The pinnacle of the global financial system is warning that conditions are right for a “full-blown banking crisis” in China. Since the last financial crisis, there has been a credit boom in China that is really unprecedented in world history. At this point the total value of all outstanding loans in China has hit a grand total of more than 28 trillion dollars. That is essentially equivalent to the commercial banking systems of the United States and Japan combined. While it is true that government debt is under control in China, corporate debt is now 171 percent of GDP, and it is only a matter of time before that debt bubble horribly bursts. The situation in China has already grown so dire that the Bank for International Settlements is sounding the alarm…
A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late.
The Bank for International Settlements warned in its quarterly report that China’s “credit to GDP gap” has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis.
Studies of earlier banking crises around the world over the last sixty years suggest that any score above ten requires careful monitoring.
If you are not familiar with the Bank for International Settlements, just think of it as the capstone of the worldwide financial pyramid. It wields enormous global power, and yet it is accountable to nobody. The following is a summary of how the Bank for International Settlements works that comes from one of my previous articles entitled “Who Controls The Money? An Unelected, Unaccountable Central Bank Of The World Secretly Does“…
An immensely powerful international organization that most people have never even heard of secretly controls the money supply of the entire globe. It is called the Bank for International Settlements, and it is the central bank of central banks. It is located in Basel, Switzerland, but it also has branches in Hong Kong and Mexico City. It is essentially an unelected, unaccountable central bank of the world that has complete immunity from taxation and from national laws. Even Wikipedia admits that “it is not accountable to any single national government.” The Bank for International Settlements was used to launder money for the Nazis during World War II, but these days the main purpose of the BIS is to guide and direct the centrally-planned global financial system. Today, 58 global central banks belong to the BIS, and it has far more power over how the U.S. economy (or any other economy for that matter) will perform over the course of the next year than any politician does. Every two months, the central bankers of the world gather in Basel for another “Global Economy Meeting”. During those meetings, decisions are made which affect every man, woman and child on the planet, and yet none of us have any say in what goes on. The Bank for International Settlements is an organization that was founded by the global elite and it operates for the benefit of the global elite, and it is intended to be one of the key cornerstones of the emerging one world economic system.
Normally the Bank for International Settlements is not prone to making extremely bold pronouncements, and so this warning about China seems a bit out of character.
Is something going on behind the scenes that we don’t know about?
Without a doubt, the global financial system is shakier and more vulnerable than most people would dare to imagine. Global central banks have been on the greatest money creation spree in recorded history, and interest rates have been pushed to ridiculously low levels.
If you can believe it, approximately 10 trillion dollars worth of bonds are trading at negative interest rates right now. This is completely and utterly irrational, and when this giant bond bubble finally explodes it is going to create a crisis unlike anything the world has ever seen before.
Just recently, Michael Pento of Pento Portfolio Strategies commented on this bubble…
He said the current financial conditions are “the most dangerous markets i have ever witnessed in my entire life – and i’ve been investing for over 25 years… The membrane has been stretched so wide and so tight that its about to burst.”
Pento believes that once the bond crash happens, it will trigger a cataclysmic wave of crashes throughout the entire global financial system…
Mr Pento has now warned that when policymakers signal they are set to stop buying, which will stop bond prices rising, there is going to be a devastating crash – not just in bond markets but across all investment assets.
He said: “When the bond market breaks, when that bubble bursts, it will wipe out every asset, everything will collapse together… I mean diamonds, sports cars, mutual funds, municipal bonds, fixed income, reits, collateralised loan obligations, stocks, bonds – even commodities – will collapse in tandem along with the bond bubble burst.”
Many had been anticipating that we would have already seen a major financial crash in 2016, but so far things have been pretty stable, and this has lulled many into a false sense of complacency.
But it is important to remember that we have seen corporate earnings fall for five quarters in a row, and it is expected to be six when the final numbers for the third quarter come in.
Never before in history have we had a stretch like this without major economic and financial consequences. The following comes from a recent Fortune article which referred to an earlier piece authored by Jim Bianco…
None of this, however, is apparent from how stock market indexes have been moving lately, which unlike the charts above have been going up and to the right. “Since 1947, every time profits fell this much, or for this long, a recession was either underway or about to begin,” writes Bianco. “The only exception was the middle of 1986 to early 1987.”
If you remember, there was a pretty important event that happened in 1987: A massive stock market crash that sapped close to 30% of the S&P 500’s value in just five days.
It is only a matter of time before this earnings recession takes a major bite out of Wall Street.
Stock prices can stay at irrationally high levels for quite a while, but history has shown that every bubble bursts eventually.
And when this bubble bursts, it is going to make 2008 look like a walk in the park.
The fallout from the Brexit vote continues to rock the European financial system. On Wednesday, the British pound dropped to a fresh 31 year low as confidence in the currency continues to plummet. At one point it had fallen as low as $1.2796 before rebounding a bit. As I write this, it is still sitting at just $1.293. Meanwhile, the problems for the biggest banks in Europe just continue to mount. At one point on Wednesday Credit Suisse hit an all-time record low, and German banking giant Deutsche Bank closed the day at an all-time record closing low of 12.93. Overall, Europe’s Stoxx 600 Bank Index closed at the lowest level in almost five years. What we are watching is a full-blown financial meltdown in Europe, but because it is not personally affecting them yet, most Americans are not paying any attention to it.
The collapse of the British pound that we have seen since the Brexit vote has been nothing short of breathtaking. In fact, CNN says that this “is what a currency crash looks like”…
This is what a currency crash looks like. The pound has slumped to $1.28, its lowest level in more than three decades.
Investors are dumping the pound following Britain’s vote to leave the European Union on June 23. The pound has dropped roughly 15% since the referendum day, when it reached $1.50.
After appearing to stabilize, the pound resumed its decline this week after three big asset management firms halted withdrawals from real estate investment funds.
Of course this is likely only just the beginning. There are some analysts that are suggesting that the British pound could eventually hit parity with the U.S. dollar at some point. We are seeing seismic shifts on the foreign exchange market right now, and this is going to affect trillions of dollars worth of currency-related derivatives. It will be exceedingly interesting to see how all of this plays out.
Meanwhile, Deutsche Bank continues to get absolutely hammered.
If the biggest and most important bank in Germany is not completely imploding, then why does the stock price continue to crash time after time?
Since the start of 2016, the value of Deutsche Bank has fallen by half, and many have pointed out that the trajectory that it is on is very, very similar to Lehman Brothers in 2008.
My regular readers are probably sick and tired of hearing me warn about Deutsche Bank, so today I will let someone else do it. According to an article that was just published by the BBC, Deutsche Bank is now “the most dangerous bank in the world”…
Deutsche Bank shares hit a new record low today. It’s value has halved since the beginning of the year.
So is it now the most dangerous bank in the world?
According to the International Monetary Fund – yes.
Last week, the IMF said that, of the banks big enough to bring the financial system crashing down, Deutsche Bank was the riskiest. Not only that, Deutsche Bank’s US unit was one of only two of 33 big banks to fail tests of financial strength set by the US central bank earlier this year.
At this point Deutsche Bank is scrambling to raise cash to stave off an imminent implosion. Just today, I came across a report about how they plan to sell at least a billion dollars worth of shipping loans in order to bring in some much needed funds. Many of the steps that they are taking are reminiscent of what Lehman Brothers tried to do just prior to their collapse, and that alone should tell you something.
At the same time all of this is going on, things in Italy just continue to get even worse. As of this moment, approximately 17 percent of all bank loans held by Italian banks are considered to be “non-performing”. In other words, they are absolutely swamped by bad debts. At the height of the 2008 crisis, only about 5 percent of the loans held by U.S. banks were bad. So what we are watching unfold in Italy right now could definitely be described as “cataclysmic”.
Since the Brexit vote, Italian banks have been hit harder than anyone else. The following comes from CNN…
Shares in Italy’s Banca Monte Dei Paschi Di Siena have crashed 45% in 10 days, forcing regulators to temporarily ban short-selling in the stock. The bank has been given until Friday to come up with a plan to reduce its bad loans by 40% by 2018.
It’s not alone. Other Italian bank stocks have fallen by about 30% since June 23, when the U.K. voted to leave the European Union. Italian officials are trying to find ways to shore up the country’s financial system.
Italian banks have been choking on bad debt for years, but the U.K. vote has thrown their problems into sharp relief.
Personally, I have been amazed that the European financial system has been able to hold it together for this long. A total collapse was inevitable, but I really thought that it would have started before now. Up until this time we have seen small crisis after small crisis, but in 2016 the full-blown meltdown has finally arrived.
And this growing crisis in Europe is going to have a dramatic impact on the entire planet. Everywhere you look the economic fundamentals are getting worse, and if you won’t believe me, perhaps you will believe this editorial by Tim Quast on CNBC…
The bottom line is that the fundamentals of the economy and market don’t look good: Whoever you’re listening to — the Federal Reserve, to the Organization for Economic Cooperation and Development, to the International Monetary Fund — hoary heads of the dismal science see deepening malaise worsened by the Brexit, creaky European banks, possible copycat flight from the euro zone — even a slowdown for the U.S.
Can a market characterized by declining money flows, weakening fundamentals and arbitrage that has posted no material gain in over 18 months gather steam? Anything is possible. But it’s not a sound conclusion.
Whenever I post an article about Europe, it tends to get significantly less response than many of my other articles do.
But I hope that my fellow Americans will start paying attention to this growing crisis, because it is going to deeply affect all of us.
What is happening to the European financial system right now is truly history in the making, and I believe that it is going to be one of the biggest news stories of the second half of 2016.
Uh oh – here we go again. Do you remember the subprime mortgage meltdown during the last financial crisis? Well, now a similar thing is happening with auto loans. The auto industry has been doing better than many other areas of the economy in recent years, but this “mini-boom” was fueled in large part by customers with subprime credit. According to Equifax, an astounding 23.5 percent of all new auto loans were made to subprime borrowers in 2015. At this point, there is a total of somewhere around $200 billion in subprime auto loans floating around out there, and many of these loans have been “repackaged” and sold to investors. I know – all of this sounds a little too close for comfort to what happened with subprime mortgages the last time around. We never seem to learn from our mistakes, and a lot of investors are going to end up paying the price.
Everything would be fine if the number of subprime borrowers not making their payments was extremely low. And that was true for a while, but now delinquency rates and default rates are rising to levels that we haven’t seen since the last recession. The following comes from Time Magazine…
People, especially those with shaky credit, are having a tougher time than usual making their car payments.
According to Bloomberg, almost 5% of subprime car loans that were bundled into securities and sold to investors are delinquent, and the default rate is even higher than that. (Depending on who’s counting, delinquency is up to three or four months behind in payments; default is what happens after that). At just over 12% in January, the default rate jumped one entire percentage point in just a month. Both delinquency and default rates are now the highest they’ve been since 2010, when the ripple effects of the recession still weighed heavily on many Americans’ finances.
The chart below was posted by David Stockman, and it shows how the delinquency rate for subprime borrowers has hit the highest level since 2009. In fact, we are not too far away from totally smashing through the previous highs that were set during the last crisis…
It is quite foolish to try to sell expensive cars to people with bad credit. This is especially true now that the economy is slowing down significantly in many areas. But people are greedy and they are going to do what they are going to do.
The most disturbing thing to me is that many of these loans are being “repackaged” and sold off to investors as “solid investments”. The following description of what has been happening comes from Wolf Richter…
The business of “repackaging” these loans, including subprime and deep-subprime loans, into asset backed securities has also been booming. These ABS are structured with different tranches, so that the highest tranches – the last ones to absorb any losses – can be stamped with high credit ratings and offloaded to bond mutual funds designed for retail investors.
Deep-subprime borrowers are high-risk. Typically they have credit scores below 550. To make it worth everyone’s while, they get stuffed into loans often with interest rates above 20%. To make payments even remotely possible at these rates, terms are often stretched to 84 months. Borrowers are typically upside down in their vehicle: the negative equity of their trade-in, along with title, taxes, and license fees, and a hefty dealer profit are rolled into the loan. When the lender repossesses the vehicle, losses add up in a hurry.
It almost makes you want to tear your hair out.
This is exactly the kind of thing that caused so much chaos with subprime mortgages.
When will we ever learn?
Meanwhile, we continue to get even more numbers that indicate that a substantial economic slowdown has already begun…
We just got the clearest sign yet that something is wrong with the US economy.
Markit Economics’ monthly flash services purchasing manager’s index, a preliminary reading on the sector, fell into contraction for the first time in over two years.
The tentative February index was reported Wednesday at 49.8.
Statistic after statistic is telling us that a new recession is already here. And of course some would argue that the last recession never actually ended. According to John Williams of shadowstats.com, the U.S. economy has continually been in contraction mode since 2005.
If we do not learn from history, we are doomed to repeat it. All over the world, “non-performing loans” are starting to become a major problem, and already some financial institutions are starting to get tighter with credit.
As credit conditions tighten up, this is going to cause economic activity to slow down even more. And as economic activity slows down, it is going to become even harder for ordinary people to make their debt payments.
Deflationary forces are on the rise, and most global central banks are just about out of ammunition at this point.
Everyone knew that the global debt bubble could not keep expanding much faster than the overall rate of economic growth forever.
It was only a matter of time until the bubble burst.
Now we can see signs of crisis popping up all around us, and things are only going to get worse in the months ahead…
There is so much chaos going on that I don’t even know where to start. For a very long time I have been warning my readers that a major banking collapse was coming to Europe, and now it is finally unfolding. Let’s start with Deutsche Bank. The stock of the most important bank in the “strongest economy in Europe” plunged another 8 percent on Monday, and it is now hovering just above the all-time record low that was set during the last financial crisis. Overall, the stock price is now down a staggering 36 percent since 2016 began, and Deutsche Bank credit default swaps are going parabolic. Of course my readers were alerted to major problems at Deutsche Bank all the way back in September, and now the endgame is playing out. In addition to Deutsche Bank, the list of other “too big to fail” banks in Europe that appear to be in very serious trouble includes Commerzbank, Credit Suisse, HSBC and BNP Paribas. Just about every major bank in Italy could fall on that list as well, and Greek bank stocks lost close to a quarter of their value on Monday alone. Financial Armageddon has come to Europe, and the entire planet is going to feel the pain.
The collapse of the banks in Europe is dragging down stock prices all over the continent. At this point, more than one-fifth of all stock market wealth in Europe has already been wiped out since the middle of last year. That means that we only have four-fifths left. The following comes from USA Today…
The MSCI Europe index is now down 20.5% from its highest point over the past 12 months, says S&P Global Market Intelligence, placing it in the 20% decline that unofficially defines a bear market.
Europe’s stock implosion makes the U.S.’ sell-off look like child’s play. The U.S.-centric Standard & Poor’s 500 Monday fell another 1.4% – but it’s only down 13% from its high. Some individual European markets are getting hit even harder. The Milan MIB 30, Madrid Ibex 35 and MSCI United Kingdom indexes are off 29%, 23% and 20% from their 52-week highs, respectively as investors fear the worse could be headed for the Old World.
These declines are being primarily driven by the banks. According to MarketWatch, European banking stocks have fallen for six weeks in a row, and this is the longest streak that we have seen since the heart of the last financial crisis…
The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -5.59% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data.
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.
Overall, Europe’s banking stocks are down 23 percent year to date and 39 percent since the peak of the market in the middle of last year.
The financial crisis that began during the second half of 2015 is picking up speed over in Europe, and it isn’t just Deutsche Bank that could implode at any moment. Credit Suisse is the most important bank in Switzerland, and they announced a fourth quarter loss of 5.8 billion dollars. The stock price has fallen 34 percent year to date, and many are now raising questions about the continued viability of the bank.
Similar scenes are being repeated all over the continent. On Monday we learned that Russia had just shut down two more major banks, and the collapse of Greek banks has pushed Greek stock prices to a 25 year low…
Greek stocks tumbled on Monday to close nearly eight percent lower, with bank shares losing almost a quarter of their market value amid concerns over the future of government reforms.
The general index on the Athens stock exchange closed down 7.9 percent at 464.23 points — a 25-year-low — while banks suffered a 24.3-percent average drop.
This is what a financial crisis looks like.
Fortunately things are not this bad here in the U.S. quite yet, but we are on the exact same path that they are.
One of the big things that is fueling the banking crisis in Europe is the fact that the too big to fail banks over there have more than 100 billion dollars of exposure to energy sector loans. This makes European banks even more sensitive to the price of oil than U.S. banks. The following comes from CNBC…
The four U.S. banks with the highest dollar amount of exposure to energy loans have a capital position 60 percent greater than European banks Deutsche Bank, UBS, Credit Suisse and HSBC, according to CLSA research using a measure called tangible common equity to tangible assets ratio. Or, as Mayo put it, “U.S. banks have more quality capital.”
Analysts at JPMorgan saw the energy loan crisis coming for Europe, and highlighted in early January where investors might get hit.
“[Standard Chartered] and [Deutsche Bank] would be the most sensitive banks to higher default rates in oil and gas,” the analysts wrote in their January report.
There is Deutsche Bank again.
It is funny how they keep coming up.
In the U.S., the collapse of the price of oil is pushing energy company after energy company into bankruptcy. This has happened 42 times in North America since the beginning of last year so far, and rumors that Chesapeake Energy is heading that direction caused their stock price to plummet a staggering 33 percent on Monday…
Energy stocks continue to tank, with Transocean (RIG) dropping 7% and Baker Hughes (BHI) down nearly 5%. But those losses pale in comparison with Chesapeake Energy (CHK), the energy giant that plummeted as much as 51% amid bankruptcy fears. Chesapeake denied it’s currently planning to file for bankruptcy, but its stock still closed down 33% on the day.
And let’s not forget about the ongoing bursting of the tech bubble that I wrote about yesterday.
On Monday the carnage continued, and this pushed the Nasdaq down to its lowest level in almost 18 months…
Technology shares with lofty valuations, including those of midcap data analytics company Tableau Software Inc and Internet giant Facebook Inc, extended their losses on Monday following a gutting selloff in the previous session.
Shares of cloud services companies such as Splunk Inc and Salesforce.com Inc had also declined sharply on Friday. They fell again on Monday, dragging down the Nasdaq Composite index 2.4 percent to its lowest in nearly 1-1/2 years.
Those that read my articles regularly know that I have been warning this would happen.
All over the world we are witnessing a financial implosion. As I write this article, the Japanese market has only been open less than an hour and it is already down 747 points.
The next great financial crisis is already here, and right now we are only in the early chapters.
Ultimately what we are facing is going to be far worse than the financial crisis of 2008/2009, and as a result of this great shaking the entire world is going to fundamentally change.
The biggest bank in the western world has just come out and declared that the global economy is “already in a recession”. According to British banking giant HSBC, global trade is down 8.4 percent so far this year, and global GDP expressed in U.S. dollars is down 3.4 percent. So those that are waiting for the next worldwide economic recession to begin can stop waiting. It is officially here. As you will see below, money is fleeing emerging markets at a blistering pace, major global banks are stuck with huge loans that will never be repaid, and it looks like a very significant worldwide credit crunch has begun. Just a few days ago, I explained that the IMF, the UN, the BIS And Citibank were all warning that a major economic crisis could be imminent. They aren’t just making this stuff up out of thin air, but most Americans still seem to believe that everything is going to be just fine. The level of blind faith in the system that most people are demonstrating right now is absolutely astounding.
The numbers say that the global economy has not been in this bad shape since the devastating recession that shook the world in 2008 and 2009. According to HSBC, “we are already in a dollar recession”…
Global trade is also declining at an alarming pace. According to the latest data available in June the year on year change is -8.4%. To find periods of equivalent declines we only really find recessionary periods. This is an interesting point. On one metric we are already in a recession. As can be seen in Chart 3 on the following page, global GDP expressed in US dollars is already negative to the tune of USD 1,37trn or -3.4%. That is, we are already in a dollar recession.
Here is the chart that Zero Hedge posted along with the quote above. As you can see, the only time global GDP expressed in U.S. dollars has fallen faster in recent years was during the horrible recession of seven years ago…
But there are still a whole lot of incredibly clueless people running around out there claiming that “nothing is happening” even though more signs of trouble are erupting all around us every single day.
For instance, just today CNBC published an article entitled “The US is closer to deflation than you think“, and Twitter just announced that it plans to lay off 8 percent of its entire workforce.
But of course the biggest problems are happening in “emerging markets” right now. The following is an excerpt from an article that was just published in a major British news source entitled “The world economic order is collapsing and this time there seems no way out“…
Now act three is beginning, but in countries much less able to devise measures to stop financial contagion and whose banks are more precarious. For global finance next flooded the so-called emerging market economies (EMEs), countries such as Turkey, Brazil, Malaysia, China, all riding high on sky-high commodity prices as the China boom, itself fuelled by wild lending, seemed never-ending. China manufactured more cement from 2010-13 than the US had produced over the entire 20th century. It could not last and so it is proving.
China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed.
Money is flooding out of the EMEs, leaving overborrowed companies, indebted households and stricken banks, but EMEs do not have institutions such as the Federal Reserve or European Central Bank to knock up rescue packages. Yet these nations now account for more than half of global GDP. Small wonder the IMF is worried.
It is one thing for The Economic Collapse Blog to warn that “the world economic order is collapsing”, but this is one of the biggest newspapers in the UK.
I was writing about these emerging market problems back in July, but at that time very few really understood the true gravity of the situation. But now giant banks such as Goldman Sachs are calling this the third stage of the ongoing global financial crisis. The following comes from a recent CNBC piece entitled “Is EM turmoil the third wave of the financial crisis? Goldman thinks so“…
Emerging markets aren’t just suffering through another market rout—it’s a third wave of the global financial crisis, Goldman Sachs said.
“Increased uncertainty about the fallout from weaker emerging market economies, lower commodity prices and potentially higher U.S. interest rates are raising fresh concerns about the sustainability of asset price rises, marking a new wave in the Global Financial Crisis,” Goldman said in a note dated last week.
The emerging market wave, coinciding with the collapse in commodity prices, follows the U.S. stage, which marked the fallout from the housing crash, and the European stage, when the U.S. crisis spread to the continent’s sovereign debt, the bank said.
You know that it is late in the game when Goldman Sachs starts sounding exactly like The Economic Collapse Blog. I have been warning about a “series of waves” for years.
When will people wake up?
What is it going to take?
The crisis is happening right now.
Of course many Americans will refuse to acknowledge what is going on until the Dow Jones Industrial Average collapses by several thousand more points. And that is coming. But let us all hope that day is delayed for as long as possible, because all of our lives will become much crazier once that happens.
And the truth is that many Americans do understand that bad times are on the horizon. Just check out the following numbers that were recently reported by CNBC…
The CNBC All-America Economic Survey finds views on the current state of the economy about stable, with 23 percent saying it is good or excellent and 42 percent judging it as fair. About a third say the economy is poor, up 3 points from the June survey.
But the percentage of Americans who believe the economy will get worse rose 6 points to 32 percent, the highest level since the government shutdown in 2013. And just 22 percent believe the economy will get better, 2 points lower than June and the lowest level since 2008, when the nation was gripped by recession.
If you want to believe that everything is going to be just fine somehow, then go ahead and believe that.
All I can do is present the facts. For months I have been warning about this financial crisis, and now it is playing out as a slow-motion train wreck right in front of our eyes.
We are moving into a period of time during which events are going to start to move much more rapidly, and life as we know it is about to change in a major way for all of us.
Hopefully you have already been preparing for what is about to come.
If not, I wouldn’t want to be in your position.
The warnings are getting louder. Is anybody listening? For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing. For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“. And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now. The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…
Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.
Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.
This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.
The IMF is actually telling the truth in this instance. We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.
But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.
The Bank of England, the UN and the Bank for International Settlements have all issued similar ominous warnings. The following is an excerpt from a recent article in the Guardian…
The IMF’s warning echoes a chorus of others. The Bank of England’s chief economist, Andy Haldane, has argued that the world is entering the latest episode of a “three-part crisis trilogy”. Unctad, the UN’s trade and development arm, would like to see advanced economies boost public spending to offset the downturn in emerging economies. The Bank for International Settlements believes interest rates have been too low for too long, encouraging too much risk-taking in financial markets. All of them fear that the global financial system is primed for a crisis.
I particularly like Andy Haldane’s likening our current situation to a “three-part crisis trilogy”. I think that is perfect. And if you are familiar with movie trilogies, then you know that the last episode is usually the biggest and the baddest.
Citigroup economist Willem Buiter also believes that big trouble is on the horizon. In fact, he is publicly warning of a “global recession” in 2016…
Citigroup economist Willem Buiter looks at the world landscape and sees an economy performing substantially below potential output, which he uses as the general benchmark for the idea of a global recession. With that in mind, he said the chances of a global recession in 2016 are growing.
“We think that the evidence suggests that the global output gap is negative and that the global economy is currently growing at a rate below global potential growth. The (negative) output gap is therefore widening,” Buiter said in a note to clients. He added, “from an output gap that was probably quite close to zero fairly recently, continued sub-par global growth is likely to put the global economy back into recession, if indeed the world ever fully emerged of the recession caused by the global financial crisis.”
Usually when we are plunged into a new crisis there is some sort of “trigger event” that creates widespread panic. Yesterday, I wrote about the ongoing problems at commodity giants such as Glencore, Trafigura and The Noble Group. The collapse of any of them could potentially be a new “Lehman Brothers moment”.
But something else happened just yesterday that is also extremely concerning. Just a couple of weeks ago, I warned that the biggest bank in Germany, Deutsche Bank, was on the verge of massive trouble. Well, on Wednesday the bank announced a loss of more than 6 billion dollars for the third quarter of 2015…
Deutsche Bank’s new boss John Cryan set about cleaning up Germany’s biggest bank on Thursday, revealing a record pre-tax loss of 6 billion euros ($6.7 billion) in the third quarter and warning investors of a possible dividend cut.
Write downs, impairments and litigation costs all contributed to the loss, the bank said.
Cryan became chief executive in July with a promise to cut costs. The Briton is accelerating plans to shed assets and exit countries to shrink the bank and is preparing to ax about 23,000 jobs, or a quarter of the bank’s staff, sources told Reuters last month.
Keep an eye on Germany – the problems there are just beginning.
Something else that I am closely watching is the fact that major exporting nations such as China that used to buy up lots of U.S. government debt are now dumping that debt at an unprecedented pace. The following comes from Wolf Richter…
Five large purchasers of US Treasuries – China, Russia, Norway, Brazil, and Taiwan – have changed their minds. They’re dumping Treasuries, each for their own reasons that are now coinciding. And at the fastest rate on record.
For the 12-month period ended July, sales of Treasuries by central banks around the world reached a net of $123 billion, “the biggest decline since data started to be collected in 1978,” the Wall Street Journal reported.
China, the largest foreign owner of Treasuries – its hoard peaking at $1.317 trillion in November 2013 – has been unloading with particular passion. By July, the latest data available from the US Treasury Department, China’s pile was down to $1.241 trillion.
Yes, I know, the stock market went up once again on Thursday, and all of the irrational optimists are once again telling us that everything is going to be just fine.
The truth, of course, is that everything is not going to be just fine. Ever since I started the Economic Collapse Blog, I have never wavered in my belief that the greatest economic crisis that the United States has ever seen is coming, and I have written well over 1000 articles setting forth the case for the coming collapse in excruciating detail. Nobody is going to be able to say that I didn’t try to warn them.
Those that have blind faith in Barack Obama, Wall Street, the Federal Reserve and the other major central banks around the planet will continue to mock the idea that a major collapse is coming for as long as they can.
But when the day of reckoning does arrive and crisis coming knocking at their doors, what will they do then?