When 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.
All over the planet, large banks are massively overexposed to derivatives contracts. Interest rate derivatives account for the biggest chunk of these derivatives contracts. According to the Bank for International Settlements, the notional value of all interest rate derivatives contracts outstanding around the globe is a staggering 505 trillion dollars. Considering the fact that the U.S. national debt is only 18 trillion dollars, that is an amount of money that is almost incomprehensible. When this derivatives bubble finally bursts, there won’t be enough money in the entire world to bail everyone out. The key to making sure that all of these interest rate bets do not start going bad is for interest rates to remain stable. That is why what is going on in Greece right now is so important. The Greek government has announced that it will default on a loan payment that it owes to the IMF on June 5th. If that default does indeed happen, Greek bond yields will soar into the stratosphere as panicked investors flee for the exits. But it won’t just be Greece. If Greece defaults despite years of intervention by the EU and the IMF, that will be a clear signal to the financial world that no nation in Europe is truly safe. Bond yields will start spiking in Italy, Spain, Portugal, Ireland and all over the rest of the continent. By the end of it, we could be faced with the greatest interest rate derivatives crisis that any of us have ever seen.
The number one thing that bond investors want is to get their money back. If a nation like Greece is actually allowed to default after so much time and so much effort has been expended to prop them up, that is really going to spook those that invest in bonds.
At this point, Greece has not gotten any new cash from the EU or the IMF since last August. The Greek government is essentially flat broke at this point, and once again over the weekend a Greek government official warned that the loan payment that is scheduled to be made to the IMF on June 5th simply will not happen…
Greece cannot make debt repayments to the International Monetary Fund next month unless it achieves a deal with creditors, its Interior Minister said on Sunday, the most explicit remarks yet from Athens about the likelihood of default if talks fail.
Shut out of bond markets and with bailout aid locked, cash-strapped Athens has been scraping state coffers to meet debt obligations and to pay wages and pensions. With its future as a member of the 19-nation euro zone potentially at stake, a second government minister accused its international lenders of subjecting it to slow and calculated torture.
After four months of talks with its eurozone partners and the IMF, the leftist-led government is still scrambling for a deal that could release up to 7.2 billion euros ($7.9 billion) in aid to avert bankruptcy.
And it isn’t just the payment on June 5th that won’t happen. There are three other huge payments due later in June, and without a deal the Greek government will not be making any of those payments either.
It isn’t that Greece is holding back any money. As the Greek interior minister recently explained during a television interview, the money for the payments just isn’t there…
“The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega.
This crisis can still be avoided if a deal is reached. But after months of wrangling, things are not looking promising at the moment. The following comes from CNBC…
People who have spoken to Mr Tsipras say he is in dour mood and willing to acknowledge the serious risk of an accident in coming weeks.
“The negotiations are going badly,” said one official in contact with the prime minister. “Germany is playing hard. Even Merkel isn’t as open to helping as before.”
And even if a deal is reached, various national parliaments around Europe are going to have to give it their approval. According to Business Insider, that may also be difficult…
The finance ministers that make up the Eurogroup will have to get approval from their own national parliaments for any deal, and politicians in the rest of Europe seem less inclined than ever to be lenient.
So what happens if there is no deal by June 5th?
Well, Greece will default and the fun will begin.
In the end, Greece may be forced out of the eurozone entirely and would have to go back to using the drachma. At this point, even Greek government officials are warning that such a development would be “catastrophic” for Greece…
One possible alternative if talks do not progress is that Greece would leave the common currency and return to the drachma. This would be “catastrophic”, Mr Varoufakis warned, and not just for Greece itself.
“It would be a disaster for everyone involved, it would be a disaster primarily for the Greek social economy, but it would also be the beginning of the end for the common currency project in Europe,” he said.
“Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the eurozone is not indivisible,” he added.
But the bigger story is what it would mean for the rest of Europe.
If Greece is allowed to fail, it would tell bond investors that their money is not truly safe anywhere in Europe and bond yields would start spiking like crazy. The 505 trillion dollar interest rate derivatives scam is based on the assumption that interest rates will remain fairly stable, and so if interest rates begin flying around all over the place that could rapidly create some gigantic problems in the financial world.
In addition, a Greek default would send the value of the euro absolutely plummeting. As I have warned so many times before, the euro is headed for parity with the U.S. dollar, and then it is going to go below parity. And since there are 75 trillion dollars of derivatives that are directly tied to the value of the U.S. dollar, the euro and other major global currencies, that could also create a crisis of unprecedented proportions.
Over the past six years I have written more than 2,000 articles, I have authored two books and I have produced two DVDs. One of the things that I have really tried to get across to people is that our financial system has been transformed into the largest casino in the history of the world. Big banks all over the planet have become exceedingly reckless, and it is only a matter of time until all of this gambling backfires on them in a massive way.
It isn’t going to take much to topple the current financial order. It could be a Greek debt default in June or it may be something else. But when it does collapse, it is going to usher in the greatest economic crisis that any of us have ever seen.
So keep watching Europe.
Things are about to get extremely interesting, and if I am right, this is the start of something big.
The 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.
Do you remember what happened when Cyprus decided to defy the EU? In the end, the entire banking system of the nation collapsed and money was confiscated from private bank accounts. Well, the nation of Greece is now approaching a similar endgame. At this point, the Greek government has not received any money from the EU or the IMF since August 2014. As you can imagine, that means that Greek government accounts are just about bone dry. The new Greek government continues to insist that it will never “violate its anti-austerity mandate”, but the screws are tightening. Right now the unemployment rate in Greece is over 25 percent and the banking system is on the verge of collapse. It isn’t going to take much to set off a panic, and when it does happen there are already rumors that the EU plans to confiscate money from private bank accounts just like they did in Cyprus.
Throughout this entire multi-year crisis, things have never been this dire for the Greek government. In fact, Greece came thisclose to defaulting on a loan payment to the IMF back on May 12th. And with essentially no money remaining at all, the Greek government is supposed to make several large payments in the weeks ahead…
Athens barely made its latest payment (May 12) to the International Monetary Fund (IMF), and it managed to do so only when the government discovered that it could use a reserve account it wasn’t aware of, according to the Greek media.
Kathimerini, a Greek daily newspaper, reports that Prime Minister Alexis Tsipras wrote to the IMF’s Christine Lagarde warning that Greece would not be able to make that May payment, worth €762 million ($871 million, £554.2 million).
Pension and civil-servant pay packets are due at the end of the month, and based on this news Athens may struggle to pay them. Even if it does manage that, on June 5 the country owes another €305 million to the IMF.
In the two weeks following June 5 there are another three payments, bringing the June total to the IMF to over €1.5 billion.
The Germans and the other financial hawks in the EU are counting on these looming payment deadlines to force Greece into a deal.
Meanwhile, Greek banks also find themselves in very hot water. Many of them are almost totally out of collateral, and without outside intervention some of them could start collapsing within weeks. The following comes from Bloomberg…
Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors.
As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more and more emergency liquidity every week. In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say.
“The point where collateral is exhausted is likely to be near,” JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients May 15. “Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June.”
If no agreement is reached, by this time next month Greece could be plunging into a Cyprus-style crisis or worse.
And if that does happen, there are already rumblings that a “Cyprus-style solution” will be imposed. Just consider what James Turk recently told King World News…
The troika of the EU, ECB and IMF have not yet pulled the plug on the Greek banks, but the following quote in the Financial Times from this weekend should be a warning to anyone who still has money on deposit in that country: “The idea of a “Cyprus-like” presentation to Greek authorities has gained traction among some eurozone finance ministers, according to one official involved in the talks.”
The ECB is up to its eyeballs swimming in unpayable Greek debt that it holds. The ECB is not going to take a loss on this Greek paper on its books. Because Greece does not have the financial capacity to repay what is now about €112 billion of credit exposure to Greece on the ECB’s books, the ECB has only two alternatives.
It can push the €112 billion of Greek debt it holds to the national central banks of the Eurozone and on to the backs of the taxpayers in those countries, which it politically untenable. Or it can confiscate depositor money in Greek banks, like it did in Cyprus and as the FT has now reported.
Needless to say, such a move would be likely to set off financial panic all over Europe.
Could we actually see such a thing?
Well, let’s recall that back in April we already saw the Greek government forcibly grab “idle” cash from the bank accounts of regional governments and pension funds. The following is from a Bloomberg report about that event…
Running out of other options, Greek Prime Minister Alexis Tsipras ordered local governments and central government entities to move their cash balances to the central bank for investment in short-term state debt.
The decree to confiscate reserves held in commercial banks and transfer them to the Bank of Greece could raise as much as 2 billion euros ($2.15 billion), according to two people familiar with the decision. The money is needed to pay salaries and pensions at the end of the month, the people said.
“It is a politically and institutionally unacceptable decision,” Giorgos Patoulis, mayor of the city of Marousi and president of the Central Union of Municipalities and Communities of Greece, said in a statement on Monday.“No government to date has dared to touch the money of municipalities.”
Grabbing cash from the bank accounts of private citizens is just one step farther.
And what happened in Cyprus just a couple of years ago is still fresh in the minds of most Greeks. That is why so many of them have been pulling money out of the banks in recent weeks. The following comes from Wolf Richter…
Greeks remember very well what happened in Cyprus in 2013, when local banks were given a big thumbs-up from Europe to help themselves to their depositors’ accounts. Cyprus and Greece are very closely tied, and many Greeks consider the island a “sister-nation.”
What little trust remained in banks in Greece died that day. People have been nervously looking for signs something similar may happen again in their home country. And they resolved to act at the first sign of danger: banks cannot confiscate money you have under your mattress. Cash can be hidden away.
Let’s certainly hope that what happened in Cyprus does not happen in Greece.
But right now, both sides are counting on the other side to fold.
The Germans believe that at some point the economic and financial pain will become so immense that it will force the new Greek government to give in to their demands.
The Greeks believe that the threat of a full blown European financial crisis will cause the Germans to back down at the last moment.
So what if they are both wrong?
What if both sides are fully prepared to stand their ground and take us over the cliff and into disaster?
For a long time I have been warning that a great financial crisis is coming to Europe.
This could be the spark that sets it off.
According to the Wall Street Journal, Greece staying in the eurozone is no longer “the base case” for European officials, and one even told the Journal that “literally nothing has been achieved” in negotiations with the new Greek government since the Greek election almost three months ago. In other words, you can take all of that stuff you heard about how the Greek crisis was fixed and throw it out the window. Over the next few months, a big chunk of Greek government bonds held by the IMF and the European Central Bank will mature. Unless negotiations produce a load of new cash for Greece, there will be a default, and right now there is very little optimism that we will see an agreement any time soon. In fact, as I wrote about the other day, behind the scenes banks all over Europe are quietly preparing for a Grexit. European news sources are reporting that the Greek banking system is on the verge of collapse, and over the past couple of weeks Greek bond yields have shot through the roof. Most of the things that we would expect to see in the lead up to a Greek exit from the eurozone are happening, and now we will wait and see if the Greeks actually have the guts to pull the trigger when push comes to shove.
At this point, many top European officials are quietly admitting that it is more likely than not that Greece will leave the euro by the end of this year. The following is an excerpt from the Wall Street Journal article that I mentioned above…
It’s still possible that Greece can remain in the eurozone—though that is no longer the base case for many policy makers. At the very least, most fear the situation is going to get much, worse before it gets any better. No one now expects a deal to unlock Greek bailout funding at this week’s meeting of eurozone finance ministers in Riga—originally set as the final deadline for a deal. The new final, final deadline is now said to be a summit on May 11.
But among European politicians and officials gathered in Washington DC last week for the International Monetary Fund’s Spring Meetings, there was little optimism that a deal will be agreed by then.
The two sides are no closer to an agreement than when the Greek government took office almost three months ago. “Nothing, literally nothing has been achieved,” says an official.
Literally nothing has been achieved?
That is not what the mainstream media has been telling us over the past few months.
They kept telling us that agreements were in place and that everything had been fixed.
I guess not.
The Germans believe that the risks of a “Grexit” have already been priced in by the financial markets and that a Greek exit from the euro can be “managed” without any serious risk of contagion.
So they are playing hardball with the Greeks.
On the other hand, the Greeks believe that the risk of contagion will eventually force the Germans to back down…
Greece’s Finance Minister Yanis Varoufakis said in an interview broadcast on Sunday that if Greece were to leave the euro zone, there would be an inevitable contagion effect.
“Anyone who toys with the idea of cutting off bits of the euro zone hoping the rest will survive is playing with fire,” he told La Sexta, a Spanish TV channel, in an interview recorded 10 days ago.
“Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of euro zone to carry on.”
In this case, I believe that the Greeks are right about what a Grexit would mean for the rest of Europe and the Germans are wrong.
Once one country leaves the euro, that tells the entire world that membership in the euro is only temporary. Immediately everyone would be looking for the “next Greece”, and there are lots of candidates – Italy, Spain, Portugal, etc.
There is a very good chance that a Grexit would set off a full-blown European financial panic. And once a financial panic starts, it is very hard to stop. The danger that a Grexit poses is so obvious that even the Obama administration can see it…
A Greek exit from the euro zone would carry significant risks for the global economy and no one should be under the impression that financial markets have fully priced in such an event, the chairman of the White House Council of Economic Advisers said.
The comments by Jason Furman in an interview with Reuters in Berlin are among the strongest by a senior U.S. official and are at odds with those of German Finance Minister Wolfgang Schaeuble, who told an audience in New York last week that contagion risks from a so-called “Grexit” were limited.
“A Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right,” Furman said.
Meanwhile things continue to get even worse inside Greece. If you have any money in Greek banks, you need to move it immediately. The following comes from Zero Hedge…
Things for insolvent, cashless Greece are – not unexpectedly – getting worse by the day.
Following yesterday’s shocking decree that the government will confiscate local government reserves and “sweep” them into the central bank to provide the country more funds as it approaches another month of heavy IMF repayments, earlier today Bloomberg reported that the ECB would add insult to injury and may increase haircuts for Greek banks accessing Emergency Liquidity Assistance, thus “reining in” the very critical emergency liquidity which has kept Greek banks operating in recent weeks as the bank run sweeping the domestic banking sector has gotten worse by the day.
And many Greeks don’t even have any money to put in the banks because they haven’t been paid in months…
Meanwhile, the reality is that for a majority of the Greek population, none of this really matters because as Greek Ta Nea reports, citing Labor Ministry data, about one million Greek workers see delays of up to 5 months in salaries payment by their employers. The Greek media adds that about 45% of salaried workers in Greece make no more than €751 per month, the country’s old minimum wage; which also includes part-time workers.
No matter what European officials try, things just continue to unravel in Greece and in much of the rest of Europe.
We stand on the verge of the next great global economic crisis. The lessons that we should have learned from the last crisis were never learned, and instead global debt levels have exploded much higher since then. In fact, according to Doug Casey, the total amount of global debt is 57 trillion dollars higher than it was just prior to the last crisis…
In 2008, excess debt pushed the global financial system to the brink. It was a golden opportunity for governments and banks to reform the system. But rather than deal with the problem, they papered over it by issuing more debt. Worldwide debt levels are now $57 trillion higher than in 2008.
The eurozone as it is constituted today is doomed.
That doesn’t mean that the Europeans are going to give up on social, economic and political integration. It just means that we are entering a time of transition that is going to be extremely messy.
And once the European financial system begins to fall apart, the rest of the world will quickly follow.
Broke nations are bailing out other broke nations with borrowed money. Round and round we go – where we stop nobody knows. As of April, 41 different countries had active financial “arrangements” with the IMF. Sometimes they are called “bailouts” and sometimes they are called other things, but in every single case they involve loans. And most of the time, these loans come with very stringent conditions. It is a form of “global governance” that most people don’t even know about. For decades, the IMF has been able to use money as a way to force developing nations to do what it wants them to do. But up until fairly recently, this had mostly only been done with poor nations. But now an increasing number of wealthy nations are turning to the IMF for help. We have already seen Greece, Portugal, Ireland and Cyprus receive bailouts which were partly funded by the IMF, Spain has received a bailout for its banking sector, and as I noted yesterday, it is being projected that Italy will need a major bailout within six months. How long can this go on before the entire system collapses?
Well, that would depend on how much money the lender has.
And so where does the IMF get their money?
The IMF gets their money from a bunch of nations that are absolutely drowning in debt themselves.
The IMF is funded by “wealthy” nations that dominate the global economy. The following is how Wikipedia describes the IMF’s quota system…
The IMF’s quota system was created to raise funds for loans. Each IMF member country is assigned a quota, or contribution, that reflects the country’s relative size in the global economy. Each member’s quota also determines its relative voting power. Thus, financial contributions from member governments are linked to voting power in the organization.
These are the five largest contributors to IMF funding…
United States – 16.75%
Japan – 6.23%
Germany – 5.81%
France – 4.29%
UK – 4.29%
But those countries are in trouble themselves. The U.S. has a debt to GDP ratio of over 100%. Japan has a debt to GDP ratio of over 200%.
The truth is that these countries are funding the IMF with borrowed money.
So what happens when the contributors run out of money and can’t contribute anymore?
All over the globe, an increasing number of countries are reaching out to the IMF for help. For example, on Thursday we learned that Pakistan is getting a new bailout from the IMF…
Pakistan and the International Monetary Fund have reached an initial agreement on a bailout of at least $5.3 billion.
Pakistani Finance Minister Muhammad Ishaq Dar and IMF mission chief Jeffrey Franks announced the agreement at a press conference Thursday.
And the new government in Egypt is hoping that the revolution that just occurred will not stop the flow of IMF funds…
In recent months, a handful of neighboring countries such as Qatar have been keeping Egypt’s economy afloat by loaning the country’s central bank cash. That has bought Morsi government time to delay implementing the politically-sensitive measures the IMF has sought as a precondition before it gives Cairo a $4.8 billion credit line. In particular, the IMF had said that Egypt must raise taxes and begin phasing out fuel subsidies.
It’s not the only cash at stake. Other international donors have vowed another $9.7 billion for the country once the IMF program is in place. Roughly $1.55 billion in bilateral aid from Washington could also be held up: under U.S. law, the administration can’t loan money to countries where the military is involved in an unconstitutional change in government.
But what often happens with these bailouts is that the “conditions” that are imposed prove extremely difficult to meet. For example, Greece has not implemented all of the “reforms” that they were ordered to implement, and so the flow of future funds may be threatened…
As Greece looks set to miss a key reform deadline set by international lenders, which could jeopardize further financial aid, a Greek government minister said it wasn’t Greece’s fault that it couldn’t live up to the demands of a flawed bailout program.
“There are failures [by Greece],but you assume that the program that has been effectively imposed on us is perfect, which is far from the case,” Nikos Dendias, minister of Public Order and Citizen Protection, told CNBC on Thursday.
His comments come after Greek finance ministry officials said on Wednesday that Greece would not meet targets on reforming its public sector by the deadline set by international lenders, putting further financial aid in jeopardy.
Once a nation gets hooked on bailout money from the IMF or from other international sources, it can be very hard to get off of it. But that is what these globalist organizations like – they want to be able to use money as a form of control.
As we saw with Greece, sometimes a nation will need bailout after bailout. And it appears that is also going to be the case with Portugal. The Portuguese government is on the verge of collapsing and their financial situation is being described as “very fragile”…
Portugal had been held up as an example of a bailout country doing all the right things to get its economy back in shape. That reputation is now harder to sustain and even before this latest crisis, the International Monetary Fund reported last month that Lisbon’s debt position was “very fragile”.
Coming soon after the near-collapse of the Greek government, which has been given until Monday to show it can meet the demands of its own EU-IMF bailout, the euro zone may be on the brink of falling back into full-on crisis.
Right now, Portuguese bond yields are absolutely soaring and the Portuguese economy is rapidly heading into depression.
Portugal is going to desperately need the assistance of the IMF.
But what happens when the nations that primarily fund the IMF start failing themselves?
The U.S. is a complete and total financial disaster and so is Japan. Much of Europe is already experiencing a full-blown economic depression and even China is showing signs of trouble.
So if the “wealthy” nations fail, who is going to be there to help the “poor” nations?
Over the past couple of weeks, George Soros, the IMF and the World Bank have all issued incredibly chilling warnings about the possibility of an impending economic collapse. Considering the power and the influence that Soros, the IMF and the World Bank all have over the global financial system, this is very alarming. So are they purposely trying to scare the living daylights out of us? Soros is even warning of riots in the streets of America. Unfortunately, way too often top global leaders say something in public because they want to “push” events in a certain direction. Do George Soros and officials at the IMF and World Bank hope to prevent a worldwide financial collapse by making these statements, or are other agendas at work? We may never know. But one thing is for sure – many of the top financial officials in the world are using language that is downright “apocalyptic”, and that is not a good sign for the rest of 2012.
Right now, George Soros is saying things that he has never said before. Just check out what George Soros recently told Newsweek….
“I am not here to cheer you up. The situation is about as serious and difficult as I’ve experienced in my career,” Soros tells Newsweek. “We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.”
Later on in that same article, Soros is quoted as saying that we could soon see the U.S. government using “strong-arm tactics” to crack down on rioting in the streets of major U.S. cities….
As anger rises, riots on the streets of American cities are inevitable. “Yes, yes, yes,” he says, almost gleefully. The response to the unrest could be more damaging than the violence itself. “It will be an excuse for cracking down and using strong-arm tactics to maintain law and order, which, carried to an extreme, could bring about a repressive political system, a society where individual liberty is much more constrained, which would be a break with the tradition of the United States.”
It almost sounds like George Soros is anticipating the same kind of a breakdown of society that many survivalists and preppers are getting ready for.
So how bad are things going to get?
Well, George Soros is publicly warning that the coming financial crisis could end up being even worse than 2008. Just check out the following quotes from him that appeared in a recent Businessweek article….
Billionaire investor George Soros said Europe’s sovereign-debt woes are “more serious” than the financial crisis of 2008 and that the world faces the prospect of a “vicious circle” of deflation.
“We have a more dangerous situation now than in 2008,” Soros, 81, said in response to a question at an event in the southern Indian city of Bangalore today. “The crisis in Europe is more serious than the crash of 2008.”
But George Soros is not the only one issuing these kinds of warnings.
Once again, the head of the IMF, Christine Lagarde, has made a speech in which she openly warned that we are heading for a repeat of the “1930s”.
She told an audience in Berlin on Monday that the globe is facing “a 1930s moment, in which inaction, insularity and rigid ideology combine to cause a collapse in global demand”.
During the speech she called for a trillion more dollars to support financially troubled governments, and she made the following statement….
“It is not about saving any one country or region. It is about saving the world from a downward economic spiral.”
As I wrote about the other day, the World Bank has also been using apocalyptic language about the global financial situation. In a shocking new report, the World Bank revised GDP growth estimates for 2012 downward very sharply, it warned that Europe could be facing financial collapse at any time, and it instructed the rest of the world to “prepare for the worst.”
The lead author of the report, Andrew Burns, said that the “importance of contingency planning cannot be stressed enough” and that if there is a major financial crisis in Europe the entire globe will be deeply affected….
“An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09.”
So should we be alarmed that George Soros, the IMF and the World Bank are all proclaiming that a financial nightmare could be just around the corner?
Of course we should be.
Whether their motives are pure or not, they are telling the truth about the global financial situation in this case. As I have written about so frequently, there are a whole host of signs that indicate that we could be on the verge of a major global recession.
A lot of folks in the investment world are warning that hard times are about to hit us as well. For example, the following is what legendary investor Joseph Granville recently told Bloomberg Television….
Joseph Granville, whose “sell everything” call in 1981 sparked a decline in U.S. stocks, said the Dow Jones Industrial Average (INDU) will drop toward 8,000 this year because of waning momentum and volume.
“Volume precedes prices,” Granville, 88, a technical analyst who has been publishing the Granville Market Letter from Kansas City, Missouri for about 50 years, said in an interview on “Street Smart” on Bloomberg Television. “You are seeing much lower volume. That tells you that prices are going to go much lower, much lower than most people think possible and very few people have projected.”
Considering all of the warnings out there, it only seems prudent to prepare for the worst.
But unfortunately, a lot of people are just going to leave their holdings sitting out there like a dead duck, and they are going to be absolutely devastated by the coming financial tsunami.
Those that believe that the United States can somehow escape the coming financial storm don’t really know what they are talking about.
In fact, there was very troubling news for the U.S. dollar just the other day. It was announced that India will start paying for its oil from Iran in a currency other than U.S. dollars.
But this is just another sign that the rest of the world is starting to reject the U.S. dollar. For decades, the U.S. dollar has been the reserve currency of the world and this has given us a tremendous advantage. Unfortunately for us, that is now changing.
U.S. newspapers are not talking about what is going on, but mainstream newspapers in Europe are. Right now, some of the biggest countries in the world are working on plans to quit using U.S. dollars for the buying and selling of oil.
The following comes from a recent article in The Independent….
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
This is a very big deal, and if this gets pulled off it is going to have devastating consequences for the U.S. dollar and for the U.S. economy.
But of course when it comes to troubles for the U.S. financial system, there are a whole host of issues that could be talked about.
An environment for a “perfect storm” is developing, and most Americans have absolutely no idea what is about to happen.
Fortunately, there are some researchers out there that are working hard to sound the alarm bells. For example, the following quote comes from a recent interview with Gerald Celente….
I believe that we have to watch out for something along the lines of an economic martial law. The European system is in collapse. The financial system in the United States is just as tenuous, if not more, and I believe they will not admit there will be a financial crash but rather they will use a geo-political issue to get the people in a state of fear and hysteria whereby they’ll then call a bank holiday or devaluation of the currency, or a hyperinflation of the currency, and blame it on somebody else.
It would be wise to listen to what experts such as Gerald Celente are saying.
Now is the time to take stock of where you are at and to make plans for the coming year.
Just because things have “always” been a certain way does not mean that they will continue to be that way.
Just because certain things have “always” worked in the past does not mean that they will continue to work in the future.
Our world is experiencing fundamental changes. It is changing at a faster pace than we have ever seen before. The way that we all live our lives five or ten years from now will be vastly different from how we live our lives today.
This will be a very challenging time to be alive, but it is also going to be a very exciting time to be alive.
So what do all of you think is going to happen in 2012?
Please feel free to leave a comment with your thoughts below….
Barring an economic bailout of mammoth proportions, the economy of Spain is completely and totally doomed. The socialist government of Spain is drowning in debt, unemployment is running rampant and everywhere you turn there are major economic problems. So will Spain be the next Greece? No. When the economy of Spain implodes it is going to be a whole lot worse for the world economy. The economy of Spain is more than four times the size of the economy of Greece. Spain accounts for 11.5 percent of eurozone GDP while Greece only accounts for approximately 2.5 percent. Spain is the 4th largest economy in the 16 nation eurozone and it is the 10th largest economy in the world. If the economy of Spain fails it will cause a shockwave that will be felt in every corner of the globe. In fact, there are quite a few analysts that believe if Spain defaults it would ultimately lead to the breakup of the eurozone.
So will the EU step up and bail out Spain? Well, there are rumors that EU officials have begun work on a bailout package for Spain which is likely to run into the hundreds of billions of dollars, but on Monday the European Commission, the Spanish government and the German government all denied that the European Union was preparing a bailout for the Spanish economy.
Of course we all know that politicians don’t always tell us the truth.
So who knows what is going on over there right now.
But the reality is that the economy of Spain is not going to make it much longer without serious help, and some EU officials are already using apocalyptic language to describe what an economic collapse in Spain would mean.
For example, EU Commission President Jose Manuel Barroso recently warned that democracy could completely collapse in Greece, Spain and Portugal unless urgent action is taken to tackle the burgeoning European debt crisis.
So could democracy actually fail in those nations?
Well, considering the fact that Greece, Spain and Portugal only became democracies in the 1970s, and that all three of those countries have a history of military coups, such a scenario is not that far-fetched.
Without a doubt there would be serious public unrest in those nations if public services collapsed because their governments ran out of money.
So are there signs that the economy of Spain is about to collapse?
Well, yes, there are quite a few of them.
The following are 9 reasons why Spain is a dead economy walking….
#1) Even before this most recent crisis, unemployment in Spain was approaching Great Depression levels. Spain now has the highest unemployment rate in the entire European Union. More than 20 percent of working age Spaniards were unemployed during the first quarter of 2010. If people aren’t working they can’t pay taxes and they can’t provide for their families.
#2) In an effort to stimulate the economy, Spain’s socialist government has been spending unprecedented amounts of money and that skyrocketed the government budget deficit to a stunning 11.4 percent of GDP in 2009. That is completely unsustainable by any definition.
#3) The total of all public and private debt in Spain has now reached 270 percent of GDP.
#4) The Spanish government has accumulated way more debt than it can possibly handle, and this has forced two international ratings agencies, Fitch and Standard & Poor’s, to lower Spain’s long-term sovereign credit rating. These downgrades are making it much more expensive for Spain to finance its debt at a time when they simply can’t afford to pay more interest on their debt.
#5) There are 1.6 million unsold properties in Spain. That is six times the level per capita in the United States. Considering how bad the U.S. real estate market is, that statistic is incredibly alarming.
#6) The new “green economy” in Spain has been a total flop. Socialist leaders promised that implementing hardcore restrictions on carbon emissions and forcing the nation over to a “green economy” would result in a flood of “green jobs”. But that simply did not happen. In fact, a leaked internal assessment produced by the government of Spain reveals that the “green economy” has been an absolute economic nightmare for that nation. Energy prices have skyrocketed in Spain and the new “green economy” in that nation has actually lost more than two jobs for every job that it has created. But Spain so far seems unwilling to undo all of the crazy regulations that they have implemented.
#7) Spain’s national debt is so onerous that they are now caught in a debt spiral where anything they do will harm the economy. If they cut government expenditures in an effort to get debt under control it will devastate economic growth and crush badly needed tax revenues. But if the Spanish government keeps borrowing money their credit rating will continue to decline and they will almost certainly default. The truth is that the Spanish government is caught in a “no win” situation.
#8) But even now the IMF is projecting that the Spanish economy is going nowhere fast. The International Monetary Fund says there will be no positive GDP growth in Spain until 2011, at which point it will still be below one percent. As bleak as that forecast is, many analysts believe that it is way too optimistic considering the fact that Spain’s economy declined by about 3.6 percent in 2009 and things are rapidly getting worse.
#9) The Spanish population has gotten used to socialist handouts and they are not going to accept public sector pay cuts, budget cuts to social programs and hefty tax increases easily. In fact, there is likely to be some very serious social unrest before all of this is said and done. On May 21st, thousands of public sector workers took to the streets of Spain to protest the government’s austerity plan. But that was only an appetizer. Spain’s two main unions are calling for a major one day general strike to protest the government’s planned reforms of the country’s labor market. The truth is that financial shock therapy does not go down very well in highly socialized nations such as Greece and Spain. In fact, the austerity measures that Spain has been pressured to implement by the IMF have proven so unpopular that many are now projecting that Spain’s socialist government will be forced to call early elections.
So what is going to happen in Spain?
The truth is that nobody can predict for sure how things are going to play out over the coming weeks and months.
But what everyone can agree on is that the stakes are incredibly high.
Speaking at the World Economic Forum in Davos, Switzerland, world famous economist Nouriel Roubini put it this way: “If Greece goes under, that’s a problem for the eurozone. If Spain goes under, it’s a disaster.”
But right now the entire population of Spain (along with much of the rest of the world) is completely distracted by the World Cup. As long as the Spanish team does well, that is likely to keep the Spanish population sedated. But if the Spanish team gets knocked out of the tournament early that will put the entire Spanish population in a really, really bad mood and that could mean a really chaotic summer for the nation of Spain.
The summer of 2010 promises to be the most tumultuous summer in the short history of the European Union. The sovereign debt crisis sweeping the continent threatens to cause economic and political instability on a scale not seen in Europe for decades. The truth is that governments across the eurozone have accumulated gigantic piles of debt that simply are not sustainable. Prior to the implementation of the euro, these European governments often “printed” their way out of messes like this, but now they can’t do that. Now they either have to dramatically cut government expenses or they have to default. But the austerity measures that the IMF and the ECB are pressuring these European governments to adopt are likely to have some very painful side effects. Not only will these austerity measures cause a significant slowdown in economic growth, they are also likely to cause the same kinds of protests, strikes and riots that we saw in Greece to erupt all over Europe.
You see, most Europeans have become very accustomed to the social welfare state. Tens of millions of Europeans aren’t about to let anyone cut their welfare payments or the wages on their cushy government jobs. In most of the European nations that are experiencing big financial problems there are very powerful unions and labor organizations that do not want anything to do with austerity measures and that are already mobilizing.
As the IMF and the ECB continue to push austerity measures all over Europe this summer, the chaos that we witnessed in Greece could end up being repeated over and over again across the continent. This could truly be Europe’s summer of discontent.
The following are just a few of the countries that we should be watching very carefully in the months ahead….
In many ways, the economic situation in Spain is now even worse than the economic situation in Greece. Spain’s unemployment was already above 20 percent even before this recent crisis. There are now 4.6 million people without jobs in Spain. There are 1.6 million unsold properties in Spain, six times the level per capita in the United States. Total public/private debt in Spain has reached 270 percent of GDP.
But this past week things really started to spin out of control in Spain. Ambrose Evans-Pritchard of The Telegraph describes the current situation in Spain this way….
For Spain it has been a horrible week. The central bank seized CajaSur and imposed draconian write-down rules on banks to restore confidence. The Spanish Socialist and Workers Party (PSOE) of Jose Luis Zapatero then rammed a 5pc cut in public wages through the Cortes by a single vote, shattering consensus. The government cannot hope to pass a budget. Its own trade union base is planning a general strike.
The austerity measures that Spain has been pressured to implement have proven so unpopular in Spain that many are now projecting that Spain’s socialist government will be forced to call early elections.
Spain finds itself in a very difficult position. They have a debt that they cannot possibly handle, the IMF and the ECB are pressuring Spain to implement austerity measures which are wildly unpopular with the public, and if Spain does implement those austerity measures it may send the Spanish economy into a downward spiral.
In addition, the fact that Fitch Ratings has stripped Spain of its AAA status has pushed Spain to the edge of financial oblivion.
A recent editorial inEl Pais spoke of the “perverse spiral” that Spain’s economy is entering….
“The Fitch note drives home the apparently unsolvable contradiction in which the Spanish economy finds itself. To maintain debt solvency Spain must squeeze public spending: yet this policy undermines the chances of recovery which itself causes further loss of confidence.”
And Spain’s very powerful labor organizations are not about to take these austerity measures sitting down. In fact, the two largest trade unions in Spain are already calling for a general strike.
So could Spain end up being the next Greece?
France admitted on Sunday that keeping its top-notch credit rating would be “a stretch” without some tough budget decisions.
But French citizens are not too keen on belt-tightening. We all remember the massive riots in France a few years ago when it was proposed the the work week should be shortened. It certainly seems unlikely that the French will accept “tough budget decisions” without making some serious noise.
The Italian government recently approved austerity measures worth 24 billion euros for the years 2011-2012. But the Italian public is less than thrilled about it.
In fact, Italy’s largest union has announced that it will propose to its members a general strike at the end of June to protest these measures.
Under pressure from the IMF and the ECB, Portugal has agreed to impose fresh austerity measures that include much higher taxes and very deep budget cuts.
And the truth is that Portugal desperately needs to do something to get their finances under control. Recent EU data shows that Portugal’s total debt is 331 percent of GDP, compared to only 224 percent for Greece.
So will the Portuguese public accept these austerity measures?
It doesn’t seem likely.
In fact, Fernando Texeira dos Santos, Portugal’s finance minister, says that he expects “violent episodes” comparable to those in Greece but insists that there is no other option.
So it promises to be a wild summer in Portugal. The CGTP trade union federation in Portugal has promised to mobilize their members….
“Either we come up with a very strong reaction or we will be reduced to bread and water.”
They have already been rioting in the streets in Romania.
Tens of thousands of workers and pensioners recently took to the streets in Romania to protest the harsh austerity measures that the Romanian government is imposing at the request of the International Monetary Fund.
The Romanian people have been through incredibly hard times before, and they aren’t about to let the IMF and the ECB impose strict austerity measures on them without a fight.
It is being reported that Germans are bracing themselves for a “bitter” round of government budget cuts. It seems that even Germany has some belt-tightening to do.
In addition, resentment is rising fast in Germany as the population there realizes that it is Germany that is going to be the one funding a large portion of the bailouts for these other European nations.
How long will the German people be able to control their tempers?
The Wall Street Journal is warning that Ireland could be Europe’s next financial basket case.
Well, the Irish have gotten into a ton of debt, and they are now finding it very expensive to finance new debt. The Irish government is now paying approximately 2.2 percentage points more than Germany is to borrow money for 10 years, while Spain (even with their economy in such a state of disaster) only has to pay 1.6 percentage points more than Germany.
But if “austerity measures” come to Ireland, how do you think the public will react?
It likely would not be pretty.
The United Kingdom
The exploding debt situation in the U.K. was a major issue in the most recent election. David Cameron promised the voters to get the U.K.’s exploding debt situation under control. But the coming budget cuts are likely to be incredibly painful. In fact, Bank of England governor Mervyn King has even gone so far as to warn that public anger over the coming austerity measures will be so painful that whichever party is seen as responsible will be out of power for a generation.
But it isn’t just national governments that are in trouble in Europe. The European Central Bank is warning that eurozone banks could face up to 195 billion euros in losses during a “second wave” of economic problems over the next 18 months.
The truth is that almost everyone is expecting the next couple of years to be very tough economically all across Europe.
But the vast majority of the European public is not going to understand the economics behind what is happening. All most of them are going to know is that the budget reductions, tax increases and pay cuts really, really hurt and that is likely to result in a whole lot of anger.
When Europeans get really angry it isn’t pretty. If what happened in Greece is any indication, this upcoming summer and fall could be a really wild one throughout Europe.
“Euroland, burned down. A continent on the way to bankruptcy”
-The front page of Der Spiegel, May 5th, 2010