So much for “isolating” Russia. The Chinese government is publicly siding with Russia on the crisis in Ukraine, and that is very bad news for the United States. Not only does it mean that the U.S. is essentially powerless to do anything about the situation in Ukraine, it also means that Russia and China are starting to understand how much economic leverage that they really have. Yes, the Obama administration can threaten to slap “sanctions” on Russia or threaten to kick Russia “out of the G8“, but those actions would not actually hurt too much. On the other hand, Russia and China hold approximately 25 percent of all foreign-owned U.S. debt, and if they started massively dumping U.S. debt it could rapidly create a nightmare scenario. In addition, it is important to remember that Russia is the largest exporter of natural gas and the second largest exporter of oil in the world. And China now imports more oil than anyone else on the planet does, including the United States. If Russia and China got together and decided to kill the petrodollar, they could do it almost overnight. So when it comes to Ukraine, it is definitely not the United States that has the leverage.
If China and the rest of the world abandoned Russia over Ukraine, that would be one thing. But that is not happening at all. In fact, China has chosen to publicly stand with Russia on this issue. The following is from a Sky News article entitled “Russia And China ‘In Agreement’ Over Ukraine“…
Russian foreign minister Sergei Lavrov discussed Ukraine by telephone with his Chinese counterpart, Wang Yi, on Monday, and claimed they had “broadly coinciding points of view” on the situation there, according to a ministry statement.
And Chinese state news agency Xinhua is publicly rebuking the West for their handling of the Ukrainian crisis…
China’s state news agency Xinhua accused western powers of adopting a Cold War- like mindset towards Russia, trying to isolate Moscow at a time when much needed mediation is need to reach a diplomatic solution to the crisis in Crimea.
“Based on the fact that Russia and Ukraine have deep cultural, historical and economic connections, it is time for Western powers to abandon their Cold War thinking. Stop trying to exclude Russia from the political crisis they failed to mediate, and respect Russia’s unique role in mapping out the future of Ukraine,” Xinhua wrote in an opinion piece.
Apparently clueless as to how the geopolitical chips are falling, the Obama administration is busy planning all sorts of ways that it can punish Russia…
Behind the scenes, Obama administration officials are preparing a series of possible battle plans for a potential economic assault on Russia in response to its invasion of Ukraine, an administration source close to the issue told The Daily Beast. Among the possible targets for these financial attacks: everyone from high-ranking Russian military officials to government leaders to top businessmen to Russian-speaking separatists in Ukraine. It’s all part of the work to prepare an executive order now under consideration at the Obama administration’s highest levels.
Does the Obama administration really want to start an “economic war” with Russia and potentially against China as well?
Considering how much money we owe them, and considering the fact that we desperately need them to continue to use the petrodollar, we stand to lose far more than they do.
This is one of the reasons why I have always insisted that the national debt was a national security issue. By going into so much debt, we have given other nations such as Russia and China a tremendous amount of leverage over us.
Unfortunately, the debtmongers in Washington D.C. never have listened to common sense.
When it comes to Ukraine, there are other economic considerations as well.
For example, about 25 percent of the natural gas that Europe uses comes from Russia, and Ukraine only has about four months of natural gas supplies stockpiled.
If Russia cut off the natural gas, that would create some huge problems. Fortunately, winter is just about over or the Russians would have even more leverage.
In addition, Ukraine is one of the leading exporters of wheat and corn on the planet, and a disruption in the growing of those crops could make the emerging global food crisis even worse.
But of course the biggest concern is that the Ukraine crisis could ultimately spark a global war.
Unfortunately, there is a treaty that requires the United States to defend Ukraine if it is attacked…
President Bill Clinton, along with the British, signed in 1994 a nearly forgotten agreement to protect Ukraine’s borders. Ukraine now is appealing to the countries that signed the agreement.
As the British Daily Mail points out, it means that, technically, if Russia were to invade Ukraine, it would be difficult for the U.S. and Britain to avoid going to war.
Given that the late Russian president, Boris Yeltsin also signed it, it was apparent that it wasn’t expected that the Russians would take the action that Putin now is undertaking.
And top Ukrainian politicians are now asking western nations to come to the aid of Ukraine militarily…
Ukraine’s former prime minister Yulia Tymoshenko has appealed for the West to adopt ‘strongest means’ to intervene in Russia’s occupation of Crimea if diplomacy fails.
In an interview with CNN’s Christiane Amanpour, Tymoshenko, freed last week after the riots throughout the nation, said if Russia is allowed to ‘take away’ Crimea, life will change ‘practically everywhere in the world.’
She added: ‘Then we have to accept… an aggressor, can violate all the international agreements, take away territories, whenever she likes.’
On the other side, deposed Ukrainian President Viktor Yanukovych has formally requested that Russia militarily intervene in his nation…
Russia’s U.N. envoy said Monday that ousted Ukrainian President Viktor Yanukovych asked Russia to send troops to “establish legitimacy, peace, law and order, stability, and defending the people of Ukraine.” Russian Ambassador Vitaly Churkin read a letter from Yanukovych at the U.N. Security Council meeting.
“Ukraine is on the brink of civil war. In the country, there is chaos and anarchy. The life, the security and the rights of people, particularly in the southeast part in Crimea are being threatened. So under the influence of Western countries, there are open acts of terrorism and violence. People are being persecuted for language and political reasons,” the letter said. “So in this regard, I would call on the President of Russia, Mr. Putin, asking him to use the armed forces of the Russian Federation to establish legitimacy, peace, law and order, stability, and defending the people of Ukraine.”
And it is very important to note that Yanukovych would have never issued this letter if the Russian government has not asked him to.
So the stage is set.
Russia has already grabbed Crimea, and it is eyeing other territories in eastern Ukraine.
China is publicly backing Russia, and collectively they have a tremendous amount of economic leverage.
The Obama administration is barking loudly about what Russia has done, but the reality is that the U.S. has very little economic leverage at this point.
What the U.S. does have is the strongest military on the entire planet, but let us hope and pray that Obama does not decide to get the U.S. military involved in Ukraine. That would be absolutely disastrous.
In the end, the U.S. has no good options in Ukraine. The Obama administration helped aid and organize the violent revolution that overthrew the Ukrainian government, and now we have a giant mess.
Nobody is quite sure what comes next, but one thing is certain…
The relationship between the United States and Russia will never, ever be the same again.
A new set of regulations that most people have never even heard of that was developed by an immensely powerful central banking organization that most people do not even know exists is going to have a dramatic effect on the global financial system over the next several years. The new set of regulations is known as “Basel III”, and it was developed by the Bank for International Settlements. The Bank for International Settlements has been called “the central bank for central banks”, and it is headquartered in Basel, Switzerland. 58 major central banks (including the Federal Reserve) belong to the Bank for International Settlements, and the decisions made in Basel often have more of an impact on the direction of the global economy than anything the president of the United States or the U.S. Congress are doing. All you have to do is to look back at the last financial crisis to see an example of this. Basel II and Basel 2.5 played a major role in precipitating the subprime mortgage meltdown. Now a new set of regulations known as “Basel III” are being rolled out. The implementation of these new regulations is beginning this year, and they will be completely phased in by 2019. These new regulations dramatically increase capital requirements and significantly restrict the use of leverage. Those certainly sound like good goals, the problem is that the entire global financial system is based on credit at this point, and these new regulations are going to substantially reduce the flow of credit. The only way that the giant debt bubble that we are all living in can continue to persist is if it continues to expand. By restricting the flow of credit, these new regulations threaten to burst the debt bubble and bring down the entire global economy.
Not that the current global financial system is sustainable by any means. Anyone with half a brain can see that the global financial system is a pyramid scheme that is destined to collapse. But Basel III may cause it to collapse faster than it might otherwise have.
So precisely what is Basel III? The following is a definition from the official website of the Bank for International Settlements…
“Basel III” is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:
- improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source
- improve risk management and governance
- strengthen banks’ transparency and disclosures.
All of that looks good at first glance. But when you start looking into the details you start realizing what it is going to mean for the global financial system. Banks are going to be required to have higher reserve ratios and use less leverage. Banks are going to have to be more careful with their money, which is a good thing, but it is also going to mean that credit will not flow as freely. Unfortunately, the only way for a debt bubble to survive is if it keeps expanding. Anything that restricts the flow of easy money threatens to bring a debt bubble to an end.
These new regulations are going to be phased in between 2013 and 2019. You can see a chart which shows the implementation schedule for the Basel III regulations right here.
So why is bringing the debt bubble to an end a bad thing?
Well, because it will cause the false prosperity that we have been enjoying to disappear, and that will be an exceedingly painful adjustment.
Sadly, most people have no idea what is happening. Most people have never even heard of “Basel III” or “the Bank for International Settlements”. Most people just assume that the people they voted into office know what they are doing and have everything under control.
Unfortunately, that is not the case at all. The truth is that an unelected, unaccountable body of central bankers is making decisions which deeply affect us all, and there is not much that we can do about it.
This unelected, unaccountable body of central bankers played a major role in bringing about the last financial crisis. The following is a brief excerpt from a recent article posted on Before It’s News…
If you have any questions about the power of these Basel Banking Regulations you can also see the effects that Basel II and 2.5, mark to market accounting, had on the Housing Markets in the United States of America in 2008. There were many causes for that housing bubble, then housing crisis, but Basel II and 2.5 was most assuredly the pin that popped the housing bubble that led to the financial crisis of 2008-09.
But do most people know about this?
Of course not. Most people want to blame the Republicans or the Democrats or Bush or Obama, and they have no idea about the financial strings that are being pulled at the highest levels.
It is so important that we get people educated about how the global financial system actually works. The following is a summary of how the Bank for International Settlements works from one of my previous articles entitled “Who Controls The Money? An Unelected, Unaccountable Central Bank Of The World Secretly Does“…
An immensely powerful international organization that most people have never even heard of secretly controls the money supply of the entire globe. It is called the Bank for International Settlements, and it is the central bank of central banks. It is located in Basel, Switzerland, but it also has branches in Hong Kong and Mexico City. It is essentially an unelected, unaccountable central bank of the world that has complete immunity from taxation and from national laws. Even Wikipedia admits that “it is not accountable to any single national government.” The Bank for International Settlements was used to launder money for the Nazis during World War II, but these days the main purpose of the BIS is to guide and direct the centrally-planned global financial system. Today, 58 global central banks belong to the BIS, and it has far more power over how the U.S. economy (or any other economy for that matter) will perform over the course of the next year than any politician does. Every two months, the central bankers of the world gather in Basel for another “Global Economy Meeting”. During those meetings, decisions are made which affect every man, woman and child on the planet, and yet none of us have any say in what goes on. The Bank for International Settlements is an organization that was founded by the global elite and it operates for the benefit of the global elite, and it is intended to be one of the key cornerstones of the emerging one world economic system.
Even though most people have never even heard of the BIS, the truth is that the global elite have had big plans for it for a very long time. In another article I included a quote from a book that Georgetown University history professor Carroll Quigley wrote many years ago entitled “Tragedy & Hope”…
[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.
Today we have such a system, and most of the public does not even know that it exists.
And when the next great financial crisis strikes, there will probably be very little ever said about the Bank for International Settlements in the mainstream media.
But right now the BIS is helping set the stage for the great credit crunch that is coming.
Get prepared while you still can, because time is running out.
Do you think that you know how to prepare for the collapse of the economy? If so, are you putting that knowledge into action? In America today, people are more concerned about the possibility of an economic collapse than ever before. It has been estimated that there are now three million preppers in the United States. But the truth that nobody really knows the actual number, because a lot of preppers keep their “prepping” to themselves. So what are all of those people preparing for exactly? Well, survey after survey has shown that “economic collapse” is the number one potential disaster that preppers are most concerned about. Of course that shouldn’t be surprising because we truly are facing economic problems that are absolutely unprecedented. We are living in the greatest debt bubble in the history of the world, the global banking system has been transformed into a high-risk pyramid scheme of debt, risk and leverage that could collapse at any time, and wealthy countries such as the United States have been living way above their means for decades. Meanwhile, the United States is being deindustrialized at a blinding pace and poverty in this country is absolutely exploding. Anyone that is not concerned about the economy should have their head examined. Fortunately, I have found that an increasing number of Americans are becoming convinced that we are heading for a horrific economic crisis. Once they come to that realization, they want to know what they should do.
And the reality is that “getting prepared” is going to look different for each family based on their own unique circumstances. Some people have a lot of resources, while others have very little. Some people are very independent of the system and can move wherever they want, while others are totally dependent on their jobs and must stay near the cities at least for now.
In addition, it is important to distinguish between the “short-term” and the “long-term” when talking about economic collapse. As I have written about previously, our economic collapse is not going to happen all at once. It is going to unfold over time. In the “short-term”, many are moving money around and are building up “emergency funds” to prepare for the next recession. For the “long-term”, many are storing up food and huge stockpiles of survival supplies in order to be prepared for the total collapse of society. Both approaches are wise, but it is important to keep in mind that different approaches will be needed at different times.
The strategies posted below are a mix of both short-term and long-term strategies. Some will be important for our immediate future, while others may not be needed for a number of years. But in the end, you will be very thankful for the time and the effort that you spent getting prepared while you still could.
The following are 25 things that you should do to get prepared for the coming economic collapse…
#1 An Emergency Fund
Do you remember what happened when the financial system almost collapsed back in 2008? Millions of Americans suddenly lost their jobs, and because many of them were living paycheck to paycheck, many of them also got behind on their mortgages and lost their homes. You don’t want to lose everything that you have worked for during this next major economic downturn. It is imperative that you have an emergency fund. It should be enough to cover all of your expenses for at least six months, but I would encourage you to have an emergency fund that is even larger than that.
#2 Don’t Put All Of Your Eggs Into One Basket
If the wealth confiscation in Cyprus has taught us anything, it is that we should not put all of our eggs in one basket. If all of your money is in one single bank account, it would be easy to wipe out. But if you have your money scattered around a number of different places it will give you a little bit more security.
#3 Keep Some Cash At Home
This goes along with the previous point. While it is not wise to keep all of your money at home, you do want to keep some cash on hand. If there is an extended bank holiday or if a giant burst from the sun causes the ATM machines to go down, you want to be able to have enough cash to buy the things that your family needs. Just ask the people of Cyprus how crippling a bank holiday can be. One way to keep your cash secure at home is by storing it in a concealed safe.
#4 Get Out Of Debt
A lot of people seem to assume that an economic collapse would wipe out all debts, but that will probably not be the case. In fact, if you are in a tremendous amount of debt you will be very vulnerable if the economy collapses and you are not able to find a job. Just ask the people who were overextended and lost their jobs during the last recession. So please get out of debt. Many debt collectors are becoming increasingly ruthless. In many areas of the country they are now routinely putting debtors into prison. You do not want to be a slave to debt when the next wave of the economic collapse strikes.
#5 Gold And Silver
In the long-term, the U.S. dollar is going to lose a tremendous amount of value and inflation is going to absolutely skyrocket. That is one reason why so many people are investing very heavily in gold, silver and other precious metals. All over the globe, the central banks of the world are recklessly printing money. Everyone knows that this is going to end very badly. In fact, there is already a push in more than a dozen U.S. states to allow gold and silver coins to be used as legal tender. Someday you will be glad that you invested in gold and silver now while their prices were still low.
#6 Reduce Your Expenses
A lot of people claim that they can’t put any money toward prepping, but the truth is that we all have room to reduce our expenses. We all spend money on things that we do not really need. Those that are “lean and mean” will tend to do much better during the times that are coming.
#7 Start A Side Business
If you do not have much money, a great way to increase your income is by starting a side business. And it does not take a lot of money – there are many side businesses that you can start for next to nothing. And starting a side business will allow you to become less dependent on your job. In this economic environment, a job could disappear at literally any time.
#8 Move Away From The Big Cities If Possible
For many people, this is simply not possible. Many Americans are still completely and totally dependent on their jobs. But if you are able, now is a good time to move away from the big cities. When the next major economic downturn strikes, there will be rioting and a dramatic rise in crime in the major cities. If you are able to move to a more rural area you will probably be in much better shape.
#9 Store Food
Global food reserves have reached their lowest level in nearly 40 years. As the economy gets even worse and global weather patterns become even more unstable, the price of food will go much higher and global food supplies will become much tighter. In the long run, you will be glad for the money that you put into long-term food storage now.
#10 Learn To Grow Your Own Food
This is a skill that most Americans possessed in the past, but that most Americans today have forgotten. Growing your own food is a way to become more independent of the system, and it is a way to get prepared for what is ahead.
#11 Nobody Can Survive Without Water
Without water, you would not even make it a few days in an emergency situation. It is imperative that you have a plan to provide clean drinking water for your family when disaster strikes.
#12 Have A Plan For When The Grid Goes Down
What would you do if the grid went down and you suddenly did not have power for an extended period of time? Anyone that has spent more than a few hours without power knows how frustrating this can be. You need to have a plan for how you are going to provide power to your home that is independent of the power company.
#13 Have Blankets And Warm Clothing On Hand
This is more for emergency situations or for a complete meltdown of society. During any major crisis, blankets and warm clothing are in great demand. They also could potentially make great barter items.
#14 Store Personal Hygiene Supplies
A lot of preppers store up huge amounts of food, but they forget all about personal hygiene supplies. During a long crisis, these are items that you would greatly miss if you do not have them stored up. These types of supplies would also be great for barter.
#15 Store Medicine And Medical Supplies
You will also want to store up medical supplies and any medicine that you may need. In an emergency situation, you definitely would not want to be without bandages and a first-aid kit. Over the course of a long crisis, you do not want to run out of any medicines that are critical for your health.
#16 Stock Up On Vitamins
A lot of preppers do not think about this either, but it is very important. These days, it is becoming increasingly difficult to get adequate nutrition from the foods that we eat. That is why it is very important to have an adequate store of vitamins and other supplements.
#17 Make A List Of Other Supplies That You Will Need
During any crisis, there will be a lot of other things that you will need in addition to food and water. The following are just a few basic things that it would be wise to have on hand…
– an axe
– a can opener
– battery-powered radio
– extra batteries
– lighters or matches
– fire extinguisher
– sewing kit
This list could be much, much longer, but hopefully this will get you started.
#18 Don’t Forget The Special Needs Of Your Babies And Your Pets
Young children and pets have special needs. As you store supplies, don’t forget about the things that they will need as well.
This may sound trivial, but the truth is that our entertainment-addicted society would become very bored and very frustrated if the grid suddenly went down for an extended period of time. Card games and other basic forms of entertainment can make enduring a crisis much easier.
In the years ahead, being able to defend your home and your family is going to become increasingly important. When the economy crashes, people are going to start to become very desperate. And desperate people do desperate things.
#21 Get Your Ammunition While You Still Can
Your firearms will not do you much good if you do not have ammunition for them. Already there are widespread reports of huge ammunition shortages. The following is from a recent CNS News article…
“The run on ammunition has manufacturers scrambling to accommodate demand and reassure customers, as many new and seasoned gun owners stock up over fears of new firearms regulations at both the state and federal levels.”
Don’t just assume that you will always be able to purchase large amounts of ammunition whenever you want. Get it now while you still can.
#22 If You Have To Go…
Have a plan for what you and your family will do if you are forced to leave your home. If you do have to go, the following are some items that you will want to have on hand…
– a map of the area
– a compass
– backpacks for every member of the family
– sleeping bags
– warm clothing
– comfortable shoes or hiking boots
One of the most important assets in any crisis situation is community. If you have friends or neighbors that you can depend upon, that is invaluable. The time spent building those bonds now will pay off greatly during a major crisis.
#24 Have A Back-Up Plan And Be Flexible
Mike Tyson once said the following…
“Everyone has a plan until they get punched in the mouth.”
No plan ever unfolds perfectly. When your plan is disrupted, what will you do?
It will be imperative for all of us to have a back-up plan and to be flexible during the years ahead.
#25 Keep Your Prepping To Yourself
Do not go around and tell everyone in the area where you live about your prepping. If you do, then you may find yourself overwhelmed with “visitors” when everything falls apart.
And please do not go on television and brag about your prepping to a national audience.
Prepping is something that you want to keep to yourself, unless you want hordes of desperate people banging on your door in the future.
For much more on prepping, please check out some of my previous articles…
– “Should You Move To Another Country To Escape The Collapse Of America? 10 Questions To Ask Yourself First”
– “14 Questions People Ask About How To Prepare For The Collapse Of The Economy”
– “Rise Of The Preppers: 50 Of The Best Prepper Websites And Blogs On The Internet”
– “120 Powerful Pieces Of Advice For Preppers”
Sadly, most Americans still have blind faith that our “leaders” actually know what they are doing and will be able to fix things.
Most Americans still are convinced that everything is going to be just fine.
And of course the mainstream media does all they can to reinforce faith in the system. Day after day, we see mindless news headlines such as this: “Californians Champing at the Bit Over Powerball Debut“.
But if you are reading this article that means that you are probably much more awake than the average American is.
Please get prepared while you still can.
A great storm is coming, and time is quickly running out.
So do you have any points that you would add to the list above? Please feel free to post a comment with your thoughts below…
Why is the global economy in so much trouble? How can so many people be so absolutely certain that the world financial system is going to crash? Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail. In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts. So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts. Overall, there is about 190 trillion dollars of total debt on the planet. But global GDP is only about 70 trillion dollars. And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars. So we have a gigantic problem on our hands. The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives. We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing. And when it falls, it is going to be the largest financial disaster in the history of the planet.
The global financial system is more interconnected today than ever before, and a crisis at one major bank or in one area of the world can spread at lightning speed. As I wrote about yesterday, the entire European banking system is leveraged 26 to 1 at this point. A decline in asset values of just 4 percent would totally wipe out the equity of many of those banks, and once a financial panic begins we could potentially see major financial institutions start to go down like dominoes.
We got a small taste of what that is like back in 2008, and it is inevitable that it will happen again.
Anyone that would tell you that the current global financial system is sustainable does not know what they are talking about. Just look at the numbers that I have posted below.
The following is the global financial pyramid scheme by the numbers…
–$9,283,000,000,000 – The total amount of all bank deposits in the United States. The FDIC has just 25 billion dollars in the deposit insurance fund that is supposed to “guarantee” those deposits. In other words, the ratio of total bank deposits to insurance fund money is more than 371 to 1.
–$10,012,800,000,000 – The total amount of mortgage debt in the United States. As you can see, you could take every penny out of every bank account in America and it still would not cover it.
–$10,409,500,000,000 – The M2 money supply in the United States. This is probably the most commonly used measure of the total amount of money in the U.S. economy.
–$15,094,000,000,000 – U.S. GDP. It is a measure of all economic activity in the United States for a single year.
–$16,749,269,587,407.53 – The size of the U.S. national debt. It has grown by more than 10 trillion dollars over the past ten years.
–$32,000,000,000,000 – The total amount of money that the global elite have stashed in offshore banks (that we know about).
–$50,230,844,000,000 – The total amount of government debt in the world.
–$56,280,790,000,000 – The total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system.
–$61,000,000,000,000 – The combined total assets of the 50 largest banks in the world.
–$70,000,000,000,000 – The approximate size of total world GDP.
–$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world. It has nearly doubled in size over the past decade.
–$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.
–$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.
Are you starting to get the picture?
Every single day, the total amount of debt will continue to grow faster than the total amount of money until the day that this bubble bursts.
What we witnessed back in 2008 was just a little “hiccup” in the system. It caused the worst economic downturn since the Great Depression, but global financial authorities were able to get things stabilized.
Next time it won’t be so easy.
The next wave of the economic collapse is quickly approaching. A full-blown economic depression has already started in southern Europe. Unemployment is at record highs and economic activity is contracting rapidly.
The major offshore banking centers in Cyprus are on the verge of collapsing. It was just announced that they will now be closed until Tuesday, but nobody really knows for sure when they will be allowed to reopen. And there is already talk that when they do reopen that there will be strict limits on how much money people can take out.
And now the IMF is warning that the three biggest banks in Slovenia are failing and that a billion euros will be needed to bail them out.
The dominoes are starting to tumble, and the United States won’t be immune. In fact, the greatest financial problems that the United States has ever seen are on the horizon.
But you can just have faith that Ben Bernanke, Barack Obama and the U.S. Congress know exactly what they are doing and will be able to save us from the coming financial collapse if you want.
The mainstream media will provide you with all of the positive economic news that you could possibly want. They are giddy about the fact that the Dow keeps hitting all-time highs and they would have us all believe that we are in the midst of a robust economic recovery. You can listen to them if you want to.
But when you are tempted to believe that everything is going to be “okay” somehow, just go back and look at the numbers there were posted above one more time.
There is no way that the global financial pyramid scheme is going to be able to hold up for too much longer. At some point it is going to totally collapse. When that happens, will you be ready?
As stocks have risen in recent years, the big hedge funds and the “too big to fail” banks have used borrowed money to make absolutely enormous profits. But when you use debt to potentially multiply your profits, you also create the possibility that your losses will be multiplied if the markets turn against you. When the next stock market crash happens, and the gigantic pyramid of risk, debt and leverage on Wall Street comes tumbling down, will highly leveraged banks such as Goldman Sachs ask the federal government to bail them out? The use of leverage is one of the greatest threats to our financial system, and yet most Americans do not even really understand what it is. The following is a basic definition of leverage from Investopedia: “The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.” Leverage allows firms to make much larger bets in the financial markets than they otherwise would be able to, and at this point Goldman Sachs and the big hedge funds are pushing leverage to ridiculous extremes. When the financial markets go up and they win on those bets, they can win very big. For example, revenues at Goldman Sachs increased by about 30 percent in 2012 and Goldman stock has soared by more than 40 percent over the past 12 months. Those are eye-popping numbers. But leverage is a double-edged sword. When the markets turn, Goldman Sachs and many of these large hedge funds could be facing astronomical losses.
Sadly, it appears that Wall Street did not learn any lessons from the financial crisis of 2008. Hedge funds have ramped up leverage to levels not seen since before the last stock market crash. The following comes from a recent Bloomberg article entitled “Hedge-Fund Leverage Rises to Most Since 2004 in New Year“…
Hedge funds are borrowing more to buy equities just as loans by New York Stock Exchange brokers reach the highest in four years, signs of increasing confidence after professional investors trailed the market since 2008.
Leverage among managers who speculate on rising and falling shares climbed to the highest level to start any year since at least 2004, according to data compiled by Morgan Stanley. Margin debt at NYSE firms rose in November to the most since February 2008, data from NYSE Euronext show.
So why is this so important?
Well, as a recent Zero Hedge article explained, even a relatively small drop in stock prices could potentially absolutely devastate many hedge funds…
What near record leverage means is that hedge funds have absolutely zero tolerance for even the smallest drop in prices, which are priced to absolute and endless central bank-intervention perfection – sorry, fundamentals in a time when global GDP growth is declining, when Europe and Japan are in a double dip recession, when the US is expected to report its first sub 1% GDP quarter in years, when corporate revenues and EPS are declining just don’t lead to soaring stock prices.
It also means that with virtually all hedge funds in such hedge fund hotel names as AAPL (the stock held by more hedge funds – over 230 – than any other), any major drop in the price would likely lead to a wipe out of the equity tranche at the bulk of AAPL “investors”, sending them scrambling to beg for either more LP generosity, or to have their prime broker repo desk offer them even more debt. And while the former is a non-starter, the latter has so far worked, which means that most hedge funds have been masking losses with more debt, which then suffers even more losses, and so on.
By the way, Apple (AAPL) just fell to an 11-month low. Apple stock has now declined by 26 percent since it hit a record high back in September. That is a very bad sign for hedge funds.
But hedge funds are not the only ones flirting with disaster. In a previous article about the derivatives bubble, I pointed out the ridiculous amount of derivatives exposure that some of these “too big to fail” banks have relative to their total assets…
According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives. Just check out how exposed they are…
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
Take another look at those figures for Goldman Sachs. If you do the math, Goldman Sachs has total exposure to derivatives contracts that is more than 362 times greater than their total assets.
That is utter insanity, but we haven’t had a derivatives crash yet so everyone just keeps pretending that the emperor actually has clothes on.
When the derivatives crisis happens, things in the financial markets are going to fall apart at lightning speed. A recent article posted on goldsilverworlds.com explained what a derivatives crash may look like…
When one big bank faces some kind of trouble and fails, the banks with the largest exposure to derivates (think JP Morgan, Citygroup, Goldman Sachs) will realize that the bank on the other side of the derivatives trade (the counterparty) is no longer good for their obligation. All of a sudden the hedged position becomes a naked position. The net position becomes a gross position. The risk explodes instantaneously. Markets realize that their hedged positions are in reality not hedged anymore, and all market participants start bailing almost simultaneously. The whole banking and financial system freezes up. It might start in Asia or Europe, in which case Americans will wake up in the morning to find out that their markets are not functioning anymore; stock markets remain closed, money at the banks become inaccessible, etc.
But for now, the party continues. Goldman Sachs and many of the big hedge funds are making enormous piles of money.
In fact, according to the Wall Street Journal, Goldman Sachs recently gave some of their top executives 65 million dollars worth of restricted stock…
Goldman Sachs Group Inc. GS -0.76% handed insiders including Chief Executive Lloyd Blankfein and his top lieutenants a total of $65 million in restricted stock just hours before this year’s higher tax rates took effect.
The New York securities firm gave 10 of its directors and executives early vesting on 508,104 shares previously awarded as part of prior years’ compensation, according to a series of filings with the Securities and Exchange Commission late Monday.
And the bonuses that employees at Goldman receive are absolutely obscene. A recent Daily Mail article explained that Goldman employees in the UK are expected to receive record-setting bonuses this year…
Britain’s army of bankers will re-ignite public fury over lavish pay rewards as staff at Goldman Sachs are expected to reward themselves £8.3 billion in bonuses on Wednesday.
The American investment bank, which employs 5,500 staff in the UK, will be the first to unveil its telephone number-sized rewards – an average of £250,000 a person – as part of the latest round of bonus updates.
The increase, up from £230,000 last year, comes as British families are still struggling to make ends meet five years after banks brought the economy to the brink of meltdown.
Wouldn’t you like to get a “bonus” like that?
Life is good at these firms while the markets are going up.
But what happens when the party ends?
What happens if the markets crash in 2013?
When you bet big, you either win big or you lose big.
For now, the gigantic bets that Wall Street firms are making with borrowed money are paying off very nicely.
But a day of reckoning is coming. The next stock market crash is going to rip through Wall Street like a chainsaw and the carnage is going to be unprecedented.
Are you sure that the people holding your money will be able to make it through what is ahead? You might want to look into it while you still can.
In the financial world, the month of October is synonymous with stock market crashes. So will a massive stock market crash happen this year? You never know. The truth is that our financial system is even more vulnerable than it was back in 2008, and financial experts such as Doug Short, Peter Schiff, Robert Wiedemer and Harry Dent are all warning that the next crash is rapidly approaching. We are living in the greatest debt bubble in the history of the world and Wall Street has been transformed into a giant casino that is based on a massive web of debt, risk and leverage. When that web breaks we are going to see a stock market crash that is going to make 2008 look like a Sunday picnic. Yes, the Federal Reserve has tried to prevent any problems from erupting in the financial markets by initiating another round of quantitative easing, but 40 billion dollars a month will not be nearly enough to stop the massive collapse that is coming. This will be explained in detail toward the end of the article. Hopefully we will get through October (and the rest of this year) without seeing a stock market collapse, but without a doubt one is coming at some point. Those on the wrong end of the coming crash are going to be absolutely wiped out.
A lot of people focus on the month of October because of the history of stock market crashes in this month. This history was detailed in a recent USA Today article….
When it comes to wealth suddenly disappearing, October can be diabolically frightful. The stock market crash of 1929 that led to the Great Depression occurred in October. So did the 22.6% plunge suffered by the Dow Jones industrial average in 1987 on “Black Monday.”
The scariest 19-day span during the 2008 financial crisis also went down in October, when the Dow plunged 2,675 points after investors fearing a financial collapse went on a panic-driven stock-selling spree that resulted in five of the 10 biggest daily point drops in the iconic Dow’s 123-year history.
So what will we see this year?
Only time will tell.
If a stock market crash does not happen this month or by the end of this year, that does not mean that the experts that are predicting a stock market crash are wrong.
It just means that they were early.
As I have said so many times, there are thousands upon thousands of moving parts in the global financial system. So that makes it nearly impossible to predict the timing of events with perfect precision. Financial conditions are constantly shifting and changing.
But without a doubt another major financial collapse similar to what happened back in 2008 (or even worse) is on the way. Let’s take a look at some of the financial experts that are predicting really bad things for our financial markets in the months ahead….
According to Doug Short, the vice president of research at Advisor Perspectives, the stock market is somewhere between 33% and 51% overvalued at this point. In a recent article he offered the following evidence to support his position….
● The Crestmont Research P/E Ratio (more)
● The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
● The Q Ratio, which is the total price of the market divided by its replacement cost (more)
● The relationship of the S&P Composite price to a regression trendline (more)
Peter Schiff, the CEO of Euro Pacific Capital, has been one of the leading voices in the financial community warning people about the crisis that is coming.
During a recent interview with Fox Business, Schiff stated that the massive financial collapse that we witnessed back in 2008 “wasn’t the real crash” and he boldly declared that the “real crash is coming”.
So is Schiff right?
We shall see.
Economist Robert Wiedemer warned people what was coming before the crash of 2008, and now he is warning that what is coming next is going to be even worse….
“The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”
Financial author Harry Dent believes that the stock market could fall by as much as 60 percent in the coming months. He is convinced that stocks are hugely overvalued right now….
“We have the greatest debt bubble in history. We will see a worldwide downturn. And when you are in this type of recessionary environment stocks should be trading at five to seven times earnings.”
So are these guys right?
We shall see.
But I do find it interesting that some of the biggest names in the financial world are currently making moves as if they also believe that a massive financial crisis is coming.
For example, as I have written about previously, George Soros has dumped all of his holdings in banking giants JP Morgan, Citigroup and Goldman Sachs.
Infamous billionaire hedge fund manager John Paulson, the man who made somewhere around 20 billion dollars betting against the U.S. housing market during the last financial crisis, is making massive bets against the euro right now.
So where are these financial titans putting their money?
According to the Telegraph, both of these men are pouring enormous amounts of money into gold….
There was also news last week in an SEC filing that both George Soros and John Paulson had increased their investment in SPDR Gold Trust, the world’s largest publicly traded physical gold exchange traded fund (ETF).
Mr Soros upped his stake in the ETF to 884,400 shares from 319,550 and Mr Paulson bought 4.53m shares, bringing his stake to 21.3m.
At the current price of about $156 a share, these are new investments of about $88m of Mr Soros’ cash and more than $700m from Mr Paulson’s funds. These are significant positions.
So why would they do this?
Why would they pour millions upon millions of dollars into gold?
Well, it would make perfect sense to put so much money into gold if a massive financial crisis was coming.
So is the next financial crisis imminent?
We will see.
Most “financial analysts” that appear in the mainstream media would laugh at the notion that a stock market crash is imminent.
Most of them would insist that everything is going to be perfectly fine for the foreseeable future.
In fact, most of them are convinced that quantitative easing is going to cause stocks to go even higher.
After all, isn’t quantitative easing supposed to be good for stocks?
Didn’t I write an article just last month that detailed how quantitative easing drives up stock prices?
Yes I did.
So how can I be writing now about the possibility of a stock market crash?
Aren’t I contradicting myself?
Not at all.
Let me explain.
The first two rounds of quantitative easing did indeed drive up stock prices. The same thing will happen under QE3, unless the effects of QE3 are overwhelmed by a major crisis.
For example, if we were to see a total collapse of the derivatives market it would render QE3 totally meaningless.
Estimates of the notional value of the worldwide derivatives market range from 600 trillion dollars all the way up to 1.5 quadrillion dollars. Nobody knows for sure how large the market for derivatives is, but everyone agrees that it is absolutely massive.
When we are talking about amounts that large, the $40 billion being pumped into the financial system each month by the Federal Reserve during QE3 would essentially be the equivalent of spitting into Niagara Falls. It would make no difference at all.
Most Americans do not understand what “derivatives” are, so they kind of tune out when people start talking about them.
But they are very important to understand.
Essentially, derivatives are “side bets”. When you buy a derivative, you are not investing in anything. You are just gambling that something will or will not happen.
I explained this more completely in a previous article entitled “The Coming Derivatives Crisis That Could Destroy The Entire Global Financial System“….
A derivative has no underlying value of its own. A derivative is essentially a side bet. Usually these side bets are highly leveraged.
At this point, making side bets has totally gotten out of control in the financial world. Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it. This system is almost entirely unregulated and it is totally dominated by the big international banks.
Over the past couple of decades, the derivatives market has multiplied in size. Everything is going to be fine as long as the system stays in balance. But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.
Five very large U.S. banks (including Goldman Sachs, JP Morgan and Bank of America) have combined exposure to derivatives in excess of 250 trillion dollars.
Keep in mind that U.S. GDP for 2011 was only about 15 trillion dollars.
So we are talking about an amount of money that is almost inconceivable.
That is why I cannot talk about derivatives enough. In fact, I apologize to my readers for not writing about them more.
If you want to understand the coming financial collapse, one of the keys is to understand derivatives. Our entire financial system has been transformed into a giant casino, and at some point all of this gambling is going to cause a horrible crash.
Do you remember the billions of dollars that JP Morgan announced that they lost a while back? Well, that was caused by derivatives trades gone bad. In fact, they are still not totally out of those trades and they are going to end up losing a whole lot more money than they originally anticipated.
Sadly, that was just the tip of the iceberg. Much, much worse is coming. When you hear of a major “derivatives crisis” in the news, you better run for cover because it is likely that the entire house of cards is about to start falling.
And don’t get too caught up in the exact timing of predictions.
If a stock market crash does not happen this month, don’t think that the storm has passed.
A major financial crisis is coming. It might not happen this week, this month or even this year, but without a doubt it is approaching.
And when it arrives it is going to be immensely painful and it is going to change all of our lives.
I hope you are ready for that.
Why is the economy going to collapse? Have you ever been asked that question? If so, what did you say? Sometimes it is difficult to communicate dozens of complicated economic and financial concepts in a package that the average person on the street can easily digest. It can be very frustrating to know that something is true but not be able to explain it clearly to someone else. Hopefully many of you out there will find the list below useful. It is a list of 70 numbers that show why we are headed for a national economic nightmare. So why does the title of the article single out Barack Obama? Well, it is because right now he is the biggest cheerleader for the economy. He is attempting to convince all of us that everything is just fine and that the economy is heading in a positive direction. Well, the truth is that everything is not fine and things are about to get a whole lot worse. Certainly others should share in the blame as well. Congress has been steering the economy in the wrong direction for decades, the “too big to fail” banks have turned Wall Street into a pyramid of risk, leverage and debt, and the Federal Reserve has more power over the financial system than anyone else does. Our economy has been in decline for quite a while now, and soon we are going to smash directly into an economic brick wall. Unfortunately, a lot of Americans are in denial about this. A lot of people out there doubt that an economic collapse is coming. Well, if you know someone that believes that the U.S. economy is going to be “just fine”, just show them the list below.
The following are 70 facts that Barack Obama does not want you to see….
$3.59 – When Barack Obama entered the White House, the average price of a gallon of gasoline was $1.85. Today, it is $3.59.
22 – It is hard to believe, but today the poverty rate for children living in the United States is a whopping 22 percent.
23 – According to U.S. Representative Betty Sutton, an average of 23 manufacturing facilities permanently shut down in the United States every single day during 2010.
30 – Back in 2007, about 10 percent of all unemployed Americans had been out of work for 52 weeks or longer. Today, that number is above 30 percent.
32 – The amount of money that the federal government gives directly to Americans has increased by 32 percent since Barack Obama entered the White House.
35 – U.S. housing prices are now down a total of 35 percent from the peak of the housing bubble.
40 – The official U.S. unemployment rate has been above 8 percent for 40 months in a row.
42 – According to one survey, 42 percent of all American workers are currently living paycheck to paycheck.
48 – Shockingly, at this point 48 percent of all Americans are either considered to be “low income” or are living in poverty.
49 – Today, an astounding 49.1 percent of all Americans live in a home where at least one person receives benefits from the government.
53 – Last year, an astounding 53 percent of all U.S. college graduates under the age of 25 were either unemployed or underemployed.
60 – According to a recent Gallup poll, only 60 percent of all Americans say that they have enough money to live comfortably.
61 – At this point the Federal Reserve is essentially monetizing much of the U.S. national debt. For example, the Federal Reserve bought up approximately 61 percent of all government debt issued by the U.S. Treasury Department during 2011.
63 – One recent survey found that 63 percent of all Americans believe that the U.S. economic model is broken.
71 – Today, 71 percent of all small business owners believe that the U.S. economy is still in a recession.
80 – Americans buy 80 percent of the pain pills sold on the entire globe each year.
81 – Credit card debt among Americans in the 25 to 34 year old age bracket has risen by 81 percent since 1989.
85 – 85 percent of all artificial Christmas trees are made in China.
86 – According to one survey, 86 percent of Americans workers in their sixties say that they will continue working past their 65th birthday.
90 – In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.
93 – The United States now ranks 93rd in the world in income inequality.
95 – The middle class continues to shrink – 95 percent of the jobs lost during the last recession were middle class jobs.
107 – Each year, the average American must work 107 days just to make enough money to pay local, state and federal taxes.
350 – The average CEO now makes approximately 350 times as much as the average American worker makes.
400 – According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.
$500 – In some areas of Detroit, Michigan you can buy a three bedroom home for just $500.
627 – In 2010, China produced 627 million metric tons of steel. The United States only produced 80 million metric tons of steel.
877 – 20,000 workers recently applied for just 877 jobs at a Hyundai plant in Montgomery, Alabama.
900 – Auto parts exports from China to the United States have increased by more than 900 percent since the year 2000.
$1580 – When Barack Obama first took office, an ounce of gold was going for about $850. Today an ounce of gold costs more than $1580 an ounce.
1700 – Consumer debt in America has risen by a whopping 1700% since 1971.
2016 – It is being projected that the Chinese economy will be larger than the U.S. economy by the year 2016.
$4155 – The average American household spent a staggering $4,155 on gasoline during 2011.
$4300 – The amount by which real median household income has declined since Barack Obama entered the White House.
$6000 – If you can believe it, the median price of a home in Detroit is now just $6000.
$10,000 – According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.
49,000 – In 2011, our trade deficit with China was more than 49,000 times larger than it was back in 1985.
50,000 – The United States has lost an average of approximately 50,000 manufacturing jobs a month since China joined the World Trade Organization in 2001.
56,000 – The United States has lost more than 56,000 manufacturing facilities since 2001.
$85,000 – According to the New York Times, a Jeep Grand Cherokee that costs $27,490 in the United States costs about $85,000 in China thanks to all the tariffs.
$175,587 – The Obama administration spent $175,587 to find out if cocaine causes Japanese quail to engage in sexually risky behavior.
$328,404 – Over the next 75 years, Medicare is facing unfunded liabilities of more than 38 trillion dollars. That comes to $328,404 for each and every household in the United States.
$361,330 – This is what the average banker in New York City made in 2010.
440,00 – If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to totally pay it off.
500,000 – According to the Economic Policy Institute, America is losing half a million jobs to China every single year.
2,000,000 – Family farms are being systematically wiped out of existence in the United States. According to the U.S. Department of Agriculture, the number of farms in the United States has fallen from about 6.8 million in 1935 to only about 2 million today.
$2,000,000 – At this point, the U.S. national debt is rising by more than 2 million dollars every single minute.
2,600,000 – In 2010, 2.6 million more Americans fell into poverty. That was the largest increase that we have seen since the U.S. government began keeping statistics on this back in 1959.
5,400,000 – When Barack Obama first took office there were 2.7 million long-term unemployed Americans. Today there are twice as many.
16,000,000 – It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.
$20,000,000 – The amount of money the U.S. government was spending to create a version of Sesame Street for children in Pakistan.
25,000,000 – Today, approximately 25 million American adults are living with their parents.
40,000,000 – According to Professor Alan Blinder of Princeton University, 40 million more U.S. jobs could be sent offshore over the next two decades if current trends continue.
46,405,204 – The number of Americans currently on food stamps. When Barack Obama first entered the White House there were only 32 million Americans on food stamps.
88,000,000 – Today there are more than 88 million working age Americans that are not employed and that are not looking for employment. That is an all-time record high.
100,000,000 – Overall, there are more than 100 million working age Americans that do not currently have jobs.
$150,000,000 – This is approximately the amount of money that the Obama administration and the U.S. Congress are stealing from future generations of Americans every single hour.
$2,000,000,000 – The amount of money that JP Morgan has admitted that it will lose from derivatives trades gone bad. Many analysts are convinced that the real number will actually end up being much higher.
$147,000,000,000 – In the U.S., medical costs related to obesity are estimated to be approximately 147 billion dollars a year.
295,500,000,000 – Our trade deficit with China in 2011 was $295.5 billion. That was the largest trade deficit that one country has had with another country in the history of the planet.
$359,100,000,000 – During the first quarter of 2012, U.S. public debt rose by 359.1 billion dollars. U.S. GDP only rose by 142.4 billion dollars.
$454,000,000,000 – During fiscal 2011, the U.S. government spent over 454 billion dollars just on interest on the national debt.
$1,000,000,000,000 – The total amount of student loan debt in the United States recently surpassed the one trillion dollar mark.
$1,170,000,000,000 – China now holds approximately 1.17 trillion dollars of U.S. government debt. Yet the U.S. government continues to send them millions of dollars in foreign aid every year.
$1,600,000,000,000 – The amount that has been added to the U.S. national debt since the Republicans took control of the U.S. House of Representatives. This is more than the first 97 Congresses added to the national debt combined.
$5,000,000,000,000 – The U.S. national debt has risen by more than 5 trillion dollars since the day that Barack Obama first took office. In a little more than 3 years Obama has added more to the national debt than the first 41 presidents combined.
$5,000,000,000,000 – What the real U.S. budget deficit in 2011 would have been if the federal government had used generally accepted accounting principles.
$11,440,000,000,000 – The total amount of consumer debt in the United States.
$15,734,596,578,458.59 – The U.S. national debt as of June 7, 2012.
$200,000,000,000,000 – Today, the 9 largest banks in the United States have a total of more than 200 trillion dollars of exposure to derivatives. When the derivatives market completely collapses there won’t be enough money in the entire world to fix it.
The summer of 2012 is shaping up to be very similar to the summer of 2008. Things look incredibly bleak for the global economy right now. Economic activity and lending are slowing down all over the planet, and fear is starting to paralyze the entire global financial system. Things did not look this bad back in the summer of 2011 and things certainly did not look this bad back in the summer of 2010. It is almost as if a “perfect storm” is brewing. Today, the global financial system is a finely balanced pyramid of risk, debt and leverage. Such a system requires a high degree of confidence and stability. But when confidence disappears and fear and panic take over, the house of cards can literally start collapsing at any time. Right now we are watching a slow-motion train wreck unfold and nobody seems to know how to stop it. Unless some kind of a miracle happens, things are going to look much different when we reach the start of 2013 than they do today.
The following are 21 signs that this could be a long, hot, crazy summer for the global financial system….
#1 There are rumors that major financial institutions are cancelling employee vacations in anticipation of a major financial crisis this summer. The following are a couple of tweets quoted in a recent article by Kenneth Schortgen Jr….
Todd Harrison tweet: Hearing (not confirmed) @PIMCO asked employees to cancel vacations to have “all hands on deck” for a Lehman-type tail event. Confirm?
Todd M. Schoenberger tweet: @todd_harrison @pimco I heard the same thing, but I also heard the same for “some” at JPM. Heard it today at a hedge fund luncheon.
As Schortgen points out, these are not just your average Twitter users….
Todd Harrison is the CEO of the award winning internet media company Minyanville, while Todd Shoenberger is a managing principal at the Blackbay Group, and an adjunct professor of Finance at Cecil College.
#2 The Bank for International Settlements is warning that global lending is contracting at the fastest pace since the financial crisis of 2008.
#3 Unemployment in the eurozone has hit a brand new all-time record high.
#4 The government of Portugal has just announced that it will be bailing out three major banks.
#5 Many U.S. banking stocks are being hit extremely hard. For example, Morgan Stanley stock has declined by 40 percent over the past four months.
#6 Yields on Spanish debt and yields on Italian debt have been absolutely soaring.
#7 10 year U.S. Treasury notes hit a record low on Friday because investors are scared and they are looking for safety. The following is from a recent USA Today article….
“Treasuries are at 1.46 because people are freaking out,” says Mark Vitner, senior economist at Wells Fargo Economics.
#8 New orders for factory goods in the United States have declined three times in the last four months. That is a sign that the “economic recovery” in the U.S. has clearly stalled.
#9 U.S. job growth in May was well below expectations and the unemployment rate has increased to 8.2 percent.
#10 Economies all over the developed world are seriously slowing down right now. The following is from a recent article by Ambrose Evans-Pritchard….
Brazil wilted in the first quarter. India grew at the slowest pace in nine years. China’s HSBC manufacturing index fell further into contraction in May, with new orders dropping sharply and inventories rising.
#11 Stocks in Japan hit a 28 year low on Monday.
#12 Over the past five years, the stock markets of Greece, Spain, Italy, Portugal, Ireland and Cyprus have all fallen by more than 50 percent. Will we soon see similar results all over the rest of Europe?
#13 The Greek economy is literally shutting down. Just check out the chaos that unpaid bills are already causing….
And unpaid bills are now threatening Greece’s electricity supply. State-owned Electricity Market Operator (LAGIE), a clearing house for power transactions, hasn’t paid independent power producers for electricity it bought from them. They, in turn, haven’t paid their natural gas supplier, Public Gas Corporation (Depa), which now doesn’t have the money to pay its supplier. Payment is due on June 22. Alas, its supplier is Gazprom in Russia, and they insist on getting paid. If not, they will shut the valve, and Depa won’t get the gas to supply the independent producers, which will have to take their power plants off line, removing about a third of the country’s electricity production.
#14 It is estimated that there are 273 billion dollars of failed real estate loans in the Spanish banking system.
#15 In March, 66 billion euros was pulled out of Spanish banks and sent out of the country. That was an all-time record and that was before we even knew the results of the recent elections in Greece and France. The numbers for April and May will almost certainly be even worse.
#16 The unemployment rate in Spain is 24.4 percent and for those under the age of 25 it is over 50 percent.
#17 Former Italian Prime Minister Silvio Berlusconi is warning that Italy may have to take drastic actions if something is not done soon….
“People are in shock. Confidence has collapsed. We have never had such a dark future,” he said. Indeed, the jobless rate for youth has jumped from 27pc to 35pc in a year. Terrorism has returned. Anarchists knee-capped the head of Ansaldo Nucleare last month. Italy’s tax office chief was nearly blinded by a letter bomb.
“If Europe refuses to listen to our demands, we should say ‘bye, bye’ and leave the euro. Or tell the Germans to leave the euro if they are not happy,” he said.
#18 It now looks like Cyprus is going to be the next European nation to need a bailout.
#19 Switzerland is threatening to implement capital controls in order to stop the massive flow of money that is coming in from banks around the rest of Europe.
#20 As I wrote about the other day, World Bank President Robert Zoellick is warning that “the summer of 2012″ could end up being very similar to what we experienced back in 2008….
“Events in Greece could trigger financial fright in Spain, Italy and across the eurozone. The summer of 2012 offers an eerie echo of 2008.”
#21 Germany’s former vice-Chancellor, Joschka Fischer, is warning that the entire EU could fall apart over this crisis….
“Let’s not delude ourselves: If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced”
When was the last time that we saw so much bad economic news come out all at once?
We truly live in unprecedented times.
It will be exciting to watch what happens, but it is also important to keep in mind that the coming economic crisis will cause extreme pain for millions upon millions of people.
For example, the suicide of a mother and a son due to the deteriorating economy has absolutely shocked the entire nation of Greece….
A 60-year-old Greek musician and his 91-year-old mother jumped to their deaths from their 5th floor apartment, driven to despair by financial woes. This double death is the latest in a rising epidemic of crisis-induced suicides in Greece.
Witness accounts vary – some say the mother, who suffered from Alzheimer’s, jumped first, screaming a prayer as she plummeted to her death. Other neighbors say the mother and her son jumped together, holding hands.
But the one thing everyone seems to agree on is that the family had been struggling for a long time. The night before, Antonis Perris posted a suicide note of sorts on a popular Greek forum, saying he had no way of resolving the family’s financial issues.
“The problem is that I didn’t realize that I would need to have cash, because the economic crisis came so suddenly. Even though I have been selling our possessions, we have no cash flow, we have no money to buy food anymore and my credit card is maxed out with 22% interest rate.”
Perris continued to say that both his and his mother’s health deteriorated, and that he saw no solution to his most basic problems – getting food and medical help.
This is why it is so incredibly important to get prepared.
You don’t want something like that happening to you or anyone in your family.
Can you hear that? It almost sounds like a little bit of peace and quiet. This year, the holiday season has been fairly uneventful, and for that we should be very grateful. But it isn’t going to last long. 2012 is going to be a much more difficult year for the U.S. economy and the global financial system than 2011 has been. So if things are going well for you right now, enjoy this little bubble of peace and tranquility while you can. Because while things may look calm on the surface right now, the truth is that this is a very scary Christmas for financial professionals and world leaders. Most of them know how fragile the global financial system is at the moment. Most of them know that we are living in the greatest bubble of debt, leverage and financial risk that the world has ever seen. As I wrote about the other day, world leaders would not be throwing huge bailouts around like crazy if everything was going to be just fine. The truth is that we are rapidly approaching another financial crisis that may end up being even worse than the horrific crash of 2008.
Despite unprecedented efforts by the European Central Bank, the yield on 10 year Italian bonds is nearly up to 7 percent again.
Keep an eye on the yield on 10 year Italian bonds. That is going to be one of the most important financial numbers in the world in the coming months.
But Italy is not the only problem. The reality is that several European governments are teetering on the verge of default right now. Meanwhile, confidence in the European financial system has been absolutely shattered and a devastating credit crunch has set in. Nobody (other than the ECB) wants to loan money to the banks and the banks are massively cutting back on loans to businesses and consumers. This is causing the money supply to fall. The ECB is trying to hold things together with chicken wire and duct tape, but it isn’t going to work.
In major financial centers such as the City of London, this is a very scary Christmas and the outlook for the new year looks very frightening. Because financial activity has dried up so dramatically, a number of firms are already shutting down. The following comes from a recent Bloomberg article….
London’s stockbrokers are shrinking as Europe’s sovereign debt crisis and competition from international firms squeezes revenue and fees.
“This isn’t just a blip, this is much worse,” said Tim Linacre, who is stepping down as chief executive officer of Panmure (PMR) Gordon & Co., a 135-year-old brokerage. “It’s a desert for activity, which is why you are seeing some firms throw in the towel.”
In the past month, Altium Capital closed its securities unit. Evolution Group Plc (EVG), Merchant Securities Group Plc, Arbuthnot Securities Ltd. and Collins Stewart Hawkpoint Plc have all accepted takeover offers from larger competitors.
“It feels worse than any other time,” said Lorna Tilbian, an executive director at Numis Corp. who began her career in 1984. “All I hear about is people putting up a white flag.”
Many out there are wondering if we are about to face another crisis like the one we saw back in 2008.
Unfortunately, none of the underlying problems that caused that crisis were ever really fixed.
We did not learn from history so now we are in for another round of pain.
In fact, Chris Martenson believes that this next crisis will be even worse than 2008….
There are clear signs of a liquidity crunch in the asset markets right now, and the question I keep hearing is, Is this 2008 all over again?
No, it’s worse. Much worse.
In 2008 there was a lot more faith and optimism upon which to draw. But both have been squandered to significant degrees by feckless regulators and authorities who failed to properly address any of the root causes of the first crisis even as they slathered layer after layer of thin-air money over many of the symptoms.
Anyone who has paid attention knows that those “magic potions” proved to be anything but. Not only are the root causes still with us (too much debt, vast regional financial imbalances, and high energy prices), but they have actually grown worse the entire time.
A couple of months ago, I wrote about the coming derivatives crisis that could potentially wipe out the entire global financial system.
When the next great financial crisis strikes, there is going to be a lot of focus on derivatives once again.
Top global financial authorities such as Ben Bernanke continue to insist that derivatives are perfectly safe.
But there are other voices in the financial world that are warning that we are heading for financial armageddon. For example,just check out what Mark Faber is saying….
“I am convinced the whole derivatives market will cease to exit. Will become zero. And when it happens I don’t know: you can postpone the problems with monetary measures for a long time but you can’t solve them… Greece should have defaulted – it would have sent a message that not all derivatives are equal because it depends on the counterparty.”
That is very strong language.
Faber also believes that the stock market is going to get hit really, really hard during the coming crisis….
“I am ultra bearish. I think most people will be lucky if they still have 50% of their money in 5 years time. You have to have diversification – some real estate in the countryside, some gold and some equities because if you think it through, say Germany 1900 to today, we had WWI, we had hyperinflation, WWII, cash holders and bondholders they lost everything 3 times, but if you owned equities you’d be ok. In equities in general you will not lose it all, it may not be a good investment, unless you put it all in one company and it goes bankrupt.”
Some of the top financial officials in the entire world have also used some very scary language in recent weeks.
The head of the International Monetary Fund, Christian Lagarde, recently stated that we could soon see conditions “reminiscent of the 1930s depression” and that no country on earth “will be immune to the crisis”….
“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating”
But most people are so busy opening up the cheap plastic presents under their Christmas trees (that were mostly made overseas) that they aren’t even paying attention to these warnings.
Look, when the money supply falls significantly it is almost impossible to avoid a recession. Just look at the historical numbers.
Unfortunately, money supply numbers all over Europe are falling dramatically right now as an article in the Telegraph recently noted….
All key measures of the money supply in the eurozone contracted in October with drastic falls across parts of southern Europe, raising the risk of severe recession over coming months.
Confidence in the banking system in Europe has never been this low in the post-World War II era. Sadly, most people simply do not understand how bad things have gotten for major European banks. One Australian news source recently put it this way….
“If anyone thinks things are getting better, they simply don’t understand how severe the problems are,” a London executive at a global bank said. “A major bank could fail within weeks.”
Others said many continental banks, including French, Italian and Spanish lenders, were close to running out of the acceptable forms of collateral, such as US Treasury bonds, that could be used to finance short-term loans.
Some have been forced to lend out their gold reserves to maintain access to US dollar funding.
The outlook is very ominous.
Financial professionals all over the globe are telling us what is coming if we are willing to listen.
The following comes from a report recently produced by Credit Suisse’s Fixed Income Research unit….
“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”
The first six months of 2012 are going to be a very key time. National governments and big European banks are scheduled to roll over huge mountains of debt. But if they can’t find any takers that could bring the global financial system to a moment of great crisis very quickly.
The following is how former hedge fund manager Bruce Krasting recently described the problem that Italy is facing….
At this point there is zero possibility that Italy can refinance any portion of its $300b of 2012 maturing debt. If there is anyone at the table who still thinks that Italy can pull off a miracle, they are wrong. I’m certain that the finance guys at the ECB and Italian CB understand this. I repeat, there is a zero chance for a market solution for Italy.
But even if we don’t see a formal default by a major European nation such a Italy, that doesn’t mean that major European banks are going to make it through the crippling recession that has now begun in Europe.
Charles Wyplosz, a professor of international economics at Geneva’s Graduate Institute, is absolutely convinced that we are going to see some major European banks collapse….
“Banks will collapse, including possibly a number of French banks that are very exposed to Greece, Portugal, Italy and Spain.”
Authorities in Europe are saying the “right things” publicly, but privately they are preparing for the worst.
As the Telegraph recently reported, the British government is now making plans based on the assumption that a collapse of the euro is only “just a matter of time”….
A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
Yes, we are heading for a huge financial collapse and massive economic trouble.
So enjoy the good times while we still have them.
They are not going to last too much longer.