The ‘Greek Debt Deal’ Is Already Starting To Fall Apart

Puzzle Pieces - Public DomainThe “deal that was designed to fail” has already begun to unravel.  The IMF, which was expected to provide a big chunk of the financing, has indicated that it may walk away from the deal unless Greece is granted extensive debt relief.  This is something that the Germans and their allies have resolutely refused to do.  Meanwhile, outrage is pouring in from all over Europe regarding what the Greek government is being forced to do to their own people.  Most of this anger is being directed at the Germans, but the truth is that without German money the Greek banking system and the Greek economy will completely and utterly collapse.  So even though Greek Prime Minister Alex Tsipras admits that this is a deal that he does not believe in, he is attempting to get it pushed through the Greek parliament, and we should know on Wednesday whether he was successful or not.  But even if the Greek parliament approves it, we could still see either the German or the Finnish parliaments reject it.  It seems as though nobody is really happy with this deal, and these negotiations have exposed very deep divisions within Europe.  Could this be the beginning of the end for the eurozone?

The Germans appear to believe that they can push the Greeks out of the eurozone and that everything will be okay somehow.  This is something that I wrote about extensively yesterday, and it turns out that a lot of other prominent voices agree with me.  For example, just consider what Paul Krugman of the New York Times had to say about this.  I am kind of amazed that he finally got something right…

Suppose you consider Tsipras an incompetent twerp. Suppose you dearly want to see Syriza out of power. Suppose, even, that you welcome the prospect of pushing those annoying Greeks out of the euro.

Even if all of that is true, this Eurogroup list of demands is madness. The trending hashtag ThisIsACoup is exactly right. This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.

Greece desperately wants to stay in the euro, and they desperately want money from the rest of Europe to keep coming in.  At this point, they will agree to just about anything to keep from getting booted out of the common currency.  That is why the Germans and their allies had to make the deal so horrible.  They were attempting to find some way to make things so harsh on the Greeks that they would finally choose to walk away.

And to a certain extent it seems to be working.  Even some members of Syriza are publicly declaring that they are going to vote against this package.  The following comes from the Washington Post

Greek Energy Minister Panagiotis Lafazanis, who leads a hard-line leftist faction within Syriza, said in a statement Tuesday that the country’s creditors had “acted like cold-blooded blackmailers and economic assassins.”

Yet he also took indirect aim at Tsipras, calling on the Greek prime minister to reverse himself and tear up the agreement, which he described as a violation of the party’s ideals.

Even if Tsipras can pass the deal in Parliament, as he is expected to do, Lafazanis vowed that the Greek people would “annul it through their unity and struggle.”

Right now, the vote looks like it could be quite close.  Even though Greek Prime Minister Alex Tsipras has publicly admitted that this is a deal that “I do not believe in“, he is really pushing hard to get the votes that he needs.  In fact, according to Reuters he has been actively reaching out to opposition parties to secure votes…

Having staved off a financial meltdown, Tsipras has until Wednesday night to pass measures tougher than those rejected in a referendum days ago. With as many as 30-40 hardliners in his own ranks expected to mutiny, Tsipras will likely need the support of pro-European opposition parties to muster the 151 votes he needs to pass the law in parliament.

But even if this deal gets through parliament, it is highly questionable whether Greece will actually be able to do what is being required of them.  For instance, the 50 billion euro “privatization fund” seems to be something of a pipe dream

Privatisation agency Taiped has put out to tender assets with a nominal value of 7.7 billion euros since 2011, but has cashed in only just over 3.0 billion euros, according to 2014 figures.

On June 26 even the International Monetary Fund (IMF), one of Greece’s creditors, raised eyebrows over the idea of raking in lots of money from privatisations.

It stressed that the sale of public banking assets was supposed to raise tens of billions of euros but it was “highly unlikely that these proceeds will materialise” considering the high levels of nonperforming loans in the banking system.

It said that realistically only 500 million euros of proceeds were likely to materialise each year — at which rate it would take around 100 years to reach the 50 billion euro goal.

For the moment, though, let’s assume that the Greek parliament agrees to these demands and that by some miracle the Greek government can find a way to do everything that is being required of them.

And for the moment, let’s assume that this deal is approved by both the German and Finnish parliaments.

Even if everything else goes right, this deal can still be killed by the IMF

The International Monetary Fund has sent its strongest signal that it may walk away from Greece’s new bailout programme, arguing in a confidential analysis that the country’s debt is skyrocketing and budget surplus targets set by Athens cannot be achieved, reports FT.

In the three-page memo, sent to EU authorities at the weekend and obtained by FT, the IMF said the recent turmoil in the Greek economy would lead debt to peak at close to 200 percent of economic output over the next two years. At the start of the eurozone crisis, Athens’ debt stood at 127 percent.

In order for the IMF to participate in this new Greek bailout, the IMF must deem Greek debt to be sustainable.  And at this point that does not appear to be the case

Under its rules, the IMF is not allowed to participate in a bailout if a country’s debt is deemed unsustainable and there is no prospect of it returning to private bond markets for financing. The IMF has bent its rules to participate in previous Greek bailouts, but the memo suggests it can no longer do so.

But the Germans made it very clear that there would be no bailout unless the IMF was involved.

So what would satisfy the IMF?

The IMF study seems to indicate that massive debt relief for Greece would be required.  The following comes from Reuters

The study, seen by Reuters, said European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension. Or else they must make annual transfers to the Greek budget or accept “deep upfront haircuts” on existing loans.

Needless to say, those kinds of concessions are anathema to the Germans.  There is no way that anything like that could ever get through the German parliament.

But to be honest, the Germans never intended for this deal to be successful anyway.  Just consider what German Finance Minister Wolfgang Schauble told reporters on Tuesday

German Finance Minister Wolfgang Schauble made clear in Brussels on Tuesday that some members of the Berlin government think it would make more sense for Athens to leave the euro zone temporarily rather than take another bailout.

This is what Schauble and his allies have wanted all along.  This entire “deal” was crafted with the intent of creating conditions under which Greece could be forced out of the euro.

By this time tomorrow, we should know what the Greek parliament is going to do.  However, that won’t be the end of the story.  One way or another, the Germans are going to get their wish.  But once they do, I think that they will be quite surprised by the chaos that is unleashed.

Does The IMF Actually Want To Cause A Greek Debt Default?

Question Marks - Public DomainWhen it comes to geopolitics, there are often wheels working within wheels that are working within wheels.  Once in a while we get a peek behind the scenes, but for the most part the machinations of the global elite remain shrouded in mystery most of the time.  And sometimes the global elite appear to be doing things that, on the surface, do not seem to make much sense at all.  What is going on in Europe is a perfect example of this.  If everyone was negotiating honestly, I believe that a Greek debt deal would have been reached by now.  As this endless crisis has stretched on month after month, it has become increasingly apparent that more is going on here than meets the eye.  In particular, the IMF has been standing in the way of a deal time after time.  So what do IMF officials want?  Are they looking for the “unconditional surrender” of this new Greek government in order to send a message to other governments that would potentially defy them?  Or could it be possible that the IMF actually wants a Greek debt default for some other insidious reason?

When the latest Greek proposal was embraced with enthusiasm by EU officials, many hoped that this meant that the crisis would soon be resolved.  But it turns out that there is still one very important player that is not happy, and that is the IMF.  The following comes from the Wall Street Journal

But the IMF is still unhappy with key aspects of Greece’s new economic proposals and German officials were irritated by the speed with which the commission welcomed them, warning that much work needs to be done.

Greece’s plan calls for reducing the deficits in its pension system and government budget by relying heavily on raising taxes and social-security contributions, whereas the IMF wanted bigger spending cuts.

The Washington-based IMF has said Greece’s economy is already too heavily taxed and that too many additional tax increases would hurt economic growth, making it harder to pay down Greece’s debt.

It is still short of everything that should be expected,” IMF Managing Director Christine Lagarde said Monday, suggesting Greece will have to modify its proposals significantly to win the IMF’s backing.

So what would make the IMF “happy”?

Would anything short of total capitulation by the Greek government suffice?

Meanwhile, members of Syriza are expressing a high level of frustration with the compromises that Greek Prime Minister Alexis Tsipras has already agreed to.  At this point, there is even doubt whether the current Greek proposal could get through the Greek parliament.  The following comes from Bloomberg

Greek Prime Minister Alexis Tsipras is facing the first signs of dissent within his own party over his latest plan to end a five-month standoff with creditors.

Some of Syriza’s more radical and populist lawmakers expressed opposition Tuesday to the proposal as the deal’s backers called on members to see the bigger picture.

Personally, I cannot support such an agreement that is contrary to our election promises,” Dimitris Kodelas, a Syriza lawmaker associated with former Maoists, said in an interview. “I do not care about the consequences of my decision.

Despite all of the optimism that we have seen this week, the odds of a Greek debt deal getting pushed through are looking slimmer by the day.

And even if a deal somehow miraculously happens, all it would really mean is that the can has been kicked down the road for a few more months

Assuming Tsipras can force the deal through the Greek parliament, and that key creditors such as the IMF and Germany accept it too, it will do little more than buy time for negotiations on yet another rescue.

The final tranche of cash from the existing bailout should be enough to meet repayments due to the IMF and European Central Bank through the end of August. But the Greek government will then have to find more than two billion euros for both institutions in September and October.

If this week concludes with agreement between Greece and its creditors, it won’t be long before the next chapter in this drama,” said Angus Campbell, senior analyst at FxPro.

And no matter what happens by the end of this month, it is a virtual certainty that the economic depression in Greece will just continue to deepen.

At this point, normal economic activity in the nation has pretty much ground to a halt.  Just consider the following excerpt from a recent Zero Hedge article

“Business-to-business payments have almost been paused,” one Athens businessman says. “They are just rolling over postdated cheques.”

For Greek banks, mortgage loans left unserviced by strategic defaulters have become a particular headache, especially since the Syriza-led government says it is committed to protecting low-income homeowners from foreclosures on their properties

“There’s a real issue of moral hazard . . . Around 70 percent of restructured mortgage loans aren’t being serviced because people think foreclosures will only be applied to big villa owners,” one banker said.

For a long time, I have been warning that the next major economic crisis would begin in Europe before spreading across the entire globe.

Greece has a relatively small economy, but Italy, Spain and France are going down the exact same road that Greece has gone.

And what IMF officials are doing right now is that they are setting a precedent for future debt negotiations that they know are almost certainly coming with other countries in the future.

Sadly, most of my readers (being Americans) don’t really grasp the importance of what is going on over in Europe.  We are watching a horrific train wreck unfold in slow-motion, and what is going to happen over the next few weeks is going to have massive implications for the entire planet.

The Next Great European Financial Crisis Has Begun

European Financial CrisisThe Greek financial system is in the process of totally imploding, and the rest of Europe will soon follow.  Neither the Greeks nor the Germans are willing to give in, and that means that there is very little chance that a debt deal is going to happen by the end of June.  So that means that we will likely see a major Greek debt default and potentially even a Greek exit from the eurozone.  At this point, credit default swaps on Greek debt have risen 456 percent in price since the beginning of this year, and the market has priced in a 75 percent chance that a Greek debt default will happen.  Over the past month, the yield on two year Greek bonds has skyrocketed from 20 percent to more than 30 percent, and the Greek stock market has fallen by a total of 13 percent during the last three trading days alone.  This is what a financial collapse looks like, and if Greece does leave the euro, we are going to see this kind of carnage happen all over Europe.

Officials over in Europe are now openly speaking of the need to prepare for a “state of emergency” now that negotiations have totally collapsed.  At one time, it would have been unthinkable for Greece to leave the euro, but now it appears  that this is precisely what will happen unless a miracle happens…

Greece is heading for a state of emergency and an exit from the euro following the collapse of talks to agree a bailout deal, senior EU officials warned last night.

Europe must be prepared to step in otherwise Greek society would face an unprecedented crisis with power blackouts, medicine shortages and no money to pay for police, they said.

In the past, the Greeks have always buckled under pressure.  But this new Greek government was elected with a mandate to end austerity, and so far they have shown a remarkable amount of resolve.  In order for a debt deal to happen, one side is going to have to blink, and at this point it does not look like it will be the Greeks

The world’s financial markets are facing up to the possibility that Greece could soon become the first country to crash out of Europe’s single currency. Talks between Athens and its eurozone creditors have collapsed in acrimony just days before a final deadline for Greece to unlock the €7.2bn (£5.2bn) in bailout funds it needs to avoid a catastrophic debt default.

The Greek Prime Minister, Alexis Tsipras, accused the creditor powers of hidden “political motives” in their demands that Greece make further cuts to public pension payments in return for the financial aid. “We are shouldering the dignity of our people, as well as the hopes of the people of Europe,” Mr Tsipras said in a defiant statement. “We cannot ignore this responsibility. This is not a matter of ideological stubbornness. This is about democracy.”

As we approach the point of no return, both sides are preparing for the endgame.

In Greece, members of parliament have been studying what happened in Iceland a few years ago.  Many of them believe that a Greek debt default combined with a nationalization of Greek banks and a Greek exit from the euro could set the nation back on the path to prosperity fairly rapidly.  The following comes from the Telegraph

The radical wing of Greece’s Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system, deeming it pointless to continue talks with Europe’s creditor powers.

Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma.

The confidential plans were circulating over the weekend and have the backing of 30 MPs from the Aristeri Platforma or ‘Left Platform’, as well as other hard-line groupings in Syriza’s spectrum. It is understood that the nationalist ANEL party in the ruling coalition is also willing to force a rupture with creditors, if need be.

Meanwhile, in a desperate attempt to get the Greeks to give in at the last moment, Greek’s creditors are preparing to pull out all the stops in order to put as much financial pressure on Greece as possible

Germany’s Suddeutsche Zeitung reported that the creditors are drawing an ultimatum to the Greeks, threatening to cut off Greek access to the European payments system and forcing capital controls on the country as soon as this weekend. The plan would lead to the temporary closure of the banks, followed by a rationing of cash withdrawals.

For a long time, most in the financial world assumed that a debt deal would eventually happen.  But now reality is setting in.  As I mentioned at the top of this article, the cost to insure Greek debt has risen by an astounding 456 percent since the beginning of this year

Given these dramatic stakes, the risk of a Greek default has gone way up. One way to measure that risk is by looking at the skyrocketing price of insurance policies that would pay out if Greek bonds go bust. The cost to insure Greek debt for one year against the risk of default has skyrocketed 456% since the start of the 2015, according to FactSet data.

These insurance-like contracts, known as credit default swaps, imply there is a 75% to 80% probability of Greece defaulting on its debt, according to Jigar Patel, a credit strategist at Barclays.

The probability of a Greek default soars to a whopping 95% for five-year CDS, Patel said.

“Default is looking more and more likely,” Peter Boockvar, chief market analyst at The Lindsey Group, wrote in a note to clients on Tuesday.

And in recent days, we have also seen Greek stocks and Greek bonds totally crash.  The following comes from CNN

The Greek stock market has plummeted 13% over the past three trading days, including a 3% drop on Tuesday alone.

In the bond market, the yield on Greek two-year debt has skyrocketed to 30.2%. A month ago, the yield was only 20%. Yields rise as bond prices fall.

Of course if there is a Greek debt default and Greece does leave the euro, it won’t just be Greece that pays the price.

As I have written about previously, there are tens of trillions of dollars in derivatives that are directly tied to currency exchange rates and 505 trillion dollars in derivatives that are directly tied to interest rates.  A “Grexit” would cause the euro to drop like a rock and interest rates all over the continent would start to go crazy.  The financial chaos that a “Grexit” would cause should not be underestimated.

And there are signs that some of Europe’s biggest banks are already on the verge of collapse.  For example, just consider what has been going on at the biggest bank in Germany.  Both of the co-CEOs at Deutsche Bank recently resigned, and it is increasingly looking as if it could soon become Europe’s version of Lehman Brothers.  The following summary of the recent troubles at Deutsche Bank comes from an article that was posted on NotQuant

Here’s a re-cap of what’s happened at Deutsche Bank over the past 15 months:

  • In April of 2014,  Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support it’s capital structure.  Why?
  • 1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock – at up to a 30% discount.   Why again?  It was a move which raised eyebrows across the financial media.  The calm outward image of Deutsche Bank did not seem to reflect their rushed efforts to raise liquidity.  Something was decidedly rotten behind the curtain.
  • Fast forwarding to March of this year:   Deutsche Bank fails the banking industry’s “stress tests” and is given a stern warning to shore up it’s capital structure.
  • In April,  Deutsche Bank confirms it’s agreement to a joint settlement with the US and UK regarding the manipulation of LIBOR.   The bank is saddled with a massive $2.1 billion payment to the DOJ.  (Still, a small fraction of their winnings from the crime). 
  • In May,  one of Deutsche Bank’s CEOs, Anshu Jain is given an enormous amount of new authority by the board of directors.  We guess that this is a “crisis move”.  In times of crisis the power of the executive is often increased.
  • June 5:  Greece misses it’s payment to the IMF.   The risk of default across all of it’s debt is now considered acute.   This has massive implications for Deutsche Bank.
  • June 6/7:  (A Saturday/Sunday, and immediately following Greece’s missed payment to the IMF) Deutsche Bank’s two CEO’s announce their surprise departure from the company.  (Just one month after Jain is given his new expanded powers).   Anshu Jain will step down first at the end of June.  Jürgen Fitschen will step down next May.
  • June 9: S&P lowers the rating of Deutsche Bank to BBB+  Just three notches above “junk”.  (Incidentally,  BBB+ is even lower than Lehman’s downgrade – which preceded it’s collapse by just 3 months)

And that’s where we are now.  How bad is it?  We don’t know because we won’t be permitted to know.  But these are not the moves of a healthy company.

For a very long time, I have been warning that a major financial crisis was coming to Europe, and for a very long time the authorities in Europe have been able to successfully kick the can down the road.

But now it looks like we have reached the end of the road, and a day of reckoning is finally here.

Nobody is quite sure what is going to happen next, but almost everyone agrees that it isn’t going to be pretty.

So you better buckle up, because it looks like we are all in for a wild ride as we enter the second half of this year.

Greece Says That It Will Default On June 5th, And Moody’s Warns Of A ‘Deposit Freeze’

Greece Euro - Public DomainThe Greek government says that a “moment of truth” is coming on June 5th.  Either their lenders agree to give them more money by that date, or Greece will default on a 300 million euro loan payment to the IMF.  Of course it won’t technically be a “default” according to IMF rules for another 30 days after that, but without a doubt news that Greece cannot pay will send shockwaves throughout the financial world.  At that point, those holding Greek bonds will start to panic as they realize that they might not get paid as well.  All over Europe, there are major banks that are holding large amounts of Greek debt and derivatives that are related to the performance of Greek debt.  If something is not done to avert disaster at the last moment, a default by Greece could be the spark that sets off a major European financial crisis this summer.

As I discussed the other day, neither the EU nor the IMF have given any money to Greece since August 2014.  So now the Greek government is just about out of money, and without any new loans they will not be able to pay back the old loans that are coming due.  In fact, things are so bad at this point that the Greek government is openly warning that it will default on June 5th

Greece cannot make an upcoming payment to the International Monetary Fund on June 5 unless foreign lenders disburse more aid, a senior ruling party lawmaker said on Wednesday, the latest warning from Athens it is on the verge of default.

Prime Minister Alexis Tsipras’s leftist government says it hopes to reach a cash-for-reforms deal in days, although European Union and IMF lenders are more pessimistic and say talks are moving too slowly for that.

Of course this is all part of a very high stakes chess game.  The Greeks believe that the Germans will back down when faced with the prospect of a full blown European financial crisis, and the Germans believe that the Greeks will eventually be feeling so much pain that they will be forced to give in to their demands.

So with each day we get closer and closer to the edge, and the Greeks are trying to do their best to let everyone know that they are not bluffing.  Just today, a spokesperson for the Greek government came out and declared that unless there is a deal by June 5th, the IMF “won’t get any money”

Greek officials now point to a race against the clock to clinch a deal before payments totaling about 1.5 billion euros ($1.7 billion) to the IMF come due next month, starting with a 300 million euro payment on June 5.

“Now is the moment that negotiations are coming to a head. Now is the moment of truth, on June 5,” Nikos Filis, spokesman for the ruling Syriza party’s lawmakers, told ANT1 television.

If there is no deal by then that will address the current funding problem, they won’t get any money,” he said.

But the Germans know that the Greeks desperately need more money and can’t last much longer.  The Greek banking system is so close to collapse that Moody’s just downgraded it again and warned that “there is a high likelihood of an imposition of capital controls and a deposit freeze” in the months ahead…

The outlook for the Greek banking system is negative, primarily reflecting the acute deterioration in Greek banks’ funding and liquidity, says Moody’s Investors Service in a new report published recently. These pressures are unlikely to ease over the next 12-18 months and there is a high likelihood of an imposition of capital controls and a deposit freeze.

The new report: “Banking System Outlook: Greece”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release.

Moody’s notes that significant deposit outflows of more than €30 billion since December 2014 have increased banks’ dependence on central bank funding. In our view, the banks are likely to remain highly dependent on central bank funding, as ongoing uncertainty regarding Greece’s support programme continues to compromise depositors’ confidence.

Unfortunately, when things really start going crazy in Greece people might be faced with much more than just frozen bank accounts.  As I wrote about just a few days ago, there is a very strong possibility that we could actually see Cyprus-style wealth confiscation implemented in Greece when the banks collapse.

In fact, the Greek government is already talking about the possibility of a special tax on banking transactions

Athens is promoting the idea of a special levy on banking transactions at a rate of 0.1-0.2 percent, while the government’s proposal for a two-tier value-added tax – depending on whether the payment is in cash or by card – has met with strong opposition from the country’s creditors.

A senior government official told Kathimerini that among the proposals discussed with the eurozone and the International Monetary Fund is the imposition of a levy on bank transactions, whose exact rate will depend on the exemptions that would apply. The aim is to collect 300-600 million euros on a yearly basis.

Fee won’t include ATM withdrawals, transactions up to EU500; in this case Greek govt projects EU300m-EU600m annual revenue from measure.

Sadly, most people living in North America (which is most of my audience) does not really care much about what happens on the other side of the world.

But they should care.

If Greece defaults and the Greek banking system collapses, stocks and bonds will crash all over Europe.  Many believe that such a crash can be “contained” to just Europe, but that is really just wishful thinking.

In addition, the euro would plummet dramatically, which would cause substantial financial problems all over the planet.  As I recently explained, the euro is headed to parity with the U.S. dollar and then it is going to go below parity.  Before it is all said and done, the euro is going to all-time lows.

Of course the U.S. dollar is eventually going to totally collapse as well, but that comes later and that is a story for another day.

According to the Bank for International Settlements, 74 trillion dollars in derivatives are directly tied to the value of the euro, the value of the U.S. dollar and the value of other global currencies.

So if you believe that what is happening in Greece cannot have massive ramifications for the entire global financial system, you are dead wrong.

What is happening in Greece is exceedingly important, and it is time for all of us to start paying attention.

Huge Trouble Is Percolating Just Under The Surface Of The Global Economy

World On Fire - Public DomainDid you know that the number of publicly traded companies declaring bankruptcy has reached a five year high?  And did you know that Chinese exports are absolutely collapsing and that Chinese economic growth in 2014 was the weakest in over 20 years?  Even though things may seem to be okay on the surface for the global economy at the moment, that does not mean that big trouble is not percolating just under the surface.  On Wednesday, investors cheered as stocks soared to new highs, but almost all of the economic news coming in from around the planet has been bad.  The credit rating on Greek debt has been slashed again, global economic trade is really slowing down, and many of the exact same financial patterns that we saw just before the crash of 2008 are repeating once again.  All of this reminds me of the months leading up to the implosion of Lehman Brothers.  Most people were feeling really good about things, but huge trouble was brewing just underneath the surface.  Finally, one day we learned that Lehman Brothers had “suddenly” collapsed, and then all hell broke loose.

If the economy is actually “getting better” like we are being told by the establishment media, then why are so many big companies declaring bankruptcy?  According to CNBC, the number of publicly traded companies declaring bankruptcy has hit a five year high…

The number of bankruptcies among publicly traded U.S. companies has climbed to the highest first-quarter level for five years, according to a Reuters analysis of data from research firm bankruptcompanynews.com.

Plunging prices of crude oil and other commodities is one of the major reasons for the increased filings, and bankruptcy experts said a more aggressive stance by lenders may also be hurting some companies.

It is interesting to note that the price of oil is being named as one of the primary reasons why this is happening.

In an article entitled “Anyone That Believes That Collapsing Oil Prices Are Good For The Economy Is Crazy“, I warned about this.  If the price of oil does not bounce back in a huge way, we are going to see a lot more companies go bankrupt, a lot more people are going to lose their jobs, and a lot more corporate debt is going to go bad.

And of course this oil crash has not just hurt the United States.  All over the world, economic activity is being curtailed because of what has happened to the price of oil…

In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club.

Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets.

If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.

But it isn’t just oil.  We appear to be moving into a time when things are slowing down all over the place.

In a recent article, Zero Hedge summarized some of the bad economic news that has come in just this week…

Mortgage Apps tumble, Empire Fed slumps, and now Industrial Production plunges… Against expectations of a 0.3% drop MoM, US Factory Output was twice as bad at -0.6% – the worst since August 2012 (and lamost worst since June 2009). This is the 4th miss in a row.

If we are indeed heading into another economic downturn, that is really bad news, because at the moment we are in far worse shape than we were just prior to the last recession.

To help illustrate this, I want to share with you a couple of charts.

This first chart comes from the Federal Reserve Bank of St. Louis, and it shows that after you adjust for inflation, median income for the middle class is the lowest that it has been in decades

Median Income St. Louis Fed

This next chart shows that median net worth for the middle class is also the lowest that it has been in decades after you adjust for inflation…

Median Net Worth St. Louis Fed

The middle class is being systematically destroyed.  For much more on this, please see this recent article that I published.  And now we are on the verge of another major economic slowdown.  That is not what the middle class needs at all.

We are also getting some very disturbing economic news out of China.

In 2014, economic growth in China was the weakest in more than 20 years, and Chinese export numbers are absolutely collapsing

China’s monthly trade data shows exports fell in March from a year ago by 14.6% in yuan terms, compared to expectations for a rise of more than 8%.

Imports meanwhile fell 12.3% in yuan terms compared to forecasts for a fall of more than 11%.

This is a clear sign that global economic activity is slowing down in a big way.

In addition, Chinese home prices are now falling at a faster pace then U.S. home prices fell during the subprime mortgage meltdown

It appeared as though things went from bad to worse nearly overnight; China’s National Bureau of Statistics said that contrary to hopes that there would be a modest rebound, the average new home price in China fell at the fastest pace on record in February, from the previous year.

Reuters reported that average new home prices in China’s 70 major cities fell 5.7 percent, year to year, in February – marking the sixth consecutive drop after January’s decline of 5.1 percent.

Things continue to get worse in Europe as well.

This week we learned that the credit rating for Greek government debt has been slashed once again

Standard & Poor’s has just cut Greece’s credit rating to “CCC+” from “B-” with a negative outlook.

S&P said it expected Greece’s debt to be “unsustainable.” It cited the potential for dissolving liquidity in the government, banks and economy.

And according to the Financial Times, we could actually be on the verge of witnessing a Greek debt default…

Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April, according to people briefed on the radical leftist government’s thinking.

The government, which is rapidly running out of funds to pay public sector salaries and state pensions, has decided to withhold €2.5bn of payments due to the International Monetary Fund in May and June if no agreement is struck, they said.

So I hope that those that are euphoric about the performance of their stock portfolios are taking their profits while they still can.

Huge trouble is percolating just under the surface of the global economy, and it won’t be too long before the financial markets start feeling the pain.

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