There has been so much attention on Greece in recent weeks, but the truth is that Greece represents only a very tiny fraction of an unprecedented global debt bomb which threatens to explode at any moment. As you are about to see, there are 24 nations that are currently facing a full-blown debt crisis, and there are 14 more that are rapidly heading toward one. Right now, the debt to GDP ratio for the entire planet is up to an all-time record high of 286 percent, and globally there is approximately 200 TRILLION dollars of debt on the books. That breaks down to about $28,000 of debt for every man, woman and child on the entire planet. And since close to half of the population of the world lives on less than 10 dollars a day, there is no way that all of this debt can ever be repaid. The only “solution” under our current system is to kick the can down the road for as long as we can until this colossal debt pyramid finally collapses in upon itself.
As we are seeing in Greece, you can eventually accumulate so much debt that there is literally no way out. The other European nations are attempting to find a way to give Greece a third bailout, but that is like paying one credit card with another credit card because virtually everyone in Europe is absolutely drowning in debt.
Even if some “permanent solution” could be crafted for Greece, that would only solve a very small fraction of the overall problem that we are facing. The nations of the world have never been in this much debt before, and it gets worse with each passing day.
According to a new report from the Jubilee Debt Campaign, there are currently 24 countries in the world that are facing a full-blown debt crisis…
■ Costa Rica
■ Dominican Republic
■ El Salvador
■ The Gambia
■ Marshall Islands
■ Sri Lanka
■ St Vincent and the Grenadines
And there are another 14 nations that are right on the verge of one…
■ Cape Verde
■ Sao Tome e Principe
So what should be done about this?
Should we have the “wealthy” countries bail all of them out?
Well, the truth is that the “wealthy” countries are some of the biggest debt offenders of all. Just consider the United States. Our national debt has more than doubled since 2007, and at this point it has gotten so large that it is mathematically impossible to pay it off.
Europe is in similar shape. Members of the eurozone are trying to cobble together a “bailout package” for Greece, but the truth is that most of them will soon need bailouts too…
All of those countries will come knocking asking for help at some point. The fact is that their Debt to GDP levels have soared since the EU nearly collapsed in 2012.
Spain’s Debt to GDP has risen from 69% to 98%. Italy’s Debt to GDP has risen from 116% to 132%. France’s has risen from 85% to 95%.
In addition to Spain, Italy and France, let us not forget Belgium (106 percent debt to GDP), Ireland (109 debt to GDP) and Portugal (130 debt to GDP).
Once all of these dominoes start falling, the consequences for our massively overleveraged global financial system will be absolutely catastrophic…
Spain has over $1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut or debt forgiveness for them would trigger systemic failure in Europe.
EU banks as a whole are leveraged at 26-to-1. At these leverage levels, even a 4% drop in asset prices wipes out ALL of your capital. And any haircut of Greek, Spanish, Italian and French debt would be a lot more than 4%.
Things in Asia look quite ominous as well.
According to Bloomberg, debt levels in China have risen to levels never recorded before…
While China’s economic expansion beat analysts’ forecasts in the second quarter, the country’s debt levels increased at an even faster pace.
Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008, data compiled by Bloomberg show.
And remember, that doesn’t even include government debt. When you throw all forms of debt into the mix, the overall debt to GDP number for China is rapidly approaching 300 percent.
In Japan, things are even worse. The government debt to GDP ratio in Japan is now up to an astounding 230 percent. That number has gotten so high that it is hard to believe that it could possibly be true. At some point an implosion is coming in Japan which is going to shock the world.
Of course the same thing could be said about the entire planet. Yes, national governments and central banks have been attempting to kick the can down the road for as long as possible, but everyone knows that this is not going to end well.
And when things do really start falling apart, it will be unlike anything that we have ever seen before. Just consider what Egon von Greyerz recently told King World News…
Eric, there are now more problem areas in the world, rather than stable situations. No major nation in the West can repay its debts. The same is true for Japan and most of the emerging markets. Europe is a failed experiment for socialism and deficit spending. China is a massive bubble, in terms of its stock markets, property markets and shadow banking system. Japan is also a basket case and the U.S. is the most indebted country in the world and has lived above its means for over 50 years.
So we will see twin $200 trillion debt and $1.5 quadrillion derivatives implosions. That will lead to the most historic wealth destruction ever in global stock, with bond and property markets declining at least 75 – 95 percent. World trade will also contract dramatically and we will see massive hardship across the globe.
So what do you think is coming, and how bad will things ultimately get once this global debt crisis finally spins totally out of control?
Please feel free to add to the discussion by posting a comment below…
Get ready for another major worldwide credit crunch. Today, the entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever. If you can believe it, the total amount of global debt has risen by $35 trillion since the last crisis. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again. For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“. And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone. On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States. All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.
Over the past six months, the Chinese stock market has exploded upward even as the overall Chinese economy has started to slow down. Investors have been using something called “umbrella trusts” to finance a lot of these stock purchases, and these umbrella trusts have given them the ability to have much more leverage than normal brokerage financing would allow. This works great as long as stocks go up. Once they start going down, the losses can be absolutely staggering.
That is why Chinese authorities are stepping in before this bubble gets even worse. Here is more about what has been going on in China from Bloomberg…
China’s trusts boosted their investments in equities by 28 percent to 552 billion yuan ($89.1 billion) in the fourth quarter. The higher leverage allowed by the products exposes individuals to larger losses in the event of stock-market drops, which can be exaggerated as investors scramble to repay debt during a selloff.
In umbrella trusts, private investors take up the junior tranche, while cash from trusts and banks’ wealth-management products form the senior tranches. The latter receive fixed returns while the former take the rest, so private investors are effectively borrowing from trusts and banks.
Margin debt on the Shanghai Stock Exchange climbed to a record 1.16 trillion yuan on Thursday. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt.
Overall, China has seen more debt growth than any other major industrialized nation since the last recession. This debt growth has been so dramatic that it has gotten the attention of authorities all over the planet…
Wolfgang Schaeuble, Germany’s finance minister says that “debt levels in the global economy continue to give cause for concern.”
Singling out China in particular, Schaeuble noted that “debt has nearly quadrupled since 2007″, adding that it’s “growth appears to be built on debt, driven by a real estate boom and shadow banks.”
According to McKinsey’s research, total outstanding debt in China increased from $US7.4 trillion in 2007 to $US28.2 trillion in 2014. That figure, expressed as a percentage of GDP, equates to 282% of total output, higher than the likes of other G20 nations such as the US, Canada, Germany, South Korea and Australia.
This credit boom in China has been one of the primary engines for “global growth” in recent years, but now conditions are changing. Eventually, the impact of what is going on in China right now is going to be felt all over the planet.
Over in Europe, the Greek debt crisis is finally coming to a breaking point. For years, authorities have continued to kick the can down the road and have continued to lend Greece even more money.
But now it appears that patience with Greece has run out.
For instance, the head of the IMF says that no delay will be allowed on the repayment of IMF loans that are due next month…
IMF Managing Director Christine Lagarde roiled currency and bond markets on Thursday as reports came out of her opening press conference saying that she had denied any payment delay to Greece on IMF loans falling due next month.
Unless Greece concludes its negotiations for a further round of bailout money from the European Union, however, it is not likely to have the money to repay the IMF.
And we are getting reports that things are happening behind the scenes in Europe to prepare for the inevitable moment when Greece will finally leave the euro and go back to their own currency.
For example, consider what Art Cashin told CNBC on Friday…
First, “there were reports in the media [saying] that the ECB and/or banking authorities suggested to banks to get rid of any sovereign Greek debt they had, which suggests that maybe the next step will be Greece exiting,” Cashin told CNBC.
Also, one of Greece’s largest newspapers is reporting that neighboring countries are forcing subsidiaries of Greek banks that operate inside their borders to reduce their risk to a Greek debt default to zero…
According to a report from Kathimerini, one of Greece’s largest newspapers, central banks in Albania, Bulgaria, Cyprus, Romania, Serbia, Turkey and the Former Yugoslav Republic of Macedonia have all forced the subsidiaries of Greek banks operating in those countries to bring their exposure to Greek risk — including bonds, treasury bills, deposits to Greek banks, and loans — down to zero.
Once Greece leaves the euro, that is going to create a tremendous credit crunch in Europe as fear begins to spread like wildfire. Everyone will be wondering which nation will be “the next Greece”, and investors will want to pull their money out of perceived danger zones before they get hammered.
In the past, other European nations have been willing to bend over backwards to accommodate Greece and avoid this kind of mess, but those days appear to be finished. In fact, the finance minister of France openly admits that the French “are not sympathetic to Greece”…
Greece isn’t winning much sympathy from its debt-wracked European counterparts as the country draws closer to default for failing to make bailout repayments.
“We are not sympathetic to Greece,” French Finance Minister Michael Sapin said in an interview at the International Monetary Fund-World Bank spring meetings here.
“We are demanding because Greece must comply with the European (rules) that apply to all countries,” Sapin said.
Yes, it is possible that another short-term deal could be reached which could kick the can down the road for a few more months.
But either way, things in Europe are going to continue to get worse.
Meanwhile, very disappointing earnings reports in the U.S. are starting to really rattle investors.
For example, we just learned that GE lost 13.6 billion dollars in the first quarter…
One week following the announcement that it would dismantle most of its GE Capital financing operations to instead focus on its industrial roots, General Electric reported a first quarter loss of $13.6 billion.
The results were impacted by charges relating to the conglomerate’s strategic shift. A year ago GE reported a first quarter profit of $3 billion.
That is a lot of money.
How in the world does a company lose 13.6 billion dollars in a single quarter during an “economic recovery”?
Other big firms are reporting disappointing earnings numbers too…
In earnings news, American Express Co. late Thursday said its results were hurt by the strong U.S. dollar, which reduced revenue booked in other countries. Chief Executive Kenneth Chenault reiterated the company’s forecast that 2015 earnings will be flat to modestly down year over year. Shares fell 4.6%.
Advanced Micro Devices Inc. said its first-quarter loss widened as revenue slumped. The company said it was exiting its dense server systems business, effective immediately. Revenue and the loss excluding items missed expectations, pushing shares down 13%.
And just like we saw just before the financial crisis of 2008, Americans are increasingly having difficulty meeting their financial obligations.
For instance, the delinquency rate on student loans has reached a very frightening level…
More borrowers are failing to make payments on their student loans five years after leaving college, painting a grim picture for borrowers, according to the Federal Reserve Bank of New York.
Student debt continues to increase, especially for people who took out loans years ago. Those who left school in the Great Recession, which ended in 2009, had particular difficulty with repayment, with many defaulting, becoming seriously delinquent or not being able to reduce their balances, the New York Fed said today.
Only 37 percent of borrowers are current on their loans and are actively paying them down, and 17 percent are in default or in delinquency.
At this point, the American consumer is pretty well tapped out. If you can believe it, 56 percent of all Americans have subprime credit today, and as I mentioned above, we just witnessed the biggest spike in credit application rejections ever recorded.
We have reached a point of debt saturation, and the credit crunch that is going to follow is going to be extremely painful.
Of course the biggest provider of global liquidity in recent years has been the Federal Reserve. But with the Fed pulling back on QE, this is creating some tremendous challenges all over the globe. The following is an excerpt from a recent article in the Telegraph…
The big worry is what will happen to Russia, Brazil and developing economies in Asia that borrowed most heavily in dollars when the Fed was still flooding the world with cheap liquidity. Emerging markets account to roughly half of the $9 trillion of offshore dollar debt outside US jurisdiction.
The IMF warned that a big chunk of the debt owed by companies is in the non-tradeable sector. These firms lack “natural revenue hedges” that can shield them against a double blow from rising borrowing costs and a further surge in the dollar.
So what is the bottom line to all of this?
The bottom line is that we are starting to see the early phases of a liquidity squeeze.
The flow of credit is going to begin to get tighter, and that means that global economic activity is going to slow down.
This happened during the last financial crisis, and during this next financial crisis the credit crunch is going to be even worse.
This is why it is so important to have an emergency fund. During this type of crisis, you may have to be the source of your own liquidity. At a time when it seems like nobody has any cash, those that do have some will be way ahead of the game.
If you enjoy watching financial doom, then you are quite likely to really enjoy the rest of 2012. Right now, red flags are popping up all over the place. Corporate insiders are selling off stock like there is no tomorrow, major economies all over Europe continue to implode, the IMF is warning that the eurozone could actually break up and there are signs of trouble at major banks all over the planet. Unfortunately, it looks like the period of relative stability that global financial markets have been enjoying is about to come to an end. A whole host of problems that have been festering just below the surface are starting to manifest, and we are beginning to see the ingredients for a “perfect storm” start to come together. The greatest global debt bubble in human history is showing signs that it is getting ready to burst, and when that happens the consequences are going to be absolutely horrific. Hopefully we still have at least a little bit more time before the global financial system implodes, but at this point it doesn’t look like anything is going to be able to stop the chaos that is on the horizon.
The following are 22 red flags that indicate that very serious doom is coming for global financial markets….
#1 According to CNN, the level of selling by insiders at corporations listed on the S&P 500 is the highest that it has been in almost a decade. Do those insiders know something that the rest of us do not?
#2 Home prices in the United States have fallen for six months in a row and are now down 35 percent from the peak of the housing market. The last time that home prices in the U.S. were this low was back in 2002.
#3 It is now being projected that the Greek economy will shrink by another 5 percent this year.
#4 Despite wave after wave of austerity measures, Greece is still going to have a budget deficit equivalent to about 7 percent of GDP in 2012.
#5 Interest rates on Italian and Spanish sovereign debt are rapidly rising. The following is from a recent RTE article….
Spain’s borrowing rate nearly doubled in a short-term debt auction as investors fretted over the euro zone’s determination to deal with its debts.
And Italy raised nearly €3.5 billion in a short-term bond sale today but at sharply higher interest rates amid fresh concerns over the euro zone outlook, the Bank of Italy said.
#6 The government of Spain recently announced that its 2011 budget deficit was much larger than originally projected and that it probably will not meet its budget targets for 2012 either.
#7 Amazingly, bad loans now make up 8.15 percent of all loans on the books of Spanish banks. That is the highest level in 18 years. The total value of all toxic loans in Spain is equivalent to approximately 13 percent of Spanish GDP.
#8 One key Spanish stock index has already fallen by more than 19 percent so far this year.
#9 The Spanish government has announced a ban on all cash transactions larger than 2,500 euros. Many are interpreting this as a panic move.
#10 It is looking increasingly likely that a major bailout for Spain will be needed. The following is from a recent Reuters article….
Economic experts watching Spain don’t know how much money will be needed or precisely when, but some are near certain that Madrid will eventually seek a multi-billion euro bailout for its banks, and perhaps even for the state itself.
#11 Analysts at Moody’s Analytics are warning that Italy has now reached financially unsustainable territory….
“Italy is already out of fiscal space, in our estimate.” said Moody’s. “Its debt levels relative to GDP already exceed a manageable level. The manageable limit for Italian 10-year bond yields is estimated at 4.2pc. As of Wednesday, Italian 10-year yields were 5.46pc.”
#12 It is being projected that the Portuguese economy will shrink by 5.7 percent during 2012.
#13 There is even trouble in European nations that have been considered relatively stable up to this point. For example, the Dutch government collapsed on Monday after austerity talks broke down.
#14 The head of the IMF, Christine Lagarde, says that there are “dark clouds on the horizon” for the global economy.
#15 The top economist for the IMF, Olivier Blanchard, recently made this statement: “One has the feeling that at any moment, things could get very bad again.”
#16 A recent IMF report admitted that the current financial crisis could lead to the break up of the eurozone….
Under these circumstances, a break-up of the euro area could not be ruled out. The financial and real spillovers to other regions, especially emerging Europe, would likely be very large.
This could cause major political shocks that could aggravate economic stress to levels well above those after the Lehman collapse.
#17 George Soros is publicly declaring that the European Union could soon experience a collapse similar to what happened to the Soviet Union.
#18 A member of the European Parliament, Nigel Farage, stated during one recent interview that it is inevitable that some major banks in Europe will collapse….
There are going to be some serious banking collapses and the impact of that on some sovereign states, will be serious. I’m afraid we’ve gotten to a point where we really can’t stop this now. We’re beginning to reach a stage where however much false money you create, the problem becomes bigger than the people trying to solve it. We are very close to that point.
When I talk about the threats and the risk that this thing could wind up in some kind of rebellion, some sort of awful social cataclysm, they (other European politicians) are now very worried indeed. They will talk to you in private, but in public, nobody dares utter a word.
I think the deterioration, in the last two or three weeks, in the eurozone is very serious indeed. It’s the bond spreads in Italy and Spain. It’s the fact that youth unemployment is now over 50% in some of these Mediterranean countries.
It’s riot and disorder on the streets. And yet a month ago I was here and there was Herman Van Rumpuy telling us, ‘We’ve turned the corner. Everything is solved. There are no more problems with the eurozone.’ What a pack of jokers they look like.”
#19 The IMF is projecting that Japan will have a debt to GDP ratio of 256 percent by next year.
#20 Goldman Sachs is projecting that the S&P 500 will fall by about 11 percent by the end of 2012.
#21 Over the past six months, hundreds of prominent bankers have resigned all over the globe. Is there a reason why so many are suddenly leaving their posts?
#22 The 9 largest U.S. banks have a total of 228.72 trillion dollars of exposure to derivatives. That is approximately 3 times the size of the entire global economy. It is a financial bubble so immense in size that it is nearly impossible to fully comprehend how large it is.
The financial crisis of 2008 was just a warm up act for what is coming. The too big to fail banks are larger than ever, the governments of the western world are in far more debt than they were back then, and the entire global financial system is more unstable and more vulnerable than ever before.
But this time the epicenter of the financial crisis will be in Europe.
Outside of Europe, most people simply do not understand how truly nightmarish the European economic crisis really is.
Spain, Italy and Portugal are all heading for an economic depression and Greece is already in one.
The European Central Bank was able to kick the can down the road a little bit by expanding its balance sheet by about a trillion dollars over the last nine months, but the truth is that the underlying problems in Europe just continue to get worse and worse.
It truly is like watching a horrible car wreck happen in slow motion.
The good news is that there is still a little time to get yourself into a better position for the next financial crisis. Don’t leave yourself financially exposed to the next crash.
Sadly, just like back in 2008, most people will never even see this next crisis coming.
So do you have any other red flags to add to the list above? Please feel free to post a comment with your thoughts below….
2012 is shaping up to be a very tough year for the global economy. All over the world there are signs that economic activity is significantly slowing down. Many of these signs are detailed later on in this article. But most people don’t understand what is happening because they don’t put all of the pieces together. If you just look at one or two pieces of data, it may not seem that impressive. But when you examine all of the pieces of evidence that we are on the verge of a devastating global recession all at once, it paints a very frightening picture. Asia is slowing down, Europe is slowing down and there are lots of trouble signs for the U.S. economy. It has gotten to a point where the global debt crisis is almost ready to boil over, and nobody is quite sure what is going to happen next. The last global recession was absolutely nightmarish, and we should all hope that we don’t see another one like that any time soon. Unfortunately, things do not look good at this point.
The following are 22 signs that we are on the verge of a devastating global recession….
#1 On Thursday it was announced that U.S. jobless claims had soared to a six-week high.
#2 Hostess Brands, the maker of Twinkies and Wonder Bread, has filed for bankruptcy protection.
#3 Sears recently announced that somewhere between 100 and 120 Sears and Kmart stores will be closing, and Sears stock has fallen nearly 60% in just the past year.
#4 Over the past 12 months, dozens of prominent retailers have closed stores all over America, and one consulting firm is projecting that there will be more than 5,000 more store closings in 2012.
#5 Richard Bove, an analyst at Rochdale Securities, is projecting that the global financial industry will lose approximately 150,000 jobs over the next 12 to 18 months.
#6 Investors are pulling money out of the stock market at a rapid pace right now. In fact, as an article posted on CNBC recently noted, investors pulled more money out of mutual funds than they put into mutual funds for 9 weeks in a row. Are there some people out there that are quietly repositioning their money for tough times ahead?….
Investors yanked money out of U.S. equity mutual funds for a ninth-consecutive week despite a bullish 2012 outlook from Wall Street and a December rally that’s carried over into the New Year.
#7 There are signs that the Chinese economy is seriously slowing down. The following comes from a recent article in the Guardian….
Growth had slowed to an annual rate of 1.5% in the second and third quarters of 2011, below the “stall speed” that historically led to recession.
#8 The Bank of Japan says that the economic recovery in that country “has paused“.
#9 Manufacturing activity in the euro zone has fallen for five months in a row.
#10 Germany’s economy actually contracted during the 4th quarter of 2011. At this point many economists believe that Germany is already experiencing a recession.
#11 According to a recent article by Bloomberg, it is being projected that the French economy is heading into a recession….
The French economy will shrink this quarter and next, suggesting the nation is in a recession as investment and consumer spending stagnate, national statistics office Insee said.
#12 There are a multitude of statistics that indicate that the UK economy is definitely slowing down.
#13 The credit ratings of Italy, Spain, Portugal, France and Austria all just got downgraded.
#14 It is being reported that the Spanish economy contracted during the 4th quarter of 2011.
#15 Bad loans in Spain recently hit a 17-year high and the unemployment rate is at a 15-year high.
#16 According to a recent article in the Telegraph, the Italian government is forecasting that there will be a recession for the Italian economy in 2012….
The Italian government predicts GDP will contract 0.4pc next year, but many economists fear the figure is optimistic.
“We can say without mincing words that we have already slipped into recession,” said Intesa Sanpaolo analyst Paolo Mameli. “We expect GDP to keep contracting for the next 3-4 quarters.”
#17 Italy’s youth unemployment rate has hit the highest level ever.
#18 The unemployment rate in Greece for those under the age of 24 is now at 39 percent.
#19 Greece is already experiencing a full-blown economic depression. About a third of the country is now living in poverty and extreme medicine shortages are being reported. Things have gotten so bad that entire families are being ripped apart. According to the Daily Mail, hundreds of Greek children are being abandoned because the economy has gotten so bad that their parents simply cannot afford to take care of them anymore. The note that one mother left with her child was absolutely heartbreaking….
One mother, it said, ran away after handing over her two-year-old daughter Natasha.
Four-year-old Anna was found by a teacher clutching a note that read: ‘I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.’
#20 In Greece, large numbers of people are simply giving up on life. Sadly, the number of suicides in Greece has increased by 40 percent in just the past year.
#21 In many European countries, the money supply continues to contract rapidly. The following comes from a recent article in the Telegraph….
Simon Ward from Henderson Global Investors said “narrow” M1 money – which includes cash and overnight deposits, and signals short-term spending plans – shows an alarming split between North and South.
While real M1 deposits are still holding up in the German bloc, the rate of fall over the last six months (annualised) has been 20.7pc in Greece, 16.3pc in Portugal, 11.8pc in Ireland, and 8.1pc in Spain, and 6.7pc in Italy. The pace of decline in Italy has been accelerating, partly due to capital flight. “This rate of contraction is greater than in early 2008 and implies an even deeper recession, both for Italy and the whole periphery,” said Mr Ward.
#22 The major industrialized nations of the world must roll over trillions upon trillions of dollars in debt during 2012. At a time when credit is becoming much tighter, this is going to be quite a challenge. The following list compiled by Bloomberg shows the amount of debt that some large nations must roll over in 2012….
Japan: 3,000 billion
U.S.: 2,783 billion
Italy: 428 billion
France: 367 billion
Germany: 285 billion
Canada: 221 billion
Brazil: 169 billion
U.K.: 165 billion
China: 121 billion
India: 57 billion
Russia: 13 billion
Keep in mind that those numbers do not include any new borrowing. Those are just old debts that must be refinanced.
As I mentioned at the top of this article, things do not look good.
The last thing that we need is another devastating global recession.
As I wrote about yesterday, the U.S. economy is in the midst of a nightmarish long-term decline. The last major global recession helped to significantly accelerate that decline.
So what will happen if this next global recession is worse than the last one?
Sadly, the people that will get hurt the most by another recession will not be the wealthy.
The people that will get hurt the most will be the poor and the middle class.
So what should all of us be doing about this?
We should use the time during this “calm before the storm” to prepare for the hard times that are coming.
As always, let us hope for the best and let us prepare for the worst.
But things certainly do not look promising for the global economy in 2012.
We are steamrolling toward a massive global debt meltdown, and at this point world leaders seem to be all out of solutions. Over the last 30 years or so, the greatest debt bubble in the history of the planet has produced unprecedented prosperity in the western world. But now that debt bubble is starting to burst and the bills are coming due. Many believe that “ground zero” for the coming global debt meltdown will be in Europe. Unlike the U.S. and Japan, the nations of the EU can’t just print more money to cover their debts. Nations such as Greece, Portugal and Italy must repay their debts in euros, and those nations are rapidly getting to the point where their debts are going to overwhelm them. Unfortunately, major banks all over Europe are very highly leveraged and are also very heavily invested in the sovereign debt of nations such as Greece, Portugal and Italy. If even one EU nation defaults it will start tipping over financial dominoes. If more than one EU nation defaults it could cause a cataclysmic wave of bank failures all over Europe.
But Germany and the other more financially stable countries of the EU cannot bail out nations like Greece, Portugal and Italy indefinitely. Pouring money into Greece is like pouring money into a black hole. When you take money from financially stable countries and pour it into hopeless messes, you may stabilize things for a little while, but you also cause the financial condition of the financially stable nations to start deteriorating.
Right now, the yield on 2 year Greek bonds is up to 44%. Basically, the market is screaming that these are horrible investments and that they will almost certainly default.
Greece cannot fire up the printing presses and print more money, so they are now totally dependent on others to bail them out.
Just how desperate have things become in Greece? Just consider the following excerpt from a recent article by Puru Saxena….
In Greece, government debt now represents almost 160% of GDP and the average yield on Greek debt is around 15%. Thus, if Greece’s debt is rolled over without restructuring, its interest costs alone will amount to approximately 24% of GDP. In other words, if debt pardoning does not occur, nearly a quarter of Greece’s economic output will be gobbled up by interest repayments!
Can you imagine?
No nation on earth can afford to pay out nearly a quarter of GDP just on interest on government debt.
So just how did Greece get into this position? Well, it turns out that big U.S. banks such as Goldman Sachs and JPMorgan Chase played a big role. The following is an excerpt from a recent article by Andrew Gavin Marshall….
In the same way that homeowners take out a second mortgage to pay off their credit card debt, Goldman Sachs and JP Morgan Chase and other U.S. banks helped push government debt far into the future through the derivatives market. This was done in Greece, Italy, and likely several other euro-zone countries as well. In several dozen deals in Europe, “banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books.” Because the deals are not listed as loans, they are not listed as debt (liabilities), and so the true debt of Greece and other euro-zone countries was and likely to a large degree remains hidden. Greece effectively mortgaged its airports and highways to the major banks in order to get cash up-front and keep the loans off the books, classifying them as transactions.
All over the world, politicians love to “kick the can down the road”, and big Wall Street banks love to find creative ways to help them do that.
But now Greece is about to collapse, and the people that helped them get into this mess will probably never be held accountable.
If Greece does default, it is going to have dramatic consequences all over Europe. For a chilling look at what could potentially happen when Greece defaults, just check out this article by John Mauldin.
Sadly, Greece is far from the only problem in Europe. Portugal, Ireland and Italy also have debt to GDP ratios that are above 100%.
The biggest potential problem, at least in the near-term, is Italy.
Italy is the fourth largest economy in the EU, and lately the financial problems of the Italian government and Italian banks have been making headlines all over the globe.
Italy is a far, far larger potential problem than Greece is.
The EU can handle bailing out Greece, at least for now.
If Italy gets to the point where it needs large bailouts, that is going to bring down the whole system. The EU simply does not have enough money to perform an extensive financial rescue of Italy.
As you can see from this chart, the exposure that European banks have to Italian debt is absolutely massive. If Italian debt goes bad, it is going to take down a whole bunch of banks.
Not only that, but many believe that the European Central Bank itself is now in some very dangerous territory.
It is estimated that the European Central Bank is now holding somewhere in the neighborhood of 444 billion euros worth of debt from the governments of Greece, Italy, Portugal, Ireland and Spain.
The financial consequences of a default by one or more of those nations could potentially be catastrophic.
According to London-based think tank Open Europe, the European Central Bank is massively overleveraged….
“Should the ECB see its assets fall by just 4.23pc in value . . . its entire capital base would be wiped out.”
That doesn’t sound good.
Surely the European Central Bank would be recapitalized somehow, but this is just another example that shows just how dangerous huge amounts of leverage can be.
As I wrote about in a recent article about the sovereign debt crisis, if the dominoes begin to tumble in Europe it is going to take everybody down.
The big banks in Europe are leveraged to the hilt, and they are massively exposed to government debt.
If you don’t think that this is a problem, just remember what happened back in 2008.
Back then, Lehman Brothers was leveraged 31 to 1. When things turned bad, Lehman was wiped out very rapidly.
Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.
Yes, things could become really nightmarish if the dominoes start to fall.
Already we are seeing huge signs of trouble at major banks all over Europe.
Major European banks UBS, Barclays, Credit Suisse, RBS, and HSBC have all announced layoffs recently. In fact, when you add them all up, the total number of layoffs announced by these banks just this month is over 40,000. Overall, the grand total of layoffs by European banks so far this year is now up to 67,000.
The mood in the financial sector over in Europe is very dark right now. Just consider the following excerpt from a recent Bloomberg article….
“It’s a bloodbath, and I expect things to get worse before they get better,” said Jonathan Evans, chairman of executive- search firm Sammons Associates in London. “I cannot see a lot of those who have lost their jobs getting re-employed. Regardless of how good someone is, no one wants to talk about hiring. Life will be very difficult for two or three years.”
Just like back in 2008 with U.S. banks, we are seeing European banks getting absolutely pummeled right now. A recent article in The Sydney Morning Herald documented some of the carnage….
The 46-member Bloomberg Europe Banks and Financial Services Index has fallen 31 per cent this year. RBS tumbled 49 per cent, Barclays 44 per cent and France’s Societe Generale 48 per cent.
Credit Suisse and UBS both reported a 71 per cent drop in investment-banking earnings in the second quarter. Revenue at Edinburgh-based RBS’s securities unit dropped 35 per cent in the period, while London-based Barclays Capital posted a 27 per cent decline in pretax profit.
Things in Europe continue to get worse and worse and worse.
Do not take your eyes off of Europe. This crisis is just getting started.
Not that there aren’t huge debt problems around the rest of the globe as well.
Japan has a national debt that is now over 200 percent of GDP, and they are really struggling to recover from the recent disasters that devastated that nation.
Moody’s has just downgraded Japanese government debt one notch to Aa3, and more downgrades could be coming. For now Japan is still able to borrow huge piles of money very, very cheaply but if that changes Japan could be wiped out very quickly.
Of course the nation with the biggest debt of all is the United States.
At the moment, the U.S. national debt is sitting at a grand total of $14,649,289,670,347.85.
Fortunately, the U.S. is also able to borrow massive amounts of money very, very cheaply right now. But when that changes it is going to be absolutely cataclysmic for our economy.
Sadly, our politicians continue to act as if this debt binge can go on forever.
According to the Congressional Budget Office, the budget deficit for the federal government will be about 1.28 trillion dollars this year. This will be the third year in a row that we have had a budget deficit of over a trillion dollars.
To put that in perspective, from George Washington to Ronald Reagan the U.S. government racked up a grand total of about one trillion dollars of debt. But this year alone we will go 1.28 trillion dollars more into debt.
At the moment, the U.S. national debt is expanding by about 2 and a half million dollars every single minute. It is hard to put into words how absolutely foolish that is.
As I wrote about yesterday, someone needs to wake up America. Our debt is exploding and our economy is dying.
We haven’t even solved the problems caused by the last financial crisis. The real estate market is still a gigantic mess. Purchases of both new and previously existing homes in the United States continue to fall.
But there will never be a housing recovery until there is a jobs recovery, and our politicians continue to stand by and watch as millions of our jobs are shipped overseas.
Unemployment is rampant, and even many of those that do have jobs are barely able to survive.
Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.
That is not a good trend.
Sadly, it looks like things are not going to get much better any time soon.
Right now, the Congressional Budget Office is projecting that unemployment in the U.S. will remain above 8% until 2014.
That should really scare you, because government numbers are almost always way too optimistic. The folks in the federal government hardly ever project that unemployment will actually go up.
So if they are saying that unemployment will remain above 8 percent until 2014, the truth is that things will probably be worse than that.
We have entered very frightening times. We are on the verge of a massive global debt meltdown, and nobody is sure what is going to happen next.
Let us hope for the best, but let us also prepare for the worst.
It is not just the United States that is headed for an economic collapse. The truth is that the entire world is heading for a massive economic meltdown and the people of earth need to be warned about the coming economic disaster that is going to sweep the globe. The current world financial system is based on debt, and there are alarming signs that the gigantic global debt bubble is getting ready to burst. In addition, global prices for the key resources that the major economies of the planet depend on are rising very rapidly. Despite all of our advanced technology, the truth is that human civilization simply cannot function without oil and food. But now the price of oil and the price of food are both increasing dramatically. So how is the current global economy supposed to keep functioning properly if it soon costs much more to ship products between continents? How are the billions of people that are just barely surviving today supposed to feed themselves if the price of food goes up another 30 or 40 percent? For decades, most of the major economies around the globe have been able to take for granted that massive amounts of cheap oil and massive amounts of cheap food will always be there. So what happens when that paradigm changes?
At last check, the price of U.S. crude was over 104 dollars a barrel and the price of Brent crude was over 115 dollars a barrel. Many analysts fear that if the crisis in Libya escalates or if the chaos in the Middle East spreads that we could see the all-time record of 147 dollars a barrel broken by the end of the year. That would be absolutely disastrous for the global economy.
But it isn’t just the chaos in the Middle East that is driving oil prices. The truth is that oil prices have been moving upwards for months. The recent revolutions in the Middle East have only accelerated the trend.
Let’s just hope that the “day of rage” being called for in Saudi Arabia later this month does not turn into a full-blown revolution like we have seen in other Middle Eastern countries. The Saudis keep a pretty tight grip on their people, but at this point anything is possible. A true revolution in Saudi Arabia would send oil prices into unprecedented territory very quickly.
But even without all of the trouble in the Middle East the world was already heading for an oil crunch. The global demand for oil is rising at a very vigorous pace. For example, last year Chinese demand for oil increased by almost 1 million barrels per day. That is absolutely staggering. The Chinese are now buying more new cars every year than Americans are, and so Chinese demand for oil is only going to continue to increase.
Much could be done to increase the global supply of oil, but so far our politicians and the major oil company executives are sitting on their hands. They seem to like the increasing oil prices.
So for now it looks like oil prices will continue to rise and this is going to result in much higher prices at the gas pump.
Already, ABC News is reporting that regular unleaded gasoline is going for $5.29 a gallon at one gas station in Orlando, Florida.
The U.S. economy in particular is vulnerable to rising oil prices because our entire economic system is designed around cheap gasoline. If the price of gas goes up to 5 or 6 dollars a gallon and it stays there it is going to have a catastrophic effect on the U.S. economy.
Just remember what happened back in 2008. The price of oil hit an all-time high of $147 a barrel and then a few months later the entire financial system had a major meltdown.
Well, as the price of oil rises it is going to create a whole lot of imbalances in the global financial system once again.
This is definitely a situation that we should all be watching.
But it is not just the price of oil that could cause a global economic disaster.
The global price of food could potentially be even more concerning. As you read this, there are about 3 billion people around the globe that live on the equivalent of 2 dollars a day or less. Those people cannot afford for food prices to go up much.
But global food prices are rising. According to the United Nations, the global price of food has risen for 8 consecutive months. Last month, the global price of food set a brand new all-time record high. Many are starting to fear that we could actually be in the early stages of a major global food crisis.
The price of just about every major agricultural commodity has been absolutely soaring during the past year….
*The price of corn has doubled over the last six months.
*The price of wheat has more than doubled over the past year.
*The price of soybeans is up about 50% since last June.
*The price of cotton has more than doubled over the past year.
*The commodity price of orange juice has doubled since 2009.
*The price of sugar is the highest it has been in 30 years.
Unfortunately, the production of food in most countries around the world is very highly dependent on oil, so as oil goes up in price this is going to make the food crisis even worse.
Hold on to your hats folks.
Also, as I have written about previously, the world is facing some very serious problems when it comes to water. Due to the greed of the global elite, there is not nearly enough fresh water to go around. The following are some very disturbing facts about the global water situation….
*Worldwide demand for fresh water tripled during the last century, and is now doubling every 21 years.
*According to USAID, one-third of all humans will face severe or chronic water shortages by the year 2025.
*Of the 60 million people added to the world’s cities every year, the vast majority of them live in impoverished slums and shanty-towns with no sanitation facilities whatsoever.
*It is estimated that 75 percent of India’s surface water is now contaminated by human and agricultural waste.
*Not only that, but according to a UN study on sanitation, far more people in India have access to a mobile phone than to a toilet.
*In northern China, the water table is dropping one meter per year due to overpumping.
These days, one of the trendy things to do is to call water “the oil of the 21st century”, but unfortunately that is not a completely inaccurate statement. Fresh, clean water is something that we all need, but right now world supplies are getting tight.
Our politicians and the global elite could be doing something about this if they really wanted to, but right now they seem perfectly fine with what is happening.
On top of everything else, the sovereign debt crisis is worse than it has ever been before.
All of the major global central banks have been feverishly printing money in an attempt to “paper over” this crisis, but it is not going to work.
Most Americans don’t realize it, but right now the continent of Europe is a financial basket case. Greece and Ireland would have imploded already if they had not been bailed out, and now Portugal is on the verge of collapse. The interest rate on Portugal’s 10-year notes has now been above 7% for about 3 weeks, and most analysts believe that it is only a matter of time before they are forced to accept a bailout.
Sadly, if the entire global economy experiences a slowdown because of rising oil prices, we could see half a dozen European nations default on their debts if they are not bailed out.
For now the Germans seem fine with bailing out the weak sisters that are all around them, but that isn’t going to last forever.
A day or reckoning is coming for Europe, and when it arrives the reverberations are going to be felt all across the face of the earth. The euro is on very shaky ground already, and whether or not it can survive the coming crisis is an open question.
Of course there are some very serious concerns about Asia as well. The national debt of Japan is now well over 200% of GDP and nobody seems to have a solution for their problems. Up to this point, Japan has been able to borrow massive amounts of money at extremely low interest rates from their own people, but that isn’t going to last forever either.
As I have written about so many times before, the biggest debt problem of all is the United States. Barack Obama is projecting that the federal budget deficit for this fiscal year will be a new all-time record 1.65 trillion dollars. It is expected that the total U.S. national debt will surpass the 15 trillion dollar mark by the end of the fiscal year.
Shouldn’t we have some sort of celebration when that happens?
15 trillion dollars is quite an achievement.
Most Americans cannot even conceive of a debt that large. 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 pay off the national debt.
But the United States is not alone. The truth is that wherever you look, there is a sea of red ink covering the planet.
The current global financial system is entirely based on debt. If the total amount of debt does not continually expand, the system will crash. If somehow a way was found to keep this system going perpetually (which is impossible), the size of global debt would keep on increasing infinitely.
Now the World Economic Forum says that we need to grow the total amount of debt by another 100 trillion dollars over the next ten years to “support” the anticipated amount of “economic growth” around the world that they expect to see.
The entire global financial system is a gigantic Ponzi scheme. It is designed to keep everyone enslaved to perpetual debt. If at some point the debt spiral gets interrupted in some significant way, we are going to witness an economic disaster that is going to make what happened in 2008 look like a Sunday picnic.
The more research that one does on the current global economic situation, the more clear it becomes that we are absolutely doomed.
So people of earth you had better get ready.
An economic disaster is coming.