The Beginning Of The End
The Beginning Of The End By Michael T. Snyder - Kindle Version

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Economic Bizarro World: Persistently High Unemployment And Skyrocketing Bond Yields Are Good?

Bizarro Up Is Down - Photo by RRZEiconsThe mainstream media is heralding today's "fantastic" employment numbers as evidence that the U.S. economy is steadily recovering.  But is that really true?  The number of jobs created in June was just a little bit more than what is required to keep up with population growth, and the official unemployment rate remained at 7.6 percent.  And if you look deeper in the numbers, they don't look very good at all.  The percentage of low paying part-time jobs in the economy continues to rise, the number of full-time jobs actually decreased and the U-6 unemployment number jumped from 13.8% in May to 14.3% in June.  That is a stunning increase.  And if the labor participation rate in this country was at the level it was at prior to the last recession, the official unemployment rate would be sitting at 11.1%.  But according to the mainstream media, all of this is wonderful news.  It is like we are in some sort of economic bizarro world where bad is good and down is up. (Read More....)

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Have Central Bankers Lost Control? Could The Bond Bubble Implode Even If There Is No Tapering?

Panic - Photo by Wes WashingtonAre the central banks of the world starting to lose control of the financial markets?  Could we be facing a situation where the bond bubble is going to inevitably implode no matter what the central bankers do?  For the past several years, the central bankers of the planet have been able to get markets to do exactly what they want them to do.  Stock markets have soared to record highs, bond yields have plunged to record lows and investors have literally hung on every word uttered by Federal Reserve Chairman Ben Bernanke and other prominent central bankers.  In the United States, it has been remarkable what Bernanke has been able to accomplish.  The U.S. government has been indulging in an unprecedented debt binge, the Fed has been wildly printing money, and the real rate of inflation has been hovering around 8 to 10 percent, and yet Bernanke has somehow convinced investors to lend gigantic piles of money to the U.S. government for next to nothing.  But this irrational state of affairs is not going to last indefinitely.  At some point, investors are going to wake up and start demanding higher returns.  And we are already starting to see this happen in Japan.  Wild money printing has actually caused bond yields to go up.  What a concept!  And that is what should happen - when central banks recklessly print money it should cause investors to demand a higher return.  But if bond investors all over the globe start acting rationally, that is going to cause the largest bond bubble in the history of the planet to burst, and that will create utter devastation in the financial markets. (Read More....)

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The Trigger Has Been Pulled And The Slaughter Of The Bonds Has Begun

The Bears Are Unleashed On Wall StreetWhat does it look like when a 30 year bull market ends abruptly?  What happens when bond yields start doing things that they haven't done in 50 years?  If your answer to those questions involves the word "slaughter", you are probably on the right track.  Right now, bonds are being absolutely slaughtered, and this is only just the beginning.  Over the last several years, reckless bond buying by the Federal Reserve has forced yields down to absolutely ridiculous levels.  For example, it simply is not rational to lend the U.S. government money at less than 3 percent when the real rate of inflation is somewhere up around 8 to 10 percent.  But when he originally announced the quantitative easing program, Federal Reserve Chairman Ben Bernanke said that he intended to force interest rates to go down, and lots of bond investors made a lot of money riding the bubble that Bernanke created.  But now that Bernanke has indicated that the bond buying will be coming to an end, investors are going into panic mode and the bond bubble is starting to burst.  One hedge fund executive told CNBC that the "feeling you are getting out there is that people are selling first and asking questions later".  And the yield on 10 year U.S. Treasuries just keeps going up.  Today it closed at 2.59 percent, and many believe that it is going to go much higher unless the Fed intervenes.  If the Fed does not intervene and allows the bubble that it has created to burst, we are going to see unprecedented carnage. (Read More....)

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The 441 TRILLION Dollar Interest Rate Derivatives Time Bomb

The Derivatives Time BombDo you want to know the primary reason why rapidly rising interest rates could take down the entire global financial system?  Most people might think that it would be because the U.S. government would have to pay much more interest on the national debt.  And yes, if the average rate of interest on U.S. government debt rose to just 6 percent (and it has actually been much higher in the past), the federal government would be paying out about a trillion dollars a year just in interest on the national debt.  But that isn't it.  Nor does the primary reason have to do with the fact that rapidly rising interest rates would impose massive losses on bond investors.  At this point, it is being projected that if U.S. bond yields rise by an average of 3 percentage points, it will cause investors to lose a trillion dollars.  Yes, that is a 1 with 12 zeroes after it ($1,000,000,000,000).  But that is not the number one danger posed by rapidly rising interest rates either.  Rather, the number one reason why rapidly rising interest rates could cause the entire global financial system to crash is because there are more than 441 TRILLION dollars worth of interest rate derivatives sitting out there.  This number comes directly from the Bank for International Settlements - the central bank of central banks.  In other words, more than $441,000,000,000,000 has been bet on the movement of interest rates.  Normally these bets do not cause a major problem because rates tend to move very slowly and the system stays balanced.  But now rates are starting to skyrocket, and the sophisticated financial models used by derivatives traders do not account for this kind of movement. (Read More....)

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Will Italy Be The Spark That Sets Off Financial Armageddon In Europe?

Will Italy Be The Spark That Sets Off Financial Armageddon In EuropeIs the financial collapse of Italy going to be the final blow that breaks the back of Europe financially?  Most people don't realize this, but Italy is actually the third largest debtor in the entire world after the United States and Japan.  Italy currently has a debt to GDP ratio of more than 120 percent, and Italy has a bigger national debt than anyone else in Europe does.  That is why it is such a big deal that Italian voters have just overwhelmingly rejected austerity.  The political parties led by anti-austerity candidates Silvio Berlusconi and Beppe Grillo did far better than anticipated.  When you combine their totals, they got more than 50 percent of the vote.  Italian voters have seen what austerity has done to Greece and Spain and they want no part of it.  Unfortunately for Italian voters, it has been the promise of austerity that has kept the Italian financial system stable in recent months.  Now that Italian voters have clearly rejected austerity, investors are fearing that austerity programs all over Europe may start falling apart.  This is creating quite a bit of panic in European financial markets right now.  On Tuesday, Italian stocks had their worst day in 10 months, Italian bond yields rose by the most that we have seen in 19 months, and the stocks of the two largest banks in Italy both fell by more than 8 percent.  Italy is already experiencing its fourth recession since 2001, and unemployment has been steadily rising.  If Italy is now "ungovernable", as many are saying, then what does that mean for the future of Italy?  Will Italy be the spark that sets off financial armageddon in Europe? (Read More....)

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12 Signs That Spain Is Shifting Gears From Recession To Depression

Where have we seen this before?  Bond yields soar above the 7 percent danger level.  Check.  The stock market crashes to new lows.  Check.  Industrial activity plummets like a rock and the economy contracts.  Check.  The unemployment rate skyrockets to more than 20 percent.  Check.  The bursting of a massive real estate bubble pushes the banking system to the brink of implosion.  Check.  Broke local governments beg the broke national government for bailouts.  Check.  The international community pressures the national government to implement deep austerity measures which will slow down the economy even more and hordes of violent protesters take to the streets.  Check.  All of this happened in Greece, it is happening right now in Spain, and mark my words it will eventually happen in the United States.  Every debt bubble eventually bursts, and right now Spain is experiencing a level of economic pain that very, very few people saw coming.  The recession in Spain is rapidly becoming a full-blown economic depression, and at this point there is no hope and no light at the end of the tunnel. (Read More....)

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18 Signs That The Banking Crisis In Europe Has Just Gone From Bad To Worse

With each passing day, the banking crisis in Europe escalates.  European banks are having their credit ratings downgraded in waves, bond yields are soaring and billions of euros are being pulled out of banks all across the eurozone.  The situation in Europe is rapidly going from bad to worse.  It is almost like watching air being let out of a balloon.  The key to any financial system is confidence, and right now confidence in banks in Greece, Italy, Spain and Portugal is declining at an alarming rate.  When things hit the fan in Europe, it is going to be much safer to have your money in Swiss banks or German banks than in Greek banks, Spanish banks or Italian banks.  Millions of people in Europe are starting to realize that a "euro" is not necessarily always going to be a "euro" and they are starting to panic.  The Greek banking system is already on the verge of total collapse, and at this rate it is only a matter of time before we see some major Spanish and Italian banks start to fail.  In fact it has already been announced that the fourth largest bank in Spain, Bankia, will be getting bailed out by the Spanish government.  It is only a matter of time before we hear more announcements like this.  Right now, events are moving so quickly in Europe that it is hard to keep up with them all.  But this is what usually happens in the financial world.  When things go well, it tends to happen over an extended period of time.  When things fall apart, it tends to happen very rapidly. (Read More....)

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Why A Greek Exit From The Euro Would Mean The End Of The Eurozone

What was considered unthinkable a few months ago has now become probable.  All over the globe there are headlines proclaiming that a Greek exit from the euro is now a real possibility.  In fact, some of those headlines make it sound like it is practically inevitable.  For example, Der Spiegel ran a front page story the other day with the following startling headline: "Acropolis, Adieu! Why Greece must leave the euro".  Many are saying that the euro will be stronger without Greece.  They are saying things such as "a chain is only as strong as its weakest link" and they are claiming that financial markets are now far more prepared for a "Grexit" than they would have been two years ago.  But the truth is that it really is naive to think that a Greek exit from the euro can be "managed" and that business will go on as usual afterwards.  If Greece leaves the euro it will set a very dangerous precedent.  The moment Greece exits the euro, investors all over the globe will be asking the following question: "Who is next?"  Portugal, Italy and Spain would all see bond yields soar and they would all likely experience runs on their banks.  It would only be a matter of time before more eurozone members would leave.  In the end, the whole monetary union experiment would crumble. (Read More....)

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