Corporations, individuals and the federal government continue to rack up debt at a rate that is far faster than the overall rate of economic growth. We are literally drowning in red ink from sea to shining sea, and yet we just can’t help ourselves. Consumer credit has doubled since the year 2000. Student loan debt has doubled over the course of the past decade. Business debt has doubled since 2006. And of course the debt of the federal government has doubled since 2007. Anyone that believes that this is “sustainable” in any way, shape or form is crazy. We have accumulated the greatest mountain of debt that the world has ever seen, and yet despite all of the warnings we just continue to race forward into financial oblivion. There is no possible way that this is going to end well.
Just the other day, a financial story that USA Today posted really got my attention. It contained charts and graphs that showed that business debt in the U.S. had doubled since 2006. I knew that things were bad, but I didn’t know that they were this bad. Back in 2006, just prior to the last major economic downturn, U.S. nonfinancial companies had a total of about 2.6 trillion dollars of debt. Now, that total has skyrocketed to 5.8 trillion…
Companies are sitting on a record $1.82 trillion in cash. That might sound impressive until you hear companies owe three times more – $5.8 trillion, according to a new report from Standard & Poor’s Ratings Services.
Debt levels are soaring at U.S. non-financial companies so quickly – total debt outstanding rose $650 billion in 2014, which is six times faster than the $100 billion in added cash.
So are we in better condition to handle an economic crisis than we were the last time, or are we in worse shape?
Let’s look at another category of debt. According to new data that just came out, the total amount of student loan debt in the U.S. is up to a staggering 1.2 trillion dollars. That total has more than doubled over the past decade…
New data released by The Associated Press shows student loan debt is over $1.2 trillion, which is more than double the amount of a decade ago.
Students are facing an average of $35,000 in debt, that’s the highest of any graduating class in U.S. history. A senior at University of Colorado, Colorado Springs, Jon Cheek, knows the struggle first hand.
“It’s been a pretty big concern, I work while I go to school. I applied for a bunch of scholarships and done everything I can to try and keep it low,” said Cheek.
And of course it isn’t just student loan debt. American consumers have had a love affair with debt that stretches back for decades. As the chart below demonstrates, overall consumer credit has more than doubled since the year 2000…
If our paychecks were increasing at this same pace, that would be one thing. But they aren’t. In fact, real median household income is actually lower today than it was just prior to the last economic crisis.
So American households should actually be cutting back on debt. But instead, they are just piling on more debt, and the financial predators are becoming even more creative. In a previous article, I discussed how many auto loans are now being stretched out for seven years. At this point, the number of auto loans that exceed 72 months is at an all-time high…
The average new car loan has reached a record 67 months, reports Experian, the Ireland-based information-services company. The percentage of loans with terms of 73 to 84 months also reached a new high of 29.5% in the first quarter of 2015, up from 24.9% a year earlier.
Long-term used-vehicle loans also broke records with loan terms of 73 to 84 months reaching 16% in the first quarter 2015, up from 12.94% — also the highest on record.
When will we learn?
The crash of 2008 should have been a wake up call.
We should have acknowledged our mistakes and we should have started doing things very differently.
But instead, we just kept on making the exact same mistakes. In fact, our long-term financial problems have continued to accelerate since the last recession. Just look at what has happened to our national debt. Just prior to the last recession, the U.S. national debt was sitting at approximately 9 trillion dollars. Today, it is over 18 trillion dollars…
Our debt has grown so large that we will never be able to get out from under it. This is something that I covered in my recent article entitled “It Is Mathematically Impossible To Pay Off All Of Our Debt“. Because of our recklessness, our children, our grandchildren and all future generations of Americans are consigned to a lifetime of debt slavery. What we have done to them is beyond criminal. If we lived in a just society, a whole bunch of people would be going to prison for the rest of their lives over this.
During fiscal year 2014, the debt of the federal government increased by more than a trillion dollars. But in addition to that, the federal government has more than seven trillion dollars of debt that must be “rolled over” every year. In other words, the government must issue more than seven trillion dollars of new debt just to pay off old debts that are coming due.
As long as the rest of the world continues to lend us enormous mountains of money at ridiculously low interest rates, we can continue to keep our heads above the water. But this can change at any time. And once it does, interest rates will rise. If the average rate of interest on U.S. government debt was to return to the long-term average, we would very quickly find ourselves spending more than a trillion dollars a year just on interest on the national debt.
The debt-fueled prosperity that we are enjoying now is not real. It is a false prosperity that has been purchased by selling future generations into debt slavery. We have mortgaged the future to make our own lives better.
We are addicts. We are addicted to debt, and no matter how many warnings we receive, we just can’t help ourselves.
Shame on you America.
The numbers that you are about to see are likely to shock you. They prove that the global financial Ponzi scheme is far more extensive than most people would ever dare to imagine. As you will see below, the total amount of debt in the world is now more than three times greater than global GDP. In other words, you could take every single good and service produced on the entire planet this year, next year and the year after that and it still would not be enough to pay off all the debt. But even that number pales in comparison to the exposure that big global banks have to derivatives contracts. It is hard to put into words how reckless they have been. At the low end of the estimates, the total exposure that global banks have to derivatives contracts is 710 trillion dollars. That is an amount of money that is almost unimaginable. And the reality of the matter is that there is really not all that much actual “money” in circulation today. In fact, as you will read about below, there is only a little bit more than a trillion dollars of U.S. currency that you can actually hold in your hands in existence. If we all went out and tried to close our bank accounts and investment portfolios all at once, that would create a major league crisis. The truth is that our financial system is little more than a giant pyramid scheme that is based on debt and paper promises. It is literally a miracle that it has survived for so long without collapsing already.
When Americans think about the financial crisis that we are facing, the largest number that they usually can think of is the size of the U.S. national debt. And at over 17 trillion dollars, it truly is massive. But it is actually the 2nd-smallest number on the list below. The following are 12 numbers about the global financial Ponzi scheme that should be burned into your brain…
–$1,280,000,000,000 – Most people are really surprised when they hear this number. Right now, there is only 1.28 trillion dollars worth of U.S. currency floating around out there.
–$17,555,165,805,212.27 – This is 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 – This is the total amount of money that the global elite have stashed in offshore banks (that we know about).
–$48,611,684,000,000 – This is the total exposure that Goldman Sachs has to derivatives contracts.
–$59,398,590,000,000 – This is the total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system. 40 years ago, this number was just a little bit above 2 trillion dollars.
–$70,088,625,000,000 – This is the total exposure that JPMorgan Chase has to derivatives contracts.
–$71,830,000,000,000 – This is the approximate size of the GDP of the entire world.
–$75,000,000,000,000 – This is approximately the total exposure that German banking giant Deutsche Bank has to derivatives contracts.
–$100,000,000,000,000 – This is the total amount of government debt in the entire world. This amount has grown by $30 trillion just since mid-2007.
–$223,300,000,000,000 – This is the approximate size of the total amount of debt in the entire world.
–$236,637,271,000,000 – According to the U.S. government, this is the total exposure that the top 25 banks in the United States have to derivatives contracts. But those banks only have total assets of about 9.4 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 25 to 1.
–$710,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives contracts generally fall within this range. At the high end of the range, the ratio of derivatives exposure to global GDP is about 21 to 1.
Most people tend to assume that the “authorities” have fixed whatever caused the financial world to almost end back in 2008, but that is not the case at all.
In fact, the total amount of government debt around the globe has grown by about 40 percent since then, and the “too big to fail banks” have collectively gotten 37 percent larger since then.
Our “authorities” didn’t fix anything. All they did was reinflate the bubble and kick the can down the road for a little while.
I don’t know how anyone can take an honest look at the numbers and not come to the conclusion that this is completely and totally unsustainable.
How much debt can the global financial system take before it utterly collapses?
How recklessly can the big banks behave before the house of cards that they have constructed implodes underneath them?
For the moment, everything seems fine. Stock markets around the world have been setting record highs and credit is flowing like wine.
But at some point a day of reckoning is coming, and when it arrives it is going to be the most painful financial crisis the world has ever seen.
If you plan on getting ready before it strikes, now is the time to do so.
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.
How much is 1,000,000,000,000,000 yen worth? Well, a quadrillion yen is worth approximately 10.5 trillion dollars. It is an amount of money that is larger than the “the economies of Germany, France and the U.K. combined“. It is such an astounding amount of debt that it is hard to even get your mind around it. The government debt to GDP ratio in Japan will reach 247 percent this year, and the Japanese currently spend about 50 percent of all central government tax revenue on debt service. Realistically, there are only two ways out of this overwhelming debt trap for the Japanese. Either they default or they try to inflate the debt away. At this point, the Japanese have chosen to try to inflate the debt away. They have initiated the greatest quantitative easing experiment that a major industrialized nation has attempted since the days of the Weimar Republic. Over the next two years, the Bank of Japan plans to zap 60 trillion yen into existence out of thin air and use it to buy government bonds. By the time this program is over, the monetary base in Japan will have approximately doubled. But authorities in Japan are desperate. They know that the Japanese debt bomb could set off global panic at any time, and they are trying to find a way out that will not cause too much pain.
Unfortunately, the only way that this bizarre quantitative easing program will work is if investors in Japanese bonds act very, very irrationally. You see, the only way that Japan has been able to pile up this much debt in the first place is because they have been able to borrow gigantic piles of money at super low interest rates.
Right now, the yield on 10 year Japanese bonds is sitting at an absurdly low 0.76%. But even with such ridiculously low interest rates, the central government of Japan is still spending about half of all tax revenue on debt service.
If interest rates go up, the game is over.
But now that the Japanese government has announced that it plans to double the monetary base, it would be extremely irrational for investors not to demand higher rates on Japanese government debt. After all, why would you want to loan money to the Japanese government for less than one percent a year when the purchasing power of your money could potentially be halved over the next two years?
Amazingly, this is exactly what the Japanese government is counting on. They are counting on being able to wildly print up money and monetize debt, but also keep yields on Japanese bonds at insanely low levels at the same time.
For the moment, it is actually working. Investors in Japanese bonds are behaving very, very irrationally.
But if that changes at some point, we could potentially be looking at the greatest Asian economic crisis of all time.
And there are some very sharp minds out there that believe that is exactly what is going to happen.
For example, the founder of Hayman Capital Management, Kyle Bass, has been sounding the alarm about Japan for a long time. He correctly predicted the subprime mortgage meltdown, and in the process he made hundreds of millions of dollars for his clients. Now he believes that the next major crash is going to be in Japan.
According to Bass, the bond bubble in Japan is so large that once it begins to implode fear is going to start spreading like wildfire…
Remember, Japanese banks in general have 900% of their tangible assets invested in JGBs that are the most negatively convex instrument you can put into a portfolio. Assume for instance that a bank holds a 10 year bond yielding 80 basis points. A 100 basis point move will cost the JGB investor about 10 years of expected interest payments.
Think about the psychology of all the players and financial implications if rates do move 100 basis points. Think about the solvency of a nation which currently spends 50% of its central government tax revenues on debt service, half of which earns the lowest yields of any country in the world.
You can’t look at this as a simple question. You need to think about this as a multivariate equation. You have to think about the incentives and the fears of all the participants. And you need to think about the fiscal sustainability of the government.
If rates even rise by a full percentage point, it could start a stampede toward the exits that nobody in the entire world would be able to control…
I ran a survey of 1,009 Japanese investors where we asked: “If rates were to move up 100 basis points, would that engender more confidence and make you want to buy more JGBs?” or, “Would you take your money elsewhere, even if it were hamstringing your government’s ability to operate?” 8 – 9% of respondents that said that they would buy more bonds and almost 80% said they would run, not walk the other way.
For much more on this, you can watch a video of Kyle Bass discussing why Japan is doomed right here.
And of course Japan is not the only “debt bomb” that could potentially go off over in Asia. As I mentioned in another article, the major problem over in China is the level of private debt…
In China, the big problem is the absolutely stunning growth of private domestic debt. According to a recent World Bank report, the total amount of credit in China has risen from 9 trillion dollars in 2008 to 23 trillion dollars today.
That increase is roughly equivalent to the entire U.S. commercial banking system.
There is simply way, way too much debt in our world today. Never before has there been so much red ink all over the planet at the same time.
Many in the mainstream media insist that this party can go on indefinitely.
But that is what they said about the housing bubble too.
Sadly, the truth is that every financial bubble eventually bursts, and this global debt bubble will be no exception.
I hope that you are getting prepared while you still can.
If the economy is improving, then why aren’t things getting better for most average Americans? They tell us that the unemployment rate is going down, but the percentage of Americans that are actually working is exactly the same it was three years ago. They tell us that American families are in better financial shape now, but real disposable income is falling rapidly. They tell us that inflation is low, but every time we go shopping at the grocery store the prices just seem to keep going up. They tell us that the economic crisis is over, and yet poverty and government dependence continue to explode to unprecedented heights. There seems to be a disconnect between what the government and the media are telling us and what is actually true. With each passing day the debt of the federal government grows larger, the financial world become even more unstable and more American families fall out of the middle class. The same long-term economic trends that have been eating away at our economy like cancer for decades continue to ruthlessly attack the foundations of our economic system. We are rapidly speeding toward an economic cataclysm, and yet the government and most of the media make it sound like happy days are here again. The American people deserve better than this. The American people deserve the truth. The following are 36 hard questions about the U.S. economy that the mainstream media should be asking…
#1 If the percentage of working age Americans that have a job is exactly the same as it was three years ago, then why is the government telling us that the “unemployment rate” has gone down significantly during that time?
#2 Why are some U.S. companies allowed to exploit disabled workers by paying them as little as 22 cents an hour?
#3 Why are some private prisons allowed to pay their prisoners just a dollar a day to do jobs that other Americans could be doing?
#4 Why is real disposable income in the United States falling at the fastest rate that we have seen since 2008?
#5 Why do 53 percent of all American workers make less than $30,000 a year?
#6 Why are wages as a percentage of GDP at an all-time low?
#7 Why are 76 percent of all Americans living paycheck to paycheck?
#8 Why are so many large corporations issuing negative earnings guidance for this quarter? Does this indicate that the economy is about to experience a significant downturn?
#9 Why is job growth at small businesses at about half the level it was at when the year started?
#10 Why are central banks selling off record amounts of U.S. debt right now?
#11 Why did U.S. mortgage bonds just suffer their biggest quarterly decline in nearly 20 years?
#12 Why did we just witness the largest weekly increase in mortgage rates in 26 years?
#13 Why has the number of mortgage applications fallen by 29 percent over the last eight weeks?
#14 Why has the number of mortgage applications fallen to the lowest level in 19 months?
#15 If the U.S. economy is recovering, why is the mortgage delinquency rate in the United States still nearly 10 percent?
#16 Why did the student loan delinquency rate in the United States just hit a brand new all-time high?
#17 Why is the sale of hundreds of millions of dollars of municipal bonds being postponed?
#18 What are the central banks of the world going to do when the 441 trillion dollar interest rate derivatives bubble starts to burst?
#19 Why is Barack Obama secretly negotiating a new international free trade agreement that will impose very strict Internet copyright rules on all of us, ban all “Buy American” laws, give Wall Street banks much more freedom to trade risky derivatives and force even more domestic manufacturing offshore?
#20 Why don’t our politicians seem to care that the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975?
#21 Why doesn’t the mainstream media talk about how rapidly the U.S. economy is declining relative to the rest of the planet? According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001. That number dropped to 21.6 percent in 2011.
#22 Why is the percentage of self-employed Americans at a record low?
#23 What are we going to do if dust bowl conditions continue to return to the western half of the United States? If the drought continues to get even worse, what will that do to our agriculture?
#24 Why is the IRS spending thousands of taxpayer dollars on kazoos, stove top hats, bathtub toy boats and plush animals?
#25 Why did the NIH spend $253,800 “to study ways to educate Boston’s male prostitutes on safe-sex practices”?
#26 Why do some of the largest charities in America spend less than 5 percent of the money that they bring in on actual charitable work?
#27 Now that EU finance ministers have approved a plan that will allow Cyprus-style wealth confiscation as part of all future bank bailouts in Europe, is it only a matter of time before we see something similar in the United States?
#28 Why does approximately one out of every three children in the United States live in a home without a father?
#29 Why are more than a million public school students in the United States homeless?
#30 Why are so many cities all over the United States passing laws that make it illegal to feed the homeless?
#31 Why is government dependence in the U.S. at an all-time high if the economy is getting better? Back in 1960, the ratio of social welfare benefits to salaries and wages was approximately 10 percent. In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent. Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.
#32 Why does the number of Americans on food stamps exceed the entire population of the nation of Spain?
#33 The number of Americans on food stamps has grown from 32 million to 47 million while Barack Obama has been occupying the White House. So why is Obama paying recruiters to go out and get even more Americans to join the program?
#34 Today, there are 56 million Americans collecting Social Security benefits. In 2035, there will be 91 million Americans collecting Social Security benefits. Where in the world will we get the money for that?
#35 Why has the value of the U.S. dollar fallen by over 95 percent since the Federal Reserve was created back in 1913?
#36 Why has the size of the U.S. national debt gotten more than 5000 times larger since the Federal Reserve was created back in 1913?