Many people hype “the coming economic collapse” as if it is some kind of big summer Hollywood blockbuster. Many people out there write about it as if it is something that will happen in a single day or over a few weeks and that it will suddenly change how the entire world functions. But that is not how the financial world works. The financial world is like a game of chess – very slow and methodical. Yes, there are times when things happen very quickly (like back in 2008), but even that crisis played out over a number of months. Sadly, most Americans are not used to thinking in terms of months or years. These days, most Americans have the attention span of a goldfish and most Americans have been trained to expect instant gratification. They are simply not accustomed to being patient and to wait for things. Well, despite what you may have read, the economic collapse is not going to be a single event. It is going to play out over quite a few years. In some ways we are experiencing an economic collapse right now. When the next major financial crisis occurs, many will be calling that “an economic collapse”. But if you really want to grasp what is happening to us, you need to think long-term. We are heading for a complete and total nightmare, but it is going to take some time to get to the end of the story.
Yes, there will certainly be times of great chaos. The financial crisis of 2008 was one of those moments.
But the financial crisis of 2008 did not completely destroy us.
Neither will the next crisis.
I think it is helpful to think of what is happening to us as a series of waves.
When you build a beautiful sand castle on the beach, the first wave that comes in does not totally destroy it.
Rather, the first wave weakens the castle and it is destroyed by subsequent waves.
Well, that is what is happening to us.
The financial crisis of 2008 was a wave.
The epicenter of the next great financial crisis will be in Europe and that will be another wave.
For many, the next financial crisis will feel like “the end of the world” but it won’t be.
There will be waves after that one that will be even worse.
Yes, the waves are going to start coming more rapidly and will start becoming more intense.
In that way, they will kind of be like birth pains.
But these problems did not build up overnight and they are not going to disappear overnight either.
A lot of people that write about the coming economic collapse seem to suggest that we should just let it happen so that the “recovery” can begin.
It took decades for American consumers to build up the greatest consumer debt bubble in the history of the world.
It took decades to gut the economic infrastructure of the United States and ship millions of our jobs overseas.
These problems are going to plague us for a very long time.
Sadly, a lot of people out there seem to wish for an economic apocalypse. They seem to think that if the global financial system crashes that the government is going to disappear and we are going to start fighting with each other using sharp pointed sticks.
Well, it simply is not going to happen.
The U.S. government is not going to help you survive when things hit the fan, but it is not going to disappear either.
In fact, the federal government will probably try to grab more power than ever in an attempt to “restore order”.
The governments of Europe are not going to disappear either. In fact, in the long run Europe is probably going to end up more “federalized” than ever even if the euro breaks up in the short run.
A lot of people out there seem to think that when the old system collapses that it will give them an opportunity to help put in a new system.
Sorry, but that is not going to happen either.
The powers that be are going to have their own ideas about what needs to happen.
They never like to let a good crisis go to waste, and they will certainly try to use every crisis to shape the world even more in their own image.
The coming economic collapse is going to play out over a number of years and it is going to be absolutely horrible.
Billions of people will deeply suffer because of it.
It will be unlike anything any of us have ever seen.
Personally, I believe that it will eventually be much worse than the Great Depression of the 1930s.
The United States is going to get hit particularly hard. The United States is going to lose its position as the leading economic power on the globe and the U.S. dollar is going to lose its position as the default reserve currency of the world.
If you thought that the unemployment crisis during the last recession was bad, just wait until you see what is coming.
We are heading for a complete and total unemployment nightmare in the United States. Unemployment is eventually going to soar well up into the double digits.
The U.S. government will try a wide variety of measures to try to “fix” things, and some will likely have some limited success.
But the debt-fueled prosperity that we are all enjoying now is going to come to an end.
There are going to be riots in our major cities, crime and looting will be absolutely rampant and it will seem like society is coming apart at the seams.
The U.S. government will likely respond by becoming more authoritarian than ever, and that will truly be frightening.
But all of this is going to play out over time.
Right now, things are not as good as they were five years ago.
A couple of years from now, things will be even worse. Many of us will look back and wish that we could return to the “good old days” of 2011 and 2012.
We are on a decline that is not going to stop. There will be little false bubbles of hope like we are in now, but they won’t last long.
But just because the economy is falling apart does not mean that your life is over. Many that are busy preparing right now will be greatly blessed even in the middle of all the chaos.
And it is when things are the darkest that the greatest lights are needed.
Make the decision right now to be a light during the times ahead.
You can choose to let the times that are coming destroy you, or you can choose to make them the greatest adventure of your life.
Why is the economy going to collapse? Have you ever been asked that question? If so, what did you say? Sometimes it is difficult to communicate dozens of complicated economic and financial concepts in a package that the average person on the street can easily digest. It can be very frustrating to know that something is true but not be able to explain it clearly to someone else. Hopefully many of you out there will find the list below useful. It is a list of 70 numbers that show why we are headed for a national economic nightmare. So why does the title of the article single out Barack Obama? Well, it is because right now he is the biggest cheerleader for the economy. He is attempting to convince all of us that everything is just fine and that the economy is heading in a positive direction. Well, the truth is that everything is not fine and things are about to get a whole lot worse. Certainly others should share in the blame as well. Congress has been steering the economy in the wrong direction for decades, the “too big to fail” banks have turned Wall Street into a pyramid of risk, leverage and debt, and the Federal Reserve has more power over the financial system than anyone else does. Our economy has been in decline for quite a while now, and soon we are going to smash directly into an economic brick wall. Unfortunately, a lot of Americans are in denial about this. A lot of people out there doubt that an economic collapse is coming. Well, if you know someone that believes that the U.S. economy is going to be “just fine”, just show them the list below.
The following are 70 facts that Barack Obama does not want you to see….
$3.59 – When Barack Obama entered the White House, the average price of a gallon of gasoline was $1.85. Today, it is $3.59.
22 – It is hard to believe, but today the poverty rate for children living in the United States is a whopping 22 percent.
23 – According to U.S. Representative Betty Sutton, an average of 23 manufacturing facilities permanently shut down in the United States every single day during 2010.
30 – Back in 2007, about 10 percent of all unemployed Americans had been out of work for 52 weeks or longer. Today, that number is above 30 percent.
32 – The amount of money that the federal government gives directly to Americans has increased by 32 percent since Barack Obama entered the White House.
35 – U.S. housing prices are now down a total of 35 percent from the peak of the housing bubble.
40 – The official U.S. unemployment rate has been above 8 percent for 40 months in a row.
42 – According to one survey, 42 percent of all American workers are currently living paycheck to paycheck.
48 – Shockingly, at this point 48 percent of all Americans are either considered to be “low income” or are living in poverty.
49 – Today, an astounding 49.1 percent of all Americans live in a home where at least one person receives benefits from the government.
60 – According to a recent Gallup poll, only 60 percent of all Americans say that they have enough money to live comfortably.
61 – At this point the Federal Reserve is essentially monetizing much of the U.S. national debt. For example, the Federal Reserve bought up approximately 61 percent of all government debt issued by the U.S. Treasury Department during 2011.
63 – One recent survey found that 63 percent of all Americans believe that the U.S. economic model is broken.
$6000 – If you can believe it, the median price of a home in Detroit is now just $6000.
$10,000 – According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.
49,000 – In 2011, our trade deficit with China was more than 49,000 times larger than it was back in 1985.
50,000 – The United States has lost an average of approximately 50,000 manufacturing jobs a month since China joined the World Trade Organization in 2001.
56,000 – The United States has lost more than 56,000 manufacturing facilities since 2001.
$85,000 – According to the New York Times, a Jeep Grand Cherokee that costs $27,490 in the United States costs about $85,000 in China thanks to all the tariffs.
$175,587 – The Obama administration spent $175,587 to find out if cocaine causes Japanese quail to engage in sexually risky behavior.
$328,404 – Over the next 75 years, Medicare is facing unfunded liabilities of more than 38 trillion dollars. That comes to $328,404 for each and every household in the United States.
$361,330 – This is what the average banker in New York City made in 2010.
440,00 – If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to totally pay it off.
500,000 – According to the Economic Policy Institute, America is losing half a million jobs to China every single year.
2,000,000 – Family farms are being systematically wiped out of existence in the United States. According to the U.S. Department of Agriculture, the number of farms in the United States has fallen from about 6.8 million in 1935 to only about 2 million today.
2,600,000 – In 2010, 2.6 million more Americans fell into poverty. That was the largest increase that we have seen since the U.S. government began keeping statistics on this back in 1959.
5,400,000 – When Barack Obama first took office there were 2.7 million long-term unemployed Americans. Today there are twice as many.
16,000,000 – It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.
$20,000,000 – The amount of money the U.S. government was spending to create a version of Sesame Street for children in Pakistan.
25,000,000 – Today, approximately 25 million American adults are living with their parents.
40,000,000 – According to Professor Alan Blinder of Princeton University, 40 million more U.S. jobs could be sent offshore over the next two decades if current trends continue.
46,405,204 – The number of Americans currently on food stamps. When Barack Obama first entered the White House there were only 32 million Americans on food stamps.
88,000,000 – Today there are more than 88 million working age Americans that are not employed and that are not looking for employment. That is an all-time record high.
100,000,000 – Overall, there are more than 100 million working age Americans that do not currently have jobs.
$150,000,000 – This is approximately the amount of money that the Obama administration and the U.S. Congress are stealing from future generations of Americans every single hour.
$2,000,000,000 – The amount of money that JP Morgan has admitted that it will lose from derivatives trades gone bad. Many analysts are convinced that the real number will actually end up being much higher.
$147,000,000,000 – In the U.S., medical costs related to obesity are estimated to be approximately 147 billion dollars a year.
295,500,000,000 – Our trade deficit with China in 2011 was $295.5 billion. That was the largest trade deficit that one country has had with another country in the history of the planet.
$359,100,000,000 – During the first quarter of 2012, U.S. public debt rose by 359.1 billion dollars. U.S. GDP only rose by 142.4 billion dollars.
$454,000,000,000 – During fiscal 2011, the U.S. government spent over 454 billion dollars just on interest on the national debt.
$1,000,000,000,000 – The total amount of student loan debt in the United States recently surpassed the one trillion dollar mark.
$1,170,000,000,000 – China now holds approximately 1.17 trillion dollars of U.S. government debt. Yet the U.S. government continues to send them millions of dollars in foreign aid every year.
$1,600,000,000,000 – The amount that has been added to the U.S. national debt since the Republicans took control of the U.S. House of Representatives. This is more than the first 97 Congresses added to the national debt combined.
$5,000,000,000,000 – The U.S. national debt has risen by more than 5 trillion dollars since the day that Barack Obama first took office. In a little more than 3 years Obama has added more to the national debt than the first 41 presidents combined.
$5,000,000,000,000 – What the real U.S. budget deficit in 2011 would have been if the federal government had used generally accepted accounting principles.
$11,440,000,000,000 – The total amount of consumer debt in the United States.
$200,000,000,000,000 – Today, the 9 largest banks in the United States have a total of more than 200 trillion dollars of exposure to derivatives. When the derivatives market completely collapses there won’t be enough money in the entire world to fix it.
The summer of 2012 is shaping up to be very similar to the summer of 2008. Things look incredibly bleak for the global economy right now. Economic activity and lending are slowing down all over the planet, and fear is starting to paralyze the entire global financial system. Things did not look this bad back in the summer of 2011 and things certainly did not look this bad back in the summer of 2010. It is almost as if a “perfect storm” is brewing. Today, the global financial system is a finely balanced pyramid of risk, debt and leverage. Such a system requires a high degree of confidence and stability. But when confidence disappears and fear and panic take over, the house of cards can literally start collapsing at any time. Right now we are watching a slow-motion train wreck unfold and nobody seems to know how to stop it. Unless some kind of a miracle happens, things are going to look much different when we reach the start of 2013 than they do today.
The following are 21 signs that this could be a long, hot, crazy summer for the global financial system….
#1 There are rumors that major financial institutions are cancelling employee vacations in anticipation of a major financial crisis this summer. The following are a couple of tweets quoted in a recent article by Kenneth Schortgen Jr….
Todd Harrison tweet: Hearing (not confirmed) @PIMCO asked employees to cancel vacations to have “all hands on deck” for a Lehman-type tail event. Confirm?
Todd M. Schoenberger tweet: @todd_harrison @pimco I heard the same thing, but I also heard the same for “some” at JPM. Heard it today at a hedge fund luncheon.
As Schortgen points out, these are not just your average Twitter users….
Todd Harrison is the CEO of the award winning internet media company Minyanville, while Todd Shoenberger is a managing principal at the Blackbay Group, and an adjunct professor of Finance at Cecil College.
#2 The Bank for International Settlements is warning that global lending is contracting at the fastest pace since the financial crisis of 2008.
#4 The government of Portugal has just announced that it will be bailing out three major banks.
#5 Many U.S. banking stocks are being hit extremely hard. For example, Morgan Stanley stock has declined by 40 percent over the past four months.
#6 Yields on Spanish debt and yields on Italian debt have been absolutely soaring.
#7 10 year U.S. Treasury notes hit a record low on Friday because investors are scared and they are looking for safety. The following is from a recent USA Today article….
“Treasuries are at 1.46 because people are freaking out,” says Mark Vitner, senior economist at Wells Fargo Economics.
#8 New orders for factory goods in the United States have declined three times in the last four months. That is a sign that the “economic recovery” in the U.S. has clearly stalled.
#9 U.S. job growth in May was well below expectations and the unemployment rate has increased to 8.2 percent.
#10 Economies all over the developed world are seriously slowing down right now. The following is from a recent article by Ambrose Evans-Pritchard….
Brazil wilted in the first quarter. India grew at the slowest pace in nine years. China’s HSBC manufacturing index fell further into contraction in May, with new orders dropping sharply and inventories rising.
#12 Over the past five years, the stock markets of Greece, Spain, Italy, Portugal, Ireland and Cyprus have all fallen by more than 50 percent. Will we soon see similar results all over the rest of Europe?
#13 The Greek economy is literally shutting down. Just check out the chaos that unpaid bills are already causing….
And unpaid bills are now threatening Greece’s electricity supply. State-owned Electricity Market Operator (LAGIE), a clearing house for power transactions, hasn’t paid independent power producers for electricity it bought from them. They, in turn, haven’t paid their natural gas supplier, Public Gas Corporation (Depa), which now doesn’t have the money to pay its supplier. Payment is due on June 22. Alas, its supplier is Gazprom in Russia, and they insist on getting paid. If not, they will shut the valve, and Depa won’t get the gas to supply the independent producers, which will have to take their power plants off line, removing about a third of the country’s electricity production.
#14 It is estimated that there are 273 billion dollars of failed real estate loans in the Spanish banking system.
#15 In March, 66 billion euros was pulled out of Spanish banks and sent out of the country. That was an all-time record and that was before we even knew the results of the recent elections in Greece and France. The numbers for April and May will almost certainly be even worse.
#16 The unemployment rate in Spain is 24.4 percent and for those under the age of 25 it is over 50 percent.
#17 Former Italian Prime Minister Silvio Berlusconi is warning that Italy may have to take drastic actions if something is not done soon….
“People are in shock. Confidence has collapsed. We have never had such a dark future,” he said. Indeed, the jobless rate for youth has jumped from 27pc to 35pc in a year. Terrorism has returned. Anarchists knee-capped the head of Ansaldo Nucleare last month. Italy’s tax office chief was nearly blinded by a letter bomb.
“If Europe refuses to listen to our demands, we should say ‘bye, bye’ and leave the euro. Or tell the Germans to leave the euro if they are not happy,” he said.
#18 It now looks like Cyprus is going to be the next European nation to need a bailout.
#19 Switzerland is threatening to implement capital controls in order to stop the massive flow of money that is coming in from banks around the rest of Europe.
#20 As I wrote about the other day, World Bank President Robert Zoellick is warning that “the summer of 2012″ could end up being very similar to what we experienced back in 2008….
“Events in Greece could trigger financial fright in Spain, Italy and across the eurozone. The summer of 2012 offers an eerie echo of 2008.”
#21 Germany’s former vice-Chancellor, Joschka Fischer, is warning that the entire EU could fall apart over this crisis….
“Let’s not delude ourselves: If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced”
When was the last time that we saw so much bad economic news come out all at once?
2008 perhaps?
We truly live in unprecedented times.
It will be exciting to watch what happens, but it is also important to keep in mind that the coming economic crisis will cause extreme pain for millions upon millions of people.
For example, the suicide of a mother and a son due to the deteriorating economy has absolutely shocked the entire nation of Greece….
A 60-year-old Greek musician and his 91-year-old mother jumped to their deaths from their 5th floor apartment, driven to despair by financial woes. This double death is the latest in a rising epidemic of crisis-induced suicides in Greece.
Witness accounts vary – some say the mother, who suffered from Alzheimer’s, jumped first, screaming a prayer as she plummeted to her death. Other neighbors say the mother and her son jumped together, holding hands.
But the one thing everyone seems to agree on is that the family had been struggling for a long time. The night before, Antonis Perris posted a suicide note of sorts on a popular Greek forum, saying he had no way of resolving the family’s financial issues.
“The problem is that I didn’t realize that I would need to have cash, because the economic crisis came so suddenly. Even though I have been selling our possessions, we have no cash flow, we have no money to buy food anymore and my credit card is maxed out with 22% interest rate.”
Perris continued to say that both his and his mother’s health deteriorated, and that he saw no solution to his most basic problems – getting food and medical help.
When the economy of a nation collapses, almost everything changes. Unfortunately, most people have never been through anything like that, so it can be difficult to know how to prepare. For those that are busy preparing for the coming global financial collapse, there is a lot to be learned from the economic depression that is happening right now in Greece. Essentially, what Greece is experiencing is a low level economic collapse. Unemployment is absolutely rampant and poverty is rapidly spreading, but the good news for Greece is that the global financial system is still operating somewhat normally and they are getting some financial assistance from the outside. Things in Greece could be a whole lot worse, and they will probably get a whole lot worse before it is all said and done. But already things have gotten bad enough in Greece that it gives us an idea of what a full-blown economic collapse in the 21st century may look like. There are reports of food and medicine shortages in Greece, crime and suicides are on the rise and people have been rapidly pulling their money out of the banks. Hopefully this article will give you some ideas that you can use as you prepare for the economic chaos that will soon be unfolding all over the globe.
The following are 10 things that we can learn about shortages and preparation from the economic collapse in Greece….
#1 Food Shortages Can Actually Happen
Most people assume that they will always be able to run out to their local supermarket or to Wal-Mart and get all of the supplies they need.
Unfortunately, that is a false assumption. The truth is that our food distribution system is extremely vulnerable.
In Greece, many people are starting to totally run out of food. Even some government institutions (such as prisons) are now reporting food shortages. The following was originally from a Greek news source….
The financing for many prisons has decreased to a minimum for some months now, resulting in hundreds of detainees being malnourished and surviving on the charity of local communities.
The latest example is the prison in Corinth where after the supply stoppage from the nearby military camp, the prisoners are at the mercy of God because, as reported by prison staff, not even one grain of rice has been left in their warehouses. When a few days earlier the commander of the camp announced to the prison management the transportation stoppage, citing lack of food supplies even for the soldiers, he shut down the last source of supply for 84 prisoners. The response of some Corinth citizens was immediate as they took it upon themselves to support the prisoners, since all protests to the Justice ministry were fruitless.
#2 Medicine Is One Of The First Things That Becomes Scarce During An Economic Collapse
If you are dependent on medicine in order to survive, you might want to figure out how you are going to get by if your supply of medicine is totally cut off someday.
In Greece, medicine shortages have become a massive problem. The following is from a recent Bloomberg article….
Mina Mavrou, who runs a pharmacy in a middle-class Athens suburb, spends hours each day pleading with drugmakers, wholesalers and colleagues to hunt down medicines for clients. Life-saving drugs such as Sanofi (SAN)’s blood-thinner Clexane and GlaxoSmithKline Plc (GSK)’s asthma inhaler Flixotide often appear as lines of crimson data on pharmacists’ computer screens, meaning the products aren’t in stock or that pharmacists can’t order as many units as they need.
“When we see red, we want to cry,” Mavrou said. “The situation is worsening day by day.”
The 12,000 pharmacies that dot almost every street corner in Greek cities are the damaged capillaries of a complex system for getting treatment to patients. The Panhellenic Association of Pharmacists reports shortages of almost half the country’s 500 most-used medicines. Even when drugs are available, pharmacists often must foot the bill up front, or patients simply do without.
#3 When An Economy Collapses, So Might The Power Grid
Try this some time – turn off all power to your home for 24 hours and try to live normally.
Sadly, most people simply do not understand just how dependent we are on the power grid. Without power, all of our lives would change dramatically.
In Greece, authorities are warning of an impending “collapse” of the power grid. If it goes down for an extended period of time in Greece, the consequences would be catastrophic….
Greece’s power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country’s electricity and natural gas system.
“RAE is taking crisis initiatives throughout next week to avert the collapse of the natural gas and electricity system,” the regulator’s chief Nikos Vasilakos told Reuters.
RAE took the decision after receiving a letter from Greece’s natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company.
#4 During An Economic Collapse You Cannot Even Take Water For Granted
If the power grid goes down, you will soon no longer have clean water coming out of your faucets. That is one of the reasons why it is absolutely imperative that the power grid stay operable in Greece.
Sadly, most people don’t understand just how vulnerable our water system is. In a previous article, I quoted from a report that discussed how rapidly our water supply would be in jeopardy in the event of a major transportation disruption….
According to the American Water Works Association, Americans drink more than one billion glasses of tap water per day. For safety and security reasons, most water supply plants maintain a larger inventory of supplies than the typical business. However, the amount of chemical storage varies significantly and is site specific. According to the Chlorine Institute, most water treatment facilities receive chlorine in cylinders (150 pounds and one ton cylinders) that are delivered by motor carriers. On average, trucks deliver purification chemicals to water supply plants every seven to 14 days. Without these chemicals, water cannot be purified and made safe for drinking. Without truck deliveries of purification chemicals, water supply plants will run out of drinkable water in 14 to 28 days. Once the water supply is drained, water will be deemed safe for drinking only when boiled. Lack of clean drinking water will lead to increased gastrointestinal and other illnesses, further taxing an already weakened healthcare system.
What will you do when clean water stops coming out of your faucets?
You might want to start thinking about that.
#5 During An Economic Crisis Your Credit Cards And Debit Cards May Stop Working
Most people have become very accustomed to using either debit cards or credit cards for almost everything.
But what would happen if the financial system locked up for a period of time and you were not able to use them?
This is something that the citizens of Greece are potentially facing in the coming months, and this is something that all of us need to start thinking about.
#6 Crime, Rioting And Looting Become Commonplace During An Economic Collapse
Big corporations are already making extensive plans for how to protect their stores in the event that Greece switches from the euro to the drachma.
British electrical retailer Dixons has spent the last few weeks stockpiling security shutters to protect its nearly 100 stores across Greece in case of riot.
The planning, says Dixons chief Sebastian James, may look alarmist but it’s good to be prepared.
Company bosses around Europe agree. As the financial crisis in Greece worsens, companies are getting ready for everything from social unrest to a complete meltdown of the financial system.
#7 During A Financial Meltdown Many Average Citizens Will Start Bartering
During this economic depression, alternative currencies have already been popping up in Greece.
When things fall apart on a global scale, will you have things to barter for the things that you need?
#8 Suicides Spike During An Economic Collapse
When you think of the Great Depression of the 1930s, what do you think of?
Many people think of images of people jumping out of buildings.
Well, something similar has been happening in Greece. Suicide statistics in Greece have been absolutely soaring during the last couple of years.
Once prosperity disappears, many people feel as though life is not worth living anymore.
#9 Your Currency May Rapidly Lose Value During An Economic Crisis
Just remember what happened in Germany during the Weimar Republic and what has happened recently in places like Zimbabwe.
The truth is that it can happen anywhere.
Right now, Greeks are pulling their money out of the banks because they are worried that their euros will be turned into drachmas which would rapidly lose value.
If I was living in Greece I would definitely be concerned about that. The return of the drachma seems to get closer with each passing day. Just check out these screenshots.
#10 When Things Hit The Fan The Government Will Not Save You
Has the government of Greece come to the rescue of all of those that are deeply suffering right now?
Of course not. The truth is that the Greek government can barely take care of itself at the moment.
History has shown us that governments simply cannot be counted on when things hit the fan.
Just remember what happened during the aftermath of Hurricane Katrina.
In the end, the only one that can be counted on to take care of you and your family is you.
Preparation is going to look different for every family. No two situations are exactly the same.
But there are some practical steps that nearly all of us can take to better position ourselves for what is coming. Now is the time to get educated and now is the time to take action.
Or you could be like all of those that laughed at Noah while he was building that big boat.
In the end, things did not work out too well for those folks.
Warren Buffett once said that derivatives are “financial weapons of mass destruction”, and that statement is more true today than it ever has been before. Recently, JP Morgan made national headlines when it announced that it was going to take a 2 billion dollar loss from derivatives trades gone bad. Well, it turns out that JP Morgan did not tell us the whole truth. As you will see later in this article, most analysts are estimating that the losses will eventually be far larger than 2 billion dollars. But no matter how bad things get for JP Morgan, it will not be allowed to fail. JP Morgan is the largest bank in the United States, so it is essentially the “granddaddy” of the too big to fail banks. If JP Morgan gets to the point where it is about to collapse, the U.S. government and the Federal Reserve will rush in to save it. Because of this “security blanket”, banks such as JP Morgan feel free to take outrageous risks. Today, JP Morgan has more exposure to derivatives than anyone else in the world. If they win, they win big. If they lose, U.S. taxpayers will be on the hook. Not only that, but thanks to Dodd-Frank, U.S. taxpayers are on the hook for bailing out the major derivatives clearinghouses if there is ever a major derivatives crisis. So when the derivatives market crashes (and it will) you and I will be left holding a gigantic bill.
Derivatives almost caused the complete collapse of insurance giant AIG back in 2008. But instead of learning our lessons, the derivatives bubble has gotten even larger since that time.
A Bloomberg article that was published last year contained a great quote from Mark Mobius about derivatives….
Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.
“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”
Never in the history of the world have we ever seen anything like this derivatives bubble.
But instead of getting it under control, we just allowed it to get bigger and bigger and bigger.
Now JP Morgan is in quite a bit of trouble. A recent Daily Finance article summarized how JP Morgan got into this mess….
Bruno Iksil, a trader working in the bank’s London office, placed a massive bet in the derivatives market. Derivatives “derive” their value from the value of an underlying asset, like stocks, bonds, currencies, or a market index. The specific type of derivative used in Iksil’s bet was a credit default swap index, known as “CDX.NA.IG.9.”
CDX.NA.IG.9 tracks a basket of corporate bonds. Iksil’s positions on the index were so big (one report put it at $100 billion) that they were moving the market and interfering with other traders’ positions. These annoyed traders — hedge-fund managers — dubbed Iksil “the London Whale” for his outsize bets.
So if the real number isn’t 2 billion dollars, how much will JP Morgan eventually lose?
Morgan Stanley says that the losses could eventually reach 5 billion dollars.
The Independent is reporting that the losses could eventually reach 7 billion dollars.
One author featured on Zero Hedge suggested that the losses could ultimately reach 20 billion dollars….
Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.
The truth is that nobody really knows. Everybody agrees that the losses will likely far exceed 2 billion dollars, but the real extent of the crisis will not be known until the trades play out.
According to the Huffington Post, JP Morgan recently sold 25 billion dollars of profitable securities to raise some cash. The profit on the sale of those securities will be somewhere in the neighborhood of a billion dollars.
A billion dollars will help, but it will not be nearly enough.
Many are interpreting this move as a sign of panic by JP Morgan.
Meanwhile, JP Morgan CEO Jamie Dimon continues to do quite well. In fact, his 23 million dollar pay package was recently approved by shareholders at an annual meeting.
Wouldn’t you like to do your job badly and still make 23 million dollars?
Right now, JP Morgan is essentially in a “staring contest” with those on the other side of the derivatives trades that went bad. This “staring contest” was described in a recent CNN article….
It’s clear from public data filed with The Depository Trust & Clearing Corporation that JPMorgan Chase hasn’t sold any of its positions yet.The DTCC tracks trading activity and sizes of positions on the IG9 and other indexes, and there haven’t been any big moves since last week.
“Whatever the size was, it’s clearly not something that you can call one or two dealers and sell,” said Garth Friesen, a co-chief investment officer at AVM, a derivatives hedge fund that’s not involved in these trades.
As soon as it becomes clear that JPMorgan Chase is unwinding its position, it will be obvious to players on every major trading desk. Hedge funds will immediately start piling into that index and buying protection, driving up the bank’s losses.
Until then, it won’t cost the hedge funds much to sit and wait.
JP Morgan is desperately hoping that the markets move in their favor.
If the markets move against JP Morgan in a big way it could potentially be absolutely catastrophic for the biggest bank in America.
An excerpt from an email that Steve Quayle recently received from an anonymous international banking source contained some chilling analysis of the situation….
The derivative market that JPM plays in is the CDX.NA.IG.9, when factions within their London office (London Whale) made overly leveraged swaps, hedge funds smelled blood and so did a few banks. You see any moves that JPM does here on out exposes their weakness further. Which they can not afford any more exposure thus they are not buying back any more shares which is the equivalent of cutting an artery in a pool full of sharks. The strategy they are taking right now is to sit through the storm and ride it out as they can do nothing else for any action will make them even more vulnerable. They can not absorb hits in both JPM SLV and CDX.NA.IG.9. Inactivity is not something they want to do it is something they have to do. There is no other choice for them.
So what will happen if JP Morgan loses too much money?
Well, it will beg the U.S. government and the Federal Reserve for money and the U.S. government and the Federal Reserve will comply.
There is no way that they are going to let the largest bank in America fail.
In addition, as I mentioned earlier, Dodd-Frank has put U.S. taxpayers on the hook for future bailouts of derivatives clearinghouses. This was detailed in a recent Wall Street Journal article….
Little noticed is that on Tuesday Team Obama took its first formal steps toward putting taxpayers behind Wall Street derivatives trading — not behind banks that might make mistakes in derivatives markets, but behind the trading itself. Yes, the same crew that rails against the dangers of derivatives is quietly positioning these financial instruments directly above the taxpayer safety net.
One of the things that Dodd-Frank does is that it gives the Federal Reserve the power to provide “discount and borrowing privileges” to derivatives clearinghouses in the event of a major derivatives crisis.
This is what our politicians love to do.
They love to have the U.S. taxpayer guarantee everything.
Our politicians look at us as one giant insurance policy.
Apparently they believe that if anything in the financial world goes wrong that U.S. taxpayers should be the ones to clean up the mess.
But will we really have enough money to bail everyone out when the derivatives market crashes?
When it comes to the financial world, it is important to listen to what the “smart money” is saying, but it is much more important to watch what the “smart money” is actually doing. The ultra-wealthy and those that run the biggest financial institutions on the planet are far more “connected” to what is really going on in financial circles behind the scenes than you and I could ever hope to be. But if we watch their behavior we can get clues as to what they think is about to happen. As is the case with so many other things, if you want to figure out what is really going on in Europe, just follow the money. And right now, money is rapidly flowing out of southern Europe and into northern Europe. In fact, some large corporations are now pulling the money that they make in Greece during the day out of the country every single night. It is becoming increasingly clear that the upper crust of the financial world considers a Greek exit from the euro to be “inevitable” and that it also considers much of the rest of southern Europe to be a lost cause. Unfortunately, a financial collapse across southern Europe is also likely to trigger another devastating global recession.
Even though all the warning signs were there, very few people actually expected to see the kind of financial crisis that we saw back in 2008.
But it happened.
Now very few people actually expect another “Lehman Brothers moment” to happen in Europe although the warning signs are all around us.
Sadly, most people never want to believe the truth until it is too late.
The following are 25 signs that the smart money has completely written off southern Europe….
#1 Lloyd’s of London is publicly admitting that it is rapidly making preparations for a collapse of the eurozone.
#2 According to the New York Times, top global law firms are advising their clients to withdraw all cash and all other liquid assets from Greece….
So their advice is blunt: Remove cash and other liquid assets from Greece and prepare to take a short-term hit on any other investments.
“My personal view is that it is irrational for anyone, whether a corporation or an individual, to be leaving money in Greek financial institutions, so long as there is a credible prospect of a euro zone exit,” said Ian M. Clark, a partner in London for White & Case, a global law firm that has a team of 10 lawyers focusing on the issue.
#3 According to CNBC, large numbers of wealthy Europeans have been moving their money from banks in southern Europe to banks in northern Europe….
Financial advisers and private bankers whose clients have accounts too large to be covered by a Europe-wide guarantee on deposits up to 100,000 euros ($125,000), are reporting a “bank run by wire transfer” that has picked up during May.
Much of this money has headed north to banks in London, Frankfurt and Geneva, financial advisers say.
“It’s been an ongoing process but it certainly picked up pace a couple of weeks ago We believe there is a continuous 2-3 year bank run by wire transfer,” said Lorne Baring, managing director at B Capital, a Geneva-based pan European wealth management firm.
#4 The President of the Federal Reserve Bank of Philadelphia, Charles Plosser, says that the Federal Reserve is advising money market funds to reduce their exposure to Europe….
The Fed and regulators have tried to stress to money market funds, for example, to reduce their exposure to European financial institutions.
#5 The yield on 10-year Spanish bonds is rapidly moving toward the very important 7 percent level.
#6 Many multinational corporations that operate in Greece are now pulling their funds out of the country on a nightly basis.
#7 Juergen Fitschen, the co-CEO of Deutsche Bank, has publicly proclaimed that Greece is a “failed state“.
#8 The head of the Swiss central bank has admitted that Switzerland is developing an “action plan” for how it will handle the collapse of the eurozone.
#9 The European Commission has urged all member states to develop contingency plans for a Greek exit from the euro….
Last week, the European Commission said that it has asked member states to make plans to deal with a potential Greek exit, ahead of a second round of Greek elections on 17 June.
#10 PIMCO CEO Mohamed El-Erian says that a Greek exit from the euro “is probably inevitable“.
#12 The percentage of bad loans on the books of Spanish banks has reached an 18 year high.
#13 Late on Friday, the Spanish government announced that banking giant Bankia is going to need a 19 billion euro bailout.
#14 Standard & Poor’s downgraded the credit ratings of five more Spanish banks to junk status on Friday.
#15 Moody’s downgraded the credit ratings of 16 Spanish banks back on May 17th.
#16 According to the Telegraph, “struggling European banks could be seized and controlled by Brussels as part of secret plans being drawn up”.
#17 The head of equity strategy at Societe Generale, Claudia Panseri, is warning that European stocks could fall by as much as 50 percent if Greece leaves the euro.
#18 Economist Marc Faber is warning that there is now a “100% chance” that there will be another global recession.
#19 There seems to be an increasing attempt to pin the problems that Greece is now experiencing on the behavior of Greek citizens. The following are some of the shocking things that the head of the IMF, Christine Lagarde, said in a recent interview….
“Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax.”
Even more than she thinks about all those now struggling to survive without jobs or public services? “I think of them equally. And I think they should also help themselves collectively.” How? “By all paying their tax. Yeah.”
It sounds as if she’s essentially saying to the Greeks and others in Europe, you’ve had a nice time and now it’s payback time.
“That’s right.” She nods calmly. “Yeah.”
And what about their children, who can’t conceivably be held responsible? “Well, hey, parents are responsible, right? So parents have to pay their tax.”
#20 According to the Telegraph, an unidentified member of Angela Merkel’s cabinet has stated that Germany simply will not “pour money into a bottomless pit”.
#21 This week the Bank of England is holding a “secret summit” of global central bankers to address the European financial crisis….
The summit will be dominated by central bankers including the host, Sir Mervyn King, Governor of the Bank of England. Mario Draghi, president of the European Central Bank, and Zhou Xiaochuan, governor of the People’s Bank of China, have been invited.
#22 According to Zero Hedge, a major German newspaper is reporting that a Greek exit from the eurozone is a “done deal”….
“The Greece-exit is a done deal: According to the German economic news from financial circles EU and the ECB have abandoned the motherland of democracy as a euro member. The reason is, interestingly, not in the upcoming elections – these are basically become irrelevant. The EU has finally realized that the Greeks have not met any agreements and will not continue not to meet them. A banker: “We helped with the Toika. The help of the troika was tied to conditions. Greece has fulfilled none of the conditions, and has been for months now.”
#23 According to CNBC, preparations are quietly being made to print up and distribute new drachmas should the need arise….
British banknote printer De La Rue is drawing up plans to print new drachma notes in the event of a Greek euro exit, according to an industry source with knowledge of the matter.
The world’s biggest security firm G4S expects to be involved in distributing notes around the country.
#24 Citibank’s chief economist Willem Buiter is warning that any new currency issued by the Greek government could “immediately fall by 60 percent“.
#25 Reuters is reporting that a planning memo exists that suggests that Greece could receive as much as 50 billion euros to “ease its path” out of the eurozone.
If Greece does leave the eurozone, the cost to the rest of Europe is going to be astronomical. The following is from a recent article by John Mauldin….
The debate among very knowledgeable individuals and institutions as to the future of Europe is intense. There are those who argue that the cost of breaking up the eurozone, even allowing Greece to leave, is so high that it will not be permitted to happen. Estimates abound of a cost of €1 trillion to European banks, governments, and businesses, just for the exit of Greece. And that does not include the cost of contagion as the markets wonder who is next. Keeping Spanish and Italian interest-rate costs at levels that can be sustained will cost even more trillions, as not just government debt but the entire banking system is at stake. Not to mention the pension and insurance funds. If the cost of Greece leaving is €1 trillion, then who can guess the cost of Spain or Italy?
As I have written about previously, a Greek exit from the euro would cause the “bank jogs” that are already happening in Spain and Italy to accelerate.
The problem in Europe is not just government debt. The truth is that the entire European financial system is in danger of melting down.
Unfortunately, there are no more grand solutions on the horizon and so things are going to continue to get worse for Europe.
As I have talked about so many times, the next wave of the economic collapse is going to start in Europe, but it is going to deeply affect the entire globe.
During the next major economic downturn, the official unemployment rate in the United States will rise well up into the double digits.
Once that happens, perhaps many more Americans will finally figure out that they should have been paying much more attention to what was taking place in Europe.
Would you pool your debt with a bunch of debt addicts that have no intention of reducing their wild spending habits? Of course you wouldn’t. But that is exactly what Germany is being asked to do. Increasingly, “eurobonds” are being touted as the best long-term solution to the financial crisis in Europe. These eurobonds would represent jointly issued debt by all 17 members of the eurozone. This debt would also be guaranteed by all 17 members of the eurozone. This would allow all countries in the eurozone to enjoy the same credit rating that Germany does, and borrowing costs for nations such as Greece, Portugal, Italy and Spain would plummet. But borrowing costs for Germany would rise substantially. In fact, it is being estimated that Germany could be facing an extra 50 billion euros a year in interest expenses. So over ten years that would come to about 500 billion euros. Needless to say, Germany is not thrilled about this idea. But new French President Francois Hollande is pushing eurobonds very hard, and he has the support of the OECD, the IMF and many top Italian politicians. In the end, this could be the key to the future of the eurozone. If the Germans give in and decide that they are willing to deeply subsidize their profligate neighbors indefinitely, then the euro could potentially be saved. If not, then this issue could end up shattering Europe.
It is easy to try to portray the Germans as the “bad guys” in all this, but try to step into their shoes for a minute.
If you had some relatives that were spending wildly and that had already run up $100,000 in credit card debt, would you be a co-signer on their next credit card application?
Of course not.
The recent elections in France and Greece made it abundantly clear that the populations of those two countries are rejecting austerity.
Instead, they want a return to the debt-fueled prosperity that they have always enjoyed in the past.
Unfortunately, they need German help to be able to do that.
That is why new French President Francois Hollande is pushing so hard for eurobonds. He wants the rest of the eurozone to be able to “piggyback” on Germany’s sterling credit rating so that everyone can return to the days of wild borrowing and spending.
But Germans greatly fear what a co-mingling of eurozone debt could eventually mean. Not only would Germany’s borrowing costs rise dramatically, but there is also a concern that the rest of the eurozone could eventually pull Germany down with them.
Austria, Finland and the Netherlands are also against eurobonds, but the key is Germany.
For now, Germany is not budging on the issue of eurobonds at all. The following is a statement that German Chancellor Angela Merkel made during a recent speech in Berlin….
“It’s just about not spending more than you collect. It’s astonishing that this simple fact leads to such debates”
And she is right.
Why is it so controversial to insist that people not spend more than they bring in?
But this is the problem that is created when you create a false lifestyle fueled by debt that goes on for decades. People become accustomed to that false standard of living and they throw hissy fits when that false standard of living begins to disappear.
The Germans don’t want to make great sacrifices just so the Greeks, the French and the Italians can go back to borrowing and spending wildly.
Why would the Germans want to do that?
And as a recent CNN article noted, German politicians believe that eurobonds are explicitly banned under existing EU treaties anyway….
“There is no way of introducing them under the current [EU] treaties. Indeed, there is an explicit ban on them,” one senior German official said, adding Berlin would not drop its opposition in the foreseeable future. “That’s a firm conviction which will not change in June.”
But politicians such as Hollande are complaining that austerity could seriously damage living standards throughout Europe.
And Hollande is right about that.
When you inflate your standard of living with borrowed money for many years, eventually there comes a time when you must pay a great price.
Anyone that has ever been in trouble with credit card debt knows how painful that can be.
It is shameful for the rest of Europe to be pleading and begging Germany to help them.
They should take care of themselves.
As I wrote about the other day, Greece would be much better off in the long run if it left the euro and created a new financial system based on sound financial principles.
But in the financial press all over the world there are calls for someone to come up with a “plan” to “rescue” Europe. For example, the following is from a recent Wall Street Journal article….
There have been two main responses to the crisis: austerity, and kicking cans down roads. Austerity, in case you haven’t noticed, is so last year. It’s out. Which means that unless something else is found, some other comprehensive plan, the other main response, can kicking, is going to run out of road.
Just about everybody backed the idea of eurobonds, except for the Germans, and since they’re the ones with all the money, they’re kind of the only ones whose vote counts anyway. So, it’s time to go to plan B. Only there’s no Plan B, and there’s no time, either.
If Germany does not agree to subsidize the rest of the eurozone, will that ultimately mean that the eurozone will be forced to break up?
Probably.
And that would cause a huge amount of pain in the short-term.
But the euro never was a good idea in the first place. It was foolish to expect a monetary union to work smoothly in the absence of fiscal and political union.
And to be honest, the entire world would be a better place with less European integration. The EU has become a horrifying bureaucratic nightmare and it would be wonderful if the entire thing broke up.
But for now, the only thing that is in danger is the euro.
Increasingly, it is looking like Greece may be the first country to exit the euro.
This week, former Greek Prime Minister Lucas Papademos admitted that the Greek government is considering making preparations for Greece to leave the euro.
Not only that, Reuters is reporting that top officials in the eurozone are now working on “contingency plans” for a Greek exit from the euro….
Each euro zone country will have to prepare a contingency plan for the eventuality of Greece leaving the single currency, euro zone sources said on Wednesday.
Officials reached the consensus on Monday afternoon during an hour-long teleconference of the Eurogroup Working Group (EWG).
As well as confirmation from three euro zone officials, Reuters has seen a memo drawn up by one member state detailing some of the elements that euro zone countries should consider.
So obviously a Greek exit from the euro has become a very real possibility.
A recent Bloomberg article detailed how a Greek exit from the euro could play out during the 46 hours that global financial markets are closed over the weekend….
Greece may have only a 46-hour window of opportunity should it need to plot a route out of the euro.
That’s how much time the country’s leaders would probably have to enact any departure from the single currency while global markets are largely closed, from the end of trading in New York on a Friday to Monday’s market opening in Wellington, New Zealand, based on a synthesis of euro-exit scenarios from 21 economists, analysts and academics.
Over the two days, leaders would have to calm civil unrest while managing a potential sovereign default, planning a new currency, recapitalizing the banks, stemming the outflow of capital and seeking a way to pay bills once the bailout lifeline is cut. The risk is that the task would overwhelm any new government in a country that has had to be rescued twice since 2010 because it couldn’t manage its public finances.
At this point, everyone is afraid of what is going to happen if Greece is forced to start issuing drachmas again. As CNBC is reporting, some big European corporations are already beginning to implement their own “contingency plans”….
Big tourism operators like TUI of Germany and Kuoni of Britain are demanding the addition of so-called drachma clauses to contracts with Greek hoteliers should the euro no longer be in use here. British newspapers are filled with advice columns for travelers worried about the wisdom of planning a vacation in Greece, or even Portugal and Spain, should the euro crisis worsen. Large multinational companies like Vodafone Group, Reckitt Benckiser and Diageo have taken to sweeping cash every day from euro accounts back to Britain to limit their exposure.
Sadly, this is probably only a small taste of the financial anarchy that is coming.
France is likely to keep pushing hard for the creation of eurobonds.
Germany is likely to keep fiercely resisting this.
At some point, a moment of crisis will arrive and a call will have to be made.
Will Germany give in or will political turmoil end up shattering Europe?
It will be interesting to see how all of this plays out.
During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that “financial anarchy” is coming to Europe and that there will be “bank runs” in Spain and Italy in the next few weeks. This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using. In fact, if Cramer is not careful, people will start accusing him of sounding just like The Economic Collapse Blog. It may not happen in “the next few weeks”, but the truth is that the European banking system is in a massive amount of trouble and if Greece does leave the euro it is going to cause a tremendous loss of confidence in banks in countries such as Spain, Italy and Portugal. There are already rumors that the “smart money” is pulling out of Spanish and Italian banks. So could we see some of these banks collapse? Would they get bailed out if they do collapse? It is so hard to predict exactly how “financial anarchy” will play out, but it is becoming increasingly clear that the European financial system is heading for a massive amount of pain.
Posted below is a clip of Jim Cramer making his bold predictions during his appearance on Meet The Press. He is obviously very, very disturbed about the direction that Europe is heading in….
But what is Europe supposed to do? Even though “austerity measures” have been implemented in many eurozone nations, the truth is that they are all still running up more debt. Are European nations just supposed to run up massive amounts of debt indefinitely and pretend that there will never been any consequences?
That is apparently what Barack Obama wants. During the G-8 summit that just concluded, Obama urged European leaders to pursue a “pro-growth” path.
Of course to Obama a “pro-growth” economic plan includes spending trillions of dollars that you do not have without any regard for what you are doing to future generations.
Germany has been trying to get the rest of the eurozone to move much closer to living within their means, but as the recent elections in France and Greece demonstrated, much of the rest of the eurozone is not too thrilled with the end of debt-fueled prosperity.
In Greece, the recent elections failed to produce a new government, so new elections will be held on June 17th.
Many EU politicians are trying to turn these upcoming elections into a referendum on whether Greece stays in the eurozone or not. If the next Greek government is willing to honor the austerity agreements that have been previously agreed to, then Greece will probably stay in the eurozone for a while longer. If the next Greek government is not willing to honor the austerity agreements that have been previously agreed to, then Greece will probably be forced out of the eurozone.
The following is what John Praveen, the chief investment strategist at Prudential International Investments Advisers, had to say about the political situation in Greece recently….
“If the pro-euro major parties fail to muster enough support to form a coalition and the radical left Syriza party and other anti-euro, anti-austerity parties secure a majority, the risk of a disorderly Greek exit from the Euro increases and could roil markets”
Right now, polls show the leading anti-austerity party, Syriza, doing very well. The leader of Syriza, Alexis Tsipras, has declared that he plans “to stop the experiment” with austerity and that what the rest of the eurozone has tried to do in Greece is a “crime against the Greek people“.
But the Germans do not see it that way. The Germans just want the Greeks to stop spending far more money than they bring in.
The Germans do not want to endlessly bail out the Greeks if the Greeks are not willing to show some financial discipline.
As we approach the June 17th elections, the financial markets are likely to be quite nervous. According to Art Hogan of Lazard Capital Partners, many investors are deeply concerned about how “sloppy” a great exit from the euro could be….
“Next week is only one of the four weeks we have to wait until the Greek election. Every utterance out of Greece makes us think about their [possible] exit and how sloppy that could be”
Most Greek citizens want to remain in the eurozone and most European politicians want Greece to remain in the eurozone, but it is looking increasingly likely as if that may not happen.
In fact, there are reports that preparations are rapidly being made for a Greek exit. According to Reuters, “contingency plans” for the printing of Greek drachmas have already been drawn up….
De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday.
And even EU officials are now acknowledging that plans for a Greek exit from the euro are being developed. The following is what EU Trade Commissioner Karel De Gucht said during one recent interview….
“A year and a half ago, there may have been the danger of a domino effect,” he said, “but today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn’t make it.”
When these kinds of things start to become public, that is a sign that officials really do not expect Greece to remain a part of the euro.
And Greece is rapidly beginning to run out of money. According to a recent Ekathimerini article, the Greek government is likely to run out of money at the end of June….
The public coffers are seen running dry at the end of June, but this will depend on two key factors. First, revenue collection: In the first 10 days of May, inflows were about 15 percent lower than projected but there are fears that the slide may reach 50 percent. The GAO will have a picture for the first 20 days on May 23, while the last three days of the month are considered crucial, when 1.5 billion euros of the month’s budgeted total of 3.6 billion are expected to flow in.
Second, whether the IMF and EFSF installments are disbursed: This is not certain, as the decision will be purely political for both providers and evidently partly linked to political developments. Earlier this month the eurozone approved a disbursement 1 billion short of the 5 billion euros that were expected.
If Greece runs out of money and if the rest of Europe cuts off the flow of euros, Greece would essentially be forced to leave the euro.
So the last half of June looks like it could potentially be a key moment for Greece.
Meanwhile, the Greek banking system is struggling to survive as hundreds of millions of euros get pulled out of it. The following is from a recent CNN article….
The Greek financial system is straining hard for cash.
Consumers and businesses are making massive withdrawals from Greece’s banks — leading to concern the beleaguered nation could be forced out of the eurozone by a banking crisis even before its government runs out of cash.
Deposits are the lifeblood of any bank, and Greeks pulled 800 million euros out of the banking system on Tuesday alone, the most recent day for which figures are available.
If Greece does leave the euro and the Greek banking system does collapse, that is going to be a clear signal that a similar scenario will be allowed to play out in other eurozone nations.
That is why Jim Cramer, myself and many others are warning that there could soon be bank runs all over the eurozone.
For example, the Telegraph has reported that wealthy individuals are starting to pull money out of Spanish banking giant Santander….
Customers with large deposits have started withdrawing cash from Santander, the bank has admitted, as it tried to reassure concerned members of the public that their money is safe.
Round and round we go. Where all this will stop nobody knows.
If Greece does end up leaving the euro, that could set off a chain of cascading events that could potentially be absolutely catastrophic.
And if the “house of cards” does come down in Europe, that is going to greatly destabilize the global derivatives market.
You see, the truth is that the global derivatives market is very delicately balanced. The assumption most firms make is that things are not going to deviate too much from what is considered “normal”.
If we do end up seeing “financial anarchy” in Europe, that is going to greatly destabilize the system and we could rapidly have a huge derivatives crisis on our hands.
And as we saw with JP Morgan recently, losses from derivatives can add up really fast.
Originally, we were told that the derivatives losses that JP Morgan experienced recently came to a total of only about 2 billion dollars.
Now, we are told that it could be a whole lot more than that. According to the Wall Street Journal, JP Morgan could end up losing about 5 billion dollars (or more) before it is all said and done….
J.P. Morgan Chase & Co. is struggling to extricate itself from disastrous wagers by traders such as the “London whale,” in a sign that the size of its bets could bog down the bank’s unwinding of the trades and deepen its losses by billions of dollars.
The nation’s largest bank has said publicly that its losses on the trades have surpassed $2 billion, and people familiar with the matter have said they could over time reach $5 billion.
And if Europe experiences a financial collapse, the losses experienced by U.S. firms could make that 5 billion dollars look like pocket change. The following is from a recent article by Graham Summers….
According to Reuters once you include Spain and Italy as well as Credit Default Swaps and indirect exposure to Europe, US banks have roughly $4 TRILLION in potential exposure to the EU.
To put that number in perspective, the entire US banking system is $12 trillion in size.
Interesting days are ahead my friends.
Let us hope for the best, but let us also prepare for the worst.
The Facebook IPO is kind of like a graduation party – everybody comes together for one huge blowout to celebrate the end of an era before going their separate ways. Unfortunately, most people on Wall Street do not understand how bittersweet this moment really is. A tremendous amount of pain is ahead for Wall Street in the next few years, and we will probably never see anything like the Facebook IPO ever again. But the Facebook IPO sure has been fun to watch. Facebook is one of the largest companies to ever go public in the United States. According to CNN, 247 million shares of Facebook exchanged hands in the first 45 minutes of trading. The Facebook IPO was nearly ten times larger than any other Internet IPO in history, and the amount of money being made by some people on this deal is absolutely amazing. For example, it is being reported that Bono will make more money on the Facebook IPO than he has from being part of the band U2 for the past 30 years. Sadly, this euphoria is not going to last for long. The next wave of the global financial collapse is rapidly approaching, and once it strikes there will not be much for anyone on Wall Street to be smiling about at all.
During the IPO process, Facebook sold more than 420 million shares and raised about 16 billion dollars.
Those are incredible numbers.
At 38 dollars per share, Facebook would have a market cap of about 81 billion dollars.
So is Facebook worth 81 billion dollars?
Of course not.
But most stocks are tremendously overvalued at this point.
Yes, Facebook has 900 million users and it made about a profit of about a billion dollars last year.
But that does not add up to an 81 billion dollar company.
Not even close.
A recent article by Jay Yarow explained this in more detail….
As good a business as that is, it’s not Google good. It’s not Apple good. And at the current IPO pricing, Facebook has to be a much better business in the near future.
In fact, Yarow says that Facebook is going to have to dramatically improve in order to justify the current valuation….
So, what’s the bull’s case for Facebook? Unfortunately, it comes down to faith. You have to have faith that Mark Zuckerberg, Sheryl Sandberg, and the rest of the executives at Facebook will discover a magical money making product that will justify its valuation.
Unfortunately, there are already signs that the growth of Facebook is slowing down.
Advertising revenue during the first quarter of 2012 was only $872 million. That was a decline of 7.5 percent from the previous quarter.
And eventually someone will come along and topple Facebook just like Facebook toppled MySpace.
Remember MySpace?
Facebook did not even exist a decade ago. Right now there are young kids tinkering around in their college dorm rooms trying to figure out how to create something that will be even better than Facebook.
The truth is that Facebook is operating on borrowed time. It is not going to remain “hot” and “trendy” forever.
But for the moment, there are a whole lot of people out there that want a piece of Facebook.
Hey, I am not in the stock market at all, but even I am half-tempted to buy a few shares so that I can introduce myself as a “part-owner of Facebook”.
After all, who doesn’t like Facebook?
Yes, government agencies and big corporations use Facebook to spy on all of us. If you don’t believe this, just check out this article, this article and this article.
But there is an incredible upside to social networking websites such as Facebook and Twitter as well.
They have given average people the ability to communicate directly with each other on a massive scale.
In the past, the big corporations pretty much had a monopoly on mass communication.
If you wanted to get your message out independently of the big corporations, you could hand out fliers, you could send out mass mailings (very expensive) or you could try to get a book printed.
But today something that you post on Facebook or Twitter could be seen by thousands (or even millions) of people within a few days.
The Internet is filled with a whole lot of garbage, but it can also be used as an incredible tool for good.
Sitting at home behind your desk, you have the potential to touch the lives of people on the other side of the globe through the Internet that you would probably never have a chance of influencing any other way.
So I am very thankful for Facebook.
We should use tools like Facebook to wake people up while there is still time. Our world is becoming increasingly unstable and we might not always have the opportunity to freely share our thoughts with the entire globe like this.
Just try to imagine a world without Facebook, Twitter, YouTube, blogs and Internet forums.
All of those things have only existed for a relatively short period of time, and there is no guarantee that we will always have them.
Instead of wasting our lives away in front of our televisions, we should be taking advantage of these tools to help change the world.
Every single day, hundreds of people are directed to my website from Facebook. I am hoping to eventually increase that to thousands of people per day.
A great economic collapse is coming to this world. People need to keep their eyes on the financial crisis in Europe and on the derivatives market. The coming financial tsunami will likely be even worse than the crash of 2008.
People are going to be looking for answers.
Now is the time to be a light shining in the darkness.
Not everyone has the time or the knowledge to be able to set up a website or make YouTube videos, but nearly everyone is capable of setting up a Facebook account or a Twitter account.
If you make even a small effort, you could end up touching the lives of thousands upon thousands of people.
Yes, there are a lot of negative things that can be said about Facebook, but at least for today let us celebrate it for what it has given us.
It has given us the opportunity to make a difference on a massive scale, and that is a wonderful thing.
Why is the economy going to collapse? Have you ever been asked that question? If so, what did you say? Sometimes it is difficult to communicate dozens of complicated economic and financial concepts in a package that the average person on the street can easily digest. It can be very frustrating to know that something is true but not be able to explain it clearly to someone else. Hopefully many of you out there will find the list below useful. It is a list of 70 numbers that show why we are headed for a national economic nightmare. So why does the title of the article single out Barack Obama? Well, it is because right now he is the biggest cheerleader for the economy. He is attempting to convince all of us that everything is just fine and that the economy is heading in a positive direction. Well, the truth is that everything is not fine and things are about to get a whole lot worse. Certainly others should share in the blame as well. Congress has been steering the economy in the wrong direction for decades, the “too big to fail” banks have turned Wall Street into a pyramid of risk, leverage and debt, and the Federal Reserve has more power over the financial system than anyone else does. Our economy has been in decline for quite a while now, and soon we are going to smash directly into an economic brick wall. Unfortunately, a lot of Americans are in denial about this. A lot of people out there doubt that an economic collapse is coming. Well, if you know someone that believes that the U.S. economy is going to be “just fine”, just show them the list below.
The Economic Collapse Is Not A Single Event
Yes, there will certainly be times of great chaos. The financial crisis of 2008 was one of those moments.
But the financial crisis of 2008 did not completely destroy us.
Neither will the next crisis.
I think it is helpful to think of what is happening to us as a series of waves.
When you build a beautiful sand castle on the beach, the first wave that comes in does not totally destroy it.
Rather, the first wave weakens the castle and it is destroyed by subsequent waves.
Well, that is what is happening to us.
The financial crisis of 2008 was a wave.
The epicenter of the next great financial crisis will be in Europe and that will be another wave.
For many, the next financial crisis will feel like “the end of the world” but it won’t be.
There will be waves after that one that will be even worse.
Yes, the waves are going to start coming more rapidly and will start becoming more intense.
In that way, they will kind of be like birth pains.
But these problems did not build up overnight and they are not going to disappear overnight either.
A lot of people that write about the coming economic collapse seem to suggest that we should just let it happen so that the “recovery” can begin.
Unfortunately, it is not going to be so simple.
It took decades to build up a national debt of almost 16 trillion dollars.
It took decades for American consumers to build up the greatest consumer debt bubble in the history of the world.
It took decades to gut the economic infrastructure of the United States and ship millions of our jobs overseas.
These problems are going to plague us for a very long time.
Sadly, a lot of people out there seem to wish for an economic apocalypse. They seem to think that if the global financial system crashes that the government is going to disappear and we are going to start fighting with each other using sharp pointed sticks.
Well, it simply is not going to happen.
The U.S. government is not going to help you survive when things hit the fan, but it is not going to disappear either.
In fact, the federal government will probably try to grab more power than ever in an attempt to “restore order”.
The governments of Europe are not going to disappear either. In fact, in the long run Europe is probably going to end up more “federalized” than ever even if the euro breaks up in the short run.
A lot of people out there seem to think that when the old system collapses that it will give them an opportunity to help put in a new system.
Sorry, but that is not going to happen either.
The powers that be are going to have their own ideas about what needs to happen.
They never like to let a good crisis go to waste, and they will certainly try to use every crisis to shape the world even more in their own image.
The coming economic collapse is going to play out over a number of years and it is going to be absolutely horrible.
Billions of people will deeply suffer because of it.
It will be unlike anything any of us have ever seen.
Personally, I believe that it will eventually be much worse than the Great Depression of the 1930s.
The United States is going to get hit particularly hard. The United States is going to lose its position as the leading economic power on the globe and the U.S. dollar is going to lose its position as the default reserve currency of the world.
If you thought that the unemployment crisis during the last recession was bad, just wait until you see what is coming.
We are heading for a complete and total unemployment nightmare in the United States. Unemployment is eventually going to soar well up into the double digits.
The U.S. government will try a wide variety of measures to try to “fix” things, and some will likely have some limited success.
But the debt-fueled prosperity that we are all enjoying now is going to come to an end.
Many communities all over America will degenerate into rotting cesspools.
There are going to be riots in our major cities, crime and looting will be absolutely rampant and it will seem like society is coming apart at the seams.
The U.S. government will likely respond by becoming more authoritarian than ever, and that will truly be frightening.
But all of this is going to play out over time.
Right now, things are not as good as they were five years ago.
A couple of years from now, things will be even worse. Many of us will look back and wish that we could return to the “good old days” of 2011 and 2012.
We are on a decline that is not going to stop. There will be little false bubbles of hope like we are in now, but they won’t last long.
But just because the economy is falling apart does not mean that your life is over. Many that are busy preparing right now will be greatly blessed even in the middle of all the chaos.
And it is when things are the darkest that the greatest lights are needed.
Make the decision right now to be a light during the times ahead.
You can choose to let the times that are coming destroy you, or you can choose to make them the greatest adventure of your life.
The choice is up to you.