The price of oil collapsed by more than 8 percent on Wednesday, and a decision by the European Central Bank has Greece at the precipice of a complete and total financial meltdown. What a difference 24 hours can make. On Tuesday, things really seemed like they were actually starting to get better. The price of oil had rallied by more than 20 percent since last Thursday, things in Europe seemed like they were settling down, and there appeared to be a good deal of optimism about how global financial markets would perform this month. But now fear is back in a big way. Of course nobody should get too caught up in how the markets behave on any single day. The key is to take a longer term point of view. And the fact that the markets have been on such a roller coaster ride over the past few months is a really, really bad sign. When things are calm, markets tend to steadily go up. But when the waters start really getting choppy, that is usually a sign that a big move down in on the horizon. So the huge ups and the huge downs that we have witnessed in recent days are likely an indicator that rough seas are ahead.
A stunning decision that the European Central Bank has just made has set the stage for a major showdown in Europe. The ECB has decided that it will no longer accept Greek government bonds as collateral from Greek banks. This gives the European Union a tremendous amount of leverage in negotiations with the new Greek government. But in the short-term, this could mean some significant pain for the Greek financial system. The following is how a CNBC article described what just happened…
“The European Central Bank is telling the Greek banking system that it will no longer accept Greek bonds as collateral for any repurchase agreement the Greek banks want to conduct,” said Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.
“This is because the ECB only accepts investment grade paper and up until today gave Greece a waiver to this clause. That waiver has now been taken away and Greek banks now have to go to the Greek Central Bank and tap their Emergency Liquidity Assistance facility for funding,” he said.
And if the new Greek government will not submit to the demands of the EU, and Greece ultimately ends up leaving the common currency, it could potentially mean the end of the eurozone in the configuration that we see it today.
Meanwhile, the oil crash has taken a dangerous new turn.
This kind of erratic behavior is the exact opposite of what a healthy market would look like.
What we really need is a slow, steady climb which would take the price of oil back to at least the $80 level. In the current range in which it has been fluctuating, the price of oil is going to be absolutely catastrophic for the global economy, and the longer it stays in this current range the more damage that it is going to do.
But of course the problems that we are facing are not just limited to the oil price crash and the crisis in Greece. The truth is that there are birth pangs of the next great financial collapse all over the place. We just have to be honest with ourselves and realize what all of these signs are telling us.
And it isn’t just in the western world where people are sounding the alarm. All over the world, highly educated professionals are warning that a great storm is on the horizon. The other day, I had an economist in Germany write to me with his concerns. And in China, the head of the Dagong Rating Agency is declaring that we are going to have to face “a new world financial crisis in the next few years”…
The world economy may slip into a new global financial crisis in the next few years, China’s Dagong Rating Agency Head Guan Jianzhong said in an interview with TASS news agency on Wednesday.
“I believe we’ll have to face a new world financial crisis in the next few years. It is difficult to give the exact time but all the signs are present, such as the growing volume of debts and the unsteady development of the economies of the US, the EU, China and some other developing countries,” he said, adding the situation is even worse than ahead of 2008.
For a long time, I have been pointing at the year 2015. But this year is not going to be the end of anything. Rather, it is just going to be the beginning of the end.
During the past few years, we have experienced a temporary bubble of false stability fueled by reckless money printing and an unprecedented accumulation of debt. But instead of fixing anything, those measures have just made the eventual crash even worse.
Now a day of reckoning is fast approaching.
Life as we know it is about to change dramatically, and most people are completely and totally unprepared for it.
Radical leftists have been catapulted to power in Greece, and that means that the European financial crisis has just entered a dangerous new phase. Syriza, which is actually an acronym for “Coalition of the Radical Left” in Greek, has 36 percent of the total vote with approximately 80 percent of the polling stations reporting. The current governing party, New Democracy, only has 28 percent of the vote. Syriza leader Alexis Tsipras is promising to roll back a whole host of austerity measures that were imposed on Greece by the EU, and his primary campaign slogan was “hope is on the way”. Hmmm – that sounds a bit familiar. Clearly, the Greek population is fed up with the EU after years of austerity and depression-like conditions. At this point, the unemployment rate in Greece is sitting at 25.8 percent, and the Greek economy is approximately 25 percent smaller than it was just six years ago. The people of Greece are desperate for things to get better, and so they have turned to the radical leftists. Unfortunately, things may be about to get a whole lot worse.
Once they formally have control of the government, Syriza plans to call for a European debt conference during which they plan to demand that the repayment terms of their debts be renegotiated. But the rest of Europe appears to be highly resistant to any renegotiation – especially Germany.
Syriza says that it does not plan to unilaterally pull Greece out of the eurozone, and that it also intends for Greece to continue to use the euro.
But what happens if Germany will not budge?
Syriza’s entire campaign was based on promises to end austerity. If international creditors refuse to negotiate and continue to insist that Greece abide by the austerity measures that were previously put in place, what will Syriza do?
Will Syriza back down and lose all future credibility with Greek voters?
Since 2010, the Greek people have endured a seemingly endless parade of wage reductions, pension cuts, tax increases and government budget cutbacks.
The Greek people just want things to go back to the way that they used to be, and they are counting on Syriza to deliver.
Unfortunately for Syriza, delivering on those promises is not going to be easy. They may be faced with a choice of either submitting to the demands of their international creditors or choosing to leave the eurozone altogether.
And if Greece does leave the eurozone, the consequences for all of Europe could be catastrophic…
Syriza risks overplaying its hand, said International Capital Strategies’ Rediker. “Given that the ECB controls the liquidity of the Greek banking system, and also serves as its regulator through the SSM (Single Supervisory Mechanism), going toe-to-toe with the ECB is one battle that could end very badly for the Greek government.”
If the ECB were to stop funding the liquidity of the Greek banks, the banks could collapse—an event that could lead to Greece abandoning the euro and printing its own money once more.
Milios didn’t believe it would come to that, saying, “No one wants a collapse of banks in the euro zone. This is going to be Lehman squared or to the tenth. No one wants to jeopardize the future of the euro zone.”
Hopefully cooler heads will prevail, because one bad move could set off a meltdown of the entire European financial system.
Even before the Greek election, the euro was already falling like a rock and economic conditions all over Europe were already getting worse.
So why would the Greeks risk pushing Europe to the brink of utter disaster?
Well, it is because economic conditions in Greece have been absolutely hellish for years and they are sick and tired of it.
For example, the BBC is reporting that many married women have become so desperate to find work in Greece that they are literally begging to work in brothels…
Some who have children and are struggling to support them have turned to sex work, to put food on the table.
Further north, in Larissa, Soula Alevridou, who owns a legal brothel, says the number of married women coming to her looking for work has doubled in the last five years.
“They plead and plead but as a legal brothel we cannot employ married women,” she says. “It’s illegal. So eventually they end up as prostitutes on the streets.”
When people get this desperate, they do desperate things – like voting radical leftists into power.
But Greece might just be the beginning. Surveys show that the popularity of the EU is plummeting all over Europe. Just check out the following excerpt from a recent Telegraph article…
Europe is being swept by a wave of popular disenchantment and revolt against mainstream political parties and the European Union.
In 2007, a majority of Europeans – 52 per cent – trusted the EU. That level of trust has now fallen to a third.
Once, Britain’s Euroscepticism was the exception, and was seen as the biggest threat to the future of the EU.
Now, other countries pose a far bigger danger thanks to the political discontents unleashed by the euro.
At this point, the future of the eurozone is in serious jeopardy.
I have a feeling that major changes in Europe are on the way which are going to shock the planet.
Meanwhile, the rest of the globe continues to slide toward another major financial crisis as well.
So many of the things that preceded the last financial crisis are happening once again. This includes a massive crash in the price of oil. Most people have absolutely no idea how critical the price of oil is to global financial markets. I like how Gerald Celente put it during an interview the other day…
I began getting recognition as a trend forecaster in 1987. The Wall Street Journal covered my forecast. I said, ‘1987 would be the year it all collapses.’ I said, ‘There will be a stock market crash.’ One of the fundamentals I was looking at were the crashing oil prices in 1986.
Well, we see crashing oil prices today and the banks are much more concentrated and levered up in the oil patch than they were in 1987. From Goldman Sachs to Morgan Stanley banks have been involved in major debt financing, derivatives and energy transactions. But much of this debt has not been sold to investors and now we are going to start seeing some big defaults.
By itself, the Greek election would be a significant crisis.
But combined with all of the other economic and geopolitical problems that are erupting all over the planet, it looks like the conditions for a “perfect storm” are rapidly coming together.
Unfortunately, the overall global economy is in far worse shape today than it was just prior to the last major financial crisis.
This time around, the consequences might just be far more dramatic than most people would ever dare to imagine.
The rest of the world has found out that the U.S. government has been listening to their phone calls and watching what they do on the Internet and they do not like it one bit. Outrage has been pouring in from all over the planet, and one member of the European Parliament is even comparing the NSA to the Stasi. But instead of stepping back and reevaluating our Big Brother spying methods now that they have been revealed, Barack Obama and other leading members of Congress are defiantly declaring that there is nothing wrong with these methods and that no changes will be made. The U.S. government is going to continue to invade the privacy of the citizens of the rest of the world as much as it possibly can, and our leaders don’t seem to really care what the international response is. And make no mistake – the goal of the U.S. intelligence community is to literally know everything about everyone. The chief technology officer of the CIA, Gus Hunt, made the following shocking admission back in March: “We fundamentally try to collect everything and hang onto it forever.” He followed that statement up with this gem: “It is really very nearly within our grasp to be able to compute on all human-generated information.” In other words, they want it all, and they nearly have the capacity to gather it all already. So where does this end? Will the U.S. intelligence community ever be happy until they have every piece of data on every single person on the entire planet? Do we really want a government that collects “everything” and hangs on to it “forever”?
Thanks to Edward Snowden, the rest of the globe is starting to understand the extent to which the U.S. government has been spying on them. Needless to say, a lot of people are extremely upset about this.
In Germany (a country that knows a thing or two about Big Brother tactics), some prominent politicians are publicly denouncing the surveillance that the U.S. government has been doing on their citizens. In fact, one German politician has accused the U.S. of employing “American-style Stasi methods”…
In a guest editorial for Spiegel Online on Tuesday, Justice Minister Sabine Leutheusser-Schnarrenberger said reports that the United States could access and track virtually all forms of Internet communication were “deeply disconcerting” and potentially dangerous.
“The more a society monitors, controls and observes its citizens, the less free it is,” she said.
“The suspicion of excessive surveillance of communication is so alarming that it cannot be ignored. For that reason, openness and clarification by the U.S. administration itself is paramount at this point. All facts must be put on the table.”
Markus Ferber, a member of Merkel’s Bavarian sister party who sits in the European Parliament, went further, accusing Washington of using “American-style Stasi methods”.
In Italy, the government official in charge of data protection, Antonello Soro, said that the surveillance that the NSA is doing “would not be legal in Italy” and would be “contrary to the principles of our legislation and would represent a very serious violation”.
In Russia (another country with a long history of using Big Brother tactics), President Vladimir Putin has expressed significant concern about the NSA spying program and there are even rumors that Russia will be offering asylum to Edward Snowden…
Alexey Pushkov, head of the Duma’s international affairs committee and a vocal US critic, said on Twitter: “By promising asylum to Snowden, Moscow has taken upon itself the protection of those persecuted for political reasons. There will be hysterics in the US. They only recognise this right for themselves.”
He continued: “Listening to telephones and tracking the internet, the US special services broke the laws of their country. In this case, Snowden, like Assange, is a human rights activist.”
But even more important than what foreign politicians think about the NSA spying scandal is what average people all over the globe think. This scandal is causing millions of average people all over the planet to look at the United States with disgust and disdain. How can we hold ourselves out as the “defenders of freedom” to the rest of the globe when we are openly telling them that we are going to spy on them as much as we possibly can? How do we expect the rest of the world to look at us as “the good guys” when we are selfishly grabbing and recording all of their emails, phone calls and Internet searches without any concern for their privacy whatsoever?
What makes all of this even worse is that our top intelligence officials are making jokes about this scandal. For example, just check out the wisecracks that the Director of National Intelligence, James Clapper, was making at an awards ceremony on Friday…
With the current and past directors of national intelligence at the Omni Shoreham to honor former CIA and National Security Agency chief Michael Hayden, the result in speeches and interviews with intel professionals was a gumbo of outrage, worry and humor.
Director of National Intelligence James Clapper told the black-tie crowd of more than 700 he would “address the elephant in the room” and proceeded, to applause, to denounce “the unauthorized leaks as reprehensible and egregious.” Clapper characterized the program as completely legal, debated and reauthorized by Congress under strict oversight and by court order “to make our nation safe and secure.”
He then cracked a few jokes. “Some of you expressed surprise that I showed up—so many emails to read!” Clapper said. Greeting fellow banqueter John Pistole, the administrator of the Transportation Security Administration who recently reversed a planned policy to permit air travelers to carry certain knives on planes, Clapper said, “John, can I borrow your pocket knife?”
How in the world can he make a joke about reading our emails at a time like this?
This is how arrogant the U.S. intelligence community has become. They feel like they can do whatever they want and get away with it.
For example, back in March Clapper flat out lied to the U.S. Congress about the surveillance that the NSA is doing. When he was asked by Senator Ron Wyden if the NSA was collecting any information on the American people, Clapper completely denied it.
“Does the NSA collect any type of data at all on millions or hundreds of millions of Americans?” Oregon Republican Sen. Ron Wyden asked Clapper at the March 12 hearing.
“No, sir,” Clapper responded.
“It does not?” Wyden pressed.
Clapper recanted and said: “Not wittingly. There are cases where they could, inadvertently perhaps, collect — but not wittingly.”
Apparently Clapper must have “forgotten” that the government is forcing all of the big telephone companies to turn over all of their call records to the NSA every single month.
And you know what? The truth is that the government is not just collecting “metadata” about our phone calls. The content of our calls is being recorded and stored as well. Just check out this story from the Blaze…
Hollywood actor Shia LaBeouf in 2008 during an appearance on the Tonight Show with Jay Leno detailed how he learned phone calls were allegedly being recorded.
Promoting the film “Eagle Eye,” which according to IMDb shows how “technology of everyday life [is used] to track and control,” LaBeouf told Leno that an FBI consultant for the movie said one in five phone calls made are recorded and logged.
“And I laughed at him,” LaBeouf said.
“And then he played back a phone conversation I’d had two years prior to joining the picture,” LaBouf continued.
Both Leno and LaBeouf concluded it was “extremely creepy.”
The American people, along with the people of the entire planet, deserve the truth about this.
Unfortunately, Barack Obama is certainly not going to tell us the truth, and there will probably only be a half-hearted effort by some members of Congress to get to the bottom of things.
That is why it is going to be important to take this to court, and thankfully a couple of lawsuits are already in the works.
Former Justice Department prosecutor Larry Klayman amended an existing lawsuit against Verizon and a slew of Obama administration officials Monday to make it the first class-action lawsuit in response to the publication of a secret court order instructing Verizon to hand over all phone records of millions of American customers on an “ongoing, daily basis.”
Klayman told U.S. News he will file a second class-action lawsuit Wednesday in the U.S. District Court for the District of Columbia targeting government officials and each of the nine companies listed in a leaked National Security Agency slideshow as participants in the government’s PRISM program.
And according to USA Today, the ACLU has also filed a lawsuit…
National Security Agency surveillance programs came under more scrutiny Tuesday as the American Civil Liberties Union filed a lawsuit and a prominent senator and Internet giant Google called on the Obama administration to disclose more information.
In its lawsuit, the ACLU said an NSA program that harvests phone calls violates the rights of all Americans.
“The program goes far beyond even the permissive limits set by the Patriot Act and represents a gross infringement of the freedom of association and the right to privacy,” said Jameel Jaffer, the ACLU’s deputy legal director.
Hopefully these lawsuits will reveal more details about the spying that has been taking place.
There is also a “bipartisan coalition” of 86 Internet companies and civil liberties organizations that have sent a letter to Congress demanding action on these issues. You can read the full letter right here. Some of the organizations involved include the Electronic Frontier Foundation, Reddit, Mozilla, FreedomWorks, and the Center for Digital Democracy.
Will Congress listen to them?
But at least they are trying to do something about this.
The key will be to get the American people outraged enough about all of this that they won’t forget about it in a week or two. And that is not an easy thing to do.
There have been a couple of public opinion polls taken over the past few days that show some very curious results. A Rasmussen survey found that 59 percent of Americans are against the government secretly collecting our phone records and only 26 percent are in favor. But a Washington Post survey found that 56 percent of Americans consider the collecting of our phone records to be “acceptable” and only 41 percent consider the practice to be “unacceptable”.
How could those two surveys get such wildly different results?
A lot of it is in the way that they ask the questions.
In the end, our politicians don’t really care too much about what the general public thinks anyway. They are just going to continue to do what they have been doing and the rest of the world will continue to become even more disgusted with us.
We are recklessly destroying our global reputation and our leaders do not even seem to care. But someday America will need some friends, and when that day arrives we may find that we don’t have too many left.
What would you do if you woke up one day and discovered that the banksters had “legally” stolen about 80 percent of your life savings? Most people seem to assume that most of the depositors that are getting ripped off in Cyprus are “Russian oligarchs” or “wealthy European tycoons”, but the truth is that they are only just part of the story. As you will see below, there are small businesses and aging retirees that have been absolutely devastated by the wealth confiscation that has taken place in Cyprus. Many businesses can no longer meet their payrolls or pay their bills because their funds have been frozen, and many retirees have seen retirement plans that they have been working toward for decades absolutely destroyed in a matter of days. Sometimes it can be hard to identify with events that are happening on the other side of the globe, but I want you to try to put yourself into their shoes for a few minutes. How would you feel if something like this happened to you?
For example, just consider the case of one 65-year-old retiree that has had his life savings totally wiped out by the “wealth tax” in Cyprus. His very sad story was recently featured by the Sydney Morning Herald…
”Very bad, very, very bad,” says 65-year-old John Demetriou, rubbing tears from his lined face with thick fingers. ”I lost all my money.”
John now lives in the picturesque fishing village of Liopetri on Cyprus’ south coast. But for 35 years he lived at Bondi Junction and worked days, nights and weekends in Sydney markets selling jewellery and imitation jewellery.
He had left Cyprus in the early 1970s at the height of its war with Turkey, taking his wife and young children to safety in Australia. He built a life from nothing and, gradually, a substantial nest egg. He retired to Cyprus in 2007 with about $1 million, his life savings.
He planned to spend it on his grandchildren – some of whom live in Cyprus – putting them through university and setting them up. There would be medical bills; he has a heart condition. The interest was paying for a comfortable retirement, and trips back to Australia. He also toyed with the idea of buying a boat.
He wanted to leave any big purchases a few years, to be sure this was where he would spend his retirement. There was no hurry. But now it is all gone.
”If I made the decision to stay, I was going to build a house,” John says. ”Unfortunately I didn’t make the decision yet.
”I went to sleep Friday as a rich man. I woke up a poor man.”
How would you feel if you suddenly lost almost everything that you have been working for your entire life?
And many small and mid-size businesses have been ruined by the bank account confiscation that has taken place in Cyprus.
The following is a bank account statement that was originally posted on a Bitcoin forum that has gone absolutely viral all over the Internet. One medium size IT business has lost a staggering amount of money because of the “bail-in” that is happening in Cyprus…
The following is what the poster of this screenshot had to say about what this is going to do to his business…
Over 700k of expropriated money will be used to repay country’s debt. Probably we will get back about 20% of this amount in 6-7 years.
I’m not Russian oligarch, but just European medium size IT business. Thousands of other companies around Cyprus have the same situation.
The business is definitely ruined, all Cypriot workers to be fired.
We are moving to small Caribbean country where authorities have more respect to people’s assets. Also we are thinking about using Bitcoin to pay wages and for payments between our partners.
Special thanks to:
– Jeroen Dijsselbloem
– Angela Merkel
– Manuel Barroso
– the rest of officials of “European Comission”
And of course the truth is that those that have had their deposits frozen will be very fortunate to ever see any of that money ever again.
But just a few weeks ago, the Central Bank of Cyprus was swearing that nothing like this could ever possibly happen. Just check out the following memo from the Central Bank of Cyprus dated “11 February 2013″ that was recently posted on Zero Hedge…
Sadly, the truth is that the politicians will lie to you all the way up until the very day that they confiscate your money.
You can believe our “leaders” when they swear that nothing like this will ever happen in the United States, in Canada or in other European nations if you want.
But I don’t believe them.
In fact, as an outstanding article by Ellen Brown recently detailed, the concept of a “bail-in” for “systemically important financial institutions” has been in the works for a long time…
Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.
If you do not believe that what just happened in Cyprus could happen in the United States, you need to read the rest of her article. The following is an extended excerpt from that article…
Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.
The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.” It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:
An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.
No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a “resolution process,” defined elsewhere as a plan that “would be triggered in the event of the failure of an insurer . . . .” The only mention of “insured deposits” is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.
You can find the rest of her excellent article right here. I would encourage everyone to especially pay attention to what she has to say about derivatives.
Sadly, what is happening in Cyprus right now is just the continuation of a trend. In recent years, governments all over the world have turned to the confiscation of private wealth in order to solve their financial problems. The following examples are from a recent article posted on Deviant Investor…
October 2008 – Argentina’s leftist government, facing a gigantic revenue shortfall, proposes to nationalize all private pensions so as to meet national debt payments and avoid its second default in the decade.
November 2010 – Headline – Hungary Gives Its Citizens an Ultimatum: Move Your Private Pension Fund Assets to the State or Permanently Lose Your Pension – This is an effective nationalization of all pensions.
November 2010 – Ireland elects to appropriate ten billion euros from its National Pension Reserve Fund to help fund an eighty-five billion euro rescue package for its besieged banks. Ireland also moves to consider a regulatory move that compels some private Irish pension funds to hold more Irish government debt, thereby providing the state with a captive investor base but hugely raising the risk for savers.
December 2010 – France agrees to transfer twenty billion euros worth of assets belonging to its Fonds de Reserve pour les Retraites (FRR), the funded portion of its retirement system, to help pay off recurring social benefits costs. No pensioners are consulted.
April 2012 – Argentina announces that its Economy Ministry has taken an emergency loan from the national pension fund in the amount of $4.3 billion. No pensioners were consulted.
June 2012 – Treasury Secretary Timothy Geithner unilaterally appropriates $45 billion from US federal pension funds to help tide over US deficits for the remainder of fiscal year 2011.
January 2013 – Treasury Secretary Geithner again announces that the government has begun borrowing from the federal employees pension fund to keep operating without passing the approaching “fiscal cliff” debt limit. The move effectively creates $156 billion in borrowing authority from federal pension funds.
March 2013 – Open Bank Resolution finance minister, Bill English, is proposing a Cyprus style solution for potential New Zealand bank failures. The reserve bank is in the final stages of establishing a rescue scheme which will put all bank depositors on the hook for bailing out their banks. Depositors will overnight have their savings shaved by the amount needed to keep distressed banks afloat.
Can you see the pattern?
As I wrote about the other day, no bank account, no pension fund, no retirement account and no stock portfolio will be able to be considered 100% safe ever again.
And once the global derivatives casino melts down, there are going to be a lot of major banks that are going to need to be “bailed in”.
When that day arrives, they are going to try to come after your money.
So don’t leave your entire life savings sitting in a single bank – especially not one of the banks that has a tremendous amount of exposure to derivatives.
Hopefully we can get more people to wake up and realize what is happening. We are moving into a time of great financial instability, and what worked in the past is not going to work in the future.
If you still have money in European banks, you need to get it out. This is particularly true if you have money in southern European banks. As I write this, the final details of the Cyprus bailout are being worked out, but one thing has become abundantly clear: at least some depositors are going to lose a substantial amount of money. Personally, I never dreamed that they would go after private bank accounts in Europe, but now that this precedent has been set it should be apparent to everyone that no bank account will ever be considered 100% safe ever again. Without trust, a banking system simply cannot function, and right now there are prominent voices on both sides of the Atlantic that are loudly warning that trust in the European banking system has been shattered and that people need to get their money out of those banks as rapidly as they can. Even if you don’t end up losing a significant chunk of your money, you could still end up dealing with very serious capital controls that greatly restrict what you are able to do with your money. Just look at what is already happening in Cyprus. Cash withdrawals through ATMs have now been limited to 100 euros per day, and when the banks finally do reopen there will be strict limits on financial transactions in order to prevent a full-blown bank run. And of course anyone with half a brain will be trying to get as much of their money as they can out of those banks once they do reopen. So the truth is that the problems for Cyprus banks are just beginning. The size of the “bailout” that will be needed to keep those banks afloat will just keep getting larger and larger the more money that is withdrawn. Cyprus is heading for a complete and total banking meltdown, and because the economy of the island is so dependent on banking that means that the economy of the entire nation is going to collapse. Sadly, similar scenarios will soon start playing out all over Europe.
So if you hear that a “deal” has been reached to “bail out” Cyprus, please keep in mind that the economy of Cyprus is going to collapse no matter what happens. It is just a matter of apportioning the pain at this point.
According to the New York Times, it looks like much of the pain is going to be placed on the backs of those with deposits of over 100,000 euros…
The revised terms under discussion would assess a one-time tax of 20 percent on deposits above 100,000 euros at the Bank of Cyprus, which has the largest number of savings accounts on the island. Because the Bank of Cyprus suffered huge losses on bets that it took on Greek bonds, the government appears to be taking depositors’ money to help plug the hole.
A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.
Does that sound bad to you?
Well, if a deal is not reached, there is a possibility that those with uninsured deposits could lose everything. According to Ekathimerini, EU officials are telling Cyprus to choose between a “bad scenario” and a “very bad scenario”…
The main question surrounds the future of the island’s largest lender, Bank of Cyprus. If unsecured deposits (above 100,000 euros) at all Cypriot banks are taxed then large savings at Bank of Cyprus are likely to be taxed between 20 and 25 percent. If the levy is not imposed on deposits at other lenders, the haircut for Bank of Cyprus customers will be much larger.
The option of a full bail in of Bank of Cyprus depositors is still on the table. As with the Popular Bank of Cyprus (Laiki), which is to go through a resolution process, the full bail in option could lead to deposits above 100,000 euros being lost. The only compensation for unsecured depositors will be shares in the “good” bank that will be created by a possible merger between the “healthy” Laiki and Bank of Cyprus entities.
When asked by Kathimerini how the Cypriot economy will survive if all company and personal deposits above 100,000 euros disappear from the country’s two biggest lenders, the EU official said: “Unfortunately, Cyprus’s choices are between a bad scenario and a very bad scenario.”
So what percentage of the deposits in Cyprus are uninsured deposits?
Well, nobody knows for sure, but according to JPMorgan close to half of the total amount of money on deposit in EU banks as a whole is uninsured.
Do you think that some of those people will start moving their money to safer locations after watching how things are going down in Cyprus?
They would be crazy if they didn’t.
And if you think that “deposit insurance” will keep you safe, you are just being delusional.
According to CNBC, very strict capital controls are coming to Cyprus. These rules will apply even to accounts that contain less than 100,000 euros…
Financial controls are coming. Depositors with less than 100,000 euros may not lose their money outright, but they won’t like the restrictions–no matter how much they have in the bank. Limits on withdrawals, limits on check cashing, and perhaps even outright conversion of checking accounts into fixed term deposits are coming (translation: you don’t have a checking account, you have a bond from the bank).
A lot of people are going to lose a lot of money in Cyprus banks, and a significant percentage of them are going to be Russian.
And as I wrote about the other day, you don’t want to have the Russians mad at you.
According to the Guardian, Moscow is already considering various ways that it might “punish” the EU…
“Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy.”
Could this be the start of a bit of “economic warfare” between east and west?
One thing is for sure – the Russians simply do not allow people to walk all over them.
Meanwhile, things in Cyprus are getting more desperate with each passing day. Because they cannot get money out of the banks, many retail stores find themselves running low on cash. In a few more days many of them may not be able to function at all…
Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. “At the moment, supplies will last another two or three days,” said Adamos Hadijadamou, head of Cyprus’s Association of Supermarkets. “We’ll have a problem if this is not resolved by next week.”
But do you know who was able to get their money out in time?
According to the Daily Mail, the President of Cyprus actually warned “close friends” about what was going to happen and told them to get their money out Cyprus…
Cypriot president Nikos Anastasiades ‘warned’ close friends of the financial crisis about to engulf his country so they could move their money abroad, it was claimed on Friday.
Overall, approximately 4.5 billion euros was moved out of Cyprus during the week just before the crisis struck.
Wouldn’t you like to get advance warning like that?
Well, at this point it does not take a genius to figure out what to do about any money that you may have in European banks. The following is from a recent Forbes article by economist Laurence Kotlikoff…
Whatever happens, no one is going to trust or use Cypriot banks. This will shut down the country’s financial highway and flip Cyprus’ economy to a truly awful equilibrium in a replay of our own country’s Great Depression, which was kicked off by the failure of one-in-three U.S. banks.
Cyprus is a small country. Still, the failure of its banks could trigger massive bank runs in Greece. After all, if the European Central Bank is abandoning Cypriot depositors, they may abandon Greek depositors next. A run on Greek banks could then spread to Portugal, Ireland, Spain, and Italy and from there to Belgium and France and, you get the picture, to other countries around the globe, including, drum roll, the U.S. Every bank in each of these countries has made promises they can’t keep were push come to shove, i.e., if all depositors demand their money back immediately.
We’ve seen this movie before. And not just in real life. Every Christmas our tellys show It’s a Wonderful Life in which banker Jimmy Stewart barely saves his small town from economic ruin arising from a banking panic.
Others are being even more blunt with their warnings. For example, Nigel Farage, a member of the European Parliament, is warning everyone to get their money out of southern European banks while they still can…
The appalling events in Cyprus over the course of the past week have surpassed even my direst of predictions.
Even I didn’t think that they would stoop to stealing money from people’s bank accounts. I find that astonishing.
There are 750,000 British people who own properties, or who live, many of them in retirement down in Spain.
Our message to expats now that the EU has crossed this line, must be: Get your money out of there while you’ve still got a chance.
And Martin Sibileau is proclaiming that if you still have an unsecured deposit in a eurozone bank that you should have your head examined…
What are depositors of Euros faced with today? Anything but a clean bet! They don’t know what the expected loss on their capital will be, because it will be decided over a weekend by politicians who don’t even represent them. They don’t really know where their deposits went to and they also ignore what jurisdiction they really belong to. Finally, depositors are paid mere basis points for their trust in the system vs. the 20% p.a. Argentina offered in 2001 (thanks to the zero-interest rate policies of the 21st century). In light of all this, I can only conclude that anyone still having an unsecured deposit in a Euro zone bank should get his/her head examined!
So where should you put your money?
I don’t know that there is anywhere that is 100% safe at this point. But many are pointing to hard assets such as gold and silver. The following is what trends forecaster Gerald Celente had to say during one recent interview…
“People always say to me, ‘Mr. Celente you are always talking about gold. What are you going to do with gold when everything collapses and there is no money?’ Well, let’s say you are a Cypriot and all of the ATM machines are out of money and the banks are closed? Do you think those pieces of silver are going to buy you what you need? Do you think that ounce of gold is going to get you what you want?
That’s the real money. There is no other money. When it all comes down, gold and silver are the only things you have to buy what you need, get what you want, or even get out if you need to.”
I used to tell people that putting their money in U.S. banks was safer than putting it other places because U.S. bank deposits are covered by deposit insurance up to a certain amount.
But now we see that deposit insurance means absolutely nothing. If they decide to “tax” (i.e. steal) your money from your bank accounts they will just go ahead and do it.
So what should we all do?
Personally, I think that not having all of your eggs in one basket is a wise approach. If you have your wealth a bunch of different places and in several different forms, I think that will help.
European officials are openly admitting that the two largest banks in Cyprus are “insolvent“, and it is now being reported that Cyprus Popular Bank only has “enough liquidity to cover the next few hours“. Of course all banks in Cyprus are officially closed until Tuesday at the earliest, but there have been long lines at ATMs all over Cyprus as people scramble to get whatever money they can out of the banks. Unfortunately, some ATMs appear to be “malfunctioning” and others appear to have already run out of cash. You can see some photos of huge lines at one ATM in Cyprus right here. Some businesses are now even refusing to take credit card payments. This is creating an atmosphere of panic on the streets of Cyprus. Meanwhile, the EU is holding a gun to the head of the Cyprus financial system. Either Cyprus meets EU demands by Monday, or liquidity for the banks will be totally cut off and Cyprus will be forced out of the euro. It is being reported that European officials believe that the “economy is going to tank in Cyprus no matter what“, and that it would be okay to let the financial system of Cyprus crash and burn if politicians in Cyprus are not willing to do what they have been ordered to do. Apparently European officials are very confident that the situation in Cyprus can be contained and that it will not spread to other European nations.
Unfortunately, European officials are losing sight of the bigger picture. If the largest banks in Cyprus are allowed to fail, it will be another “Lehman Brothers moment“. The faith that people have in banks all over Europe will be called into question, and everyone will be wondering what major European banks will be allowed to fail next.
Meanwhile, European officials have already completely shattered confidence in deposit insurance at this point. Everyone now knows that when there is a major bank failure that depositors will be expected to share in the pain. Expect to see “bank jogs” all over southern Europe over the coming weeks.
The banks in Cyprus had been scheduled to reopen on Tuesday, but very few people expect that to actually happen at this point. In fact, Bloomberg is reporting that EU officials are actually thinking about shutting down the two biggest banks in Cyprus and freezing their assets…
Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.
Cyprus Popular Bank Pcl (CPB) and the Bank of Cyprus Plc would be split to create a so-called bad bank, one of the officials said. Insured deposits — below the European Union ceiling of 100,000 euros ($129,000) — would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.
Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. The proposal, a version of which was rejected last week, is considered a better option than taxing insured deposits or allowing Cypriot banks to collapse in a disorderly fashion if they lose access to ECB aid, the officials said.
Such a scenario would be an utter disaster.
How would you feel if you woke up someday and 40 percent of your life savings was suddenly gone?
According to Greek newspaper Kathimerini, European officials are also openly discussing the possibility of a Cyprus exit from the eurozone if a suitable bailout agreement is not worked out…
The possibility of Cyprus exiting the eurozone was discussed during teleconference involving technocrats from the Euro Working Group on Wednesday, Kathimerini understands.
A reliable source told Kathimerini that the technical implications of a euro exit, as well as the adoption of capital controls were debated by the Euro Working Group officials during the teleconference.
As I mentioned above, European officials seemed resigned to the fact that there will be an economic collapse in Cyprus “no matter what”, and so letting Cyprus leave the euro would not make that much of a difference. Either way, the banks are going to have to be “reorganized” and capital controls will be imposed…
In detailed notes of the call seen by Reuters, the group’s chair Austria’s Thomas Wieser said: “The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed.”
Never before have we seen European officials impose such a harsh ultimatum with such a short deadline. It is almost as if they want to boot Cyprus out of the euro. The following comes from a recent CNBC report…
In stark twin warnings on Thursday, the European Central Bank said it would cut off liquidity to Cypriot banks and a senior EU official made clear to Reuters that the bloc was ready to see the bankrupt island banished from the euro in the belief it could then contain damage to the wider European economy.
And European officials are even publicly talking about the possibility that Cyprus will soon need to start using “their own currency”…
In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus’s biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.
“If the financial sector collapses, then they simply have to face a very significant devaluation and faced with that situation, they would have no other way but to start having their own currency,” the EU official said.
This is absolutely shocking. Everyone always thought that Greece would be the first to leave the euro, but now it looks like it might be Cyprus.
However, there is still a chance that Cyprus may find a way to comply with EU demands. Politicians in Cyprus are frantically searching for a way to raise the needed cash without raiding private bank accounts. The following is what CNN is saying about the latest efforts…
Leaders of Cyprus’ political parties agreed Thursday to create an “investment solidarity fund,” which would issue bonds backed by state and church assets.
The plan was due to be discussed by the Cypriot government and parliament on Thursday evening, but few details were available and it was not clear how much the fund would be worth.
According to Reuters, other proposals have been under consideration as well…
The government said a “Plan B” was in the works.
Officials said it could include: an option to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.
At this point it is unclear whether any of those proposals will turn out to be acceptable to European officials.
In fact, the tone of European officials has noticeably changed from previous bailout efforts. They now seem much more willing to play hardball. For example, just check out what German Finance Minister Wolfgang Schaeuble is saying about the situation in Cyprus…
German finance minister Wolfgang Schaeuble told the ZDF public broadcaster on Tuesday night (19 March) he “took note with regret” of the Cypriot parliament’s rejection of the bailout deal, but insisted that the terms will stay the same.
Asked if the eurozone was willing to let Cyprus go bust, he answered: “Well, we are much more stable in the eurozone – we took measures to protect ourselves from the risks of contagion … but I don’t want to have any of this.”
He added: “It is a serious situation, but this cannot lead to a decision that makes absolutely no sense, to rescue a business model that has failed. Cyprus has a banking sector that is totally oversized and this made Cyprus insolvent. And nobody outside Cyprus is to blame for it.”
Schaeuble knows that the EU is holding all of the cards and that Cyprus is doomed without their help…
“The Cypriot state cannot fund itself on the markets. Its two largest banks are insolvent and are being kept afloat with emergency funding from the ECB, but only on the condition that there will be a long-term rescue programme. If this condition is no longer met, Cyprus will no longer be solvent and this is something Cypriot decision makers must know”
But the truth is that the EU can’t really afford to allow major banks to fail or for a single member to leave the eurozone. If either of those things happen, the confidence game that has been holding the European financial system together will begin to rapidly evaporate.
If the EU thinks that they can abandon Cyprus without the crisis spreading to the rest of southern Europe they are just being delusional.
At least there are a few politicians in Europe that understand what is happening. Nigel Farage, a very outspoken member of the European Parliament, is telling people to get their money out of banks in southern Europe as quickly as they can. He is warning that a great collapse of the European financial system is coming and that people need to get prepared for it…
So what do you think?
Do you believe that we are on the verge of a major financial collapse in Europe?
Please feel free to post a comment with your thoughts below…
Is the financial system of Europe on the verge of a meltdown? I have always maintained that the next wave of the economic crisis would begin in Europe, and right now the situation in Europe is unraveling at a frightening pace. On Monday, European stocks had their worst day in over six months, and over the past four days we have seen the EUR/USD decline by the most that it has in nearly seven months. Meanwhile, scandals are erupting all over the continent. A political scandal in Spain, a derivatives scandal in Italy and banking scandals all over the eurozone are seriously shaking confidence in the system. If things move much farther in a negative direction, we could be facing a full-blown financial crisis in Europe very rapidly. So watch the financial markets in Europe very carefully. Yes, most Americans tend to ignore Europe because they are convinced that the U.S. is “the center of the universe”, but the truth is that Europe actually has a bigger population than we do, they have a bigger economy then we do, and they have a much larger banking system than we do. The global financial system is more integrated today than it ever has been before, and if there is a major stock market crash in Europe it is going to deeply affect the United States and the rest of the globe as well. So pay close attention to what is going on in Europe, because events over there could spark a chain reaction that would have very serious implications for every man, woman and child on the planet.
EuroStoxx (Europe’s Dow) closed today -1% for 2013. France, Germany, and Spain are all lower on the year now. Italy, following ENI’s CEO fraud, collapsed almost 3% from the US day-session open, leaving it up less than 1% for the year. Just as we argued, credit markets have been warning that all is not well and today’s afternoon free-fall begins the catch-down.
In addition, the euro has been dropping like a rock all of a sudden. Just check out this chart which shows what happened to the euro on Thursday. It is very rare to see the euro move that dramatically.
So what is causing all of this?
Well, we already know that the economic fundamentals in Europe are absolutely horrible. Unemployment in the eurozone is at a record high, and the unemployment rates in both Greece and Spain are over 26 percent. Those are depression-level numbers.
But up until now there had still been a tremendous amount of confidence in the European financial system. But now that confidence is being shaken by a whole host of scandals.
In recent days, a number of major banking scandals have begun to emerge all over Europe. Just check out this article which summarizes many of them.
One of the worst banking scandals is in Italy. A horrible derivatives scandal has pushed the third largest bank in Italy to the verge of collapse…
Monte dei Paschi di Siena (BMPS.MI), Italy’s third biggest lender, said on Wednesday losses linked to three problematic derivative trades totaled 730 million euros ($988.3 million) as it sought to draw a line under a scandal over risky financial transactions.
There is that word “derivative” that I keep telling people to watch for. Of course this is not the big “derivatives panic” that I have been talking about, but it is an example of how these toxic financial instruments can bring down even the biggest banks. Monte dei Paschi is the oldest bank in the world, and now the only way it is able to survive is with government bailouts.
Another big scandal that is shaking up Europe right now is happening over in Spain. It is being alleged that Spanish Prime Minister Mariano Rajoy and other members of his party have been receiving illegal cash payments. The following summary of the scandal comes from a recent Bloomberg article…
On Jan. 31, the Spanish newspaper El Pais published copies of what it said were ledgers from secret accounts held by Luis Barcenas, the former treasurer of the ruling People’s Party, which revealed the existence of a party slush fund. The newspaper said 7.5 million euros in corporate donations were channeled into the fund and allegedly doled out from 1997 to 2009 to senior party members, including Rajoy.
That doesn’t sound good at all.
So what is the truth?
Could Rajoy actually be innocent?
Well, at this point most of the population of Spain does not believe that is the case. Just check out the following poll numbers from the Bloomberg article quoted above…
According to the Metroscopia poll, 76 percent of Spaniards don’t believe the People’s Party’s denials of the slush-fund allegations. Even more damning, 58 percent of the party’s supporters think it’s lying. All of the Spanish businessmen with whom I discussed the latest scandal expect it to get worse before it gets better. Their assumption that there are more skeletons in the government’s closet indicates what little trust they have in their leaders.
Meanwhile, the underlying economic fundamentals in Europe just continue to get worse. One of the biggest concerns right now is France. Just check out this excerpt from a recent report by Phoenix Capital Research…
The house of cards that is Europe is close to collapsing as those widely held responsible for solving the Crisis (Prime Ministers, Treasurers and ECB head Mario Draghi) have all been recently implicated in corruption scandals.
Those EU leaders who have yet to be implicated in scandals are not faring much better than their more corrupt counterparts. In France, socialist Prime Minister Francois Hollande, has proven yet again that socialism doesn’t work by chasing after the wealthy and trying to grow France’s public sector… when the public sector already accounts for 56% of French employment.
France was already suffering from a lack of competitiveness. Now that wealthy businesspeople are fleeing the country (meaning investment will dry up), the economy has begun to positively implode.
As the report goes on to mention, over the past few months the economic numbers coming out of France have been absolutely frightful…
Auto sales for 2012 fell 13% from those of 2011. Sales of existing homes outside of Paris fell 20% year over year for the third quarter of 2012. New home sales fell 25%. Even the high-end real estate markets are collapsing with sales for apartments in Paris that cost over €2 million collapsing an incredible 42% in 2012.
Today, the jobless rate in France is at a 15-year high, and industrial production is headed into the toilet. The wealthy are fleeing France in droves because of the recent tax increases, and the nation is absolutely drowning in debt. Even the French jobs minister recently admitted that France is essentially “bankrupt” at this point…
France’s government was plunged into an embarrassing row yesterday after a minister said the country was ‘totally bankrupt’.
Employment secretary Michel Sapin said cuts were needed to put the damaged economy back on track.
‘There is a state but it is a totally bankrupt state,’ he said.
So what does all of this mean?
It means that the crisis in Europe is just beginning. Things are going to be getting a lot worse.
For example, Blackstone’s Byron Wien told CNBC the other day that he expects the S&P 500 to drop by 200 points during the first half of 2013.
Seabreeze Partners portfolio manager Doug Kass recently told CNBC that what is happening right now in the financial markets very much reminds him of the stock market crash of 1987…
“I’m getting the ‘summer of 1987 feeling’ in the U.S. equity market,” Kass told CNBC, “which means we’re headed for a sharp fall.”
Toward the end of 2012 and at the very beginning of 2013 we saw markets both in the U.S. and in Europe move up steadily even though the underlying economic fundamentals did not justify such a move.
In many ways, that move up reminded me of the “head fakes” that we have seen prior to many of the largest “market corrections” of the past. Often financial markets are at their most “euphoric” just before a crash hits.
So get ready.
Even if you don’t have a penny in the financial markets, now is the time to prepare for what is ahead.
We all need to learn from what Europe is going through right now. In Greece, formerly middle class citizens are now trampling one another for food. We all need to prepare financially, mentally, emotionally, spiritually and physically so that we can weather the economic storm that is coming.
Most Americans are accustomed to living paycheck to paycheck and being constantly up to their eyeballs in debt, but that is incredibly foolish. Even in the animal kingdom, animals work hard during the warm months to prepare for the winter months. Even so, we should all be working very hard to prepare during prosperous times so that we will have something stored up for the lean years that are coming.
Unfortunately, if events in Europe are any indication, we may be rapidly running out of time.
Summer vacation is over and things are about to get very interesting in Europe. Most Americans don’t realize this, but much of Europe shuts down for the entire month of August. I wish we had something similar in the United States. But now millions of Europeans are returning from their extended family vacations and the fun is about to begin. During August economic conditions continued to degenerate in Europe, but I figured that it wouldn’t be until after August that the European debt crisis would take center stage once again. And as I wrote about last week, if there is going to be a financial panic, it typically happens in the fall. The stock market has seen quite a nice rally over the summer, and many investors are nervous that we could see a significant “correction” very soon. The month of September has been the absolute worst month for stock performance over the past 50 years, and it has also been the absolute worst month for stock performance over the past 100 years as well. Of course that does not guarantee that anything is going to happen this year. But things in Europe continue to get worse. Unemployment rates are spiking, manufacturing activity is slowing down, housing prices are crashing and major financial institutions are failing. What is happening in Europe right now appears to be an even worse version of what happened to the United States back in 2008.
But most Americans aren’t too concerned about what is happening in Europe.
In fact, most Americans don’t believe that a European financial collapse would be much of a problem for us.
Well, just remember what happened back in 2008. When the U.S. financial system started coming apart at the seams it sparked a devastating worldwide recession which was felt in every corner of the globe.
If the European financial system implodes, the consequences could be even worse.
Europe has a larger population than the United States does.
Europe has a larger economy than the United States does.
Europe has a much, much larger banking system than the United States does.
If Europe experiences a financial collapse, the entire globe will feel the pain.
And considering how weak the U.S. economy already is, it would not take much to push us over the edge.
What is going on in Europe right now is a very, very big deal and people need to pay attention.
The following are 18 indications that Europe has become an economic black hole which is going to suck the life out of the global economy….
#1 The unemployment rate in France is up to 10 percent, and the French media is buzzing about the fact that the number of unemployed French workers has now hit the 3 million mark.
#2 The French government has just announced the nationalization of its second largest mortgage lender. Additional bailouts are likely on the way.
#3 French automaker PSA Peugeot Citroen has announced that it will be cutting more than 10,000 jobs. But of course major layoff announcements like this are coming out of Europe almost every day now.
#4 Home prices in France are falling rapidly and the recent election of a socialist president has created a bit of a panic in the French housing market….
British people with homes in France were today warned that the property market is in ‘free fall’.
A combination of factors including the election of a tax-and-spend Socialist government means that prices are tumbling.
It means an end to the boom years, when thousands of Britons poured money into rental or retirement investments across the Channel.
#5 A slow-motion bank run is happening in Spain. The amount of money being pulled out of the Spanish banking system is absolutely unprecedented. The following is from a recent Zero Hedge article….
The central bank of Spain just released the net capital outflow numbers and they are disastrous. During the month of June alone $70.90 billion left the Spanish banks and in July it was worse at $92.88 billion which is 4.7% of total bank deposits in Spain. For the first seven months of the year the outflow adds up to $368.80 billion or 17.7% of the total bank deposits of Spain and the trajectory of the outflow is increasing dramatically. Reality is reality and Spain is experiencing a full-fledged run on its banks whether anyone in Europe wants to admit it or not.
If this pace keeps up, more than 600 billion dollars will be pulled out of Spanish banks by the end of the year.
Keep in mind that the GDP of Spain for all of 2011 was just 1.49 trillion dollars.
So by the end of this year we could see the equivalent of more than 40 percent of Spanish GDP pulled out of Spanish banks and sent out of the country.
In case you were wondering, yes, that is a nightmare scenario.
#6 The unemployment rate in Spain is over 25 percent. The youth unemployment rate in Spain is well over 50 percent. Spain is a tinderbox that could be set ablaze at any moment.
#7 The yield on 10 year Spanish bonds is up to 6.85 percent. This is an unsustainable level, and if rates don’t come down on Spanish debt soon it is inevitable that Spain will end up just like Greece.
#8 On Monday it was announced that Spanish banking giant Bankia will be getting an emergency “cash injection” of between 4 and 5 billion euros. Apparently “cash injection” sounds better to the politicians than “a bailout” does.
#9 The housing crash in Spain just continues to get worse. It is being reported that some homes in Spain are being sold at a 70% discount from where they were at the peak of the market back in 2006. At this point there are approximately 2 million unsold homes in Spain.
#10 There are persistent rumors that the government of Spain will soon be forced to officially ask for a bailout from the rest of Europe. But who is going to bail them out? Most of the other governments of the eurozone are on the verge of bankruptcy themselves.
#11 Manufacturing activity in Europe has contracted for 13 months in a row. The following is from a recent Reuters report….
The downturn that began in the smaller periphery members of the 17-nation bloc is now sweeping through Germany and France and the situation remained dire in the region’s third and fourth biggest economies of Italy and Spain.
“Larger nations like France and Germany remain in reverse gear… the (manufacturing) sector is on course to act as a drag on gross domestic product in the third quarter,” said Rob Dobson, senior economist at data collator Markit.
Markit’s final Purchasing Managers’ Index (PMI) for the manufacturing sector fell from an earlier flash reading of 45.3 to 45.1, above July’s three-year low of 44.0, but notching its 13th month below the 50 mark separating growth from contraction.
#12 Chinese exports to the EU declined by 16.2 percent in July. U.S. exports to Europe have been steadily falling as well.
#13 Slovenia and Cyprus are two other eurozone members that are in desperate need of bailout money. The dominoes just keep falling and nobody seems to be able to come up with a plan to “fix” Europe.
#14 Even the “strong” economies in Europe are being dragged down now. For example, unemployment in Germany has risen for five months in a row.
#15 According to one recent poll, only about one-fourth of all Germans want Greece to remain a part of the eurozone. The odds of a breakup of the euro seem to rise with each passing day.
#16 It is now estimated that bad loans make up approximately 20 percent of all domestic loans in the Greek banking system at this point.
#18 Large U.S. companies have been rapidly getting prepared for a Greek exit from the eurozone. The following is from a recent New York Times article….
Even as Greece desperately tries to avoid defaulting on its debt, American companies are preparing for what was once unthinkable: that Greece could soon be forced to leave the euro zone.
Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable. Ford has configured its computer systems so they will be able to immediately handle a new Greek currency.
Every time European leaders get together they declare that they have “a plan” that will solve the problems that Europe is experiencing, but as we have seen things in Europe just continue to get worse with no end in sight.
A key date is coming up in the middle of this month. On September 12th, Germany’s Constitutional Court will determine the fate of the recent fiscal pact and the ESM. According to UniCredit global chief economist Erik Nielsen, if the court rules against the fiscal pact and the ESM the fallout will be catastrophic….
“If they were to surprise us by striking down Germany’s participation, I would think it’d be an utter bloodbath in markets”
But that is not the only thing that could set off a full-blown panic in the financial markets.
The truth is that Europe is teetering on the edge.
One wrong move and it is going to be 1929 all over again.
As I have maintained all along, the next wave of the economic collapse is rapidly approaching, and this time the epicenter for the crisis is going to be in Europe.
But that does not mean that things are going to be easier for the United States than last time. We have never even come close to recovering from the last recession. Most Americans families are just barely getting by. In fact, 77 percent of them are living paycheck to paycheck at least part of the time.
Right now there are millions of Americans that have lost their jobs and their homes in recent years and that feel forsaken by society.
After this next wave hits us there will be tens of millions of Americans feeling the pain of economic desperation.
The last wave of the economic collapse hurt us.
This next wave is going to absolutely devastate us.
Watch what is happening in Europe very carefully. What Greece, Spain, Italy and France are experiencing right now is going to hit us soon enough.