Over the past 12 months, stock market investors around the planet have lost trillions of dollars. Since this time last June, stocks have crashed in 6 of the world’s 8 largest economies, and stocks in the other two are down as well. The charts that you are about to see are absolutely stunning, and they are clear evidence that a new global financial crisis has already begun. Of course it is true that we are still in the early chapters of this new crisis and that there is much, much more damage to be done, but let us not minimize the carnage that we have already witnessed.
In general, there have been three major waves of financial panic over the past 12 months. Late last August we saw the biggest financial shaking since the financial crisis of 2008, then in January and February there was an even bigger shaking, and now a third “wave” has begun in June. Not all areas around the globe have been affected equally by each wave, but without a doubt this new financial crisis is a global phenomenon.
The charts that I am about to show you come from Trading Economics. It is an absolutely indispensable website that is packed full of useful data, and I encourage everyone to check it out.
Let’s talk about China first. The Chinese economy is the second largest on the entire planet, and since this time last year Chinese stocks are down an astounding 40 percent…
As things have started to unravel in China, the Chinese have been selling off U.S. debt and U.S. stocks like crazy. The following comes from Bloomberg…
For the past year, Chinese selling of Treasuries has vexed investors and served as a gauge of the health of the world’s second-largest economy.
The People’s Bank of China, owner of the world’s biggest foreign-exchange reserves, burnt through 20 percent of its war chest since 2014, dumping about $250 billion of U.S. government debt and using the funds to support the yuan and stem capital outflows.
While China’s sales of Treasuries have slowed, its holdings of U.S. equities are now showing steep declines.
Unfortunately for China, their economy just continues to slow down, and George Soros is so alarmed by this and a potential “Brexit” that he has been selling off stocks and buying enormous amounts of gold in anticipation of an even bigger global downturn.
Japan has the third largest economy in the world, and over the past year Japanese stocks are down a total of 26 percent from the peak…
Personally, I have been extremely alarmed by what has been happening in Japan lately. Japanese stocks were down almost 500 points last night, and overall the Nikkei is down a whopping 1,800 points so far in June.
Of course the Japanese economy as a whole is essentially a basket case at this point. For a detailed analysis of this, please see my previous article entitled “Watch Japan – For All Is Not Well In The Land Of The Rising Sun“.
Germany has the fourth largest economy in the world, and over the past year their stocks have fallen 19 percent from the peak of the market…
The key thing to watch for in Germany are serious troubles at their biggest bank. I wrote a long article about the slow-motion implosion of Deutsche Bank last month, and just this week Deutsche Bank stock hit an all-time low.
The fifth largest economy on the planet belongs to the United Kingdom, and since last June their stocks have fallen about 13 percent…
One week from today, the “Brexit” vote will be held in the UK, and if they vote to leave the EU that could have very serious economic and financial implications for them and for the rest of Europe as well. For an in-depth look at this, please see my previous article entitled “June 23, 2016: The Brexit Vote Could Change EVERYTHING And Plunge Europe Into Financial Chaos“.
France has the sixth largest economy in the world, and over the past year French stocks are down 20 percent from the peak of the market…
The French economy is really struggling these days, and we have not heard much about it in the U.S. media, but there have been tremendous riots in major cities in France in recent weeks.
The seventh largest economy on our planet belongs to India. Even though India is facing some very serious economic problems, their stocks are doing okay for the moment. Even though stocks in India are down over the past 12 months, we have not seen a major financial crisis over there just yet.
But there is definitely a major crisis in the eighth largest economy in the world. Italian stocks are down a staggering 32 percent from the peak of the market. That means approximately a third of all stock market wealth in Italy is already gone…
Earlier this year, I wrote about the horrifying collapse of the Italian banking system that has greatly accelerated since the start of 2016. It looks like virtually all of their big banks will ultimately need to be bailed out, and this threatens to become a far bigger crisis than the crisis in Greece ever was.
And let us not leave off the ninth largest economy in the world. Not too long ago, CNN ran an article entitled “Brazil: Economic collapse worse than feared“. So not only are they admitting that the ninth largest economy on the globe is collapsing, they are also admitting that it is even worse than what the experts had anticipated.
So did I leave anyone off the list?
Ah yes, I haven’t even addressed what has been going on in the United States yet.
U.S. stocks did crash last August, but then they recovered.
Then they crashed again in January, but then they recovered again.
Now U.S. stocks have been taking another tumble here in June, but we are being assured that there is nothing to worry about.
Meanwhile, the underlying numbers for the U.S. economy just continue to get worse and worse and worse. If you have any doubt about this, please see the article that I posted yesterday entitled “15 Facts About The Imploding U.S. Economy That The Mainstream Media Doesn’t Want You To See“.
Hopefully this article will clear a lot of things up. In this piece, I have presented undeniable evidence that a new global financial crisis has begun over the past 12 months. We have not seen global stock declines of this nature since the great financial crisis of 2008, but much worse is still to come.
I would love to be wrong about that last part.
It would be wonderful if the worst was now behind us and good times for the global financial system were ahead.
Unfortunately, every single indicator that I am watching is telling me just the opposite.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
The Italian banking system is a “leaning tower” that truly could completely collapse at literally any moment. And as Italy’s banks begin to go down like dominoes, it is going to set off financial panic all over Europe unlike anything we have ever seen before. I wrote about the troubles in Italy back in January, but since that time the crisis has escalated. At this point, Italian banking stocks have declined a whopping 28 percent since the beginning of 2016, and when you look at some of the biggest Italian banks the numbers become even more frightening. On Monday, shares of Monte dei Paschi were down 4.7 percent, and they have now plummeted 56 percent since the start of the year. Shares of Carige were down 8 percent, and they have now plunged a total of 58 percent since the start of the year. This is what a financial crisis looks like, and just like we are seeing in South America, the problems in Italy appear to be significantly accelerating.
So what makes Italy so important?
Well, we all saw how difficult it was for the rest of Europe to come up with a plan to rescue Greece. But Greece is relatively small – they only have the 44th largest economy in the world.
The Italian economy is far larger. Italy has the 8th largest economy in the world, and their government debt to GDP ratio is currently sitting at about 132 percent.
There is no way that Europe has the resources or the ability to handle a full meltdown of the Italian financial system. Unfortunately, that is precisely what is happening. Italian banks are absolutely drowning in non-performing loans, and as Jeffrey Moore has noted, this potentially represents “the greatest threat to the world’s already burdened financial system”…
Shares of Italy’s largest financial institutions have plummeted in the opening months of 2016 as piles of bad debt on their balance sheets become too high to ignore. Amid all of the risks facing EU members in 2016, the risk of contagion from Italy’s troubled banks poses the greatest threat to the world’s already burdened financial system.
At the core of the issue is the concerning level of Non-Performing Loans (NPL’s) on banks’ books, with estimates ranging from 17% to 21% of total lending. This amounts to approximately €200 billion of NPL’s, or 12% of Italy’s GDP. Moreover, in some cases, bad loans make up an alarming 30% of individual banks’ balance sheets.
Things have already gotten so bad that the European Central Bank is now monitoring liquidity levels at Monte dei Paschi and Carige on a daily basis. The following comes from Reuters…
The European Central Bank is checking liquidity levels at a number of Italian banks, including Banca Carige and Monte dei Paschi di Siena , on a daily basis, two sources close to the matter said on Monday.
Italian banking shares have fallen sharply since the start of the year amid market concerns about some 360 billion euros of bad loans on their books and weak capital levels.
The ECB has been putting pressure on several Italian banks to improve their capital position. The regulator can decide to monitor liquidity levels at any bank it supervises on a weekly or daily basis if it has any concern about deposits or funding.
A run on the big Italian banks has already begun. Italians have already been quietly pulling billions of euros out of the banking system, and if these banks continue to crumble this “stealth run” could quickly become a stampede.
And of course panic in Italy would quickly spread to other financially troubled members of the eurozone such as Spain, Portugal, Greece and France. Here is some additional analysis from Jeffrey Moore…
A deteriorating financial crisis in Italy could risk repercussions across the EU exponentially greater than those spurred by Greece. The ripple effects of market turmoil and the potential for dangerous precedents being set by EU authorities in panicked response to that turmoil, could ignite yet more latent financial vulnerabilities in fragile EU members such as Spain and Portugal.
Unfortunately, most Americans are completely blinded to what is going on in the rest of the world because stocks in the U.S. have had a really good run for the past couple of weeks. Headlines are declaring that the risk of a new recession “has passed” and that the crisis “is over”. Meanwhile, South America is plunging into a full-blown depression, the Italian banking system is melting down, global manufacturing numbers are the worst that we have seen since the last recession, and global trade is absolutely imploding.
Other than that, things are pretty good.
Seriously, it is absolutely critical that we don’t allow ourselves to be fooled by every little wave of momentum in the stock market.
It is a fact that sales and profits for U.S. corporations are declining. This is a trend that began all the way back in mid-2014 and that has accelerated during the early stages of 2016. The following comes from Wolf Richter…
Total US business sales – not just sales by S&P 500 companies but also sales by small caps and all other businesses, even those that are not publicly traded – peaked in July 2014 at $1.365 trillion, according to the Census Bureau. By December 2015, total business sales were down 4.6% from that peak. A bad 18 months for sales! They’re back where they’d first been in January 2013!
Sales by S&P 500 companies dropped 3.8% in 2015, according to FactSet, the worst year since the Financial Crisis.
I know that a lot of people have been eagerly anticipating a complete and total global economic collapse for a long time, and many of them just want to “get it over with”.
Well, the truth is that nobody should want to see what is coming. Personally, I rejoice for every extra day, week or month we are given. Every extra day is another day to prepare, and every extra day is another day to enjoy the extremely comfortable standard of living that our debt-fueled prosperity has produced for us.
Most Americans have absolutely no idea how spoiled we really are. Even just fifty years ago, life was so much harder in this country. If we had to go back and live the way that Americans did 100 or 150 years ago, there are very few of us that would be able to successfully do that.
So enjoy the remaining days of debt-fueled prosperity while you still can, because great change is coming, and it is going to be extremely bitter for most of the population.
There is so much chaos going on that I don’t even know where to start. For a very long time I have been warning my readers that a major banking collapse was coming to Europe, and now it is finally unfolding. Let’s start with Deutsche Bank. The stock of the most important bank in the “strongest economy in Europe” plunged another 8 percent on Monday, and it is now hovering just above the all-time record low that was set during the last financial crisis. Overall, the stock price is now down a staggering 36 percent since 2016 began, and Deutsche Bank credit default swaps are going parabolic. Of course my readers were alerted to major problems at Deutsche Bank all the way back in September, and now the endgame is playing out. In addition to Deutsche Bank, the list of other “too big to fail” banks in Europe that appear to be in very serious trouble includes Commerzbank, Credit Suisse, HSBC and BNP Paribas. Just about every major bank in Italy could fall on that list as well, and Greek bank stocks lost close to a quarter of their value on Monday alone. Financial Armageddon has come to Europe, and the entire planet is going to feel the pain.
The collapse of the banks in Europe is dragging down stock prices all over the continent. At this point, more than one-fifth of all stock market wealth in Europe has already been wiped out since the middle of last year. That means that we only have four-fifths left. The following comes from USA Today…
The MSCI Europe index is now down 20.5% from its highest point over the past 12 months, says S&P Global Market Intelligence, placing it in the 20% decline that unofficially defines a bear market.
Europe’s stock implosion makes the U.S.’ sell-off look like child’s play. The U.S.-centric Standard & Poor’s 500 Monday fell another 1.4% – but it’s only down 13% from its high. Some individual European markets are getting hit even harder. The Milan MIB 30, Madrid Ibex 35 and MSCI United Kingdom indexes are off 29%, 23% and 20% from their 52-week highs, respectively as investors fear the worse could be headed for the Old World.
These declines are being primarily driven by the banks. According to MarketWatch, European banking stocks have fallen for six weeks in a row, and this is the longest streak that we have seen since the heart of the last financial crisis…
The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -5.59% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data.
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.
Overall, Europe’s banking stocks are down 23 percent year to date and 39 percent since the peak of the market in the middle of last year.
The financial crisis that began during the second half of 2015 is picking up speed over in Europe, and it isn’t just Deutsche Bank that could implode at any moment. Credit Suisse is the most important bank in Switzerland, and they announced a fourth quarter loss of 5.8 billion dollars. The stock price has fallen 34 percent year to date, and many are now raising questions about the continued viability of the bank.
Similar scenes are being repeated all over the continent. On Monday we learned that Russia had just shut down two more major banks, and the collapse of Greek banks has pushed Greek stock prices to a 25 year low…
Greek stocks tumbled on Monday to close nearly eight percent lower, with bank shares losing almost a quarter of their market value amid concerns over the future of government reforms.
The general index on the Athens stock exchange closed down 7.9 percent at 464.23 points — a 25-year-low — while banks suffered a 24.3-percent average drop.
This is what a financial crisis looks like.
Fortunately things are not this bad here in the U.S. quite yet, but we are on the exact same path that they are.
One of the big things that is fueling the banking crisis in Europe is the fact that the too big to fail banks over there have more than 100 billion dollars of exposure to energy sector loans. This makes European banks even more sensitive to the price of oil than U.S. banks. The following comes from CNBC…
The four U.S. banks with the highest dollar amount of exposure to energy loans have a capital position 60 percent greater than European banks Deutsche Bank, UBS, Credit Suisse and HSBC, according to CLSA research using a measure called tangible common equity to tangible assets ratio. Or, as Mayo put it, “U.S. banks have more quality capital.”
Analysts at JPMorgan saw the energy loan crisis coming for Europe, and highlighted in early January where investors might get hit.
“[Standard Chartered] and [Deutsche Bank] would be the most sensitive banks to higher default rates in oil and gas,” the analysts wrote in their January report.
There is Deutsche Bank again.
It is funny how they keep coming up.
In the U.S., the collapse of the price of oil is pushing energy company after energy company into bankruptcy. This has happened 42 times in North America since the beginning of last year so far, and rumors that Chesapeake Energy is heading that direction caused their stock price to plummet a staggering 33 percent on Monday…
Energy stocks continue to tank, with Transocean (RIG) dropping 7% and Baker Hughes (BHI) down nearly 5%. But those losses pale in comparison with Chesapeake Energy (CHK), the energy giant that plummeted as much as 51% amid bankruptcy fears. Chesapeake denied it’s currently planning to file for bankruptcy, but its stock still closed down 33% on the day.
And let’s not forget about the ongoing bursting of the tech bubble that I wrote about yesterday.
On Monday the carnage continued, and this pushed the Nasdaq down to its lowest level in almost 18 months…
Technology shares with lofty valuations, including those of midcap data analytics company Tableau Software Inc and Internet giant Facebook Inc, extended their losses on Monday following a gutting selloff in the previous session.
Shares of cloud services companies such as Splunk Inc and Salesforce.com Inc had also declined sharply on Friday. They fell again on Monday, dragging down the Nasdaq Composite index 2.4 percent to its lowest in nearly 1-1/2 years.
Those that read my articles regularly know that I have been warning this would happen.
All over the world we are witnessing a financial implosion. As I write this article, the Japanese market has only been open less than an hour and it is already down 747 points.
The next great financial crisis is already here, and right now we are only in the early chapters.
Ultimately what we are facing is going to be far worse than the financial crisis of 2008/2009, and as a result of this great shaking the entire world is going to fundamentally change.
Are they expecting something to happen? As you will read about below, the European Union says that any nation within the EU that does not enact “bail-in” legislation within the next two months will face legal action. The countries that are being threatened in this manner include Italy and France. If you fast forward two months from this moment, that puts us in early August. So clearly the European Union wants everything to be squared away by the end of the summer. Is there a reason for this? Are they anticipating that something really bad will happen in September or thereafter? Why such a rush?
We all remember what happened when major banks were “bailed out” during the last financial crisis. A tremendous amount of taxpayer money was given to the big banks to help prop them up so they wouldn’t fail. This greatly upset a lot of people.
Well, when the next great financial crisis hits Europe, banks are not going to get “bailed out” this time. Instead, we are going to see “bail-ins”.
So precisely what is a “bail-in”? Essentially, what happens is that wealth is transferred from the “stakeholders” in the bank to the bank itself in order to keep it solvent. That means that creditors and shareholders could potentially lose everything if a major bank in Europe fails. And if their “contributions” are not enough to save the bank, those holding private bank accounts will have to take “haircuts” just like we saw in Cyprus. In fact, the travesty that we witnessed in Cyprus is being used as a “template” for much of the new legislation that is being enacted all over Europe.
The bottom line is that not a single bank account in the European Union will ever be truly safe again.
By this time, everyone in the EU was already supposed to have enacted “bail-in” legislation, but some countries in Europe have been dragging their feet. So now the European Commission (the executive body of the European Union) is giving them a hard deadline. According to Reuters, any nation that has not passed “bail-in” legislation within two months will be subject to legal action…
The European Commission on Thursday gave France, Italy and nine other EU countries two months to adopt new EU rules on propping up failed banks or face legal action.
The rules, known as the bank recovery and resolution directive (BRRD), seek to shield taxpayers from having to bail out troubled lenders, forcing creditors and shareholders to contribute to the rescue in a process known as “bail-in”.
So which countries are being threatened?
It turns out that there are 11 of them. The following comes from Mark O’Byrne…
The article “EU regulators tell 11 countries to adopt bank bail-in rules” reported how 11 countries are under pressure from the EC and had yet “to fall in line”. The countries were Bulgaria, the Czech Republic, Lithuania, Malta, Poland, Romania, Sweden, Luxembourg, the Netherlands, France and Italy.
France and Italy are two countries who are regarded as having particularly fragile banking systems.
But why only two months to get this done?
When I was in law school, I took an entire course on European Union law. Normally, things in Europe take a very long time to get done. It is out of character for the European Commission to rush to get something like this done so quickly.
Could they be anticipating that this legislation will need to be put into use very soon?
What we do know is that bonds in Europe have already been crashing, and it appears that the European Central Bank is starting to lose control over European financial markets.
And we also know that there has been a sustained bank run in Greece. In fact, it is being reported that 700 million euros were pulled out of Greek banks on Friday alone. Personally, I think that anyone that still has any money in Greek banks is absolutely insane. Some day in the not too distant future, Greek bank account holders are going to be in for a “haircut” just like we saw in Cyprus. The following comes from Zero Hedge…
While the Greek government believes it may have won the battle, if not the war with Europe, the reality is that every additional day in which Athens does not have a funding backstop, be it the ECB (or the BRIC bank), is a day which brings the local banking system to total collapse.
As a reminder, Greek banks already depends on the ECB for some €80.7 billion in Emergency Liquidity Assistance which was about 60% of total deposits in the Greek financial system as of April 30. In other words, they are woefully insolvent and only the day to day generosity of the ECB prevents a roughly 40% forced “bail in” deposit haircut a la Cyprus.
But of course Greece will only be just the beginning. In the end, I expect major banks to fail all over Europe as we head into the greatest financial crisis that Europe has ever seen. Bank account holders all over the continent could end up having to take “haircuts”, and that would just make the coming deflationary cycle in Europe a lot worse.
And I actually expect events in Europe to start accelerating greatly by the end of this calendar year. Apparently the top dogs in the European Union are also concerned about the immediate future, because they are rushing to get “bail-in” legislation passed in every nation in the EU by the end of the summer.
Fortunately, the United States has not moved in a similar direction – at least not yet. It is always possible that during an “emergency situation” anything can happen. We saw that in Cyprus. But for the moment, European bank accounts appear to be more vulnerable than U.S. bank accounts.
Not that any of us should have much confidence in the major banks in the United States either. Since the end of the last financial crisis they have become more reckless than ever. At this point, the six largest banks in this country collectively have 278 trillion dollars of exposure to derivatives. A day is coming when the “too big to fail” banks will actually start failing, and that will absolutely cripple our economy.
We are moving into a time of great financial instability. During such a time, one of the keys will be to not have all of your eggs in one basket. That way it will be more difficult for your wealth to be wiped out by a single event.
So what other advice would you give to people that are wondering how to deal with the coming global banking crisis? Please feel free to add to the discussion by posting a comment below…
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.
Are you waiting for the next major wave of the global economic collapse to strike? Well, you might want to start paying attention again. Three of the ten largest economies on the planet have already fallen into recession, and there are very serious warning signs coming from several other global economic powerhouses. Things are already so bad that British Prime Minister David Cameron is comparing the current state of affairs to the horrific financial crisis of 2008. In an article for the Guardian that was published on Monday, he delivered the following sobering warning: “Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.” For the leader of the nation with the 6th largest economy in the world to make such a statement is more than a little bit concerning.
So why is Cameron freaking out?
Well, just consider what is going on in Japan. The economy of Japan is the 3rd largest on the entire planet, and it is a total basket case at this point. Many believe that the Japanese will be on the leading edge of the next great global economic crisis, and that is why it is so alarming that Japan has just dipped into recession again for the fourth time in six years…
Japan’s economy unexpectedly fell into recession in the third quarter, a painful slump that called into question efforts by Prime Minister Shinzo Abe to pull the country out of nearly two decades of deflation.
The second consecutive quarterly decline in gross domestic product could upend Japan’s political landscape. Mr. Abe is considering dissolving Parliament and calling fresh elections, people close to him say, and Monday’s economic report is seen as critical to his decision, which is widely expected to come this week.
Of course Japan is far from alone.
Brazil has the 7th largest economy on the globe, and it has already been in recession for quite a few months.
And the problems that the national oil company is currently experiencing certainly are not helping matters…
In the past five days, 23 powerful Brazilians have been arrested, with even more warrants still outstanding.
The country’s stock market has become a whipsaw, and its currency, the real, has hit a nine-year low.
All of this is due to a far-reaching corruption scandal at one massive company, Petrobras.
In the last month the company’s stock has fallen by 35%.
The 9th largest economy in the world, Italy, has also fallen into recession…
Italian GDP dropped another 0.1% in the third quarter, as expected.
That’s following a 0.2% drop in Q2 and another 0.1% decline in Q1, capping nine months of recession for Europe’s third-largest economy.
Like Japan, there is no easy way out for Italy. A rapidly aging population coupled with a debt to GDP ratio of more than 132 percent is a toxic combination. Italy needs to find a way to be productive once again, and that does not happen overnight.
Meanwhile, much of the rest of Europe is currently mired in depression-like conditions. The official unemployment numbers in some of the larger nations on the continent are absolutely eye-popping. The following list of unemployment figures comes from one of my previous articles…
Are you starting to get the picture?
The world is facing some real economic problems.
Another traditionally strong economic power that is suddenly dealing with adversity is Israel.
In fact, the economy of Israel is shrinking for the first time since 2009…
Israel’s economy contracted for the first time in more than five years in the third quarter, as growth was hit by the effects of a war with Islamist militants in Gaza.
Gross domestic product fell 0.4 percent in the July-September period, the Central Bureau of Statistics said on Sunday. It was the first quarterly decline since a 0.2 percent drop in the first three months of 2009, at the outset of the global financial crisis.
And needless to say, U.S. economic sanctions have hit Russia pretty hard.
The rouble has been plummeting like a rock, and the Russian government is preparing for a “catastrophic” decline in oil prices…
President Vladimir Putin said Russia’s economy, battered by sanctions and a collapsing currency, faces a potential “catastrophic” slump in oil prices.
Such a scenario is “entirely possible, and we admit it,” Putin told the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today. Russia’s reserves, at more than $400 billion, would allow the country to weather such a turn of events, he said.
Crude prices have fallen by almost a third this year, undercutting the economy in Russia, the world’s largest energy exporter.
It is being reported that Russian President Vladimir Putin has been hoarding gold in anticipation of a full-blown global economic war.
I think that will end up being a very wise decision on his part.
Despite all of this global chaos, things are still pretty stable in the United States for the moment. The stock market keeps setting new all-time highs and much of the country is preparing for an orgy of Christmas shopping.
Unfortunately, the number of children that won’t even have a roof to sleep under this holiday season just continues to grow.
A stunning report that was just released by the National Center on Family Homelessness says that the number of homeless children in America has soared to an astounding 2.5 million.
That means that approximately one out of every 30 children in the United States is homeless.
Let that number sink in for a moment as you read more about this new report from the Washington Post…
The number of homeless children in the United States has surged in recent years to an all-time high, amounting to one child in every 30, according to a comprehensive state-by-state report that blames the nation’s high poverty rate, the lack of affordable housing and the effects of pervasive domestic violence.
Titled “America’s Youngest Outcasts,” the report being issued Monday by the National Center on Family Homelessness calculates that nearly 2.5 million American children were homeless at some point in 2013. The number is based on the Education Department’s latest count of 1.3 million homeless children in public schools, supplemented by estimates of homeless preschool children not counted by the agency.
The problem is particularly severe in California, which has about one-eighth of the U.S. population but accounts for more than one-fifth of the homeless children, totaling nearly 527,000.
This is why I get so fired up about the destruction of the middle class. A healthy economy would mean more wealth for most people. But instead, most Americans just continue to see a decline in the standard of living.
And remember, the next major wave of the economic collapse has not even hit us yet. When it does, the suffering of the poor and the middle class is going to get much worse.
Unfortunately, there are already signs that the U.S. economy is starting to slow down too. In fact, the latest manufacturing numbers were not good at all…
The Federal Reserve’s new industrial production data for October show that, on a monthly basis, real U.S. manufacturing output has fallen on net since July, marking its worst three-month production stretch since March-June, 2011. Largely responsible is the automotive sector’s sudden transformation from a manufacturing growth leader into a serious growth laggard, with combined real vehicles and parts production enduring its worst three-month stretch since late 2008 to early 2009.
A lot of very smart people are forecasting economic disaster for next year.
Hopefully they are all wrong, but I have a feeling that they are going to be right.
The unemployment rate in the eurozone is higher than it has ever been before. This week we learned that eurozone unemployment came in at an all-time high of 12.2 percent for September. Back in January 2012, it was sitting at just 10.4 percent. So anyone that believes that “things are getting better” in Europe is just being delusional. In fact, the economic depression in Europe just keeps getting deeper. The funny thing is that the mainstream media will barely call what is going on in Europe a “recession” even though the unemployment rates in both Spain and Greece are now much higher than anything that the United States ever experienced during the “Great Depression” of the 1930s. There haven’t been as many headlines about the financial crisis in Europe lately because the ECB has been papering over the debt problems of the periphery (at least for the moment), but the economic conditions on the ground for average Europeans just continue to get even worse. Later on in this article, you will read about a 25-year-old Spanish man with three college degrees that moved to London in a desperate search for a job who is now cleaning up poop for a living. The economic collapse of Europe continues to march on, and there is no end in sight.
All you have to do is look at the latest unemployment numbers to realize that things are getting worse in Europe.
In Italy, the unemployment rate is up to 12.5 percent.
In January 2012, less than two years ago, it was sitting at just 8.9 percent.
In Greece, the unemployment rate is up to an astounding 27.6 percent.
In January 2012, it was sitting at just 21.4 percent.
In Spain, the unemployment rate is up to 26.6 percent.
In January 2012, it was sitting at just 22.8 percent, and all the way back in January 2008 it was just 8.6 percent.
The youth unemployment statistics in the eurozone are even more horrifying…
Unemployment among the under-25s rose by 22,000 in September to 3,548,000 – nudging up youth jobless rate to 24.1%. In France, the youth jobless rate jumped from 25.6% to 26.1%, while in Italy it increased from 40.2% to 40.4%.
But as bad as those numbers are, they are nothing compared to what is going on in Spain and Greece. In Spain, the youth unemployment rate is up to 56.5 percent, and in Greece the youth unemployment rate is up to 57.3 percent.
And of course unemployment is not the only problem that the European economy is dealing with right now. The following are some more facts about the European economy that show that the economic depression in Europe just keeps getting deeper…
-European car sales are on pace to hit a 23 year low in 2013.
-The percentage of “bad loans” in Spain has soared to a new all-time record high.
-The number of mortgage applications in Spain has fallen 90 percent since the peak of the market.
-Citigroup is projecting that the unemployment rate in Greece will reach 32 percent in 2015.
-Over the last several years, Italy has experienced the biggest collapse in GDP growth that it has ever seen. Overall, the GDP of Italy has contracted by about 8 percent since 2008.
-The number of unemployed workers in Cyprus is now five times higher than it was before the financial crisis of 2008.
-It is being projected that Spain’s debt to GDP ratio will rise to nearly 100 percent by the end of next year.
-The debt to GDP ratio of Portugal is already up to 123 percent.
-The debt to GDP ratio of Italy is already up to 127 percent.
-Even though Greece has implemented a whole host of “austerity measures”, the debt to GDP ratio of Greece is now up to 156 percent.
But what these numbers cannot really communicate is the tremendous amount of pain and despair that millions upon millions of Europeans are experiencing right now.
For example, consider the story of Benjamin Serra Bosch, a 25-year-old Spanish man that moved to London in a desperate search for a job. He has three college degrees, including a Master’s Degree from the IEBS Business School in Barcelona. The following is a rough translation of a message that he recently posted on Facebook…
My name is Benjamín Serra, I have two bachelor degrees and a master’s degree, and I clean toilets.
No, it is not a joke. I do it to pay the rent for my room in London.
I’ve been working in a famous chain of cafes in the United Kingdom since May, and for the first time today, after 5 months working there, I see it clearly. I have been cleaning toilets. My thought was: “I received distinction in my two degrees and I clean other peoples’ poop in a country that isn’t my own.” Well, I also make coffee, clean the tables and wash cups.
And I am not ashamed to do so. Cleaning is a very decent job. What embarrasses me is having to do so because no one has given me an opportunity in Spain. Like me, there are many Spaniards, especially in London. “You are a plague,” I was told once here. And let’s not kid ourselves. We are not young people on an adventure to learn the language and have new experiences. We are immigrants.
I’ve always been very proud, I am not going to deny. Those who know me, you know. And I have to bust out a smile at customers who look over my shoulder as I am simply a “barista” (as they call it here). Some are so outrageous that it makes me want to pull out my University and master degrees and put them in their face. But it would not really do anything. It appears that those titles now only serve to clean the poop that I clean from the toilets in the cafe. A pity.
I thought that it deserved something better after putting so much effort in my academic life. It seems that I was wrong.
As economic conditions continue to decline all over Europe, anger and frustration with the “European experiment” continue to grow. UKIP’s Nigel Farage expressed these sentiments very eloquently during a speech on the 23rd of October when he stated that “what we are saying, large numbers of us from every single EU member state is: we don’t want that flag, we don’t want the anthem that you all stood so ram-rod straight for yesterday, we don’t want EU passports, we don’t want political union.”
Unfortunately, the elite of Europe are so obsessed with their little experiment that the only “solutions” to these economic problems that they are even willing to consider involve even more European integration.
And Americans certainly should not be looking down their noses at what is happening in Europe.
What is going on in Italy, France, Spain and Greece will be coming here soon enough. In fact, even during the midst of this so-called “economic recovery”, poverty continues to absolutely explode in the United States.
Economic conditions in both the United States and Europe have never even gotten close to where they were prior to 2008, and now the next major wave of the economic collapse is rapidly approaching.
This is just the beginning. Things are going to get much worse in the years ahead.
Now that “bail-ins” have become accepted practice all over the planet, no bank account and no pension fund will ever be 100% safe again. In fact, Cyprus-style wealth confiscation is already starting to happen all around the world. As you will read about below, private pension funds were just raided by the government in Poland, and a “bail-in” is being organized for one of the largest banks in Italy. Unfortunately, this is just the beginning. The precedent that was set in Cyprus is being used as a template for establishing bail-in procedures in New Zealand, Canada and all over Europe. It is only a matter of time before we see this exact same type of thing happen in the United States as well. From now on, anyone that keeps a large amount of money in any single bank account or retirement fund is being incredibly foolish.
Let’s take a look at a few of the examples of how Cyprus-style wealth confiscation is now moving forward all over the globe…
For years, there have been rumors that someday the U.S. government would raid private pension funds.
Well, in Poland it just happened.
According to Reuters, private pension funds were raided in order to reduce the size of the government debt…
Poland said on Wednesday it will transfer to the state many of the assets held by private pension funds, slashing public debt but putting in doubt the future of the multi-billion-euro funds, many of them foreign-owned.
The Polish government is doing the best that it can to make this sound like some sort of complicated legal maneuver, but the truth is that what they have done is stolen private assets without giving any compensation in return…
The Polish pension funds’ organisation said the changes may be unconstitutional because the government is taking private assets away from them without offering any compensation.
Announcing the long-awaited overhaul of state-guaranteed pensions, Prime Minister Donald Tusk said private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings.
He said that what remained in citizens’ pension pots in the private funds will be gradually transferred into the state vehicle over the last 10 years before savers hit retirement age.
For years, Iceland has been applauded for how they handled the last financial crisis. But now it is being proposed that the “blanket guarantee” that currently applies to all bank accounts should be reduced to 100,000 euros. Will this open the door for “haircuts” to be applied to bank account balances above that amount?…
Following the crisis in October 2008, Iceland’s government declared all deposits in domestic financial institutions were ‘blanket’ guaranteed – an Emergency Act that was reafrmed twice since. However, according to RUV, the finance minister is proposing to restrict this guarantee to only deposits less-than-EUR100,000. While some might see the removal of an ’emergency’ measure as a positive, it is of course sadly reminiscent of the European Union “template” to haircut large depositors. This is coincidental (threatening) timing given the current stagnation of talks between Iceland bank creditors and the government over haircuts and lifting capital controls – which have restricted the outflows of around $8 billion.
European finance ministers have agreed to a plan that would make “bail-ins” the standard procedure for rescuing “too big to fail” banks in the future. The following is how CNN described this plan…
European Union finance ministers approved a plan Thursday for dealing with future bank bailouts, forcing bondholders and shareholders to take the hit for bank rescues ahead of taxpayers.
The new framework requires bondholders, shareholders and large depositors with over 100,000 euros to be first to suffer losses when banks fail. Depositors with less than 100,000 euros will be protected. Taxpayer funds would be used only as a last resort.
What this means is that if you have over 100,000 euros in a bank account in Europe, you could lose every single bit of the unprotected amount if your bank collapses.
As Zero Hedge reported on Tuesday, a “bail-in” is now being organized for the oldest bank in Italy…
Recall that three weeks ago we warned that “Monti Paschi Faces Bail-In As Capital Needs Point To Nationalization” although we left open the question of “who will get the haircut including senior bondholders and depositors…. given the small size of sub-debt in the capital structures.” Today, as many expected on the day following the German elections, the dominos are finally starting to wobble, and as we predicted, Monte Paschi, Italy’s oldest and according to many, most insolvent bank, quietly commenced a bondholder “bail in” after it said that it suspended interest payments on three hybrid notes following demands by European authorities that bondholders contribute to the restructuring of the bailed out Italian lender. Remember what Diesel-BOOM said about Cyprus – that it is a template? He wasn’t joking.
As Bloomberg reports, Monte Paschi “said in a statement that it won’t pay interest on about 481 million euros ($650 million) of outstanding hybrid notes issued through MPS Capital Trust II and Antonveneta Capital Trusts I and II.” Why these notes? Because hybrid bondholders have zero protections and zero recourse. “Under the terms of the undated notes, the Siena, Italy-based lender is allowed to suspend interest without defaulting and doesn’t have to make up the missed coupons when payments resume.” Then again hybrids, to quote the Dutchman, are just the template for the balance of the bank’s balance sheet.
Why is this happening now? Simple: the Merkel reelection is in the bag, and the EURUSD is too high (recall Adidas’ laments from last week). Furthermore, if the ECB proceeds with another LTRO as many believe it will, it will force the EURUSD even higher, surging from even more unwanted liquidity. So what to do? Why stage a small, contained crisis of course. Such as a bail in by a major Italian bank. The good news for now is that depositors are untouched. Unfortunately, with depositor cash on the wrong end of the (un)secured liability continuum it is only a matter of time before those with uninsured deposits share some of the Cypriot pain. After all, in the brave New Normal insolvent world, “it is only fair.”
Fortunately, it does not appear that this particular bail-in will hit private bank accounts (at least for now), but it does show that European officials are very serious about applying bail-in procedures when a major bank fails.
The New Zealand government has been discussing implementing a “bail-in” system to deal with any future major bank failures. The following comes from a New Zealand news source…
The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.
Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.
“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.
“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.
“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.”
Incredibly, even Canada is moving toward adopting these “bank bail-ins”. In a previous article, I explained that “bail-ins” were even part of the new Canadian government budget…
Cyprus-style “bail-ins” are actually proposed in the new Canadian government budget. When I first heard about this I was quite skeptical, so I went and looked it up for myself. And guess what? It is right there in black and white on pages 144 and 145 of “Economic Action Plan 2013″ which the Harper government has already submitted to the House of Commons. This new budget actually proposes “to implement a ‘bail-in’ regime for systemically important banks” in Canada. “Economic Action Plan 2013″ was submitted on March 21st, which means that this “bail-in regime” was likely being planned long before the crisis in Cyprus ever erupted.
So what does all of this mean for us?
It means that the governments of the world are eyeing our money as part of the solution to any future failures of major banks.
As a result, there is no longer any truly “safe” place to put your money.
One of the best ways to protect yourself is to spread your money around. In other words, don’t put all of your eggs in one basket.
If you have your money a bunch of different places, it is going to be much harder for the government to grab it all.
But if you don’t listen to the warnings and you continue to keep all of your wealth in one giant pile somewhere, don’t be surprised when you get wiped out in a single moment someday.
When you get into too much debt, really bad things start to happen. Sadly, that is exactly what is happening to Italy right now. Harsh austerity measures are causing the Italian economy to slow down even more than it was previously. And yet even with all of the austerity measures, the Italian government just continues to rack up even more debt. This is the exact same path that we watched Greece go down. Austerity causes government revenues to drop which causes deficit reduction targets to be missed which causes even more austerity measures to become necessary. But if Italy collapses economically, it is going to be a far bigger deal than what happened in Greece. Italy is the ninth largest economy on the entire planet. Actually, Italy used to be number eight, but now Russia has passed it. If Italy continues to stumble, India and Canada will soon pass it as well. It really is a tragedy to watch what is happening in Italy, because it really is a wonderful place. When I was a child, my father was in the navy, and I got the opportunity to live there for a while. It is a land of great weather, great food and great soccer. The people are friendly and the culture is absolutely fascinating. But now the nation is falling apart. The following are 11 signs that Italy is descending into a full-blown economic depression…
#1 The unemployment rate in Italy has risen to 12.2 percent. That is the highest that it has been in more than 35 years.
#2 The youth unemployment rate in Italy is sitting at 38.5 percent, and in southern Italy it recently hit the 50 percent mark.
#3 An average of 134 retail outlets are shutting down in Italy every single day. Overall, approximately 224,000 retail establishments have closed since 2008.
#4 Italy’s economy has now been contracting for seven quarters in a row.
#5 It is being projected that Italy’s GDP will shrink by 1.8 percent this year.
#6 Industrial production in Italy has declined for 15 months in a row. It has now fallen to its lowest level in about 25 years.
#7 Overall, factory output in Italy has fallen by about one-fourth since 2008.
#8 In May, automobile sales in Italy were down 8 percent compared to one year earlier.
#9 The number of people that are considered to be “seriously deprived” in Italy has doubled over the past two years.
#10 Italy now has a debt to GDP ratio of 130 percent.
#11 It is being projected that Italy will need a major EU bailout within six months.
At this point, Italy is flat broke.
And unlike the U.S. or Japan, Italy cannot run over to a central bank and have them print up oodles of new money with which to buy up government bonds. Italy is married to the euro, and so that greatly limits their options. Unfortunately, the money is rapidly running out. The following is from a recent article by Wolf Richter…
In most countries, it would be an act of mind-bending chutzpah, or perhaps a display of political insanity, but in Italy it barely made ripples: for a government official, a minister no less, to declare that the country cannot pay its long overdue bills, and not for a month or two, but for the rest of this year! Due to “technical” problems.
The Italian government is out of money. Not that the US government is in any better shape in that respect, or the Japanese government for that matter, but they have central banks that print the missing moolah with lavish abandon. Italy doesn’t. It has the ECB which is run by an Italian who promised last year to print with lavish abandon to keep countries like Italy afloat. But that promise is not the same thing as having your own central bank.
On July 4, Italy’s budget fiasco came to light once again. Wracked by the pretense of austerity, expenditures rose 1.3% in the first quarter, while revenues remained flat. So the deficit rose to 7.3% of GDP, up from 6.6% last year, bringing the national debt to 130% of GDP. Ballooning debt and deficits in a shriveling economy – Italy has been in recession since the fourth quarter of 2011 – is a toxic combination in the Eurozone.
While those numbers may sound really bad, the reality is that the people that are suffering the most are the average folks on the street. Many Italians have been completely blindsided by this economic depression, and suicides are skyrocketing…
In Italy, the tragic stories of suicides apparently linked to the deep recession are becoming all too frequent. Last month, a former factory worker hanged himself near Turin because he could not find work, his relatives said. In May, a young man committed suicide outside of Rome shortly after he lost his job. The next day, Italian President Giorgio Napolitano begged the government to deliver “the utmost attention for situations of greatest malaise and need” to help stop the wave of suicides.
That is absolutely tragic.
But you know what?
The United States is headed down the same path that Italy has gone.
In the coming years unemployment and suicide will both skyrocket here too.
Those that are sticking their heads in the sand right now will be absolutely blindsided by what is coming. But those that understand what is on the horizon and are preparing for it will have the best chance of making it through.
Italy is kind of like the Leaning Tower of Pisa. Everyone knows that it is going to fall eventually, and when it does fall it is going to be a major disaster.
When the financial system of Italy totally implodes, that will be a sign that things are really starting to accelerate. Expect dominoes to start tumbling much more rapidly in the aftermath.