European

Look Out Below – The Nightmarish Decline Of The Euro Has Begun

The euro is a dying currency.  On Thursday, the EUR/USD fell below 1.28 for the first time since September 2010.  In fact, as I write this the EUR/USD is sitting at 1.2791.  Back in July, the EUR/USD was over 1.45.  But this is just the beginning.  The euro is going to go a lot lower.  At this point, there are several major European nations that are on the verge of default, the European financial system is overflowing with debt and toxic assets, and most major European banks are leveraged about as badly as Lehman Brothers was when it collapsed.  Most Americans simply do not grasp the gravity of what is happening.  Just because the Dow is sitting above 12000 and a few U.S. economic numbers have improved slightly does not mean that everything is going to be okay.  As I wrote about recently, the EU has a bigger economy than we do and they have a bigger banking system than we do.  U.S. banks are massively exposed to European sovereign debt and European banking debt.  When the financial system of Europe collapses and the euro falls apart it is going to rock the entire planet.  So you better look out below – the euro is coming down and it is coming down hard.  After the euro implodes, nothing is every going to be the same again.

So how far are we going to see the euro decline?

Julian Jessop of Capital Economics expects the euro to fall much further….

The relative strength of the recent economic data from the US is supporting the dollar more generally, and we expect this divergence to persist as the euro-zone slides into a deep and prolonged recession. Above all, doubts about the very survival of the euro itself are likely to remain a drag on the currency. We therefore continue to expect the euro to fall to around $1.10 by the end of the year.

Others are even more pessimistic.

As I have written about previously, the head of global bond portfolio management at PIMCO believes that the euro is going to go even lower than that….

“Parity with the dollar next year is not out of the question”

Can you imagine that?

1 dollar = 1 euro?

Don’t think that it can’t happen.

But the decline of the euro is just part of the story.  The truth is that Europe is on the verge of a financial collapse that could end up dwarfing the financial crisis of 2008.

Sadly, most Americans have no idea what has been going on in Europe the past few days….

-The stock of the biggest bank in Italy, UniCredit, is absolutely collapsing.  Shares of UniCredit fell 14 percent on Wednesday and 17 percent on Thursday.

-Shares of another major Italian bank, Intesa Sanpaolo, fell 7.3 percent on Thursday.

-Shares of three major French banks all fell by at least 5 percent on Thursday.

-Even shares of German banks are falling like a rock.  Shares of Commerzbank fell 4.5 percent on Thursday and shares of Deutsche Bank fell 5.6 percent on Thursday.

-The yield on 5 years Italian bonds is back over 6 percent and the yield on 10 year Italian bonds is back over 7 percent.  Analysts all over Europe insist that that the Italian debt situation is not sustainable if rates stay this high.

-Italy’s youth unemployment rate has hit the highest level ever.

This is mind blowing news.

But what is the top headline on USA Today right now?

“Employers Impose Bans On Smokers”

These are some of the other top headlines on USA Today right now….

“Automakers Rush To Offer Apps In Your Car”

“Bargain Season At Taco Bell, Pizza Hut, Wendy’s”

“Does Your Dog Understand You? Study Says Maybe”

Is that what passes as news in this country?

A financial meltdown of historic proportions is happening in Europe and you cannot even find anything about it on the front page of USA Today.

Amazing.

All of us need to snap out of our television-induced comas and start waking up.

Things are about to get really bad for the global financial system.

At this point so much confidence has been lost in the euro that even the Council on Foreign Relations is admitting that the euro is a failure….

The euro should now be recognized as an experiment that failed. This failure, which has come after just over a dozen years since the euro was introduced, in 1999, was not an accident or the result of bureaucratic mismanagement but rather the inevitable consequence of imposing a single currency on a very heterogeneous group of countries. The adverse economic consequences of the euro include the sovereign debt crises in several European countries, the fragile condition of major European banks, high levels of unemployment across the eurozone, and the large trade deficits that now plague most eurozone countries.

If even the CFR is throwing in the towel, that should tell you something about what is about to happen to the euro.

There is a very real possibility that we could see the euro break up at some point during the next couple of years.

It now seems that a report produced a while back by Credit Suisse’s Fixed Income Research unit was right on target….

“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 European debt crisis just continues to get worse and worse.  None of the solutions that European leaders have tried have worked.  We are rapidly approaching the meltdown phase of this crisis.

As I have written about previously, it doesn’t take a genius to figure out what is happening in Europe.  The equation is simple….

Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions

Unfortunately, what is happening right now in Europe is eventually going to happen in the United States as well.

As I wrote about yesterday, U.S. debt is a ticking time bomb that is going to devastate the entire global economy at some point.  Nobody knows when the implosion will happen, but everyone knows that it is inevitable.

When Europe falls apart financially, that is going to make our own financial system much less stable.  What is happening in Europe could turn our “limited recovery” into a “major recession” almost overnight.

So keep your eye on the euro.

If the euro keeps going down, that is going to be really bad news for the global economy.

Unfortunately, the truth is that the decline of the euro is just getting started.

Hold on to your hats.

***UPDATE***

The euro continues to drop like a rock.  Right now it is at 1.2721.

Michael

The Collapse Of The Euro, The Death Of The Euro And The End Of The Euro

The euro was a doomed project from the start, and now we are starting to see the endgame play out.  Today, the euro fell to an 11-month low against the U.S. dollar.  As I write this, the EUR/USD is at 1.2983.  Back in July, the EUR/USD was over 1.45.  As panic has swept the financial markets, the euro has lost more than 3 percent over the past three days.  But this is just the beginning.  When the euro drops below 1.20, analysts will talk about the collapse of the euro.  When the euro falls toward parity with the dollar, headlines around the world will scream about the death of the euro.  But when the European financial system finally collapses, we may very well actually see the end of the euro.  Yes, it actually could happen.  The eurozone, as it is currently constructed, simply does not work.  You just can’t take 17 different nations that have 17 different fiscal policies, 17 different tax policies and 17 different economic agendas and cram them all into a single currency and expect the thing to work.  The euro is a doomed currency, and if a big nation like Germany decides to walk away at some point the game is going to be over.

It is not as if the euro is just having a bad week.  Just check out this chart that shows what the euro has done relative to the U.S. dollar over the past 6 months.

The truth is that a collapse of the euro has already begun.

And a whole lot of investors expect it to continue.  Right now, huge amounts of money are being poured into bets that the euro is going to go even lower.

All over the world, financial professionals are speculating about how far the euro will eventually fall.  Scott Mather, the head of global bond portfolio management at PIMCO, says that he believes that the euro is going to go much, much lower….

“Parity with the dollar next year is not out of the question”

Of course the central banks of the world could step in at some point with coordinated action to help support the value of the euro.  This kind of thing has happened before.  But such support would only be temporary.

Central banks can manipulate the markets for a while, but in the end the long-term trends are going to prevail.  Just look at what is happening with European bond yields.

European bond yields are rising once again even though the European Central Bank has already spent over 274 billion dollars buying up European government bonds.

There will be more efforts to try to prevent the death of the euro, but those efforts will be kind of like spitting into the wind.

A recent article posted on Crackerjack Finance talked about some of the fundamental problems that make the euro such a flawed currency….

The problems of the Eurozone’s flawed construct are now completely exposed. A block of 17 sovereign nations have adopted a common currency and outsourced monetary policy to a common central bank. Yet each of the 17 sovereign nations have different comparative advantages, industries, debt levels, interest rates, budget deficits, labor market rules, and tax policies. Reflecting on all the differences, it is amazing that the Eurozone has survived in the current construct for over a decade.

Greece would probably not be going through an economic depression right now if they had not joined the euro.  But now, 100,000 businesses have closed since the beginning of the recent crisis and a third of the country is living in poverty.

As this crisis spreads throughout the rest of Europe, it is going to put an incredible amount of stress on the European financial system.  Many now believe that the euro may not be able to make it through the tough times that are ahead.

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.”

So will we actually see the end of the euro?

Only time will tell.

But one thing is for sure – the situation in Europe is rapidly getting worse.

In Greece, approximately 20 percent of all bank deposits have been withdrawn since the start of 2011.

If you still have money in a Greek bank, you might want to do something about it before the run on the banks gets even worse.

In fact, if you still have money in any European bank, you might want to consider your options.

Today it was revealed that Germany’s second largest bank is going to need a bailout.

The following comes from a Sky News report….

Germany’s second largest bank, Commerzbank, is reportedly in discussions with the German government about a bailout after regulators said it needed to raise more money to cope with a potential default on its loans to governments.

“Intense talks” have been going on for several days, according to sources who spoke to the news agency Reuters.

Let the bailouts begin!

European governments are going to save the banks that they want to save, and the rest they are going to let fail.

So who will live and who will die?

We just don’t know.

But without a doubt, a whole lot of European banks are in trouble.  In fact, Fitch Ratings downgraded the credit ratings of five more major European banks on Wednesday.

The eurozone worked well for a while, but now the flaws in the system are becoming appallingly evident.  To get an idea of just how badly the European financial system is unraveling, just check out this chart.  European bond yields are not supposed to be acting like that.

In the end, someone is going to leave the euro.  There has been a lot of talk about Greece or Italy leaving the euro, but the truth is that it is probably more likely that a strong nation such as Germany will be the first to make a move.

If Germany leaves the euro, will they start printing up new German currency?

No, I believe in that case that Germany would seek to establish an entirely new European currency for an entirely new European financial system.  Germany is very committed to the idea of a “European superstate“, and just because the euro is a failure does not mean that they are ready to give up on the idea.

But time will tell who is right and who is wrong.

For much more on why we are on the verge of a massive financial collapse in Europe, please check out these articles….

*”Mega Fail: 17 Signs That The European Financial System Is Heading For An Implosion Of Historic Proportions”

*”22 Reasons Why We Could See An Economic Collapse In Europe In 2012”

As I have written about previously, it doesn’t take a genius to figure out what is happening in Europe.  The equation is simple….

Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions

Unfortunately, the United States is not going to escape all of this chaos unscathed either.

The financial systems of the United States and Europe are more deeply tied together than ever before.  When the financial crisis in Europe fully erupts, we are going to see lots of banks in the United States fail too.

The U.S. economy never recovered from the financial crisis of 2008, and this next financial crisis could send us into a huge tailspin.

2012 is going to be a very interesting year for the financial world.  I hope that you all are ready for what is about to happen.

Mega Fail: 17 Signs That The European Financial System Is Heading For An Implosion Of Historic Proportions

What happens when you attempt a cold shutdown of one of the biggest debt spirals that the world has ever seen?  Well, we are about to find out.  The politicians in Europe have decided that they are going to “take their medicine” and put strict limits on budget deficits.  They have also decided that the European Central Bank is not going to engage in reckless money printing to “paper over” the debts of troubled nations.  This may all sound wonderful to many of you, but the reality is that there is always a tremendous amount of pain whenever a massive debt spiral is interrupted.  Just look at what happened to Greece.  Greece was forced to raise taxes and implement brutal austerity measures.  That caused the economy to slow down and tax revenues to decline and so government debt figures did not improve as much as anticipated.  So Greece was forced to implement even more brutal austerity measures.  Well, that caused the economy to slow down even more and tax revenues declined again.  In Greece this cycle has been repeated several times and now Greece is experiencing a full-blown economic depression.  100,000 businesses have closed and a third of the population is living in poverty.  But now Germany and France intend to impose the “Greek solution” on the rest of Europe.  This is going to create the conditions needed for a “perfect storm” to develop and it means that the European financial system is heading for an implosion of historic proportions.

The easiest way to deal with a debt spiral is to let it keep going and going.  That is what the United States has done.  Sure, “kicking the can down the road” makes the crisis much worse in the long run, but bringing the pain into the present is not a lot of fun either.

Europe has decided to do something that is unprecedented in the post-World War II era.  They have decided to put very strict limits on budget deficits and to impose tough sanctions on any nations that break the rules.  They have also decided that they are not going to allow the European Central Bank to fund the debts of troubled nations with reckless money printing.

Without a doubt, this is a German solution for a German-dominated Europe.  Germany does not want to pay for the debt mistakes of other EU nations, and so they are shoving bitter austerity down the throats of those that have gotten into too much debt.

But this solution is not going to be implemented without a massive amount of pain.

In fact, this solution is going to make a massive financial collapse much more likely.  The following are 17 signs that the European financial system is heading for an implosion of historic proportions….

#1 As noted above, when you reduce government spending you also slow down the economy.  We have already seen what brutal austerity has done to Greece – 100,000 businesses have shut down, a third of the population is living in poverty and there is rioting in the streets.  Now that brand of brutal austerity is going to be imposed in almost every single nation in Europe.

#2 As the economy slows down in Europe, unemployment will rise.  There are already 10 different European nations that have an “official” unemployment rate of over 10 percent and the next recession has not even officially started yet.

#3 Before it is all said and done, the EU nations that are drowning in debt will likely need trillions of euros in bailout money just to survive.  But at this point Germany and the other wealthy nations of northern Europe are sick and tired of bailouts and do not plan to hand over trillions of euros.

#4 The European Central Bank could theoretically print up trillions of euros and buy up massive amounts of European sovereign debt, but this would go against existing treaties and most of the major politicians in Europe are steadfastly against this right now.  But without such intervention it is hard to see how the ECB will be able to keep bond yields from absolutely skyrocketing for long.  In fact, without massive ECB intervention it is hard to see how the eurozone is going to be able to stay together at all.  Graeme Leach, the chief economist at the Institute of Directors, said the following recently….

“Unless the ECB begins to operate as a sovereign lender of last resort function, with massive purchases of eurozone public debt, the inexorable logic is that the eurozone will break up.”

#5 European leaders are hoping that the new treaty that was just agreed to will be ratified by the end of the summer.  In reality, it will probably take much longer than that.  German Chancellor Angela Merkel has made it clear that the solution to this debt crisis is going to take a long time to implement….

“It’s a process, and this process will take years.”

Unfortunately, Europe does not have years.  Europe is rapidly running out of time.  A massive financial crisis is steamrolling right at them and they need solutions right now.

#6 Sadly, the cold, hard reality of the matter is that none of the fundamental problems that Europe is facing were fixed by this recent “agreement” as Ambrose Evans-Pritchard recently noted in one of his columns….

There is no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking licence for the ESM rescue fund, and no change in the mandate of the European Central Bank.

In short, there is no breakthrough of any kind that will convince Asian investors that this monetary union has viable governance or even a future.

Germany has kept the focus exclusively on fiscal deficits even though everybody must understand by now that this crisis was not caused by fiscal deficits (except in the case of Greece). Spain and Ireland were in surplus, and Italy had a primary surplus.

#7 Nobody wants to lend to European banks right now.  Everyone knows that there are dozens of European banks in danger of failing, and nobody wants to throw any more money into those black holes.  The U.S. Federal Reserve and the European Central Bank have been lending them money, but a lot of European banks are already starting to run out of “acceptable forms of collateral” for those loans as one Australian news source recently explained….

“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.

So will the U.S. Federal Reserve and the European Central Bank keep lending them money once they are out of acceptable collateral?

If not, we could start to see banks fail in rapid succession.

Charles Wyplosz, a professor of international economics at Geneva’s Graduate Institute, is absolutely certain 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.”

#8 Not only does nobody want to lend money to them, major banks all over Europe are also dramatically cutting back on lending to consumers and businesses as they attempt to meet new capital-adequacy requirements by next June.

According to renowned financial journalist Ambrose Evans-Pritchard, European banks need to reduce the amount of lending on their books by about 7 trillion dollars in order to get down to safe levels….

Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade.

When nobody wants to lend to the banks, and when the banks severely cut back on lending to others, that is called a “credit crunch”.  In such an environment, it is incredibly difficult to avoid a major recession.

#9 European banks are absolutely overloaded with “toxic assets” that they are desperate to get rid of.  Just as we saw with U.S. banks back in 2008, major European banks are busy trying to unload mountains of worthless assets that have a book value of trillions of euros.  Unfortunately for the banks, virtually nobody wants to buy them.

#10 European bond yields are still incredibly high even though the European Central Bank has spent over 274 billion dollars buying up European government bonds.

Up until now, the European Central Bank has been taking money out of the system (by taking deposits or by selling assets for example) whenever it injects new money into the system by buying bonds.  That makes this different from the quantitative easing that the U.S. Federal Reserve has done.  But at some point the European Central Bank is going to run out of ways to take money out of the system, and when that happens either the Germans will have to allow the ECB to print money out of thin air to buy bonds with or we will finally see the market determine the true value of European government bonds.

#11 Bond yields are going to become even more important in 2012, because huge mountains of European sovereign debt are scheduled to be rolled over next year.  For example, Italy must roll over approximately 20 percent of its entire sovereign debt during 2012.

#12 Once the new treaty is ratified, eurozone governments will lose the power to respond to a major recession by dramatically increasing government spending.  So if the governments of Europe cannot spend more money in response to the coming financial crisis, and if the ECB cannot print more money in response to the coming financial crisis, then what is going to keep the coming recession from turning into a full-blown depression?

#13 Credit rating agencies are warning that more credit downgrades may be coming in Europe. For example, Moody’s recently stated the following….

“While our central scenario remains that the euro area will be preserved without further widespread defaults, shocks likely to materialise even under this ‘positive’ scenario carry negative credit and rating implications in the coming months. And the longer the incremental approach to policy persists, the greater the likelihood of more severe scenarios, including those involving multiple defaults by euro area countries and those additionally involving exits from the euro area.”

#14 S&P has put 15 members of the eurozone (including Germany) on review for a possible credit downgrade.

#15 The stock prices of many major European banks are in the process of collapsing.  If you doubt this, just check out the charts in this article.

#16 Bank runs have begun in some parts of Europe.  For example, a recent article posted on Yahoo News described what has been going on in Latvia….

Latvia’s largest bank scrambled Monday to head off a run among depositors who were gripped by rumours of the bank’s imminent ruin.

Weekend rumours that Swedbank was facing legal and liquidity problems in Estonia and Sweden sent thousands of Latvians to bank machines on Sunday, with some lines reaching as many as 50 people.

The Greek banking system is literally on the verge of collapse.  According to a recent Der Spiegel article, the run on Greek banks is rapidly accelerating….

He means that the outflow of funds from Greek bank accounts has been accelerating rapidly. At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion — by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum. Savings fell by a further €5.4 billion in September and by an estimated €8.5 billion in October — the biggest monthly outflow of funds since the start of the debt crisis in late 2009.

#17 There are already signs that European economic activisty (as well as global economic activity) is really starting to slow down.  Just consider the following statistics from a recent article by Stephen Lendman….

In November, French business confidence fell for the eighth consecutive month. In October, Japanese machinery orders dropped 6.9%, following an 8.2% plunge in September.

South Africa just reported a 5.6% drop in manufacturing activity. Britain recorded a 0.7% decline. China’s October exports fell 1.7% after dropping 3.8% in September.

Korea’s exports are down three consecutive months. Singapore’s were off in September and October. Indonesia’s plunged 8.5% in October after slipping 2% in September. India’s imploded 18.3% after being flat in September.

Are you starting to get the picture?

Europe is in a massive amount of trouble.

The equation is simple….

Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions

Unless something truly dramatic happens, the economy of Europe is a dead duck.

There is no way that Europe is going to be able to substantially reduce the flow of money coming from national governments and substantially reduce the flow of money coming from the banks and still be able to avoid a major recession.

Look, I want it to be very clear that I am in no way advocating government debt in this article.  It is just that under the debt-based monetary paradigm that we are all operating under, there is no way that you can dramatically reduce government spending without experiencing a whole lot of pain.

An economic “perfect storm” is developing in Europe.  All of the things that need to happen for a major recession to occur are falling into place.

So does anyone out there disagree with me?  Does anyone think that Europe is going to be just fine?

Please feel free to leave a comment with your thoughts below….

What Have The Central Banks Of The World Done Now?

The central banks of the world are acting as if it is 2008 all over again.  Desperate times call for desperate measures, and right now the central bankers are pulling out all the stops.  The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan and the Swiss National Bank have announced a coordinated plan to provide liquidity support to the global financial system.  According to the plan, the Federal Reserve is going to substantially reduce the interest rate that it charges the European Central Bank to borrow dollars.  In turn, that will enable the ECB to lend dollars to European banks at a much cheaper rate.  The hope is that this will alleviate the credit crunch which has gripped the European financial system by the throat.  So where is the Federal Reserve going to get all of these dollars that it will be loaning out at very low interest rates?  You guessed it – the Fed is just going to create them out of thin air.  Our currency is being debased so that Europe can be helped out.  Unfortunately, the impact of this move will be mostly “psychological” because it really does nothing to address the fundamental problems that Europe is facing.  It is up to Europe to solve those problems, and so far Europe has shown no signs of being able to do that.

The major central banks of the world say that they want to “enhance their capacity to provide liquidity support to the global financial system.”  But essentially what is happening is that the Federal Reserve is going to be zapping large amounts of dollars into existence and loaning them out to the ECB very, very cheaply.  Think of it as a type of “quantitative easing” on a global scale.

The decision to do this was reportedly made by the Federal Reserve on Monday morning.  For the moment, this move seems to have stabilized the European financial system.  It is quite unlikely that any major European banks will fail this weekend now.

But as mentioned above, this move does nothing to solve the very serious financial problems that Europe is facing.  This intervention by the central banks is merely just a speed bump on the road to financial oblivion.

Most Americans are not going to understand what the central banks of the world just did, but it really is not that complicated.

The following is how CNN chief business correspondent Ali Velshi broke down what the central banks have done….

In an attempt to stave off the consequences of a global credit freeze, the Federal Reserve, in coordination with major central banks, has created a credit line available to those central banks, whereby they can borrow dollars at reduced interest rates for periods of three months. The central banks, in turn, can lend to commercial banks in their respective countries. This is meant to reduce the cost of short-term borrowing for troubled European banks and to give them immediate access to dollars.

This was done immediately after the collapse of Lehman Brothers as well, to alleviate the consequences of banks being largely unwilling to lend to other banks, even for short periods, for fear that the borrowing banks could fail.

Okay – so the Federal Reserve is loaning giant piles of cheap money to the European Central Bank.

So where in the world does all of that money come from?

As a CNBC article recently explained, all of this money is created right out of thin air by the Federal Reserve….

Neither the dollars nor the Euros come from anywhere. They aren’t moved or debited from anywhere. They are invented right on the spot with a few taps on the key pad. And that’s all. There’s no printing press fired up to make new dollars or euros.

This is sometimes called “fiat money.” But that makes it sound as if some command from a sovereign created the money. It’s really closer to “keyboard money,” since it is created by data entry in a computer.

Does that sound bizarre to you?

It should.

But that is how the global financial system really works.

We live in a crazy world.

So what did the financial markets of the world think of this move by the Federal Reserve?

It turns out that they absolutely loved it.

The Dow was up 490 points, and that was the biggest gain of the year so far.

Unfortunately, this stock market rally is not going to last indefinitely.  If you are still in the market, enjoy this while you can because eventually a whole lot of pain is going to be coming.

Again, nothing has been solved.  Europe is still in a massive amount of trouble.  But the announcement did make everyone feel all “warm and fuzzy” for at least a day.

Michelle Girard, a senior economist at RBS Securities, said the following about this move….

“The impact is more psychological than anything else”

Just think of it as “comfort food” for the financial markets.

It was also a very desperate move.

In fact, some even believe that this move happened because a major European bank was in danger of failing.

Just check out some of the things that Jim Cramer of CNBC has been saying on Twitter….

If the Fed didn’t act we would have had the largest bank failure ever this weekend, i believe.

The actions the governments took today shows that there was without a doubt a major bank about to fall this weekend.  That’s very dire….

I believe a major European bank would have gone under this weekend…. That’s why they did this….

An article in Forbes has also speculated that this move was made because a major European bank was in imminent danger of failing….

Did a big European bank come close to failing last night?  European banks, especially French banks, rely heavily on funding in the wholesale money markets.  Given the actions of the world’s largest central banks last night, it raises the question of whether a major bank was having difficulty funding its immediate liquidity needs.

Perhaps we will never know the truth, but the reality is that the Federal Reserve and the European Central Bank would have never taken coordinated action like this if they did not believe that there was some sort of imminent threat to the global financial system.

Sadly, this latest move is also going to have some side effects.

Pimco senior vice president Tony Crescenzi says that all of this “liquidity” is going to dramatically increase the size of the U.S. monetary base….

Keep in mind that any use of the Fed’s swap facility expands the Fed’s monetary base: all dollars, no matter where they are deposited, whether it be Kazakhstan, Japan, or Mexico, wind up back in an American bank. This means that any time a foreign central bank engages in a swap with the Federal Reserve, the Fed will create new money in order to make the swap. Use of the Fed’s liquidity swap line in late 2008 was the main cause of a surge in the Fed’s monetary base at that time. The peak for the swap line was about $600 billion in December 2008. Some observers will therefore say that the swap line is a backdoor way to engage in more quantitative easing.

When there is more money floating around out there but the same amount of goods and services, prices go up.

So will we eventually see more inflation in the United States because of all this?

That is what some are fearing.

Meanwhile, politicians in Europe have failed to come up with a plan to address the European financial crisis once again.

They are calling it a “delay”, but the truth is that it should be called a “failure”.  The following comes from an article in USA Today….

The ministers delayed action on major financial issues — such as the concept of a closer fiscal union that would guarantee more budgetary discipline — until the heads of state meet next week in Brussels.

So will European politicians come up with a real plan next week in Brussels?

That seems unlikely.

The reality is that this latest move by the major central banks of the world does not change the fact that Europe is in a huge amount of trouble and is most likely headed for a very painful financial collapse.

One more thing that this latest move by the central banks of the world highlights is the fact that we do not have any control over what they do.

All of these central banks are run by unelected bureaucrats that answer to nobody.  The decisions that these central bankers make affect all of our lives in a very significant way, and yet we have zero input into these decisions.

Most of the decisions that these central bankers make seem to benefit big banks and big financial institutions.  They always claim that the benefits will “filter down” to the rest of us.  But most of the time what ends up filtering down to us is the economic pain that comes from their bad decisions.

As I have written about so many times before, these central banks need to be abolished.  The American people need to tell Congress to shut down the Federal Reserve and to start issuing debt-free United States currency.

We do not want a bunch of unelected central bankers to “centrally plan” the U.S. economy or to “centrally plan” the global economy.

The more these central bankers monkey with things, the more they mess things up.

Yes, this latest move has stabilized things for the moment, but big trouble is on the horizon for the global financial system.

Count on it.

22 Reasons Why We Could See An Economic Collapse In Europe In 2012

Will 2012 be the year that we see an economic collapse in Europe?  Before you dismiss the title of this article as “alarmist”, read the facts listed in the rest of this article first.  Over the past several months, there has been an astonishing loss of confidence in the European financial system.  Right now, virtually nobody wants to loan money to financially troubled nations in the EU and virtually nobody wants to lend money to major European banks.  Remember, one of the primary reasons for the financial crisis of 2008 was a major credit crunch that happened here in the United States.  This burgeoning credit crunch in Europe is just one element of a “perfect storm” that is rapidly coming together as we get ready to go into 2012.  The signs of trouble are everywhere.  All over Europe, governments are implementing austerity measures and dramatically cutting back on spending.  European banks are substantially cutting back on lending as they seek to meet new capital requirements that are being imposed upon them.  Meanwhile, bond yields are going through the roof all over Europe as investors lose confidence and demand much higher returns for investing in European debt.  It has become clear that without a miracle happening, quite a few European nations and a significant number of European banks are not going to be able to get the funding that they need from the market in 2012.  The only thing that is going to avert a complete and total financial meltdown in Europe is dramatic action, but right now European leaders are so busy squabbling with each other that a bold plan seems out of the question.

The following are 22 reasons why we could see an economic collapse in Europe in 2012….

#1 Germany could rescue the rest of Europe, but that would take an unprecedented financial commitment, and the German people do not have the stomach for that.  It has been estimated that it would cost Germany 7 percent of GDP over several years in order to sufficiently bail out the other financially troubled EU nations.  Such an amount would far surpass the incredibly oppressive reparations that Germany was forced to pay out in the aftermath of World War I.

A host of recent surveys has shown that the German people are steadfastly against bailing out the rest of Europe.  For example, according to one recent poll 57 percent of the German people are against the creation of eurobonds.

At this point, German politicians are firmly opposed to any measure that would place an inordinate burden on German taxpayers, so unless this changes that means that Europe is not going to be saved from within.

#2 The United States could rescue Europe, but the Obama administration knows that it would be really tough to sell that to the American people during an election season.  The following is what White House Press Secretary Jay Carney said today about the potential for a bailout of Europe by the United States….

“This is something they need to solve and they have the capacity to solve, both financial capacity and political will”

Carney also said that the Obama administration does not plan to commit any “additional resources” to rescuing Europe….

“We do not in any way believe that additional resources are required from the United States and from American taxpayers.”

#3 Right now, banks all over Europe are in deleveraging mode as they attempt to meet new capital-adequacy requirements by next June.

According to renowned financial journalist Ambrose Evans-Pritchard, European banks need to reduce the amount of lending on their books by about 7 trillion dollars in order to get down to safe levels….

Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade.

So what does that mean?

It means that European banks are going to be getting really, really stingy with loans.

That means that it is going to become really hard to buy a home or expand a business in Europe, and that means that the economy of Europe is going to slow down substantially.

#4 European banks are overloaded with “toxic assets” that they are desperate to get rid of.  Just like we saw with U.S. banks back in 2008, major European banks are busy trying to unload mountains of worthless assets that have a book value of trillions of euros, but virtually nobody wants to buy them.

#5 Government austerity programs are now being implemented all over Europe.  But government austerity programs can have very negative economic effects.  For example, we have already seen what government austerity has done to Greece. 100,000 businesses have closed and a third of the population is now living in poverty.

But now governments all over Europe have decided that austerity is the way to go.  The following comes from a recent article in the Economist….

France’s budget plans are close to being agreed on; further cuts are likely but will be delayed until after the elections in spring. Italy has yet to vote through a much-revised package of cuts. Spain’s incoming government has promised further spending cuts, especially in regional outlays, in order to meet deficit targets agreed with Brussels.

#6 The amount of debt owed by some of these European nations is so large that it is difficult to comprehend.  For example, Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3 trillion euros combined.

So what will massive government austerity do to troubled nations such as Spain, Portugal, Ireland and Italy?  Ambrose Evans-Pritchard is very concerned about what even more joblessness will mean for many of those countries….

Even today, the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy. We will discover over time what yet more debt deleveraging will do to these societies.

#7 Europe was able to bail out Greece and Ireland, but there is no way that Italy will be able to be rescued if they require a full-blown bailout.

Unfortunately, Italy is in the midst of a massive financial meltdown as you read this.  The yield on two year Italian bonds is now about double what it was for most of the summer.  There is no way that is sustainable.

It would be hard to overstate how much of a crisis Italy represents.  The following is how former hedge fund manager Bruce Krasting recently described the current situation….

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.

Krasting believes that either Italy gets a gigantic mountain of cash from somewhere or they will default within six months and that will mean the start of a global depression….

I think the Italian story is make or break. Either this gets fixed or Italy defaults in less than six months. The default option is not really an option that policy makers would consider. If Italy can’t make it, then there will be a very big crashing sound. It would end up taking out most of the global lenders, a fair number of countries would follow into Italy’s vortex. In my opinion a default by Italy is certain to bring a global depression; one that would take many years to crawl out of.

#8 An Italian default may be closer than most people think.  As the Telegraph recently reported, just to refinance existing debt, the Italian government must sell more than 30 billion euros worth of new bonds by the end of January….

Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default.

The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”

#9 European nations other than just the “PIIGS” are getting into an increasing amount of trouble.  For example, S&P recently slashed the credit rating of Belgium to AA.

#10 Credit downgrades are coming fast and furious all over Europe now.  At this point it seems like we see a new downgrade almost every single week.  Some nations have been downgraded several times.  For instance, Fitch has downgraded the credit rating of Portugal again.  At this point it is being projected that Portuguese GDP will shrink by about 3 percent in 2012.

#11 The financial collapse of Hungary didn’t make many headlines in the United States, but it should have.  Moody’s has cut the credit rating of Hungarian debt to junk status, and Hungary has now submitted a formal request to the EU and the IMF for a bailout.

#12 Even faith in German debt seems to be wavering. Last week, Germany had “one of its worst bond auctions ever“.

#13 German banks are also starting to show signs of weakness.  The other day, Moody’s downgraded the ratings of 10 major German banks.

#14 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”….

As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.

Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.

The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.

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.

#15 The EFSF was supposed to help bring some stability to the situation, but the truth is that the EFSF is already a bad joke.  It has been reported that the EFSF has already been forced to buy up huge numbers of its own bonds.

#16 Unfortunately, it looks like a run on the banks has already begun in Europe.  The following comes from a recent article in The Economist….

“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”

#17 Confidence in European banks has been absolutely shattered and virtually nobody wants to lend them money right now.

The following is a short excerpt from a recent CNBC article….

Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.

And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.

#18 There are dozens of major European banks that are in danger of failing.  The reality is that most major European banks are leveraged to the hilt and are massively exposed to sovereign debt.  Before it fell in 2008, Lehman Brothers was leveraged 31 to 1.  Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.

#19 According to the New York Times, the economy of the EU is already projected to shrink slightly next year, and this doesn’t even take into account what is going to happen in the event of a total financial collapse.

#20 There are already signs that the European economy is seriously slowing down.  Industrial orders in the eurozone declined by 6.4 percent during September.  That was the largest decline that we have seen since the midst of the financial crisis in 2008.

#21 Panic and fear are everywhere in Europe right now.  The European Commission’s index of consumer confidence has declined for five months in a row.

#22 European leaders are really busy fighting with each other and a true consensus on how to solve the current problems seems way off at the moment.  The following is how the Express recently described rising tensions between German and British leaders….

The German Chancellor rejected outright Mr Cameron’s opposition to a new EU-wide financial tax that would have a devastating impact on the City of London.

And she refused to be persuaded by his call for the European Central Bank to support the euro. Money markets took a dip after their failure to agree.

Are you starting to get the picture?

The European financial system is in a massive amount of trouble, and when it melts down the entire globe is going to be shaken.

But it isn’t just me that is saying this.  As I mentioned in a previous article, there are huge numbers of respected economists all over the globe that are now saying that Europe is on the verge of collapse.

For example, just check out what Credit Suisse is saying about the situation in Europe….

“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.”

Many European leaders are promoting much deeper integration and a “European superstate” as the answer to these problems, but it would take years to implement changes that drastic, and Europe does not have that kind of time.

If Europe experiences a massive economic collapse and a prolonged depression, it may seem like “the end of the world” to some people, but things will eventually stabilize.

A lot of people out there seem to think that the global economy is going to go from its present state to “Mad Max” in a matter of weeks.  Well, that is just not going to happen.  The coming troubles in Europe will just be another “wave” in the ongoing economic collapse of the western world.  There will be other “waves” after that.

Of course this current sovereign debt crisis could be entirely averted if the countries of the western world would just shut down their central banks and start issuing debt-free money.

The truth is that there is no reason why any sovereign nation on earth ever has to go a penny into debt to anyone.  If a nation is truly sovereign, then the government has the right to issue all of the debt-free money that it wants.  Yes, inflation would always be a potential danger in such a system (just as it is under central banking), but debt-free money would mean that government debt problems would be a thing of the past.

Unfortunately, most of the countries of the world operate under a system where more government debt is created when more currency is created.  The inevitable result of such a system is what we are witnessing now.  At this point, nearly the entire western world is drowning in debt.

There are alternatives to our current system.  But nobody in the mainstream media ever talks about them.

So instead of focusing on truly creative ways to deal with our current problems, we are all going to experience the bitter pain of the coming economic collapse instead.

Things did not have to turn out this way.

Trouble

The global economy is heading for a massive amount of trouble in the months ahead.  Right now we are seeing the beginning of a credit crunch that is shaping up to be very reminiscent of what we saw back in 2008.  Investors and big corporations are pulling huge amounts of money out of European banks and nobody wants to lend to those banks right now.  We could potentially see dozens of “Lehman Brothers moments” in Europe in 2012.  Meanwhile, bond yields on sovereign debt are jumping through the roof all over Europe.  That means that European nations that are already drowning in debt are going to find it much more expensive to continue funding that debt.  It would be a huge understatement to say that there is “financial chaos” in Europe right now.  The European financial system is in so much trouble that it is hard to describe.  The instant that they stop receiving bailout money, Greece is going to default.  Portugal, Italy, Ireland, Spain and quite a few other European nations are also on the verge of massive financial problems.  When the financial dominoes start to fall, the U.S. financial system is going to be dramatically affected as well, because U.S. banks have a huge amount of exposure to European debt.  The other day, I noted that investor Jim Rogers is saying that the coming global financial collapse “is going to be worse” than 2008.  Sadly, it looks like he is right on the money.  We are in a lot of trouble my friends, and things are going to get really, really ugly.

The sad thing is that we never have recovered from the last major financial crisis.  Right now, the U.S. economy is far weaker than it was back in 2007.  So what is going to happen if we get hit with another financial tsunami?  The following is what PIMCO CEO Mohamed El-Erian said recently….

“What’s most terrifying, we are having this discussion about the risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time then the fiscal deficit is at 9 percent and at a time when interest rates are at zero.”

Can things really get much worse than they are now?

Unfortunately, yes they can.

Not that things are not really, really bad right now.

In Los Angeles earlier this week, approximately 10,000 people lined up for free turkey dinners.

So how many people will be lining up for free food when the unemployment rate in the U.S. soars into double digits?

Right now there is so much economic pain in America that it is hard to describe.  According to a recent report from one nonprofit group, 45 percent of all people living in the United States “do not have enough money to cover housing, food, healthcare and other basic expenses”.

If this is where we are at now, how much trouble will we be in as a nation if a financial crisis worse than 2008 hits us in 2012?

The primary cause of the coming financial crisis will almost certainly be the financial meltdown that we are seeing unfold in Europe.

The economic downturn that began in 2008 caused the debt levels of quite a few European nations to soar to unprecedented heights.  It has gotten to the point where the debts of many of those nations are no longer sustainable.

So investors are starting to demand much higher returns for the much greater risk associated with investing in the bonds of those countries.

But that makes it much more expensive for those troubled nations to fund their debts, and that means that their financial troubles get even worse.

Over the past 12 months, what we have seen happen to bond yields over in Europe has been nothing short of amazing.

Just check out this chart of what has been happening to the yield on 2 year Italian bonds over the past 12 months.

And keep in mind that these bond yields have been spiking even while the European Central Bank has been buying up unprecedented mountains of bonds in an attempt to keep bond yields low.

There has been a fundamental loss of faith in the financial system, and it is not just happening in Europe.

Just check out this chart.  As that chart shows, credit default swap spreads all over the globe are absolutely skyrocketing and are now higher than we have seen at any point since the great financial crisis that shook the world during 2008 and 2009.

Panic and fear are everywhere – especially in Europe.  In fact, it looks like a run on the banks has already begun in Europe.

The following comes from a recent article in The Economist….

“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”

Nobody wants to lend money to European banks right now.  There is a feeling that they are all vulnerable and could fail at any time, and this lack of confidence actually makes that possibility even more likely.

The following is a short excerpt from a recent CNBC article….

Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.

And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.

So what can be done?

Well, in a different CNBC article, Mitchell Goldberg was quoted as saying that even “a bazooka” is not going to be good enough to fix this situation….

“It’s too late for a bazooka,” said Mitchell Goldberg, president of ClientFirst Strategy. “Now we need inter-continental ballistic missiles. This is getting worse very quickly.”

This is kind of like watching a horrific car wreck happen in very slow motion.

The financial system of Europe is dying and everybody can see what is happening but nobody can seem to find a way to fix it.

Not that we are solving our own problems here in the United States.

The vaunted “supercommittee” that was supposed to get a handle on our debt problem was a complete and utter failure.

Barack Obama has shown that he has no clue what to do when it comes to the economy, and Ben Bernanke has been preoccupied with roaming around the country trying to get people to feel more “warm and fuzzy” about the Federal Reserve.

The Federal Reserve actually has more power over our economy than anyone else.  But instead of fixing things they only keep making things even worse.

The only people that the Fed seems to be helping are the banksters.

What you are about to read should really, really upset you.  According to a recent article in the Wall Street Journal, the Federal Reserve has actually been tipping off their upcoming moves to top financial professionals.  In turn, these financial professionals have been using that information to make a lot of money for themselves and for their clients….

Hours after an Aug. 15 meeting with Federal Reserve Chairman Ben Bernanke in his office, Nancy Lazar made a hasty call to investor clients: The Fed was dusting off an obscure 1960s-era strategy known as Operation Twist.

The news pointed to a boom in long-term bonds.

It was a good call. Over the next five weeks, prices on 10-year Treasury bonds soared, offering double-digit returns in an otherwise dismal year.

By the time the Fed announced its $400 billion Operation Twist on Sept. 21, the window for quick profits had all but slammed shut.

Ms. Lazar is among a group of well-connected investors and analysts with access to top Federal Reserve officials who give them a chance at early clues to the central bank’s next policy moves, according to interviews and hundreds of pages of documents obtained by The Wall Street Journal through open records searches.

You just can’t make stuff like this up.  The corruption at the Federal Reserve is totally out of control.  After nearly 100 years of total failure, it is time to shut down the Federal Reserve.

Not that Barack Obama should get a free pass for the role that he has played in this economic downturn.  He inherited a complete mess from Bush and has made it even worse.

Today, millions of business owners are so frustrated with Washington D.C. that they don’t know what to do.

For example, one business owner down in Georgia has posted signs with the following message on all of his company’s trucks….

“New Company Policy: We are not hiring until Obama is gone.”

The business environment in this country becomes more toxic with each passing year, and the federal government has already strangled millions of small businesses out of existence.

In addition, politicians from both parties continue to stand aside as tens of thousands of businesses, millions of jobs and hundreds of billions of dollars of our wealth get shipped out of the country.

During 2010, an average of 23 manufacturing facilities a day were shut down in the United States.  We are committing national economic suicide, and the top politicians in both political parties keep cheering for more.

Well, millions of ordinary Americans can see what is happening and they are preparing for the worst.

The following report comes from an article that was recently posted on the website of the local CBS affiliate in St. Louis….

A chain of three stores that sells survival food and gear reports a jump in sales to people who are getting prepared for the “possible collapse” of society.

“We had to order fifty cases of the meals ready to eat to keep up with the demand in the past three months,” said manager Steve Dorsey at Uncle Sam’s Safari Outfitters Inc. in Webster Groves. “That’s not normal.  Usually we sell 20 to 30 cases in a whole year.”

So are you prepared for the coming collapse?

If you still have a great job and things are still going well for you, then you should definitely be thankful.  Compared to the rest of the world, most of us are incredibly blessed.

But let there be no doubt, the U.S. economy is going to get a lot worse in the years ahead.

Just because you have a job today does not mean that you will have one tomorrow.

Just because you have a nice car and a big home today does not mean that you will have them tomorrow.

We all need to try to become a lot less dependent on “the system”, because “the system” is failing.

A whole lot of trouble is coming.

You better get ready.

The Coming European Superstate That Germany Plans To Cram Down The Throats Of The Rest Of Europe

A lot of people were puzzled about what German Chancellor Angela Merkel meant when she recently stated that the ultimate solution to the financial crisis in the EU would “mean more Europe, not less Europe”.  Well, now we are finding out.  A leaked internal German government memo entitled “The Future of the EU: Required Integration Policy Improvements for the Creation of a Stability Union” actually proposes the creation of a “European Monetary Fund” which would be given the power to run the economies of troubled European nations.  This “stability union” would be quickly followed by the creation of a full-fledged “political union”.  Essentially, this leaked memo proposes the creation of a “European Superstate” which will be crammed down the throats of the rest of Europe whether they like it or not.  National sovereignty would be a thing of the past and European bureaucrats would run everything.  Of course this will never be accepted by the people of Europe until they feel the bitter pain of the coming financial collapse, but we are starting to see that there is already a clear plan for what the Germans wish to implement in the aftermath of the coming crisis.

A lot of people have just assumed that if there is a massive financial collapse in Europe and the euro crashes that it will mean that end of the euro and potentially the breakup of the EU.  But that is not what the Germans have planned at all.

An article in the Telegraph has posted details about the leaked internal German government memo mentioned above.  It really is startling to see that a full-fledged “political union” in Europe is being discussed at the highest levels of the German government….

The six-page memo, by the German foreign office, argues that Europe’s economic powerhouses should be able to intervene in how beleaguered eurozone countries are run.

The confidential blueprint sets out Germany’s plan to tackle the eurozone debt crisis by creating a “stability union” that will be “immediately followed by moves “on the way towards a political union”.

It will prompt fears that Germany’s euro crisis plans could result in a European super-state with spending and tax plans set in Brussels.

Can you imagine what Europe would look like under such a plan?

National sovereignty would be a thing of the past.

Another article in the Telegraph says that the leaked memo proposes that immediately a “European Monetary Fund” should be set up that would have the power to take over and run the economies of European nations that get into too much debt.  But according to the memo this would just be an intermediate step toward a full “political union”….

The six-page German foreign ministry paper sets out plans for the creation of a European Monetary Fund with a transfer of sovereignty away from member states.

The fund will have the power to take ailing countries into receivership and run their economies. Even more controversially, the document, entitled The future of the EU: required integration policy improvements for the creation of a Stability Union, declares that the treaty changes are a first stage “in which the EU will develop into a political union”. “The debate on the way towards a political union must begin as soon as the course toward stability union is charted,” it concludes.

As the crisis in Europe has gotten worse, the Germans have become more aggressive about throwing their weight around.  At this point, German Chancellor Angela Merkel is the most important politician in Europe and she has been taking the lead in responding to this financial crisis.

As I have written about previously, there have been persistent rumors that French President Nicolas Sarkozy and German Chancellor Angela Merkel have been “secretly plotting” to create a “new eurozone” that will fundamentally change the way that Europe is run.

For example, the following is from an article that recently came out  in the Telegraph….

France is drawing up plans to create a breakaway organisation of eurozone countries with its own treaty, parliament and headquarters – a move that could significantly undermine the existing European Union.

That same article also talked about the goals that France and Germany are hoping to achieve through all of this….

France and Germany are understood to want to strengthen the union between eurozone countries with new taxes and legal measures to stop nations borrowing and spending too much in future.

Of course it is important to note that there is no way that the people of Europe are going to go for any of this right now.

But after feeling the pain of a massive financial collapse for a while will they change their minds?

What is clear is that the status quo is not going to last much longer.  Something has got to change.  Unfortunately, Germany and France seem determined to push the rest of Europe in the direction of creating a European Superstate.

If you want to get a really good idea of what is happening in Europe right now, just check out this video of a recent speech by Nigel Farage on the floor of the European Parliament on November 16th, 2011.  Trust me, it is worth the couple of minutes that it takes to watch it.

But before fundamental structural changes take place in Europe, we are going to see an absolutely crippling financial collapse first.  With each passing day, there are more signs that things are rapidly unraveling.  The following are just a few of the noteworthy news items from Europe that have come out over the past week….

*In Italy there were violent clashes between protesters and police after Mario Monti unveiled his new austerity program.  To get an idea of how crazy things are getting over in Italy, just check out this video.

*Just like what happened when austerity was implemented in Greece, it looks like Italy is now headed down the road toward a major recession.  Industrial orders in Italy for the month of September declined by 8.5 percent.  That is really, really bad news.

*The EFSF has already been forced to buy up huge numbers of its own bonds.  That essentially means that the EFSF is already a bad joke.

*Dozens of big banks all over Europe have been downgraded in recent weeks.  Even German banks are getting downgraded now.  The other day, Moody’s downgraded the ratings of 10 major German banks.

An increasing number of people that work in the financial world are starting to get really freaked out about everything that is going on.

The following is what Mark Mobius, head of the emerging markets desk at Templeton Asset Management, had to say recently….

“There is definitely going to be another financial crisis around the corner, because we haven’t solved any of the things that caused the previous crisis.”

Willem Buiter, the chief economist of Citigroup, believes that if something is not done quickly, there will be a financial collapse in Europe in very short order….

“Time is running out fast.  I think we have maybe a few months — it could be weeks, it could be days — before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it. So they have to act now.”

Ann Barnhardt of Barnhardt Capital Management actually shut down her entire firm because she could no longer guarantee that the money her clients were putting into the futures and options markets would be safe.  Posted below are extended excerpts from the open letter that she recently released to the public.  Normally I would not post such extended excerpts, but in this case I believe that they are warranted.  What Barnhardt has written should be a huge wake up call for all of us.  It is refreshing (and a bit frightening) to get an honest assessment of the corruption in the financial world from someone that has made a good living in that world.  The following is how she began her letter….

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

So how did the MF Global collapse wreck the system?  Barnhardt went on to explain this….

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

Even more frightening, Barnhardt says that the MF Global collapse is just the “tip of the iceberg” and that more collapses like this are about to happen….

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

So what does Barnhardt say that we should all do?  She is actually recommending that everyone should completely abandon the futures and options markets….

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Remember, a few weeks ago I warned you all that a massive derivatives crisis is coming.  Anyone that plays around with derivatives at this point is playing with fire.  Barnhardt says that she will never reopen her firm until Barack Obama is removed from office and fundamental reforms to the financial system have been implemented….

Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.

We are on the verge of a financial crisis that could potentially be just as bad (or even worse) than the financial crisis of 2008.

Right now, 2012 is shaping up as a very, very bad year.

As I have written about previously, when European leaders proposed that private Greek bondholders should take a “50% haircut”, they massively undermined faith in the European financial system.

Now panic and fear are in the air and it is unlikely that financial markets will be calmed any time soon.

Already, there are early signs of the kind of massive credit crunch that almost brought about “the end of the world” in financial markets back in 2008.

For example, a CNBC article that was posted on Friday reported that the flow of credit in Europe is seriously drying up….

Fear over European banks’ exposure to risky government debt stalked markets and harried bank executives on Friday, as unsecured lending between banks evaporated and the cost of secured loans rose.

And as a recent article posted on Zero Hedge discussed, a similar thing is starting to happen in the United States….

The entire dollar funding market is now at levels not seen since the Lehman collapse and is effectively frozen. Only this time it is much, much worse as never before has the global central bank cadre been assumed and implied to be backstopping the global liquidity cascade. Ex-out the implied backstop by the monetary authorities, and liquidity is now locked up more than ever in the history of capital markets.

So what should we do about this?

We should take action and get prepared for what is coming.

Unfortunately, an increasing number of Americans seem to be “checking out” instead.  According to a recent Gallup poll, alcohol consumption in the United States has hit a 25 year high.  More than one out of every ten Americans over the age of 12 is on prescription antidepressants, and most American families spend endless hours staring at the television in an attempt to escape the pain and the frustration that they constantly feel.

Hopefully by working together we can help more Americans (and more Europeans as well) to wake up, to get off their couches, and to take action in a positive way.

Time is running out and the economic crisis is rapidly getting worse.

We don’t have any time to waste.

This Is Yet Another Glaring Example Of Why The EU Is A Mind Blowing Failure

The debt crisis in Europe just seems to get worse with each passing day, and it is yet another glaring example of why the EU is a mind blowing failure.  The EU is made up of 27 nations that all have their own economic policies, and 17 of those nations are trying to use the euro as a common currency.  But when you have 27 different governments pulling in different directions, it is inevitable that there are going to be major problems.  The stunt that Greek Prime Minister George Papandreou just pulled is a perfect example of the nightmare that the EU has become.  European officials worked really hard to pull together a deal to address the debt crisis (of course the deal was a total mess, but that is another matter), and a couple of days later Papandreou decides that Greece should hold a national referendum on it.  It is so bizarre that it almost defies words.  But that is what happens in the EU.  Someone else always wants to have a say.  Someone else always wants to throw a fly into the ointment.  Someone else always want to throw in their two cents.  The EU is a bureaucratic nightmare and this latest episode is yet another example of that fact.  First the politicians in Europe come up with an idiotic plan that is going to make the financial crisis much worse, then Papandreou comes forward and pulls a stunt that shatters what little confidence the financial markets still had in Greece.  That is why the EU should break up.  It is a total failure and it is time that we all admitted it.

Financial markets reacted in horror to the news that Papandreou wants Greece to hold a referendum on the debt deal.

Apparently Papandreou wants the Greek people to willingly choose the harsh austerity measures contained in the package.  To be honest, that is not entirely unreasonable considering the tremendous economic damage that austerity measures have already done to the Greek economy.

So if there is a referendum, will the Greeks vote for the package?

That is not at all certain.

As month after month of protests have shown, austerity measures have been extremely unpopular in Greece.

But a lot of Greeks are not too keen on rejecting the bailouts and being forced to leave the euro either.

Both alternatives would be extremely unpleasant.

Greek Prime Minister George Papandreou apparently believes that the Greek people will vote in favor of the debt deal.  He made the following statement on Tuesday….

“We have faith in our citizens, we believe in their judgment and therefore in their decision. All the country’s political forces should support the (bailout) agreement. The citizens will do the same once they are fully informed”

Predictably, global financial markets were shocked by the announcement by Papandreou.  The Dow was down another 297 points on Tuesday, and bond yields for the PIIGS shot up significantly.

It really is mind blowing to watch what is happening to some of the bond yields over in Europe.

The yield on 1 year Greek bonds is now over 200 percent.  If you want to see what a financial meltdown looks like, just look at this chart.

The yield on 2 year Irish bonds is now over 9 percent, and the yield on 2 year Portuguese bonds is now over 20 percent.

Most importantly, the yield on Italian bonds continues to surge higher.

The higher those bond yields go, the worse things are going to get for Europe.

And those bond yield are skyrocketing in spite of rampant bond buying by the European Central Bank.

A CNBC article from earlier today noted the extraordinary intervention by the ECB that we are witnessing right now….

“Yesterday we had one of the biggest ever days of peripheral sovereign bond buying from the Securities Market Program, with some banks estimating that over 5 billion euros of peripheral sovereign bonds were purchased via the ECB’s bond buying program in an effort to keep a lid on peripheral sovereign bond yields” said Mike Riddell, a fund manager at M&G Investments in London.

Europe is falling apart financially and politicians all over Europe are furious with Papandreou right now.  The following comes from an article by Ambrose Evans-Pritchard that was published earlier today….

The Greek referendum – if it is not overtaken by a collapse of the government first – has left officials in Paris, Berlin, and Brussels speechless with rage. The ingratitude of them.

The spokesman of French president Nicolas Sarkozy (himself half Greek, from Thessaloniki) said the move was “irrational and dangerous”. Rainer Brüderle, Bundestag leader of the Free Democrats, said the Greeks appear to be “wriggling out” of a solemn commitment. They face outright bankruptcy, he blustered.

A number of European politicians are warning of severe consequences for Greece.  For example, the Finnish minister of European affairs and foreign trade, Alexander Stubb, even declared that if Greek citizens do not vote the right way it will mean an exit from the eurozone for Greece….

“The situation is so tight that basically it would be a vote over their euro membership”

If Greece ends up rejecting the bailout package, it would essentially mean a complete and total debt default by Greece.  The following is what Nobel prize-winning economist Christopher Pissarides said about the potential consequences of a “no” vote….

“In the scenario of a ‘No’ vote Greece would declare bankruptcy immediately, they would default immediately. I can’t see them staying within the euro”

But there is no guarantee that a referendum will actually be held.  The Greek government has been thrown into a state of chaos and is on the verge of collapse.

To many, it seems more likely that the government will fail and that we will see early elections in Greece.  For example, the following is a quote from an anonymous Greek trader that was posted in an article on Business Insider this morning….

I believe the present government will be history by the end of this week. Most probably this evening actually, when the already scheduled emergency cabinet meeting is to be held.

The important question to be resolved is whether the present government will be replaced by an interim national unity government for several months ratifying in parliament the Eurogroup decisions of last week and then proceeding with elections, or else whether national elections will be immediately announced with probable dates the 4th or 11th of December.

But in the final analysis, it is not the Greek government that is the problem.

The reality is that the way the eurozone was constructed was fatally flawed from the very beginning.

It was inevitable that trying to force 17 different countries with 17 different economic policies to use a common currency was going to end up creating a huge mess.

People all over Europe know this is true.  Just consider the following quotes….

* Stephane Deo, Paul Donovan, and Larry Hatheway of Swiss banking giant UBS: “Under the current structure and with the current membership, the euro does not work. Either the current structure will have to change, or the current membership will have to change.”

* EU President Herman Van Rompuy: “The euro has never had the infrastructure that it requires.”

* Former German Chancellor Gerhard Schroeder: “The current crisis makes it relentlessly clear that we cannot have a common currency zone without a common fiscal, economic and social policy”

* Professor Giacomo Vaciago of Milan’s Catholic University: “It’s clear that the euro has virtually failed over the last ten years, even if you are not supposed to say that. We pretended to be Germans, but it was an illusion”

So why should those of us living in the United States care about all of this?

Well, it is because a financial collapse in the EU could plunge the entire globe into a horrific economic nightmare.

Today, the EU actually has a larger economy and a larger population than the United States does.  The EU also has more Fortune 500 companies that the United States does.

If Europe experiences a financial crash, it is going to send shockwaves to the very ends of the earth.

Another reason why Americans should care is because what is happening right now in Greece, in Italy and in some of these other countries is eventually going to come to the United States.

Just like Greece, we are in debt up to our eyeballs.

Just like Greece, our politicians thought that they could pile up gigantic mountains of debt indefinitely.

Just like Greece, this debt is going to have very, very serious consequences.

Just like Greece, we are going to have mass economic rioting in our streets.

The road that Greece is going down is the exact same road that the United States is going down.

Yes, the Federal Reserve could step in and print up trillions and trillions of dollars, but that would not solve our problems.  The truth is that a hyperinflationary crash can be even worse than a deflationary crash.

What is happening in Greece is just the beginning.  A bunch of other eurozone nations are also rapidly approaching a date with destiny.  At some point the United States is going to experience massive problems as well.

The epicenter for the financial collapse of 2008 was the United States.

The epicenter for the next financial collapse will almost certainly be Europe.

When Europe goes down, the rest of the world will be dragged down with them.

The next wave of the economic collapse is coming.

You better get ready.

+ More