The Financial Collapse Of Greece: The Canary In The Coal Mine For The Global Economy?

The rest of the world needs to sit up and take notice of what is going on in Greece right now.  This is what can happen when you allow government debt to spiral out of control.  Once it becomes clear that you can’t pay your debts, a financial collapse can happen very suddenly and you start losing your sovereignty to those that you must turn to for financial help.  So is the financial collapse of Greece the “canary in the coal mine” for the global economy?  EU finance ministers have given the Greek government two weeks from Monday to approve another round of brutal austerity measures.  If the austerity measures are not approved, Greece will not receive the next bailout installment of 12 billion euros.  If that happens, the whole globe better buckle up because it is going to get crazy.

July 3rd is the deadline.  Basically the EU has put a gun to the head of the Greek government.  Without this bailout money, Greece will default and economic hell will break loose all across the country.

It is important to keep in mind that this is just the first Greek bailout that we are talking about.  Last year, the EU and the IMF agreed to provide the Greek government with a 110 billion euro bailout. The current 12 billion euro installment is part of that package.

Sadly, it has become apparent that the first bailout is not going to be nearly enough for Greece.  A second bailout, which will be the same size or even larger, is already being discussed.  This is going to put the Greek people even more under the heel of the money powers in Europe.

Keep in mind that all of these “bailouts” are just more loans.  There is no way that the Greeks are ever going to be able to repay all of this money.

But this is what happens when a nation lets debt get out of control.  For years and years it can seem like all of that debt does not have any consequences, but then the day of reckoning comes and it is a complete and total nightmare.

In order to get the next installment of 12 billion euros, European finance ministers are insisting that the Greek Parliament approves a package of austerity measures that will be worth approximately 28 billion euros.

At this point, it is uncertain whether those austerity measures will pass.

However, the pressure on the Greek government to get them pushed through is immense.

These austerity measures include tax increases, budget cuts and a “large-scale privatization program”.

This is often what happens to third world nations that cannot pay their debts.  Organizations such as the IMF or the World Bank will come in and insist that they tax their people more, cut back on their spending and sell some of their public assets to big corporations.

As we can see from the wild protests that have been taking place in Greece, a significant percentage of the Greek population is not happy with all of these austerity measures.

Unfortunately, the EU and the IMF are able to put a lot more pressure on the Greek government than the Greek people are.

Greek Prime Minister George Papandreou recently gave the following warning to the Greek people about what could happen if this debt crisis ends badly….

The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks, and the country’s credibility.

Not only would a Greek default be a total disaster for Greece, it would potentially be a total disaster for the entire global financial system.

Sung Won Sohn, an economics professor at California State University, recently made the following statement about the seriousness of the debt crisis in Europe….

“The European debt crisis has the potential to have as big an impact as the subprime mortgage crisis did in the United States”

So will these bailouts solve the problem?

No, giving Greece more loans is only going to kick the can down the road for a little while longer.

The truth is that Greece is bankrupt.  Unless huge amounts of Greek debt are forgiven, Greece is going to default sooner or later.

When confidence in the finances of a nation is lost, borrowing costs can go up very quickly.  Today, the yield on two year Greek bonds is up to 28.6%.

Anyone that has ever been late on paying their credit cards knows how painful an interest rate like that can be.

So why doesn’t Greece just slash government spending to the bone and get their financial house in order?

Well, it is not that easy.  Harsh austerity measures have already been implemented.  As a result, unemployment is rampant and there is rioting in the streets.

The truth is that, as an article in The Guardian recently explained, austerity has taken a brutal toll on the Greek economy….

A year of wage and pension cuts, benefit losses and tax increases has taken its toll: almost a quarter of the population now live below the poverty line, unemployment is at a record 16% and, as the economy contracts for a third year, economists estimate that about 100,000 businesses have closed.

As the economy crumbles, Greece has descended into an almost permanent state of civil unrest.

The fact that the EU and the IMF want even more austerity measures has sparked some wild rioting In Greece in recent days.  You can see video of the stunning violence going on in Greece right here.

Not all protesters are being violent.  Some of them are showing their displeasure in non-violent ways.  For example, workers for Greece’s state-owned electric utility are staging 48 hours of rolling strikes that are designed to create blackouts over large areas.

The frightening thing is that Greece is not alone.  Ireland has already received a bailout and they are probably going to need another one at some point.

Portugal is a financial basket case and they are probably next in line for a bailout.

The employment situation in Spain is absolutely nightmarish.  Spain will probably be able to squeak by without a bailout if the global economy stays stable, but if the dominoes start to fall Spain could be in a massive amount of trouble very quickly.

Not that many people are talking about Italy, but the truth is that Italy has a huge debt problem.  On Friday, Moody’s warned that it may downgrade Italy’s Aa2 debt rating at some point within the next 90 days.

Belgium and France also have very substantial debt problems.  They probably would not be the first dominoes to fall, but if the “contagion” starts to spread they could certainly have massive problems.

The truth is that Europe’s entire financial system is extremely vulnerable right now.  Big banks all over Europe (and especially in Germany) are leveraged to the hilt.  All it would take to topple many of them is a stiff breeze.

When Lehman Brothers collapsed, it was leveraged 31 to 1.

Today, German banks are leveraged 32 to 1.

German banks are also holding a massive amount of Greek debt.

That is why there is so much fear that the crisis in Greece could spread across the rest of Europe and start toppling dominoes.

The sovereign debt crisis in Europe did not happen overnight and it is going to be with us for a long, long time even if the global economy remains relatively stable.

At the moment, the best that officials in Europe can seem to come up with is to put off the pain for another day.  Pimco’s Mohamed El-Erian told CNBC the following on Monday….

“This problem is not going to go away. It’s going to weigh on markets here and we’re going to see the same set of headlines over and over again. We simply cannot continue to kick the can down the road, because we’re coming to the end of the road in Greece.”

So if Europe starts having major problems will the U.S. step in and help?

Yes, if the crisis in Europe gets worse, the Federal Reserve will probably step in just like they did back in 2008.

But the U.S. is rapidly approaching a day of reckoning like the one that Greece is going through.  The U.S. government has piled up the biggest mountain of debt in the history of the world and faith in the U.S. dollar is dying.

The economic crisis in the United States gets worse with each passing year.  Yes, the Federal Reserve can print up stacks of money and send it over to Europe, but that isn’t going to solve anything in the long run.  The truth is that the U.S. is not even going to be able to keep itself from drowning.

The world financial system is far more vulnerable today than it was back in 2008.  The next wave of the financial collapse is going to hit at some point, and when it does it is going to probably be even more painful than the last wave.

Our world is becoming an incredibly unstable place.

You better get ready.

Wars, Rumors Of Wars, Skyrocketing Oil Prices And Global Economic Chaos – Why Is All Of This Happening?

Did anyone out there anticipate that 2011 would be such a wild year?  The year is barely over two months old and we have already seen multiple civil wars erupt, rumors of more wars all over the mainstream media (potentially even including the United States), riots and revolutions breaking out all over the globe, oil prices soaring into the stratosphere and chaos on global financial markets.  So why is all of this happening?  Is all of this one big coincidence or is there a reason why we are witnessing such global chaos right now?  Is it just coincidence that revolutions have broken out in over a dozen countries in the Middle East all at the same time?  Is it just a coincidence that global prices for oil, food and precious metals are all skyrocketing?  Is it just a coincidence that world financial markets suddenly seem more vulnerable than at any time since 2008?  Looking at what is going on in the world right now, it is very tempting to use the phrase “a perfect storm” to describe it.  Unfortunately, this “perfect storm” is very likely to plunge the global economy into yet another financial collapse if it continues to get even worse.

After decades of relative stability, the Middle East has erupted in chaos in 2011.  In the post-World War 2 era, we have never seen a time when there have been so many major internal revolutions all at once.  All of these simultaneous revolutions are driving the price of oil rapidly upwards.

The price of West Texas crude is now over $102 a barrel and the price of Brent crude is now over $116 a barrel and if the chaos in the Middle East continues those numbers are likely to go a lot higher.

Meanwhile, gold has set a new all-time record this week and the price of silver is absolutely exploding.

In fact, just about every kind of “hard asset” that you can possibly name is going up in price.  Investors don’t like all of this instability and they are looking for safe places to put their money.

Unfortunately, the global situation looks like it may become even more heated.

The calls for military action against Libya are rapidly reaching a crescendo.

The U.S. Senate has unanimously passed a resolution calling for the UN Security Council to impose a no-fly zone over Libya, and many members of Congress are openly declaring that the U.S. and NATO should take unilateral action no matter what the UN ultimately decides.

But implementing a no-fly zone is not a simple thing.  It is not just a matter of telling Libya not to fly their planes.  Rather, imposing a no-fly zone over Libya would constitute a major military operation.

U.S. Secretary of Defense Robert Gates is even admitting that enforcing a no-fly zone over Libya would begin with a huge military strike…..

“Let’s just call a spade a spade. A no-fly zone begins with an attack on Libya to destroy the air defenses … and then you can fly planes around the country and not worry about our guys being shot down.”

U.S. commander General James Mattis made a similar comment on Tuesday….

You would have to remove the air defense capability in order to establish the no-fly zone so it – no illusions here, it would be a military operation.

Essentially, imposing a no-fly zone over Libya would be an act of war.

Most of our representatives in Washington D.C. seem to be quite ready to go to war in Libya, but it is another story entirely when it comes to the American people.  A recent Rasmussen poll found that a whopping 67 percent of Americans do not want the U.S. to get more involved in the unrest going on in Arab countries and only 17 percent of Americans do want the U.S. to get more directly involved.

But the American people don’t get to decide whether we go to war or not.  Our leaders in Washington D.C. do.  The USS Enterprise and other major warships are on their way to Libya, and U.S. forces throughout the Mediterranean are on high alert.

So could the U.S. really get involved in another war in the Middle East?

Well, if the U.S. and NATO choose to get involved they will do it without the approval of the rest of the world.

On Wednesday, the Arab League issued a statement which specifically rejected “any foreign interference within Libya on behalf of the opposition”.

Not only that, but any military action by the UN will most likely be blocked by both China and Russia.

Russia’s ambassador to NATO, Dmitry Rogozin, says that any military action against Libya without UN approval would be a violation of international law….

“If someone in Washington is seeking a blitzkrieg in Libya, it is a serious mistake because any use of military force outside the NATO responsibility zone will be considered a violation of international law.”

But Libya is far from the only crisis point in the Middle East.

In fact, a much larger problem may be brewing in Saudi Arabia.

On Facebook, a “Day of Rage” is being hyped for March 11th.  Other dates being promoted for “revolution” in Saudi Arabia include March 20th and March 21st.

But if Saudi Arabia sees the same kind of chaos that we have seen in other countries in the Middle East there is no telling how high the price of oil could go.

Could we see $125 oil?

Could we see $150 oil?

Could we see $200 oil?

Saudi Arabia exports more oil than anyone else in the world, so if their oil production gets interrupted it is going to have a dramatic impact on the global economy.

For example, are you ready to pay 5 dollars for a gallon of gasoline in the United States?

For decades, the entire globe has been blessed with very cheap oil and this has resulted in a massive economic boom.

But times are changing.

The economic situation over in Europe is already deteriorating and any additional bad news could plunge that entire continent into a major crisis.  A recently released report from Ernst & Young is warning that if oil goes up to 150 dollars a barrel and it stays there, “at least” one eurozone country will default and the entire eurozone will be plunged back into recession.

A much higher price for oil would obviously not be good for the U.S. economy either.  Do you remember what happened back in 2008?  The price of oil hit a record high in June and then the entire financial system came unglued just a few months later.

But if we see a repeat of 2008 it may be a lot worse this time because the global financial system is now more unstable than ever.

The truth is that the entire world is still trying to recover from the last financial crisis.  The Federal Reserve is pumping massive quantities of dollars into the U.S. economy in an attempt to stimulate it back to life, but so far it is not working too well.

The rest of the world does not appreciate all of this “money printing” and the inflation that this is causing is beginning to create massive imbalances on global financial markets.

The world is starting to lose faith in the U.S. dollar.  Right now, approximately 85% of all foreign-exchange transactions in the world involve the U.S. dollar.  Not only that, 60% of all the currency reserves in the world are in U.S. dollars.  With the U.S. dollar rapidly becoming less stable, many are now wondering if it should continue to be used as the reserve currency of the world.

The truth is that if the U.S. dollar falls, it is going to create a tremendous amount of financial chaos in almost every nation on the globe.

Unfortunately, as I have written about so many times previously, the U.S. economy is dying.  The U.S. government is absolutely drowning in debt, and leaders all over the planet are calling for the establishment of a new global reserve currency.

The days of the United States being the “economic engine of the planet” are rapidly coming to an end.

The U.S. economy is not ever going to fully “recover”.  In fact, the U.S. economy is basically “running on empty” at this point as Gerald Celente recently noted during an interview on RT television….

The entire U.S. economy was designed to operate on massive amounts of very cheap oil.  Americans do more driving than anyone else in the world.  Many of us are so lazy that we won’t even walk to a store if it is on the other side of the parking lot.

If oil hits record levels in 2011, it is going to be a massive shock to the U.S. economic system.  Any hopes for an “economic recovery” will be completely dashed.

In fact, if one wanted to “take down” the U.S. economy, driving up the price of oil would be a perfect way to do it.

And if one wanted to drive up the price of oil, a perfect way to do that would be to create all kinds of chaos in the Middle East.

So is all of this craziness that we are seeing in 2011 just a big coincidence or is there a reason why all of this is happening?

Please feel free to leave a comment with your opinion on the matter below….

Tipping Point: 25 Signs That The Coming Financial Collapse Is Now Closer Than Ever

The financial collapse that so many of us have been anticipating is seemingly closer then ever.  Over the past several weeks, there have been a host of ominous signs for the U.S. economy.  Yields on U.S. Treasuries have moved up rapidly and Moody’s is publicly warning that it may have to cut the rating on U.S. government debt soon.  Mortgage rates are also moving up aggressively.  The euro and the U.S. dollar both look incredibly shaky.  Jobs continue to be shipped out of the United States at a blistering pace as our politicians stand by and do nothing.  Confidence in U.S. government debt around the globe continues to decline.  State and local governments that are drowning in debt across the United States are savagely cutting back on even essential social services and are coming up with increasingly “creative” ways of getting more money out of all of us.  Meanwhile, tremor after tremor continues to strike the world financial system.  So does this mean that we have almost reached a tipping point?  Is the world on the verge of a major financial collapse?

Let’s hope not, but with each passing week the financial news just seems to get eve worse.  Not only is U.S. government debt spinning wildly toward a breaking point, but many U.S. states (such as California) are in such horrific financial condition that they are beginning to resemble banana republics.

But it is not just the United States that is in trouble.  Nightmarish debt problems in Greece, Spain, Portugal, Ireland, Italy, Belgium and several other European nations threaten to crash the euro at any time.  In fact, many economists are now openly debating which will collapse first – the euro or the U.S. dollar.

Sadly, this is the inevitable result of constructing a global financial system on debt.  All debt bubbles eventually collapse.  Currently we are living in the biggest debt bubble in the history of the world, and when this one bursts it is going to be a disaster of truly historic proportions.

So will we reach a tipping point soon?  Well, the following are 25 signs that the financial collapse is rapidly getting closer….

#1 The official U.S. unemployment rate has not been beneath 9 percent since April 2009.

#2 According to the U.S. Census Bureau, there are currently 6.3 million vacant homes in the United States that are either for sale or for rent.

#3 It is being projected that the U.S. trade deficit with China could hit 270 billion dollars for the entire year of 2010.

#4 Back in 2000, 7.2 percent of blue collar workers were either unemployed or underemployed.  Today that figure is up to 19.5 percent.

#5 The Chinese government has accumulated approximately $2.65 trillion in total foreign exchange reserves.  They have drained this wealth from the economies of other nations (such as the United States) and instead of reinvesting all of it they are just sitting on much of it.  This is creating tremendous imbalances in the global economy.

#6 Since the year 2000, we have lost 10% of our middle class jobs.  In the year 2000 there were approximately 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs.

#7 The United States now employs about the same number of people in manufacturing as it did back in 1940.  Considering the fact that we had 132 million people living in this country in 1940 and that we have well over 300 million people living in this country today, that is a very sobering statistic.

#8 According to CoreLogic, U.S. housing prices have now declined for three months in a row.

#9 The average rate on a 30 year fixed rate mortgage soared 11 basis points just this past week.  As mortgage rates continue to push higher it is going to make it even more difficult for American families to afford homes.

#10 22.5 percent of all residential mortgages in the United States were in negative equity as of the end of the third quarter of 2010.

#11 The U.S. monetary base has more than doubled since the beginning of the most recent recession.

#12 U.S. Treasury yields have been rising steadily during the 4th quarter of 2010 and recently hit a six-month high.

#13 Incoming governor Jerry Brown is scrambling to find $29 billion more to cut from the California state budget.  The following quote from Brown about the desperate condition of California state finances is not going to do much to inspire confidence in California’s financial situation around the globe….

“We’ve been living in fantasy land. It is much worse than I thought. I’m shocked.”

#14 24.3 percent of the residents of El Centro, California are currently unemployed.

#15 The average home in Merced, California has declined in value by 63 percent over the past four years.

#16 Detroit Mayor Dave Bing has come up with a new way to save money.  He wants to cut 20 percent of Detroit off from essential social services such as road repairs, police patrols, functioning street lights and garbage collection.

#17 The second most dangerous city in the United States – Camden, New Jersey – is about to lay off about half its police in a desperate attempt to save money.

#18 In 2010, 55 percent of Americans between the ages of 60 and 64 were in the labor market.  Ten years ago, that number was just 47 percent.  More older Americans than ever find that they have to keep working just to survive.

#19 Back in 1998, the United States had 25 percent of the world’s high-tech export market and China had just 10 percent. Ten years later, the United States had less than 15 percent and China’s share had soared to 20 percent.

#20 The U.S. government budget deficit increased to a whopping $150.4 billion last month, which represented the biggest November budget deficit on record.

#21 The U.S. government is somehow going to have to roll over existing debt and finance new debt that is equivalent to 27.8 percent of GDP in 2011.

#22 The United States had been the leading consumer of energy on the globe for about 100 years, but this past summer China took over the number one spot.

#23 According to an absolutely stunning new poll, 40 percent of all U.S. doctors plan to bail out of the profession over the next three years.

#24 As 2007 began, there were just over 1 million Americans that had been unemployed for half a year or longer.  Today, there are over 6 million Americans that have been unemployed for half a year or longer.

#25 All over the United States, local governments have begun instituting “police response fees”.  For example, New York Mayor Michael Bloomberg has come up with a plan under which a fee of $365 would be charged if police are called to respond to an automobile accident where no injuries are involved.  If there are injuries as a result of the crash that is going to cost extra.

The Economic Collapse