New DVDs By Michael Snyder
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 The Democrats, the Republicans and especially Barack Obama promised that something would be done about the too big to fail banks so that they would never again be a threat to destroy our financial system. Well, those promises have not been kept and the too big to fail banks are now much bigger and much more powerful than ever. The assets of the five biggest U.S. banks were equivalent to about 43 percent of U.S. GDP before the financial crisis. Today, the assets of the five biggest U.S. banks are equivalent to about 56 percent of U.S. GDP. So if those banks were “too big to fail” before, then what are they now? They continue to gobble up smaller banks at a brisk pace, and they continue to pile up debt and risky investments as if a day of reckoning will never come. But of course a day of reckoning is coming, and when it arrives they will be expecting more bailouts just like they got the last time.
The size of these monolithic financial institutions is truly difficult to comprehend. They completely dominate our financial system and everywhere you look they are constantly absorbing more wealth and more power. The following comes from a recent Bloomberg article….
Five banks — JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc., Wells Fargo & Co. (WFC), and Goldman Sachs Group Inc. — held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve.
Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy
Despite all of the talk from the politicians, they just keep getting bigger and bigger and bigger.
So why isn’t anything ever done?
Well, one reason is because these gigantic financial entities funnel huge quantities of cash into political campaigns.
For example, Barack Obama gives nice speeches about the dangers of the too big to fail banks, but he is also more than happy to take their campaign contributions. Goldman Sachs, JPMorgan Chase and Citigroup were all ranked among his top 10 donors during the 2008 campaign.
So do you really expect that Barack Obama is going to bite the hands that feed him?
Of course he is not going to do that.
The truth is that the Obama administration and the Federal Reserve have done everything they can to make life very comfortable for the big Wall Street banks.
During the last financial crisis, the too big to fail banks were absolutely showered with bailouts.
Meanwhile, hundreds of small and mid-size banks were allowed to die.
When representatives from those small and mid-size banks contacted the federal government for help, often they were told to try to find a larger bank that would be willing to buy them.
Sadly, the last financial crisis simply accelerated the consolidation of the banking industry in the United States that has been going on for several decades.
Today, there are less than half as many banks in the United States as there were back in 1984.
So where did all of those banks go?
They were either purchased by bigger banks or they were allowed to go out of existence.
This banking consolidation trend has allowed the big Wall Street banks to absolutely explode in size.
Back in 1970, the 5 biggest U.S. banks held 17 percent of all U.S. banking industry assets.
Today, the 5 biggest U.S. banks hold 52 percent of all U.S. banking industry assets.
So where will this end?
That is a good question.
The funny thing is that Federal Reserve Chairman Ben Bernanke and other Fed officials keep giving speeches where they warn of the dangers of having banks that are “too big to fail”. For example, during a recent presentation to students at George Washington University, Bernanke made the following statement about the U.S. banking system….
“But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.'”
So does that mean that Bernanke is against the too big to fail banks?
Of course not.
The truth is that he showered those banks with trillions of dollars in bailout money during the last financial crisis.
The amount of money in secret loans that some of the big Wall Street banks received from the Federal Reserve was absolutely staggering. The following figures come directly from a GAO report….
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Bank of America – $1.344 trillion
Goldman Sachs – $814 billion
JP Morgan Chase – $391 billion
Bernanke has shown that he is willing to move heaven and earth to protect those big banks.
So what did those banks do with all that money?
They certainly didn’t lend it to us. Lending to individuals and small businesses by those big banks actually went down immediately after those bailouts.
Instead, one thing that those banks did was they started putting massive amounts of money into commodities.
One of those commodities was food.
Over the past few years, big Wall Street banks have made huge amounts of money speculating on the price of food. This has caused food prices all over the globe to soar and it has caused tremendous hardship for hundreds of millions of families around the planet. The following is from a recent article in The Independent….
Speculation by large investment banks is driving up food prices for the world’s poorest people, tipping millions into hunger and poverty. Investment in food commodities by banks and hedge funds has risen from $65bn to $126bn (£41bn to £79bn) in the past five years, helping to push prices to 30-year highs and causing sharp price fluctuations that have little to do with the actual supply of food, says the United Nations’ leading expert on food.
Hedge funds, pension funds and investment banks such as Goldman Sachs, Morgan Stanley and Barclays Capital now dominate the food commodities markets, dwarfing the amount traded by actual food producers and buyers.
Goldman Sachs alone has earned hundreds of millions of dollars in profits from food speculation.
Can you imagine what kind of mindset it takes to do this?
Can you imagine taking food out of the mouths of hungry families on the other side of the world so that you and your fellow employees can pad your bonus checks?
It really is disgusting.
But that is the way the game is played.
It is set up so that the big guy will win and the little guy will lose.
The other day I wrote about how this is particularly true when it comes to our system of taxation.
Well, since that article I have discovered some new numbers that were just released by Citizens for Tax Justice. Some of the things that they have uncovered are absolutely amazing….
Between 2008 and 2011, Verizon made a total profit of $19.8 billion and yet paid an effective tax rate of -3.8%.
Between 2008 and 2011, General Electric made a total profit of $19.6 billion and yet paid an effective tax rate of -18.9%.
Between 2008 and 2011, Boeing made a total profit of $14.8 billion and yet paid an effective tax rate of -5.5%.
Between 2008 and 2011, Pacific Gas & Electric made a total profit of $6 billion and yet paid an effective tax rate of -8.4%.
So why should middle class families continue to be suffocated by outrageous tax rates when hugely profitable corporations such as General Electric are able to get away with paying nothing?
Our current tax system is an utter abomination and should be completely thrown out.
But as is the case with so many other things, our current system is going to persist because the “big guys” really enjoy the status quo and they are the ones that fund political campaigns.
It would be bad enough if the “big guys” were beating us on a level playing field.
But the truth is that the game has been dramatically tilted in their favor and they know that the politicians are going to take care of them whenever they need it.
So what is going to happen the next time the too big to fail banks get into trouble?
They will almost certainly get bailed out again.
Unfortunately, the big Wall Street banks continue to treat the financial system as if it was a gigantic casino. The derivatives bubble just continues to grow larger and larger, and it could burst and absolutely devastate the entire global financial system at any time.
According to the New York Times, the too big to fail banks have complete domination over derivatives trading. Every month a secret meeting that includes representatives from JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup is held in New York to coordinate their control over the derivatives marketplace. The following is how the New York Times describes those meetings….
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
When the derivatives market fully implodes, there will not be enough money in the world to bail everyone out. According to the Comptroller of the Currency, the too big to fail banks have exposure to derivatives that is absolutely outrageous. Just check out the following numbers….
JPMorgan Chase – $70.1 Trillion
Citibank – $52.1 Trillion
Bank of America – $50.1 Trillion
Goldman Sachs – $44.2 Trillion
So what happens when that house of cards comes crashing down?
Well, those big banks will come crying to the federal government again.
They will want more bailouts.
They will claim that if we don’t give them the money that they need that the entire financial system will collapse.
And yes, if several of the too big to fail banks were to collapse all at once the consequences would be almost unimaginable.
But of course all of this could have been avoided if we would have made much wiser decisions upstream.
Our financial system is more vulnerable than it ever has been before, and the too big to fail banks just continue to grow.
The lessons from the financial crisis of 2008 have gone unheeded, and we are steamrolling toward an even greater crash.
What a mess.
 The economic crisis in Europe continues to get worse and eventually it is going to unravel into a complete economic nightmare. All over Europe, national governments have piled up debts that are completely unsustainable. But whenever they start significantly cutting government spending it results in an economic slowdown. So politicians in Europe are really caught between a rock and a hard place. They can’t keep racking up these unsustainable debts, but if they continue to cut government spending it is going to push their economies into deep recession and their populations will riot. Greece is a perfect example of this. Greece has been going down the austerity road for several years now and they are experiencing a full-blown economic depression, riots have become a way of life in that country and their national budget is still not anywhere close to balanced. Americans should pay close attention to what is going on in Europe, because this is what it looks like when a debt party ends. Most of the nations in the eurozone have just started implementing austerity, and yet unemployment in the eurozone is already the highest it has been since the euro was introduced. It has risen for 10 months in a row and is now up to 10.8 percent. Sadly, it is going to go even higher. As economies across Europe slide into recession, that is going to put even more pressure on the European financial system. Most Americans do not realize this, but the European banking system is absolutely enormous. It is nearly four times the size that the U.S. banking system is. When the European banking system crashes (and it will) it is going to reverberate around the globe. The epicenter of the next great financial crisis is going to be in Europe, and it is getting closer with each passing day.
The following are 27 statistics about the European economic crisis that are almost too crazy to believe….
Greece
#1 The Greek economy shrank by 6 percent during 2011, and it has been shrinking for five years in a row.
#2 The average unemployment rate in Greece in 2010 was 12.5 percent. During 2011, the average unemployment rate was 17.3 percent, and now the unemployment rate in Greece is up to 21.8 percent.
#3 The youth unemployment rate in Greece is now over 50 percent.
#4 The unemployment rate in the port town is Perama is about 60 percent.
#5 In Greece, 20 percent of all retail stores have closed down during the economic crisis.
#6 Greece now has a debt to GDP ratio of approximately 160 percent.
#7 Some of the austerity measures that have been implemented in Greece have been absolutely brutal. For example, Greek civil servants have had their incomes slashed by about 40 percent since 2010.
#8 Despite all of the austerity measures, it is being projected that Greece will still have a budget deficit equivalent to 7 percent of GDP in 2012.
#9 Greece is still facing unfunded liabilities in future years that are equivalent to approximately 800 percent of GDP.
#10 In the midst of all the poverty in Greece, several serious diseases are making a major comeback. The following comes from a recent article in the Guardian….
The incidence of HIV/Aids among intravenous drug users in central Athens soared by 1,250% in the first 10 months of 2011 compared with the same period the previous year, according to the head of Médecins sans Frontières Greece, while malaria is becoming endemic in the south for the first time since the rule of the colonels, which ended in the 1970s.
Spain
#11 The unemployment rate in Spain is now up to 23.6 percent.
#12 The youth unemployment rate in Spain is now over 50 percent.
#13 The total value of all toxic loans in Spain is equivalent to approximately 13 percent of Spanish GDP.
#14 The GDP of Spain is about 1.4 trillion dollars. The three largest Spanish banks have approximately 2.7 trillion dollars in assets and they are all on the verge of failing.
#15 Home prices in Spain fell by 11.2 percent during 2011.
#16 The number of property repossessions in Spain rose by 32 percent during 2011.
#17 The ratio of government debt to GDP in Spain will rise by more than 11 percent during 2012.
#18 On top of everything else, Spain is dealing with the worst drought it has seen in 70 years.
Portugal
#19 The unemployment rate in Portugal is up to 15 percent.
#20 The youth unemployment rate in Portugal is now over 35 percent.
#21 Banks in Portugal borrowed a record 56.3 billion euros from the European Central Bank in March.
#22 It is being projected that the Portuguese economy will shrink by 5.7 percent during 2012.
#23 When you add up all forms of debt in Portugal (government, business and consumer) the total is equivalent to approximately 360 percent of GDP.
Italy
#24 Youth unemployment in Italy is up to 31.9 percent – the highest level ever.
#25 Italy’s national debt is approximately 2.7 times larger than the national debts of Greece, Ireland and Portugal put together.
#26 If you add the maturing debt that the Italian government must roll over in 2012 to the projected budget deficit, it comes to approximately 23.1 percent of Italy’s GDP.
#27 Italy now has a debt to GDP ratio of approximately 120 percent.
So why hasn’t Europe crashed already?
Well, the powers that be are pulling out all their tricks.
For example, the European Central Bank decided to start loaning gigantic mountains of money to European banks. That accomplished two things….
1) It kept those European banks from collapsing.
2) European banks used that money to buy up sovereign bonds and that kept interest rates down.
Unfortunately, all of this game playing has also put the European Central Bank in a very vulnerable position.
The balance sheet of the European Central Bank has expanded by more than 1 trillion dollars over the past nine months. The balance sheet of the European Central Bank is now larger than the entire GDP of Germany and the ECB is now leveraged 36 to 1.
So just how far can you stretch the rubberband before it snaps?
Perhaps we are about to find out.
The European financial system is leveraged like crazy right now. Even banking systems in countries that you think of as “stable” are leveraged to extremes.
For example, major German banks are leveraged 32 to 1, and those banks are holding a massive amount of European sovereign debt.
When Lehman Brothers finally collapsed, it was only leveraged 30 to 1.
You can’t solve a debt crisis with more debt. But the European Central Bank has been able to use more debt to kick the can down the road a few more months.
At some point the sovereign debt bubble is going to burst.
All financial bubbles eventually burst.
What goes up must come down.
Right now, the major industrialized nations of the world are approximately 55 trillion dollars in debt.
It has been a fun ride, but this fraudulent pyramid of risk, debt and leverage is going to come crashing down at some point.
It is only a matter of time.
Already, there are a whole bunch of signs that some very serious economic trouble is on the horizon.
Hopefully we still have a few more months until it hits.
But in this day and age nothing is guaranteed.
What does seem abundantly clear is that the current global financial system is inevitably going to fail.
When it does, what “solutions” will our leaders try to impose upon us?
That is something to think about.
 Federal Reserve Chairman Ben Bernanke claims that the Federal Reserve averted a second Great Depression by bailing out the big Wall Street banks during the last financial crisis, and he says that if a similar financial crisis comes along that the correct “policy response” will be to do the exact same thing again. This was the theme of the lecture that Bernanke delivered to students at George Washington University on Tuesday. In previous lectures Bernanke has defended the existence of the Fed and detailed the history of Fed activities, but on Tuesday he addressed things that have happened since he has been at the helm of the Fed. And according to Bernanke, he has been doing a great job. Bernanke told the students that the “threat of a second Great Depression was very real” and that the Federal Reserve did exactly what needed to be done to fix the financial system. Unfortunately, the truth is that all Bernanke did was kick the can a bit farther down the road. You can’t fix a debt problem with more debt, and the debt bubble we are living in today is far larger than it was in 2008. Will Bernanke still be trying to portray himself as a hero when this house of cards finally falls apart?
During his lecture to the students on Tuesday, Bernanke stated the following….
“I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could have had a much worse outcome in the economy.”
So what did that “forceful policy response” entail?
Well, on slide 24 of his presentation to the students Bernanke tells us….
• On October 10, 2008, G‐7 countries agreed to
work together to stabilize the global financial
system. They agreed to
– prevent the failure of systemically important
financial institutions
– ensure financial institutions’ access to funding and
capital
– restore depositor confidence
– work to normalize credit markets
Please note that not all financial institutions got bailed out.
In fact, hundreds of small and mid-size U.S. banks failed during the financial crisis.
It was only the “systemically important financial institutions” that got bailed out.
So who decided which financial institutions were important enough to be bailed out?
The Federal Reserve made those decisions. There were no Congressional votes and no input from the public. The Federal Reserve determined who the winners and the losers would be in secret and without any public debate.
Sure sounds “democratic”, eh?
But we are told to trust them because they are supposedly the experts.
So once the Federal Reserve bailed out the “too big to fail” banks, what was the outcome?
On page 25 of his presentation to the students Bernanke claimed that the bailouts successfully prevented the global financial system from collapsing….
• The international policy response averted the collapse of the global financial system.
But it wasn’t just big Wall Street banks that got bailed out. Bernanke says that AIG was also bailed out because the insurance company was deemed to be too “interconnected with many other parts of the global financial system” to be allowed to fail….
Because AIG was interconnected with many other parts of the global financial system, its failure would have had a massive effect on other financial firms and markets.
Once again, we see that it is the Federal Reserve who picks the winners and the losers.
AIG got bailed out and was then able to pay 100 cents on the dollar of what it owed to Goldman Sachs.
That sure worked out well for Goldman Sachs.
In all, the Federal Reserve issued a grand total of more than 16 trillion dollars in secret loans during the financial crisis.
The big Wall Street banks got showered with cash while hundreds of smaller banks were allowed to die like dogs.
The fact that the Fed greatly favors the big Wall Street banks has allowed them to grow massively in size and in power.
Back in 1970, the 5 biggest U.S. banks held 17 percent of all U.S. banking industry assets.
Today, the 5 biggest U.S. banks hold 52 percent of all U.S. banking industry assets.
The “too big to fail” banks just keep getting bigger and bigger and bigger.
Yet during his presentation to the students, Bernanke tried to talk out of both sides of his mouth by claiming that it is not a good thing for some banks to be “too big to fail”….
“But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.'”
So who is to blame for them being so big?
Well, the Federal Reserve is probably the biggest culprit.
Thanks Bernanke.
The big Wall Street banks are bigger than ever and they are also more unstable than ever.
According to the Comptroller of the Currency, the biggest U.S. banks have exposure to derivatives that is absolutely mind blowing. Just check out these numbers which have just been released….
JPMorgan Chase – $70.1 Trillion
Citibank – $52.1 Trillion
Bank of America – $50.1 Trillion
Goldman Sachs – $44.2 Trillion
So what is going to happen when that bubble pops?
Is Bernanke going to zap tens of trillions of dollars into existence to bail out that gigantic mess?
Meanwhile, the debt bubble that we are all living in just keeps exploding in size.
Total student loan debt in the United States is over 1 trillion dollars at this point. Consumer debt is rising. Millions of mortgages are past due.
The American people are not in better financial condition than they were during the last financial crisis. In fact, they are significantly worse off.
All over America, state and local governments are also drowning in debt. In fact, there have been several very notable municipal bankruptcies lately.
And the U.S. government is racking up debt at a pace that is almost unimaginable.
When the last financial crisis began, the U.S. national debt was about 10 trillion dollars.
Today, it has risen to 15.5 trillion dollars.
So Bernanke did not fix anything.
The best that can be said is that he kicked the can down the road a little bit and made our long-term financial problems a lot worse at the same time.
Bernanke can create money out of thin air and loan it to his friends all he wants, but he is not going to be able to prevent this house of cards from crashing down indefinitely.
So grab a bucket of popcorn and get ready. The next few years are going to be fascinating to watch.
 The unemployment rate in the eurozone is now 10.7 percent. That is the highest the unemployment rate has been since the introduction of the euro. The unemployment rate in the eurozone never got any higher than 10.2 percent during the last recession. This is very troubling news. It was just recently announced that the eurozone has entered another recession, and already the unemployment rate is hitting new record highs. So how bad are things going to get in the months to come? The truth is that the problems for Europe are just starting. The European sovereign debt crisis continues to get worse, and another major global financial crisis is going to be here way too soon. The EU as a whole has a larger population, a larger banking system and more Fortune 500 companies than the United States does. When the financial system of Europe crashes, the entire world is going to feel it.
Some of the unemployment numbers coming out of Europe are absolutely staggering.
Unemployment in Spain is 19.9 percent.
Unemployment in Greece is 23.3 percent.
And when you look at youth unemployment the numbers are far worse.
The unemployment rate for workers under the age of 25 is 48.1 percent in Greece and 49.9 percent in Spain.
If you look carefully at the photos of the austerity riots happening in Spain and in Greece you will notice that the vast majority of the protesters are young people.
Instead of getting better, the unemployment numbers in Europe just keep getting worse. Many analysts were shocked by these new numbers. The following is from a CNN article….
“This is appalling,” said Carl Weinberg, chief economist at High Frequency Economics, highlighting that the unemployment rate following the collapse of Lehman Brothers peaked at 10.2%.
Appalling indeed.
The frightening thing is that we haven’t even had a major financial crisis in Europe yet. So far, the powers that be have been able to keep Greece from defaulting and have been able to keep major banks all over Europe from collapsing.
But there are quite a few signs that the “moment of reckoning” for Europe is rapidly approaching….
-The European Central Bank announced on Tuesday that it would no longer take Greek bonds as collateral from European banks. That is a really bad sign.
-Major European banks are revealing unexpectedly huge losses on Greek debt. The following is from a Reuters article….
The scars of Greece’s debt crisis were laid bare in heavy losses from a string of European banks on Thursday, and bosses warned the region’s precarious finances would continue to threaten economic growth and earnings.
From France to Germany, Britain to Belgium, four of the region’s biggest banks lined up to reveal they lost more than 8 billion euros (6.8 million pounds) last year from their Greek bonds holdings.
“We are in the worst economic crisis since 1929,” Credit Agricole chief executive Jean-Paul Chifflet said.
-The International Swaps and Derivatives Association has ruled that the Greek debt deal will not trigger payouts on credit default swaps. This is going to make it less likely that private bondholders will voluntarily agree to the debt deal.
This ruling is also seriously shaking confidence in credit default swaps. After all, they are supposed to be “insurance” in case something happens. But if they aren’t going to pay out when you need them, what good are they?
-Voters in Germany are sick and tired of pouring money into a black hole. One recent opinion poll in Germany showed that Germans are overwhelmingly against more bailouts for Greece.
Some German politicians are becoming very open about their feelings for Greece. For example, Interior Minister Hans-Peter Friedrich said the following in a recent interview with Der Spiegel….
“Greece’s chances to regenerate itself and become competitive are surely greater outside the monetary union than if it remains in the euro area.” He added that he did not support a forced exit. “I’m not talking about throwing Greece out, but rather about creating incentives for an exit that they can’t pass up.”
-In Greece, news publications are openly portraying German Chancellor Angela Merkel as Hitler. Far left political parties that oppose the bailouts are surging in the polls and anger and frustration are reaching unprecedented levels.
The following is from a recent article in The Guardian….
There is a growing animosity towards Germany on the streets of Athens. Angela Merkel bears most of the hostility with one of Greece’s newspapers last week mocking the chancellor up as a Nazi on its front page.
Niki Fidaki, 40, says Greeks are angry at Germany and the troika’s demands for higher taxes and public services cuts. “People can’t afford to pay the tax. My pay has gone down, but my taxes have gone up. But, I’m a lucky one – half of my friends don’t have jobs. Greeks hate that they are asking us to pay all the time when we don’t have the money. Families have no work, they have kids to look after but no money to pay for anything.”
As I have written about before, Greece is already going through a devastating economic depression. The people of Greece are not in the mood to be pushed much further.
The eurozone is a powder keg that could explode at any time.
So why is the U.S. economy doing so much better than the European economy right now?
Well, a big reason is because we haven’t seen any austerity in the United States yet.
Barack Obama is funding our false prosperity by borrowing 150 million dollars an hour from our children and our grandchildren.
Of course all of this reckless borrowing is going to make the eventual collapse of our financial system far worse, but right now Americans don’t seem to care. The only thing the mainstream media seems to care about is that some of our economic numbers are getting slightly better.
The sad thing is that our government is spending a lot of this money on some of the most stupid things that you could possibly imagine.
Did you know that the Obama administration just spent $750,000 on a brand new soccer field for detainees held at Guantanamo Bay?
I wish I had a $750,000 soccer field to play on.
I would love that.
Look, when the federal government quits stealing more than a trillion dollars a year from future generations things are going to look a whole lot different in this country.
So pay attention to what is going on in Europe.
That is where we are headed eventually.
 The people out there that believe that the U.S. economy is experiencing a permanent recovery and that very bright days are ahead for us should have their heads examined. Unfortunately, what we are going through right now is simply just a period of “hopetimism” between two financial crashes. Things may seem relatively stable right now, but it won’t last long. The truth is that the financial crisis of 2008 was just a warm up act for the economic horror show that is coming. Nothing really got fixed after the crash of 2008. We are living in the biggest debt bubble in the history of the world, and it has gotten even bigger since then. The “too big to fail” banks are larger now than they have ever been. Americans continue to run up credit card balances like there is no tomorrow. Tens of thousands of manufacturing facilities and millions of jobs continue to leave the country. We continue to consume far more than we produce and we continue to become poorer as a nation. None of the problems that caused the crisis of 2008 have been solved and we are even weaker financially than we were back then. So why in the world are so many people so optimistic about the economy right now?
Just take a look at the chart posted below. It shows the growth of total debt in the United States. During the financial crisis of 2008 there was a little “hiccup”, but the truth is that not much deleveraging really took place at all. And since the recession “ended”, total credit market debt has gone on to even greater heights….
So what does this mean for the future?
Well, if a small “hiccup” in the debt bubble caused so much chaos back in 2008, what is going to happen when this debt bubble finally bursts?
That is something to think about.
Sadly, most Americans seem oblivious to all of this.
If you go out to malls in the wealthy areas of America today, people are charging up a storm. In all, Americans charged a whopping 2.5 trillion dollars on their credit cards during 2011. Way too many people have already forgotten the lessons that we all learned back in 2008.
Of course some Americans pay off their credit cards every month, but way too many Americans are not doing that. Today, Americans are carrying 793 billion dollars in revolving credit balances.
And student loan debt is an even bigger bubble than credit card debt is. As I have written about previously, total student loan debt in America is rapidly approaching a trillion dollars.
So it looks like U.S. consumers have not learned to stay away from debt.
That is not good.
Well, what about the banks?
Has the financial system learned any lessons since 2008?
No, not really.
Sadly, the “too big to fail” banks are now even bigger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011. If they were to fail today, they would be even more of a threat to our financial system than they were back in 2008.
And our major banks continue to be very highly leveraged. In fact, major banks all over the world are absolutely swamped with debt.
The following statistics come from Zero Hedge….
The U.S. banking system is leveraged 13 to 1.
The Japanese banking system is leveraged 23 to 1.
The French banking system is leveraged 26 to 1.
The German banking system is leveraged 32 to 1.
These are insane levels of leverage, and they are just inviting another major financial crisis.
Do you all remember Lehman Brothers? The fact that they were leveraged so highly is what did them in back in 2008. When the value of their holdings declined by just a little bit they were totally wiped out.
Well, during this next financial crisis large financial institutions are going to be wiped out all over the world. Major banks all over the globe are going to be crying out for more bailouts when things take a turn against them.
They are making the exact same mistakes that they made before, and they are going to be expecting more government handouts when things go bad.
Will we ever learn?
So obviously the banking system has not learned any lessons.
What about the federal government?
Well, if you follow my blog regularly, you know that I love to write about how horrific U.S. government debt is.
Unfortunately, over the past four years things have gotten so much worse.
Back in 2008, the U.S. national debt crossed the 10 trillion dollar mark.
Just recently, it crossed the 15 trillion dollar mark.
So now we are in a much weaker position financially to respond to another major financial crisis.
Just check out the chart posted below. This is a recipe for national financial suicide….
During fiscal 2011, the Obama administration stole close to 150 million dollars from our children and our grandchildren every single hour.
At the moment, the legacy of debt that we are passing on to future generations is sitting a grand total of $15,351,406,294,640.49.
But keep in mind that it is going up every single hour.
Meanwhile, our ability to service that debt is declining. We are rapidly getting poorer as a nation.
During 2011, the amount of money that left the United States exceeded the amount of money that entered the United States by more than a half a trillion dollars.
This gap is called a trade deficit, and it is absolutely ripping our economy to shreds.
For a moment, imagine Uncle Sam standing next to a giant pile of money on a map of the United States. Then imagine a half a trillion dollars being taken out of that pile every single year.
So why haven’t we totally run out of money yet?
Well, it is because we borrow those dollars back. In order to maintain our false standard of living, our federal government, our state governments and our local governments have to go out and beg the rest of the world to lend us our dollars back.
Sadly, our government schools have “dumbed-down” the population so much that most of them don’t even know what a “trade deficit” is anymore.
Meanwhile, our economic infrastructure is being gutted like a fish.
Look, I know that I go over this point over and over and over, but it is absolutely imperative that we all understand this.
The half a trillion dollars a year that leaves this country every year could have gone to support businesses and jobs inside the United States.
But instead it is going to support businesses and jobs on the other side of the world.
The consequences of this are absolutely devastating.
According to U.S. Representative Betty Sutton, an average of 23 manufacturing facilities a day closed down in the United States during 2010. Overall, more than 56,000 manufacturing facilities in the United States have shut down since 2001.
Even many so-called “American companies” have been bought up by the rest of the world. The following comes from a recent article posted on Economy In Crisis….
RCA is now a French company, Zenith is a Korean company. Frigidaire is a Swedish company. IBM’s Personal Computer Division—with its 500 patents—is now a Chinese company. Westinghouse Nuclear Energy’s major shareholder is Toshiba—a Japanese Company. Lucent Technologies, a former research division of AT&T, along with all the patents acquired from the beginning of the phone system, is now a French company. In 2008, Brazilian-Belgian brewing company InBev purchased the iconic American brewer Anheuser-Busch, makers of Budweiser. With the sale of these manufacturing companies, the future profit and technologies all belong to foreign entities.
We once had the greatest economic machine in the history of the world.
Now it is being dismantled and bought up by foreigners.
When America’s economic infrastructure declines, that means that there are less jobs available for all of us.
As I wrote about the other day, the employment situation in this country is not getting better and we have never even come close to recovering from the recession that started back in 2008.
During 2008 and 2009, the U.S. economy lost millions of jobs. Since the beginning of 2010, the percentage of the U.S. population that has had a job has remained very stable….
Normally, when a recession ends the percentage of Americans that have a job bounces back pretty dramatically.
So considering the fact that the employment situation has never recovered from the last financial crisis, what is going to happen when the next financial crisis hits?
And most of the jobs that have been “created” during this so-called “recovery” have been low income jobs. In fact, if you look closely at the employment numbers that were released last Friday, you will find that the vast majority of the “new jobs” were part-time jobs.
But you cannot pay a mortgage and support a family on a part-time job.
Sadly, the truth is that median household income in America has been steadily dropping over the past several years. Tens of millions of American families are deeply struggling and more Americans than ever are falling into poverty.
Back in the year 2000, about one out of every nine Americans was living in poverty. Today, about one out of every seven Americans is living in poverty.
All of this is causing a great deal of anxiety in America today. Large numbers of Americans know that something has fundamentally changed, even if they don’t understand the specifics. That is one reason why sites such as this one have become so popular. People want some answers.
And once people get some answers about what is really happening, they tend to want to prepare for the hard times that are coming.
In a few days, a new series on National Geographic entitled “Doomsday Preppers” premieres. The mainstream media is starting to take notice of the growing “prepper” movement in America today. It is estimated that there are at least 2 million “preppers” in the United States at this point. Of course people are “prepping” for a whole host of reasons, but the number one concern among most groups of preppers is the economy.
As the economy crumbles, more Americans than ever have decided that it is not a good thing to be 100% dependent on the system.
Back in 2008 and 2009, millions of Americans suddenly lost their jobs. Because they did not have any finances stored up, large numbers of them also lost their homes. Many went from being solidly middle class to being out on the street in a matter of months.
That doesn’t have to happen to you. Instead of blowing your money on frivolous things, do what you can to set something aside for the difficult times that are on the horizon.
A lot of those “in the know” are quietly making their own preparations. For example, legendary film director James Cameron (Avatar, Titanic and Terminator) has purchased more than 2600 acres of farmland in New Zealand and he is getting out of the U.S. for good apparently.
Unfortunately, most of us do not have the resources for something like that. But what most of us can do is we can change our priorities and start focusing on the things that will help us survive the hard times that are coming.
So are you ready?
 The warning signs are all around us. All we have to do is open up our eyes and look at them. Almost every single day there are more prominent voices in the financial world telling us that a massive economic crisis is coming and that we need to prepare for the worst. On Wednesday, it was the World Bank itself that issued a very chilling warning. In an absolutely startling report, the World Bank revised GDP growth estimates for 2012 downward very sharply, warned that Europe could be on the verge of a devastating financial crisis, and declared that the rest of the world better “prepare for the worst.” You would expect to hear this kind of thing on The Economic Collapse Blog, but this is not the kind of language that you would normally expect to hear from the stuffed suits at the World Bank. Obviously things have gotten bad enough that nobody is even really trying to deny it anymore. Andrew Burns, the lead author of the report, said that if the sovereign debt crisis gets even worse we could be looking at an economic crisis that could be even worse than the last one: “An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09.” Burns also stated that the “importance of contingency planning cannot be stressed enough.” In other words, Burns is saying that it is time to prepare for the worst. So are you ready?
But of course it isn’t just the World Bank that is warning about these things. The chorus of voices that is warning about the next great financial crisis just seems to grow by the day.
Some of these voices were profiled in a Bloomberg article the other day entitled “Apocalypse How? Dire ’12 Forecasts“. The following is just a sampling of quotes from that article….
-John Mauldin, president of Millennium Wave Advisors: “We’ve got a cancer. That cancer is debt”
-Mark Spitznagel of Universa Investments: “Too much malinvestment has been kept alive, and history shows an inevitable wipeout, which started in 2000.”
-Michael Panzner of Financial Armageddon: “The fundamental outlook is even worse now than it was a few weeks ago, given (the lack of positive) developments in Europe and growing evidence that the economies of major countries around the world are deteriorating fast.”
If you have time, you should go check out the rest of that article. It really is fascinating.
When this crisis is over, all sorts of people are going to be running around claiming that they predicted it. But it does not take a genius to see what is coming. All you have to do is open up your eyes and look at the flashing red warning signs.
So what should we all be looking for next?
March 20th is a key date to keep your eye on. That is the day when Greece will either makes its 14.5 billion euro bond payment or it will default.
Greece does not have a prayer of making that payment without help. If Greece can convince the EU and the IMF to release the next scheduled bailout payment and if Greece can reach a satisfactory deal with private bondholders, then the coming Greek default might be “orderly”. But if something goes wrong, the coming Greek default might be quite “disorderly”.
At this point, almost everyone in the financial world is anticipating a Greek default of one form or another….
-Edward Parker, the managing director for Fitch’s sovereign and supranational group in Europe, the Middle East and Africa, recently declared that a Greek default is inevitable….
“It is going to happen. Greece is insolvent so it will default.”
-Moritz Kraemer, the head of S&P’s European sovereign ratings unit, made the following statement on Bloomberg Television on Monday:
“Greece will default very shortly. Whether there will be a solution at the end of the current rocky negotiations I cannot say.”
-Richard McGuire, a strategist at Dutch bank Rabobank, was recently quoted by CNBC as saying the following….
“People often ask if Greece is going to default which … is a misnomer because Greece is (already) defaulting”
-Diane Swonk, the chief economist at Mesirow Financial in Chicago, says that the default by Greece will probably be an “orderly” one but that the situation could change at any moment….
“It appears at the moment that the market is accepting a Greek default as inevitable, and it will be an orderly default. But that can change on a dime.”
But whether there is a default or not, the reality is that Greece is already experiencing a full-blown economic depression. In Greece, 20 percent of all retail stores have already shut down. The unemployment rate for those under the age of 24 is now at 39 percent. Large numbers of Greeks are trying to get themselves and their money out of the country while they still can.
Pessimism regarding Greece is at an all-time high. Michael Fuchs, the deputy leader of Angela Merkel’s political party, recently made the following statement….
“I don’t think that Greece, in its current condition, can be saved.”
But of course Greece is not the only declining economy in Europe by a long shot.
Italy has a much larger economy, and if Italy totally collapses it will be an absolute nightmare for the entire globe.
Right now, the Bank of Italy is forecasting a significant recession for the Italian economy in 2012. The following is from a statement that Bank of Italy has just released….
“The uncertainty that surrounds the medium-term perspectives of the Italian economy … are extraordinarily high and are directly linked to the evolution of the eurozone debt crisis”
Italy’s youth unemployment rate has hit the highest level ever, and nearly all sectors of the Italian economy are showing signs of slowing down.
Plus there is the looming problem of Italian debt. As I wrote about yesterday, when you add the maturing debt that the Italian government must roll over in 2012 to their projected budget deficit, it comes to 23.1 percent of Italy’s GDP.
Originally it was hoped that the economic problems in Europe could be contained to just a few countries. But now it has become clear that is just not going to happen.
Trends forecaster Gerald Celente recently explained to ABC Australia that much of Europe is already essentially experiencing an economic depression….
“If you live in Greece, you’re in a depression; if you live in Spain, you’re in a depression; if you live in Portugal or Ireland, you’re in a depression,” Celente said. “If you live in Lithuania, you’re running to the bank to get your money out of the bank as the bank runs go on. It’s a depression. Hungary, there’s a depression, and much of Eastern Europe, Romania, Bulgaria. And there are a lot of depressions going on [already].”
The troubling news out of Europe just seems to keep coming in waves. Here are some more recent examples….
-Manufacturing activity in the euro zone has fallen for five months in a row.
-Germany’s economy actually contracted during the 4th quarter of 2011.
-It is being reported that the Spanish economy contracted during the 4th quarter of 2011.
-Bad loans in Spain recently hit a 17-year high and the unemployment rate is at a 15-year high.
So will all of this economic trouble eventually spread to the United States?
Of course it will.
The global economy is more interconnected today than ever. Back in 2008 the financial crisis that started on Wall Street ended up devastating economies all over the planet. The same thing will happen during this next great financial crisis.
Only this time the U.S. is in a much weaker position. The U.S. debt problem has gotten much worse since the last crisis.
During 2008, our national debt crossed the 10 trillion dollar mark. Less than 4 years later, we have crossed the 15 trillion dollar mark.
So what are we going to do the next time large numbers of banks fail and unemployment skyrockets?
Where are we going to get the money to bail out all of those banks and to take care of all of those newly unemployed people?
Some people say that socialism is the answer, but the truth is that we are already a socialist welfare state. If you can believe it, nearly half of all Americans live in a household that receives some form of financial benefits from the U.S. government.
During the next great crisis, the number of people that are dependent on the government will go even higher.
If you don’t want to end up dependent on the government, you should heed the warning signs and you should use this time to prepare for the hard times that are coming.
When even the World Bank tells us to hope for the best but to prepare for the worst, you know that it is late in the game.
Unfortunately, the vast majority of people out there only believe what they want to believe. They don’t want to believe that a great economic crisis is coming, and so when it does happen they are going to be absolutely blindsided by it.
 How should people prepare for the difficult years that are coming? I get asked about that a lot. Once people really examine the facts, it is not too hard to convince them that an economic collapse is coming. But once they accept that reality, most of them want to know what they can do to prepare themselves and their families for the hard times that are ahead. Well, the truth is that it does not have to be complicated. Many of the things discussed throughout this article are things that most of us should be doing anyway. Now is not the time to be splurging on luxuries or expensive vacations. Now is not the time to be going into large amounts of debt. Instead, we all need to get back to the basics and we all need to do what we can to become more independent of the system. Just remember what happened back in 2008. Millions of Americans lost their jobs and millions of Americans lost their homes. Now experts all over the globe are warning that another great financial crisis that could be just as bad as 2008 (or even worse) is coming. Those that don’t take the time to prepare this time are not going to have any excuse.
But there is also a lot of sensationalism out there. There are some people out there that claim that the economy is going to collapse all at once and that we are going to go from where we are now to some type of a post-apocalyptic “Mad Max” society almost overnight.
Well, that is just not going to happen. We are not going to wake up next week in a world where we are all fighting each other with sharp pointed sticks.
Just like anything else, an economic collapse takes time. I like to describe what is happening using an analogy from the beach. When you build a mighty sand castle, it is not totally destroyed by the first wave that comes along, right?
Well, it is the same thing with the U.S. economy. It was the greatest economic machine that the world has ever seen, and it is most definitely in decline. But there are stages to that decline.
The “wave” that came along in 2008 did a huge amount of damage. Our economy has not recovered from that.
Now another wave is coming. But that will not be the end. There will be other waves after that.
Eventually, this thing is coming all the way down. Someday America will be such a horror show that it will be hard to believe that it is the same place that many of us grew up in.
But in the short-term, we are going to be facing a major league recession and millions of Americans will lose their jobs. It won’t be the end of the world, but for some people it may feel like it.
So when you are talking about “how to prepare”, the truth is that it depends on what kind of time frame you are talking about.
In the long-term, a lot of the things that even the hardcore survivalists are doing will not be nearly enough.
In the short-term, there are things that all of us can do to weather the coming storm….
Get Out Of Debt
The global financial system is headed for a massive crisis. Just like in 2008, a lot of people are going to lose their jobs and a lot of people are going to lose their homes.
In such an environment, it makes sense to travel as “lightly” as possible.
That means getting rid of debt.
Some forms of debt are worse than others. Mortgage debt is not that bad. We all need somewhere to live, and not all of us can run out and immediately pay off our mortgages.
But there are other forms of debt that are absolutely toxic. A good example of this is credit card debt. There are very few things that are as good at bleeding your finances as credit card debt is. For example, according to the credit card repayment calculator, if you have a $6000 balance on a credit card with a 20 percent interest rate and only pay the minimum payment each time, it will take you 54 years to pay off that credit card.
During those 54 years you will pay $26,168 in interest rate charges on that credit card balance in addition to the $6000 in principal that you are required to pay back. That is before any fees or penalties are even calculated.
But a lot of Americans still have not learned to stay away from credit card debt. In fact, one out of every seven Americans has at least 10 credit cards.
Ouch.
The truth is that in future years there is a good chance that you may be facing a situation where you are not making as much income, so you want to try to start reducing your expenses right now. Getting out of debt will help you to do this.
Save Money
A shockingly high number of American families are operating without any kind of financial cushion whatsoever….
-According to a Harris Interactive survey taken in 2010, 77 percent of all Americans are living paycheck to paycheck.
-According to one recent survey, one out of every three Americans would not be able to make a mortgage or rent payment next month if they suddenly lost their current job.
This is one reason why so many Americans have lost their homes and why so many Americans have fallen below the poverty level in recent years. They simply had no cushion.
Last year, 2.6 million more Americans dropped into poverty. That was the largest increase that we have seen since the U.S. government began keeping statistics on this back in 1959.
Don’t let this happen to you. At a minimum, everyone out there should have a cushion that will cover at least 6 months worth of expenses. Preferably, you should have a cushion that will last you at least a year.
Yes, I know that is a tall order. But you would be amazed at how much money the average American family wastes in a typical month. Almost all of us have areas where we can cut back.
Trust me, in the middle of a major recession you will be really glad that you are sitting on a pile of savings.
Get Independent Of The System
What would you do if you lost your job tomorrow?
Would you have any other income?
How long would it be before you lost your home?
Those are very important questions.
The truth is that the system is failing and so we all need to work hard to become more independent of the system.
So what does that mean?
Well, instead of relying on someone else to employ you indefinitely, you can start up a business in your spare time. Yes, it will cut into your television time, but if someday you lose your job you will be extremely happy that you still have some income coming in.
Another way of becoming more independent is to start a garden.
Yes, you can run down the street and buy giant piles of cheap food right now, but that will not be the case forever.
Store Food And Focus On The Essentials
I might get into a little trouble for saying this, but the truth is that there is not going to be a major famine in America in 2012.
However, that does not mean that you should not be storing food and other essentials.
In the old days, our grandparents always saved up food. It was just a natural thing for them to do. This was especially the case if they lived through the Great Depression.
When hard times come, you will be glad that you have food stored up. Plus, food is never going to be cheaper than it is today. Having food stored up is a great hedge against the rising food prices that we will see in the future.
No, we are not going to see hyperinflation by the end of the year like many of the sensationalists are warning. But someday you will be really glad that you stored up food for yourself and your family.
We live in a world that is becoming more unstable with each passing month. You never know when the next natural disaster, pandemic, war or national emergency will strike.
It only makes sense to store food and other basic essentials that you will need in the future.
In a previous article entitled “20 Things You Will Need To Survive When The Economy Collapses And The Next Great Depression Begins”, I listed 20 of the things that you would need in the event of a major disaster, a national emergency or a total economic collapse. These are things that you are going to want to make sure that you have ready right now, because after the crisis begins it may be too late to prepare….
#1) Storable Food
#2) Clean Water
#3) Shelter
#4) Warm Clothing
#5) An Axe
#6) Lighters Or Matches
#7) Hiking Boots Or Comfortable Shoes
#8) A Flashlight And/Or Lantern
#9) A Radio
#10) Communication Equipment
#11) A Swiss Army Knife
#12) Personal Hygiene Items
#13) A First Aid Kit And Other Medical Supplies
#14) Extra Gasoline (But Be Very Careful How You Store It)
#15) A Sewing Kit
#16) Self-Defense Equipment
#17) A Compass
#18) A Hiking Backpack
#19) A Community
#20) A Backup Plan
In the comments to that article, the readers suggested the following additional items….
A K-Bar Fighting Knife
Salt
Extra Batteries
Medicine
A Camp Stove
Propane
Pet Food
Heirloom Seeds
Tools
An LED Headlamp
Candles
Clorox
Calcium Hypochlorite
Ziplock Bags
Maps Of Your Area
Binoculars
Sleeping Bags
Rifle For Hunting
Extra Socks
Gloves
Gold And Silver Coins For Bartering
Once again, a lot of these things are not going to be needed right away. The economy is going to go through a lot more ups and downs before it totally dies.
In the short-term, keep an eye on the European debt crisis, the Japanese debt crisis and the U.S. debt crisis. There are a lot of similarities between what happened back in 2008 and what is happening now.
And what happened following the crisis of 2008?
Unemployment shot through the roof.
So be prepared for that.
Make a plan for how you and your family will survive if you end up unemployed.
Also, when it comes to “how to prepare”, there is one aspect that is often overlooked.
During the difficult years ahead, we are all going to have to be mentally and spiritually tough.
It won’t matter how good your physical and financial preparations are if you are cowardly and paralyzed by fear.
The times that are coming are going to test all of our hearts.
Some people are going to make it and some people aren’t.
Some people will become so consumed with fear that they will give up completely.
Don’t let that happen to you.
Prepare your heart, soul, mind and body right now for what is coming. For those that are cowardly the years ahead will be a total nightmare, but for those that overcome the fear the years ahead have the potential to be a great adventure.
 Can you hear that? It almost sounds like a little bit of peace and quiet. This year, the holiday season has been fairly uneventful, and for that we should be very grateful. But it isn’t going to last long. 2012 is going to be a much more difficult year for the U.S. economy and the global financial system than 2011 has been. So if things are going well for you right now, enjoy this little bubble of peace and tranquility while you can. Because while things may look calm on the surface right now, the truth is that this is a very scary Christmas for financial professionals and world leaders. Most of them know how fragile the global financial system is at the moment. Most of them know that we are living in the greatest bubble of debt, leverage and financial risk that the world has ever seen. As I wrote about the other day, world leaders would not be throwing huge bailouts around like crazy if everything was going to be just fine. The truth is that we are rapidly approaching another financial crisis that may end up being even worse than the horrific crash of 2008.
Despite unprecedented efforts by the European Central Bank, the yield on 10 year Italian bonds is nearly up to 7 percent again.
Keep an eye on the yield on 10 year Italian bonds. That is going to be one of the most important financial numbers in the world in the coming months.
But Italy is not the only problem. The reality is that several European governments are teetering on the verge of default right now. Meanwhile, confidence in the European financial system has been absolutely shattered and a devastating credit crunch has set in. Nobody (other than the ECB) wants to loan money to the banks and the banks are massively cutting back on loans to businesses and consumers. This is causing the money supply to fall. The ECB is trying to hold things together with chicken wire and duct tape, but it isn’t going to work.
In major financial centers such as the City of London, this is a very scary Christmas and the outlook for the new year looks very frightening. Because financial activity has dried up so dramatically, a number of firms are already shutting down. The following comes from a recent Bloomberg article….
London’s stockbrokers are shrinking as Europe’s sovereign debt crisis and competition from international firms squeezes revenue and fees.
“This isn’t just a blip, this is much worse,” said Tim Linacre, who is stepping down as chief executive officer of Panmure (PMR) Gordon & Co., a 135-year-old brokerage. “It’s a desert for activity, which is why you are seeing some firms throw in the towel.”
In the past month, Altium Capital closed its securities unit. Evolution Group Plc (EVG), Merchant Securities Group Plc, Arbuthnot Securities Ltd. and Collins Stewart Hawkpoint Plc have all accepted takeover offers from larger competitors.
“It feels worse than any other time,” said Lorna Tilbian, an executive director at Numis Corp. who began her career in 1984. “All I hear about is people putting up a white flag.”
Many out there are wondering if we are about to face another crisis like the one we saw back in 2008.
Unfortunately, none of the underlying problems that caused that crisis were ever really fixed.
We did not learn from history so now we are in for another round of pain.
In fact, Chris Martenson believes that this next crisis will be even worse than 2008….
There are clear signs of a liquidity crunch in the asset markets right now, and the question I keep hearing is, Is this 2008 all over again?
No, it’s worse. Much worse.
In 2008 there was a lot more faith and optimism upon which to draw. But both have been squandered to significant degrees by feckless regulators and authorities who failed to properly address any of the root causes of the first crisis even as they slathered layer after layer of thin-air money over many of the symptoms.
Anyone who has paid attention knows that those “magic potions” proved to be anything but. Not only are the root causes still with us (too much debt, vast regional financial imbalances, and high energy prices), but they have actually grown worse the entire time.
Frightening stuff.
A couple of months ago, I wrote about the coming derivatives crisis that could potentially wipe out the entire global financial system.
When the next great financial crisis strikes, there is going to be a lot of focus on derivatives once again.
Top global financial authorities such as Ben Bernanke continue to insist that derivatives are perfectly safe.
But there are other voices in the financial world that are warning that we are heading for financial armageddon. For example,just check out what Mark Faber is saying….
“I am convinced the whole derivatives market will cease to exit. Will become zero. And when it happens I don’t know: you can postpone the problems with monetary measures for a long time but you can’t solve them… Greece should have defaulted – it would have sent a message that not all derivatives are equal because it depends on the counterparty.”
That is very strong language.
Faber also believes that the stock market is going to get hit really, really hard during the coming crisis….
“I am ultra bearish. I think most people will be lucky if they still have 50% of their money in 5 years time. You have to have diversification – some real estate in the countryside, some gold and some equities because if you think it through, say Germany 1900 to today, we had WWI, we had hyperinflation, WWII, cash holders and bondholders they lost everything 3 times, but if you owned equities you’d be ok. In equities in general you will not lose it all, it may not be a good investment, unless you put it all in one company and it goes bankrupt.”
Some of the top financial officials in the entire world have also used some very scary language in recent weeks.
The head of the International Monetary Fund, Christian Lagarde, recently stated that we could soon see conditions “reminiscent of the 1930s depression” and that no country on earth “will be immune to the crisis”….
“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating”
But most people are so busy opening up the cheap plastic presents under their Christmas trees (that were mostly made overseas) that they aren’t even paying attention to these warnings.
Look, when the money supply falls significantly it is almost impossible to avoid a recession. Just look at the historical numbers.
Unfortunately, money supply numbers all over Europe are falling dramatically right now as an article in the Telegraph recently noted….
All key measures of the money supply in the eurozone contracted in October with drastic falls across parts of southern Europe, raising the risk of severe recession over coming months.
Confidence in the banking system in Europe has never been this low in the post-World War II era. Sadly, most people simply do not understand how bad things have gotten for major European banks. One Australian news source recently put it this way….
“If anyone thinks things are getting better, they simply don’t understand how severe the problems are,” a London executive at a global bank said. “A major bank could fail within weeks.”
Others said many continental banks, including French, Italian and Spanish lenders, were close to running out of the acceptable forms of collateral, such as US Treasury bonds, that could be used to finance short-term loans.
Some have been forced to lend out their gold reserves to maintain access to US dollar funding.
The outlook is very ominous.
Financial professionals all over the globe are telling us what is coming if we are willing to listen.
The following comes from a report recently produced by Credit Suisse’s Fixed Income Research unit….
“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”
The first six months of 2012 are going to be a very key time. National governments and big European banks are scheduled to roll over huge mountains of debt. But if they can’t find any takers that could bring the global financial system to a moment of great crisis very quickly.
The following is how former hedge fund manager Bruce Krasting recently described the problem that Italy is facing….
At this point there is zero possibility that Italy can refinance any portion of its $300b of 2012 maturing debt. If there is anyone at the table who still thinks that Italy can pull off a miracle, they are wrong. I’m certain that the finance guys at the ECB and Italian CB understand this. I repeat, there is a zero chance for a market solution for Italy.
But even if we don’t see a formal default by a major European nation such a Italy, that doesn’t mean that major European banks are going to make it through the crippling recession that has now begun in Europe.
Charles Wyplosz, a professor of international economics at Geneva’s Graduate Institute, is absolutely convinced that we are going to see some major European banks collapse….
“Banks will collapse, including possibly a number of French banks that are very exposed to Greece, Portugal, Italy and Spain.”
Authorities in Europe are saying the “right things” publicly, but privately they are preparing for the worst.
As the Telegraph recently reported, the British government is now making plans based on the assumption that a collapse of the euro is only “just a matter of time”….
A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
Yes, we are heading for a huge financial collapse and massive economic trouble.
So enjoy the good times while we still have them.
They are not going to last too much longer.
 What you are about to read should absolutely astound you. During the last financial crisis, the Federal Reserve secretly conducted the biggest bailout in the history of the world, and the Fed fought in court for several years to keep it a secret. Do you remember the TARP bailout? The American people were absolutely outraged that the federal government spent 700 billion dollars bailing out the “too big to fail” banks. Well, that bailout was pocket change compared to what the Federal Reserve did. As you will see documented below, the Federal Reserve actually handed more than 16 trillion dollars in nearly interest-free money to the “too big to fail” banks between 2007 and 2010. So have you heard about this on the nightly news? Probably not. Lately Bloomberg has been reporting on some of this, but even they are not giving people the whole picture. The American people need to be told about this 16 trillion dollar bailout, because it is a perfect example of why the Federal Reserve needs to be shut down. The Federal Reserve has been actively picking “winners” and “losers” in the financial system, and it turns out that the “friends” of the Fed always get bailed out and always end up among the “winners”. This is not how a free market system is supposed to work.
According to the limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the grand total of all the secret bailouts conducted by the Federal Reserve during the last financial crisis comes to a whopping $16.1 trillion.
That is an astonishing amount of money.
Keep in mind that the GDP of the United States for the entire year of 2010 was only 14.58 trillion dollars.
The total U.S. national debt is only a bit above 15 trillion dollars right now.
So 16 trillion dollars is an almost inconceivable amount of money.
But some other dollar figures have been thrown around lately regarding these secret Federal Reserve bailouts. Let’s take a look at them and see what they mean.
$1.2 Trillion
A recent Bloomberg article made the following statement….
The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
The $1.2 trillion figure represents the peak outstanding balance on these loans, not the total amount of all the loans. On December 5, 2008 the “too big to fail” banks owed this much money to the Federal Reserve. Many of them could not pay these short-term loans back right away and had to keep rolling them over time after time. Each time a short-term loan got rolled over that represented a new loan.
$7.7 Trillion
Bloomberg is reporting that the Federal Reserve had made a total of $7.77 trillion in financial commitments to the big banks by the end of March 2009….
Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
But as mentioned above, a one-time limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act covered an even broader time period and revealed even more bailout loans.
According to the GAO audit, $16.1 trillion in secret loans were made by the Federal Reserve between December 1, 2007 and July 21, 2010. The following list of firms and the amount of money that they received was taken directly from page 131 of the GAO audit report….
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion
This report was made available to all the members of Congress, but most of them have been totally silent about it. One of the only members of Congress that has said something has been U.S. Senator Bernie Sanders.
The following is an excerpt from a statement about this audit that was taken from the official website of Senator Sanders….
“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world”
So where is everyone else?
Why aren’t leading Republicans and leading Democrats crying bloody murder over this report?
This scandal should have been front page news for months when it was revealed.
But it wasn’t.
And Guess what?
Not only did the Federal Reserve give 16.1 trillion dollars in nearly interest-free loans to the “too big to fail” banks, the Fed also paid them over 600 million dollars to help run the emergency lending program. According to the GAO, the Federal Reserve shelled out an astounding $659.4 million in “fees” to the very financial institutions which caused the financial crisis in the first place.
In addition, it turns out that trillions of dollars of this bailout money actually went overseas. According to the GAO audit, approximately $3.08 trillion went to foreign banks in Europe and in Asia.
So why were our dollars being used to bail out foreign banks while tens of millions of American families were deeply suffering?
That is a very good question.
Also, it is important to remember that many of these bailout loans were made at below market interest rates, and this enabled many of these financial institutions to rake in huge profits.
According to a recent Bloomberg article, the big banks brought in an estimated $13 billion by taking advantage of the Fed’s below-market rates….
While the Fed’s last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.
The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show.
So once the financial crisis was over, were adjustments made to the financial system to make sure that this type of thing would never happen again?
Of course not.
Today, the “too big to fail” banks are larger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.
So now they are more “too big to fail” than ever.
But this is what happens when we allow unelected central bank bureaucrats to run our financial system.
Most Americans do not realize this, but the truth is that the Federal Reserve is not part of the government. In fact, it is about as “federal” as Federal Express is. The Federal Reserve has admitted that they are a privately owned institution in court many times, and you can see video of a Federal Reserve employee admitting that the Federal Reserve is privately owned right here.
The Federal Reserve is an out of control monster that is throwing around trillions of dollars whenever it wants to. Nobody should be allowed to do this. Nobody should be allowed to give bailouts to banks and corporations without the express permission of the U.S. Congress and the president of the United States.
This is a point that I made in my article yesterday. The Federal Reserve decided this week that it is going to provide “liquidity support” to Europe. If the American people do not like this move, that is just too bad. We do not get a say in the matter.
Are you starting to understand why I keep pushing the idea that it is time to shut down the Federal Reserve?
Please share this information about the secret 16 trillion dollar Federal Reserve bailout with your family and your friends.
If we can get enough people to wake up, perhaps there is still time to change the direction that this country is headed.
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A Very Scary Christmas And An Incredibly Frightening New Year
Despite unprecedented efforts by the European Central Bank, the yield on 10 year Italian bonds is nearly up to 7 percent again.
Keep an eye on the yield on 10 year Italian bonds. That is going to be one of the most important financial numbers in the world in the coming months.
But Italy is not the only problem. The reality is that several European governments are teetering on the verge of default right now. Meanwhile, confidence in the European financial system has been absolutely shattered and a devastating credit crunch has set in. Nobody (other than the ECB) wants to loan money to the banks and the banks are massively cutting back on loans to businesses and consumers. This is causing the money supply to fall. The ECB is trying to hold things together with chicken wire and duct tape, but it isn’t going to work.
In major financial centers such as the City of London, this is a very scary Christmas and the outlook for the new year looks very frightening. Because financial activity has dried up so dramatically, a number of firms are already shutting down. The following comes from a recent Bloomberg article….
Many out there are wondering if we are about to face another crisis like the one we saw back in 2008.
Unfortunately, none of the underlying problems that caused that crisis were ever really fixed.
We did not learn from history so now we are in for another round of pain.
In fact, Chris Martenson believes that this next crisis will be even worse than 2008….
Frightening stuff.
A couple of months ago, I wrote about the coming derivatives crisis that could potentially wipe out the entire global financial system.
When the next great financial crisis strikes, there is going to be a lot of focus on derivatives once again.
Top global financial authorities such as Ben Bernanke continue to insist that derivatives are perfectly safe.
But there are other voices in the financial world that are warning that we are heading for financial armageddon. For example,just check out what Mark Faber is saying….
That is very strong language.
Faber also believes that the stock market is going to get hit really, really hard during the coming crisis….
Some of the top financial officials in the entire world have also used some very scary language in recent weeks.
The head of the International Monetary Fund, Christian Lagarde, recently stated that we could soon see conditions “reminiscent of the 1930s depression” and that no country on earth “will be immune to the crisis”….
But most people are so busy opening up the cheap plastic presents under their Christmas trees (that were mostly made overseas) that they aren’t even paying attention to these warnings.
Look, when the money supply falls significantly it is almost impossible to avoid a recession. Just look at the historical numbers.
Unfortunately, money supply numbers all over Europe are falling dramatically right now as an article in the Telegraph recently noted….
Confidence in the banking system in Europe has never been this low in the post-World War II era. Sadly, most people simply do not understand how bad things have gotten for major European banks. One Australian news source recently put it this way….
The outlook is very ominous.
Financial professionals all over the globe are telling us what is coming if we are willing to listen.
The following comes from a report recently produced by Credit Suisse’s Fixed Income Research unit….
The first six months of 2012 are going to be a very key time. National governments and big European banks are scheduled to roll over huge mountains of debt. But if they can’t find any takers that could bring the global financial system to a moment of great crisis very quickly.
The following is how former hedge fund manager Bruce Krasting recently described the problem that Italy is facing….
But even if we don’t see a formal default by a major European nation such a Italy, that doesn’t mean that major European banks are going to make it through the crippling recession that has now begun in Europe.
Charles Wyplosz, a professor of international economics at Geneva’s Graduate Institute, is absolutely convinced that we are going to see some major European banks collapse….
Authorities in Europe are saying the “right things” publicly, but privately they are preparing for the worst.
As the Telegraph recently reported, the British government is now making plans based on the assumption that a collapse of the euro is only “just a matter of time”….
Yes, we are heading for a huge financial collapse and massive economic trouble.
So enjoy the good times while we still have them.
They are not going to last too much longer.