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 The pension nightmare that is at the heart of the horrific financial crisis in Detroit is just the tip of the iceberg of the coming retirement crisis that will shake America to the core. Right now, more than 10,000 Baby Boomers are hitting the age of 65 every single day, and this will continue to happen every single day until the year 2030. As a society, we have made trillions of dollars of financial promises to these Baby Boomers, and there is no way that we are going to be able to keep those promises. The money simply is not there. Yes, I suppose that we could eventually see a “super devaluation” of the U.S. dollar and keep our promises to the Baby Boomers using currency that is not worth much more than Monopoly money, but as it stands right now we simply do not have the resources to do what we said that we were going to do. The number of senior citizens in the United States is projected to more than double by the middle of the century, and it would have been nearly impossible to support them all even if we weren’t in the midst of a long-term economic decline. Tens of millions of Americans that are eagerly looking forward to retirement are going to be in for a very rude awakening in the years ahead. There is going to be a lot of heartache and a lot of broken promises.
What is going on in Detroit right now is a perfect example of what will soon be happening all over the nation. Many city workers stuck with their jobs for decades because of the promise of a nice pension at the end of the rainbow. But now those promises are going up in smoke. There has even been talk that retirees will only end up getting about 10 cents for every dollar that they were promised.
Needless to say, many pensioners are extremely angry that the promises that were made to them are not going to be kept. The following is from a recent article in the New York Times…
Many retirees see the plan to cut their pensions as a betrayal, saying that they kept their end of a deal but that the city is now reneging. Retired city workers, police officers and 911 operators said in interviews that the promise of reliable retirement income had helped draw them to work for the City of Detroit in the first place, even if they sometimes had to accept smaller salaries or work nights or weekends.
“Does Detroit have a problem?” asked William Shine, 76, a retired police sergeant. “Absolutely. Did I create it? I don’t think so. They made me some promises, and I made them some promises. I kept my promises. They’re not going to keep theirs.”
But Detroit is far from an isolated case. As Detroit Mayor Dave Bing said the other day, many other cities are heading down the exact same path…
“We may be one of the first. We are the largest. But we absolutely will not be the last.”
Yes, Detroit’s financial problems are immense. But other major U.S. cities are facing unfunded pension liabilities that are even worse.
For example, here are the unfunded pension liabilities for four financially-troubled large U.S. cities…
Detroit: $3.5 billion
Baltimore: $680 million
Los Angeles: $9.4 billion
Chicago: $19 billion
When you break it down on a per citizen basis, Detroit is actually in better shape than the others…
Detroit: $7,145
Baltimore: $7,247
Los Angeles: $8,437
Chicago: $13,355
And many state governments are in similar shape. Right now, the state of Illinois has unfunded pension liabilities that total approximately $100 billion.
There are some financial “journalists” out there that are attempting to downplay this problem, but sticking our heads in the sand is not going to make any of this go away.
According to Northwestern University Professor John Rauh, the total amount of unfunded pension and healthcare obligations for retirees that state and local governments across the United States have accumulated is 4.4 trillion dollars.
So where are they going to get that money?
They are going to raise your taxes of course.
Just check out what is happening right now in Scranton, Pennsylvania…
Scranton taxpayers could face a 117 percent increase in taxes next year as the city’s finances continue to spiral out of control.
A new analysis by the Pennsylvania Economy League projects an $18 million deficit for 2014, an amount so massive it outpaces the approximate $17 million the struggling city collects annually
A 117 percent tax increase?
What would Dwight Schrute think of that?
Perhaps you are reading this and you are assuming that your retirement is secure because you work in the private sector.
Well, just remember what happened to your 401k during the financial crisis of 2008. During the next major stock market crash, your 401k will likely get absolutely shredded. Many Americans will probably see the value of their 401k accounts go down by 50 percent or more.
And if you have stashed your retirement funds with the wrong firm, you could end up losing everything. Just ask anyone that had their nest eggs invested with MF Global.
But of course most Americans are woefully behind on saving for retirement anyway. A study conducted by Boston College’s Center for Retirement Research found that American workers are $6.6 trillion short of what they need to retire comfortably.
That certainly isn’t good news.
On top of everything else, the federal government has been recklessly irresponsible as far as planning for the retirement of the Baby Boomers is concerned.
As I noted yesterday, the U.S. government is facing a total of 222 trillion dollars in unfunded liabilities. Social Security and Medicare make up the bulk of that.
At this point, the number of Americans on Medicare is projected to grow from a little bit more than 50 million today to 73.2 million in 2025.
The number of Americans collecting Social Security benefits is projected to grow from about 56 million today to 91 million in 2035.
How is a society with a steadily declining economy going to care for them all adequately?
Yes, we truly are careening toward disaster.
If you are not convinced yet, here are some more numbers. The following stats are from one of my previous articles entitled “Do You Want To Scare A Baby Boomer?“…
1. Right now, there are somewhere around 40 million senior citizens in the United States. By 2050 that number is projected to skyrocket to 89 million.
2. According to one recent poll, 25 percent of all Americans in the 46 to 64-year-old age bracket have no retirement savings at all.
3. 26 percent of all Americans in the 46 to 64-year-old age bracket have no personal savings whatsoever.
4. One survey that covered all American workers found that 46 percent of them have less than $10,000 saved for retirement.
5. According to a survey conducted by the Employee Benefit Research Institute, “60 percent of American workers said the total value of their savings and investments is less than $25,000″.
6. A Pew Research survey found that half of all Baby Boomers say that their household financial situations have deteriorated over the past year.
7. 67 percent of all American workers believe that they “are a little or a lot behind schedule on saving for retirement”.
8. Today, one out of every six elderly Americans lives below the federal poverty line.
9. More elderly Americans than ever are finding that they must continue working once they reach their retirement years. Between 1985 and 2010, the percentage of Americans in the 65 to 69-year-old age bracket that were still working increased from 18 percent to 32 percent.
10. Back in 1991, half of all American workers planned to retire before they reached the age of 65. Today, that number has declined to 23 percent.
11. According to one recent survey, 70 percent of all American workers expect to continue working once they are “retired”.
12. According to a poll conducted by AARP, 40 percent of all Baby Boomers plan to work “until they drop”.
13. A poll conducted by CESI Debt Solutions found that 56 percent of American retirees still had outstanding debts when they retired.
14. Elderly Americans tend to carry much higher balances on their credit cards than younger Americans do. The following is from a recent CNBC article…
New research from the AARP also shows that those ages 50 and over are carrying higher balances on their credit cards — $8,278 in 2012 compared to $6,258 for the under-50 population.
15. A study by a law professor at the University of Michigan found that Americans that are 55 years of age or older now account for 20 percent of all bankruptcies in the United States. Back in 2001, they only accounted for 12 percent of all bankruptcies.
16. Between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent.
17. What is causing most of these bankruptcies among the elderly? The number one cause is medical bills. According to a report published in The American Journal of Medicine, medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States. Of those bankruptcies that were caused by medical bills, approximately 75 percent of them involved individuals that actually did have health insurance.
18. In 1945, there were 42 workers for every retiree receiving Social Security benefits. Today, that number has fallen to 2.5 workers, and if you eliminate all government workers, that leaves only 1.6 private sector workers for every retiree receiving Social Security benefits.
19. Millions of elderly Americans these days are finding it very difficult to survive on just a Social Security check. The truth is that most Social Security checks simply are not that large. The following comes directly from the Social Security Administration website…
The average monthly Social Security benefit for a retired worker was about $1,230 at the beginning of 2012. This amount changes monthly based upon the total amount of all benefits paid and the total number of people receiving benefits.
You can view the rest of the statistics right here.
Sadly, most Americans are not aware of these things.
The mainstream media keeps most of the population entertained with distractions. This week it is the birth of the royal baby, and next week it will be something else.
Meanwhile, our problems just continue to get worse and worse.
There is no way in the world that we are going to be able to keep all of the financial promises that we have made to the Baby Boomers. A lot of them are going to end up bitterly disappointed.
All of this could have been avoided if we would have planned ahead as a society.
But that did not happen, and now we are all going to pay the price for it.
 Did you know that U.S. banks have more than 1.8 trillion dollars parked at the Federal Reserve and that the Fed is actually paying them not to lend that money to us? We were always told that the goal of quantitative easing was to “help the economy”, but the truth is that the vast majority of the money that the Fed has created through quantitative easing has not even gotten into the system. Instead, most of it is sitting at the Fed slowly earning interest for the bankers. Back in October 2008, just as the last financial crisis was starting, Federal Reserve Chairman Ben Bernanke announced that the Federal Reserve would start paying interest on the reserves that banks keep at the Fed. This caused an absolute explosion in the size of these reserves. Back in 2008, U.S. banks had less than 2 billion dollars of excess reserves parked at the Fed. Today, they have more than 1.8 trillion. In less than five years, the pile of excess reserves has gotten nearly 1,000 times larger. This is utter insanity, and it will have very serious consequences down the road.
Posted below is a chart that shows the explosive growth of these excess reserves in recent years…
This explains why all of the crazy money printing that the Fed has been doing has not caused tremendous inflation yet. Most of the money has not even gotten into the economy. The Fed has been paying banks not to lend it out.
But now that big pile of money is sitting out there, and at some point it is going to come pouring in to the U.S. economy. When that happens, we could very well see an absolutely massive tsunami of inflation.
Posted below is a chart that shows the growth of the M2 money supply over the past several decades. It has been fairly steady, but imagine what would happen if you took the hockey stick from the chart above and suddenly added it to the top of this one…
The longer that the Federal Reserve continues to engage in quantitative easing and continues to pay banks not to lend that money out to the rest of us, the larger that inflationary time bomb is going to become.
In a recent article for the Huffington Post, Professor Robert Auerbach of the University of Texas explained the nightmarish situation that we are facing…
One reason that the excess reserves grew to an extraordinary level is that in October 2008, one month after the financial crisis when Lehman Brothers went bankrupt, the Bernanke Fed began paying interest on bank reserves. Although it has been 1/4 of 1 percent interest, this risk free rate was not low compared to the Fed’s policy of keeping short-term market rates near zero. The interest banks received was and is an incentive to hold the excess reserves rather than lend to consumers and businesses in the risky environment of the major recession and the slow recovery.
The Bernanke Fed is now facing a $1.863 trillion time bomb, they helped to create, of excess reserves in the private banking system. If rates of interest on income earning assets (including bank loans to consumers and businesses) rise, the Fed will have to pay the banks more interest to hold their excess reserves.
If interest rates move up dramatically (and they are already starting to rise significantly), banks will have an incentive to take that money out of the Fed and start lending it out. Professor Auerbach suggests that this could cause an “avalanche” of money pouring into the economy…
Eighty five billion a month will seem tiny compared to the avalanche of the $1.863 trillion excess reserves exploding rapidly into the economy. That would devalue the currency, cause more rapid inflation and worry investors about a coming collapse.
So the Fed has kind of painted itself into a corner. If the Fed keeps printing money, they continue to grossly distort our financial system even more and the excess reserves time bomb just keeps getting bigger and bigger.
But even the suggestion that the Fed would begin to start “tapering” quantitative easing caused the financial markets to throw an epic temper tantrum in recent weeks. Interest rates immediately began to skyrocket and Fed officials did their best to try to settle everyone down.
So where do we go from here?
Unfortunately, as Jim Rogers recently explained, this massive experiment in financial manipulation is ultimately going to end in disaster…
I’m afraid that in the end, we’re all going to suffer perhaps, worse than we ever have, with inflation, currency turmoil, and higher interest rates.
The Fed and other global central banks have created the largest bond bubble in the history of the planet. If the Fed ends quantitative easing, the bond market is going to try to revert to normal.
That would be disastrous for the global financial system. The following is what Jim Willie told Greg Hunter of USAWatchdog.com…
Everything is dependent on Fed support. They know if they take it away, they’re going to create a black hole. The Treasury bond is the greatest asset bubble in history. It’s at least twice as large as the housing and mortgage bubble, maybe three or four times as large.
But even if the central banks keep printing money, they may not be able to maintain control over the bond market. In fact, there are already signs that they are starting to lose control. The following is what billionaire Eric Sprott told King World News the other day…
It’s total orchestration. And it’s orchestration because they might have lost control of the bond market. I find it such a juxtaposition that central banks on a daily basis buy more bonds today than they ever purchased, and interest rates are going up, which is almost perverted. I mean how can that happen?
They’ve lost control of the market in my mind, and that’s why they are so desperately trying to get us all to forget the word ‘taper.’ In fact, we probably won’t even hear the word ‘taper’ anymore because it has such a sickening reaction to people in the bond market, and perhaps even people in the stock market. They will probably do away with the word. But the system is totally out of control. And then we’ve got this quadrillion dollars of derivatives. It just blows blows my mind to think about what could really be going on behind the scenes.
Sprott made a really good point about derivatives.
The quadrillion dollar derivatives bubble could bring down the global financial system at any time.
And remember, interest rate derivatives make up the biggest chunk of that. Today, there are 441 trillion dollars of interest rate derivatives sitting out there. If interest rates begin skyrocketing at some point, that is going to create some absolutely massive losses in the system. We could potentially be talking about an event that would make the failure of Lehman Brothers look like a Sunday picnic.
We are moving into a time of great financial instability. People are going to be absolutely shocked by what happens.
Our financial system is a house of cards built on a foundation of risk, leverage and debt. When it all comes tumbling down, it should not be a surprise to any of us.
 A new set of regulations that most people have never even heard of that was developed by an immensely powerful central banking organization that most people do not even know exists is going to have a dramatic effect on the global financial system over the next several years. The new set of regulations is known as “Basel III”, and it was developed by the Bank for International Settlements. The Bank for International Settlements has been called “the central bank for central banks”, and it is headquartered in Basel, Switzerland. 58 major central banks (including the Federal Reserve) belong to the Bank for International Settlements, and the decisions made in Basel often have more of an impact on the direction of the global economy than anything the president of the United States or the U.S. Congress are doing. All you have to do is to look back at the last financial crisis to see an example of this. Basel II and Basel 2.5 played a major role in precipitating the subprime mortgage meltdown. Now a new set of regulations known as “Basel III” are being rolled out. The implementation of these new regulations is beginning this year, and they will be completely phased in by 2019. These new regulations dramatically increase capital requirements and significantly restrict the use of leverage. Those certainly sound like good goals, the problem is that the entire global financial system is based on credit at this point, and these new regulations are going to substantially reduce the flow of credit. The only way that the giant debt bubble that we are all living in can continue to persist is if it continues to expand. By restricting the flow of credit, these new regulations threaten to burst the debt bubble and bring down the entire global economy.
Not that the current global financial system is sustainable by any means. Anyone with half a brain can see that the global financial system is a pyramid scheme that is destined to collapse. But Basel III may cause it to collapse faster than it might otherwise have.
So precisely what is Basel III? The following is a definition from the official website of the Bank for International Settlements…
“Basel III” is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:
- improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source
- improve risk management and governance
- strengthen banks’ transparency and disclosures.
All of that looks good at first glance. But when you start looking into the details you start realizing what it is going to mean for the global financial system. Banks are going to be required to have higher reserve ratios and use less leverage. Banks are going to have to be more careful with their money, which is a good thing, but it is also going to mean that credit will not flow as freely. Unfortunately, the only way for a debt bubble to survive is if it keeps expanding. Anything that restricts the flow of easy money threatens to bring a debt bubble to an end.
These new regulations are going to be phased in between 2013 and 2019. You can see a chart which shows the implementation schedule for the Basel III regulations right here.
So why is bringing the debt bubble to an end a bad thing?
Well, because it will cause the false prosperity that we have been enjoying to disappear, and that will be an exceedingly painful adjustment.
Sadly, most people have no idea what is happening. Most people have never even heard of “Basel III” or “the Bank for International Settlements”. Most people just assume that the people they voted into office know what they are doing and have everything under control.
Unfortunately, that is not the case at all. The truth is that an unelected, unaccountable body of central bankers is making decisions which deeply affect us all, and there is not much that we can do about it.
This unelected, unaccountable body of central bankers played a major role in bringing about the last financial crisis. The following is a brief excerpt from a recent article posted on Before It’s News…
If you have any questions about the power of these Basel Banking Regulations you can also see the effects that Basel II and 2.5, mark to market accounting, had on the Housing Markets in the United States of America in 2008. There were many causes for that housing bubble, then housing crisis, but Basel II and 2.5 was most assuredly the pin that popped the housing bubble that led to the financial crisis of 2008-09.
But do most people know about this?
Of course not. Most people want to blame the Republicans or the Democrats or Bush or Obama, and they have no idea about the financial strings that are being pulled at the highest levels.
It is so important that we get people educated about how the global financial system actually works. The following is a summary of how the Bank for International Settlements works from one of my previous articles entitled “Who Controls The Money? An Unelected, Unaccountable Central Bank Of The World Secretly Does“…
An immensely powerful international organization that most people have never even heard of secretly controls the money supply of the entire globe. It is called the Bank for International Settlements, and it is the central bank of central banks. It is located in Basel, Switzerland, but it also has branches in Hong Kong and Mexico City. It is essentially an unelected, unaccountable central bank of the world that has complete immunity from taxation and from national laws. Even Wikipedia admits that “it is not accountable to any single national government.” The Bank for International Settlements was used to launder money for the Nazis during World War II, but these days the main purpose of the BIS is to guide and direct the centrally-planned global financial system. Today, 58 global central banks belong to the BIS, and it has far more power over how the U.S. economy (or any other economy for that matter) will perform over the course of the next year than any politician does. Every two months, the central bankers of the world gather in Basel for another “Global Economy Meeting”. During those meetings, decisions are made which affect every man, woman and child on the planet, and yet none of us have any say in what goes on. The Bank for International Settlements is an organization that was founded by the global elite and it operates for the benefit of the global elite, and it is intended to be one of the key cornerstones of the emerging one world economic system.
Even though most people have never even heard of the BIS, the truth is that the global elite have had big plans for it for a very long time. In another article I included a quote from a book that Georgetown University history professor Carroll Quigley wrote many years ago entitled “Tragedy & Hope”…
[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.
Today we have such a system, and most of the public does not even know that it exists.
And when the next great financial crisis strikes, there will probably be very little ever said about the Bank for International Settlements in the mainstream media.
But right now the BIS is helping set the stage for the great credit crunch that is coming.
Get prepared while you still can, because time is running out.
 Is the coming financial collapse going to be inflationary or deflationary? Are we headed for rampant inflation or crippling deflation? This is a subject that is hotly debated by economists all over the country. Some insist that the wild money printing that the Federal Reserve is doing combined with out of control government spending will eventually result in hyperinflation. Others point to all of the deflationary factors in our economy and argue that we will experience tremendous deflation when the bubble economy that we are currently living in bursts. So what is the truth? Well, for the reasons listed below, I believe that we will see both. The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis. This will happen so quickly that many will get “financial whiplash” as they try to figure out what to do with their money. We are moving toward a time of extreme financial instability, and different strategies will be called for at different times.
So why will we see deflation first? The following are some of the major deflationary forces that are affecting our economy right now…
The Velocity Of Money Is At A 50 Year Low
The rate at which money circulates in our economy is the lowest that it has been in more than 50 years. It has been steadily falling since the late 1990s, and this is a clear sign that economic activity is slowing down. The shaded areas in the chart represent recessions, and as you can see, the velocity of money always slows down during a recession. But even though the government is telling us that we are not in a recession right now, the velocity of money continues to drop like a rock. This is one of the factors that is putting a tremendous amount of deflationary pressure on our economy…
The Trade Deficit
Even single month, far more money leaves this country than comes into it. In fact, the amount going out exceeds the amount coming in by about half a trillion dollars each year. This is extremely deflationary. Our system is constantly bleeding cash, and this is one of the reasons why the federal government has felt a need to run such huge budget deficits and why the Federal Reserve has felt a need to print so much money. They are trying to pump money back into a system that is constantly bleeding massive amounts of cash. Since 1975, the amount of money leaving the United States has exceeded the amount of money coming into the country by more than 8 trillion dollars. The trade deficit is one of our biggest economic problems, and yet most Americans do not even understand what it is. As you can see below, our trade deficit really started getting bad in the late 1990s…
Wages And Salaries As A Percentage Of GDP
One of the primary drivers of inflation is consumer spending. But consumers cannot spend money if they do not have it. And right now, wages and salaries as a percentage of GDP are near a record low. This is a very deflationary state of affairs. The percentage of low paying jobs in the U.S. economy continues to increase, and we have witnessed an explosion in the ranks of the “working poor” in recent years. For consumer prices to rise significantly, more money is going to have to get into the hands of average American consumers first…
When The Debt Bubble Bursts
Right now, we are living in the greatest debt bubble in the history of the world. When a debt bubble bursts, fear and panic typically cause the flow of money and the flow of credit to really tighten up. We saw that happen at the beginning of the Great Depression of the 1930s, we saw that happen back in 2008, and we will see it happen again. Deleveraging is deflationary by nature, and it can cause economic activity to grind to a standstill very rapidly.
During the next major wave of the economic collapse, there will be times when it will seem like hardly anyone has any money. The “easy credit” of the past will be long gone, and large numbers of individuals and small businesses will find it very difficult to get loans.
When the debt bubble bursts, cash will be king – at least for a short period of time. Those that do not have any savings at all will really be hurting.
And some of the financial elite seem to be positioning themselves for what is coming. For example, even though he has been making public statements about how great stocks are right now, the truth is that Warren Buffett is currently sitting on $49 billion in cash. That is the most that he has ever had sitting in cash.
Does he know something?
Of course there will be a tremendous amount of pressure on the U.S. government and the Federal Reserve to do something once a financial crash happens. The response by the federal government and the Federal Reserve will likely be extremely inflationary as they try to resuscitate the system. It will probably be far more dramatic than anything we have seen so far.
So cash will not be king for long. In fact, eventually cash will be trash. The actions of the U.S. government and the Federal Reserve in response to the coming financial crisis will greatly upset much of the rest of the world and cause the death of the U.S. dollar.
That is why gold, silver and other hard assets are going to be so good to have in the long-term. In the short-term they will experience wild swings in price, but if you can handle the ride you will be smiling in the end.
In the coming years, we are going to experience both inflation and deflation, and neither one will be pleasant at all.
Get prepared while you still can, because time is running out.
 All over the United States we are witnessing unprecedented shortages of ammunition, physical gold and physical silver. Recent events have helped fuel a “buying frenzy” that threatens to spiral out of control. Gun shops all over the nation are reporting that they have never seen it this bad, and in many cases any ammo that they are able to get is being sold even before it hits the shelves. The ammo shortage has already become so severe that police departments all over America are saying that they are being told that it is going to take six months to a year to get their orders. In fact, many police departments have begun to trade and barter with one another to get the ammo that they need. Meanwhile, the takedown of paper gold and paper silver has unleashed an avalanche of “panic buying” of physical gold and physical silver all over the planet. In the United States, some dealers are charging premiums of more than 25 percent over the spot price for gold and silver and they are getting it. People are paying these prices even though they are being told that delivery will not happen for a month or two in many cases. Some dealers are feverishly taking as many orders as they can, and they are just hoping that they will be able to get the physical gold and silver to eventually fill those orders. Personally, I have never seen anything like this. If things are this tight now, what is going to happen when the next major financial crisis strikes and people really begin to panic?
The shortages and rationing of ammunition at gun shops all over America just seem to keep getting worse. The following is from an article by a gun owner down in Texas named Brad Meyer…
If you’d like to see a normally sullen sales clerk chortle with derisive pleasure, just walk into just about any gun range, sporting goods store or mass merchandiser and try and buy a couple boxes of .22 ammunition.
Gun enthusiasts are up in arms about a nationwide shortage of ammunition. Handgun ammo in general is particularly difficult to find – and when you do find it, there are restrictions on the amount you can buy and how much you’re going to be paying for it.
While the list of hard to find ammo is long, .22 long rifle and 9mm handgun ammunition are particularly difficult to find in quantity. And the few places that have it are charging a premium rate and usually limiting purchases to one box, per person, per day.
Many gun owners try to find ammunition by going on the Internet, but things have gotten so tight that now any ammo that becomes available online is often gone within seconds…
There are websites where people across the country post links to where ammunition is available – and it sells out within seconds. Not minutes or hours – seconds.
Unfortunately, all of this demand is also driving up prices. Just check out what Meyer says is happening to the price of standard .22 ammo…
The demand is driving up the cost of ammunition. Six months ago, standard .22 ammo – the most common type of bullet produced in the world – could be had in bulk for around five cents apiece. It is now going for 50 cents or more on some websites – and people are paying it.
But this shortage is not just affecting private citizens. According to Newmax, police departments all over the nation are dealing with ammo shortages unlike anything that they have ever seen before…
Sheriff Anthony DeMeo of Nye County, Nev., was told his department’s regular order of 50,000 rounds could take up to a year to arrive.
“This is the first time ever I’ve heard that there’s a problem with a law-enforcement agency getting ammo for their agency,” DeMeo told The Las Vegas Sun.
These departments are not alone. Law enforcement agencies in Oklahoma, Wisconsin, Arizona, and Georgia are among many that are having to limit how much they give their officers due to the shortage.
Could you imagine waiting for “up to a year” to get more ammunition?
A recent article posted on CNSNews.com had some more examples of police departments that are reporting that there is a massive wait to get more ammo…
Chief Pryor of Rollingwood, Texas says of the shortage:
“We started making phone calls and realized there is a waiting list up to a year. We have to limit the amount of times we go and train because we want to keep an adequate stock.”
“Nobody can get us ammunition at this point,” says Sgt. Jason LaCross of the Bozeman, Montana police department.
LaCross says that manufacturers are so far behind that they won’t even give him a quote for an order.
“We have no estimated time on when it will even be available,” LaCross says.
This is insane.
What in the world could be causing such an ammo crunch?
Well, certainly the demand for guns and ammo has been trending up in recent years – especially since Barack Obama was elected.
But that doesn’t fully account for the shortages that we are witnessing at the moment.
So what is going on?
Well, some people believe that the federal government is responsible. It has been reported that they have signed contracts to purchase “up to” 1.6 billion rounds of ammunition. According to Forbes, this amount of ammunition would be enough to fight a “hot war” in America for 20 years…
The Denver Post, on February 15th, ran an Associated Press article entitled Homeland Security aims to buy 1.6b rounds of ammo, so far to little notice. It confirmed that the Department of Homeland Security has issued an open purchase order for 1.6 billion rounds of ammunition. As reported elsewhere, some of this purchase order is for hollow-point rounds, forbidden by international law for use in war, along with a frightening amount specialized for snipers. Also reported elsewhere, at the height of the Iraq War the Army was expending less than 6 million rounds a month. Therefore 1.6 billion rounds would be enough to sustain a hot war for 20+ years. In America.
Could this be a way that the Obama administration is trying to restrict the amount of ammo that gets into the hands of private citizens?
That is what some people are suggesting.
According to talk radio show host Michael Savage, the ammo contracts that the federal government has signed give them priority over all other purchasers…
What Homeland Security is doing here is they’re issuing a contract to buy up to that amount of ammo if they want it…
It’s a way to control the amount of market that’s available on the commercial market at any time.
If they go to the ammo manufacturers and say give me 50 million rounds, give me another 30 million rounds… if they periodically do this in increments, they’re going to control how much ammo is available on the commercial market.
As part of their contract it stipulates in there that when the government calls and says give us another quantity, that everything they make has to go to the government priority one before any of it goes to the commercial market.
So, if they get nervous, all they have to do is use that contract that they have in place… and they just say ‘give us some more.’
So whenever the government wants to tighten the supply of ammunition, all they have to do is invoke their contracts and order more for themselves.
Meanwhile, Obama appears to be doing other things to restrict the amount of ammo that gets into the hands of private gun owners.
For example, there are reports that the Obama administration plans to use executive orders to greatly restrict the importation of ammo from overseas.
So if anything, the shortage of ammunition is only going to get worse, not better.
Meanwhile, the “panic buying” of physical gold and physical silver that we have seen lately has really run down inventories.
According to Reuters, demand has become so intense that the U.S. Mint has suspended sales of gold coins for the first time since 2009…
The U.S. Mint said it has suspended sales of its one-tenth ounce American Eagle gold bullion coins as surging demand after bullion’s plunge to two-year lows depleted the government’s inventory. This marks the first time it has stopped selling gold product since November 2009, dealers said.
At the same time, precious metals dealers all over the country are scrambling to meet the voracious demand that they have been seeing this month. The following is an excerpt from a letter that the CEO of Texas Precious Metals recently sent out to his customers…
The physical silver market is, in a word, ugly. There is no telling at this point when mint inventories will return to normal, but you can be sure it will not happen within the next 8 weeks. Most dealers, at this point, are selling their current customer demand forward, meaning they are selling product they do not presently have, expecting to pull from future mint allocations. Consequently, future allocations will face pressure from today’s demand. It is not my intent here to comment on the business practices of other companies, but I will say that no one can possibly predict future allocations at the time. The US mint, for example, releases its allocations weekly, and until then, dealers have no insight into allocation levels. Last week, we turned away business in excess of 100,000 ozs of silver because of stock depletion. However, we stand by the notion that it is better to lose a sale than lose a customer by delaying delivery two months (or more).
A similar thing is happening over in Asia. According to the Financial Times, soaring demand has caused a shortage of gold at the Hong Kong Gold & Silver Exchange Society…
Haywood Cheung, president of the Hong Kong Gold & Silver Exchange Society, said the exchange had effectively run out of most of its holdings as members looked to meet a shortfall in supply amid rampant retail demand for gold products.
“In terms of volume, I haven’t seen this gold rush for over 20 years,” he told the Financial Times on Monday, adding that the exchange only had around twenty 1kg bars, and 100 five-tael bars left in its inventory. “Older members who have been in the business for 50 years haven’t seen such a thing.”
But most disturbing of all is what Jim Sinclair told King World News recently. Apparently his friend went to get his gold out of a Swiss bank the other day and they refused to give it to him…
A person that I know with significant deposits in one of the primary Swiss banks, in allocated gold, wanted to take out his gold and was just refused on the basis of directives from the central bank….
They told him the amount was in excess of 200,000 Swiss francs and the central bank had instructed them not to do it because it has to do with anti-terrorism and anti-money laundering precautions.
I really wonder whether those are precautions or whether the gold simply isn’t there. Now you tell me that a London delivery has basically failed. It has to raise our suspicions that the lack of physical gold behind the paper gold is literally so severe that we are coming to understand that it is in fact not there.
The gold that people think is stored is not stored, and the inventory of the warehouses for exchanges may not be holding deliverable gold. There has always been speculation about whether or not the physical gold the US claims to store is in fact in those vaults.
The greatest train robbery in history might be all of the gold, and it would only be something like we have described above that would happen right before gold makes historic highs.
There simply is no gold behind the paper. One example is AMRO, a second is your example with Maguire, and a third is my dear friend who was refused his gold on the basis that its value was too high. Remember this friend of mine had his gold in an allocated account in storage at a major Swiss bank. I repeat, there is no gold.
So are we going to see more of this?
Will it soon become evident that there is simply not enough physical gold to cover all of the promises that the banks have made?
Jim Sinclair sure seems to think so.
In another interview, John Embry expressed similar sentiments to King World News…
This gets back to the tip of the iceberg when the Dutch Bank ABN AMRO came out and literally said that if you have allocated gold with us, you can’t have it.
That, to me, is a default, and it gets back to what Jim Sinclair related when one of his friends went to a Swiss bank and couldn’t get his allocated gold. I mean that’s preposterous. If it’s allocated it should be there, but it’s clearly not there. I think this is the beginning of the end of the massive Ponzi scheme in paper gold. I have been talking about this for some time, and it will have an enormous impact on future gold and silver prices.
When it becomes widely known that all of the people who think they own gold in fact don’t own gold, that it’s been hypothecated and re-hypothecated so many times that there are 100 claims for every single ounce of physical gold, that is when the prices of gold and silver will really go berserk to the upside, and at that point the shorts will have serious problems.”
If those that helped engineer the recent takedown of paper gold and silver were hoping to scare people away from physical gold and silver, then they failed miserably. For even more on this, please see my recent article entitled “10 Signs The Takedown Of Paper Gold Has Unleashed An Unprecedented Global Run On Physical Gold And Silver“.
All of this is just another example why I encourage people to get prepared while times are still relatively good.
Once disaster strikes, it may be too late to get the things that you need.
Right now there are a whole lot of people out there wishing that they had stocked up on ammo when it was much cheaper and much more readily available.
We are moving into a time when everything that can be shaken will be shaken. Use the stability provided by the false bubble of economic hope that we are experiencing right now as an opportunity to get prepared. The next major wave of the economic collapse is rapidly approaching and time is running out.
 Is the United States about to experience another major economic downturn? Unfortunately, the pattern that is emerging right now is exactly the kind of pattern that you would expect to see just before a major stock market crash and a deep recession. History tells us that when the price of gold crashes, a recession almost always follows. History also tells us that when the price of oil crashes, a recession almost always follows. When both of those things happen, a significant economic downturn is virtually guaranteed. Just remember what happened back in 2008. Gold and oil both started falling rapidly in July, and in the fall we experienced the worst financial crisis that the U.S. had seen since the days of the Great Depression. Well, a similar pattern seems to be happening again. The price of gold has already crashed, and the price of a barrel of WTI crude oil has dropped to $86.37 as I write this. If the price of oil dips below $80 a barrel and stays there, that will be a major red flag. Meanwhile, we have just seen volatility return to the financial markets in a big way. When volatility starts to spike, that is usually a clear sign that stocks are about to go down substantially. So buckle your seatbelts – it looks like things are about to get very, very interesting.
Posted below is a chart that shows what has happened to the price of gold since the late 1960s. As you will notice, whenever the price of gold rises dramatically and then crashes, a recession usually follows. It happened in 1980, it happened in 2008, and it is happening again…
A similar pattern emerges when we look at the price of oil. During each of the last three recessions we have seen a rapid rise in the price of oil followed by a rapid decline in the price of oil…
That is why what is starting to happen to the price of oil is so alarming. On Wednesday, Reuters ran a story with the following headline: “Crude Routed Anew on Relentless Demand Worries“. The price of oil has not “crashed” yet, but it is definitely starting to slip.
As you can see from the chart above, the price of oil has tested the $80 level a couple of times in the past few years. If we get below that resistance and stay there, that will be a clear sign that trouble is ahead.
However, there is always the possibility that the recent “crash” in the price of gold might be a false signal because there is a tremendous amount of evidence emerging that it was an orchestrated event. An absolutely outstanding article by Chris Martenson explained how the big banks had been setting up this “crash” for months…
In February, Credit Suisse ‘predicted’ that the gold market had peaked, SocGen said the end of the gold era was upon us, and recently Goldman Sachs told everyone to short the metal.
While that’s somewhat interesting, you should first know that the largest bullion banks had amassed huge short positions in precious metals by January.
The CFTC rather coyly refers to the bullion banks simply as ‘large traders,’ but everyone knows that these are the bullion banks. What we are seeing in that chart is that out of a range of commodities, the precious metals were the most heavily shorted, by far.
So the timeline here is easy to follow. The bullion banks:
- Amass a huge short position early in the game
- Begin telling everyone to go short (wink, wink) to get things moving along in the right direction by sowing doubt in the minds of the longs
- Begin testing the late night markets for depth by initiating mini raids (that also serve to let experienced traders know that there’s an elephant or two in the room)
- Wait for the right moment and then open the floodgates to dump such an overwhelming amount of paper gold and silver into the market that lower prices are the only possible result
- Close their positions for massive gains and then act as if they had made a really prescient market call
- Await their big bonus checks and wash, rinse, repeat at a later date
While I am almost 100% certain that any decent investigation by the CFTC would reveal that market manipulating ‘dumping’ was happening, I am equally certain that no such investigation will occur. That’s because the point of such a maneuver by the bullion banks is designed to transfer as much wealth from ‘out there’ and towards the center, and the CFTC is there to protect the center’s ‘right’ to do exactly that.
You can read the rest of that article right here.
There are also rumors that George Soros was involved in driving down the price of gold. The following is an excerpt from a recent article by “The Reformed Broker” Joshua Brown…
And over the last week or so, the one rumor I keep hearing from different hedge fund people is that George Soros is currently massively short gold and that he’s making an absolute killing.
Once again, I have no way of knowing if this is true or false.
But enough people are saying it that I thought it worthwhile to at least mention.
And to me, it would make perfect sense:
1. Soros is a macro investor, this is THE macro trade of the year so far (okay, maybe Japan 1, short gold 2)
2. Soros is well-known for numerous market aphorisms and neologisms, one of my faves being “When I see a bubble, I invest.” He was heavily long gold for a time and had done well while simultaneously referring to it publicly as a speculative bubble.
3. He recently reported that he had pretty much exited the trade in gold back in February. In his Q4 filing a few weeks ago, we found out that he had sold down his GLD position by about 55% as of the end of 2012 and had just 600,000 shares remaining. That was the “smartest guy in the room” locking in a profit after a 12 year bull market.
4. Soros also hired away one of the most talented technical analysts out there, John Roque, upon the collapse of Roque’s previous employer, broker-dealer WJB Capital. No one has heard from the formerly media-available Roque since but we can only assume that – as a technician – the very obvious breakdown of gold’s long-term trend was at least discussed. And how else does one trade gold if not by using technicals (supply/demand) – what else is there? Cash flow? Book value?
5. Lastly, the last public interview given by George Soros was to the South China Morning Post on April 4th. He does not mention any trading he’s doing in gold but he does reveal his thoughts on it having been “destroyed as a safe haven”
It is also important to keep in mind that this “crash” in the price of “paper gold” had absolutely nothing to do with the demand for physical gold and silver in the real world. In fact, precious metals retailers have been reporting that they have been selling an “astounding volume” of gold and silver this week.
But that isn’t keeping many in the mainstream media from “dancing on the grave” of gold and silver.
For example, New York Times journalist Paul Krugman seems absolutely ecstatic that gold has crashed. He seems to think that this “crash” is vindication for everything that he has been saying the past couple of years.
In an article entitled “EVERYONE Should Be Thrilled By The Gold Crash“, Business Insider declared that all of us should be really glad that gold has crashed because according to them it is a sign that the economy is getting better and that faith in the financial system has been restored.
Dan Fitzpatrick, the president of StockMarketMentor.com, recently told CNBC that people are “flying out of gold” and “getting into equities”…
“There have been so many reasons, and there remain so many reasons to be in gold,” Fitzpatrick said, noting currency debasement and the fear of inflation. “But the chart is telling you that none of that is happening. Because of that, you’re going to see people just flying out of gold. There’s just no reason to be in it.Traders are scaling out of gold and getting into equities.”
Personally, I feel so sorry for those that are putting their money in the stock market right now. They are getting in just in time for the crash.
As CNBC recently noted, a very ominous “head and shoulders pattern” for the S&P 500 is emerging right now…
A scary head-and-shoulders pattern could be building in the S&P 500, and this negative chart formation would be created if the market stalls just above current levels.
“It’s developing and it’s developing fast,” said Scott Redler of T3Live.com on Wednesday morning.
Even worse, volatility has returned to Wall Street in a huge way. This is usually a sign that a significant downturn is on the way…
Call options buying recently hit a three-year high for the CBOE’s Volatility Index, a popular measure of market fear that usually moves in the opposite direction of the Standard & Poor’s 500 stock index.
A call buy, which gives the owner the option to purchase the security at a certain price, implies a belief that the VIX is likely to go higher, which usually is an ominous sign for stocks.
“We saw a huge spike in call buying on the VIX, the most in a while,” said Ryan Detrick, senior analyst at Schaeffer’s Investment Research. “That’s not what you want to hear (because it usually happens) right before a big pullback.”
The last time call options activity hit this level, on Jan. 13, 2010, it preceded a 9 percent stock market drop that happened over just four weeks, triggered in large part by worries over the ongoing European debt crisis.
And according to Richard Russell, the “smart money” has already been very busy dumping consumer stocks…
What do billionaires Warren Buffet, John Paulson, and George Soros know that you and I don’t know? I don’t have the answer, but I do know what these billionaires are doing. They, all three, are selling consumer-oriented stocks. Buffett has been a cheerleader for US stocks all along.
But in the latest filing, Buffett has been drastically cutting back on his exposure to consumer stocks. Berkshire sold roughly 19 million shares of Johnson and Johnson. Berkshire has reduced his overall stake in consumer product stocks by 21%, including Kraft and Procter and Gamble. He has also cleared out his entire position in Intel. He has sold 10,000 shares of GM and 597,000 shares of IBM.
Fellow billionaire John Paulson dumped 14 million shares of JP Morgan and dumped his entire position in Family Dollar and consumer goods maker Sara Lee. To wrap up the trio of billionaires, George Soros sold nearly all his bank stocks including JP Morgan, Citigroup and Goldman Sachs. So I don’t know exactly what the billionaires are thinking, but I do see what they’re doing — they are avoiding consumer stocks and building up cash.
… the billionaires are thinking that consumption is heading down and that America’s consumers are close to going on strike.
So what are all of those billionaires preparing for?
What do they know that we don’t know?
I don’t know about you, but when I start putting all of the pieces that I have just discussed together, it paints a rather ominous picture for the months ahead.
At some point, there will be another major stock market crash. When it happens, we will likely see even worse chaos than we saw back in 2008. Major financial institutions will fail, the credit markets will freeze up, economic activity will grind to a standstill and millions of Americans will lose their jobs.
I sincerely hope that we still have at least a few more months before that happens. But right now things are moving very rapidly and it is becoming increasingly clear that time is running out.
 Have you ever wondered how the big banks make such enormous mountains of money? Well, the truth is that much of it is made by gambling recklessly. If they win on their bets, they become fabulously wealthy. If they lose on their bets, they know that the government will come in and arrange for the banks to be bailed out because they are “too big to fail”. Either they will be bailed out by the government using our tax dollars, or as we just witnessed in Cyprus, they will be allowed to “recapitalize” themselves by stealing money directly from our bank accounts. So if they win, they win big. If they lose, someone else will come in and clean up the mess. This creates a tremendous incentive for the bankers to “go for it”, because there is simply not enough pain in this equation for those that are taking the risks. If the big Wall Street banks had been allowed to collapse back in 2008, that would have caused a massive change of behavior on Wall Street. But instead, the big banks are still recklessly gambling with our money as if the last financial crisis never even happened. In the end, the reckless behavior of these big banks is going to cause the entire global financial system to collapse.
Have you noticed how most news reports about Cyprus don’t even get into the reasons why the big banks in Cyprus collapsed?
Well, the truth is that they collapsed because they were making incredibly reckless bets with the money that had been entrusted to them. In a recent article, Ron Paul explained how the situation played out once the bets started to go bad…
The dramatic recent events in Cyprus have highlighted the fundamental weakness in the European banking system and the extreme fragility of fractional reserve banking. Cypriot banks invested heavily in Greek sovereign debt, and last summer’s Greek debt restructuring resulted in losses equivalent to more than 25 percent of Cyprus’ GDP. These banks then took their bad investments to the government, demanding a bailout from an already beleaguered Cypriot treasury. The government of Cyprus then turned to the European Union (EU) for a bailout.
If those bets had turned out to be profitable, the bankers would have kept all of the profits. But those bets turned out to be big losers, and private bank accounts in Cyprus are now being raided to pay the bill. Unfortunately, as Ron Paul noted, what just happened in Cyprus is already being touted as a “template” for future bank bailouts all over the globe…
The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one’s money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?
Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States.
This is an example of what can happen when the dominoes start to fall. The banks of Cyprus failed because Greek debt went bad. And the Greeks were using derivatives to try to hide the true scope of their debt problems. The following is what Jim Sinclair recently told King World News…
When people say that the Cypriot banks lost because of being in Greek debt, what was one of the Greeks’ greatest sins? They used over-the-counter derivatives in order to hide the real condition of their balance sheet.
Depositor money, brokerage money, and clearing house money have been tangled up in the mountain of derivatives as the banks have used this cash to speculate in an attempt to make huge bonuses for bank executives.
As I have written about so many times, the global quadrillion dollar derivatives bubble is one of the greatest threats that the global financial system is facing. As Sinclair explained to King World News, when this derivatives bubble bursts and the losses start soaring, the big banks are going to want to raid private bank accounts just like the banks in Cyprus were able to…
What do you think happens when Buffett reports that he made $10 billion in derivatives? Somebody else lost $10 billion and it was most likely one financial institution. There is no question that what we are seeing right now is not isolated to Cyprus. It has happened everywhere, but is has been camouflaged by making the depositors and the banks whole. What Cyprus will reveal is that losses do not stop with the bank’s capital. Losses roar right through bank capital and take depositors’ money.
This could have all been avoided if we had allowed the big Wall Street banks to collapse back in 2008. Reckless behavior would have been greatly punished and banks would have chosen to do business differently in the future.
David Stockman, the former director of the Office of Management and Budget under President Ronald Reagan, says that because we bailed out the big banks it was a signal to them that they could go back and freely engage in the same kind of reckless behavior that they were involved in previously…
Essentially there was a cleansing run on the wholesale funding market in the canyons of Wall Street going on. It would have worked its will, just like JP Morgan allowed it to happen in 1907 when we did not have the Fed getting in the way. Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.
Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. These firms are supposed to come and go, and if people make really bad bets, if they have a trillion dollar balance sheet with six, seven, eight hundred billion dollars worth of hot-money short-term funding, then they ought to take their just reward, because it would create lessons, it would create discipline. So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values – which for most of these partners is tens of millions, hundreds of millions – when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets.
The lessons that we were supposed to learn from the crisis of 2008 have not been learned.
Instead, the lure of huge returns and big bonuses has caused a return to the exact same behavior that caused the crisis of 2008 in the first place. The following is one example of this phenomenon from a recent article by Wolf Richter…
The craziness on Wall Street, the reckless for-the-moment-only behavior that led to the Financial Crisis, is back.
This time it’s Citigroup that is once again concocting “synthetic” securities, like those that had wreaked havoc five years ago. And once again, it’s using them to shuffle off risks through the filters of Wall Street to people who might never know.
What bubbled to the surface is that Citigroup is selling synthetic securities that yield 13% to 15% annually—synthetic because they’re based on credit derivatives. Apparently, Citi has a bunch of shipping loans on its books, and it’s trying to protect itself against default. In return for succulent interest payments, investors will take on some of the risks of these loans.
Yes, the Dow hit another new all-time high today. But the derivatives bubble that hangs over the global economy like a sword of Damocles could burst at literally any moment. When it does, the damage is going to be incalculable.
In a previous article entitled “Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers“, I noted a couple of statistics that show why derivatives are such an enormous problem…
–$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.
–$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.
When the derivatives bubble finally bursts, where are we going to get the trillions upon trillions of dollars that will be needed to “fix” things this time?
And sadly, the reality is that we are quickly running out of time.
It is important to keep watching Europe. As I noted the other day, the European banking system as a whole is leveraged about 26 to 1 at this point. When Lehman Brothers finally collapsed, it was leveraged about 30 to 1.
And the economic crisis over in Europe just continues to get worse. It was announced on Tuesday that the unemployment rate in the eurozone is at an all-time record high of 12 percent, and the latest manufacturing numbers show that manufacturing activity over in Europe is in the process of collapsing.
So don’t be fooled by the fact that the Dow keeps setting new all-time record highs. This bubble of false hope will be very short-lived.
The unfortunate truth is that the global financial system is a complete and total mess, and at this point a collapse appears to be inevitable.
 Cyprus lawmakers may have rejected the bank account tax, but the truth is that the financial crisis in Cyprus is just getting started. Right now, the two largest banks in Cyprus are dangerously close to a meltdown. If they fail, depositors could end up losing virtually all of their money. You see, the banking system of Cyprus absolutely dwarfs the GDP of that small island nation. Cyprus is known all over the world as a major offshore tax haven, and wealthy Russians and wealthy Europeans have been pouring massive amounts of money into the banking system over the last several decades. Yes, those bank deposits are supposed to be insured, but the truth is that there is no way that the government of Cyprus could ever come up with enough money to cover the massive losses that we are potentially looking at. This is a case where the banking system of a nation has gotten so large that the national government is absolutely powerless to stop a collapse from happening. If those banks fail, depositors may end up getting 50 percent of their money or they may end up getting nothing. We just don’t know how bad the damage is yet. And considering the fact that many of the largest corporations and many of the wealthiest individuals in Europe have huge mountains of cash stashed in Cyprus, the fallout from a banking collapse could potentially be absolutely catastrophic.
So Cyprus needs to come up with some money from somewhere in order to keep that from happening.
Basically, there are three options at this point…
1) Even though the bank account confiscation tax was voted down today, there is talk that it could come back in another form. This is really the only place inside of Cyprus where enough money can be raised to bail out the banks.
2) Cyprus could go back and beg the IMF and the EU for money, but the IMF and the EU have already said that they want depositors to share in the pain.
3) Cyprus could get the money that they need from the Russians. This will be discussed in more detail later.
A lot of people will see the headlines proclaiming that Cyprus has voted against the wealth tax and think that everything is going to be okay now, but that is very far from the truth.
The reality is that this is only the first move in a very complicated chess game. The problems for Cyprus are only just the beginning…
“This is not the end of the process, but instead kicks off a further round of negotiation with Moscow and Berlin,” JPMorgan economist Alex White wrote in a research note. “The Cypriot authorities wanted to conduct the vote so that they could reaffirm the extent of their difficulties to the Europeans.”
When the banks of Cyprus reopen in a few days, there is going to be a stampede of people trying to pull their money out of the banks.
In fact, this was starting to happen even before the “bank holiday” was declared. According to The Sun, bank insiders were tipping people off about what was going to happen in the days leading up to the crisis…
But Russian oligarchs and big investors emptied accounts in the days beforehand, prompting claims they were tipped off by bank insiders. A source told The Sun: “It leaked out. Bankers warned their best clients. Government officials warned their friends and relatives.
“Billions disappeared from accounts in days, most from accounts held by Russians.”
And according to David Zervos, we could see billions more euros withdrawn from banks in Cyprus once they reopen. There will be mass panic as depositors scramble to reclaim their money before it can be taxed…
The die is cast. There is no going back for the Cypriots or the Eurozone leaders. As soon as the banks open in Cyprus there will be billions in withdrawals. The question of course is – “where will the money come from?”. Well, if the parliament votes YES, then the Euros will have to come from the Eurosystem. But there is a glitch. The Cypriots have already borrowed 10b euro via the ELA and Target2. How can Mario just wire over 20 billion more (less the 10 to 15 percent haircut) for the Russians, and another 20 to 30 billion for the wealthy Greeks. What collateral will an economy with 20b in GDP post to get this cash? Unless Mario violates every collateral rule at the ECB, the Cypriot financial system will collapse even with a YES vote. Its a wonderful life – Cyprus style.
It may not even matter what Cyprus eventually decides to do about a “wealth tax”. The bank run that is about to happen may be enough to bring down the banks of Cyprus all by itself.
And of course people all over southern Europe are watching developments in Cyprus very closely. As former British Chancellor of the Exchequer Alistair Darling recently noted, if depositors in southern Europe start getting nervous that their bank accounts will be targeted too, they will be likely to start pulling money out of the banks very rapidly…
“They have actually now said to people ‘We will come after your deposits, no matter how small your savings are’ and that seems to me to make it more likely that, if you are a saver in Spain or in Italy, for example, and you have just the sniff of the EU or the IMF coming your way, you will take your money out and you will get a run on the bank”
Cyprus could actually get out of this mess by turning to Russia, but the United States and Europe really do not want to see Russia gain so much control over that very strategic island nation.
So why would Russia get involved? Well, it has been estimated that Russians have approximately $31 billion stashed in banks in Cyprus. It is the favorite offshore banking destination for the Russian oligarchs. Dennis Gartman recently detailed why the tiny island nation is so appealing to the Russians…
Cyprus has been their own private Switzerland for many years. Legal and non-legal Russian cash has swamped the banking system in Cyprus since the early 90’s. The beauty of the island; the ease of admission too and exit from the island via boat or plane; the secrecy of the banking laws; the warm Mediterranean climate and the ease of which Cypriot authorities could be bribed and bought all worked to make Cyprus the center of Russian capital flight.
And right now the Russians are not happy at all that their money is being threatened.
In particular, the Russian mafia launders a lot of money in Cyprus. The Russian mafia is not about to let anyone steal their money, and they have an international reputation for being absolutely brutal. In the end, pressure from the mafia may have been one of the primary reasons why many Cyprus lawmakers voted against the bank account tax. As Dennis Gartman astutely noted, by voting against the wealth tax they may have literally been saving their own lives…
“One could only laugh as such a comment; of course Cyprus was complacent about laundering. To think otherwise was and is naïve. Ah, but now you’ve stolen Russia money… or soon shall depending upon the vote in the Cypriot parliament… and that is dangerous… very. One does not steal Russian mafia money and get away with it. There are fewer statements of fact that are more certain, more factual, more unyielding than this statement. Russian Mafia figures do not take well to being stolen from, and they take even less well to be made fools of. We see no reason to mince words at this point: People will be hurt over this decision; some shall be killed.”
And the Russians definitely do not want to see the banking system of Cyprus collapse. In fact, proposals have been made that would provide the money necessary to keep it afloat. But of course that money would not come cheaply.
Some of the proposals that Russia has put forward were summarized by the Daily Mail…
But in a move that has raised eyebrows, the Russian energy giant Gazprom offered Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas on the island.
Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening.
It is also rumoured that the Kremlin is privately offering to help bail out Cyprus in exchange for the right to use a naval base in the Greek part of the island.
In addition, as I wrote about yesterday, some Russian investors have stepped forward and have offered to buy majority stakes in the two largest banks in Cyprus.
So why hasn’t Cyprus accepted help from Russia yet? Well, it is a geopolitical thing. Cyprus is a part of the EU, and European officials do not want Russia to become the dominant influence in Cyprus.
But if the IMF and the EU are not going to step up and help Cyprus, the Russian offers will become more tempting with each passing day.
Meanwhile, the attempted attack on bank accounts in Cyprus is making people nervous all over Europe. For example, the following is what German economist Peter Bofinger had to say about what the situation in Cyprus is doing to confidence in the European financial system…
Making small-scale savers pay is extremely dangerous. It will shake the trust of depositors across the Continent. Europe’s citizens now have to fear for their money.
And if you don’t think that this could ever happen anywhere else, you are just being delusional.
In fact, it is already happening. In fact, the Finance Minister of New Zealand is now proposing that depositors in his nation should be required to “take a haircut” if any banks in his nation fail…
The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.
Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.
“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.
“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.
“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.”
But surely there will never be any major banking problems in the United States, right?
Well, large numbers of Chase customers that logged into their accounts on Monday discovered that a “computer glitch” had reset all of their account balances to zero…
Chase bank experienced a problem Monday that had customers scrambling to figure out where their money went.
JP Morgan Chase said it hadn’t been hacked but was having a problem “related to an internal issue” as customers found their accounts showing zero balances.
Some customers shared their frustration on Twitter and showed screen shots of zero balances.
How would you feel if you suddenly discovered that you had no money in the bank?
Most Americans just assume that their money will always be there because their bank accounts are “guaranteed” by deposit insurance and by the full faith and credit of the federal government.
But that is exactly what the people of Cyprus thought too, and look how that turned out.
It would be hard to overstate how dangerous the situation in Cyprus is. Yes, their nation is very small but their banking system is absolutely huge.
If the banking system of Cyprus fails, it could be a “Lehman Brothers moment” for all of Europe. At this point, the entire European banking system is leveraged 26 to 1, and once European banks start to fail they could start falling like dominoes.
There is also a very strong possibility that Cyprus could be forced to leave the euro, and if that happens everyone will be wondering who will be next to leave the common currency.
So don’t think for a second that the crisis in Cyprus is over. The banking meltdown is just getting started, and the consequences could end up being far more dramatic than any of us could possibly imagine.
 Is the financial system of Europe on the verge of a meltdown? I have always maintained that the next wave of the economic crisis would begin in Europe, and right now the situation in Europe is unraveling at a frightening pace. On Monday, European stocks had their worst day in over six months, and over the past four days we have seen the EUR/USD decline by the most that it has in nearly seven months. Meanwhile, scandals are erupting all over the continent. A political scandal in Spain, a derivatives scandal in Italy and banking scandals all over the eurozone are seriously shaking confidence in the system. If things move much farther in a negative direction, we could be facing a full-blown financial crisis in Europe very rapidly. So watch the financial markets in Europe very carefully. Yes, most Americans tend to ignore Europe because they are convinced that the U.S. is “the center of the universe”, but the truth is that Europe actually has a bigger population than we do, they have a bigger economy then we do, and they have a much larger banking system than we do. The global financial system is more integrated today than it ever has been before, and if there is a major stock market crash in Europe it is going to deeply affect the United States and the rest of the globe as well. So pay close attention to what is going on in Europe, because events over there could spark a chain reaction that would have very serious implications for every man, woman and child on the planet.
As I noted above, European markets started off the week very badly and things have certainly not improved since then. The following is how Zero Hedge summarized what happened on Thursday…
EuroStoxx (Europe’s Dow) closed today -1% for 2013. France, Germany, and Spain are all lower on the year now. Italy, following ENI’s CEO fraud, collapsed almost 3% from the US day-session open, leaving it up less than 1% for the year. Just as we argued, credit markets have been warning that all is not well and today’s afternoon free-fall begins the catch-down.
In addition, the euro has been dropping like a rock all of a sudden. Just check out this chart which shows what happened to the euro on Thursday. It is very rare to see the euro move that dramatically.
So what is causing all of this?
Well, we already know that the economic fundamentals in Europe are absolutely horrible. Unemployment in the eurozone is at a record high, and the unemployment rates in both Greece and Spain are over 26 percent. Those are depression-level numbers.
But up until now there had still been a tremendous amount of confidence in the European financial system. But now that confidence is being shaken by a whole host of scandals.
In recent days, a number of major banking scandals have begun to emerge all over Europe. Just check out this article which summarizes many of them.
One of the worst banking scandals is in Italy. A horrible derivatives scandal has pushed the third largest bank in Italy to the verge of collapse…
Monte dei Paschi di Siena (BMPS.MI), Italy’s third biggest lender, said on Wednesday losses linked to three problematic derivative trades totaled 730 million euros ($988.3 million) as it sought to draw a line under a scandal over risky financial transactions.
There is that word “derivative” that I keep telling people to watch for. Of course this is not the big “derivatives panic” that I have been talking about, but it is an example of how these toxic financial instruments can bring down even the biggest banks. Monte dei Paschi is the oldest bank in the world, and now the only way it is able to survive is with government bailouts.
Another big scandal that is shaking up Europe right now is happening over in Spain. It is being alleged that Spanish Prime Minister Mariano Rajoy and other members of his party have been receiving illegal cash payments. The following summary of the scandal comes from a recent Bloomberg article…
On Jan. 31, the Spanish newspaper El Pais published copies of what it said were ledgers from secret accounts held by Luis Barcenas, the former treasurer of the ruling People’s Party, which revealed the existence of a party slush fund. The newspaper said 7.5 million euros in corporate donations were channeled into the fund and allegedly doled out from 1997 to 2009 to senior party members, including Rajoy.
That doesn’t sound good at all.
So what is the truth?
Could Rajoy actually be innocent?
Well, at this point most of the population of Spain does not believe that is the case. Just check out the following poll numbers from the Bloomberg article quoted above…
According to the Metroscopia poll, 76 percent of Spaniards don’t believe the People’s Party’s denials of the slush-fund allegations. Even more damning, 58 percent of the party’s supporters think it’s lying. All of the Spanish businessmen with whom I discussed the latest scandal expect it to get worse before it gets better. Their assumption that there are more skeletons in the government’s closet indicates what little trust they have in their leaders.
Meanwhile, the underlying economic fundamentals in Europe just continue to get worse. One of the biggest concerns right now is France. Just check out this excerpt from a recent report by Phoenix Capital Research…
The house of cards that is Europe is close to collapsing as those widely held responsible for solving the Crisis (Prime Ministers, Treasurers and ECB head Mario Draghi) have all been recently implicated in corruption scandals.
Those EU leaders who have yet to be implicated in scandals are not faring much better than their more corrupt counterparts. In France, socialist Prime Minister Francois Hollande, has proven yet again that socialism doesn’t work by chasing after the wealthy and trying to grow France’s public sector… when the public sector already accounts for 56% of French employment.
France was already suffering from a lack of competitiveness. Now that wealthy businesspeople are fleeing the country (meaning investment will dry up), the economy has begun to positively implode.
As the report goes on to mention, over the past few months the economic numbers coming out of France have been absolutely frightful…
Auto sales for 2012 fell 13% from those of 2011. Sales of existing homes outside of Paris fell 20% year over year for the third quarter of 2012. New home sales fell 25%. Even the high-end real estate markets are collapsing with sales for apartments in Paris that cost over €2 million collapsing an incredible 42% in 2012.
Today, the jobless rate in France is at a 15-year high, and industrial production is headed into the toilet. The wealthy are fleeing France in droves because of the recent tax increases, and the nation is absolutely drowning in debt. Even the French jobs minister recently admitted that France is essentially “bankrupt” at this point…
France’s government was plunged into an embarrassing row yesterday after a minister said the country was ‘totally bankrupt’.
Employment secretary Michel Sapin said cuts were needed to put the damaged economy back on track.
‘There is a state but it is a totally bankrupt state,’ he said.
So what does all of this mean?
It means that the crisis in Europe is just beginning. Things are going to be getting a lot worse.
Perhaps that is one reason why corporate insiders are dumping so much stock right now as I noted in my article yesterday entitled “Do Wall Street Insiders Expect Something Really BIG To Happen Very Soon?” There are a whole host of signs that both the United States and Europe are heading for recession, and a lot of financial experts are warning that stocks are way overdue for a “correction”.
For example, Blackstone’s Byron Wien told CNBC the other day that he expects the S&P 500 to drop by 200 points during the first half of 2013.
Seabreeze Partners portfolio manager Doug Kass recently told CNBC that what is happening right now in the financial markets very much reminds him of the stock market crash of 1987…
“I’m getting the ‘summer of 1987 feeling’ in the U.S. equity market,” Kass told CNBC, “which means we’re headed for a sharp fall.”
Toward the end of 2012 and at the very beginning of 2013 we saw markets both in the U.S. and in Europe move up steadily even though the underlying economic fundamentals did not justify such a move.
In many ways, that move up reminded me of the “head fakes” that we have seen prior to many of the largest “market corrections” of the past. Often financial markets are at their most “euphoric” just before a crash hits.
So get ready.
Even if you don’t have a penny in the financial markets, now is the time to prepare for what is ahead.
We all need to learn from what Europe is going through right now. In Greece, formerly middle class citizens are now trampling one another for food. We all need to prepare financially, mentally, emotionally, spiritually and physically so that we can weather the economic storm that is coming.
Most Americans are accustomed to living paycheck to paycheck and being constantly up to their eyeballs in debt, but that is incredibly foolish. Even in the animal kingdom, animals work hard during the warm months to prepare for the winter months. Even so, we should all be working very hard to prepare during prosperous times so that we will have something stored up for the lean years that are coming.
Unfortunately, if events in Europe are any indication, we may be rapidly running out of time.
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UNPRECEDENTED Shortages Of Ammo, Physical Gold And Physical Silver
The shortages and rationing of ammunition at gun shops all over America just seem to keep getting worse. The following is from an article by a gun owner down in Texas named Brad Meyer…
Many gun owners try to find ammunition by going on the Internet, but things have gotten so tight that now any ammo that becomes available online is often gone within seconds…
Unfortunately, all of this demand is also driving up prices. Just check out what Meyer says is happening to the price of standard .22 ammo…
But this shortage is not just affecting private citizens. According to Newmax, police departments all over the nation are dealing with ammo shortages unlike anything that they have ever seen before…
Could you imagine waiting for “up to a year” to get more ammunition?
A recent article posted on CNSNews.com had some more examples of police departments that are reporting that there is a massive wait to get more ammo…
This is insane.
What in the world could be causing such an ammo crunch?
Well, certainly the demand for guns and ammo has been trending up in recent years – especially since Barack Obama was elected.
But that doesn’t fully account for the shortages that we are witnessing at the moment.
So what is going on?
Well, some people believe that the federal government is responsible. It has been reported that they have signed contracts to purchase “up to” 1.6 billion rounds of ammunition. According to Forbes, this amount of ammunition would be enough to fight a “hot war” in America for 20 years…
Could this be a way that the Obama administration is trying to restrict the amount of ammo that gets into the hands of private citizens?
That is what some people are suggesting.
According to talk radio show host Michael Savage, the ammo contracts that the federal government has signed give them priority over all other purchasers…
So whenever the government wants to tighten the supply of ammunition, all they have to do is invoke their contracts and order more for themselves.
Meanwhile, Obama appears to be doing other things to restrict the amount of ammo that gets into the hands of private gun owners.
For example, there are reports that the Obama administration plans to use executive orders to greatly restrict the importation of ammo from overseas.
So if anything, the shortage of ammunition is only going to get worse, not better.
Meanwhile, the “panic buying” of physical gold and physical silver that we have seen lately has really run down inventories.
According to Reuters, demand has become so intense that the U.S. Mint has suspended sales of gold coins for the first time since 2009…
At the same time, precious metals dealers all over the country are scrambling to meet the voracious demand that they have been seeing this month. The following is an excerpt from a letter that the CEO of Texas Precious Metals recently sent out to his customers…
A similar thing is happening over in Asia. According to the Financial Times, soaring demand has caused a shortage of gold at the Hong Kong Gold & Silver Exchange Society…
But most disturbing of all is what Jim Sinclair told King World News recently. Apparently his friend went to get his gold out of a Swiss bank the other day and they refused to give it to him…
So are we going to see more of this?
Will it soon become evident that there is simply not enough physical gold to cover all of the promises that the banks have made?
Jim Sinclair sure seems to think so.
In another interview, John Embry expressed similar sentiments to King World News…
If those that helped engineer the recent takedown of paper gold and silver were hoping to scare people away from physical gold and silver, then they failed miserably. For even more on this, please see my recent article entitled “10 Signs The Takedown Of Paper Gold Has Unleashed An Unprecedented Global Run On Physical Gold And Silver“.
All of this is just another example why I encourage people to get prepared while times are still relatively good.
Once disaster strikes, it may be too late to get the things that you need.
Right now there are a whole lot of people out there wishing that they had stocked up on ammo when it was much cheaper and much more readily available.
We are moving into a time when everything that can be shaken will be shaken. Use the stability provided by the false bubble of economic hope that we are experiencing right now as an opportunity to get prepared. The next major wave of the economic collapse is rapidly approaching and time is running out.