Stock Prices Are Surging Because Corporations Are Spending More Money On Stock Buybacks Than Anything Else

The primary reason why stock prices have been soaring in recent months is because corporations have been buying back their own stock at an unprecedented pace.  In fact, the pace of stock buybacks is nearly double what it was at this time last year.  According to Goldman Sachs, S&P 500 companies spent 384 billion dollars buying back stock during the first half of 2018.  That is an absolutely astounding number.  And in many cases, corporations are going deep into debt in order to do this.  Of course this is going to push up stock prices, but corporate America will not be able to inflate this bubble indefinitely.  At some point a credit crunch will come, and the pace of stock buybacks will fall precipitously.

Prior to 1982, corporations were not permitted to go into the market and buy back stock.

The reason for this is obvious – stock buybacks are a really easy way for corporations to manipulate stock prices.

But these days it is expected that most large corporations will engage in this practice.  Large stockholders love to see the price of the stock go up, and they are never going to complain when smaller shareholders are bought out and their share of the company is increased.  And corporate executives love buybacks because so much of their compensation often involves stock options or bonuses related to key metrics such as earnings per share.

So in the end, stock buybacks are often all about greed.  It is a way to funnel money to those at the very top of the pyramid, and those stock market gains are taxed at capital gains rates which are much lower than the rates on normal income.

Normally, you would expect successful companies to invest most of their available cash back into operations so that they can make even more money in the future.  And for 19 of the past 20 years, corporations have spent more on capital investments than anything else.  But now, share buybacks have actually surpassed capital spending.  The following comes from CNN

But that doesn’t mean companies aren’t spending on job-creating investments, like new equipment, research projects and factories. Business spending is up 19% — it’s just that buybacks are growing much faster.

In fact, Goldman Sachs said that buybacks are garnering the largest share of cash spending by S&P 500 firms. It’s a milestone because capital spending had represented the single largest use of cash by corporations in 19 of the past 20 years.

And this trend seems to be accelerating during the second half of 2018.  It is being projected that firms will spend more than 600 billion dollars on stock buybacks during the second half of this year, and that will bring the grand total for 2018 to more than a trillion dollars

And the trend may not be done yet. Goldman Sachs predicted that share buyback authorizations among all US companies in all of 2018 will surpass $1 trillion for the first time ever.

Wow.

Wouldn’t it be nice if we had more than a trillion dollars that we could put toward reducing the national debt?

This is the reason why stocks hit another new all-time record high this week.  Stock buybacks have reached absolutely insane levels, and what we are witnessing is essentially a giant orgy of greed.

To give you some perspective, the previous annual record for stock buybacks was just 589 billion dollars in 2007.

This year, we may come close to doubling the previous record.

And let us not forget that the year after 2007 was the worst financial crisis since the Great Depression.

So what corporations are the worst offenders?  Here is more from CNN

Apple (AAPL) alone spent a whopping $45 billion on buybacks during the first half of 2018, triple what it did during the same time period last year, the firm said. That included a record-shattering sum during the first quarter.

Amgen (AMGN), Cisco (CSCO), AbbVie (ABBV) and Oracle (ORCL) have also showered investors with big boosts to their buyback programs.

As I noted earlier, corporate insiders greatly benefit from stock buybacks, and they took advantage of massively inflated stock prices by selling off $10.3 billion worth of their shares during the month of August.

Inflating your stock price by cannibalizing your own shares is not a good long-term strategy for any corporation, but without a doubt it is making a lot of people very wealthy.

But in the process, the size of the stock market as a whole has been steadily shrinking.  In fact, the number of shares on the S&P 500 has fallen by almost 8 percent since the beginning of 2011…

According to Ed Yardeni, the number of S&P 500 shares has shrunk by 7.7% since the start of 2011. This tends to increase the earnings per remaining share and the dividends available per remaining share.

This is yet another example that shows why the stock market has become completely disconnected from economic reality.  Wall Street is inhabited by con men that are promoting Ponzi scheme after Ponzi scheme, and it is only a matter of time before the entire system collapses under its own weight.

But for now, the euphoria on Wall Street continues as stock prices continue to march higher.  Meanwhile, we continue to get more signs of trouble from the real economy.  For instance, this week we learned that the third largest bank in the entire country is going to lay off thousands of workers

Wells Fargo, the third-biggest U.S. bank, plans to lower its employee headcount by 5 percent to 10 percent in the next three years as part of its ongoing turnaround plan, the company announced Thursday.

The bank has 265,000 employees, meaning the reduction would result in a loss of between 13,250 and 26,500 jobs.

Why would they do that if the economy was in good shape?

And globally, the emerging market currency crisis has continued to escalate.  According to one source, more than 80 percent of all global currencies have fallen in value so far this year…

A review of the values of 143 global currencies indicates that so far this year, more than 80 percent have fallen in value.

Another eleven appear to be pegged to the dollar and 13 have risen in value. Of the 13 that have increased in value, only six are up more than 1 percent versus the dollar.

There have been outsized declines in countries like Venezuela (down 99 percent), Argentina (53 percent) and Turkey (38 percent). However, Brazil is down 20 percent, Russia 15 percent, India 11 percent, Sweden 10 percent, and the Philippines 8 percent. Big economies like China are experiencing a 5 percent currency value decline while the Euro is off by 3 percent.

I applaud those that have made lots of money in the stock market, but the party will not last forever.

In 2007 corporations were pouring hundreds of billions of dollars into stock buybacks, and it propped up the market for a time.  But eventually the bubble burst and the crisis of 2008 was so dramatic that it will be remembered forever.

Now we are facing a similar scenario, and it is just a matter of time before this bubble bursts as well.

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

The Numbers Say That A Major Global Recession Has Already Begun

Global - Public DomainThe 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 percentSo 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…

HSBC Chart

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.

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

Question Sign Red - Public DomainThe 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?

4 Things That Are Happening Today That Indicate That A Deflationary Financial Collapse Is Imminent

four asphalt - public domain
When financial markets crash, they do not do so in a vacuum.  There are always patterns, signs and indicators that tell us that something is about to happen.  In this article, I am going to share with you four patterns that are happening right now that also happened just prior to the great financial crisis of 2008.  These four signs are very strong evidence that a deflationary financial collapse is right around the corner.  Instead of the hyperinflationary crisis that so many have warned about, what we are about to experience is a collapse in asset prices, a massive credit crunch and a brief period of absolutely crippling deflation.  The response by national governments and global central banks to this horrific financial crisis will cause tremendous inflation down the road, but that comes later.  What comes first is a crisis that will initially look a lot like 2008, but will ultimately prove to be much worse.  The following are 4 things that are happening right now that indicate that a deflationary financial collapse is imminent…

#1 Commodities Are Crashing

In mid-2008, just before the U.S. stock market crashed in the fall, commodities started crashing hard.  Well, now it is happening again.  In fact, the Bloomberg Commodity Index just hit a 13 year low, which means that it is already lower than it was at any point during the last financial crisis…

#2 Oil Is Crashing

On Monday, the price of oil dipped back below $50 a barrel.  This has surprised many analysts, because a lot of them thought that the price of oil would start to rebound by now.

In early 2014, the price of a barrel of oil was sitting above $100 a barrel and the future of the industry looked very bright.  Since that time, the price of oil has fallen by more than 50 percent.

There is only one other time in all of history when the price of oil has fallen by more than $50 a barrel in such a short period of time.  That was in 2008, just before the great financial crisis that erupted later that year.  In the chart posted below, you can see how similar that last oil crash was to what we are experiencing right now…

Oil Price 2015

#3 Gold Is Crashing

Most people don’t remember that the price of gold took a very serious tumble in the run up to the financial crisis of 2008.  In early 2008, the price of gold almost reached $1000 an ounce, but by October it had fallen to nearly $700 an ounce.  Of course once the stock market finally crashed it ultimately propelled gold to unprecedented heights, but what we are concerned about for this article is what happens before a crisis arrives.

Just like in 2008, the price of gold has been hit hard in recent months.  And on Monday, the price of gold absolutely got slammed.  The following comes from USA Today

The yellow metal has tumbled to a five-year low amid a combination of diminishing investor fears related to foreign headwinds in Greece and China, and stronger growth in the U.S. which is leading to a stronger dollar and coming interest rate hikes from the Federal Reserve. Investors have been dumping shares of gold-related investments as other bearish signs, such as less demand from China and the breaking of key price support levels, add up.

Earlier today, an ounce of gold fell below $1,100 an ounce to $1,080, its lowest level since February 2010. Gold peaked around $1,900 an ounce back in 2011.

For years, I have been telling people that we were going to see wild swings in the prices of gold and silver.

And to be honest, the party is just getting started.  Personally, I particularly love silver for the long-term.  But you have got to be able to handle the roller coaster ride if you are going to get into precious metals.  It is not for the faint of heart.

#4 The U.S. Dollar Index Is Surging

Before the U.S. stock market crashed in the fall of 2008, the U.S. dollar went on a very impressive run.  This is something that you can see in the chart posted below.  Now, the U.S. dollar is experiencing a similar rise.  For a while there it looked like the rally might fizzle out, but in recent days the dollar has started to skyrocket once again.  That may sound like good news to most Americans, but the truth is that a strong dollar is highly deflationary for the global financial system as a whole for a variety of reasons.  So just like in 2008, this is not the kind of chart that we should want to see…

Dollar Index 2015

If a 2008-style financial crisis was imminent, these are the kinds of things that we would expect to see happen.  And of course these are not the only signs that are pointing to big problems in our immediate future.  For example, the last time there was a major stock market crash in China, it came just before the great U.S. stock market crash in the fall of 2008.  This is something that I covered in my previous article entitled “Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

As an attorney, I was trained to follow the evidence and to only come to conclusions that were warranted by the facts.  And right now, it seems abundantly clear that things are lining up in textbook fashion for another major financial crisis.

But even though what is happening right in front of our eyes is so similar to what happened back in 2008, most people do not see it.

And the reason why they do not see it is because they do not want to see it.

Just like with most things in life, most people end up believing exactly what they want to believe.

Yes, there is a segment of the population that are actually honest truth seekers.  If you have felt drawn to this website, you are probably one of them.  But overall, most people in our society are far more concerned with making themselves happy than they are about pursuing the truth.

So even though the signs are obvious, most people will never see what is coming in advance.

I hope that does not happen to you.

The Global Liquidity Squeeze Has Begun

Squeeze Globe - Public DomainGet ready for another major worldwide credit crunch.  Today, the entire global financial system resembles a colossal spiral of debt.  Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system.  When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever.  If you can believe it, the total amount of global debt has risen by $35 trillion since the last crisis.  Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again.  For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“.  And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone.  On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States.  All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.

Over the past six months, the Chinese stock market has exploded upward even as the overall Chinese economy has started to slow down.  Investors have been using something called “umbrella trusts” to finance a lot of these stock purchases, and these umbrella trusts have given them the ability to have much more leverage than normal brokerage financing would allow.  This works great as long as stocks go up.  Once they start going down, the losses can be absolutely staggering.

That is why Chinese authorities are stepping in before this bubble gets even worse.  Here is more about what has been going on in China from Bloomberg

China’s trusts boosted their investments in equities by 28 percent to 552 billion yuan ($89.1 billion) in the fourth quarter. The higher leverage allowed by the products exposes individuals to larger losses in the event of stock-market drops, which can be exaggerated as investors scramble to repay debt during a selloff.

In umbrella trusts, private investors take up the junior tranche, while cash from trusts and banks’ wealth-management products form the senior tranches. The latter receive fixed returns while the former take the rest, so private investors are effectively borrowing from trusts and banks.

Margin debt on the Shanghai Stock Exchange climbed to a record 1.16 trillion yuan on Thursday. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt.

Overall, China has seen more debt growth than any other major industrialized nation since the last recession.  This debt growth has been so dramatic that it has gotten the attention of authorities all over the planet

Wolfgang Schaeuble, Germany’s finance minister says that “debt levels in the global economy continue to give cause for concern.”

Singling out China in particular, Schaeuble noted that “debt has nearly quadrupled since 2007″, adding that it’s “growth appears to be built on debt, driven by a real estate boom and shadow banks.”

According to McKinsey’s research, total outstanding debt in China increased from $US7.4 trillion in 2007 to $US28.2 trillion in 2014. That figure, expressed as a percentage of GDP, equates to 282% of total output, higher than the likes of other G20 nations such as the US, Canada, Germany, South Korea and Australia.

This credit boom in China has been one of the primary engines for “global growth” in recent years, but now conditions are changing.  Eventually, the impact of what is going on in China right now is going to be felt all over the planet.

Over in Europe, the Greek debt crisis is finally coming to a breaking point.  For years, authorities have continued to kick the can down the road and have continued to lend Greece even more money.

But now it appears that patience with Greece has run out.

For instance, the head of the IMF says that no delay will be allowed on the repayment of IMF loans that are due next month…

IMF Managing Director Christine Lagarde roiled currency and bond markets on Thursday as reports came out of her opening press conference saying that she had denied any payment delay to Greece on IMF loans falling due next month.

Unless Greece concludes its negotiations for a further round of bailout money from the European Union, however, it is not likely to have the money to repay the IMF.

And we are getting reports that things are happening behind the scenes in Europe to prepare for the inevitable moment when Greece will finally leave the euro and go back to their own currency.

For example, consider what Art Cashin told CNBC on Friday

First, “there were reports in the media [saying] that the ECB and/or banking authorities suggested to banks to get rid of any sovereign Greek debt they had, which suggests that maybe the next step will be Greece exiting,” Cashin told CNBC.

Also, one of Greece’s largest newspapers is reporting that neighboring countries are forcing subsidiaries of Greek banks that operate inside their borders to reduce their risk to a Greek debt default to zero

According to a report from Kathimerini, one of Greece’s largest newspapers, central banks in Albania, Bulgaria, Cyprus, Romania, Serbia, Turkey and the Former Yugoslav Republic of Macedonia have all forced the subsidiaries of Greek banks operating in those countries to bring their exposure to Greek risk — including bonds, treasury bills, deposits to Greek banks, and loans — down to zero.

Once Greece leaves the euro, that is going to create a tremendous credit crunch in Europe as fear begins to spread like wildfire.  Everyone will be wondering which nation will be “the next Greece”, and investors will want to pull their money out of perceived danger zones before they get hammered.

In the past, other European nations have been willing to bend over backwards to accommodate Greece and avoid this kind of mess, but those days appear to be finished.  In fact, the finance minister of France openly admits that the French “are not sympathetic to Greece”

Greece isn’t winning much sympathy from its debt-wracked European counterparts as the country draws closer to default for failing to make bailout repayments.

“We are not sympathetic to Greece,” French Finance Minister Michael Sapin said in an interview at the International Monetary Fund-World Bank spring meetings here.

“We are demanding because Greece must comply with the European (rules) that apply to all countries,” Sapin said.

Yes, it is possible that another short-term deal could be reached which could kick the can down the road for a few more months.

But either way, things in Europe are going to continue to get worse.

Meanwhile, very disappointing earnings reports in the U.S. are starting to really rattle investors.

For example, we just learned that GE lost 13.6 billion dollars in the first quarter…

One week following the announcement that it would dismantle most of its GE Capital financing operations to instead focus on its industrial roots, General Electric reported a first quarter loss of $13.6 billion.

The results were impacted by charges relating to the conglomerate’s strategic shift. A year ago GE reported a first quarter profit of $3 billion.

That is a lot of money.

How in the world does a company lose 13.6 billion dollars in a single quarter during an “economic recovery”?

Other big firms are reporting disappointing earnings numbers too

In earnings news, American Express Co. late Thursday said its results were hurt by the strong U.S. dollar, which reduced revenue booked in other countries. Chief Executive Kenneth Chenault reiterated the company’s forecast that 2015 earnings will be flat to modestly down year over year. Shares fell 4.6%.

Advanced Micro Devices Inc. said its first-quarter loss widened as revenue slumped. The company said it was exiting its dense server systems business, effective immediately. Revenue and the loss excluding items missed expectations, pushing shares down 13%.

And just like we saw just before the financial crisis of 2008, Americans are increasingly having difficulty meeting their financial obligations.

For instance, the delinquency rate on student loans has reached a very frightening level

More borrowers are failing to make payments on their student loans five years after leaving college, painting a grim picture for borrowers, according to the Federal Reserve Bank of New York.

Student debt continues to increase, especially for people who took out loans years ago. Those who left school in the Great Recession, which ended in 2009, had particular difficulty with repayment, with many defaulting, becoming seriously delinquent or not being able to reduce their balances, the New York Fed said today.

Only 37 percent of borrowers are current on their loans and are actively paying them down, and 17 percent are in default or in delinquency.

At this point, the American consumer is pretty well tapped out.  If you can believe it, 56 percent of all Americans have subprime credit today, and as I mentioned above, we just witnessed the biggest spike in credit application rejections ever recorded.

We have reached a point of debt saturation, and the credit crunch that is going to follow is going to be extremely painful.

Of course the biggest provider of global liquidity in recent years has been the Federal Reserve.  But with the Fed pulling back on QE, this is creating some tremendous challenges all over the globe.  The following is an excerpt from a recent article in the Telegraph

The big worry is what will happen to Russia, Brazil and developing economies in Asia that borrowed most heavily in dollars when the Fed was still flooding the world with cheap liquidity. Emerging markets account to roughly half of the $9 trillion of offshore dollar debt outside US jurisdiction.

The IMF warned that a big chunk of the debt owed by companies is in the non-tradeable sector. These firms lack “natural revenue hedges” that can shield them against a double blow from rising borrowing costs and a further surge in the dollar.

So what is the bottom line to all of this?

The bottom line is that we are starting to see the early phases of a liquidity squeeze.

The flow of credit is going to begin to get tighter, and that means that global economic activity is going to slow down.

This happened during the last financial crisis, and during this next financial crisis the credit crunch is going to be even worse.

This is why it is so important to have an emergency fund.  During this type of crisis, you may have to be the source of your own liquidity.  At a time when it seems like nobody has any cash, those that do have some will be way ahead of the game.

12 Very Ominous Warnings About What A U.S. Debt Default Would Mean For The Global Economy

Ominous Clouds - Photo posted on Instagram by annekejongA U.S. debt default that lasts for more than a couple of days could potentially cause a financial crash unlike anything that the world has ever seen before.  If the U.S. government purposely wanted to damage the global financial system, the best way that they could do that would be to default on U.S. debt obligations.  A U.S. debt default would cause stocks to crash, would cause bonds to crash, would cause interest rates to soar wildly out of control, would cause a massive credit crunch, and would cause a derivatives panic that would be absolutely unprecedented.  And that would just be for starters.  But don’t just take my word for it.  These are the things that top financial experts all over the planet are saying will happen if there is an extended U.S. debt default.

Because they are so close together, the “government shutdown” and the “debt ceiling deadline” are being confused by many Americans.

As I wrote about the other day, the “partial government shutdown” that we are experiencing right now is pretty much a non-event.  Yeah, some national parks are shut down and some federal workers will have their checks delayed, but it is not the end of the world.  In fact, only about 17 percent of the federal government is actually shut down at the moment.  This “shutdown” could continue for many more weeks and it would not affect the global economy too much.

On the other hand, if the debt ceiling deadline (approximately October 17th) passes without an agreement that would be extremely dangerous.

And if the U.S. government is eventually forced to start delaying interest payments on U.S. debt (which could potentially happen as soon as November), that would be absolutely catastrophic.

Once again, just don’t take my word for it.  The following are 12 very ominous warnings about what a U.S. debt default would mean for the global economy…

#1 Gerald Epstein, a professor of economics at the University of Massachusetts Amherst: “If the US does default, that will make the Lehman Brothers bankruptcy look like a cakewalk”

#2 Tim Bitsberger, a former Treasury official under President George W. Bush: “If we miss an interest payment, that would blow Lehman out of the water”

#3 Peter Tchir, founder of New York-based TF Market Advisors: “Once the system starts to break down related to settlement and payments, then liquidity disappears, as we saw after Lehman”

#4 Bill Isaac, chairman of Cincinnati-based Fifth Third Bancorp: “We can’t even imagine all the things that might happen, just like Henry Paulson couldn’t imagine all the bad things that might happen if he let Lehman go down”

#5 Jim Grant, founder of Grant’s Interest Rate Observer: “Financial markets are all confidence-based. If that confidence is shaken, you have disaster.”

#6 Richard Bove, VP of research at Rafferty Capital Markets: “If they seriously default on the debt, what we’re really talking about is a depression”

#7 Chinese vice finance minister Zhu Guangyao: “The U.S. is clearly aware of China’s concerns about the financial stalemate [in Washington] and China’s request for the US to ensure the safety of Chinese investments.”

#8 The U.S. Treasury Department: “A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse”

#9 Goldman Sachs: “We estimate that the fiscal pull-back would amount to 9pc of GDP. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed quickly”

#10 Simon Johnson, former chief economist for the IMF: “It would be insane to default, but it’s no longer a zero-percent probability”

#11 Warren Buffett about the potential of a debt default: “It should be like nuclear bombs, basically too horrible to use”

#12 Bloomberg: “Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.”

A U.S. debt default could be the trigger for the “nightmare scenario” that so many people have been writing about in recent years.  In fact, it could greatly accelerate the timetable for the inevitable economic collapse that is coming.  A recent Yahoo article described some of the things that we would likely see in the event of an extended U.S. debt default…

A default would upend money markets, destroy bond funds, slam the brakes on lending, cause interest rates to spiral, make our banks insolvent, and deal a blow to our foreign trading partners and creditors around the globe; all of which would throw the U.S. and the world into economic disarray.

And of course stocks would crash big time.  Deutsche Bank’s David Bianco believes that if the U.S. government starts missing interest payments on U.S. Treasury bonds, we could see the S&P 500 go down to 850 by the end of the year.

There would be almost immediate panic among ordinary Americans as well.  In fact, it is being reported that some banks are already stuffing their ATM machines will extra cash just in case…

With just 10 days left to raise the debt ceiling and congressional Republicans threatening to force the government to default on its obligations, banks are taking some dramatic steps to prepare for the economic chaos that would result should the brinkmanship continue.

The Financial Times reports that one major U.S. bank has started stuffing its automatic teller machines with extra cash in preparation for a possible bank run from panicked depositors. The New York Times reports that another bank is weighing a plan to advance funds to customers who rely on Social Security and other government payments that could stop in the event of a default.

Let’s hope that cooler heads will prevail and that a U.S. debt default will be avoided.

Unfortunately, it appears that the Democrats are absolutely determined not to be moved from their current position a single inch.  They have decided to refuse to negotiate and demand that the Republicans give them every single thing that they want.

And who can really blame them for adopting that strategy?  After all, it has certainly worked in the past.  Whenever Democrats have stood united and have refused to give a single inch, the Republicans have always freaked out and caved in eventually.

Will this time be any different?

The funny thing is that once upon a time, Barack Obama was adamantly against any increase in the debt limit.  The following comes courtesy of Zero Hedge

Obama Debt Ceiling

But now Obama says that it is so unreasonable to be opposed to a debt limit increase that any negotiations are out of the question.

So which Obama is right?

If the Democrats will not negotiate, a debt default could still be avoided if the Republicans give in.

And that is what they always do, right?

Perhaps not this time.  Just check out what John Boehner had to say on Sunday

“I, working with my members, decided to do this in a unified way,” the speaker said — with demands to defund, delay or otherwise alter the Affordable Care Act.

Boehner had expected that the Obamacare fight would come during the next vote to raise the debt ceiling, “but, you know, working with my members, they decided, let’s do it now,” he said. “And the fact is, this fight was going to come, one way or another. We’re in the fight. We don’t want to shut the government down. We’ve passed bills to pay the troops. We passed bills to make sure the federal employees know that they’re going to be paid throughout this.”

“You’ve never seen a more dedicated group of people who are thoroughly concerned about the future of our country,” he said of House Republicans. “It is time for us to stand and fight.”

But will the Republicans really stand and fight?

In the past, betting on the intestinal fortitude of the Republican Party has been a loser every single time.

So we’ll see.  Boehner insists that this time is different.  Boehner insists that he is not going to fold like a 20 dollar suit this time.  In fact, when he was asked if the U.S. government was headed toward a debt default if Obama continued to refuse to negotiate, Boehner made the following statement

“That’s the path we’re on.”

The mainstream media has certainly been placing most of the blame at the feet of the Republicans, but at least the U.S. House of Representatives has been trying to get an agreement reached.  The House has voted 26 times since the Senate last voted.  Harry Reid has essentially shut the Senate down until the Republicans fold and give the Democrats exactly what they want.

The funny thing is that this could probably be solved very easily.  If the Democrats agreed to a one year delay to the individual mandate, the Republicans would probably jump at it.  And because of epic technical failures, hardly anyone has been able to get signed up for Obamacare anyway.  So a one year delay would give the Obama administration time to get their act together.

Unfortunately, the Democrats seem absolutely obsessed with the idea that they will not give the Republicans one single inch.  They seem to believe that this will be to their political benefit.

But this is a very dangerous game that they are playing.  The U.S. government must roll over 441 billion dollars of short-term debt between October 18th and November 15th.

If a debt ceiling increase is not in place by that time, it will send interest rates soaring.  Borrowing costs for state and local governments, corporations, and ordinary Americans will go through the roof and economic activity will be hit really hard.

And as detailed above, we could potentially be looking at a financial crash that would make 2008 look like a Sunday picnic.

So let us hope for a political solution soon.  That will at least kick the can down the road for a little bit longer.

If a debt default were to happen before the end of this year, that would bring a tremendous amount of future economic pain into the here and now, and the consequences would likely be far greater than any of us could possibly imagine.

Those That Are Not Preparing For The Coming Economic Depression Are Going To Bitterly Regret It

RegretThe next great economic crisis is rapidly approaching, and most people are going to be totally blindsided by it.  Even though the warning signs are glaringly obvious, most Americans continue to believe that our “leaders” know what they are doing and that everything will be just fine.  But what will happen when the next great financial crash happens and trillions of dollars of “paper wealth” disappear into thin air?  What will happen when the coming credit crunch causes economic activity to dramatically slow down and millions upon millions of people lose their jobs?  This shouldn’t sound far-fetched to you.  Remember, this is exactly the kind of thing that we saw back in 2008, and the next great financial crisis is likely going to be significantly worse.  Our economy is in far worse shape than it was back in 2008, and government dependence is now at an all-time high even though most Americans are still enjoying debt-fueled false prosperity.  We are living in the largest debt bubble in the history of the planet, and when it bursts we are going to experience a crippling “adjustment” to our standard of loving.  Some people understand this and are busy preparing for what is ahead.  It has been estimated that there are approximately 3 million “preppers” in the United States, and that number is growing all the time.  Unfortunately, most Americans are not preparing for the coming economic depression and they are going to bitterly regret it.

So what does preparing for the coming economic depression look like?

Well, it doesn’t have to be complicated.  Most of the things that you should do are just common sense.

But there are some people that take things to extremes.  For example, a new National Geographic series is featuring a family that is actually constructing a “Doomsday Castle“.  The former U.S. Army officer that is building this unusual home is trying to prepare for virtually every type of disaster that he can imagine

Meet Brent Sr., the leader of the six-person family. Brent is a former Army Infantry Training Officer who is heading up the project to build an “EMP (electromagnetic pulse)-proof medieval castle in the woods of the Carolinas.”

According to National Geographic, Brent is teaching five of his 10 children survival skills.

The unfinished, fortified castle that Brent Sr. is building — an idea he got during the Y2K prep craze — will be able to sustain an EMP-event that could wipe out a power grid, but will also survive natural disasters like hurricanes.

He even plans to train his family members to use crossbows and a catapult to defend against potential home invaders.

Not many people out there are going to take “prepping” to such extremes.

But even if you don’t plan to build a “Doomsday Castle”, that doesn’t mean that you should be doing nothing.

Sadly, most Americans are quite ill-prepared for a major economic downturn at this point.  In fact, most Americans seem to be doing almost nothing to prepare.

Just consider the following statistics.  Most of these numbers come from one of my previous articles

-According to a survey that was recently released, 76 percent of all Americans are living paycheck to paycheck.

46 percent of all Americans have less than $800 in savings.

27 percent of all Americans do not have even a single penny saved up.

-Less than one out of every four Americans has enough money stored away to cover six months of expenses.

-Each year, 12 million Americans take out high interest payday loans.

-In 1989, the debt to income ratio of the average American family was about 58 percent.  Today it is up to 154 percent.

-It is estimated that less than 10 percent of the U.S. population owns any gold or silver for investment purposes.

44 percent of all Americans do not have first-aid kits in their homes.

48 percent of all Americans do not have any emergency supplies stored up.

53 percent of all Americans do not have a 3 day supply of nonperishable food and water in their homes.

One survey asked Americans how long they thought they would survive if the electrical grid went down for an extended period of time.  Incredibly, 21 percent said that they would survive for less than a week, an additional 28 percent said that they would survive for less than two weeks, and nearly 75 percent said that they would be dead before the two month mark.

Those numbers are absolutely appalling.

When the system fails, most people are going to be completely blindsided by it and millions upon millions of people are going to absolutely freak out.

Don’t let that happen to you.

So what are some basic things that you can do to get prepared for the great economic storm that is coming?

The following are a few of the things that Nicole Foss suggests…

1) Hold no debt (for most people this means renting)

2) Hold cash and cash equivalents (short term treasuries) under your own control

3) Don’t trust the banking system, deposit insurance or no deposit insurance

4) Sell equities, real estate, most bonds, commodities, collectibles (or short if you can afford to gamble)

5) Gain some control over the necessities of your own existence if you can afford it

6) Be prepared to work with others as that will give you far greater scope for resilience and security

7) If you have done all that and still have spare resources, consider precious metals as an insurance policy

8) Be worth more to your employer than he is paying you

9) Look after your health!

I think all of those are great pieces of advice.

In addition, below I have posted some of the things that I personally recommend.  The following is an excerpt from one of my previous articles entitled “25 Things That You Should Do To Get Prepared For The Coming Economic Collapse“…

#1 An Emergency Fund

Do you remember what happened when the financial system almost collapsed back in 2008?  Millions of Americans suddenly lost their jobs, and because many of them were living paycheck to paycheck, many of them also got behind on their mortgages and lost their homes.  You don’t want to lose everything that you have worked for during this next major economic downturn.  It is imperative that you have an emergency fund.  It should be enough to cover all of your expenses for at least six months, but I would encourage you to have an emergency fund that is even larger than that.

#2 Don’t Put All Of Your Eggs Into One Basket

If the wealth confiscation in Cyprus has taught us anything, it is that we should not put all of our eggs in one basket.  If all of your money is in one single bank account, it would be easy to wipe out.  But if you have your money scattered around a number of different places it will give you a little bit more security.

#3 Keep Some Cash At Home

This goes along with the previous point.  While it is not wise to keep all of your money at home, you do want to keep some cash on hand.  If there is an extended bank holiday or if a giant burst from the sun causes the ATM machines to go down, you want to be able to have enough cash to buy the things that your family needs.  Just ask the people of Cyprus how crippling a bank holiday can be.  One way to keep your cash secure at home is by storing it in a concealed safe.

#4 Get Out Of Debt

A lot of people seem to assume that an economic collapse would wipe out all debts, but that will probably not be the case.  In fact, if you are in a tremendous amount of debt you will be very vulnerable if the economy collapses and you are not able to find a job.  Just ask the people who were overextended and lost their jobs during the last recession.  So please get out of debt.  Many debt collectors are becoming increasingly ruthless.  In many areas of the country they are now routinely putting debtors into prison.  You do not want to be a slave to debt when the next wave of the economic collapse strikes.

#5 Gold And Silver

In the long-term, the U.S. dollar is going to lose a tremendous amount of value and inflation is going to absolutely skyrocket.  That is one reason why so many people are investing very heavily in gold, silver and other precious metals.  All over the globe, the central banks of the world are recklessly printing money.  Everyone knows that this is going to end very badly.  In fact, there is already a push in more than a dozen U.S. states to allow gold and silver coins to be used as legal tender.  Someday you will be glad that you invested in gold and silver now while their prices were still low.

#6 Reduce Your Expenses

A lot of people claim that they can’t put any money toward prepping, but the truth is that we all have room to reduce our expenses.  We all spend money on things that we do not really need.  Those that are “lean and mean” will tend to do much better during the times that are coming.

#7 Start A Side Business

If you do not have much money, a great way to increase your income is by starting a side business.  And it does not take a lot of money – there are many side businesses that you can start for next to nothing.  And starting a side business will allow you to become less dependent on your job.  In this economic environment, a job could disappear at literally any time.

#8 Move Away From The Big Cities If Possible

For many people, this is simply not possible.  Many Americans are still completely and totally dependent on their jobs.  But if you are able, now is a good time to move away from the big cities.  When the next major economic downturn strikes, there will be rioting and a dramatic rise in crime in the major cities.  If you are able to move to a more rural area you will probably be in much better shape.

#9 Store Food

Global food reserves have reached their lowest level in nearly 40 years.  As the economy gets even worse and global weather patterns become even more unstable, the price of food will go much higher and global food supplies will become much tighter.  In the long run, you will be glad for the money that you put into long-term food storage now.

#10 Learn To Grow Your Own Food

This is a skill that most Americans possessed in the past, but that most Americans today have forgotten.  Growing your own food is a way to become more independent of the system, and it is a way to get prepared for what is ahead.

#11 Nobody Can Survive Without Water

Without water, you would not even make it a few days in an emergency situation.  It is imperative that you have a plan to provide clean drinking water for your family when disaster strikes.

#12 Have A Plan For When The Grid Goes Down

What would you do if the grid went down and you suddenly did not have power for an extended period of time?  Anyone that has spent more than a few hours without power knows how frustrating this can be.  You need to have a plan for how you are going to provide power to your home that is independent of the power company.

#13 Have Blankets And Warm Clothing On Hand

This is more for emergency situations or for a complete meltdown of society.  During any major crisis, blankets and warm clothing are in great demand.  They also could potentially make great barter items.

#14 Store Personal Hygiene Supplies

A lot of preppers store up huge amounts of food, but they forget all about personal hygiene supplies.  During a long crisis, these are items that you would greatly miss if you do not have them stored up.  These types of supplies would also be great for barter.

#15 Store Medicine And Medical Supplies

You will also want to store up medical supplies and any medicine that you may need.  In an emergency situation, you definitely would not want to be without bandages and a first-aid kit.  Over the course of a long crisis, you do not want to run out of any medicines that are critical for your health.

#16 Stock Up On Vitamins

A lot of preppers do not think about this either, but it is very important.  These days, it is becoming increasingly difficult to get adequate nutrition from the foods that we eat.  That is why it is very important to have an adequate store of vitamins and other supplements.

#17 Make A List Of Other Supplies That You Will Need

During any crisis, there will be a lot of other things that you will need in addition to food and water.  The following are just a few basic things that it would be wise to have on hand…

– an axe

– a can opener

– flashlights

– battery-powered radio

– extra batteries

– lighters or matches

– fire extinguisher

– sewing kit

– tools

This list could be much, much longer, but hopefully this will get you started.

#18 Don’t Forget The Special Needs Of Your Babies And Your Pets

Young children and pets have special needs.  As you store supplies, don’t forget about the things that they will need as well.

#19 Entertainment

This may sound trivial, but the truth is that our entertainment-addicted society would become very bored and very frustrated if the grid suddenly went down for an extended period of time.  Card games and other basic forms of entertainment can make enduring a crisis much easier.

#20 Self-Defense

In the years ahead, being able to defend your home and your family is going to become increasingly important.  When the economy crashes, people are going to start to become very desperate.  And desperate people do desperate things.

#21 Get Your Ammunition While You Still Can

Your firearms will not do you much good if you do not have ammunition for them.  Already there are widespread reports of huge ammunition shortages.  The following is from a recent CNS News article

“The run on ammunition has manufacturers scrambling to accommodate demand and reassure customers, as many new and seasoned gun owners stock up over fears of new firearms regulations at both the state and federal levels.”

Don’t just assume that you will always be able to purchase large amounts of ammunition whenever you want.  Get it now while you still can.

#22 If You Have To Go…

Have a plan for what you and your family will do if you are forced to leave your home.  If you do have to go, the following are some items that you will want to have on hand…

– a map of the area

– a compass

– backpacks for every member of the family

– sleeping bags

– warm clothing

– comfortable shoes or hiking boots

#23 Community

One of the most important assets in any crisis situation is community.  If you have friends or neighbors that you can depend upon, that is invaluable.  The time spent building those bonds now will pay off greatly during a major crisis.

#24 Have A Back-Up Plan And Be Flexible

Mike Tyson once said the following…

“Everyone has a plan until they get punched in the mouth.”

No plan ever unfolds perfectly.  When your plan is disrupted, what will you do?

It will be imperative for all of us to have a back-up plan and to be flexible during the years ahead.

#25 Keep Your Prepping To Yourself

Do not go around and tell everyone in the area where you live about your prepping.  If you do, then you may find yourself overwhelmed with “visitors” when everything falls apart.

And please do not go on television and brag about your prepping to a national audience.

Prepping is something that you want to keep to yourself, unless you want hordes of desperate people banging on your door in the future.

*****

For much more on prepping, I would encourage you to check out the dozens of excellent websites out there that teach people advanced prepping techniques for free.

So what do you think about all of this?

Are you getting prepared for the coming economic depression?

Please feel free to share your perspective on prepping by posting a comment below…