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Why The Puerto Rico Debt Crisis Is Such A Huge Threat To The U.S. Financial System

Puerto Rico Map On A Globe - Photo by TUBSThe debt crisis in Puerto Rico could potentially cost financial institutions in the United States tens of billions of dollars in losses.  This week, Puerto Rico Governor Alejandro Garcia Padilla publicly announced that Puerto Rico’s  73 billion dollar debt is “not payable,” and a special adviser that was recently appointed to help straighten out the island’s finances said that it is “insolvent” and will totally run out of cash very shortly.  At this point, Puerto Rico’s debt is approximately 15 times larger than the per capita median debt of the 50 U.S. states.  Yes, the Greek debt crisis is larger, as Greece currently owes about $350 billion to the rest of the planet.  But only about $14 billion of that total is owed to U.S. financial institutions.  But with Puerto Rico, things are very different.  Just about the entire 73 billion dollar debt is owed to U.S. financial institutions, and this could potentially cause massive problems for some extremely leveraged Wall Street firms.

There is a reason why Puerto Rico is called “America’s Greece”.  In Puerto Rico today, more than 40 percent of the population is living in poverty, the unemployment rate is over 12 percent, and the economy of the small island nation has continually been in recession since 2006.

Yet all this time Puerto Rico has continued to pile up even more debt.  Finally, it has gotten to the point where all of this debt is simply unpayable

Steven Rhodes, the retired U.S. bankruptcy judge who oversaw Detroit’s historic bankruptcy and has now been retained by Puerto Rico to help solve its problems, gave a blunt assessment on Monday.

Puerto Rico “urgently needs our help,” Rhodes said. “It can no longer pay its debts, it will soon run out of cash to operate, its residents and businesses will suffer,” he added.

This is why I hammer on the danger of U.S. government debt so often.  As we see with the examples of Greece and Puerto Rico, eventually a day of reckoning always arrives.  And when the day of reckoning arrives, power shifts into the hands of those that you owe the money too.

It would be hard to understate just how severe the debt crisis in Puerto Rico has become.  Former IMF economist Anne Krueger has gone so far as to say that it is “really dire”

The situation is dire, and I mean really dire,” said former IMF economist Anne Krueger, co-author of the report commissioned by the U.S. territory, which recommended debt restructuring, tax hikes and spending cuts. “The needed measures may face political resistance but failure to address the issues would affect even more the people of Puerto Rico.”

So who is going to get left holding the bag?

As I mentioned at the top of this article, major U.S. financial institutions are very heavily exposed.  Income from Puerto Rican bonds is exempt from state and federal taxation, and so that made them very attractive to many U.S. investors.  According to USA Today, there are 180 mutual funds that have “at least 5% of their portfolios in Puerto Rican bonds”…

The inability of the U.S. territory to repay its debt, combined with the financial crisis in Greece, would have far-reaching implications for financial markets and unsuspecting American investors. Morningstar, an investment research firm based in Chicago, estimated in 2013 that 180 mutual funds in the United States and elsewhere have at least 5% of their portfolios in Puerto Rican bonds.

It is important to keep in mind that many of these financial institutions are very highly leveraged.  So just a “couple of percentage points” could mean the different between life and death for some of these firms.

And unlike what is happening with Greece, the private financial institutions that hold Puerto Rican bonds are not likely to be very eager to “negotiate”.  In fact, the largest holder of Puerto Rican debt has already stated that it is very much against any kind of restructuring

U.S. fund manager OppenheimerFunds, the largest holder of Puerto Rico debt among U.S. municipal bond funds, warned the island it stands ready to defend the terms of bonds it holds, a day after the governor said he wanted to restructure debt and postpone bond payments.

What Oppenheimer is essentially saying is that it does not plan to give Puerto Rico any slack at all.  Here is more from the article that I just quoted above

OppenheimerFunds, with about $4.5 billion exposure to Puerto Rico according to Morningstar, said it believed the island could repay bondholders while providing essential services to citizens and growing the economy. It said it stood ready “to defend the previously agreed to terms in each and every bond indenture.”

“We are disheartened that Governor Padilla, in a public forum, has called for negotiations with other creditors, representing and including the millions of individual Americans that hold Puerto Rico municipal bonds,” a spokesman for Oppenheimer said in a statement.

But Puerto Rico simply does not have the money to meet all of their debt obligations.

So somebody is not going to get paid at some point.

When that happens, those that insure Puerto Rican bonds are also going to take tremendous losses.  The following comes from a recent piece by Stephen Flood

Now, bondholders are at risk as are the funds which hold Puerto Rican bonds and, more importantly, those who insure them in the derivatives market.

Dave Kranzler, from Investment Research Dynamics has warned that there are signs that the Puerto Rico situation may not remain a local crisis for much longer.

He points out that share prices of MBIA, the bond insurers, have been plummeting. MBIA are valued at $3.9 billion whereas their exposure to Puerto Rican debt is around $4.5 billion. Kranzler reckons their exposure could even be multiples of that figure. A default could wipe them out.

He also points out that the firm’s largest shareholders are Warburg Pincus, the firm to which Timothy Geithner went after his stint as Treasury Secretary, when he helped paper over the chasms opening up in the financial system.

Did you notice the word “derivatives” in that quote?

Hmmm – who has been writing endless articles warning about the danger of derivatives for years?

Who has been warning that “this gigantic time bomb is going to go off and absolutely cripple the entire global financial system“?

When Puerto Rico defaults, bond insurers are going to be expected to step up and make huge debt service payments to investors.

But this just might bankrupt some of these big bond insurers.  In fact, we have already started to see the stock prices of some of these bond insurers begin to plummet.  The following comes from the Wall Street Journal

Bond insurers MBIA Inc. and Ambac Financial Group Inc. are down again Tuesday as concerns over Puerto Rico’s ability to repay its debt multiply.

Investors fear that both firms face the potential for steep losses on their promises to backstop billions of Puerto Rico’s $72 billion of debt.

MBIA’s stock closed down 23% Monday, and fell more than 10% before rebounding Tuesday. By late afternoon, the stock was down 6%. Ambac’s stock fell 12% Monday and was off 14% Tuesday.

Of course Puerto Rico is just the tip of the iceberg of the coming debt crisis in the western hemisphere, just like Greece is just the tip of the iceberg of the coming debt crisis in Europe.

So stay tuned, because the second half of 2015 has now begun, and the remainder of this calendar year promises to be extremely “interesting”.

The 75 Trillion Dollar Shadow Banking System Is In Danger Of Collapsing

Shadow Banking System - Public DomainKeep an eye on the shadow banking system – it is about to be shaken to the core.  According to the Financial Stability Board, the size of the global shadow banking system has reached an astounding 75 trillion dollars.  It has approximately tripled in size since 2002.  In the U.S. alone, the size of the shadow banking system is approximately 24 trillion dollars.  At this point, shadow banking assets in the United States are even greater than those of conventional banks.  These shadow banks are largely unregulated, but governments around the world have been extremely hesitant to crack down on them because these nonbank lenders have helped fuel economic growth.  But in the end, we will all likely pay a very great price for allowing these exceedingly reckless financial institutions to run wild.

If you are not familiar with the “shadow banking system”, the following is a pretty good definition from investing answers.com

The shadow banking system (or shadow financial system) is a network of financial institutions comprised of non-depository banks — e.g., investment banks, structured investment vehicles (SIVs), conduits, hedge funds, non-bank financial institutions and money market funds.

How it works/Example:

Shadow banking institutions generally serve as intermediaries between investors and borrowers, providing credit and capital for investors, institutional investors, and corporations, and profiting from fees and/or from the arbitrage in interest rates.

Because shadow banking institutions don’t receive traditional deposits like a depository bank, they have escaped most regulatory limits and laws imposed on the traditional banking system. Members are able to operate without being subject to regulatory oversight for unregulated activities. An example of an unregulated activity is a credit default swap (CDS).

These institutions are extremely dangerous because they are highly leveraged and they are behaving very recklessly.  They played a major role during the financial crisis of 2008, and even the New York Fed admits that shadow banking has “increased the fragility of the entire financial system”…

The current financial crisis has highlighted the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments. This trend has been most pronounced in the United States, but it has had a profound influence on the global financial system. In a market-based financial system, banking and capital market developments are inseparable: Funding conditions are closely tied to fluctuations in the leverage of market-based financial intermediaries. Growth in the balance sheets of these intermediaries provides a sense of the availability of credit, while contractions of their balance sheets have tended to precede the onset of financial crises. Securitization was intended as a way to transfer credit risk to those better able to absorb losses, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities.

Over the past decade, shadow banking has become a truly worldwide phenomenon, and thus it is a major threat to the entire global financial system.  In China, shadow banking has been growing by leaps and bounds, but this has the authorities deeply concerned.  In fact, according to Bloomberg one top Chinese regulator has referred to shadow banking as a “Ponzi scheme”…

Their growth had caused the man who is now China’s top securities regulator to label the off-balance-sheet products a “Ponzi scheme,” because banks have to sell more each month to pay off those that are maturing.

And what happens to all Ponzi schemes eventually?

In the end, they always collapse.

And when this 75 trillion dollar Ponzi scheme collapses, the global devastation that it will cause will be absolutely unprecedented.

Bond expert Bill Gross, who is intimately familiar with the shadow banking system, has just come out with a major warning about the lack of liquidity in the shadow banking system…

Mutual funds, hedge funds, and ETFs, are part of the “shadow banking system” where these modern “banks” are not required to maintain reserves or even emergency levels of cash. Since they in effect now are the market, a rush for liquidity on the part of the investing public, whether they be individuals in 401Ks or institutional pension funds and insurance companies, would find the “market” selling to itself with the Federal Reserve severely limited in its ability to provide assistance.

As far as shadow banking is concerned, everything is just fine as long as markets just keep going up and up and up.

But once they start falling, the whole system can start falling apart very rapidly.  Here is more from Bill Gross on what might cause a “run on the shadow banks” in the near future…

Long used to the inevitability of capital gains, investors and markets have not been tested during a stretch of time when prices go down and policymakers’ hands are tied to perform their historical function of buyer of last resort. It’s then that liquidity will be tested.

And what might precipitate such a “run on the shadow banks”?

1) A central bank mistake leading to lower bond prices and a stronger dollar.

2) Greece, and if so, the inevitable aftermath of default/restructuring leading to additional concerns for Eurozone peripherals.

3) China – “a riddle wrapped in a mystery, inside an enigma”. It is the “mystery meat” of economic sandwiches – you never know what’s in there. Credit has expanded more rapidly in recent years than any major economy in history, a sure warning sign.

4) Emerging market crisis – dollar denominated debt/overinvestment/commodity orientation – take your pick of potential culprits.

5) Geopolitical risks – too numerous to mention and too sensitive to print.

6) A butterfly’s wing – chaos theory suggests that a small change in “non-linear systems” could result in large changes elsewhere. Call this kooky, but in a levered financial system, small changes can upset the status quo. Keep that butterfly net handy.

Should that moment occur, a cold rather than a hot shower may be an investor’s reward and the view will be something less than “gorgeous”. So what to do? Hold an appropriate amount of cash so that panic selling for you is off the table.

In order to avoid a shadow banking crisis, what we need is for global financial markets to stabilize and to resume their upward trends.

If stocks and bonds start crashing, which is precisely what I have projected will happen during the last half of 2015, the shadow banking system is going to come under an extreme amount of stress.  If the coming global financial crisis is even half as bad as I believe it is going to be, there is no way that the shadow banking system is going to hold up.

So let’s hope that the financial devastation that we have seen so far this week is not a preview of things to come.  The global financial system has been transformed into a delicately balanced pyramid of glass that is not designed to handle turbulent times.  We should have never allowed the shadow banks to run wild like this, but we did, and now in just a short while we are going to get to witness a financial implosion unlike anything the world has ever seen before.

16 Facts About The Tremendous Financial Devastation That We Are Seeing All Over The World

Fireball - Devastation - Public DomainAs we enter the second half of 2015, financial panic has gripped most of the globe.  Stock prices are crashing in China, in Europe and in the United States.  Greece is on the verge of a historic default, and now Puerto Rico and Ukraine are both threatening to default on their debts if they do not receive concessions from their creditors.  Not since the financial crisis of 2008 has so much financial chaos been unleashed all at once.  Could it be possible that the great financial crisis of 2015 has begun?  The following are 16 facts about the tremendous financial devastation that is happening all over the world right now…

1. On Monday, the Dow fell by 350 points.  That was the biggest one day decline that we have seen in two years.

2. In Europe, stocks got absolutely smashed.  Germany’s DAX index dropped 3.6 percent, and France’s CAC 40 was down 3.7 percent.

3. After Greece, Italy is considered to be the most financially troubled nation in the eurozone, and on Monday Italian stocks were down more than 5 percent.

4. Greek stocks were down an astounding 18 percent on Monday.

5. As the week began, we witnessed the largest one day increase in European bond spreads that we have seen in seven years.

6. Chinese stocks have already met the official definition of being in a “bear market” – the Shanghai Composite is already down more than 20 percent from the high earlier this year.

7. Overall, this Chinese stock market crash is the worst that we have witnessed in 19 years.

8. On Monday, Standard & Poor’s slashed Greece’s credit rating once again and publicly stated that it believes that Greece now has a 50 percent chance of leaving the euro.

9. On Tuesday, Greece is scheduled to make a 1.6 billion euro loan repayment.  One Greek official has already stated that this is not going to happen.

10. Greek banks have been totally shut down, and a daily cash withdrawal limit of 60 euros has been established.  Nobody knows when this limit will be lifted.

11. Yields on 10 year Greek government bonds have shot past 15 percent.

12. U.S. investors are far more exposed to Greece than most people realize.  The New York Times explains…

But the question of what happens when the markets do open is particularly acute for the hedge fund investors — including luminaries like David Einhorn and John Paulson — who have collectively poured more than 10 billion euros, or $11 billion, into Greek government bonds, bank stocks and a slew of other investments.

Through the weekend, Nicholas L. Papapolitis, a corporate lawyer here, was working round the clock comforting and cajoling his frantic hedge fund clients.

“People are freaking out,” said Mr. Papapolitis, 32, his eyes red and his voice hoarse. “They have made some really big bets on Greece.”

13. The Governor of Puerto Rico has announced that the debts that the small island has accumulated are “not payable“.

14. Overall, the government of Puerto Rico owes approximately 72 billion dollars to the rest of the world.  Without debt restructuring, it is inevitable that Puerto Rico will default.  In fact, CNN says that it could happen by the end of this summer.

15. Ukraine has just announced that it may “suspend debt payments” if their creditors do not agree to take a 40 percent “haircut”.

16. This week the Bank for International Settlements has just come out with a new report that says that central banks around the world are “defenseless” to stop the next major global financial crisis.

Without a doubt, we are overdue for another major financial crisis.  All over the planet, stocks are massively overvalued, and financial markets have become completely disconnected from economic reality.  And when the next crash happens, many believe that it will be even worse than what we experienced back in 2008.  For example, just consider the words of Jim Rogers

“In the United States, we have had economic slowdowns every four to seven years since the beginning of the Republic. It’s now been six or seven years since our last stock market problem. We’re overdue for another problem.”

In Rogers’ view, low interest rates caused stock prices to increase significantly. He believes many assets are priced beyond their fundamentals thanks to the ultra-easy monetary policies by the Federal Reserve. Fed supporters argue such measures are good for investors, but Rogers takes a different view.

The Fed might tell us we don’t have to worry and that a correction or crash will never happen again. That’s balderdash! When this artificial sea of liquidity ends, we’re going to pay a terrible price. When the next economic problem occurs, it will be much worse because the debt is so much higher.”

Of course Rogers is far from alone.  A recent article by Paul B. Farrell expressed similar sentiments…

America’s 95 million investors are at huge risk. Remember the $10 trillion losses in the crash and recession of 2007-2009? The $8 trillion lost after the dot-com technology crash and recession of 2000-2003? This is the third big recession of the century. Yes, America will lose trillions again.

Especially with dead-ahead predictions like Mark Cook’s 4,000-point Dow correction. And Jeremy Grantham’s warning of a 50% crash around election time, with negative stock returns through the first term of the next president, beyond 2020. Starting soon.

Why is America so vulnerable when the next recession hits? Simple: The Fed’s cheap-money giveaway is killing America. When the downturn, correction, crash hits, it will compare to the 2008 crash. The Economist warns: “the world will be in a rotten position to do much about it. Rarely have so many large economies been so ill-equipped to manage a recession,” whatever the trigger.

Things have been relatively quiet in the financial world for so long that many have been sucked into a false sense of security.

But the underlying imbalances were always there, and they have been getting worse over time.

I believe that we are heading into a global financial collapse that will make what happened in 2008 look like a Sunday picnic by the time it is all said and done.

Global debt levels are at all-time highs, big banks all over the planet have been behaving more recklessly than ever, and financial markets are absolutely primed for a huge crash.

Hopefully things will calm down a bit as the rest of this week unfolds, but I wouldn’t count on it.

We have entered uncharted territory, and what comes next is going to shock the world.

And So It Begins – Greek Banks Get Shut Down For A Week And A ‘Grexit’ Is Now Probable

Greece Financial MeltdownIs this the beginning of the end for the eurozone?  For years, European officials have been trying to “fix Greece”, but nothing has worked.  Now a worst case scenario is rapidly unfolding, and a “Grexit” has become more likely than not.  On Sunday, the European Central Bank announced that it was not going to provide any more emergency support for Greek banks.  But that was the only thing keeping them alive.  In order to prevent total chaos, Greek banks have been shut down for at least a week.  ATMs are still open, but it is being reported that daily withdrawals will be limited to 60 euros.  Of course nobody knows for sure if or when the banks will reopen after this “bank holiday” is over, so needless to say average Greek citizens are pretty freaked out right about now.  In addition, the stock market in Greece is not going to open on Monday either.  This is what a national financial meltdown looks like, and the nightmare that has been unleashed in Greece will soon start spreading to much of the rest of Europe.

This reminds me so much of what happened in Cyprus.  Up until the very last minute, politicians were promising everyone that their money was perfectly safe, and then the hammer was brought down.

The exact same pattern is playing out in Greece.  For example, just check out what one very prominent Greek politician said on television on Saturday

“Citizens should not be scared, there is no blackmail,” Panos Kammenos, head of the government’s coalition ally, told local television. “The banks won’t shut, the ATMs will (have cash). All this is exaggeration,” he said.

One day later, the banks did get shut down and ATMs all over the country started running out of cash.  The following comes from CNBC

Despite a tweet from Greek Finance Minister Yanis Varoufakis that his government “opposed the very concept” of any controls, Greek Prime Minister Alexis Tsipras said later Sunday that he had forced the country’s central bank to recommend a bank holiday and capital controls.

The Athens stock exchange will also be closed as the government tries to manage the financial fallout of the disagreement with the European Union and the International Monetary Fund. Greece’s banks, kept afloat by emergency funding from the European Central Bank, are on the front line as Athens moves towards defaulting on a 1.6 billion euros payment due to the International Monetary Fund on Tuesday.

So what is the moral of this story?

Never trust politicians – especially when a major financial crisis is looming.

All over Greece, people are taking photos of very long lines at the ATMs that actually do still have some cash.  Here are just a couple of examples…

—–

Of course those that were smart enough to see this coming took their money out of the banks long ago.  And even as late as last week, people were pulling more than a billion euros out of the banks every single day.  Without direct intervention by the European Central Bank, most Greek banks would have totally collapsed by now

Customers have been withdrawing money in vast quantities ever since Syriza came to power, fearing that if Greece is thrown out of the single currency their euro savings will be converted into drachma – likely to be worth far less.

In the last week, the sums being taken out have risen to well over one billion euros a day, moved either to foreign banks or stashed in notes under mattresses.

It has been a slow and steady run on Greece’s banks which is now speeding up – for the finish line may well be in sight. Until now, the country’s banks have been kept afloat by €88 billion in loans from the European Central Bank.

So now that the banks are shut down, what happens next?

Needless to say, economic activity in Greece is going to come to a grinding halt.  In addition, very few foreigners are going to want to travel to Greece or deal with Greece financially until this crisis is resolved somehow

An extended bank shutdown and tough capital controls will likely wreak further havoc on the Greek economy by scaring away tourists and chilling commercial activity.

And with Greece unable to borrow from financial markets, and apparently unwilling to strike a deal with the only institutions prepared to lend it money, it will find itself sliding rapidly towards exit from the euro.

When the Greek banks finally do reopen, which of them will still be solvent?

Will some of them need “bail-ins”?

Will account holders be forced to take “haircuts” like we saw in Cyprus?

For the moment, what we do know is that the banks will all be shut down until at least July 6th.  Greek Prime Minister Alexis Tsipras has called for a national referendum to be held on July 5th.  The Greek people will get a chance to vote on whether or not the latest creditor proposals should be accepted.  But the funny thing is that Tsipras and the rest of Syriza are already encouraging the Greek people to vote no

Greece’s parliament has voted in favor of Prime Minister Alexis Tsipras’ motion to hold a referendum on the country’s creditor proposals for reforms in exchange for loans, the Associated Press reported. Tsipras and his coalition government have urged people to vote against the deal, throwing into question the country’s financial future.

The vote is to be held next Sunday, July 5. It has raised the question of whether Greece can remain in Europe’s joint currency, the euro.

So why hold a referendum if you just want everyone to vote no?

It is because Tsipras does not want to solely shoulder the blame for what comes next.  A “no vote” would essentially be a vote to leave the euro and go back to the drachma.  The following comes from the Daily Mail

Should Greeks vote against the new bailout, most economists believe Greece will be forced to quit the single currency and return to the drachma. The country could even eventually be forced out of the EU, though Greek politicians have long argued a Grexit would not be the automatic result of default.

However, next week’s referendum is likely to be billed as, in effect, an in-out vote on the euro.

If Greece does default and ends up leaving the euro, the short-term economic consequences for Greece will be catastrophic.

But the rest of Europe will feel a tremendous amount of pain as well.  In fact, we are already getting a sneak peek at coming attractions.  As we approach Monday morning in Europe, Asian stocks are crashing big time, and European futures are absolutely cratering.  It should be very interesting to see how Monday plays out.

In addition, the euro is already way down in early trading.  If Greece does ultimately leave the euro, the value of the euro is going to plunge like a rock.  As I have warned repeatedly, the euro is heading for parity with the U.S. dollar, and at some point it will drop below parity.

And once Greece is out, everyone is going to be speculating who the “next Greece” will be.  Expect bond yields for Italy, Spain, Portugal and France to go skyrocketing.

Just a couple of days ago, I issued a red alert for the second half of 2016.  We are entering a period of time when the global financial system is beginning to unravel.  Most people still have a tremendous amount of faith in the system and assume that those running it are fully capable of keeping it from collapsing.  In fact, many have accused me of being crazy for suggesting that the global financial system is in imminent danger of imploding.

A very wise man once said that “pride goeth before destruction”.  Our arrogance and our blind faith in the fundamentally flawed systems that we have established will contribute greatly to our undoing.

Events are starting to accelerate greatly now, and it is just a matter of time before we see who was right and who was wrong.

 

The Economic Collapse Blog Has Issued A RED ALERT For The Last Six Months Of 2015

Red Alert ButtonI have never done anything like this before.  Ever since I started The Economic Collapse Blog in late 2009, I have never issued any kind of “red alert” for any specific period of time.  As an attorney, I was trained to be level-headed and to only come to conclusions that were warranted by the evidence.  So this is not something that I am doing lightly.  Based on information that I have received, things that I have been told, and thousands of hours of research that have gone into the publication of more than 1,300 articles about our ongoing economic collapse, I have come to the conclusion that a major financial collapse is imminent.  Therefore, I am issuing a RED ALERT for the last six months of 2015.

To clarify, when I say “imminent” I do not mean that it will happen within the next 48 hours.  And I am not saying that our problems will be “over” once we get to the end of 2015.  In fact, I believe that the truth is that our problems will only be just beginning as we enter 2016.

What I am attempting to communicate is that we are right at the door of a major turning point.  About this time of the year back in 2008, my wife and I went to visit her parents.  As we sat in their living room, I explained to them that we were on the verge of a major financial crisis, and of course the events that happened a few months later showed that I was right on the money.

This time around, I wish that I could visit the living rooms of all of my readers and explain to them why we are on the verge of another major financial crisis.  Unfortunately, that is not possible, but hopefully this article will suffice.  Please share it with your friends, your family and anyone else that you want to warn about what is coming.

Let’s start with a little discussion about the U.S. economy.  Most of the time, when I use the term “economic collapse” what most people are actually thinking of is a “financial collapse”.  And we will talk about the imminent “financial collapse” later on in this article.  But just because stocks have recently been hitting all-time record highs does not mean that the overall economy has been doing well.  This is a theme that I have hammered on over and over again.  It is my contention that we are in the midst of a long-term economic collapse that has been happening for many years, that is happening as you read this article, and that will greatly accelerate over the coming months.

Let me give you just one quick example.  When an economy is healthy, money tends to circulate fairly rapidly.  I buy something from you, then you take that money and buy something from someone else, etc.  In a stable and growing economy, people generally feel good about things and they are not afraid to spend.  But during hard times, the exact opposite happens.  That is why the velocity of money almost always slows down during a recession.  As you can see from the chart below, the velocity of money has indeed gone down during every recession since 1960.  Once a recession is over, the velocity of money is supposed to go back up.  But a funny thing happened after the last recession ended.  The velocity of money continued to go down, and it has now hit an all-time record low…

Velocity Of Money M2

This is the kind of chart that you would expect from a very sick economy.  And without a doubt, our economy is sick.  Even the official government numbers paint a picture of an economy that is deeply troubled.  Corporate profits have declined for two quarters in a row, U.S. exports plunged by 7.6 percent during the first quarter of 2015, U.S. GDP contracted by 0.7 percent during the first quarter, and factory orders have declined year over year for six months in a row.

If the stock market was connected to reality, it would be going down.  But instead, it has just kept going up.  As I discussed yesterday, this is a classic case of an irrational financial bubble.  If I was writing an economic textbook and I wanted to include an example of what a run up to a major financial crash looks like, it would be hard to come up with anything more ideal than what we have watched unfold over the last six months.  Just about every pattern that has popped up prior to previous stock markets crashes is happening again, and this is something that I have written about so much that many of my readers are sick of it.

And without a doubt, our financial markets are primed for a crash.

Only two times before has the S&P 500 been up by more than 200 percent over a six year time frame.

The first was in 1929, and the stock market subsequently crashed.

The second was in 2000, right before the dotcom bubble burst.

And by just about any measure that you can possibly imagine, stocks are massively overvalued right now.

For instance, just check out the chart posted below.  It comes from Doug Short, and it shows that the ratio of corporate equity prices to GDP has only been higher one time since 1950.  That was in 2000 just before the dotcom bubble burst…

The Buffett Indicator from Doug Short

Let’s take a look at another chart.  This one comes from Phoenix Capital Research, and it shows that the CAPE ratio (cyclically adjusted price-to-earnings ratio) has rarely been higher.  In fact, the only times that it has been higher we have seen stock market crashes immediately afterwards…

CAPE - Phoenix Capital Research

Yale economics professor Robert Shiller is also deeply concerned about the CAPE ratio

I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007—all moments before market crashes.

But the CAPE ratio is not the only metric I watch. In my book Irrational Exuberance (3rd Ed., Princeton 2015) I discuss several metrics that help judge what’s going on in the market. These include my stock market confidence indices. One of the indicators in that series is based on a single question that I have asked individual and institutional investors over the years along the lines of, “Do you think the stock market is overvalued, undervalued, or about right?” Lately, what I call “valuation confidence” captured by this question has been on a downward trend, and for individual investors recently reached its lowest point since the stock market peak in 2000.

Other valuation indicators produce similar results.  This next chart is another one from Doug Short, and it shows the average of four of his favorite valuation indicators.  As you can see, there is only one other time when stocks have been more overvalued than they are today according to the average of his four favorite indicators, and that was just before the stock market crashed when the dotcom bubble burst…

Four Valuation Indicators - Doug Short

Another one of the things that indicates that a financial bubble is happening is the level of margin debt.  Whenever margin debt has gone over 2.25% of GDP a stock market crash has always followed, and today it is far above that level.  As you can see from the chart below, there have been three major peaks in margin debt in modern U.S. history.  One was just before the dotcom bubble burst, one was just before the financial crisis of 2008, and the third is happening right now…

Margin Debt - Doug Short

Something else that we would expect to see prior to a major financial crisis is a decoupling of high yield debt and stocks.  This is something that happened just prior to the stock market crash of 2008, and it is happening again right now.  The following chart comes from Zero Hedge, and it demonstrates this brilliantly…

S&P 500 HY Credit

Are you starting to get the picture?

And as I discussed yesterday, the smart money is beginning to pull their money out of stocks while they still can.  According to USA Today, mutual fund investors have pulled more money out of stocks than they have put into stocks for 16 weeks in a row

In a sign of stock market nervousness on Main Street, mutual fund investors have yanked more money out of U.S. stock funds than they put in for 16 straight weeks.

The last time domestic stock funds had positive net cash inflows was in the week ending Feb. 25, according to data from the Investment Company Institute, a mutual fund trade group.

In the week ended June 17, the most recent data available, mutual funds that invest in U.S. stocks suffered net outflows of $3.45 billion, according to the ICI.

Since late February, U.S. stock funds have suffered estimated outflows of nearly $55 billion. Those net withdrawals come despite the fact the benchmark Standard & Poor’s 500 hit a fresh record high of 2130.82 on May 21 and the Dow Jones industrial average notched a fresh record on May 19.

But it isn’t just stocks that are going to crash during the next financial crisis.  Bonds are going to crash as well, but what I am concerned about most of all are derivatives.

Derivatives are going to play a starring role in the next major financial crisis.  I cannot emphasize this enough.  In fact, if you want to listen for just one word on the news that will let you know that things have started to really unravel, just listen for the word “derivatives”.  This form of legalized gambling is going to crush “too big to fail” banks all over the planet during the next major financial downturn.  The “too big to fail” banks in the U.S. alone have 278 trillion dollars of total exposure to derivatives, but they only have 9.8 trillion dollars in total assets.  To say that they are being “reckless” is a massive understatement.

For much more on the coming derivatives crisis, please see my previous article entitled “Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’“.

Of course I am not the only one that is sounding the alarm about what is coming.  Just consider what some very prominent individuals have been saying recently…

Ron Paul has just released a new video in which he warned all of us to “prepare for a bear market in bonds“.

Carl Icahn says that financial markets are “extremely overheated—especially high-yield bonds“.

Max Keiser recently told Alex Jones that a great financial collapse is coming.

Martin Armstrong says that his Economic Confidence Model predicts that the “Big Bang” is coming in “2015.75“.

Jeff Berwick of the Dollar Vigilante says that “we’re getting very, very close to the next crisis collapse” and he has specifically pointed to the month of September.

James Howard Kunstler has predicted that stocks are going to “crater in Q3 as faith in paper and pixels erodes“.

Lindsey Williams recently sent out an email alert in which he warned that his elite friend has told him that “they have a World Wide Financial Collapse scheduled between September and the end of December 2015“.

Gerald Celente has warned about “the Great Panic of 2015“.

Bill Fleckenstein has said that 2015 could be the year of the “big accident“.

Ray Gano has stated that we will see a financial collapse “probably starting in the third quarter of 2015″.

Legendary investor Jim Rogers recently said that he believes that “we will see some kind of major, major problems in the world financial markets” within the next year or two.

Alex Jones recently released a video in which he explained that he recently received “two different calls” from “extremely prominent wealthy people” warning him about what is coming by the end of this year and asking him why he isn’t leaving the United States “before October”.

Bible prophecy expert Joel C. Rosenberg has posted an ominous message on his personal blog in which he warned that “something is coming” and that “we must be ready”…

I feel a tremendous sense of urgency about this column.

The United States is hurtling towards severe trouble, and the events of the past few months — and what may be coming over the next few months — grieves me a great deal.

Something is coming. I don’t know what. But we all must be ready in every possible way.

When I read what Rosenberg wrote, it struck me that it was precisely how I have been feeling too.

In my entire life, I have never had such an ominous feeling about any period of time as I have about the last six months of 2015.  Like Rosenberg, I feel a “tremendous sense of urgency”, and I feel a great need to warn as many people as I can.

And it isn’t just a financial collapse that I am concerned about.  In a previous article, I detailed seven key events that we are going to witness before the end of this September…

Late June/Early July – It is expected that this is when the U.S. Supreme Court will reveal their gay marriage decision.  Most believe that the court will rule that gay marriage is a constitutional right in all 50 states.  There are some that believe that this will be a major turning point for our nation.

July 15th to September 15th – A “realistic military training exercise” known as “Jade Helm” will be conducted by the U.S. Army.  More than 1,000 members of the U.S. military will take part in this exercise.  The list of states slated to be involved in these drills includes Texas, Colorado, New Mexico, Arizona, Nevada, Utah, California, Mississippi and Florida.

July 28th – On May 28th, Reuters reported that countries in the European Union were being given a two month deadline to enact “bail-in” legislation.  Any nation that does not have “bail-in” legislation in place by that time will face legal action from the European Commission.  So why is the European Union in such a rush to get this done?  Are the top dogs in the EU anticipating that another great financial crisis is about to erupt?

September 13th – This is Elul 29 on the Biblical calendar – the last day of the Shemitah year.  Many are concerned about this date because we have seen giant stock market crashes on the last day of the previous two Shemitah cycles.

On September 17th, 2001 (which was Elul 29 on the Biblical calendar), we witnessed the greatest one day stock market crash in U.S. history up until that time.  The Dow plummeted 684 points, and it was a record that held for exactly seven years until the end of the next Shemitah cycle.

On September 29th, 2008 (which was also Elul 29 on the Biblical calendar), the Dow fell by an astounding 777 points, which still today remains the greatest one day stock market crash of all time.

Now we are approaching the end of another Shemitah year.  So will the stock market crash on September 13th, 2015?  Well, no, because that day is a Sunday.  So I guarantee that the stock market will not crash on that particular day.  But as Jonathan Cahn has pointed out in his book on the Shemitah, sometimes stock market crashes happen just before the end of the Shemitah year and sometimes they happen within just a few weeks after the end of the Shemitah.  So we are not just looking at one particular date.

September 15th – The 70th session of the UN General Assembly begins on this date.  It is being reported that France plans to introduce a resolution which would give formal UN Security Council recognition to a Palestinian state.  Up until now, the United States has always been the one blocking such a resolution, but Barack Obama is indicating that things may be much different this time around.

September 25th to September 27th – The United Nations is going to launch a brand new sustainable development agenda for the entire planet.  Some have called this “Agenda 21 on steroids”.  But this new agenda is not just about the environment.  It also includes provisions regarding economics, agriculture, education and gender equality.  On September 25th, the Pope will travel to New York to give a major speech kicking off the UN conference where this new agenda will be unveiled.

September 28th – This is the date for the last of the four blood moons that fall on Biblical festival dates during 2014 and 2015.  This blood moon falls on the very first day of the Feast of Tabernacles, it will be a “supermoon”, and it will actually be visible in the city of Jerusalem.  There are many that dismiss the blood moon phenomenon, but we have seen similar patterns before.  For example, a similar pattern of eclipses happened just before and just after the destruction of the Jewish temple by the Romans in 70 AD.

In addition to everything above, quite a number of economic cycle theories that were developed by secular economists all point to big trouble for America between the years of 2015 and 2020.  For more on this, please see my previous article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“.

Earlier today, I publicly announced that I was issuing a RED ALERT for the last six months of 2015 on the Alex Jones radio show.  You can watch video of that interview right here.  In this article (which is about three times as long as one of my normal articles) I have only shared a small fraction of the information that has led me to issue this red alert.  But if you want to know more, and you are not afraid to really go down the rabbit hole, I would encourage you to check out a full two hour presentation that I did down in Dallas, Texas on the nightmarish years that are coming.

The period of relative stability that we have been enjoying is ending.  What comes next is going to lead us into the worst period of time in modern American history.  I wish that I was wrong about this.

But the goal is not to scare you.  My wife and I live our lives with absolutely no fear, and that is my desire for all of my readers.  There is hope in understanding what is happening and there is hope in getting prepared.  Personally, my wife and I believe that the greatest chapters of our lives are ahead of us, and I hope that you have a similar outlook.

We need a generation of people that are willing to rise up and do great things even in the midst of all the chaos and darkness that is coming.  It is when times are the darkest that the greatest heroes are needed.

So what will you choose to do when the next crisis comes?

Will you cower in fear, or will you rise up to meet the challenge?

Please feel free to tell us what you think by posting a comment below…

The Liquidity Crisis Intensifies: ‘Prepare For A Bear Market In Bonds’

Bear Market - Public DomainAre we about to witness trillions of dollars of “paper wealth” vaporize into thin air?  During the next financial crisis, a lot of “wealthy” investors are going to be in for a very rude awakening.  The truth is that securities are only worth what someone else is willing to pay for them, and that is why liquidity is so important.  Back on April 17th, I published an article entitled “The Global Liquidity Squeeze Has Begun“, but it didn’t get nearly as much attention as many of my other articles do.  But now that the liquidity crisis is intensifying, hopefully people will start to grasp the implications of what is happening.  The 76 trillion dollar global bond bubble is threatening to implode, and if it does, the amount of “paper wealth” that could potentially be lost during the months ahead is almost unimaginable.

For those that do not consider the emerging liquidity crisis to be important, I would suggest that they check out what the financial experts are saying.  For instance, the following comes from a recent Bloomberg report

There are three things that matter in the bond market these days: liquidity, liquidity and liquidity.

How — or whether — investors can trade without having prices move against them has become a major worry as bonds globally tanked in the past few months. As a result, liquidity, or the lack of it, is skewing markets in new and surprising ways.

Things have already gotten so bad that Zero Hedge says that some fund managers “are starting to panic” about the lack of liquidity in the marketplace…

Fund managers who together control trillions in assets are starting to panic in the face of an acute bond market liquidity shortage.

Dealer inventories have collapsed in the post-crisis regulatory regime, eliminating the traditional source of liquidity in secondary corporate credit markets, while HFTs and central banks have combined to create the conditions under which USTs and German Bunds can, at any given time, trade like penny stocks (October’s Treasury flash crash and May’s dramatic Bund rout are the quintessential examples).

For a moment, just imagine what would happen if someone yelled “fire” in a very crowded movie theater, and the only exit was a very small doggie door that only one person at a time could squeeze through.  According to experts, that is what the bond market could soon look like

When the unwind comes, like we’ve seen in the past few months, it comes abruptly and sharply as the exit door is tiny,” said Ryan Myerberg, a London-based fund manager at Janus Capital Group Inc., which oversees about $190 billion.

Are you starting to get the picture?

In the end, I believe that those that “squeezed through the door” during this time period are going to be very glad that they got out while they still could.

For much more on the coming bond collapse, check out this YouTube video from Ron Paul in which he explains why we should “prepare for a bear market in bonds”…

Another very prominent voice that is deeply concerned about bonds is Carl Icahn.  The following is what he told CNBC on Wednesday…

Carl Icahn warned investors on Wednesday that he believes the market is “extremely overheated—especially high-yield bonds.”

I think the public is walking into a trap again as they did in 2007,” the activist investor told CNBC’s “Fast Money Halftime Report.” “I think it’s almost the duty of well-respected investors, like myself I hope, to warn people, to tell people, that really you are making errors.”

Icahn compared the current market situation to the prerecession days, when mortgage-backed securities were being widely sold. “It’s almost deja vu,” he said.

Let’s talk about high-yield bonds for a moment.  Prior to the last financial crisis, they started crashing way before stocks did, and now we see the exact same pattern repeating once again.

Normally high yield credit tracks stocks very closely.  When there is a disconnect, that can be a huge sign of trouble.  The following chart comes from Zero Hedge, and it brilliantly demonstrates how similar things are today to the period just before the stock market crash of 2008…

S&P 500 HY Credit

It is glaringly apparent that we are due for a “correction”.  And even though stocks have recently hit brand new record highs, there are rumblings under the surface that a big move down is right around the corner.

For example, USA Today is reporting that mutual fund investors have pulled more money out of stocks than they have put in for 16 weeks in a row….

In a sign of stock market nervousness on Main Street, mutual fund investors have yanked more money out of U.S. stock funds than they put in for 16 straight weeks.

The last time domestic stock funds had positive net cash inflows was in the week ending Feb. 25, according to data from the Investment Company Institute, a mutual fund trade group.

In the week ended June 17, the most recent data available, mutual funds that invest in U.S. stocks suffered net outflows of $3.45 billion, according to the ICI.

Since late February, U.S. stock funds have suffered estimated outflows of nearly $55 billion. Those net withdrawals come despite the fact the benchmark Standard & Poor’s 500 hit a fresh record high of 2130.82 on May 21 and the Dow Jones industrial average notched a fresh record on May 19.

Those that are smart are getting out while the getting is good.

In all the time that I have been publishing The Economic Collapse Blog, I have never seen stocks so primed for a crash.  If you were writing up a scenario for a textbook that imagined what a lead up to a major stock market crash would look like, you could very easily use the last six months as a model.

For a long time, many people out there (including some of my readers) have been very impatiently waiting for the financial markets to crash.  But this is not something that any of us should want to see.  When this next great financial crisis comes, it is going to be absolutely horrible.  Millions upon millions of workers will lose their jobs, and there will be tremendous economic suffering all over the planet.

Tomorrow I plan to share something that is going to shock a lot of people.

It is going to be something that I have never done before, but the time has come.

Stay tuned…

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

Nuclear War - Public DomainAfter all these years, the most famous investor in the world still believes that derivatives are financial weapons of mass destruction.  And you know what?  He is exactly right.  The next great global financial collapse that so many are warning about is nearly upon us, and when it arrives derivatives are going to play a starring role.  When many people hear the word “derivatives”, they tend to tune out because it is a word that sounds very complicated.  And without a doubt, derivatives can be enormously complex.  But what I try to do is to take complex subjects and break them down into simple terms.  At their core, derivatives represent nothing more than a legalized form of gambling.  A derivative is essentially a bet that something either will or will not happen in the future.  Ultimately, someone will win money and someone will lose money.  There are hundreds of trillions of dollars worth of these bets floating around out there, and one of these days this gigantic time bomb is going to go off and absolutely cripple the entire global financial system.

Back in 2002, legendary investor Warren Buffett shared the following thoughts about derivatives with shareholders of Berkshire Hathaway

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so
far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Those words turned out to be quite prophetic.  Derivatives have definitely multiplied in variety and number since that time, and it has become abundantly clear how toxic they are.  Derivatives played a substantial role in the financial meltdown of 2008, but we still haven’t learned our lessons.  Today, the derivatives bubble is even larger than it was just before the last financial crisis, and it could absolutely devastate the global financial system at any time.

During one recent interview, Buffett was asked if he is still convinced that derivatives are “weapons of mass destruction”.  He told the interviewer that he believes that they are, and that “at some point they are likely to cause big trouble”

Thirteen years after describing derivatives as “weapons of mass destruction” Warren Buffett has reaffirmed his view that they pose a threat to the global economy and financial markets.

In an interview with Chanticleer this week, Buffett said that “at some point they are likely to cause big trouble“.

“Derivatives, lend themselves to huge amounts of speculation,” he said.

Most of the time, the big banks that do most of the trading in these derivatives do very well.  They use extremely sophisticated computer algorithms that help them come out on the winning end of these bets most of the time.

But when there is some sort of unforeseen event that suddenly causes a massive shift in the marketplace, that can cause tremendous problems.  This is something that Buffett discussed during his recent interview

“The problem arises when there is a discontinuity in the market for some reason or another.

“When the markets closed like it was for a few days after 9/11 or in World War I the market was closed for four or five months – anything that disrupts the continuity of the market when you have trillions of dollars of nominal amounts outstanding and no ability to settle up and who knows what happens when the market reopens,” he said.

So if the markets behave fairly calmly and predictably, the derivatives bubble probably will not burst.

But no balancing act of this nature ever lasts forever.  Just remember what happened in 2008.  Lehman Brothers collapsed and then the financial system virtually froze up.  According to Forbes, at that time almost everyone was afraid to deal with the big banks because nobody was quite sure how much exposure they had to these risky derivatives…

Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?

The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.

After the crisis, we were promised that something would be done about the “too big to fail” problem.

But instead, the problem of “too big to fail” is now larger than ever.

Since the last financial crisis, the four largest banks in the country have gotten approximately 40 percent larger.  Today, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system.  Without those banks, we would not have much of an economy left at all.

Meanwhile, smaller banks have been going out of business or have been swallowed up by the big banks at a staggering rate.  Incredibly, there are 1,400 fewer small banks in operation today than there were when the last financial crisis erupted.

So we cannot afford for these “too big to fail” banks to actually fail.  Even the failure of a single one would cause a national financial nightmare.  The “too big to fail” banks that I am talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo.  When you total up the exposure to derivatives that all of them currently have, it comes to a grand total of more than 278 trillion dollars.  But when you total up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars.  In other words, the “too big to fail” banks have exposure to derivatives that is more than 28 times the size of their total assets.

I have shared the following numbers with my readers before, but it is absolutely crucial that we all understand how exceedingly vulnerable our financial system really is.  These numbers come directly from the OCC’s most recent quarterly report (see Table 2), and they reveal a recklessness that is almost beyond words…

JPMorgan Chase

Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)

Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)

Citibank

Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)

Goldman Sachs

Total Assets: $856,301,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)

Bank Of America

Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $801,382,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)

Wells Fargo

Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)

Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)

Since the United States was first established, the U.S. government has run up a total debt of a bit more than 18 trillion dollars.  It is the biggest mountain of debt in the history of the planet, and it has grown so large that it is literally impossible for us to pay it off at this point.

But the top five banks in the list above each have exposure to derivatives that is more than twice the size of the national debt, and several of them have exposure to derivatives that is more than three times the size of the national debt.

That is why I keep saying that there will not be enough money in the entire world to bail everyone out when this derivatives bubble finally implodes.

Warren Buffett is entirely correct about derivatives – they truly are weapons of mass destruction that could destroy the entire global financial system at any time.

So as we move into the second half of this year and beyond, you will want to watch for terms like “derivatives crisis” or “derivatives crash” in news reports.  When derivatives start making front page news, that will be a really, really bad sign.

Our financial system has been transformed into the largest casino in the history of the planet.  For the moment, the roulette wheels are still spinning and everyone is happy.  But sooner or later, a “black swan event” will happen that nobody expected, and then all hell will break loose.

Lindsey Williams, Martin Armstrong And Alex Jones All Warn About What Is Coming In The Fall Of 2015

Warnings - Public DomainNot since the financial crash of 2008 have so many prominent people issued such urgent warnings about a specific time period.  Almost daily now, really big names are coming out with chilling predictions about what they believe is going to happen during the second half of 2015.  But it isn’t just that these people have a “bad feeling” about things.  The truth is that we are witnessing a confluence of circumstances and events in the second half of this year that is unprecedented.  This is something that I covered in a previous article that went mega-viral all over the Internet entitled “7 Key Events That Are Going To Happen By The End Of September“.  Personally, I have never been more concerned about any period of time than I am about the second half of 2015.  And as you will see below, I am definitely not alone.

Just a few days ago, I received an email that contained a chilling message from Lindsey Williams.  You can view the same message that came to my email right here.  According to Lindsey Williams, the elite insider that he is in contact with told him that there will be a global financial collapse between September and December of this year…

WARNING!

From Lindsey Williams: I just received an email from my Elite friend.

My Elite friend indicated that they have a World Wide Financial Collapse scheduled between September and the end of December 2015

You may have just THREE (3) months to prepare!

I have a ton of respect for Lindsey Williams, and I would listen to what he has to say very carefully.  Back in 2008, an elite insider told him that the price of oil would drop from $140 a barrel to $40 a barrel, and it happened.  This time around, Williams has been telling us throughout 2013 and 2014 that a global financial collapse was not going to happen during those years, and he was right about that.

But now he is sounding the alarm that one is going to come by the end of this calendar year.

Martin Armstrong is someone else that has been sounding the alarm about the second half of this year.

In fact, Armstrong says that he has “warned that the Big Bang was coming 2015.75″ since 1985.

In the past, I have written entire articles about economic cycle theories and what they indicate is coming in our future.

Armstrong has developed one of his own, and he calls it the Economic Confidence Model.  According to the ECM, the “sovereign debt Big Bang” is scheduled to happen by the end of 2015.  And it turns out that the time period that Armstrong has been pointing to lines up with a whole bunch of other significant events as well

There are many aspects that are lining up with the turn in the ECM (Economic Confidence Model) from the Blood Moon and the Jewish Year for forgiving the debts, to France imposing restrictions on cash in September, and even in Germany the laws that protected about half a million people so-called dachas there in East Germany expire. To date, a law protecting the tenant against dismissal by the municipality will also expire October 3, 2015. Everywhere we look, there are changes coming to a head, right down to the U.S. Federal budget with 2015.75.

In case you are tempted to dismiss this as nonsense, Armstrong has pointed out that his ECM has been accurate “to the day” in the past

Of course the 1987 crash bottomed to the day with the ECM confirming that was the low. The same took place in 1994 where the U.S. share market bottomed right to the day, once again confirming this was an important low.

So will the ECM be right again this time?

Only time will tell, but it should be noted that the global bond market is already starting to crash.  If Armstrong ultimately turns out to be correct, we could be on the verge of a major turning point

This next turning point should be the peak in the concentration of capital and confidence in government. From there on out, 2015.75 should mark the change in trend where people will start to disbelieve government on a grand scale. The debt markets that peak precisely with the target are going to get the worst of it.

Other financial experts are issuing similar warnings, even if they aren’t being quite as specific.

For example, just consider what Jim Rogers had to say recently…

I suspect in the next year or two we will see some kind of major, major problems in the world financial markets.

I would suspect when we have this correction, it’s going to cause central banks to panic. There’s going to come a time when there is not much the central banks can do when they have lost all credibility. When governments have lost all credibility. They will print and spend and borrow, but there comes a time when people are just going to say We don’t want to play this game anymore. And at that point, the world has serious, serious problems because there’s nothing to rescue us.

Perhaps the most sobering warning of all that I have come across in recent days is from Alex Jones.

In the video posted below, he explains that he recently received “two different calls” from “extremely prominent wealthy people” warning him about what is coming by the end of this year and asking him why he isn’t leaving the United States “before October”.

In other words, these individuals believe that something really big is going to happen by the end of September.  This dovetails perfectly with what I have already been warning about.

In this video, Alex also explains that large numbers of insiders are now quietly leaving the country.  I have never seen him quite like this.  I think that so many of us are just in shock that the things that we have been warning about for so long are now actually happening.  Watch this video for yourself and see what you think…

In the financial markets, we are also seeing signals that many people believe that big trouble is right around the corner.  For instance, according to Dana Lyons we haven’t seen bets that the VIX will rise at this level since just before the financial crash of 2008…

As most observers are aware, the VIX tends to rise as the stock market declines. Thus a rising VIX is associated with bad markets. The interesting thing about present conditions in VIX options is that the Put/Call Ratio (using a 21-day average) is at the lowest level since the summer of 2008. That means that there are more bets on a rising VIX versus bets on a falling VIX than we have seen in 7 years. And again, a rising VIX is associated with bad markets.

In other words, investors are betting a tremendous amount of money that we are going to see a rise in volatility in the financial markets in the months ahead.  And as I have explained so many times before, during times of high volatility markets tend to go down very rapidly.  So these bets will pay off very handsomely if there is a financial crash this fall.

Meanwhile, the manager of one of the largest bond funds in the UK is warning that a “systemic event” could soon hit global financial markets and that it is wise to have some “physical cash” at home just in case there is some sort of major emergency.  The following comes from Zero Hedge

The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress.

Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds for Fidelity, including the flagship Moneybuilder Income fund, is concerned that a “systemic event” could rock markets, possibly similar in magnitude to the financial crisis of 2008, which began in Britain with a run on Northern Rock.

“Systemic risk is in the system and as an investor you have to be aware of that,” he told Telegraph Money.

The best strategy to deal with this, he said, was for investors to spread their money widely into different assets, including gold and silver, as well as cash in savings accounts. But he went further, suggesting it was wise to hold some “physical cash”, an unusual suggestion from a mainstream fund manager.

This sounds like what I have been saying for years.  I am a big believer in not having all of your financial eggs in one basket, and I do believe that it is wise to have at least some emergency cash at home.

But to hear it from a member of Britain’s financial elite is definitely unusual to say the least.

Sadly, just like last time, most people are not listening to the warnings.  Back in the summer of 2008, my wife and I went up to visit her parents.  I sat on their sofa and told them that a great financial collapse was about to unfold and that it would shake the entire world.  Of course just a few months later that is exactly what happened.

Now we are on the verge of an even greater financial collapse, and still I find that there are a lot of people out there that are doubters.  Most of these doubters have an immense amount of faith in the system, and they are confident that this debt-fueled bubble of false prosperity that we are currently enjoying can somehow last indefinitely.

I truly wish that the hopeless optimists were right.

I truly wish that I could live out my days in peace and quiet in a world that was safe and stable.

Unfortunately for all of us, things are about to change in a major way.  When it starts happening, don’t forget that there have been people that have been warning you that this would happen all along.

Signs Of Financial Turmoil In Europe, China And The United States

Earth In Peril - Public DomainAs we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe.  In Greece, a full blown bank run is happening right now.  Approximately 2 billion euros were pulled out of Greek banks in just the past three days, Barclays says that capital controls are “imminent” unless a debt deal is struck, and there are reports that preparations are being made for a “bank holiday” in Greece.  Meanwhile, Chinese stocks are absolutely crashing.  The Shanghai Composite Index was down more than 13 percent this week alone.  That was the largest one week decline since the collapse of Lehman Brothers.  In the U.S., stocks aren’t crashing yet, but we just witnessed one of the largest one week outflows of capital from the bond markets that we have ever witnessed.  Slowly but surely, we are starting to see the smart money head for the exits.  As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.

I don’t think that most people understand how serious things have gotten already.  In Greece, so much money has been pulled out of the banks that the European Central Bank admits that Greek banks may not be able to open on Monday

The European Central Bank told a meeting of euro zone finance ministers on Thursday that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday, officials with knowledge of the talks said.

Greek savers have withdrawn about 2 billion euros from banks over the past three days, with outflows accelerating rapidly since talks between the government and its creditors collapsed at the weekend, banking sources told Reuters.

All over social media, people are sharing photos of long lines at Greek ATMs as ordinary citizens rush to get their cash out of the troubled banks.  Here is one example

And if there is no debt deal by the end of this month, the Greek debt crisis is going to totally spin out of control and financial chaos will begin to erupt all over Europe.  But instead of trying to be reasonable, EU president Donald Tusk “has delivered an ultimatum to Greece”, and it almost appears as if EU officials are more concerned about winning a power struggle than they are about averting financial catastrophe…

EU president Donald Tusk has delivered an ultimatum to Greece, claiming the country must ‘accept an offer or default’ at an emergency summit set for Monday – in a last-ditch effort to stop the debt-stricken nation crashing out of the euro.

‘We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default,’ Mr Tusk said today.

His comments come as Greek Prime Minister Alexis Tsipras warned that his country’s exit from the eurozone would trigger the collapse of the single currency.

‘The famous Grexit cannot be an option either for the Greeks or the European Union,’ he said in an Austrian newspaper interview.

‘This would be an irreversible step, it would be the beginning of the end of the eurozone.’

While all of this has been going on, the obscene stock market bubble in China has started to implode.  Just check out the following numbers from Zero Hedge

As the carnage began last night in China we noted the extreme levels of volatility the major indices had experienced in recent weeks. By the close, things were ugly with the broad Shanghai Composite down a stunning 13.3% on the week – the most since Lehman in 2008 (with Shenzhen slightly better at down 12.8% and CHINEXT down a record-breaking 14.99%).

Under normal circumstances, numbers like these would be reason for a full-blown financial panic over in Asia.  But these are not normal times.  Even with these losses, stock prices in China are still massively overinflated.  For example, USA Today is reporting that the median stock over in China is “trading at 95 times earnings”…

Margin debt in China has soared to a record $363 billion, according to Bloomberg, and the median stock in mainland China is now trading at 95 times earnings, which even tops the price-to-earnings multiple of 68 back at the 2007 peak.

That is absolutely ridiculous.  When a stock is trading at 25 or 30 times earnings it is overpriced.  So these numbers that are coming out of China are beyond crazy, and what this means is that Chinese stocks have much, much farther to fall before they get back to any semblance of reality.

Meanwhile, in the U.S. money is flowing out of bonds at a staggering pace.  The following quote originally comes from Bank of America

“High grade credit funds suffered their biggest outflow this year, and double the previous week (and also the biggest since June 2013). High yield outflows also jumped to $1.1bn, the biggest since the start of the year. However, government bond funds suffered the most amid the recent spike in volatility, with outflows surging to the highest weekly number on record ($2.7bn). This brings the total outflow from fixed income funds to almost $6bn over the last week, the highest since the Taper Tantrum and the third highest outflow ever.”

What this means is that big trouble is brewing in the bond markets.  This is something that I warned about in my previous article entitled “Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode“.

For the moment, U.S. stocks are doing fine.  But just about everyone can see that we in a massive financial bubble that could burst at any time.  Presidential candidate Donald Trump says that what we are witnessing is a “big fat economic and financial bubble like you’ve never seen before”

Yesterday during an interview on MSNBC, presidential candidate Donald Trump said he has some big names in mind for the Treasury secretary if he wins the White House. “I’d like guys like Jack Welch. I like guys like Henry Kravis. I’d love to bring my friend Carl Icahn.” He also opined on the economy and the stock market, admitting that the Fed has benefited people like him but that the economy and is in a “big fat economic and financial bubble like you’ve never seen before.

Ron Paul also believes that this financial bubble is going to end very badly.  Just check out what he told CNBC earlier this week

Despite record highs in the market, former Rep. Ron Paul says the Fed’s easy money policies have left stocks and bonds are on the verge of a massive collapse.

“I am utterly amazed at how the Federal Reserve can play havoc with the market,” Paul said on CNBC’s “Futures Now” referring to Thursday’s surge in stocks. The S&P 500 closed less than 1 percent off its all-time high. “I look at it as being very unstable.”

In Paul’s eyes, “the fallacy of economic planning” has created such a “horrendous bubble” in the bond market that it’s only a matter of time before the bottom falls out. And when it does, it will lead to “stock market chaos.”

Yes, this financial bubble has persisted far longer than many believed possible, but all irrational bubbles eventually burst.

And you know what they say – the bigger they come the harder they fall.

When this gigantic financial bubble finally implodes, it is going to be absolutely horrifying, and the entire planet is going to be shocked by the carnage.

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