Financial Crisis

Serious Financial Trouble Is Erupting In Germany And Japan

Stock Market Collapse - Public DomainThere are some who believe that the next great financial crash will not begin in the United States.  Instead, they are convinced that a financial crisis that begins in Europe or in Japan (or both) will end up spreading across the globe and take down the U.S. too.  Time will tell if they are ultimately correct, but even now there are signs that financial trouble is already starting to erupt in both Germany and Japan.  German stocks have declined 10 percent since July, and that puts them in “correction” territory.  In Japan, the economy is a total mess right now.  According to figures that were just released, Japanese GDP contracted at a 7.1 percent annualized rate during the second quarter and private consumption contracted at a 19 percent annualized rate.  Could a financial collapse in either of those nations be the catalyst that sets off financial dominoes all over the planet?

This week, the worst German industrial production figure since 2009 rattled global financial markets.  Germany is supposed to be the economic “rock” of Europe, but at this point that “rock” is starting to show cracks.

And certainly the civil war in Ukraine and the growing Ebola crisis are not helping things either.  German investors are becoming increasingly jittery, and as I mentioned above the German stock market has already declined 10 percent since July…

German stocks, weighed down by the economic fallout spawned by the Ukraine-Russia crisis and the eurzone’s weak economy, are now down more than 10% from their July peak and officially in correction territory.

The DAX, Germany’s benchmark stock index, has succumbed to recent data points that show the German economy has ground to a halt, hurt in large part by the economic sanctions levied at its major trading partner, Russia, by the U.S. and European Union as a way to get Moscow to butt out of Ukraine’s affairs. The economic slowdown in the rest of the debt-hobbled eurozone has also hurt the German economy, considered the economic locomotive of Europe.

In trading today, the DAX fell as low as 8960.43, which put it down 10.7% from its July 3 closing high of 10,029.43 and off nearly 11% from its June 20 intraday peak of 10,050.98.

And when you look at some of the biggest corporate names in Germany, things look even more dramatic.

Just check out some of these numbers…

The hardest hit sectors have been retailers, industrials and leisure stocks with sports clothing giant Adidas down 37.7pc for the year, airline Lufthansa down 27pc, car group Volkswagen sliding 23.6pc and Deutchse Bank falling 20.2pc so far this year.

Meanwhile, things in Japan appear to be going from bad to worse.

The government of Japan is more than a quadrillion yen in debt, and it has been furiously printing money and debasing the yen in a desperate attempt to get the Japanese economy going again.

Unfortunately for them, it is simply not working.  The revised economic numbers for the second quarter were absolutely disastrous.  The following comes from a Japanese news source…

On an annualized basis, the GDP contraction was 7.1 percent, compared with 6.8 percent in the preliminary estimate. That makes it the worst performance since early 2009, at the height of the global financial crisis.

The blow from the first stage of the sales tax hike in April extended into this quarter, with retail sales and household spending falling in July. The administration signaled last week that it is prepared to boost stimulus to help weather a second stage of the levy scheduled for October 2015.

Corporate capital investment dropped 5.1 percent from the previous quarter, more than double the initial estimate of 2.5 percent.

Private consumption was meanwhile revised to a 5.1 percent drop from the initial reading of 5 percent, meaning it sank 19 percent on an annualized basis from the previous quarter, rather than the initial estimate of 18.7 percent, Monday’s report said.

For the moment, things are looking pretty good in the United States.

But as I have written about so many times, our financial markets are perfectly primed for a fall.

Other experts see things the same way.  Just consider what John Hussman wrote recently…

As I did in 2000 and 2007, I feel obligated to state an expectation that only seems like a bizarre assertion because the financial memory is just as short as the popular understanding of valuation is superficial: I view the stock market as likely to lose more than half of its value from its recent high to its ultimate low in this market cycle.

…

At present, however, market conditions couple valuations that are more than double pre-bubble norms (on historically reliable measures) with clear deterioration in market internals and our measures of trend uniformity. None of these factors provide support for the market here. In my view, speculators are dancing without a floor.

And it isn’t just stocks that could potentially be on the verge of a massive decline.  The bond market is also experiencing an unprecedented bubble right now.  And when that bubble bursts, the carnage will be unbelievable.  This has become so obvious that even CNBC is talking about it…

Picture this: The bond market gets spooked by a sudden interest rate scare, sending a throng of buyers streaming toward the exits, only to find a dearth of buyers on the other side.

As a result, liquidity evaporates, yields soar, and the U.S. finds itself smack in the middle of another debt crisis no one saw coming.

It’s a scenario that TABB Group fixed income head Anthony J. Perrotta believes is not all that far-fetched, considering the market had what could be considered a sneak preview in May 2013. That was the “taper tantrum,” which saw yields spike and stocks sell off after then-Federal Reserve Chairman Ben Bernanke made remarks that the market construed as indicating rates would rise sooner than expected.

If the strength of our financial markets reflected overall strength in the U.S. economy there would not be nearly as much cause for concern.

But at this point our financial markets have become completely and totally divorced from economic reality.

The truth is that our economic fundamentals continue to decay.  In fact, the IMF says that China now has the largest economy on the planet on a purchasing power basis.  The era of American economic dominance is ending.  It is just that the financial markets have not gotten the memo yet.

Hopefully we still have at least a few more months before stock markets all over the world start crashing.  But remember, we are entering the seventh year of the seven year cycle of economic crashes that so many people are talking about these days.  And we are definitely primed for a global financial collapse.

Sadly, most people did not see the crash of 2008 coming, and most people will not see the next one coming either.

This Is About As Good As Things Are Going To Get For The Middle Class – And It’s Not That Good

Depressed - Public DomainThe U.S. economy has had six full years to bounce back since the financial collapse of 2008, and it simply has not happened.  Median household income has declined substantially since then, total household wealth for middle class families is way down, the percentage of the population that is employed is still about where it was at the end of the last recession, and the number of Americans that are dependent on the government has absolutely exploded.  Even those that claim that the economy is “recovering” admit that we are not even close to where we used to be economically.  Many hope that someday we will eventually get back to that level, but the truth is that this is about as good as things are ever going to get for the middle class.  And we should enjoy this period of relative stability while we still can, because when the next great financial crisis strikes things are going to fall apart very rapidly.

The U.S. Census Bureau has just released some brand new numbers, and they are quite sobering.  For example, after accounting for inflation median household income in the United States has declined a total of 8 percent from where it was back in 2007.

That means that middle class families have significantly less purchasing power than they did just prior to the last major financial crisis.

And one research firm is projecting that it is going to take until 2019 for median household income to return to the level that we witnessed in 2007…

For everybody wondering why the economic recovery feels like a recession, here’s the answer: We’re still at least five years away from regaining everything lost during the 2007-2009 downturn.

Forecasting firm IHS Global Insight predicts that real median household income — perhaps the best proxy for middle-class living standards — won’t reach the prior peak from 2007 until 2019. Since the numbers are adjusted for inflation, that means the typical family will wait 12 years until their purchasing power is as strong as it was before the recession. That would be the longest period of stagnation, by far, since the Great Depression of the 1930s.

Of course that projection assumes that the economy will continue to “recover”, which is a very questionable assumption at best.

Meanwhile, total household wealth has been declining for middle class families as well.

According to the New York Times, the “typical American household” is now worth 36 percent less than it was worth a decade ago.

That is a pretty substantial drop.  But you never hear our politicians (especially the Democrats) bring up numbers like that because they want us to feel good about things.

So why is all of this happening?

The biggest reason why the middle class is struggling so much is the lack of good jobs.

As the chart posted below demonstrates, the percentage of the working age population that is actually employed is still way, way below where it was prior to the last recession…

Employment Population Ratio

The “employment recovery” (the tiny little bump at the end of the chart) has been so miniscule that it is hardly even worth mentioning.

At the moment, we still have 1.4 million fewer full-time jobs than we did in 2008 even though more than 100,000 people are added to the U.S. population each month.

And a lot of the workers that have lost jobs since the start of the last recession have never been able to find a new one.

According to a brand new survey conducted by Rutgers University, more than 20 percent of all workers that have been laid off in the past five years still have not found a new job.

Meanwhile, the control freak bureaucrats that run this country continue to kill off small businesses.

In recent years we have seen large numbers of small businesses fail, and at this point the rate of small business ownership in the United States is at an all-time low.

As a result of everything that you have just read, the middle class is shrinking and dependence on the government is soaring.

Today, there are 49 million Americans that are dealing with food insecurity, and Americans received more than 2 trillion dollars in benefits from the federal government last year alone.

For many more statistics just like this, please see my previous article entitled “30 stats to show to anyone that does not believe the middle class is being destroyed“.

Without a doubt, things are not that good for the middle class in America these days.

Unfortunately, the next great wave of financial trouble is rapidly approaching, and once it strikes things are going to get substantially worse for the middle class.

Yes, the stock market set record high after record high this summer.  But what we have observed is classic bubble behavior.  So many of the exact same patterns that occurred just prior to previous stock market crashes are happening once again.

And it is interesting to note that September 22nd has marked important market peaks at various times throughout history…

For traders, September 22 is one of those days with a notorious history. UBS’s Art Cashin notes that September 22 marked various market highs in 1873, 1929, 1980, and even as recent as 2008.

Could the coming months be the beginning of the next major stock market decline?

Small-cap stocks are already starting to show signs of real weakness.  In fact, the Russell 2000 just hit a “death cross” for the first time in more than 2 years…

The Russell 2000 has been diverging from the broader market over the last several weeks, and now technicians point out it has flashed a bearish signal. For the first time in more than two years, the small-cap index has hit a so-called death cross.

A death cross occurs when a nearer-term 50-day moving average falls below a longer-term, 200-day moving average. Technicians argue that a death cross can be a bearish sign.

None of us knows what the market is going to do tomorrow, but a lot of the “smart money” is getting out of the market right now while the getting is good.

So where is the “smart money” putting their assets?

In a previous article, I discussed how sales of gold bars to wealthy clients is way up so far this year.

And CNBC has just reported that the ultra-wealthy “are holding mountains of cash” right now…

Billionaires are holding mountains of cash, offering the latest sign that the ultra-wealthy are nervous about putting more money into today’s markets.

According to the new Billionaire Census from Wealth-X and UBS, the world’s billionaires are holding an average of $600 million in cash each—greater than the gross domestic product of Dominica.

Why are they doing this?

Are they concerned about the potential of a market crash?

And if we do see another market crash like we witnessed back in 2008, what is that going to mean for the rest of us?

2008 certainly did not destroy our economy.

But it did cause an immense amount of damage that we have never recovered from.

Now the next wave is approaching, and most people don’t even see it coming.

14 Reasons Why The U.S. Economy’s Bubble Of False Prosperity May Be About To Burst

Bubbles - Public DomainDid you know that a major event just happened in the financial markets that we have not seen since the financial crisis of 2008?  If you rely on the mainstream media for your news, you probably didn’t even hear about it.  Just prior to the last stock market crash, a massive amount of money was pulled out of junk bonds.  Now it is happening again.  In fact, as you will read about below, the market for high yield bonds just experienced “a 6-sigma event”.  But this is not the only indication that the U.S. economy could be on the verge of very hard times.  Retail sales are extremely disappointing, mortgage applications are at a 14 year low and growing geopolitical storms around the world have investors spooked.  For a long time now, we have been enjoying a period of relative economic stability even though our underlying economic fundamentals continue to get even worse.  Unfortunately, there are now a bunch of signs that this period of relative stability is about to end.  The following are 14 reasons why the U.S. economy’s bubble of false prosperity may be about to burst…

#1 The U.S. junk bond market just experienced “a 6-sigma event” earlier this month.  In other words, it is an event that is only supposed to have a chance of 1 in 500 million of happening.  Billions of dollars are being pulled out of junk bonds right now, and that has some analysts wondering if a financial crash is right around the corner.

#2 The last time that we saw a junk bond rout of this magnitude was back during the financial crash of 2008.  In fact, as the Telegraph recently explained, bonds usually crash before stocks do…

The credit market usually leads the equity market during turning points, as happened when credit markets cracked first in 2008.

Will the same thing happen this time around?

#3 Retail sales have missed expectations for three months in a row and we just had the worst reading since January.

#4 Things have gotten so bad that even Wal-Mart is really struggling.  Same-store sales at Wal-Mart have declined for five quarters in a row and the outlook for the future is not particularly promising.

#5 The four week moving average for mortgage applications just hit a 14 year low.  It is now even lower than it was during the worst moments of the financial crisis of 2008.

#6 The tech industry is supposed to be booming, but mass layoffs in the tech industry are actually 68 percent ahead of last year’s pace.

#7 According to the Federal Reserve, 40 percent of all households in the United States are currently showing signs of financial stress.

#8 The U.S. homeownership rate has fallen to the lowest level since 1995.

#9 According to one survey, 76 percent of Americans do not have enough money saved to cover six months of expenses.

#10 Rumblings of a stock market correction have become so loud that even the mainstream media is reporting on it.  For example, just check out this CNN headline from earlier this month: “Is a correction near? Wall Street on edge“.

#11 The civil war in Iraq is spiraling out of control, and Barack Obama has just announced that he is going to send 130 troops to the country in a “humanitarian” capacity.  Iraq is the 7th largest oil producing nation on the entire planet, and if the flow of oil is disrupted that could have serious consequences.

#12 As a result of the conflict in Ukraine, the United States, Canada and the European Union have slapped sanctions on Russia.  In return, Russia has slapped sanctions on them.  Will this slowdown in global trade significantly harm the U.S. economy?

#13 The three day cease-fire between Hamas and Israel is about to end, and Hamas officials are saying that they are preparing for a “long battle“.  If a resolution is not found soon, we could potentially see a full-blown regional war erupt in the Middle East.

#14 The number of Ebola deaths continues to grow at an exponential rate, and if the virus starts spreading inside the United States it has the potential to pretty much shut down our entire economy.

Meanwhile, things look even more dire in much of the rest of the globe.

For example, the economic slowdown has gotten so bad in some nations over in Europe that they are actually experiencing deflation…

Portugal has crashed into deep deflation and Italy’s inflation rate has fallen to zero as the eurozone flirts with recession, automatically pushing these countries further towards a debt compound spiral.

The slide comes amid signs of a deepening slowdown in the eurozone core, with even Germany flirting with possible recession. Germany’s ZEW index of investor confidence plunged from 27.1 to 8.6 in July, the sharpest fall since June 2012, during the European sovereign debt crisis. “The European Central Bank has to act now,” said Andrew Roberts, credit chief at RBS.

And in Japan, GDP just contracted at a 6.8 percent annual rate during the second quarter…

Japan’s economy suffered its worst contraction since 2011 in the second quarter as consumer spending on big items slumped in the wake of a sales tax rise.

Gross domestic product shrunk by an annualized 6.8% in the three months ended June, Japan’s Cabinet Office said Wednesday. The result was actually better than the 7% contraction expected by economists.

On a quarterly basis, Japan’s GDP dropped by 1.7% as business and housing investment declined. Japan’s economy last suffered a hit of this magnitude after the 2011 tsunami and nuclear disaster.

There is no way that this bubble of false prosperity was going to last forever.  It was never real to begin with.  It was just based on a pyramid of debt and false promises.  In fact, the condition of the global financial system is now far worse than it was just prior to the financial crisis of 2008.

Sadly, most people do not understand these things.  Most people just assume that our leaders have fixed whatever caused the problems last time.  And when the next crisis arrives, they will be totally blindsided by it.

Has The Next Recession Already Begun For America’s Middle Class?

RecessionHas the next major economic downturn already started?  The way that you would answer that question would probably depend on where you live.  If you live in New York City, or the suburbs of Washington D.C., or you work for one of the big tech firms in the San Francisco area, you would probably respond to such a question by saying of course not.  In those areas, the economy is doing great and prices for high end homes are still booming.  But in most of the rest of the nation, evidence continues to mount that the next recession has already begun for the poor and the middle class.  As you will read about below, major retailers had an absolutely dreadful start to 2014 and home sales are declining just as they did back in 2007 before the last financial crisis.  Meanwhile, the U.S. economy continues to lose more good jobs and 20 percent of all U.S. families do not have a single member that is employed at this point.  2014 is turning out to be eerily similar to 2007 in so many ways, but most people are not paying attention.

During the first quarter of 2014, earnings by major U.S. retailers missed estimates by the biggest margin in 13 years.  The “retail apocalypse” continues to escalate, and the biggest reason for this is the fact that middle class consumers in the U.S. are tapped out.  And this is not just happening to a few retailers – this is something that is happening across the board.  The following is a summary of how major U.S. retailers performed in the first quarter of 2014 that was put together by Jim Quinn…

Wal-Mart Profit Plunges By $220 Million as US Store Traffic Declines by 1.4%

Target Profit Plunges by $80 Million, 16% Lower Than 2013, as Store Traffic Declines by 2.3%

Sears Loses $358 Million in First Quarter as Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%

JC Penney Thrilled With Loss of Only $358 Million For the Quarter

Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%

Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%

Staples Profit Plunges by 44% as Sales Collapse and Closing Hundreds of Stores

Gap Income Drops 22% as Same Store Sales Fall

American Eagle Profits Tumble 86%, Will Close 150 Stores

Aeropostale Losses $77 Million as Sales Collapse by 12%

Best Buy Sales Decline by $300 Million as Margins Decline and Comparable Store Sales Decline by 1.3%

Macy’s Profit Flat as Comparable Store Sales decline by 1.4%

Dollar General Profit Plummets by 40% as Comp Store Sales Decline by 3.8%

Urban Outfitters Earnings Collapse by 20% as Sales Stagnate

McDonalds Earnings Fall by $66 Million as US Comp Sales Fall by 1.7%

Darden Profit Collapses by 30% as Same Restaurant Sales Plunge by 5.6% and Company Selling Red Lobster

TJX Misses Earnings Expectations as Sales & Earnings Flat

Dick’s Misses Earnings Expectations as Golf Store Sales Plummet

Home Depot Misses Earnings Expectations as Customer Traffic Only Rises by 2.2%

Lowes Misses Earnings Expectations as Customer Traffic was Flat

That is quite a startling list.

But plummeting retail sales are not the only sign that the U.S. middle class is really struggling right now.  Home sales have also been extremely disappointing for quite a few months.  This is how Wolf Richter described what we have been witnessing…

This is precisely what shouldn’t have happened but was destined to happen: Sales of existing homes have gotten clobbered since last fall. At first, the Fiscal Cliff and the threat of a US government default – remember those zany times? – were blamed, then polar vortices were blamed even while home sales in California, where the weather had been gorgeous all winter, plunged more than elsewhere.

Then it spread to new-home sales: in April, they dropped 4.7% from a year ago, after March’s year-over-year decline of 4.9%, and February’s 2.8%. Not a good sign: the April hit was worse than February’s, when it was the weather’s fault. Yet April should be the busiest month of the year (excellent brief video by Lee Adler on this debacle).

We have already seen that in some markets, in California for example, sales have collapsed at the lower two-thirds of the price range, with the upper third thriving. People who earn median incomes are increasingly priced out of the market, and many potential first-time buyers have little chance of getting in. In San Diego, for example, sales of homes below $200,000 plunged 46% while the upper end is doing just fine.

As Richter noted, sales of upper end homes are still doing fine in many areas.

But how long will that be able to continue if things continue to get even worse for the poor and the middle class?  Traditionally, the U.S. economy has greatly depended upon consumer spending by the middle class.  If that continues to dry up, how long can we avoid falling into a recession?  For even more numbers that seem to indicate economic trouble for the middle class, please see my previous article entitled “27 Huge Red Flags For The U.S. Economy“.

Other analysts are expressing similar concerns.  For example, check out what John Williams of shadowstats.com had to say during one recent interview…

We’re turning down anew. The first quarter should revise into negative territory… and I believe the second quarter will report negative as well.

That will all happen by July 30 when you have the annual revisions to the GDP. In reality the economy is much weaker than that. Economic growth is overstated with the GDP because they understate inflation, which is used in deflating the number…

What we’re seeing now is just… we’ve been barely stagnant and bottomed out… but we’re turning down again.

The reason for this is that the consumer is strapped… doesn’t have the liquidity to fuel the growth in consumption.

Income… the median household income, net of inflation, is as low as it was in 1967. The average guy is not staying ahead of inflation…

This has been a problem now for decades… You were able to buy consumption from the future by borrowing more money, expanding your debt. Greenspan saw the problem was income, so he encouraged debt expansion.

That all blew apart in 2007/2008… the income problems have continued, but now you don’t have the ability to borrow money the way you used to. Without that and the income problems remaining, there’s no way that consumption can grow faster than inflation if income isn’t.

As a result – personal consumption is more than two thirds of the economy – there’s no way you can have positive sustainable growth in the U.S. economy without the consumer being healthy.

The key to the health of the middle class is having plenty of good jobs.

But the U.S. economy continues to lose more good paying jobs.

For example, Hewlett-Packard has just announced that it plans to eliminate 16,000 more jobs in addition to the 34,000 job cuts that have already been announced.

Today, there are 27 million more working age Americans that do not have a job than there were in 2000, and the quality of our jobs continues to decline.

This is absolutely destroying the middle class.  Unless the employment situation in this country starts to turn around, there does not seem to be much hope that the middle class will recover any time soon.

Meanwhile, there are emerging signs of trouble for the wealthy as well.

For instance, just like we witnessed back in 2007, things are starting to look a bit shaky at the “too big to fail” banks.  The following is an excerpt from a recent CNBC report…

Citigroup has joined the ranks of those with trading troubles, as a high-ranking official told the Deutsche Bank 2014 Global Financial Services Investor Conference Tuesday that adjusted trading revenue probably will decline 20 percent to 25 percent in the second quarter on an annualized basis.

“People are uncertain,” Chief Financial Officer John Gerspach said of investor behavior, according to an account from the Wall Street Journal. “There just isn’t a lot of movement.”

In recent weeks, officials at JPMorgan Chase and Barclays also both reported likely drops in trading revenue. JPMorgan said it expected a decline of 20 percent of the quarter, while Barclays anticipates a 41 percent drop, prompting it to announce mass layoffs that will pare 19,000 jobs by the end of 2016.

Remember, very few people expected a recession the last time around either.  In fact, Federal Reserve Chairman Ben Bernanke repeatedly promised us that we would not have a recession and then we went on to experience the worst economic downturn since the Great Depression.

It will be the same this time as well.  Just like in 2007, we will continue to get an endless supply of “hopetimism” from our politicians and the mainstream media, and they will continue to fill our heads with visions of rainbows, unicorns and economic prosperity for as far as the eyes can see.

But then the next recession will strike and most Americans will be completely blindsided by it.

The Size Of The Derivatives Bubble Hanging Over The Global Economy Hits A Record High

Bubble - Photo by Brocken InagloryThe global derivatives bubble is now 20 percent bigger than it was just before the last great financial crisis struck in 2008.  It is a financial bubble far larger than anything the world has ever seen, and when it finally bursts it is going to be a complete and utter nightmare for the financial system of the planet.  According to the Bank for International Settlements, the total notional value of derivatives contracts around the world has ballooned to an astounding 710 trillion dollars ($710,000,000,000,000).  Other estimates put the grand total well over a quadrillion dollars.  If that sounds like a lot of money, that is because it is.  For example, U.S. GDP is projected to be in the neighborhood of around 17 trillion dollars for 2014.  So 710 trillion dollars is an amount of money that is almost incomprehensible.  Instead of actually doing something about the insanely reckless behavior of the big banks, our leaders have allowed the derivatives bubble and these banks to get larger than ever.  In fact, as I have written about previously, the big Wall Street banks are collectively 37 percent larger than they were just prior to the last recession.  “Too big to fail” is a far more massive problem than it was the last time around, and at some point this derivatives bubble is going to burst and start taking those banks down.  When that day arrives, we are going to be facing a crisis that is going to make 2008 look like a Sunday picnic.

If you do not know what a derivative is, Mayra Rodríguez Valladares, a managing principal at MRV Associates, provided a pretty good definition in her recent article for the New York Times…

A derivative, put simply, is a contract between two parties whose value is determined by changes in the value of an underlying asset. Those assets could be bonds, equities, commodities or currencies. The majority of contracts are traded over the counter, where details about pricing, risk measurement and collateral, if any, are not available to the public.

In other words, a derivative does not have any intrinsic value.  It is essentially a side bet.  Most commonly, derivative contracts have to do with the movement of interest rates.  But there are many, many other kinds of derivatives as well.  People are betting on just about anything and everything that you can imagine, and Wall Street has been transformed into the largest casino in the history of the planet.

After the last financial crisis, our politicians promised us that they would do something to get derivatives trading under control.  But instead, the size of the derivatives bubble has reached a new record high.  In the New York Times article I mentioned above, Goldman Sachs and Citibank were singled out as two players that have experienced tremendous growth in this area in recent years…

Goldman Sachs has been increasing its derivatives volumes since the crisis, and it had a portfolio of about $48 trillion at the end of 2013. Bloomberg Businessweek recently reported that as part of its growth strategy, Goldman plans to sell more derivatives to clients. Citibank, too, has been increasing its derivatives portfolio, despite the numerous capital and regulatory challenges, In fact, its portfolio has risen by over 65 percent since the crisis — the most of any of the four banks — to $62 trillion.

According to official government numbers, the top 25 banks in the United States now have a grand total of more than 236 trillion dollars of exposure to derivatives.  But there are four banks that dwarf everyone else.  The following are the latest numbers for those four banks…

JPMorgan Chase

Total Assets: $1,945,467,000,000 (nearly 2 trillion dollars)

Total Exposure To Derivatives: $70,088,625,000,000 (more than 70 trillion dollars)

Citibank

Total Assets: $1,346,747,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $62,247,698,000,000 (more than 62 trillion dollars)

Bank Of America

Total Assets: $1,433,716,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $38,850,900,000,000 (more than 38 trillion dollars)

Goldman Sachs

Total Assets: $105,616,000,000 (just a shade over 105 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $48,611,684,000,000 (more than 48 trillion dollars)

If the stock market keeps going up, interest rates stay fairly stable and the global economy does not experience a major downturn, this bubble will probably not burst for a while.

But if there is a major shock to the system, we could easily experience a major derivatives crisis very rapidly and several of those banks could fail simultaneously.

There are many out there that would welcome the collapse of the big banks, but that would also be very bad news for the rest of us.

You see, the truth is that the U.S. economy is like a very sick patient with an extremely advanced case of cancer.  You can try to kill the cancer (the banks), but in the process you will inevitably kill the patient as well.

Right now, the five largest banks account for 42 percent of all loans in the entire country, and the six largest banks control 67 percent of all banking assets.

If they go down, we go down too.

That is why the fact that they have been so reckless is so infuriating.

Just look at the numbers for Goldman Sachs again.  At this point, the total exposure that Goldman Sachs has to derivatives contracts is more than 460 times greater than their total assets.

And this kind of thing is not just happening in the United States.  German banking giant Deutsche Bank has more than 75 trillion dollars of exposure to derivatives.  That is even more than any single U.S. bank has.

This derivatives bubble is a “sword of Damocles” that is hanging over the global economy by a thread day after day, month after month, year after year.

At some point that thread is going to break, the bubble is going to burst, and then all hell is going to break loose.

You see, the truth is that virtually none of the underlying problems that caused the last financial crisis have been fixed.

Instead, our problems have just gotten even bigger and the financial bubbles have gotten even larger.

Never before in the history of the United States have we been faced with the threat of such a great financial catastrophe.

Sadly, most Americans are totally oblivious to all of this.  They just have faith that our leaders know what they are doing, and they have been lulled into complacency by the bubble of false stability that we have been enjoying for the last couple of years.

Unfortunately for them, this bubble of false stability is not going to last much longer.

A financial crisis far greater than what we experienced in 2008 is coming, and it is going to shock the world.

27 Huge Red Flags For The U.S. Economy

Red FlagIf you believe that the U.S. economy is heading in the right direction, you really need to read this article.  As we look toward the second half of 2014, there are economic red flags all over the place.  Industrial production is down.  Home sales are way down.  Retail stores are closing at the fastest pace since the collapse of Lehman Brothers.  U.S. household debt is up substantially, and in 20 percent of all U.S. families everyone is unemployed.  In so many ways, what we are witnessing right now is so similar to what we experienced during the build up to the last great financial crisis.  We are making so many of the very same mistakes that we made the last time, and yet our “leaders” seem completely oblivious to what is happening.  But the warning signs are very clear.  All you have to do is open your eyes and look at them.  The following are 27 huge red flags for the U.S. economy…

#1 Despite endless assurances from the Obama administration that we are in an “economic recovery”, the number one concern for U.S. voters is “Unemployment/Jobs” according to a recent Gallup survey.

#2 Historically, sales for construction equipment manufacturer Caterpillar have been a pretty good indicator of where the global economy is heading next.  Unfortunately, sales were down 13 percent last month and have now experienced year over year declines for 17 months in a row.

#3 During the first quarter of 2014, profits at office supply giant Staples fell by 43.5 percent.

#4 Foot traffic at Wal-Mart stores fell by 1.4 percent during the first quarter of 2014.  Analysts seem puzzled as to why Wal-Mart is “underperforming“.  Perhaps it is because the U.S. middle class is being steadily destroyed and U.S. consumers are tapped out at this point.

#5 It is being projected that Sears will soon close hundreds more stores and will eventually go out of business altogether…

The company said this week that it may sell its 51% stake in Sears Canada, which operates nearly 20% of the company’s stores worldwide. It has quietly closed nearly 100 U.S. stores in the last year. Next week, it’s expected to announce dismal fiscal first quarter results and possibly yet more store closings.

“They have too many stores and they’re losing a lot of money, burning cash,” said John Kernan, an analyst with Cowen.
Kernan expects the company to close 500 of its 1,980 U.S. stores in a few years and, ultimately, to go out of business.

“The lights are going off at Sears and Kmart,” he said. “There are tumbleweeds blowing through the parking lots at Kmart. They’re basically completely irrelevant.”

The “retail apocalypse” just continues to roll on, but the mainstream media is treating this like it is not really a big deal.

#6 The labor force participation rate for Americans from the age of 25 to the age of 29 has fallen to an all-time record low.

#7 According to official government numbers, everyone is unemployed in 20 percent of all American families.

#8 As families struggle to pay their bills, many of them are increasingly turning to debt in order to make ends meet.  Earlier this month we learned that total U.S. household debt has increased for three quarters in a row.  And as I noted in one recent article, total consumer credit in the United States has increased by 22 percent over the past three years, and 56 percent of all Americans have “subprime credit” at this point.

#9 Interest rates on student loans are scheduled to increase substantially on July 1st…

As of July 1, federal student loan rates will edge up. Rates overall will be up 0.8% compared to current rates.

Federal Stafford Loans for undergraduate students will be 4.66% — up from 3.86%. Federal Stafford Loans for graduate students will be 6.21% — up from 5.41%.

Federal Grad PLUS and Federal Parent PLUS Loans will be at 7.21% — up from 6.41%.

This is going to put even more pressure on the growing student loan debt bubble.

#10 U.S. industrial production fell by 0.6 percent in April.  This should not be happening if the economy truly was “recovering”.

#11 Manufacturing job openings in the United States have declined for four months in a row.

#12 Existing home sales have fallen for seven of the last eight months and seem to be repeating a pattern that we witnessed back in 2007 prior to the last financial crash.

#13 In the real estate bubble market of Phoenix, sales in April were down 12 percent year over year, and active inventory was up 49 percent year over year.  In other words, there are tons of homes on the market, but sales are going down.

#14 The homeownership rate in the United States has dropped to the lowest level in 19 years.

#15 Trading revenue at big banks all over the western world is way down…

Late Friday, it was JPMorgan who said trading revenues will be down 20 percent this quarter. Now Barclays says trading revenues in the first three months were down 41 percent. The company cited “challenging trading conditions resulting in subdued client activity.” Like JPMorgan, Barclays also warned they were seeing no improvement in trading in the second quarter.

#16 Jan Loeys, JPMorgan’s head of global asset allocation, is warning that the Federal Reserve is creating a huge financial bubble which could “push us into a credit crisis“…

Where do we go from here? To this analyst, still very subdued economic growth, both at the US and global level, implies continued easy monetary policy. The risk is that bond yields rise no faster than the forwards. Financial overheating (asset inflation) proceeds much faster than economic overheating (CPI inflation). Before CPI inflation has a chance to emerge, and before monetary policy is truly above neutral, a financial bubble will have popped up somewhere and will have corrected, pushing the economy down. That is what has happened in the past 25 years. The behavior of central banks gives us no confidence that this time will be different: Central banks talk about financial instability, but appear to define this mostly in term of bank leverage. Each successive boom and bust is always in another place. A bubble can emerge without leverage. It is not possible to project exactly where this boom and bust cycle will take place as knowing where it will be would induce evasive actions that should prevent it from occurring. One possible ending, among many, is that ultra-easy rates having induced credit markets to grow much faster than equity markets, combines with reduced market making by banks (many of whom have become like brokers) to create a liquidity crisis when the Fed starts the first set of rate hikes. This could then be bad enough to close primary markets, and thus push us into a credit crisis.

#17 Peter Boockvar, the chief market analyst at the Lindsey Group, is warning that the U.S. stock market could experience a 20 percent decline once quantitative easing completely ends.

#18 A lot of other big names are telling CNBC that they expect a significant stock market “correction” very soon as well…

A bevy of high-profile names have warned lately that the market is on the doorstep of a major move lower. From long-term market bulls such as Piper Jaffray to short-term traders such as Dennis Gartman, expectations are high that the major averages are poised for a big dip, with calls varying from 10 percent or so all the way up to 25 percent.

#19 The number of Americans enrolled in the Social Security disability program exceeds the entire population of the nation of Greece and has just hit another brand new record high.

#20 Poverty continues to grow all over the country, and right now there are 49 million Americans that are dealing with food insecurity.

#21 According to Pew Charitable Trusts, tax revenue in 26 U.S. states is still lower than it was back in 2008 even though tax rates have gone up in many areas since then.

#22 Barack Obama is doing his best to keep his promise to destroy the U.S. coal industry…

The EPA is about to impose a new regulation that will reduce carbon emissions from existing power plants starting June 2 and will become permanent in 2015. The new regulation, according to Politico, is the “most dramatic anti-pollution regulation in a generation.” Because the new regulation will further cripple the coal industry, as coal-burning plants will be severely affected, American power will become more dependent on natural gas, solar and wind.

#23 Climatologists are now saying that the state of Texas is going through the worst period of drought that it has experienced in 500 years.

#24 It is being reported that “dozens of Texas communities” are less than 90 days away from being completely out of water.

#25 It is being projected that the drought in California will cost the agricultural industry 1.7 billion dollars and that approximately 14,500 agricultural workers will lose their jobs.

#26 Due in part to the drought, the price of meat rose at the fastest pace in more than 10 years last month.

#27 According to recent surveys, only about a quarter of all Americans believe that the country is heading in the right direction.

17 Facts To Show To Anyone That Believes That The U.S. Economy Is Just Fine

17No, the economy is most definitely not “recovering”.  Despite what you may hear from the politicians and from the mainstream media, the truth is that the U.S. economy is in far worse shape than it was prior to the last recession.  In fact, we are still pretty much where we were at when the last recession finally ended.  When the financial crisis of 2008 struck, it took us down to a much lower level economically.  Thankfully, things have at least stabilized at this much lower level.  For example, the percentage of working age Americans that are employed has stayed remarkably flat for the past four years.  We should be grateful that things have not continued to get even worse.  It is almost as if someone has hit the “pause button” on the U.S. economy.  But things are definitely not getting better, and there are a whole host of signs that this bubble of false stability will soon come to an end and that our economic decline will accelerate once again.  The following are 17 facts to show to anyone that believes that the U.S. economy is just fine…

#1 The homeownership rate in the United States has dropped to the lowest level in 19 years.

#2 Consumer spending for durable goods has dropped by 3.23 percent since November.  This is a clear sign that an economic slowdown is ahead.

#3 Major retailers are closing stores at the fastest pace that we have seen since the collapse of Lehman Brothers.

#4 According to the Bureau of Labor Statistics, 20 percent of all families in the United States do not have a single member that is employed.  That means that one out of every five families in the entire country is completely unemployed.

#5 There are 1.3 million fewer jobs in the U.S. economy than when the last recession began in December 2007.  Meanwhile, our population has continued to grow steadily since that time.

#6 According to a new report from the National Employment Law Project, the quality of the jobs that have been “created” since the end of the last recession does not match the quality of the jobs lost during the last recession…

  • Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth.
  • Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth.
  • Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth.

#7 After adjusting for inflation, men who work full-time in America today make less money than men who worked full-time in America 40 years ago.

#8 It is hard to believe, but 62 percent of all Americans make $20 or less an hour at this point.

#9 Nine of the top ten occupations in the U.S. pay an average wage of less than $35,000 a year.

#10 The middle class in Canada now makes more money than the middle class in the United States does.

#11 According to one recent study, 40 percent of all Americans could not come up with $2000 right now even if there was a major emergency.

#12 Less than one out of every four Americans has enough money put away to cover six months of expenses if there was a job loss or major emergency.

#13 An astounding 56 percent of all Americans have subprime credit in 2014.

#14 As I wrote about the other day, there are now 49 million Americans that are dealing with food insecurity.

#15 Ten years ago, the number of women in the U.S. that had jobs outnumbered the number of women in the U.S. on food stamps by more than a 2 to 1 margin.  But now the number of women in the U.S. on food stamps actually exceeds the number of women that have jobs.

#16 69 percent of the federal budget is spent either on entitlements or on welfare programs.

#17 The number of Americans receiving benefits from the federal government each month exceeds the number of full-time workers in the private sector by more than 60 million.

Taken individually, those numbers are quite remarkable.

Taken collectively, they are absolutely breathtaking.

Yes, things have been improving for the wealthy for the last several years.  The stock market has soared to new record highs and real estate prices in the Hamptons have skyrocketed to unprecedented heights.

But that is not the real economy.  In the real economy, the middle class is being squeezed out of existence.  The quality of our jobs is declining and prices just keep rising.  This reality was reflected quite well in a comment that one of my readers left on one of my recent articles…

It is getting worse each passing month. The food bank I help out, has barely squeaked by the last 3 months. Donors are having to pull back, to take care of their own families. Wages down, prices up, simple math tells you we can not hold out much longer. Things are going up so fast, you have to adopt a new way of thinking. Example I just had to put new tires on my truck. Normally I would have tried to get by to next winter. But with the way prices are moving, I decide to get them while I could still afford them. It is the same way with food. I see nothing that will stop the upward trend for quite a while. So if you have a little money, and the space, buy it while you can afford it. And never forget, there will be some people worse off than you. Help them if you can.

And the false stock bubble that the wealthy are enjoying right now will not last that much longer.  It is an artificial bubble that has been pumped up by unprecedented money printing by the Federal Reserve, and like all bubbles that the Fed creates, it will eventually burst.

None of the long-term trends that are systematically destroying our economy have been addressed, and none of our major economic problems have been fixed.  In fact, as I showed in this recent article, we are actually in far worse shape than we were just prior to the last major financial crisis.

Let us hope that this current bubble of false stability lasts for as long as possible.

That is what I am hoping for.

But let us not be deceived into thinking that it is permanent.

It will soon burst, and then the real pain will begin.

Do Not Make Fun Of Those That Have Fallen Out Of The Middle Class – You Could Be Next

Frustrated - Photo by BlechhhyThere are millions of American families that once lived very comfortable middle class lifestyles that have lost it all.  When you are unemployed and you can’t find a decent job, it can crush your soul.  Every day you can see the disappointment or the disapproval in the eyes of your family and friends, and it can be really easy to want to give up completely.  And then there are always those that choose to actively vocalize their disdain for those that are down on their luck.  But telling people “to get a job” or shaming them for being on welfare isn’t going to solve anything in an economy where there simply are not enough jobs for everyone.  Only a small minority of welfare recipients are actually trying to abuse the system.  Most people just want to work hard and take care of their families.  Unfortunately, that is much harder to do than it was before the last financial crisis.

At this point, our economy has stabilized at a much lower level than it was at before.  For example, 32 million Americans were on food stamps when Barack Obama took office, and subsequently that number shot up to about 47 million.  Fortunately, that number has been relatively stable for the last couple of years, but there has been no recovery.  This can be seen in lots of other economic statistics as well.

If we were going to have an “economic recovery”, it should have happened by now.

Unfortunately, it has not materialized, and now the next downturn is coming.

Since I run a website called “The Economic Collapse”, a lot of people seem to assume that I actually want an economic collapse to happen.  But that is not the truth at all.  I love this country, and just like most other people I really enjoy life in modern America.  I wish that the party could go on forever.  But I know that it cannot.

And every day I hear from people that are deeply suffering in this economy.  Anyone that has a heart that hears of such suffering would want things to get better.  Why would anyone want to see even more pain?

But I know that more pain is coming.

In the years ahead, a tremendous amount of love and compassion are going to be needed.  When people lose their jobs, their entire lives can be turned upside down.  Just consider the case of one formerly middle class woman named Abby Henson…

Last winter I ran into a friend pushing his two youngest children in a stroller. When I asked how he was doing, he told me he’d recently lost his job. I walked away thinking, “Thank God that’s not us.” Fast-forward seven months and now we’re the family people walk away from with a sigh of relief.

One day this summer, my husband came home early from work with the news he’d lost his job. Since then, we’ve gone through all the stages of grief, with a few additions of our own. I’ve gone into what I’ve dubbed “Mama Bear mode,” wanting to do everything with my husband and our two small children, maybe because I just don’t want to face anyone alone. “How are you doing?” is a hard question to answer in the rush of school pickup. So I keep my mate and cubs close, or we hibernate at home, trying to avoid scrutiny.

Sadly, this kind of thing has happened to millions of families.  Those that doubt this just need to look at the survey numbers.

Back in 2008, 53 percent of all Americans considered themselves to be “middle class”.

In 2014, only 44 percent of all Americans still consider themselves to be “middle class”.

This next story that I want to share with you is from a reader named Joe.  Please look past the lack of punctuation, and consider what he is saying.  This is a man that has had his heart broken…

im not sure whats worse. never having a career and family or losing them both. i know that when i got the honor of handing 20 years of hard work to the chinese it plunged me in to despair and a horrible spin. 3 years later and a college degree and ive lost my home and my family over it. and all i got was, you could have, you should have. so its all my fault that someone elses greed caused all this. by the way the corporate CEO that did this makes 7 million bucks a year. she caused 2 divorces. a dozen early forced retirements, countless career losses and multiple wrecked families. im lucky i still have my RV which is home now. i used to have a nice 4 bedroom house with all the middle class trimmings. now i consider myself lucky to have a job where i barely make the space rent and no hope of recovering my former career or my family. i had it all and lost it so i dont know whats worse having or never having it at all and pining for it. either way it hurts knowing that no one wants you after you fall apart youre just a hot potato. all i know is that im lost with no hope with a clean 30 year work history thats now moot. in retrospect i wish i had stayed in the saddle and kept riding my motorcycle till i was no more.

And it is not just older Americans that are suffering in this economy.

Many young people that worked incredibly hard through school and that did everything “right” now find the door to the middle class completely shut.  The following is testimony from a recent college graduate that is incredibly sad…

I’m a college graduate. I live at home. I am on food stamps. I graduated about two years ago and the only work I’ve been able to get is sign waving. Temp agencies are all so flooded with applicants they are almost useless. I’ve sent out hundreds of resumes, filled out dozens of applications, and nothing ever happens. Everyone acts like it’s YOUR fault. That used to be hurtful, but now I’m past caring, because I realize what life holds for me: nothing. I will never have a family or career. I will never own a home or even live on my own again. I will never be able to have a social life again. I will never be financially independent, like I was for a brief period of time at an age younger than most because I worked so hard for it. And all of it was for this nothing. A lifetime of hard work, completely wasted. I wish I had just partied and screwed around my whole life – the outcome probably would have been better.

The despair that our young adults are feeling right now shows up very clearly in the survey numbers.

Back in 2008, 25 percent of all Americans in the 18 to 29-year-old age bracket considered themselves to be “lower class”.

In 2014, 49 percent of them do.

That is an astounding shift in just six years.

Anyone that believes that the U.S. economy is “just fine” is crazy.

When you lose everything, it can plunge you into a spiral of depression and desperation that can be incredibly difficult to break free from.

Some people get tempted to give up completely, but that is never a good answer.

I hope that some people will take hope from a comment that a reader named Paul left on one of my recent articles…

Due to a lack of job security and all the bad economic news I have lapsed into a clinical depression. I have been susceptible to anxiety and depression in the past. However, I did not have to deal with a bout of depression for about 5 years. I am writing this as a wakeup call to other people who may be feeling what I am feeling right now. I am extremely angry about the rampant corruption, laziness, hubris, and ignorance that is permeating through society today. I have shifted between anger, apathy, and sadness. However, I have family that I must protect. One of my purposes in life is to give people hope. Also, below is a list of actions I took to combat my depression.

· Take up a new hobby. Dancing helped me.
· Take stock of how your life impacts others.
· Prepare for harder times ahead. This is extremely empowering.
· Engage in acts of kindness. I found a twenty dollar bill on the floor at a store. Instead of keeping it I gave it to lost and found at customer service. I also removed a sharp piece of wood from the middle of a residential street.
· I remember the saying “Suicide is a permanent solution to a temporary problem” Feelings of sadness, anger, hopelessness are transitory. If you have thoughts about taking your life please get help.
· Typing this has made me feel better.

I will continue to fight my depression. I am in a dark place right now. However, I am searching for the light.

Please pray for Paul and others just like him as they struggle with their pain.

The truth is that there is always hope.

If you are reading this and you are hurting, I want you to know that almost everyone hits a very deep low at some point.  But if you keep fighting, there is always a way for things to be turned around.

Personally, God took the broken pieces of my life and turned them into a beautiful thing, and He can do the same for you.

So never, ever, ever give up.

Yes, very challenging economic times are coming.

But our lives should not be defined by our material possessions anyway.

Personally, I am very glad to be alive during this time of human history.  When times are the darkest, that is when light is needed the most.  And times of great crisis also often bring great opportunity as well.

The years ahead are going to present an awesome opportunity to make a difference in this world.

Don’t miss out.

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