Something really strange appears to be happening. All over the globe, governments and big banks are acting as if they are anticipating an imminent financial collapse. Unfortunately, we are not privy to the quiet conversations that are taking place in corporate boardrooms and in the halls of power in places such as Washington D.C. and London, so all we can do is try to make sense of all the clues that are all around us. Of course it is completely possible to misinterpret these clues, but sticking our heads in the sand is not going to do any good either. Last week, it was revealed that the U.S. government has been secretly directing five of the biggest banks in America “to develop plans for staving off collapse” for the last two years. By itself, that wouldn’t be that big of a deal. But when you add that piece to the dozens of other clues of imminent financial collapse, a very troubling picture begins to emerge. Over the past 12 months, hundreds of banking executives have been resigning, corporate insiders have been selling off enormous amounts of stock, and I have been personally told that a significant number of Wall Street bankers have been shopping for “prepper properties” in rural communities this summer. Meanwhile, there have been reports that the U.S. government has been stockpiling food and ammunition, and Barack Obama has been signing a whole bunch of executive orders that would potentially be implemented in the event of a major meltdown of society. So what does all of this mean? It could mean something or it could mean nothing. What we do know is that a financial collapse is coming at some point. Over the past 40 years, the total amount of all debt in the United States has grown from about 2 trillion dollars to nearly 55 trillion dollars. That is a recipe for financial armageddon, and it is inevitable that this gigantic bubble of debt is going to burst at some point.
In normal times, the U.S. government does not tell major banks to “develop plans for staving off collapse”.
But according to a recent Reuters article, that is apparently exactly what has been happening….
U.S. regulators directed five of the country’s biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.
The two-year-old program, which has been largely secret until now, is in addition to the “living wills” the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.
Does it seem odd to anyone else that only five really big banks got such a warning?
And why keep it secret from the American public?
Does the federal government actually expect such a collapse to happen?
If federal officials do expect a financial collapse to occur, they would not be the only ones. An increasing number of very respected economists are speaking about the coming financial collapse as if there is a certain inevitability about it.
For example, check out the following quote from a recent Money Morning article….
Richard Duncan, formerly of the World Bank and chief economist at Blackhorse Asset Mgmt., says America’s $16 trillion federal debt has escalated into a “death spiral,” as he told CNBC.
And it could result in a depression so severe that he doesn’t “think our civilization could survive it.”
A former World Bank executive is warning that our civilization might not survive what is coming?
That is pretty chilling.
Economist Nouriel Roubini says that he believes that the coming crisis will be even worse than 2008….
“Worse because like 2008 you will have an economic and financial crisis but unlike 2008, you are running out of policy bullets. In 2008, you could cut rates; do QE1, QE2; you could do fiscal stimulus; you could backstop/ringfence/guarantee banks and everybody else. Today, more QEs are becoming less and less effective because the problems are of solvency not liquidity. Fiscal deficits are already so large and you cannot bail out the banks because 1) there is a political opposition to it; and 2) governments are near-insolvent – they cannot bailout themselves let alone their banks. The problem is that we are running out of policy rabbits to pull out of the hat!”
Across the pond, many European officials are echoing similar sentiments.
What Nigel Farage told King World News the other day is very ominous….
Today MEP (Member European Parliament) Nigel Farage spoke with King World News about what he described as the possibility of, “a really dramatic banking collapse.” Farage also warned that central planners want to enslave and imprison people inside of a ‘New Order,’ and he described the situation as “horrifying.”
The situation in Europe continues to get worse and worse. The authorities in Europe have come out with “solution” after “solution”, and yet unemployment continues to skyrocket and economic conditions in the EU have deteriorated very steadily over the past 12 months.
If all of that was not bad enough, there are an increasing number of indications that Germany is actually considering leaving the euro.
Needless to say, that would be a complete and total disaster for the rest of the eurozone.
Of course there are any number of ways that the financial crisis in Europe could potentially play out.
But all of the realistic scenarios would be very bad for the global economy.
Meanwhile, our resources are dwindling, war in the Middle East could erupt at any moment and our planet is becoming increasingly unstable. The following is from a recent article by Paul B. Farrell on Marketwatch.com….
Fasten your seat belts, soon we’ll all be shocked out of denial. Some unpredictable black swan. A global wake-up call will trigger the Pentagon’s prediction in Fortune a decade ago at the launch of the Iraq War: “By 2020 … an ancient pattern of desperate, all-out wars over food, water, and energy supplies is emerging … warfare defining human life.”
It is almost as if a “perfect storm” is brewing.
Of course the historic drought that is ravaging food production in the United States this summer is not helping matters either. Another summer or two like this one and we could be looking at a return of Dust Bowl conditions.
Anyone that is watching what is going on in the world and is not concerned at all about what is happening is simply being delusional.
Recently, a “team of scientists, economists, and geopolitical analysts” examined the current state of the global economic system and the conclusions they reached were absolutely staggering….
One member of this team, Chris Martenson, a pathologist and former VP of a Fortune 300 company, explains their findings:
“We found an identical pattern in our debt, total credit market, and money supply that guarantees they’re going to fail. This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible.
“And what’s really disturbing about these findings is that the pattern isn’t limited to our economy. We found the same catastrophic pattern in our energy, food, and water systems as well.”
According to Martenson: “These systems could all implode at the same time. Food, water, energy, money. Everything.”
Hmmmm – it sounds like they have been reading The Economic Collapse Blog.
The truth is that a massive worldwide financial collapse is coming.
It is inevitable, and it is going to be extremely painful.
So what do you think about all of this? Please feel free to post a comment with your thoughts below….
We live in a world that is becoming increasingly unstable, and the potential for an event that could cause “sudden change” to the U.S. economy is greater than ever. There are dozens of potentially massive threats that could easily push the U.S. economy over the edge during the next 12 months. A war in the Middle East, a financial collapse in Europe, a major derivatives crisis or a horrific natural disaster could all change our economic situation very rapidly. Most of the time I write about the long-term economic trends that are slowly but surely ripping the U.S. economy to pieces, but the truth is that just a single really bad “black swan event” over the next 12 months could accelerate our economic problems dramatically. If oil was cut off from the Middle East or a really bad natural disaster suddenly destroyed a major U.S. city, the U.S. economy would be thrown into a state of chaos. Considering how bad the U.S. economy is currently performing, it would be easy to see how a major “shock to the system” could push us into the “next Great Depression” very easily. Let us hope that none of these things actually happen over the next 12 months, but let us also understand that we live in a world that has become extremely chaotic and extremely unstable.
In the list below, you will find some “sudden change” events that are somewhat likely and some that are quite unlikely. I have tried to include a broad range of potential “black swan events”, but there are certainly dozens more massive threats that could potentially be listed.
The following are 15 potentially massive threats to the U.S. economy over the next 12 months….
#1 War With Syria – U.S. Senator John McCain is now publicly calling for U.S. airstrikes against Syria. A military conflict with Syria becomes more likely with each passing day.
#2 War With Iran – A war in the Middle East involving Iran could literally erupt at any time. The following is from a Reuters news report that was issued on Monday….
President Barack Obama appealed to Benjamin Netanyahu on Monday to give sanctions time to curb Iran’s nuclear ambitions, but the Israeli prime minister offered no sign of backing away from possible military action, saying his country must be the “master of its fate.”
#3 A Disorderly Greek Debt Default – Many reporters in Europe seem to think that this is becoming increasingly likely. So what would a disorderly Greek debt default mean for the global financial system? A leaked report that was authored by the Institute of International Finance says that a disorderly Greek debt default would have some very serious consequences. You can read the full text of that leaked report right here.
#4 An Economic Collapse In Spain – Spain has one of the largest economies in Europe and it is rapidly becoming a basket case. As I have written about previously, the unemployment rate in Spain has hit 19.9 percent, and the unemployment rate for workers under the age of 25 is up to 49.9 percent. Unfortunately, the situation in Spain continues to deteriorate. The following is from a recent article by Marc Chandler….
However, the devolution in Spain is particularly troubling. The new fiscal compact had just been signed last week, which includes somewhat more rigorous fiscal rule and enforcement, when Spain’s PM Rajoy revealed that this year’s deficit would come in around 5.8 percent of GDP rather the 4.4 percent target. This of course follows last year’s 8.5 percent overshoot of the 6 percent target.
The problem that for Spain is that the 4.4 percent target was based on forecasts for more than 2 percent growth this year. However, in late February, the EU cuts its forecast to a 1 percent contraction. This still seems optimistic. The IMF forecasts a 1.7 percent contraction, which the Spanish government now accepts.
#5 The Price Of Gasoline – The average price of a gallon of gasoline in the United States has risen for 27 days in a row and is now up to $3.77. Virtually all forms of economic activity are affected by the price of gasoline, and if the price of gas keeps going up it is eventually going to have dramatic consequences for the U.S. economy.
#6 The Student Loan Debt Bubble – Just like we saw with the housing bubble, the student loan debt bubble just continues to grow and grow and grow. At some point the nearly 1 trillion dollar bubble is going to burst. What effect will it have on our financial system when that finally happens?
#7 State And Local Government Debt Crisis – It is being reported that California is running out of cash again and there are cities all over the country that are on the verge of bankruptcy. Could we see a significant municipal bond crisis in the next 12 months?
#8 The Collapse Of A Major U.S. Bank – A number of top U.S. banks are looking increasingly shaky. In a recent article, David Trainer explained why he has such serious concerns about Bank of America right now….
In my opinion, there are four actions taken by financial services that signal the company is headed to serious trouble.
1. Management shake-up and major layoffs – lots of layoffs over the past year
2. Exploiting accounting rules to boost earnings – SFAS 159
3. Drawing down reserves to boost earnings: to the tune of $13.3 billion in 2011 and 2012
4. Bilking customers with new fees: tried it before and trying it again
Bank of America has taken all four steps.
#9 A Derivatives Crisis – The International Swaps and Derivatives Association recently ruled that the Greek debt deal will not trigger payouts on credit default swaps. This is seriously shaking confidence in the global market for derivatives. But the global financial system simply cannot afford a major derivatives crisis.
Estimates of the notional value of the worldwide derivatives market range from $600 trillion all the way up to $1.5 quadrillion. The notional value of all derivatives held by Bank of America is approximately $75 trillion. JPMorgan Chase is holding derivatives with a notional value of approximately $79 trillion.
When the derivatives bubble finally bursts it is going to be a financial horror show unlike anything we have ever seen.
#10 The Fall Of The Japanese Economy – The Japanese economy shrank at a 2.3 percent rate during the fourth quarter of 2011. Japan has a debt to GDP ratio of over 200 percent and a major debt crisis involving Japan could erupt at any time.
#11 A “Solar Megastorm” – Scientists tell us that there is a “1 in 8 chance” that a “solar megastorm” will hit the earth by 2014. A recent Daily Mail article detailed what some of the consequences of such an event would be….
‘We live in a cyber cocoon enveloping the Earth. Imagine what the consequences might be,’ Daniel Baker, of the University of Colorado’s Laboratory for Atmospheric and Space Physics told National Geographic when asked about a potential ‘megastorm’.
‘Every time you purchase a gallon of gas with your credit card, that’s a satellite transaction.
‘Imagine large cities without power for a week, a month, or a year. The losses could be $1 to $2 trillion, and the effects could be felt for years.
#12 A Major West Coast Earthquake Or Volcanic Eruption – On Monday, there was a 4.0 earthquake in San Francisco and a 6.1 earthquake in Argentina. Is the “Ring of Fire” waking up again?
#13 Tornado Damage To Major U.S. Cities – Last year, the U.S. experienced one of the worst tornado seasons of all time. This year, we have already seen the worst tornado outbreak ever recorded in the United States in the month of March. A couple of towns in Indiana were completely wiped out by that outbreak. So what should we expect when we get to the heart of tornado season this year?
#14 Severe Drought In The United States – Last summer was one of the driest summers on record in the United States, and in many areas there is simply not enough water available for farmers this year. Some are even projecting that we could see “dust bowl conditions” return to some areas of the country eventually.
#15 An Asteroid Strike In 2013 – Although scientists tell us that the probability is extremely low, the truth is that there is a slight chance that a sizeable asteroid could hit the earth in February 2013. The asteroid is estimated to be between 60 and 100 meters wide, and it is projected to pass by our planet “at a distance of under 27,000 km“. If it did hit us (and scientists say that the odds of that happening are very low) it would potentially be as serious an event as the Tunguska Event in Siberia in 1908. Mac Slavo of shtfplan.com recently described how awesome the Tunguska Event really was….
On June 30, 1908 an incoming meteor exploded approximately 5 miles above Siberia. The force of the air burst explosion, estimated at between 15 and 30 megatons, or about 1000 times bigger than the atomic bomb that destroyed Hiroshima, was so powerful that it annihilated everything in an 830 square mile area, and reports suggest that that explosion was heard up to 1000 miles away. Because of the remoteness of the impact zone, the Tunguska Event over Siberia had very little effect on the human population in the region, but the destruction of some 80 million trees in the area shows just how powerful a blast was created.
Of course there are so many other “sudden change” events that could potentially happen – a terror event in a major U.S. city, a deadly pandemic, an EMP attack, cyberterrorism or a major political scandal could all possibly cause a stock market crash and an economic collapse in the United States.
In the world that we are living in today, you just never know what is going to happen.
So what are all of you concerned about over the next 12 months?
Do you see the potential for some “black swan events” to happen?
Please feel free to post a comment with your thoughts below….
Do you want to see what a 21st century economic depression looks like? Just look at Greece. Once upon a time, the Greek economy was thriving, the Greek government was borrowing money like there was no tomorrow and Greek citizens were thoroughly enjoying the bubble of false prosperity that all that debt created. Those that warned that Greece was headed for a financial collapse were laughed at and were called “doom and gloomers”. Well, nobody is laughing now. You see, the truth is that debt is a very cruel master. Greeks were able to live way beyond their means for many, many years but eventually a day of reckoning arrived. At this point, the Greek economy has been in a recession for five years in a row, and the economic crisis in that country is rapidly getting even worse. It was just recently announced that the overall rate of unemployment in Greece has soared above 20 percent and the youth unemployment rate has risen to an astounding 48 percent. One out of every five retail stores has been shut down and parents are literally abandoning children in the streets. The frightening thing is that this is just the beginning. Things are going to get a lot worse in Greece. And in case you haven’t been paying attention, these kinds of conditions are coming to the United States as well. We are heading down the exact same road as Greece went down, and the economic pain that this country is eventually going to suffer is going to be beyond anything that most Americans would dare to imagine.
All debt spirals eventually come to an end. For years, Greece borrowed huge amounts of very cheap money, but there came a point when the debt became absolutely strangling and the rest of the world refused to lend the Greek government money at such cheap rates anymore.
Greece would have defaulted long before now if the EU and the IMF had not stepped in to bail them out. But along with those bailouts came strings. The EU and the IMF insisted that the Greek government cut spending and raise taxes.
Well, those spending cuts and tax increases caused the economy to slow down. Tax revenues decreased and deficit reduction targets were missed. So the EU and the IMF insisted on even more spending cuts and tax increases.
Even after all of the spending cuts and all of the tax increases that we have seen, the debt to GDP ratio in Greece is still higher than it was before the crisis began. Today, the Greek national debt is sitting at 142 percent of GDP.
Now the EU and the IMF are demanding even more austerity measures before they will release any more bailout money.
Needless to say, the Greek people are pretty much exasperated by all of this. They created this mess by going into so much debt, but they certainly don’t like the solutions that are being imposed upon them.
Protesters in Greece are absolutely outraged that the EU and the IMF are now demanding a 22 percent reduction in the minimum wage.
Most families in Greece are just barely surviving at this point. Unfortunately, Greece is probably looking at depression conditions for many years to come.
Over the past three years, the size of the Greek economy has shrunk by 16 percent.
In 2012, it is being projected that the Greek economy will shrink by another 5 percent.
Sadly, that projection is probably way too optimistic.
Over the past couple of months, it has been like someone has pulled the rug out from under the Greek economy. Just check out the following numbers from an article in the Telegraph by Ambrose Evans-Pritchard….
Another normal day at the Hellenic Statistical Authority.
We learn that:
Greece’s manufacturing output contracted by 15.5pc in December from a year earlier.
Industrial output fell 11.3pc, compared to minus 7.8pc in November.
Unemployment jumped to 20.9pc in November, up from 18.2pc a month earlier.
I have little further to add. This is what a death spiral looks like.
Can you imagine unemployment going up by 2.7 percent in one month?
This is what a 21st century economic depression looks like.
And needless to say, civil unrest is rampant in Greece.
The following is how a USA Today article described some of the protests that we saw in Greece this week….
Scores of youths, in hoods and gas masks, used sledge hammers to smash up marble paving stones in Athens’ main Syntagma Square before hurling the rubble at riot police.
The country’s two biggest labor unions stopped railway, ferry and public transport schedules, and hospitals worked on skeleton staff while most public services were disrupted. Unions were planning protests in Athens and other cities around midday.
Greek citizens are exasperated by the endless rounds of austerity that are being imposed upon them. They wonder how far all of this is going to go.
How much higher can taxes go in Greece? Greece already has tax rates that are among the highest in Europe….
Greece has the third highest rate of VAT in Europe, second highest gas/petrol tax, third highest tax on social insurance contributions, fifth highest VAT on alcohol, highest property tax and one of the worst corporate tax rates, without the quality of living or competitiveness to match.
How much farther can government pay be cut? Greek civil servants have had their incomes slashed by about 40 percent since 2010.
How would you feel if your pay was reduced by 40 percent?
Large numbers of Greeks are rapidly reaching the end of their ropes. The following is from a recent article in the Independent….
“People are scared and haven’t really realised what’s happening yet,” George Pantsios, an electrician for the country’s public power corporation, said. He has only been receiving half of his €850 monthly wage since August. “But once we all lose our jobs and can’t feed our kids, that’s when it’ll go boom and we’ll turn into Tahrir Square.”
Instead of turning violent, others are simply giving in to despair. According to the Daily Mail, large numbers of Greek children are being abandoned because their parents simply cannot afford to take care of them anymore. The note that one mother left with her little toddler was absolutely heartbreaking….
One mother, it said, ran away after handing over her two-year-old daughter Natasha.
Four-year-old Anna was found by a teacher clutching a note that read: ‘I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.’
Sadly, there are an increasing number of Greeks that are giving up on life entirely. The number of suicides in Greece rose by 40 percent during just one recent 12 month time period.
But we haven’t even seen the worst in Greece yet. The worst is still yet to come.
And the people of Greece are going to get angrier and angrier and angrier.
According to one recent poll, about 90 percent all of Greeks are unhappy with the interim government led by Prime Minister Lucas Papademos.
This week, that government has started to fall apart. Over just the past few days, 6 members of the 48-member government cabinet have resigned. Not only is there real doubt if the new austerity measures will be approved, there is very real doubt if this government will be able to hold together much longer.
Frustration with the EU and the IMF has reached a fever pitch in Greece. Just check out what Reuters is reporting….
In a letter obtained by Reuters on Friday, the Federation of Greek Police accused the officials of “…blackmail, covertly abolishing or eroding democracy and national sovereignty” and said one target of its warrants would be the IMF’s top official for Greece, Poul Thomsen.
So what is going to happen next in Greece?
The truth is that nobody knows.
But whatever kind of “deals” are reached, the reality is that nothing is going to keep Greece from continuing to experience depression-like conditions for quite some time.
Unfortunately, Greece is not an isolated case.
Portugal, Ireland, Italy and Spain are all going down the same path and Europe does not have enough money to bail all of them out.
To get an idea of how much money it would take to bail out the financially troubled nations of Europe, just check out this infographic that was recently posted on ZeroHedge.
A day of reckoning is coming for the United States as well. As CNBC recently noted, the U.S. debt problem is far worse than the European debt problem is.
That is why I have written over and over about the U.S. national debt and about how the U.S. government is spending too much money.
Right now, the U.S. government is still able to borrow gigantic mountains of very cheap money and is spending money as if tomorrow will never come.
Well, just like we saw in Greece, when debt gets out of control a day of great pain eventually arrives.
What we are watching unfold in Greece right now is coming to America.
You better get ready.
Over the past couple of weeks, George Soros, the IMF and the World Bank have all issued incredibly chilling warnings about the possibility of an impending economic collapse. Considering the power and the influence that Soros, the IMF and the World Bank all have over the global financial system, this is very alarming. So are they purposely trying to scare the living daylights out of us? Soros is even warning of riots in the streets of America. Unfortunately, way too often top global leaders say something in public because they want to “push” events in a certain direction. Do George Soros and officials at the IMF and World Bank hope to prevent a worldwide financial collapse by making these statements, or are other agendas at work? We may never know. But one thing is for sure – many of the top financial officials in the world are using language that is downright “apocalyptic”, and that is not a good sign for the rest of 2012.
Right now, George Soros is saying things that he has never said before. Just check out what George Soros recently told Newsweek….
“I am not here to cheer you up. The situation is about as serious and difficult as I’ve experienced in my career,” Soros tells Newsweek. “We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.”
Later on in that same article, Soros is quoted as saying that we could soon see the U.S. government using “strong-arm tactics” to crack down on rioting in the streets of major U.S. cities….
As anger rises, riots on the streets of American cities are inevitable. “Yes, yes, yes,” he says, almost gleefully. The response to the unrest could be more damaging than the violence itself. “It will be an excuse for cracking down and using strong-arm tactics to maintain law and order, which, carried to an extreme, could bring about a repressive political system, a society where individual liberty is much more constrained, which would be a break with the tradition of the United States.”
It almost sounds like George Soros is anticipating the same kind of a breakdown of society that many survivalists and preppers are getting ready for.
So how bad are things going to get?
Well, George Soros is publicly warning that the coming financial crisis could end up being even worse than 2008. Just check out the following quotes from him that appeared in a recent Businessweek article….
Billionaire investor George Soros said Europe’s sovereign-debt woes are “more serious” than the financial crisis of 2008 and that the world faces the prospect of a “vicious circle” of deflation.
“We have a more dangerous situation now than in 2008,” Soros, 81, said in response to a question at an event in the southern Indian city of Bangalore today. “The crisis in Europe is more serious than the crash of 2008.”
But George Soros is not the only one issuing these kinds of warnings.
Once again, the head of the IMF, Christine Lagarde, has made a speech in which she openly warned that we are heading for a repeat of the “1930s”.
She told an audience in Berlin on Monday that the globe is facing “a 1930s moment, in which inaction, insularity and rigid ideology combine to cause a collapse in global demand”.
During the speech she called for a trillion more dollars to support financially troubled governments, and she made the following statement….
“It is not about saving any one country or region. It is about saving the world from a downward economic spiral.”
As I wrote about the other day, the World Bank has also been using apocalyptic language about the global financial situation. In a shocking new report, the World Bank revised GDP growth estimates for 2012 downward very sharply, it warned that Europe could be facing financial collapse at any time, and it instructed the rest of the world to “prepare for the worst.”
The lead author of the report, Andrew Burns, said that the “importance of contingency planning cannot be stressed enough” and that if there is a major financial crisis in Europe the entire globe will be deeply affected….
“An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09.”
So should we be alarmed that George Soros, the IMF and the World Bank are all proclaiming that a financial nightmare could be just around the corner?
Of course we should be.
Whether their motives are pure or not, they are telling the truth about the global financial situation in this case. As I have written about so frequently, there are a whole host of signs that indicate that we could be on the verge of a major global recession.
A lot of folks in the investment world are warning that hard times are about to hit us as well. For example, the following is what legendary investor Joseph Granville recently told Bloomberg Television….
Joseph Granville, whose “sell everything” call in 1981 sparked a decline in U.S. stocks, said the Dow Jones Industrial Average (INDU) will drop toward 8,000 this year because of waning momentum and volume.
“Volume precedes prices,” Granville, 88, a technical analyst who has been publishing the Granville Market Letter from Kansas City, Missouri for about 50 years, said in an interview on “Street Smart” on Bloomberg Television. “You are seeing much lower volume. That tells you that prices are going to go much lower, much lower than most people think possible and very few people have projected.”
Considering all of the warnings out there, it only seems prudent to prepare for the worst.
But unfortunately, a lot of people are just going to leave their holdings sitting out there like a dead duck, and they are going to be absolutely devastated by the coming financial tsunami.
Those that believe that the United States can somehow escape the coming financial storm don’t really know what they are talking about.
In fact, there was very troubling news for the U.S. dollar just the other day. It was announced that India will start paying for its oil from Iran in a currency other than U.S. dollars.
But this is just another sign that the rest of the world is starting to reject the U.S. dollar. For decades, the U.S. dollar has been the reserve currency of the world and this has given us a tremendous advantage. Unfortunately for us, that is now changing.
U.S. newspapers are not talking about what is going on, but mainstream newspapers in Europe are. Right now, some of the biggest countries in the world are working on plans to quit using U.S. dollars for the buying and selling of oil.
The following comes from a recent article in The Independent….
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
This is a very big deal, and if this gets pulled off it is going to have devastating consequences for the U.S. dollar and for the U.S. economy.
But of course when it comes to troubles for the U.S. financial system, there are a whole host of issues that could be talked about.
An environment for a “perfect storm” is developing, and most Americans have absolutely no idea what is about to happen.
Fortunately, there are some researchers out there that are working hard to sound the alarm bells. For example, the following quote comes from a recent interview with Gerald Celente….
I believe that we have to watch out for something along the lines of an economic martial law. The European system is in collapse. The financial system in the United States is just as tenuous, if not more, and I believe they will not admit there will be a financial crash but rather they will use a geo-political issue to get the people in a state of fear and hysteria whereby they’ll then call a bank holiday or devaluation of the currency, or a hyperinflation of the currency, and blame it on somebody else.
It would be wise to listen to what experts such as Gerald Celente are saying.
Now is the time to take stock of where you are at and to make plans for the coming year.
Just because things have “always” been a certain way does not mean that they will continue to be that way.
Just because certain things have “always” worked in the past does not mean that they will continue to work in the future.
Our world is experiencing fundamental changes. It is changing at a faster pace than we have ever seen before. The way that we all live our lives five or ten years from now will be vastly different from how we live our lives today.
This will be a very challenging time to be alive, but it is also going to be a very exciting time to be alive.
So what do all of you think is going to happen in 2012?
Please feel free to leave a comment with your thoughts below….
Do you believe that 2012 will be more difficult for the global economy than 2011 was? Well, that is what German Chancellor Angela Merkel believes. The woman that has become the most important politician in Europe recently declared that 2012 “will no doubt be more difficult than 2011″. The funny thing is that she has generally been one of the most optimistic public figures in Europe throughout this debt crisis. But now even Merkel is openly admitting that 2012 is going to be a really, really bad year. Sadly, most Americans simply do not understand how important Europe is or how interconnected the global financial system has become. The United States actually has a smaller population and a smaller economy than the EU does. In fact, the EU has an economy that is nearly as large as the economies of the United States and China combined. The EU also is home to more Fortune 500 companies that the U.S. is, and the European banking system is far larger than the U.S. banking system. Anyone that does not believe that a financial collapse in Europe will have a devastating impact on the U.S. economy is living in a fantasy world. Americans better start paying attention to what is going on over there, because we are about to be broadsided by a massive financial tsunami originating out of Europe.
It is not just Angela Merkel that is warning that 2012 is going to be a difficult year. The following are several more very prominent individuals that are warning that bad times are on the way….
*Citigroup’s chief equity strategist, Tobias Levkovich, recently made the following statement….
“Europe is likely to have a meaningful recession in 2012″
*Christine Lagarde, the head of the IMF, recently said that we could soon see conditions “reminiscent of the 1930s depression” and that no country on earth “will be immune to the crisis”.
* Willem Buiter, the chief economist at Citigroup, recently said the following….
“Time is running out fast. I think we have maybe a few months — it could be weeks, it could be days — before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it.”
* Even Paul Krugman of the New York Times is sounding quite apocalyptic….
“At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.”
I have written quite a bit recently about all of the signs that parts of Europe have already entered a recession.
Well, in just the past few days even more numbers have been released that indicate that a recession has now begun in Europe…..
-Manufacturing activity in the euro zone has fallen for five months in a row.
-Bad loans in Spain recently hit a 17-year high and the unemployment rate is at a 15-year high.
-Government revenues in Spain have not been up to the level that was expected. The Spanish government just announced that the budget deficit for 2011 is going to end up being much larger than anticipated.
-Unfortunately, it appears that virtually all sectors of the Spanish economy seem to be slowing down….
The central bank said early indicators show that Spanish tourism, exports, spending and investment have been hit, which is likely to have led to a contraction in GDP in the fourth quarter.
Of course one of the most alarming things happening in Europe is the rapid contraction of the money supply. It is almost impossible to avoid a recession when the money supply shrinks substantially. The following comes from an article a few days ago in the Telegraph….
Simon Ward from Henderson Global Investors said the ECB’s “narrow” M1 money figures – tracked for clues on shorter-term spending patterns – show a drastic divergence between the North and South of the eurozone. “Parts of the core may avoid recession but there is no light at the end of the tunnel for the periphery. Real M1 deposits in Greece and Portugal have been falling at an annual rate of roughly 20pc over the last six months,” he said.
Right now, the rest of Europe is heading down the same road that Greece has been traveling on for several years.
Today, Greece is essentially bankrupt and is experiencing a full-blown depression. At this point, nobody in Europe is even pretending that Greece is going to be okay. The following comes from a recent Der Spiegel article….
“With debts amounting to 150 percent of GNP, Greece is de facto bankrupt. Over the course of 2011, even the leading representatives of the euro zone finally accepted this fact — after having claimed its opposite a year previously.”
Greece desperately needs relief from all of this debt, but the other nations in the eurozone do not want to provide that relief. Instead, it looks like Germany is going to ask private creditors to take an even bigger “haircut” on Greek debt than previously proposed. The following comes from a recent Bloomberg article….
“Germany’s government declined to comment on a report that it may push for creditors to accept bigger losses on Greek debt than previously agreed upon, saying only that talks on lowering Greece’s debt level may end soon.
Germany is studying a proposal to write down 75 percent of Greek government bonds held by private creditors as part of a planned debt swap to ensure greater debt sustainability”
If Germany ends up publicly proposing this, it will shatter what confidence is left in European sovereign bonds.
There is not that much of a difference between a 75 percent haircut and a full default. If investors are forced to take a 75 percent haircut on Greek debt, then the financial world will have to start wondering if it is just a matter of time before giant haircuts are proposed for Italian debt, Spanish debt, Portuguese debt and Irish debt as well.
Hopefully Germany will not be this stupid.
But something has to be done about Greece. Right now the IMF is projecting that Greek debt will reach 200% of GDP at some point in 2012 if changes are not made.
Of course Greece could cut government spending even more, but the cuts that have already been made have pushed that country into a total economic nightmare.
In a recent article, I discussed how the brutal austerity measures that we have seen have plunged the economy of Greece into a full-blown depression….
Just look at what happened to Greece. Greece was forced to raise taxes and implement brutal austerity measures. That caused the economy to slow down and tax revenues to decline and so government debt figures did not improve as much as anticipated. So Greece was forced to implement even more brutal austerity measures. Well, that caused the economy to slow down even more and tax revenues declined again. In Greece this cycle has been repeated several times and now Greece is experiencing a full-blown economic depression. 100,000 businesses have closed and a third of the population is living in poverty. But now Germany and France intend to impose the “Greek solution” on the rest of Europe.
The “solution” that the EU and the IMF have imposed on Greece is not working.
So why are all of the other troubled nations in Europe being pushed down the same path?
Just consider the following statistics out of Greece….
*The unemployment rate for those under the age of 24 is 39 percent.
*The number of suicides has increased by 40 percent in the past year.
*Thefts and burglaries nearly doubled between 2007 and 2009.
Is that what we want to see throughout the rest of Europe?
The financial path that Europe is now on was criticized very harshly recently in the New York Times….
“Every government in Europe with the exception of Germany is bending over backwards to prove to the market that they won’t hesitate to do what it takes,” said Charles Wyplosz, a professor of economics at the Graduate Institute of Geneva. “We’re going straight into a wall with this kind of policy. It’s sheer madness.”
Yes, it is sheer madness.
Right now, authorities in Europe are desperately trying to keep a lid on this crisis. The European Central Bank has been trying really hard to keep the yield on 10 year Italian bonds from rising above the very important 7 percent level. But unless the ECB is prepared to spend hundreds and hundreds of billions of euros buying up Italian debt in 2012, the yield on Italian bonds is likely to go much higher eventually.
At this point, it is hard to find any economist that is optimistic about Europe or about the euro in 2012.
One of the leading economic think tanks in Europe, the Centre for Economics and Business Research, is extremely pessimistic about the future of the euro as we enter 2012….
“It now looks as though 2012 will be the year when the euro starts to break up”
In fact, they say that there is a 99 percent chance that the eurozone will break up within the next ten years.
Terry Smith, the chief executive of Tullett Prebon, recently used language that was even more apocalyptic….
“If the eurozone crisis could be solved by confident pronouncements, it would already be saved. I would be shocked if Greece does not leave the eurozone in 2012 and this does not lead the markets to test the resolve to defend the positions of Portugal, Spain, Italy and, ultimately, France.”
Yes, there are a whole lot of people out there saying that 2012 will be more difficult than 2011.
Fortunately, there are a few nations out there that are choosing to try some different things.
We aren’t hearing much about it in the United States, but right now Hungary is actually taking some measures to get their central bank under control.
The following comes from a recent article in the Telegraph….
Hungary passed laws for its central bank in a move that experts warned could jeopardise its chances of securing international bail-out funds if it needs them. Officials from the International Monetary Fund (IMF) have warned about the rules which will undermine the independence of the central bank. Hungarian prime minister Viktor Orban the country would not bow to the “European fashion that the central bank must be in a sacred state of independence”.
Of course the IMF is absolutely furious about this. The IMF is warning that there will be no bailouts for Hungary if they mess with the “independence” of the central bank.
But hopefully more countries out there will start going after their central banks. The truth is that it is the central banks and the endless debt spirals that they create that got us into this mess in the first place.
If central banking truly worked, Europe would not be in such a massive amount of trouble. The euro would not be dropping like a rock and the European financial system would not be paralyzed by panic and fear.
The reality is that central banking does not work and it a colossal failure.
For example, in the United States the U.S. dollar has lost well over 95 percent of its value since the Federal Reserve was created, and the U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was created.
It is amazing that there is anyone out there that is still willing to defend central banking.
2012 is going to be one of the most interesting years that we have seen in a long, long time.
Yes, 2012 will be more difficult than 2011 was, but it will also be a great opportunity to wake people up.
Our world is changing faster than ever before, and the Internet has made it possible for average people such as you and I to significantly participate in that change.
Resolve to do what you can to make a difference in this world in 2012, because time is rapidly running out.
The global economy is heading for a massive amount of trouble in the months ahead. Right now we are seeing the beginning of a credit crunch that is shaping up to be very reminiscent of what we saw back in 2008. Investors and big corporations are pulling huge amounts of money out of European banks and nobody wants to lend to those banks right now. We could potentially see dozens of “Lehman Brothers moments” in Europe in 2012. Meanwhile, bond yields on sovereign debt are jumping through the roof all over Europe. That means that European nations that are already drowning in debt are going to find it much more expensive to continue funding that debt. It would be a huge understatement to say that there is “financial chaos” in Europe right now. The European financial system is in so much trouble that it is hard to describe. The instant that they stop receiving bailout money, Greece is going to default. Portugal, Italy, Ireland, Spain and quite a few other European nations are also on the verge of massive financial problems. When the financial dominoes start to fall, the U.S. financial system is going to be dramatically affected as well, because U.S. banks have a huge amount of exposure to European debt. The other day, I noted that investor Jim Rogers is saying that the coming global financial collapse “is going to be worse” than 2008. Sadly, it looks like he is right on the money. We are in a lot of trouble my friends, and things are going to get really, really ugly.
The sad thing is that we never have recovered from the last major financial crisis. Right now, the U.S. economy is far weaker than it was back in 2007. So what is going to happen if we get hit with another financial tsunami? The following is what PIMCO CEO Mohamed El-Erian said recently….
“What’s most terrifying, we are having this discussion about the risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time then the fiscal deficit is at 9 percent and at a time when interest rates are at zero.”
Can things really get much worse than they are now?
Unfortunately, yes they can.
Not that things are not really, really bad right now.
In Los Angeles earlier this week, approximately 10,000 people lined up for free turkey dinners.
So how many people will be lining up for free food when the unemployment rate in the U.S. soars into double digits?
Right now there is so much economic pain in America that it is hard to describe. According to a recent report from one nonprofit group, 45 percent of all people living in the United States “do not have enough money to cover housing, food, healthcare and other basic expenses”.
If this is where we are at now, how much trouble will we be in as a nation if a financial crisis worse than 2008 hits us in 2012?
The primary cause of the coming financial crisis will almost certainly be the financial meltdown that we are seeing unfold in Europe.
The economic downturn that began in 2008 caused the debt levels of quite a few European nations to soar to unprecedented heights. It has gotten to the point where the debts of many of those nations are no longer sustainable.
So investors are starting to demand much higher returns for the much greater risk associated with investing in the bonds of those countries.
But that makes it much more expensive for those troubled nations to fund their debts, and that means that their financial troubles get even worse.
Over the past 12 months, what we have seen happen to bond yields over in Europe has been nothing short of amazing.
Just check out this chart of what has been happening to the yield on 2 year Italian bonds over the past 12 months.
And keep in mind that these bond yields have been spiking even while the European Central Bank has been buying up unprecedented mountains of bonds in an attempt to keep bond yields low.
There has been a fundamental loss of faith in the financial system, and it is not just happening in Europe.
Just check out this chart. As that chart shows, credit default swap spreads all over the globe are absolutely skyrocketing and are now higher than we have seen at any point since the great financial crisis that shook the world during 2008 and 2009.
Panic and fear are everywhere – especially in Europe. In fact, it looks like a run on the banks has already begun in Europe.
The following comes from a recent article in The Economist….
“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”
Nobody wants to lend money to European banks right now. There is a feeling that they are all vulnerable and could fail at any time, and this lack of confidence actually makes that possibility even more likely.
The following is a short excerpt from a recent CNBC article….
Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.
And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.
So what can be done?
Well, in a different CNBC article, Mitchell Goldberg was quoted as saying that even “a bazooka” is not going to be good enough to fix this situation….
“It’s too late for a bazooka,” said Mitchell Goldberg, president of ClientFirst Strategy. “Now we need inter-continental ballistic missiles. This is getting worse very quickly.”
This is kind of like watching a horrific car wreck happen in very slow motion.
The financial system of Europe is dying and everybody can see what is happening but nobody can seem to find a way to fix it.
Not that we are solving our own problems here in the United States.
The vaunted “supercommittee” that was supposed to get a handle on our debt problem was a complete and utter failure.
Barack Obama has shown that he has no clue what to do when it comes to the economy, and Ben Bernanke has been preoccupied with roaming around the country trying to get people to feel more “warm and fuzzy” about the Federal Reserve.
The Federal Reserve actually has more power over our economy than anyone else. But instead of fixing things they only keep making things even worse.
The only people that the Fed seems to be helping are the banksters.
What you are about to read should really, really upset you. According to a recent article in the Wall Street Journal, the Federal Reserve has actually been tipping off their upcoming moves to top financial professionals. In turn, these financial professionals have been using that information to make a lot of money for themselves and for their clients….
Hours after an Aug. 15 meeting with Federal Reserve Chairman Ben Bernanke in his office, Nancy Lazar made a hasty call to investor clients: The Fed was dusting off an obscure 1960s-era strategy known as Operation Twist.
The news pointed to a boom in long-term bonds.
It was a good call. Over the next five weeks, prices on 10-year Treasury bonds soared, offering double-digit returns in an otherwise dismal year.
By the time the Fed announced its $400 billion Operation Twist on Sept. 21, the window for quick profits had all but slammed shut.
Ms. Lazar is among a group of well-connected investors and analysts with access to top Federal Reserve officials who give them a chance at early clues to the central bank’s next policy moves, according to interviews and hundreds of pages of documents obtained by The Wall Street Journal through open records searches.
You just can’t make stuff like this up. The corruption at the Federal Reserve is totally out of control. After nearly 100 years of total failure, it is time to shut down the Federal Reserve.
Not that Barack Obama should get a free pass for the role that he has played in this economic downturn. He inherited a complete mess from Bush and has made it even worse.
Today, millions of business owners are so frustrated with Washington D.C. that they don’t know what to do.
For example, one business owner down in Georgia has posted signs with the following message on all of his company’s trucks….
“New Company Policy: We are not hiring until Obama is gone.”
The business environment in this country becomes more toxic with each passing year, and the federal government has already strangled millions of small businesses out of existence.
In addition, politicians from both parties continue to stand aside as tens of thousands of businesses, millions of jobs and hundreds of billions of dollars of our wealth get shipped out of the country.
During 2010, an average of 23 manufacturing facilities a day were shut down in the United States. We are committing national economic suicide, and the top politicians in both political parties keep cheering for more.
Well, millions of ordinary Americans can see what is happening and they are preparing for the worst.
The following report comes from an article that was recently posted on the website of the local CBS affiliate in St. Louis….
A chain of three stores that sells survival food and gear reports a jump in sales to people who are getting prepared for the “possible collapse” of society.
“We had to order fifty cases of the meals ready to eat to keep up with the demand in the past three months,” said manager Steve Dorsey at Uncle Sam’s Safari Outfitters Inc. in Webster Groves. “That’s not normal. Usually we sell 20 to 30 cases in a whole year.”
So are you prepared for the coming collapse?
If you still have a great job and things are still going well for you, then you should definitely be thankful. Compared to the rest of the world, most of us are incredibly blessed.
But let there be no doubt, the U.S. economy is going to get a lot worse in the years ahead.
Just because you have a job today does not mean that you will have one tomorrow.
Just because you have a nice car and a big home today does not mean that you will have them tomorrow.
We all need to try to become a lot less dependent on “the system”, because “the system” is failing.
A whole lot of trouble is coming.
You better get ready.
Is the world on the verge of another massive global financial collapse? Yes. The western world is drowning in an ocean of debt unlike anything the world has ever seen before, and our financial markets are gigantic casinos that are dependent on huge mountains of risk and leverage remaining very stable. In the end, this house of cards that has been built on a foundation of sand is going to come crashing down in a horrifying manner. Usually in this column I go on and on about why things will soon get much worse. But today I am going to take a bit of a break. Today, I am going to let some of the top financial professionals in the world tell you why things will soon get much worse. Many of the quotes that you are about to read just might make the hair on the back of your neck stand up. Most people out there have no idea what is about to happen. Most people out there are working hard and are busy preparing for the holidays and they are hopeful that the economy will turn around soon. But that is not going to happen. We are heading for another major global financial collapse, and when it happens the U.S. economy is going to get even worse.
The epicenter for the coming global financial collapse is almost certainly going to be in Europe. As you will see below, financial professionals all over the world are sounding the alarm about Europe. It is a disaster that everyone can see coming but that nobody seems to be able to prevent.
Of course the failure of the “supercommittee” in the United States certainly is not helping matters. There is already talk that we may soon see another downgrade for U.S. debt. It is hard to even describe how incompetent the U.S. Congress is.
There is a tremendous lack of leadership both in the United States and in Europe right now. The financial world is more interconnected than ever before, and when the financial dominoes start to fall it is going to take a miracle to keep a complete and total disaster from unfolding.
So when the time comes, who is going to step forward and provide that leadership?
That is a really, really good question.
Right now, panic and fear are spreading like wildfire in the financial world and nobody knows for sure what is going to happen next.
But one thing is for certain. Pessimism is growing stronger by the day.
The following are 17 quotes about the coming global financial collapse that will make your hair stand up….
#1 Credit Suisse’s Fixed Income Research unit: “We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”
#2 Willem Buiter, chief economist at Citigroup: “Time is running out fast. I think we have maybe a few months — it could be weeks, it could be days — before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it.”
#3 Jim Reid of Deutsche Bank: “If you don’t think Merkel’s tone will change then our investment advice is to dig a hole in the ground and hide.”
#4 David Rosenberg, a senior economist at Gluskin Sheff in Toronto: “Lenders are finding it difficult to finance their day-to-day operations with short-term funding. This is a lot like 2008 but with more twists.”
#5 Christian Stracke, the head of credit research for Pimco: “This is just a repeat of what we saw in 2008, when everyone wanted to see toxic assets off the banks’ balance sheets”
#6 Paul Krugman of the New York Times: “At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.”
#7 Paul Hickey of Bespoke Investment Group: “More and more, we are hearing anecdotal comments from individual and professionals that this is the most difficult environment they have ever experienced as the market is like a fish flopping around after being taken out of the water.”
#8 Bob Janjuah of Nomura International: “Germany appears to be adamant that full political and fiscal integration over the next decade (nothing substantive will happen over the short term, in my view) is the only option, and ECB monetisation is no longer possible. I really think it is that clear and simple. And if I am wrong, and the ECB does a U-turn and agrees to unlimited monetisation, I will simply wait for the inevitable knee-jerk rally to fade before reloading my short risk positions. Even if Germany and the ECB somehow agree to unlimited monetisation I believe it will do nothing to fix the insolvency and lack of growth in the eurozone. It will just result in a major destruction of the ECB‟s balance sheet which will force an ECB recap. At that point, I think Germany and its northern partners would walk away. Markets always want short, sharp, simple solutions.”
#9 Dan Akerson, CEO of General Motors: “The ’08 recession, which was a credit bubble that manifested itself through primarily the real estate market, that was a serious stress….This is much more serious.”
#10 Francesco Garzarelli of Goldman Sachs: “Pressures on Euro area sovereign bond markets have progressively intensified and spread like a wildfire.”
#11 Jim Rogers: “In 2002 it was bad, in 2008 it was worse and 2012 or 2013 is going to be worse still – be careful”
#12 Dr. Pippa Malmgren, the President and founder of Principalis Asset Management who once worked in the White House as an adviser to President Bush: “Market forces are increasingly determining what the options are and foreclosing on options policymakers thought they had. One option which is now under discussion involves permitting a country to temporarily leave the Euro, return to its native currency, devalue, commit to returning to the Euro at a better debt to GDP ratio, a better exchange rate and a better growth trajectory and yet not sacrifice its EU membership. I would like to say for the record that this is precisely the thought process that I expected to evolve,but when I proposed this possibility back in 2009, and again in September 2010, I had a 100% response from clients and others that this was “impossible” and many felt it was “ridiculous”. They may be right but this is the current state of the discussion. The Handelsblatt in Germany has reported this conversation, but wrongly assumes that the country that will exit is Germany. I think that Germany will have to exit if the Southern European states do not. Germany’s preference is to stay in the Euro and have the others drop out. The problem has been the Germans could not convince the others to walk away. But, now, market pressures are forcing someone to leave. Germany is pushing for that someone to be Italy. They hope that this would be a one off exception, not to be repeated by any other country. Obviously, though, if Italy leaves the Euro and reverts to Lira then the markets will immediately and forcefully attack Spain, Portugal and even whatever is left of the already savaged Greeks. These countries will not be able to compete against a devalued Greece or Italy when it come to tourism or even infrastructure. But, the principal target will be France. The three largest French banks have roughly 450 billion Euros of exposure to Italian debt. So, further sovereign defaults are certainly inevitable, but that is true under any scenario. Growth and austerity will not do the trick, as ZeroHedge rightly points out. Ultimately, I will not be at all surprised to see Europe’s banking system shut for days while the losses and payments issues are worked out. People forget that the term “bank holiday” was invented in the 1930’s when the banks were shut for exactly the same reason.”
#13 Daniel Clifton, a policy strategist with Strategas Research Partners on the potential for more downgrades of U.S. debt: “We would expect further downgrades, a first downgrade from Moody’s and Fitch and possibly a second downgrade from S&P.”
#14 Warren Buffett on the problems in the eurozone: “The system as presently designed has revealed a major flaw. And that flaw won’t be corrected just by words. Europe will either have to come closer together or there will have to be some other rearrangement because this system is not working”
#15 David Kostin, equity strategist for Goldman Sachs: “The wide range of possible outcomes on both the super committee process and the unstable political economy in Europe drives our view that investors should assume the worst while hoping for the best.”
#16 Mark Mobius, the head of the emerging markets desk at Templeton Asset Management: “There is definitely going to be another financial crisis around the corner”
#17 Gerald Celente, founder of The Trends Research Institute: “The whole system is going down. Pull your money out your Fidelity account, your Scwhab accout, and your ETFs.”
Are you starting to get the picture?
When so many top financial professionals are freaking out like this, perhaps the rest of us should start paying attention.
They are telling us that “time is running out”.
They are telling us that “there is definitely going to be another financial crisis”.
They are telling us that this “is going to be worse” than 2008.
They are telling us that “the whole system is going down”.
Yes, a devastating financial collapse really is coming. Just like in 2008, it will seem like the “end of the world” while it is happening, but it won’t be. It will severely damage our financial system and our economy, but it will not finish us off.
Think of it this way. When you build a sand castle at the beach, it doesn’t get totally wiped out by the first wave or the second wave that hits it. Each wave does significant damage, but the destruction of your sand castle is a process.
It is the same thing with the U.S. economy. We once had the most incredible economic machine that the world has ever seen. It is constantly being gutted and the financial crisis of 2008 hit us really hard, but we are still doing okay.
After this next financial crisis we will be in even worse shape. But we will still be breathing.
More “waves” will come after this next financial crisis. If we continue on the road that we are on, our economy will progressively get worse and worse.
Not everyone will agree with this analysis, and that is okay. In the end, time will reveal the truth to all of us.
Right now, we all need to get ready for the next wave that is about to hit us. A lot of people are going to lose their jobs over the next few years. Hopefully you are prepared for that.
A lot of people were puzzled about what German Chancellor Angela Merkel meant when she recently stated that the ultimate solution to the financial crisis in the EU would “mean more Europe, not less Europe”. Well, now we are finding out. A leaked internal German government memo entitled “The Future of the EU: Required Integration Policy Improvements for the Creation of a Stability Union” actually proposes the creation of a “European Monetary Fund” which would be given the power to run the economies of troubled European nations. This “stability union” would be quickly followed by the creation of a full-fledged “political union”. Essentially, this leaked memo proposes the creation of a “European Superstate” which will be crammed down the throats of the rest of Europe whether they like it or not. National sovereignty would be a thing of the past and European bureaucrats would run everything. Of course this will never be accepted by the people of Europe until they feel the bitter pain of the coming financial collapse, but we are starting to see that there is already a clear plan for what the Germans wish to implement in the aftermath of the coming crisis.
A lot of people have just assumed that if there is a massive financial collapse in Europe and the euro crashes that it will mean that end of the euro and potentially the breakup of the EU. But that is not what the Germans have planned at all.
An article in the Telegraph has posted details about the leaked internal German government memo mentioned above. It really is startling to see that a full-fledged “political union” in Europe is being discussed at the highest levels of the German government….
The six-page memo, by the German foreign office, argues that Europe’s economic powerhouses should be able to intervene in how beleaguered eurozone countries are run.
The confidential blueprint sets out Germany’s plan to tackle the eurozone debt crisis by creating a “stability union” that will be “immediately followed by moves “on the way towards a political union”.
It will prompt fears that Germany’s euro crisis plans could result in a European super-state with spending and tax plans set in Brussels.
Can you imagine what Europe would look like under such a plan?
National sovereignty would be a thing of the past.
Another article in the Telegraph says that the leaked memo proposes that immediately a “European Monetary Fund” should be set up that would have the power to take over and run the economies of European nations that get into too much debt. But according to the memo this would just be an intermediate step toward a full “political union”….
The six-page German foreign ministry paper sets out plans for the creation of a European Monetary Fund with a transfer of sovereignty away from member states.
The fund will have the power to take ailing countries into receivership and run their economies. Even more controversially, the document, entitled The future of the EU: required integration policy improvements for the creation of a Stability Union, declares that the treaty changes are a first stage “in which the EU will develop into a political union”. “The debate on the way towards a political union must begin as soon as the course toward stability union is charted,” it concludes.
As the crisis in Europe has gotten worse, the Germans have become more aggressive about throwing their weight around. At this point, German Chancellor Angela Merkel is the most important politician in Europe and she has been taking the lead in responding to this financial crisis.
As I have written about previously, there have been persistent rumors that French President Nicolas Sarkozy and German Chancellor Angela Merkel have been “secretly plotting” to create a “new eurozone” that will fundamentally change the way that Europe is run.
For example, the following is from an article that recently came out in the Telegraph….
France is drawing up plans to create a breakaway organisation of eurozone countries with its own treaty, parliament and headquarters – a move that could significantly undermine the existing European Union.
That same article also talked about the goals that France and Germany are hoping to achieve through all of this….
France and Germany are understood to want to strengthen the union between eurozone countries with new taxes and legal measures to stop nations borrowing and spending too much in future.
Of course it is important to note that there is no way that the people of Europe are going to go for any of this right now.
But after feeling the pain of a massive financial collapse for a while will they change their minds?
What is clear is that the status quo is not going to last much longer. Something has got to change. Unfortunately, Germany and France seem determined to push the rest of Europe in the direction of creating a European Superstate.
If you want to get a really good idea of what is happening in Europe right now, just check out this video of a recent speech by Nigel Farage on the floor of the European Parliament on November 16th, 2011. Trust me, it is worth the couple of minutes that it takes to watch it.
But before fundamental structural changes take place in Europe, we are going to see an absolutely crippling financial collapse first. With each passing day, there are more signs that things are rapidly unraveling. The following are just a few of the noteworthy news items from Europe that have come out over the past week….
*In Italy there were violent clashes between protesters and police after Mario Monti unveiled his new austerity program. To get an idea of how crazy things are getting over in Italy, just check out this video.
*Just like what happened when austerity was implemented in Greece, it looks like Italy is now headed down the road toward a major recession. Industrial orders in Italy for the month of September declined by 8.5 percent. That is really, really bad news.
*The EFSF has already been forced to buy up huge numbers of its own bonds. That essentially means that the EFSF is already a bad joke.
*Dozens of big banks all over Europe have been downgraded in recent weeks. Even German banks are getting downgraded now. The other day, Moody’s downgraded the ratings of 10 major German banks.
An increasing number of people that work in the financial world are starting to get really freaked out about everything that is going on.
The following is what Mark Mobius, head of the emerging markets desk at Templeton Asset Management, had to say recently….
“There is definitely going to be another financial crisis around the corner, because we haven’t solved any of the things that caused the previous crisis.”
Willem Buiter, the chief economist of Citigroup, believes that if something is not done quickly, there will be a financial collapse in Europe in very short order….
“Time is running out fast. I think we have maybe a few months — it could be weeks, it could be days — before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it. So they have to act now.”
Ann Barnhardt of Barnhardt Capital Management actually shut down her entire firm because she could no longer guarantee that the money her clients were putting into the futures and options markets would be safe. Posted below are extended excerpts from the open letter that she recently released to the public. Normally I would not post such extended excerpts, but in this case I believe that they are warranted. What Barnhardt has written should be a huge wake up call for all of us. It is refreshing (and a bit frightening) to get an honest assessment of the corruption in the financial world from someone that has made a good living in that world. The following is how she began her letter….
It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.
The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.
So how did the MF Global collapse wreck the system? Barnhardt went on to explain this….
The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.
Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.
Even more frightening, Barnhardt says that the MF Global collapse is just the “tip of the iceberg” and that more collapses like this are about to happen….
I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.
So what does Barnhardt say that we should all do? She is actually recommending that everyone should completely abandon the futures and options markets….
And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.
Remember, a few weeks ago I warned you all that a massive derivatives crisis is coming. Anyone that plays around with derivatives at this point is playing with fire. Barnhardt says that she will never reopen her firm until Barack Obama is removed from office and fundamental reforms to the financial system have been implemented….
Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.
We are on the verge of a financial crisis that could potentially be just as bad (or even worse) than the financial crisis of 2008.
Right now, 2012 is shaping up as a very, very bad year.
As I have written about previously, when European leaders proposed that private Greek bondholders should take a “50% haircut”, they massively undermined faith in the European financial system.
Now panic and fear are in the air and it is unlikely that financial markets will be calmed any time soon.
Already, there are early signs of the kind of massive credit crunch that almost brought about “the end of the world” in financial markets back in 2008.
For example, a CNBC article that was posted on Friday reported that the flow of credit in Europe is seriously drying up….
Fear over European banks’ exposure to risky government debt stalked markets and harried bank executives on Friday, as unsecured lending between banks evaporated and the cost of secured loans rose.
And as a recent article posted on Zero Hedge discussed, a similar thing is starting to happen in the United States….
The entire dollar funding market is now at levels not seen since the Lehman collapse and is effectively frozen. Only this time it is much, much worse as never before has the global central bank cadre been assumed and implied to be backstopping the global liquidity cascade. Ex-out the implied backstop by the monetary authorities, and liquidity is now locked up more than ever in the history of capital markets.
So what should we do about this?
We should take action and get prepared for what is coming.
Unfortunately, an increasing number of Americans seem to be “checking out” instead. According to a recent Gallup poll, alcohol consumption in the United States has hit a 25 year high. More than one out of every ten Americans over the age of 12 is on prescription antidepressants, and most American families spend endless hours staring at the television in an attempt to escape the pain and the frustration that they constantly feel.
Hopefully by working together we can help more Americans (and more Europeans as well) to wake up, to get off their couches, and to take action in a positive way.
Time is running out and the economic crisis is rapidly getting worse.
We don’t have any time to waste.
Oh, how the mighty have fallen. In just a matter of days, two of Europe’s most venerable leaders have been toppled. George Papandreou was the third member of the Papandreou dynasty to be prime minister of Greece. Silvio Berlusconi had dominated Italian politics for nearly two decades. But now they are both heading out the door and the international media have been reporting on their resignations with the kind of enthusiasm that is normally reserved for sporting events. “Down goes Papandreou! Down goes Berlusconi!” If you didn’t know better, you would almost be tempted to think that some of the recent news reports were describing a boxing match. But this is what happens when debt problems spiral out of control. It is the leaders who take the fall. So will the resignations of Papandreou and Berlusconi help anything? Of course not. Europe is still headed for a financial collapse of epic proportions.
As I wrote about recently, it has been the fumbling of the Greek debt crisis by European leaders which has set the stage for the burgeoning financial crisis in Italy to go to a whole new level.
Once the Greek debt deal was announced, I warned that it would shatter confidence in the sovereign debt of the rest of the PIIGS and it would cause their bond yields to soar.
That is exactly what has happened.
The yield on 10 year Italian bonds (probably the most important financial number in the world at the moment) is now up to 6.7 percent.
Never before in the euro era has the yield on Italian bonds been as high as we have seen this week.
So why is this important?
Well, the reality is that Italy simply cannot afford to service its massive national debt when yields are this high.
We are officially in the danger zone.
Carl Weinberg, the chief economist at High Frequency Economics, recently said the following about what would happen if Italian bond yields go up into the 8 to 10 percent range….
“If it has to pay those yields to finance itself, Italy is dead, and the sovereign crisis just blew up”
So watch that number very carefully over the next few months.
Italy is being called “too big to fail, too big to save”. There is no way that Europe can afford Italy to crash, but there is also no way that the rest of Europe can put together enough money for a full scale bailout of Italy.
So there is panic in the air.
The Italian government is in a state of near chaos and over the past couple of weeks we have seen Berlusconi’s coalition break down. Now Berlusconi has agreed to resign, and the future of Italian politics is murky at best.
The following is how a Reuters article described the agreement for Berlusconi step down….
Berlusconi confirmed a statement from President Giorgio Napolitano that he would step down as soon as parliament passed urgent budget reforms demanded by European leaders after Italy was sucked into epicenter of the euro zone debt crisis.
The votes in both houses of parliament are likely this month and they would spell the end of a 17-year dominance of Italy by the flamboyant billionaire media magnate.
Many believe that the departure of Berlusconi is going to pave the way for brutal austerity measures to be imposed on the Italian people.
Suddenly, it very much feels like we are watching a replay of what has happened in Greece over the past couple of years. Just check out the following excerpt from a recent article in the London Evening Standard….
The Italians feel they’ve been humiliated by having to accept that monitors from the IMF will be arriving in the country this week to oversee a rise in pension ages, a sell-off of state assets and new rules to make jobs less secure.
Does that not sound like exactly what happened in Greece back near the beginning of their crisis?
In Greece, brutal austerity measures demanded by the EU and the IMF plunged the country into a depression, tax revenues plummeted, Greek debt exploded to even higher levels, bond yields soared into the stratosphere and the EU and the IMF demanded even more austerity measures be implemented.
Is the same sad story going to play out in Italy?
The Italians are definitely going to agree to some pretty significant budget cuts. But if bond yields keep rising, they are going to wipe out all of the savings from the budget cuts and then some.
This is why I keep preaching about the horror of the U.S. national debt over and over and over. If you don’t deal with it when you can, eventually interest rates rise to unbearable levels and a horror show quickly unfolds.
Anyway, right now Italy has a debt to GDP ratio of 118 percent. If they keep expanding that debt it is going to result in a financial nightmare, but if they try to implement strict austerity measures it is also going to result in a financial nightmare.
They are damned if they do and they are damned if they don’t.
Of course we should not forget about Greece.
The EU has been freaking out for quite a while about what to do about tiny little Greece.
Now that George Papandreou has been kicked to the curb, it looks like Lucas Papademos is going to be the next prime minister of Greece.
Papademos previously served as the governor of the Greek central bank, as a vice president of the European Central Bank and as a senior economist at the Federal Reserve Bank of Boston.
In other words, he would be the ideal choice of the international banking community.
Not that anyone is going to be able to do much for Greece at this point. Greece is a financial basket case, and unless someone gives them gigantic piles of money for free that is going to continue to be the case.
A year ago, the yield on 2 year Greek bonds was a bit above 10 percent. Today, the yield on 2 year Greek bonds is over 100 percent.
If you want to see what a financial meltdown looks like, just check out what is happening in Greece.
The rest of Europe is in panic mode too. For example, France is desperate to keep their AAA credit rating. In an article for the Telegraph, Ambrose Evans-Pritchard described the austerity measures that France is implementing in an attempt to head off a debt crisis of their own….
The belt-tightening plan — the second package since August, taking total cuts to €112bn — include a 5pc super-tax on big firms, a rise in VAT on restaurants and construction, and cuts on pensions, schools, health, and welfare. It is the latest squeeze in a relentless campaign of fiscal tightening across the eurozone.
In the end, all of this is too little, too late.
Europe is heading for a date with destiny. They have spent themselves into oblivion and now they are going to pay the price.
Some members of the financial community fear that a full-blown crisis could erupt at any moment. For example, according to Business Insider, Colin Tan of Deutsche Bank recently said that he believes that it is possible that “we could be in full crisis mode” by the time the week ends….
Its not inconceivable that we could be in full crisis mode by the end of this week. The situation with Italy feels increasingly like one that has little chance of materially improving until some
extreme pressure is put on someone to act. It may not come to a head this week but the signs are not good that we can avoid an extreme situation emerging soon.
For those of you that are freaking out about now, don’t worry too much. A full-blown crisis is not going to happen this week.
But time is running out.
And when Europe comes apart, it is going to have a dramatic impact on the United States as well.
According to an article in the Financial Post, the Federal Reserve made the following statement in a report about a survey that it just released….
“About one-half of domestic bank respondents, mostly large banks, indicated that they make loans or extend credit lines to European banks or their affiliates or subsidiaries”
Big U.S. banks have a lot of exposure to European debt and to European banks. When the financial dominoes start to fall, a lot of those dominoes are going to be in the United States.
One of the biggest dangers to be concerned about are all of the credit default swap contracts that U.S. banks have written on European debt. Just check out what a recent article posted on the website of MSNBC had to say about that….
U.S. banks have written about $400 billion in CDS contracts on European sovereign debt, according to the Bank for International Settlements. Those payouts would be triggered if Greece or Italy defaults. Because financial institutions are not required to report their CDS holdings, little is known about which banks or investment firms are on the hook, and for how much.
As I have written about previously, there is a very good chance that the world could be facing a massive derivatives crisis at some point in the next five to ten years.
If you hear the news talk about a “problem with derivatives” or a “derivatives crisis” then you will want to pay very close attention.
Over the past 30 years, the global financial system has constructed a gigantic mountain of debt, risk and leverage unlike anything the world has ever seen before.
At some point the whole thing is going to come crashing down.
When it does, it is going to affect the entire globe.
A huge storm is coming.
Get prepared while you can.