down. When it does, we are going to be facing a derivatives crisis that really could destroy the entire global financial system.
Most people don’t talk much about derivatives because they simply do not understand them.
Perhaps a couple of definitions would be helpful.
The following is how a recent Bloomberg article defined derivatives….
Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.
The key word there is “speculation”. Today the folks down on Wall Street are speculating on just about anything that you can imagine.
The following is how Investopedia defines derivatives….
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
A derivative has no underlying value of its own. A derivative is essentially a side bet. Usually these side bets are highly leveraged.
At this point, making side bets has totally gotten out of control in the financial world. Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it. This system is almost entirely unregulated and it is totally dominated by the big international banks.
Over the past couple of decades, the derivatives market has multiplied in size. Everything is going to be fine as long as the system stays in balance. But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.
The amount of money that we are talking about is absolutely staggering. Graham Summers of Phoenix Capital Research estimates that the notional value of the global derivatives market is $1.4 quadrillion, and in an article for Seeking Alpha he tried to put that number into perspective….
If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion.
The notional value of the derivative market is roughly $1.4 QUADRILLION.
I realize that number sounds like something out of Looney tunes, so I’ll try to put it into perspective.
$1.4 Quadrillion is roughly:
-40 TIMES THE WORLD’S STOCK MARKET.
-10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET.
-23 TIMES WORLD GDP.
It is hard to fathom how much money a quadrillion is.
If you started counting right now at one dollar per second, it would take 32 million years to count to one quadrillion dollars.
Yes, the boys and girls down on Wall Street have gotten completely and totally out of control.
In an excellent article that he did on derivatives, Webster Tarpley described the pivotal role that derivatives now play in the global financial system….
Far from being some arcane or marginal activity, financial derivatives have come to represent the principal business of the financier oligarchy in Wall Street, the City of London, Frankfurt, and other money centers. A concerted effort has been made by politicians and the news media to hide and camouflage the central role played by derivative speculation in the economic disasters of recent years. Journalists and public relations types have done everything possible to avoid even mentioning derivatives, coining phrases like “toxic assets,” “exotic instruments,” and – most notably – “troubled assets,” as in Troubled Assets Relief Program or TARP, aka the monstrous $800 billion bailout of Wall Street speculators which was enacted in October 2008 with the support of Bush, Henry Paulson, John McCain, Sarah Palin, and the Obama Democrats.
Most people do not realize this, but derivatives were at the center of the financial crisis of 2008.
They will almost certainly be at the center of the next financial crisis as well.
For many, alarm bells went off the other day when it was revealed that Bank of America has moved a big chunk of derivatives from its failing Merrill Lynch investment banking unit to its depository arm.
So what does that mean?
An article posted on The Daily Bail the other day explained that it means that U.S. taxpayers could end up holding the bag….
This means that the investment bank’s European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn’t get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to “give relief” to the bank holding company, which is under heavy pressure.
This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input.
So did you hear about this on the news?
Probably not.
Today, the notional value of all the derivatives held by Bank of America comes to approximately $75 trillion.
JPMorgan Chase is holding derivatives with a notional value of about $79 trillion.
It is hard to even conceive of such figures.
Right now, the banks with the most exposure to derivatives are JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup, Wells Fargo and HSBC Bank USA.
Morgan Stanley also has tremendous exposure to derivatives.
You may have noticed that these are some of the “too big to fail” banks.
The biggest U.S. banks continue to grow and they continue to get even more power.
Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets. Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets.
These banks have gotten so big and so powerful that if they collapsed our entire financial system would implode.
You would have thought that we would have learned our lesson back in 2008 and would have done something about this, but instead we have allowed the “too big to bail” banks to become bigger than ever.
And they pretty much do whatever they want.
A while back, the New York Times published an article entitled “A Secretive Banking Elite Rules Trading in Derivatives“. That article exposed the steel-fisted control that the “too big to fail” banks exert over the trading of derivatives. Just consider the following excerpt from the article….
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
So what institutions are represented at these meetings?
Well, according to the New York Times, the following banks are involved: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.
Why do those same five names seem to keep popping up time after time?
Sadly, these five banks keep pouring money into the campaigns of politicians that supported the bailouts in 2008 and that they know will bail them out again when the next financial crisis strikes.
Those that defend the wild derivatives trading that is going on today claim that Wall Street has accounted for all of the risks and they assume that the issuing banks will always be able to cover all of the derivative contracts that they write.
But that is a faulty assumption. Just look at AIG back in 2008. When the housing market collapsed AIG was on the wrong end of a massive number of derivative contracts and it would have gone “bust” without gigantic bailouts from the federal government. If the bailouts of AIG had not happened, Goldman Sachs and a whole lot of other people would have been left standing there with a whole bunch of worthless paper.
It is inevitable that the same thing is going to happen again. Except next time it may be on a much grander scale.
When “the house” goes “bust”, everybody loses. The governments of the world could step in and try to bail everyone out, but the reality is that when the derivatives market comes totally crashing down there won’t be any government on earth with enough money to put it back together again.
A horrible derivatives crisis is coming.
It is only a matter of time.
Stay alert for any mention of the word “derivatives” or the term “derivatives crisis” in the news. When the derivatives crisis arrives, things will start falling apart very rapidly.
 And so it begins. The first major European bank bailout of 2011 has now happened. French/Belgian banking giant Dexia has failed and both governments have pledged to participate in a rescue plan. But Dexia will not be the last major European bank to fail. Even now, governments all over Europe are feverishly developing plans to bail out major national banks in the event that the current financial crisis goes from bad to worse. Instead of learning the lessons of 2008, most major European banks have continued to pile up huge mountains of debt, leverage and risk. Now the bill for that stupidity is about to be passed on to the taxpayers of those nations. But with most nations in Europe already drowning in debt, are bank bailouts really the right course of action? What is it going to happen to Europe if dozens of major banks start failing and trillions of euros are needed to bail them all out?
Dexia is the first victim of the new credit crunch. It got to the point where Dexia simply could not get access to the funding that it needed in the credit markets.
We are starting to see this all over Europe. Nobody wants to loan much money to European banks right now because it is unclear what is going to happen next in Europe and it is uncertain which banks are stable and which are on the verge of collapse.
This is so similar to what happened back in 2008.
But Dexia is not going to be “the next Lehman Brothers” because the governments of France and Belgium are stepping in to save Dexia from collapse.
A recent article in the Financial Post described how the rescue of Dexia is likely to proceed….
Dexia will effectively be broken up, with the sale of healthier operations while toxic assets, including Greek and other peripheral euro zone government bonds, will be placed in a state-supported “bad bank.”
The details of the plan will be negotiated over the coming days, but authorities are making it clear that Dexia is not going to be allowed to collapse. Bank of France Governor Christian Noyer is assuring everyone that Dexia is going to have access to plenty of liquidity….
“We will loan Dexia as much as it needs”
It appears that the “too big to fail” doctrine is alive and well in Europe.
Sadly, this is not the first time that Dexia has been bailed out. France and Belgium also bailed out Dexia back in 2008.
But this was not supposed to happen.
Just three months ago, Dexia received “a clean bill of health” from regulators during European Union bank stress testing.
It just shows how credible those “stress tests” really are.
So are more European bank bailouts coming?
It certainly looks that way.
An article in the Financial Post on Tuesday stated the following….
European finance ministers agreed on Tuesday to prepare action to safeguard their banks as doubts grew about whether a planned second bailout package for debt-laden Greece would go ahead.
Of course when they talk about the need “to safeguard their banks” they are talking about those that are deemed “too big to fail”. Just like in the United States, banks that are “too small” don’t get bailed out at all.
But western governments are very protective of the big banks. The big banks are allowed to take gigantic risks, and if they succeed they make tons of money and if they fail then the taxpayers bail them out.
With big trouble on the horizon in Europe, authorities are already getting ready to bail out the major banks. A Bloomberg article from last month acknowledged that the German government has been very busy getting ready to bail out their major banks in the event that a Greek default becomes a reality….
Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.
As you read this, there are already signs of trouble at major German banks. For example, Deutsche Bank has just announced that it is eliminating 500 more jobs.
The fundamental problems that Europe is facing are not being solved and the financial crisis is getting progressively worse. With each passing day, more bad financial news comes pouring in.
For example, Moody’s slashed Italy’s bond ratings by three levels on Tuesday.
A reduction of just one level is very serious business. For Moody’s to hit Italy that hard is a really big deal.
Italian banks have also been targeted by the credit rating agencies. The other day, S&P slashed the credit ratings of seven different Italian banks.
If Italy goes down, it is going to be an absolute nightmare. The Italian economy absolutely dwarfs the Greek economy. The EU has been really struggling to bail out Greece, and there is no way in the world that they would be able to bail out Italy.
So if nations such as Italy or Spain start collapsing, will the U.S. Federal Reserve step in to help bail them out?
You never know.
The sad truth is that the Federal Reserve can do pretty much whatever it wants and nobody can stop them.
As I wrote about the other day, the Federal Reserve has agreed to join with other major central banks to lend hundreds of billions of dollars to major European banks in October, November and December.
As the past few years have shown, wherever big, global banks are in trouble, the Federal Reserve is sure to step in and help.
And many big banks in Europe are definitely headed for trouble. Right now, European banks are holding more than $4 trillion in European sovereign debt.
A lot of that debt is bad debt. Today, troubled European nations Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3 trillion euros combined.
That is a whole lot of debt out there, and many big banks are so leveraged that just a 5 percent reduction in the value of their holdings could wipe them out.
Hold on to your hats folks.
So what should we be watching next?
Well, Greece continues to be a huge problem.
The IMF, the European Central Bank and the European Union are very frustrated with Greece right now.
On Monday, it was revealed that Greece is not going to hit the deficit reduction targets set for it by the “troika” either this year or next year.
European officials have been particularly displeased that Greece has been getting all of this aid money and yet has not been strictly adhering to the austerity measures that they agreed to.
However, the reality is that the austerity measures that Greece has actually bothered to implement have hit the Greek economy really hard. The more Greece reduces government spending the more the Greek economy seems to slow down.
Greek Finance Minister Evangelos Venizelos recently announced that the Greek economy is projected to shrink by 5.3% in 2011, and Greek debt continues to spiral out of control.
Meanwhile, severe economic pain continues to spark huge protests all over Greece. Scenes of riot police firing tear gas and protesters throwing stones at police have become so common in Greece that most of us don’t even pay much attention anymore.
But all of us should pay attention to what is happening in Greece.
Eventually these kinds of economic riots will spread throughout the rest of the western world as well.
And every day Greece just seems to get closer and closer to default.
At this point, global financial markets seem to consider a Greek default to be inevitable. The yield on 2 year Greek bonds is now over 65 percent. The yield on 1 year Greek bonds is now over 135 percent.
Greece is toast without more bailout money.
But now major politicians all over Germany are declaring that Germany is done contributing money to the European bailout fund.
And without Germany, the rest of the eurozone is not going to be able to continue the bailouts.
So the clock is ticking.
Once the current bailout fund has dried up, the bailout game will be over.
What will happen then?
Will that be what sets off a massive financial collapse in Europe?
Could we actually see the end of the euro?
For a long time there was speculation that it would be weak nations such as Greece that would leave the euro.
But now it appears increasingly likely that if someone is going to leave the euro it might be Germany.
Most German citizens would be in favor of such a move. One recent poll conducted for Stern magazine actually found that 54 percent of all Germans would favor leaving the euro.
But if Germany left the euro it would absolutely implode. German economic strength is the primary thing holding the euro up at this point.
In any event, it is going to be very interesting to watch what will happen to Europe over the coming months.
Greece, Italy, Portugal and Spain are all steadily marching toward collapse.
Germany says that it is done bailing out other members of the eurozone.
Dozens of major European banks are teetering on the brink of disaster.
People get ready – a storm is coming.
Time is running out for Europe and there is no help in sight.
 Millions of Americans are about to get stabbed in the back by their banks. Bank of America, JPMorgan Chase, Wells Fargo, Citibank and several other large banks are either already implementing outrageous new bank fees or are currently testing them. So are these ridiculous new bank fees going to be enough to get millions of Americans to finally boycott the big banks? When millions of Americans start paying a $5 fee every month to use their debit cards and when millions of Americans start paying a $20 fee every single month just to have a checking account hopefully that will be enough to wake them up. These fees are certainly not going to cause an “economic collapse”, but they are incredibly annoying. The truth is that the big banks are trying to take advantage of us. It shouldn’t cost $60 a year just to use a debit card. It shouldn’t cost $240 a year just to have a checking account. What we need to do is to send an unequivocal message to the big banks: we don’t want your stinking bank fees and we are switching banks.
When I was growing up, I remember how banks would bend over backwards to get your business. The customer service was generally very good and banks were not gouging us with ridiculous fees.
But now thousands of smaller banks have been gobbled up by the banking giants and things have dramatically changed. The big banks don’t value us anymore. They seem to believe that they have a “captive audience” and that they can treat us however they want to.
Well, it is time for us to draw a line in the sand.
We didn’t mind so much that they were paying us next to nothing on our savings accounts.
We didn’t say too much when ATM fees soared into the stratosphere. For example, the average cost of using an “out of network” ATM in America today is approximately $3.81.
We didn’t even object too much when they started charging us fees for things such as getting paper statements, receiving wire transfers, or closing our accounts.
But now they have really crossed the line.
On October 1st, new federal regulations went into effect that capped what banks can charge merchants for debit card transactions.
The average fee on a debit card transaction used to be about 44 cents.
The new federal regulations cap the fee on merchants at 21 cents.
So will banks be unable to make money under these new regulations?
Well, according to U.S. Senator Dick Durbin, each debit card transaction costs the banks somewhere between 4 and 12 cents.
So a cap of 21 cents is not going to kill the banks.
However, it is going to hurt the profits that they have been making. The new rules are expected to reduce total bank revenue by a whopping $6.6 billion a year.
Ouch.
So what are the big banks doing about it?
Well, they have decided to recoup that revenue by sticking it to us.
For example, Bank of America recently announced that it is about to start charging a $5 per month debit card fee.
This has sparked a firestorm of criticism.
Even members of Congress are getting involved.
According to ABC News, U.S. Senator Dick Durbin stood on the floor of the U.S. Senate this week holding up a plastic debit card and launched into a tirade about Bank of America….
“Bank of America customers, vote with your feet, get the heck out of that bank,” Durbin said on the Senate floor. “Find yourself a bank or credit union that won’t gouge you for $5 a month and still will give you a debit card that you can use every single day. What Bank of America has done is an outrage.”
But that is not the only outrageous fee that you will be hit with at Bank of America.
If you want to get a basic checking account at Bank of America you will be slapped with a $12 monthly fee unless you maintain an average balance of at least $1,500.
Other large banks are instituting debit card fees as well.
Starting in November, SunTrust will be hitting account holders with a $5 per month debit card fee.
Last February, J.P. Morgan began testing a $3 per month debit card fee in Wisconsin.
Wells Fargo has also been testing a $3 per month debit card fee in certain markets.
But it is not just new debit card fees that are getting people upset.
For example, according to CNN large numbers of Citibank account holders will soon be paying a 15 or 20 dollar monthly fee if they do not maintain very high balances in their accounts….
Starting in December, customers who hold its mid-level Citibank Account will be charged $20 a month if they fail to maintain a minimum balance of $15,000 in their combined accounts. Previously, account holders had to carry a minimum balance of $6,000.
At the same time, customers who have the bank’s EZ Checking account will start being charged $15 a month if they don’t carry a minimum balance of $6,000.
They know that the vast majority of American families cannot afford to keep $6,000 sitting around.
It almost seems like the big banks are trying to eliminate as many small accounts as they can.
In the old days, virtually anyone could get a free checking account, but now all that has changed.
Sadly, the era of the free checking account seems to be ending. According to a recent survey by bankrate.com, only 45 percent of all checking accounts in the United States that don’t pay interest are still free. Two years ago that figure was sitting at 76 percent.
All over the nation, monthly fees on checking accounts are absolutely soaring. In 2010, the average monthly fee on non-interest checking accounts was $2.49. Today, the average monthly fee on non-interest checking accounts is $4.37.
It is almost as if the banks don’t even care about our money anymore. They don’t want to give us free checking, they don’t want to send us paper statements, they don’t want us to use tellers and they don’t even want to treat us with common decency.
The truth is that we are the ones that deserve some compensation for all of the lousy service that we have been receiving. For example, the Bank of America online banking system has been down for five days in a row.
The average American family is barely scraping by right now and cannot afford all of these outrageous fees. Right now, economic conditions are rapidly deteriorating and millions more Americans are falling into poverty every year. It is absolutely disgusting that these big banks are trying to drain hundreds of extra dollars a year out of each of us.
Well, perhaps we need to start voting with our feet. We need to tell the banksters that we don’t want their stinking bank fees and that we are switching banks.
There are lots of credit unions and small community banks that would be more than happy to have us as customers. Yes, banking with them might not be quite as “convenient”, but the big banks have pushed us way too far this time.
These new bank fees are beyond outrageous.
We cannot allow them to do this to us.
So do you have a story about how your current bank is abusing you? Are you completely frustrated with the big banks? Please feel free to share your thoughts below….
 Will the bad financial news ever stop? A lot of people in the financial world were hoping for a much better fourth quarter after an absolutely disastrous third quarter. Well, if Monday was any indication, October could end up being a really rough month for global financial markets. So much bad financial news keeps pouring in that it really is a challenge to try to keep track of it all. Greece seems to get closer to defaulting on their debts with each passing day, and it appears that Germany is not going to contribute any more bailout money beyond what they have already committed to. Major banks on both sides of the Atlantic are on the verge of collapse, and investors all over the world are afraid that we may have another “Lehman Brothers moment” soon. Shares of American Airlines dropped a staggering 33 percent on Monday as rumors that they will soon be entering bankruptcy swirled. Yes, things certainly are getting interesting. Back in 2008, the governments of the western world saved the financial system with gigantic bailouts that were absolutely unprecedented. If the financial system crashes again at some point in the coming weeks or months, will the political will for more bank bailouts be there? If not, what is going to happen to the banking system?
On both sides of the Atlantic, the big banks are highly leveraged, they have taken on a ton of risk and they are very deeply exposed to derivatives. It is as if virtually nobody learned any lessons during the financial crisis of 2008. Once again we are facing a situation where if a couple of financial dominoes fall it could send dozens of others tumbling to the ground.
Some very significant things happened on Monday. But the media has gotten so used to reporting on tremendous financial instability that Monday’s events mostly got brushed to the side. Instead, Amanda Knox captured most of the headlines.
But the reality is that some really, really monumental stuff has been going down.
The following are 14 facts that just might scare the living daylights out of you….
#1 On Monday, the Dow was down 258 points. Lately it seems as though the Dow has been going up or down by several hundred points almost every single day, and that much volatility is not a good sign for the health of the financial system.
#2 Shares of Wall Street banking giant Morgan Stanley fell by another 8 percent on Monday. Overall, shares of Morgan Stanley have declined by more than 50 percent since February.
#3 Bank of America stock dropped down to $5.53 a share on Monday. Just a few years ago, it was trading for more than $50 a share.
#4 There are reports that Goldman Sachs may actually show a loss for the third quarter of 2011 and that yearly bonuses for employees may be slashed to next to nothing. Yes, not too many people are going to have sympathy for Goldman Sachs, but this just shows how bad things are getting out there for the big Wall Street banks.
#5 Normally Goldman Sachs is quite upbeat, but lately they have been coming out with some really frightening reports. For example, a new report from Goldman Sachs declares that there is a 40 percent chance that we are entering a “Great Stagnation“.
#6 Shares of European banking giant Dexia plunged by about 10 percent on Monday on rumors that it will soon need a significant bailout. The stocks of major banks all across Europe have been getting absolutely hammered for weeks.
#7 Shares of American Airlines fell by 33 percent on Monday on rumors that the airline is about to enter bankruptcy. Amazingly, trading in the stock was stopped 7 different times on Monday.
#8 It is being reported that approximately 240 pilots for American Airlines have retired in the last two months alone. All of those pilots are retiring so that they can shield their pensions from the upcoming bankruptcy filing.
#9 Nearly the entire airline industry got hit really hard on Monday. Shares of United Continental, U.S. Airways and Delta were all down more than 10 percent.
#10 Overall, U.S. stocks fell by 14 percent during the third quarter of 2011, and now the fourth quarter is off to a very rocky start.
#11 The incoming head of the European Central Bank, Mario Draghi, has publicly admitted that major European banks are having “funding problems“. Just like back in 2008, we are rapidly heading for a giant “credit crunch”.
#12 A shocking new Bloomberg survey has found that approximately one out of every three international investors expects a “global economic meltdown” within the next 12 months, and 70 percent of them believe that the global economy is “deteriorating”. Perhaps they have been reading The Economic Collapse Blog too much.
#13 Financial markets in Europe were rocked on Monday when it was revealed that Greece is not going to hit the deficit reduction targets set for it either this year or next year despite all of the severe austerity measures that have already been implemented. Needless to say, a lot of financial authorities in Europe were very displeased by this news.
#14 German Finance Minister Wolfgang Schaeuble is publicly declaring that Germany will not contribute any more money to the European bailout fund.
The truth is that the political will for more bailouts has totally dried up in Germany.
The recent vote by the Bundestag to approve money for the European rescue fund should not be misinterpreted.
That vote simply approved money that was part of a deal that was agreed to over two months ago.
What is more important is what many major German politicians said after the vote. Essentially, the overwhelming consensus is that Germany is done contributing money. Once the money is gone from the current bailout pool (which is not anywhere close to what is really needed), there will be no more money from Germany.
That means that the era of the bailouts in Europe is drawing to a close.
In a recent editorial, Ambrose Evans-Pritchard described the situation in Germany in this manner….
The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer.
Horst Seehofer, the leader of Bavaria’s Social Christians, said his party would go “this far, and no further”.
Let that last phrase sink in.
Basically, what politicians all over Germany are saying is that Germany has now done all that it is going to do.
The implications of this are huge.
Ambrose Evans-Pritchard recognized this in his editorial. In fact, the usually reserved journalist actually used all caps for six straight sentences and broke out some very strong language that is very uncharacteristic for him….
Repeat after me:
THERE WILL BE NO FISCAL UNION.
THERE WILL BE NO EUROBONDS.
THERE WILL BE NO DEBT POOL.
THERE WILL BE NO EU TREASURY.
THERE WILL BE NO FISCAL TRANSFERS IN PERPETUITY.
THERE WILL BE A STABILITY UNION – OR NO MONETARY UNION.
Get used to it. This is the political reality of Europe, since nothing of importance can be done without Germany. All else is wishful thinking, clutching at straws, and evasion. If this means the euro will shed some members or blow apart – as it almost certainly does – then the rest of the world must prepare for the day.
Basically, this is his way of saying that “the sky is falling” and that the financial system of Europe is doomed.
If you have followed the writing of Ambrose Evans-Pritchard for any length of time, then you know that he is one of the most respected financial journalists in the world and that he is not prone to indulge in much “doom and gloom”. For him to say what he did is very significant.
But even if there were no financial problems in Europe, the United States would probably be slipping into another recession anyway.
Right now our economy is a total mess, and all kinds of people are coming out of the woodwork and are trying to take credit for “calling” the upcoming recession.
Some of the pronouncements are so bold that you would think that some half-crazed blogger wrote them. For example, just check out the following quote from a report recently put out by the Economic Cycle Research Institute….
“Here’s what ECRI’s recession call really says: If you think this is a bad economy, you haven’t seen anything yet.”
But do the American people really need some experts to tell them that we are going into another recession?
The American people know what is going on.
According to one recent poll, 90 percent of the American people believe that economic conditions in the United States are “poor”. According to another recent poll, 80 percent of the American people believe that we are actually in a recession right now.
So perhaps the American people are actually ahead of most of the so-called “experts”.
In any event, economic conditions in the United States continue to get worse. The average American family is having a harder and harder time getting to the end of each month. According to a Harris Interactive survey taken near the end of last year, 77 percent of all Americans are now living paycheck to paycheck. In 2007, the same survey found that only 43 percent of Americans were living paycheck to paycheck.
At least Barack Obama is not talking so much about an “economic recovery” these days. When asked recently if Americans are better off today than they were four years ago, Obama said the following….
“Well, I don’t think they’re better off than they were four years ago.”
Finally, something that we can all agree with Barack Obama about.
Sadly, things are about to get even worse.
Pay close attention to all of the bad financial news that keeps pouring in.
Just like in 2008, something really big is happening.
When the current bailout fund in Europe runs out in a few months, things could really start to unravel.
If Greece (or any other eurozone nation for that matter) defaults, it could set off a chain of financial events so catastrophic that it just might scare the living daylights out of all of us.
Let us hope for the best, but let us also prepare for the worst.
Tremendous fear and panic has gripped the financial world, and the underlying problems causing this crisis are not going to be solved any time soon.
We are about to enter unprecedented territory.
Hold on tight.
 For a moment, imagine that there is a privately-owned organization in the United States that can create U.S. dollars out of thin air whenever it wants and can loan that money to whoever it wants to. Imagine that this organization is able to act with the full power of the U.S. government behind it, but that nobody in the organization is ever elected by the American people, and that for all practical purposes the organization is not accountable to the president or to Congress. Imagine that the organization is able to make trillions of dollars of secret loans to banks, to foreign governments and even to their close friends without ever having to face a comprehensive audit. Does that sound preposterous? Well, such an organization actually exists. It is called the Federal Reserve, and today we found out that once again the Fed is going to be taking huge piles of your money and loaning it to commercial banks in Europe. The Congress cannot overrule this decision. Neither can Barack Obama. Because it has so much power, many refer to the Federal Reserve as “the fourth branch of government”, but unlike the other three branches of government, there are basically no significant “checks and balances” on the Federal Reserve. If you don’t like the fact that the Federal Reserve is racing in to help big foreign banks survive the European debt crisis that is just too bad. The Federal Reserve pretty much gets to do whatever it wants to do, and the folks over at the Fed simply do not care whether you like that or not.
So what in the world just happened today? The following is how an article on CNBC explained it….
Just ahead of the Wall Street open Thursday, the European Central Bank, along with the U.S. Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank announced they would offer three-month dollar loans to Europe’s commercial banks, easing dollar funding constraints.
It must be nice to do whatever you want without having to get the approval of anyone else.
What do you think Barack Obama would give for such power right about now?
The Federal Reserve and other major central banks around the world decided that lending big European banks gigantic piles of dollars would be a good idea, so they are just doing it.
No debate, no votes and no democracy – they just tell us how things are going to be and that is that.
It is a bit ironic that all of this happened on the third anniversary of the collapse of Lehman Brothers. It is almost as if the central bankers of the world are trying to send some sort of a message.
So how much money is going to be loaned out?
Well, according to an article in The Daily Mail, big European banks are going to be able to borrow an “unlimited” amount of money….
The deal announced yesterday means banks will be able to borrow ‘any amount’ of money in three separate auctions in October, November and December. Banks will have to put up collateral, or security, to tap the emergency funds.
Wow – I wish someone would offer to lend me an “unlimited” amount of money.
But of course this really is not going to solve anything in the long run. You can’t solve a raging debt problem with more debt.
Yes, it will help the big European banks with their short-term liquidity problems, but it will do nothing to fix the long-term structural problems that are tearing Europe to pieces.
Win Thin, a senior currency strategist at Brown Brothers Harriman, said essentially the same thing to CNBC today….
“They’re taking care of the symptoms, but the underlying illness is still out there. On the margin, it’s positive. Until Greece defaults and we clear this whole thing up, they’re still treading water”
So, no, the financial problems of Europe have not been solved.
Just think of this latest move as a temporary band-aid.
So why get upset about it?
Well, what all of this shows is just how arrogant the Federal Reserve is.
The Federal Reserve gets to throw around trillions of dollars without any accountability to the American people.
As I have written about previously, the Federal Reserve made $16.1 trillion in secret loans to their friends during the last financial crisis.
This was revealed in a GAO report, and members of Congress such as Ron Paul and Bernie Sanders tried to get people to pay attention to this. The following is a statement about this report that was taken from the official website of Senator Sanders….
“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world”
So how much of that money went overseas? Well, it turns out that approximately $3.08 trillion of that money was loaned to big banks and major financial institutions in Europe and Asia.
Barack Obama can’t lend trillions of dollars to foreign banks.
So why does the Federal Reserve get to do it?
Sadly, most Americans know very little about the Federal Reserve. In the United States today, most Americans graduate from high school without ever learning much of anything about the Fed.
But if you really want to understand what is going on with our economy, it is absolutely critical that you understand the Federal Reserve.
The following are some more reasons why you should be upset about what the Federal Reserve has been doing….
*The Federal Reserve is a perpetual debt machine. Today, the U.S. national debt is 4700 times larger than it was when the Federal Reserve was created back in 1913.
*The Federal Reserve has recently been actually paying banks not to make loans. Right now banks can park money at the Federal Reserve and make risk-free income without having to make loans to the American people.
*Current Federal Reserve Chairman Ben Bernanke has a track record of failure that is legendary, and yet George W. Bush and Barack Obama both backed him 100%.
*The Federal Reserve system is designed to create inflation. The truth is that the United States has only had a persistent, ongoing problem with inflation since the Federal Reserve was created back in 1913.
*Since 2008, what the Federal Reserve has been doing to our money supply has been absolutely insane. Eventually this is going to have very serious consequences for us.
*The U.S. government has handed over the task of “centrally planning” our economy to the Federal Reserve. The Fed decides what the target rate of inflation should be, what the target rate of unemployment should be, what interest rates are going to be and what the size of the money supply is going to be. This is quite similar to the “central planning” that goes on in communist nations, but very few people in our government seem upset by this.
*The Federal Reserve picks “winners” and “losers” in the financial system. For example, when the last financial crisis hit, the Fed bent over backwards to help out the big Wall Street banks, but hordes of small banks were left out in the cold.
*As mentioned above, the Federal Reserve has become way, way too powerful. The Fed is able to do a lot of things that the three branches of government are simply not able to do. Fortunately, there are a few of our leaders that are alarmed by this. For example, Ron Paul once told MSNBC that he believes that the Federal Reserve is now more powerful than Congress…..
“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”
As long as we continue to use a debt-based currency that is controlled by a privately-owned central bank, we are going to continue to have permanent inflation and government debt that expands at an exponential pace.
The “central planning” done by the Federal Reserve has created bubble after bubble after bubble. Our dollars is on the verge of dying and our financial system is about to collapse.
The Federal Reserve system simply does not work.
Hopefully we can start sending more politicians to Washington D.C. that will be willing to stand up to the Federal Reserve.
But for now, the Federal Reserve is going to keep running around doing whatever it wants to do whether we like it or not.
 Back during the financial crisis of 2008, the American people were told that the largest banks in the United States were “too big to fail” and that was why it was necessary for the federal government to step in and bail them out. The idea was that if several of our biggest banks collapsed at the same time the financial system would not be strong enough to keep things going and economic activity all across America would simply come to a standstill. Congress was told that if the “too big to fail” banks did not receive bailouts that there would be chaos in the streets and this country would plunge into another Great Depression. Since that time, however, essentially no efforts have been made to decentralize the U.S. banking system. Instead, the “too big to fail” banks just keep getting larger and larger and larger. Back in 2002, the top 10 banks controlled 55 percent of all U.S. banking assets. Today, the top 10 banks control 77 percent of all U.S. banking assets. Unfortunately, these giant banks are also colossal mountains of risk, debt and leverage. They are incredibly unstable and they could start coming apart again at any time. None of the major problems that caused the crash of 2008 have been fixed. In fact, the U.S. banking system is more centralized and more vulnerable today than it ever has been before.
It really is difficult for ordinary Americans to get a handle on just how large these financial institutions are. For example, the “big six” U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to approximately 60 percent of America’s gross national product.
These huge banks are giant financial vacuum cleaners. Over the past couple of decades we have witnessed a financial consolidation in this country that is absolutely unprecedented.
This trend accelerated during the recent financial crisis. While the big boys were receiving massive bailouts, the hundreds of small banks that were failing were either allowed to collapse or they were told that they should find a big bank that was willing to buy them.
As a group, Citigroup, JPMorgan Chase, Bank of America and Wells Fargo held approximately 22 percent of all banking deposits in FDIC-insured institutions back in 2000.
By the middle of 2009 that figure was up to 39 percent.
That is not just a trend – that is a landslide.
Sadly, smaller banks continue to fail in large numbers and the big banks just keep growing and getting more power.
Today, there are more than 1,000 U.S. banks that are on the “unofficial list” of problem banking institutions.
In the absence of fundamental changes, the consolidation of the banking industry is going to continue.
Meanwhile, the “too big to fail” banks are flush with cash and they are getting serious about expanding. The Federal Reserve has been extremely good to the big boys and they are eager to grow.
For example, Citigroup is becoming extremely aggressive about expanding….
Citigroup has been hiring dozens of investment bankers, dialing up advertising and drawing up plans to add several hundred branches worldwide, including more than 200 in major cities across the United States.
Hopefully the big banks will start lending again. The whole idea behind the bailouts and all of the “quantitative easing” that the Federal Reserve did was to get money into the hands of the big banks so that they would lend it out to ordinary Americans and get the economy rolling again.
Well, a funny thing happened. The big banks just sat on a lot of that money.
In particular, what they did was they deposited much of it at the Fed and drew interest on it.
Since 2008, excess reserves parked at the Fed have grown by nearly 1.7 trillion dollars. Just check out the chart posted below….
The American people were promised that TARP and all of the other bailouts would enable the big banks to lend out lots of money which would help get the economy going for ordinary Americans again.
Well, it turns out that in 2009 (the first full year after Congress passed the bailout legislation) U.S. banks posted their sharpest decline in lending since 1942.
Lending has never fully recovered since the crash of 2008. The big financial institutions like Goldman Sachs, Morgan Stanley and JPMorgan Chase have been able to get all the cash that they need, but they have not passed that generosity along to ordinary Americans.
In fact, the biggest U.S. banks have actually reduced small business lending by about 50 percent since the crash of 2008.
That doesn’t sound like what we were promised.
These “too big to fail” banks have been able to borrow gigantic amounts of money from the Fed for next to nothing and yet they still refuse to let credit flow to local communities. Instead, the big banks have found other purposes for all of the super cheap money that they have been getting from the Fed as Ellen Brown recently explained….
It can be very profitable indeed for the big Wall Street banks, but the purpose of the near-zero interest rates was supposed to be to get banks to lend again. Instead, they are, indeed, paying “outrageous bonuses to their top executives;” using the money to engage in the same sort of unregulated speculation that nearly brought down the economy in 2008; buying up smaller banks; or investing this virtually interest-free money in risk-free government bonds, on which taxpayers are paying 2.5 percent interest (more for longer-term securities).
What makes things even worse is that these big banks often pay next to nothing in taxes.
For example, between 2008 and 2010, Wells Fargo made a total profit of 49.37 billion dollars.
Over that same time period, their tax bill was negative 681 million dollars.
Do you understand what that means? Over that 3 year time period, Wells Fargo actually got 681 million dollars back from the U.S. government.
Isn’t that just peachy?
Meanwhile, the big financial giants have not learned their lessons and they continue to do business pretty much as they did it prior to 2008.
The big banks continue to roll up massive amounts of risk, debt and leverage.
Today, Wall Street has become one giant financial casino. More money is made on Wall Street by making side bets (commonly referred to as “derivatives“) than on the investments themselves.
If the bets pay off for the big financial institutions, mind blowing profits can be made. But if the bets go against the big financial institutions (as we saw in 2008), firms can collapse almost overnight.
In fact, it was derivatives that almost brought down AIG. The biggest insurance company in the world almost folded in 2008 because of a whole bunch of really bad bets.
The danger from derivatives is so great that Warren Buffet once called them “financial weapons of mass destruction”. It has been estimated that the notional value of the worldwide derivatives market is somewhere in the neighborhood of a quadrillion dollars.
The largest banks have tens of trillions of dollars of exposure to derivatives. When the next great financial collapse happens, derivatives will almost certainly be at the center of it once again. These side bets do not create anything real for the economy – they just make and lose huge amounts of money. We never know when the next great derivatives crisis will strike. Derivatives are essentially like a “sword of Damocles” that perpetually hangs over the U.S. financial system.
When I start talking about derivatives I get a lot of people in the financial community mad at me. On Wall Street today you can bet on just about anything you can imagine. Almost everyone in the financial world has gotten so used to making wild bets that they couldn’t even imagine a world without them. If anyone even tried to put significant limits on futures, options and swaps it would cause Wall Street to throw a hissy fit.
But someday the dominoes are going to start to fall and the house of cards is going to come crashing down. It is an open secret that our financial system is fundamentally unsound. Even a lot of people working on Wall Street will admit that. It is just that people are so busy making such big piles of money that nobody wants the party to stop.
It is only a matter of time until some of these big banks get into a huge amount of trouble again. When that happens, we might really find out whether they are “too big to fail” or whether we could get along just fine without them.
 Without an abundance of good jobs, the middle class in the United States is going to shrivel up and die. Right now, rampant unemployment is absolutely killing communities all over America. Hopelessness and poverty are exploding and many are now wondering if we are actually witnessing the slow death of the middle class. There simply are not nearly enough “good jobs” to go around anymore, and even many in the mainstream media are referring to this as a “long-term structural problem” with the economy. The only thing that most working class Americans have to offer in the marketplace is their labor. If nobody will hire them they do not have any other ways to provide for their families. Well, there is a problem. Today wealth has become incredibly centralized. The big corporations and the big banks dominate everything. Thanks to incredible advances in technology and thanks to the globalization of our economic system, the people with all the money don’t have to hire as many ordinary Americans anymore. They can hire all the labor they want on the other side of the globe for a fraction of the cost. So the rich don’t really have that much use for the working class in America anymore. The only thing of value that the working class had to offer has now been tremendously devalued. The wealthy don’t have to pay a lot for physical labor anymore. Thousands of our factories and millions of our jobs have been shipped overseas and they aren’t coming back. The big corporations are thriving while tens of millions of ordinary Americans are deeply suffering. Almost all of the wealth being produced by our economy is going to a very centralized group of people at the very top of the food chain. The rich are getting richer and the working class is being systematically wiped out.
So the fact that we are facing rampant unemployment that never seems to go away should not be a surprise to anyone. Today, the “official” unemployment rate went up to 9.2 percent even though a whopping 272,000 Americans “dropped out of the labor force” in June. The government unemployment figure that includes “discouraged workers” went up from 15.8% to 16.2%. The mainstream media is proclaiming that this was “a horrific report” because most economists were expecting much better news.
Well, guess what?
Things are going to get a whole lot worse.
More job cuts are coming. One recently released report found that the number of job cuts being planned by U.S. employers increased by 11.6% in June.
It is also being projected that state and local governments across the U.S. will slash nearly half a million more jobs by the end of next year.
Needless to say, things don’t look good.
Most people that still have jobs are desperately trying to hold on to them.
Employers know that most workers are easily replaceable these days, so wages are not moving up even though the cost of living is.
We are right in the middle of the worst employment downturn since World War 2. Jay-Z recently summed up the situation this way….
“Numbers don’t lie. Unemployment is pretty high.”
Jay-Z certainly has a way with words, eh?
If something is not done about the rampant unemployment in this nation, the death of the middle class will accelerate.
Most Americans just assume that the United States will always have a large middle class, but there is no guarantee that is going to happen. In fact, there is a whole lot of evidence that the middle class in America is rapidly shrinking.
Take a few moments to read over the facts compiled below. Taken together, they provide compelling evidence that the working class is being systematically wiped out….
#1 Right now, the U.S. government says that 14.1 million Americans are unemployed.
#2 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million people to the population since then.
#3 The number of Americans that are “not in the labor force” is at an all-time high.
#4 The United States has never had an employment downturn this deep and this prolonged since World War 2 ended.
#5 There are officially 6.3 million Americans that have been unemployed for more than 6 months. That number has risen by more than 3.5 million in just the past two years.
#6 It now takes the average unemployed worker in America about 40 weeks to find a new job. Just check out this chart….
#7 There are now about 7.25 million fewer jobs in America than when the recession began back in 2007.
#8 Back in 2000, the employment to population ratio was over 64 percent. Today, it is sitting at just 58.2%.
#9 Only 66.8% of American men had a job last year. That was the lowest level that has ever been recorded in all of U.S. history.
#10 During this economic downturn, employee compensation in the United States has been the lowest that it has been relative to gross domestic product in over 50 years.
#11 The number of “low income jobs” in the U.S. has risen steadily over the past 30 years and they now account for 41 percent of all jobs in the United States.
#12 Half of all American workers now earn $505 or less per week.
#13 According to a report released in February from the National Employment Law Project, higher wage industries are accounting for 40 percent of the job losses in America but only 14 percent of the job growth. Lower wage industries are accounting for just 23 percent of the job losses but 49 percent of the job growth.
#14 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.
#15 Between December 2000 and December 2010, 38 percent of the manufacturing jobs in Ohio were lost, 42 percent of the manufacturing jobs in North Carolina were lost and 48 percent of the manufacturing jobs in Michigan were lost.
#16 Back in 1970, 25 percent of all jobs in the United States were manufacturing jobs. Today, only 9 percent of the jobs in the United States are manufacturing jobs.
#17 Do you remember when the United States was the dominant manufacturer of automobiles and trucks on the globe? Well, in 2010 the U.S. ran a trade deficit in automobiles, trucks and parts of $110 billion.
#18 In 2010, South Korea exported 12 times as many automobiles, trucks and parts to us as we exported to them.
#19 The United States now spends more than 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.
#20 Since China entered the WTO in 2001, the U.S. trade deficit with China has grown by an average of 18% per year.
#21 The U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.
#22 The United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001.
#23 In 2002, the United States had a trade deficit in “advanced technology products” of $16 billion with the rest of the world. In 2010, that number skyrocketed to $82 billion.
#24 Manufacturing employment in the U.S. computer industry was actually lower in 2010 than it was in 1975.
#25 Since 2001, over 42,000 manufacturing facilities in the United States have been closed.
#26 There were more manufacturing jobs in the United States in 1950 than there are today.
#27 Since the year 2000, we have lost approximately 10% of our middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs. Meanwhile, our population has gotten significantly larger.
#28 When you adjust wages for inflation, middle class workers in the United States make less money today than they did back in 1971.
#29 One recent survey found that 9 out of 10 U.S. workers do not expect their wages to keep up with soaring food prices and soaring gas prices over the next 12 months.
#30 Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
#31 One out of every six elderly Americans now lives below the federal poverty line.
#32 According to one recent study, approximately 21 percent of all children in the United States were living below the poverty line in 2010.
#33 Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid.
#34 As 2007 began, there were 26 million Americans on food stamps. Today, there are more than 44 million Americans on food stamps, which is an all-time record.
#35 Today, one out of every four American children is on food stamps.
#36 59 percent of all Americans now receive money from the federal government in one form or another.
#37 The number of Americans that are going to food pantries and soup kitchens has increased by 46% since 2006.
#38 In the United States today, the richest one percent of all Americans have a greater net worth than the bottom 90 percent combined.
#39 According to Moody’s Analytics, the wealthiest 5% of all households in the United States now account for approximately 37% of all consumer spending.
#40 The poorest 50% of all Americans collectively own just 2.5% of all the wealth in the United States.
The cold, hard reality of the matter is that the United States is experiencing a long-term economic decline.
Every single day, more American families fall out of the middle class and into poverty. There are millions of American families out there tonight that are just barely hanging on by their fingernails.
More Americans than ever are constantly borrowing more money just to stay afloat. Even as rampant unemployment plagues this nation and even as wages remain stagnant, middle class Americans are increasing their use of credit.
A CNBC article noted the increase in consumer borrowing that we have seen recently….
The Federal Reserve says consumer borrowing rose $5.1 billion following a revised gain of $5.7 billion in April. Borrowing in the category that covers credit cards increased, as did borrowing in the category for auto and student loans.
It is very hard to live “the American Dream” without going into huge amounts of debt these days.
But for an increasing number of Americans, “the American Dream” is just a distant memory.
Tonight, there are large numbers of people living in the tunnels under the city of Las Vegas. As the wealthy live the high life in the casinos and hotels above them, an increasing number of desperate “tunnel people” are attempting to carve out an existence in the 200 mile long labyrinth of tunnels that stretches beneath Vegas. It is a nightmarish environment, but it is all those people have left.
Don’t look down on them, because you never know who might be next.
If you lost your current job, how long would you be able to survive?
Unfortunately, as bad as things are now, the reality is that this is just the beginning.
You ain’t seen nothin’ yet.
Do what you can to make sure that you and your family are not totally wiped out by the next wave of the economic collapse.
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Trouble
The sad thing is that we never have recovered from the last major financial crisis. Right now, the U.S. economy is far weaker than it was back in 2007. So what is going to happen if we get hit with another financial tsunami? The following is what PIMCO CEO Mohamed El-Erian said recently….
Can things really get much worse than they are now?
Unfortunately, yes they can.
Not that things are not really, really bad right now.
In Los Angeles earlier this week, approximately 10,000 people lined up for free turkey dinners.
So how many people will be lining up for free food when the unemployment rate in the U.S. soars into double digits?
Right now there is so much economic pain in America that it is hard to describe. According to a recent report from one nonprofit group, 45 percent of all people living in the United States “do not have enough money to cover housing, food, healthcare and other basic expenses”.
If this is where we are at now, how much trouble will we be in as a nation if a financial crisis worse than 2008 hits us in 2012?
The primary cause of the coming financial crisis will almost certainly be the financial meltdown that we are seeing unfold in Europe.
The economic downturn that began in 2008 caused the debt levels of quite a few European nations to soar to unprecedented heights. It has gotten to the point where the debts of many of those nations are no longer sustainable.
So investors are starting to demand much higher returns for the much greater risk associated with investing in the bonds of those countries.
But that makes it much more expensive for those troubled nations to fund their debts, and that means that their financial troubles get even worse.
Over the past 12 months, what we have seen happen to bond yields over in Europe has been nothing short of amazing.
Just check out this chart of what has been happening to the yield on 2 year Italian bonds over the past 12 months.
And keep in mind that these bond yields have been spiking even while the European Central Bank has been buying up unprecedented mountains of bonds in an attempt to keep bond yields low.
There has been a fundamental loss of faith in the financial system, and it is not just happening in Europe.
Just check out this chart. As that chart shows, credit default swap spreads all over the globe are absolutely skyrocketing and are now higher than we have seen at any point since the great financial crisis that shook the world during 2008 and 2009.
Panic and fear are everywhere – especially in Europe. In fact, it looks like a run on the banks has already begun in Europe.
The following comes from a recent article in The Economist….
Nobody wants to lend money to European banks right now. There is a feeling that they are all vulnerable and could fail at any time, and this lack of confidence actually makes that possibility even more likely.
The following is a short excerpt from a recent CNBC article….
So what can be done?
Well, in a different CNBC article, Mitchell Goldberg was quoted as saying that even “a bazooka” is not going to be good enough to fix this situation….
This is kind of like watching a horrific car wreck happen in very slow motion.
The financial system of Europe is dying and everybody can see what is happening but nobody can seem to find a way to fix it.
Not that we are solving our own problems here in the United States.
The vaunted “supercommittee” that was supposed to get a handle on our debt problem was a complete and utter failure.
Barack Obama has shown that he has no clue what to do when it comes to the economy, and Ben Bernanke has been preoccupied with roaming around the country trying to get people to feel more “warm and fuzzy” about the Federal Reserve.
The Federal Reserve actually has more power over our economy than anyone else. But instead of fixing things they only keep making things even worse.
The only people that the Fed seems to be helping are the banksters.
What you are about to read should really, really upset you. According to a recent article in the Wall Street Journal, the Federal Reserve has actually been tipping off their upcoming moves to top financial professionals. In turn, these financial professionals have been using that information to make a lot of money for themselves and for their clients….
You just can’t make stuff like this up. The corruption at the Federal Reserve is totally out of control. After nearly 100 years of total failure, it is time to shut down the Federal Reserve.
Not that Barack Obama should get a free pass for the role that he has played in this economic downturn. He inherited a complete mess from Bush and has made it even worse.
Today, millions of business owners are so frustrated with Washington D.C. that they don’t know what to do.
For example, one business owner down in Georgia has posted signs with the following message on all of his company’s trucks….
The business environment in this country becomes more toxic with each passing year, and the federal government has already strangled millions of small businesses out of existence.
In addition, politicians from both parties continue to stand aside as tens of thousands of businesses, millions of jobs and hundreds of billions of dollars of our wealth get shipped out of the country.
During 2010, an average of 23 manufacturing facilities a day were shut down in the United States. We are committing national economic suicide, and the top politicians in both political parties keep cheering for more.
Well, millions of ordinary Americans can see what is happening and they are preparing for the worst.
The following report comes from an article that was recently posted on the website of the local CBS affiliate in St. Louis….
So are you prepared for the coming collapse?
If you still have a great job and things are still going well for you, then you should definitely be thankful. Compared to the rest of the world, most of us are incredibly blessed.
But let there be no doubt, the U.S. economy is going to get a lot worse in the years ahead.
Just because you have a job today does not mean that you will have one tomorrow.
Just because you have a nice car and a big home today does not mean that you will have them tomorrow.
We all need to try to become a lot less dependent on “the system”, because “the system” is failing.
A whole lot of trouble is coming.
You better get ready.