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The Stock Market Just Crashed In Italy, And Argentina Has Panic-Raised Interest Rates To 65 Percent

In the 9th largest economy in the world, the financial markets are crashing, and in the 21st largest economy in the world the central bank just raised interest rates to 65 percent to support a currency that is completely imploding.  While the mainstream media in the United States continues to be obsessed with all things Kavanaugh, an international financial crisis threatens to spiral out of control.  Stock prices are falling and currencies are collapsing all over the planet, but because the U.S. has been largely unaffected so far the mainstream media is mostly choosing to ignore what is happening.  But the truth is that this is serious.  The financial crisis in Italy threatens to literally tear the EU apart, and South America has become an economic horror show.  The situation in Brazil continues to get worse, the central bank of Argentina has just raised interest rates to 65 percent, and in Venezuela starving people are literally eating cats and dogs in order to survive.  How bad do things have to get before people will start paying attention?

On Friday, Italian stocks had their worst day in more than two years, and it was the big financial stocks that were on the cutting edge of the carnage…

Shares in Italian banks .FTIT8300, whose big sovereign bond portfolios makes them sensitive to political risk, bore the brunt of selling pressure, sinking 7.3 percent as government bonds sold off and the focus turned to rating agencies.

Along with the main Italian stock index .FTMIB, the banks had their worst day since the June 2016 Brexit vote triggered a selloff across markets.

Italian bonds got hit extremely hard too.  The following comes from Business Insider…

Bond markets are also suffering. The yield on the benchmark 10-year Italian bond jumped in Friday morning trading. Yields move inversely to price, with a higher yield reflecting an increased premium to hold the bond. The 10-year yield hit 3.22% in early morning trade, an increase of more than 10%.

So what sparked the sudden selloff?

Well, the new Italian government and the EU are at odds with one another, and the European elite were greatly displeased when Italy approved a new budget that was far larger than anticipated…

On Thursday night, six months after the government’s ascent to power, Italy’s populist coalition government of the Five Star Movement and the Northern League finally agreed on the key tenets of its first budget.

The coalition said in a statement they had agreed to set Italy’s budget deficit at 2.4% of GDP, an increase on the current level and far above the 1.6% that technocratic finance minister Giovanni Tria had lobbied for.

It is easy to criticize Italy, but what we are doing here in the United States is just as bad if not worse.

A new 854 billion dollar spending bill just got pushed through in D.C., and it is going to continue to explode the size of our national debt.  We are going down the exact same path that all of these other nations have gone down, and in the process we are literally committing national suicide.

Just look at what is happening in Argentina.  Years of wild spending have resulted in an economy that is deep in recession.  The Argentine peso has lost approximately 50 percent of its value so far in 2018, and in a desperate attempt to stop the bleeding the central bank of Argentina just panic-raised interest rates to 65 percent.

When interest rates are at 65 percent, you don’t really have an economy anymore.

What you have is an endless nightmare.

In an emergency move, the International Monetary Fund has agreed to increase the size of Argentina’s bailout to 57 billion dollars…

The International Monetary Fund and Argentina announced Wednesday an arrangement to increase resources available to the South American country by $19 billion.

The agreement, pending IMF Executive Board approval, would bring the total amount available under the program to $57.4 billion by the end of 2021, up from $50 billion.

That won’t be nearly enough to turn the situation around in Argentina, and the IMF probably knows that.

For a long time many of us have been warning of a coming global financial crisis, and now that day has arrived.

For a long time many of us have been telling you to keep a close eye on Italy, and now a day of reckoning for that very troubled nation is here.

And big problems are coming for the U.S. too.  Signs of imminent economic trouble just keep popping up, and it isn’t going to take much to push us into a new financial crisis that will be much worse than what we witnessed in 2008.

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

The Last Days Warrior Summit is the premier online event of 2018 for Christians, Conservatives and Patriots.  It is a premium-members only international event that will empower and equip you with the knowledge and tools that you need as global events begin to escalate dramatically.  The speaker list includes Michael Snyder, Mike Adams, Dave Daubenmire, Ray Gano, Dr. Daniel Daves, Gary Kah, Justus Knight, Doug Krieger, Lyn Leahz, Laura Maxwell and many more. Full summit access will begin on October 25th, and if you would like to register for this unprecedented event you can do so right here.

After Raising Rates Once During The Obama Years, The Fed Promises Constant Rate Hikes During The Trump Era

janet-yellen-public-domainNow that Donald Trump has won the election, the Federal Reserve has decided now would be a great time to start raising interest rates and slowing down the economy.  Over the past several decades, the U.S. economy has always slowed down whenever interest rates have been raised significantly, and on Wednesday the Federal Open Market Committee unanimously voted to raise rates by a quarter point.  Stocks immediately started falling, and by the end of the session it was their worst day since October 11th.

The funny thing is that the Federal Reserve could have been raising rates all throughout 2016, but they held off because they didn’t want to hurt Hillary Clinton’s chances of winning the election.

And during Barack Obama’s eight years, there has only been one rate increase the entire time up until this point.

But now that Donald Trump is headed for the White House, the Federal Reserve has decided that now would be a wonderful time to raise interest rates.  In addition to the rate hike on Wednesday, the Fed also announced that it is anticipating that rates will be raised three more times each year through the end of 2019…

Fed policymakers are also forecasting three rate increases in 2017, up from two in September, and maintained their projection of three hikes each in 2018 and 2019, according to median estimates. They predict the fed funds rate will be 1.4% at the end of 2017, 2.1% at the end of 2018 and 2.9% at the end of 2019, up from forecasts of 1.1%, 1.9% and 2.6%, respectively, in September. Its long-run rate is expected to be 3%, up slightly from 2.9% previously. The Fed reiterated rate increases will be “gradual.”

So Barack Obama got to enjoy the benefit of having interest rates slammed to the floor throughout his presidency, and now Donald Trump is going to have to fight against the economic drag that constant interest rate hikes will cause.

How is that fair?

As rates rise, ordinary Americans are going to find that mortgage payments are going to go up, car payments are going to go up and credit card bills are going to become much more painful.  The following comes from CNN…

Higher interest rates affect millions of Americans, especially if you have a credit card or savings account, or want to buy a home or a car. American savers have earned next to nothing at the bank for years. Now they could be a step closer to earning a little more interest on savings account deposits, even though one rate hike won’t change things overnight.

Rates on car loans and mortgages are also likely to be affected. Those are much more closely tied to the interest on a 10-year U.S. Treasury bond, which has risen rapidly since the election. With a Fed hike coming at a time when interest on the 10-year note is also rising, that won’t help borrowers.

The higher interest rates go, the more painful it will be for the economy.

If you recall, rising rates helped precipitate the financial crisis of 2008.  When interest rates rose it slammed people with adjustable rate mortgages, and suddenly Americans could not afford to buy homes at the same pace they were before.  We have already been watching the early stages of another housing crash start to erupt all over the nation, and rising rates will certainly not help matters.

But why does the Federal Reserve set our interest rates anyway?

We are supposed to be a free market capitalist economy.  So why not let the free market set interest rates?

Many Americans are expecting an economic miracle out of Trump, but the truth is that the Federal Reserve has far more power over the economy than anyone else does.  Trump can try to reduce taxes and tinker with regulations, but the Fed could end up destroying his entire economic program by constantly raising interest rates.

Of course we don’t actually need economic central planners.  The greatest era for economic growth in all of U.S. history came when there was no central bank, and in my article entitled “Why Donald Trump Must Shut Down The Federal Reserve And Start Issuing Debt-Free Money” I explained that Donald Trump must completely overhaul how our system works if he wants any chance of making the U.S. economy great again.

One way that Trump can start exerting influence over the Fed is by nominating the right people to the Federal Open Market Committee.  According to CNN, it looks like Trump will have the opportunity to appoint four people to that committee within his first 18 months…

Two spots on the Fed’s committee are currently open for Trump to nominate. Looking ahead, Fed Chair Janet Yellen’s term ends in January 2018, while Vice Chair Stanley Fischer is up for re-nomination in June 2018.

Within the first 18 months of his presidency, Trump could reappoint four of the 12 people on the Fed’s powerful committee — an unusual amount of influence for any president.

By endlessly manipulating the economy, the Fed has played a major role in creating economic booms and busts.  Since the Fed was created in 1913, there have been 18 distinct recessions or depressions, and now the Fed is setting the stage for another one.

And anyone that tries to claim that the Fed is not political is only fooling themselves.  Everyone knew that they were not going to raise rates during the months leading up to the election, and it was quite clear that this was going to benefit Hillary Clinton.

But now that Donald Trump has won the election, the Fed all of a sudden has decided that the time is perfect to begin a program of consistently raising rates.

If I was Donald Trump, I would be looking to shut down the Federal Reserve as quickly as I could.  The essential functions that the Fed performs could be performed by the Treasury Department, and we would be much better off if the free market determined interest rates instead of some bureaucrats.

Unfortunately, most Americans have come to accept that it is “normal” to have a bunch of unelected, unaccountable central planners running our economic system, and so it is unlikely that we will see any major changes before our economy plunges into yet another Fed-created crisis.

We Are Being Set Up For Higher Interest Rates, A Major Recession And A Giant Stock Market Crash

bear-market-bull-market-public-domainSince Donald Trump’s victory on election night we have seen the worst bond crash in 15 years.  Global bond investors have seen trillions of dollars of wealth wiped out since November 8th, and analysts are warning of another tough week ahead.  The general consensus in the investing community is that a Trump administration will mean much higher inflation, and as a result investors are already starting to demand higher interest rates.  Unfortunately for all of us, history has shown that higher interest rates always cause an economic slowdown.  And this makes perfect sense, because economic activity naturally slows down when it becomes more expensive to borrow money.  The Obama administration had already set up the next president for a major recession anyway, but now this bond crash threatens to bring it on sooner rather than later.

For those that are not familiar with the bond market, when yields go up bond prices go down.  And when bond prices go down, that is bad news for economic growth.

So we generally don’t want yields to go up.

Unfortunately, yields have been absolutely soaring over the past couple of weeks, and the yield on 10 year Treasury notes has now jumped “one full percentage point since July”…

The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July!

The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.

As I noted the other day, so many things in our financial system are tied to yields on U.S. Treasury notes.  Just look at what is happening to mortgages.  As Wolf Richter has noted, the average rate on 30 year mortgages is shooting into the stratosphere…

The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.”

If mortgage rates continue to shoot higher, there will be another housing crash.

Rates on auto loans, credit cards and student loans will also be affected.  Throughout our economic system it will become much more costly to borrow money, and that will inevitably slow the overall economy down.

Why bond investors are so on edge these days is because of statements such as this one from Steve Bannon…

In a nascent administration that seems, at best, random in its beliefs, Bannon can seem to be not just a focused voice, but almost a messianic one:

“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”

Steve Bannon is going to be one of the most influential voices in the new Trump administration, and he is absolutely determined to get this “trillion dollar infrastructure plan” through Congress.

And that is going to mean a lot more borrowing and a lot more spending for a government that is already on pace to add 2.4 trillion dollars to the national debt this fiscal year.

Sadly, all of this comes at a time when the U.S. economy is already starting to show significant signs of slowing down.  It is being projected that we will see a sixth straight decline in year-over-year earnings for the S&P 500, and industrial production has now contracted for 14 months in a row.

The truth is that the economy has been barely treading water for quite some time now, and it isn’t going to take much to push us over the edge.  The following comes from Lance Roberts…

With an economy running at below 2%, consumers already heavily indebted, wage growth weak for the bulk of American’s, there is not a lot of wiggle room for policy mistakes.

Combine weak economics with higher interest rates, which negatively impacts consumption, and a stronger dollar, which weighs on exports, and you have a real potential of a recession occurring sooner rather than later.

Yes, the stock market soared immediately following Trump’s election, but it wasn’t because economic conditions actually improved.

If you look at history, a stock market crash almost always follows a major bond crash.  So if bond prices keep declining rapidly that is going to be a very ominous sign for stock traders.

And history has also shown us that no bull market can survive a major recession.  If the economy suffers a major downturn early in the Trump administration, it is inevitable that stock prices will follow.

The waning days of the Obama administration have set us up perfectly for higher interest rates, a major recession and a giant stock market crash.

Of course any problems that occur after January 20th, 2017 will be blamed on Trump, but the truth is that Obama will be far more responsible for what happens than Trump will be.

Right now so many people have been lulled into a sense of complacency because Donald Trump won the election.

That is an enormous mistake.

A shaking has already begun in the financial world, and this shaking could easily become an avalanche.

Now is not a time to party.  Rather, it is time to batten down the hatches and to prepare for very rough seas ahead.

All of the things that so many experts warned were coming may have been delayed slightly, but without a doubt they are still on the way.

So get prepared while you still can, because time is running out.

Show This To Anyone That Believes That Taxes Are Too Low

Every year average Americans pay dozens of different types of taxes, and yet many of our politicians are very open about the fact that they want to raise rates even higher and invent even more ways to bleed us all dry.  Someday historians will look back and be absolutely amazed at how stupid we were.  We have the most complicated tax code in all of human history and at this point the federal tax code is more than four times as long as the entire collected works of William Shakespeare.  In many places it is so incomprehensible that nobody actually understands what it means and the entire thing is absolutely riddled with loopholes from the beginning to the end.  Trust me, I used to study this stuff.  Nobody could ever read the entire thing – it is close to four million words long.  But that is just for federal income taxes.  We have a number of other taxes taken out of our paychecks such as state income taxes, Social Security taxes and Medicare taxes.  Sadly, the taxes taken out of your paycheck are only just the beginning.  As I will detail below, there are more than 40 other taxes that average Americans pay each year in addition to the taxes that are taken out of our paychecks.  Our politicians love to find ways that they can “raise revenue” without us feeling it.  Most people just focus on income tax rates and they forget about the dozens of other ways that they are bleeding us dry.  It really is kind of like “death by a thousand cuts”, and of course the middle class gets hit the hardest.  The poor are exempt from many taxes, the ultra-wealthy are masters at cheating the system and avoiding taxes, and so the most pain is always felt by those in the middle.  Hard working middle class families and small businesses all over America are being financially raped by this insidious system.  If you know of anyone out there that believes that taxes are “too low”, please show this article to them.

Just counting federal, state and local income taxes, some Americans will be paying marginal tax rates of over 50 percent in 2013.  But like I said, there are a lot of other taxes we pay than just those.

The following are 44 more taxes that at least some average Americans are paying now or will be paying soon other than federal, state and local income taxes…

#1 Building Permit Taxes

#2 Capital Gains Taxes

#3 Cigarette Taxes

#4 Court Fines (indirect taxes)

#5 Dog License Taxes

#6 Drivers License Fees (another form of taxation)

#7 Federal Unemployment Taxes

#8 Fishing License Taxes

#9 Food License Taxes

#10 Gasoline Taxes

#11 Gift Taxes

#12 Hunting License Taxes

#13 Inheritance Taxes

#14 Inventory Taxes

#15 IRS Interest Charges (tax on top of tax)

#16 IRS Penalties (tax on top of tax)

#17 Liquor Taxes

#18 Luxury Taxes

#19 Marriage License Taxes

#20 Medicare Taxes

#21 Medicare Tax Surcharge On High Earning Americans Under Obamacare

#22 Obamacare Individual Mandate Excise Tax (if you don’t buy “qualifying” health insurance under Obamacare you will have to pay an additional tax)

#23 Obamacare Surtax On Investment Income (a new 3.8% surtax on investment income that goes into effect next year)

#24 Property Taxes

#25 Recreational Vehicle Taxes

#26 Toll Booth Taxes

#27 Sales Taxes

#28 Self-Employment Taxes

#29 School Taxes

#30 Septic Permit Taxes

#31 Service Charge Taxes

#32 Social Security Taxes

#33 State Unemployment Taxes (SUTA)

#34 Tanning Tax (a new Obamacare tax on tanning services)

#35 Telephone Federal Excise Taxes

#36 Telephone Federal Universal Service Fee Taxes

#37 Telephone Minimum Usage Surcharge Taxes

#38 Telephone State And Local Taxes

#39 Tire Taxes

#40 Tolls (another form of taxation)

#41 Traffic Fines (indirect taxation)

#42 Utility Taxes

#43 Vehicle Registration Taxes

#44 Workers Compensation Taxes

Sadly, this list is far from complete.  There are many more forms of taxation that could be included.

When you account for all forms of taxation, there are some Americans that “play by the rules” that are sending more than half of their incomes to the government.

This is why “tax avoidance” has become a multi-billion dollar industry in the United States.  People are sick and tired of being drained dry by a system that is way too complicated and way too unfair.

Posted below are 30 reasons why the U.S. tax system is stupid.  Some of these facts I have discussed before, and some of them are new.  You might want to be sitting down while you are reading this, because this list is likely to make many of you very angry…

1. Thanks to Proposition 30, many high income residents of California will be paying marginal income tax rates of 51.9% in 2013 if the fiscal cliff is not avoided.  Keep in mind that the 51.9% figure only includes federal and state income taxes.  It does not count any of the dozens of other taxes that we pay each year.

2. If a fiscal cliff deal is not reached, many residents of New York and Hawaii will also be paying marginal income tax rates of more than 50 percent.

3. If Americans fully funded the government through their taxes without any borrowing, the average American would have to work for 197 days just to meet the expenses incurred by government.

4. The U.S. tax code is now 3.8 million words long.  If you took all of William Shakespeare’s works and collected them together, the entire collection would only be about 900,000 words long.

5. According to the National Taxpayers Union, U.S. taxpayers spend more than 7.6 billion hours complying with federal tax requirements each year.  Imagine what our society would look like if all of that time was spent on more economically profitable activities.

6. 75 years ago, the instructions for Form 1040 were two pages long.  Today, they are 189 pages long.

7. There have been 4,428 changes to the tax code over the last decade.  It is incredibly costly to change tax software, tax manuals and tax instruction booklets for all of those changes.

8. According to the National Taxpayers Union, the IRS currently has 1,999 different publications, forms, and instruction sheets that you can download from the IRS website.

9. Our tax system has become so complicated that it is almost impossible to file your taxes correctly.  For example, back in 1998 Money Magazine had 46 different tax professionals complete a tax return for a hypothetical household.  All 46 of them came up with a different result.

10. In 2009, PC World had five of the most popular tax preparation software websites prepare a tax return for a hypothetical household.  All five of them came up with a different result.

11. The IRS spends $2.45 for every $100 that it collects in taxes.  That is incredibly inefficient.

12. According to The Tax Foundation, the average American has to work until April 17th just to pay federal, state, and local taxes.  Back in 1900, “Tax Freedom Day” came on January 22nd.

13. When the U.S. government first implemented a personal income tax back in 1913, the vast majority of the population paid a rate of just 1 percent, and the highest marginal tax rate was just 7 percent.

14. Residents of New Jersey pay $1.64 in taxes for every $1.00 of federal spending that they get back.

15. The United States is the only nation on the planet that tries to tax citizens on what they earn in foreign countries.

16. According to Forbes, the 400 highest earning Americans pay an average federal income tax rate of just 18 percent.

17. Warren Buffett had an effective federal income tax rate of just 17.4 percent for 2010.

18. The top 20 percent of all income earners in the United States pay approximately 86 percent of all federal income taxes.

19. Sadly, as Bill Whittle has shown, you could take every single penny that every American earns above $250,000 and it would only fund about 38 percent of the federal budget.

20. The United States has the highest corporate tax rate in the world (35 percent).  In Ireland, the corporate tax rate is only 12.5 percent.  This is causing thousands of corporations to move operations out of the United States and into other countries.

21. Some tax havens are doing a booming business in setting up sham headquarters for U.S. corporations.  For example, the city of Zug, Switzerland only has a population of 26,000 people but it is the headquarters for 30,000 companies.

22. In 1950, corporate taxes accounted for about 30 percent of all federal revenue.  In 2012, corporate taxes will account for less than 7 percent of all federal revenue.

23. In a previous article, I discussed how many of our largest corporations make huge profits and yet pay less than nothing in taxes….

What U.S. corporations are able to get away with is absolutely amazing.

The following figures come directly out of a report by Citizens for Tax Justice.  These are combined figures for the tax years 2008, 2009 and 2010.

During those three years, all of the corporations below made a lot of money.  Yet all of them paid net taxes that were below zero for those three years combined.

How is that possible?  Well, it turns out that instead of paying in taxes to the federal government, they were actually getting money back.

So for these corporations, their rate of taxation was actually below zero.

If you have not seen these before, you are going to have a hard time believing some of these statistics…..

*Honeywell*

Profits: $4.9 billion

Taxes: -$34 million

*Fed Ex*

Profits: $3 billion

Taxes: -$23 million

*Wells Fargo*

Profits: $49.37 billion

Taxes: -$681 million

*Boeing*

Profits: $9.7 billion

Taxes: -$178 million

*Verizon*

Profits: $32.5 billion

Taxes: -$951 million

*Dupont*

Profits: $2.1 billion

Taxes -$72 million

*American Electric Power*

Profits: $5.89 billion

Taxes -$545 million

*General Electric*

Profits: $7.7 billion

Taxes: -$4.7 billion

Are you starting to get the picture?

24. Exxon-Mobil paid $15 billion in taxes in 2009, but not a single penny went to the U.S. government.

25. If Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

26. The number of traffic accidents spikes each year right around April 15th.  The following is from a recent Bloomberg article….

Deaths from traffic accidents around April 15, traditionally the last day to file individual income taxes in the U.S., rose 6 percent on average on each of the last 30 years of tax filing days compared with a day during the week prior and a week later, according to research published in the Journal of the American Medical Association.

27. The elite are not stupid.  They are not just going to sit there and let our politicians tax them into oblivion.  In fact, many of them will openly cheat if that is what it takes to avoid taxes.  Most of them have become masters at avoiding taxes or they have hired people that do that kind of work for them.  According to the IMF, the global elite are holding a total of 18 trillion dollars in offshore banking havens such as the Cayman Islands.

28. It has been reported that 80 percent of all international banking transactions involve offshore banks.  A whopping 1.4 trillion dollars is being held in offshore banks in the Cayman Islands alone.

29. An article that appeared in the Guardian estimated that a third of all the wealth on the entire planet is being kept in offshore banks.  One of the primary reasons for this is tax avoidance.

30. If a deal is not reached and the “fiscal cliff” is not avoided, the average American taxpayer can expect to pay about $3,500 more in taxes next year.

Clearly, the tax system that we are using right now is not working.

The big corporations and the ultra-wealthy have mastered the art of moving money offshore and using loopholes to make their tax burdens as low as possible.

So our politicians just keep finding more ways to squeeze more money out of the middle class and small businesses in order to make up the difference.

If you are a middle class American and you don’t think that you are paying enough taxes already then you are one sick puppy.

They are draining blood from us in dozens of different ways, and they are constantly inventing new ways to tax all of us.

So what is the solution?

Well, a good first step would be to completely abolish the federal income tax.  It is terribly inefficient, it is way too complicated and it is terribly unfair.  It rewards those that know how to exploit loopholes and those that know how to cheat the system.  Those that “play by the rules” always get the short end of the stick.

Our government could easily be funded by tariffs and other forms of taxation that are more equitable.  There were vast stretches of American history when there was no federal income tax, and the federal government did just fine.

And of course one of our biggest problems is that the federal government simply spends way, way too much money.  There is not a single category of government spending that does not need to be reduced and/or made much more efficient.  The amount of waste that goes on in Washington D.C. is absolutely mind boggling.

Unfortunately, both political parties seem content to be married to the current system so I would not expect any significant changes any time soon.

So what do you think about all this?

Do you believe that taxes are too low, or do you believe that they are too high?

Please leave a comment below with your thoughts, and please share this article with as many people as you can.

11 International Agreements That Are Nails In The Coffin Of The Petrodollar

Is the petrodollar dead?  Well, not yet, but the nails are being hammered into the coffin even as you read this.  For decades, most of the nations of the world have used the U.S. dollar to buy oil and to trade with each other.  In essence, the U.S. dollar has been acting as a true global currency.  Virtually every country on the face of the earth has needed big piles of U.S. dollars for international trade.  This has ensured a huge demand for U.S. dollars and U.S. government debt.  This demand for dollars has kept prices and interest rates low, and it has given the U.S. government an incredible amount of power and leverage around the globe.  Right now, U.S. dollars make up more than 60 percent of all foreign currency reserves in the world.  But times are changing.  Over the past couple of years there has been a whole bunch of international agreements that have made the U.S. dollar less important in international trade.  The mainstream media in the United States has been strangely quiet about all of these agreements, but the truth is that they are setting the stage for a fundamental shift in the way that trade is conducted around the globe.  When the petrodollar dies, it is going to have an absolutely devastating impact on the U.S. economy.  Sadly, most Americans are totally clueless regarding what is about to happen to the dollar.

One of the reasons the Federal Reserve has been able to get away with flooding the financial system with U.S. dollars is because the rest of the world has been soaking a lot of those dollars up.  The rest of the world has needed giant piles of dollars to trade with, but what is going to happen when they don’t need dollars anymore?

Could we see a tsunami of inflation as demand for the dollar plummets like a rock?

The power of the U.S. dollar has been one of the few things holding up our economy.  Once that leg gets kicked out from under us we are going to be in a whole lot of trouble.

The following are 11 international agreements that are nails in the coffin of the petrodollar….

#1 China And Russia

China and Russia have decided to start using their own currencies when trading with each other.  The following is from a China Daily article about this important agreement….

China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

#2 China And Brazil

Did you know that Brazil conducts more trade with China than with anyone else?

The largest economy in South America has just agreed to a huge currency swap deal with the largest economy in Asia.  The following is from a recent BBC article….

China and Brazil have agreed a currency swap deal in a bid to safeguard against any global financial crisis and strengthen their trade ties.

It will allow their respective central banks to exchange local currencies worth up to 60bn reais or 190bn yuan ($30bn; £19bn).

The amount can be used to shore up reserves in times of crisis or put towards boosting bilateral trade.

#3 China And Australia

Did you know that Australia conducts more trade with China than with anyone else?

Australia also recently agreed to a huge currency swap deal with China.  The following is from a recent Financial Express article….

The central banks of China and Australia signed a A$30 billion ($31.2 billion) currency-swap agreement to ensure the availability of capital between the trading partners, the Reserve Bank of Australia said.

“The main purposes of the swap agreement are to support trade and investment between Australia and China, particularly in local-currency terms, and to strengthen bilateral financial cooperation,” the RBA said in a statement on its website. “The agreement reflects the increasing opportunities available to settle trade between the two countries in Chinese renminbi and to make RMB-denominated investments.”

China has been expanding currency-swap accords as it promotes the international use of the yuan, and the accord with Australia follows similar deals with nations including South Korea, Turkey and Kazakhstan. China is Australia’s biggest trading partner and accounts for about a quarter of the nation’s merchandise sales abroad.

#4 China And Japan

The second and third largest economies on the entire planet have decided that they should start moving toward using their own currencies when trading with each other.  This agreement was incredibly important but it was almost totally ignored by the U.S. media.

According to Bloomberg, it is anticipated that this agreement will strengthen ties between these two Asian giants….

Japan and China will promote direct trading of the yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said.

Japan will also apply to buy Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday. Encouraging direct yen- yuan settlement should reduce currency risks and trading costs, the Japanese and Chinese governments said.

China is Japan’s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier.

#5 India And Japan

It is not just China making these kinds of currency agreements.  According to Reuters, India and Japan have also agreed to a very large currency swap deal….

India and Japan have agreed to a $15 billion currency swap line, Japan’s Prime Minister Yoshihiko Noda said on Wednesday, in a positive move for the troubled Indian rupee, Asia’s worst-performing currency this year.

#6 “Junk For Oil”: How India And China Are Buying Oil From Iran

Iran is still selling lots of oil.  They just aren’t exchanging that oil for U.S. dollars as much these days.

So how is Iran selling their oil without using dollars?

A Bloomberg article recently detailed what countries such as China and India are exchanging for Iranian oil….

Iran and its leading oil buyers, China and India, are finding ways to skirt U.S. and European Union financial sanctions on the Islamic republic by agreeing to trade oil for local currencies and goods including wheat, soybean meal and consumer products.

India, the second-biggest importer of Iran’s oil, has set up a rupee account at a state-owned bank to settle as much as much as 45 percent of its bill, according to Indian officials. China, Iran’s largest oil customer, already settles some of its oil debts through barter, Mahmoud Bahmani, Iran’s central bank governor, said Feb. 28. Iran also has sought to trade oil for wheat from Pakistan and Russia, according to media reports from the two countries.

#7 Iran And Russia

According to Bloomberg, Iran and Russia have decided to discard the U.S. dollar and use their own currencies when trading with each other….

Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow.

The proposal to switch to the ruble and the rial was raised by Russian President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, of the Shanghai Cooperation Organization, the ambassador said.

#8 China And Chile

China and Chile recently signed a new agreement that will dramatically expand trade between the two nations and that is also likely to lead to significant currency swaps between the two countries….

The following is from a recent report that described this new agreement between China and Chile….

Wen called on the two nations to expand trade in goods, promote trade in services and mutual investment, and double bilateral trade in three years.

The Chinese leader also said the two countries should enhance cooperation in mining, expand farm product trade, and promote cooperation in farm product production and processing and agricultural technology.

China would like to be actively engaged in Chile’s infrastructure construction and work with Chile to promote the development of transportation networks in Latin America, said Wen.

Meanwhile, Wen suggested that the two sides launch currency swaps and expand settlement in China’s renminbi.

#9 China And The United Arab Emirates

According to CNN, China and the United Arab Emirates recently agreed to a very large currency swap deal….

In January, Chinese Premier Wen Jiabao visited the United Arab Emirates and signed a $5.5 billion currency swap deal to boost trade and investments between the two countries.

#10 China And Africa

Did you know that China is now Africa’s biggest trading partner?

For many years the U.S. dollar was dominant in Africa, but now that is changing.  A report from Africa’s largest bank, Standard Bank, says the following….

“We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”

#11 Brazil, Russia, India, China And South Africa

The BRICS (Brazil, Russia, India, China and South Africa) continue to become a larger factor in the global economy.

A recent agreement between those nations sets the stage for them to increasingly use their own national currencies when trading with each other rather than the U.S. dollar.  The following is from a news source in India….

The five major emerging economies of BRICS — Brazil, Russia, India, China and South Africa — are set to inject greater economic momentum into their grouping by signing two pacts for promoting intra-BRICS trade at the fourth summit of their leaders here Thursday.

The two agreements that will enable credit facility in local currency for businesses of BRICS countries will be signed in the presence of the leaders of the five countries, Sudhir Vyas, secretary (economic relations) in the external affairs ministry, told reporters here.

The pacts are expected to scale up intra-BRICS trade which has been growing at the rate of 28 percent over the last few years, but at $230 billion, remains much below the potential of the five economic powerhouses.

So what does all of this mean?

It means that the days of the U.S. dollar being the de facto reserve currency of the world are numbered.

So why is this important?

In a previous article, I quoted an outstanding article by Marin Katusa that detailed many of the important benefits that the petrodollar system has had for the U.S. economy….

The “petrodollar” system was a brilliant political and economic move. It forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount – the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

So what happens when the petrodollar dies?

The following are some of the things we are likely to see….

-Oil will cost a lot more.

-Everything will cost a lot more.

-There will be a lot less foreign demand for U.S. government debt.

-Interest rates on U.S. government debt will rise.

-Interest rates on just about everything in the U.S. economy will rise.

And that is just for starters.

As I wrote about earlier today, the Federal Reserve is not going to save us.  Ben Bernanke is not somehow going to pull a rabbit out of a hat that will magically make everything okay.  Fundamental changes to the global financial system are happening right now that are impossible for Bernanke to stop.

We should have never gone into so much debt.  Up until now we have gotten away with it, but when demand for U.S. dollars and U.S. debt dries up we are going to experience a massive amount of pain.

Keep your eyes and ears open for more news stories like the ones referenced above.  The end of the petrodollar is going to be a very significant landmark on the road toward the total collapse of the U.S. economy.

So what do you think the fate of the U.S. dollar is going to be in the years ahead?

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

The Biggest Financial Scandal In History?

We always knew that the financial markets were rigged, but this is getting ridiculous.  It is now being alleged that 20 major banks have been systematically fixing global interest rates for years.  Barclays has already been fined hundreds of millions of dollars for manipulating Libor (the London Inter Bank Offered Rate).  But Barclays says that a whole bunch of other banks were doing this too.  This is shaping up to be the biggest financial scandal in history, and criminal investigations have been launched on both sides of the Atlantic.  What those investigations are likely to uncover could shake the financial markets to their very core.  In the end, this scandal could absolutely devastate confidence in the global financial system and it could potentially bring down a number of major global banks.  We have never seen anything quite like this before.

What Is Libor?

As mentioned before, Libor is the London Inter Bank Offered Rate.  A recent Washington Post article contained a pretty good explanation of what that means….

In the simplest terms, LIBOR is the average interest rate which banks in London are charging each other for borrowing. It’s calculated by Thomson Reuters — the parent company of the Reuters news agency — for the British Banking Association (BBA), a trade association of banks and financial services companies.

Why Does Libor Matter?

If you have a mortgage, a car loan or a credit card, then there is a very good chance that Libor has affected your personal finances.  Libor has been a factor in the pricing of hundreds of trillions of dollars of loans, securities and assets.  The following is from a recent article by Maureen Farrell….

These traders influenced the pricing of the London Interbank Offered Rate or Libor, a benchmark that dictates the pricing of up to $800 trillion of securities (yes trillion)

$800 trillion?

That is a number that is hard to even imagine.

Most American consumers do not even know what Libor is, but it actually plays a key role in the U.S. economy as the Washington Post recently explained….

In the United States, the two biggest indices for adjustable rate mortgages and other consumer debt are the prime rate (that is, the rate banks charge favored or “prime” consumers) and LIBOR, with the latter particularly popular for subprime loans. A study from Mark Schweitzer and Guhan Venkatu at the Cleveland Fed looked at survey data in Ohio and found that by 2008, almost 60 percent of prime adjustable rate mortgages, and nearly 100 percent of subprime ones, were indexed to LIBOR

Who Was Involved In This Scandal?

According to the Daily Mail, in addition to Barclays it is being alleged that at least 20 banks (including some major U.S. banks) were involved in this interest rate fixing scandal….

Hundreds of bankers across three continents are embroiled in the interest-rate fixing scandal that has left Barclays chief executive Bob Diamond fighting to save his job.

As pressure intensified on Britain’s highest paid banking boss to quit, MPs heard a string of other financial institutions across the world were under investigation.

At least 20 banks are believed to be under suspicion, with growing demands for a criminal investigation.

There are also indications that the Bank of England itself may have been involved in this scandal.

What Did They Do?

Employees at Barclays (and apparently at about 20 other major banks) were brazenly manipulating interest rates.  A recent Yahoo Finance article described how this worked…

To help the bank’s trading positions between 2005 and 2009, and most notably during the global financial crisis of 2007-09, the bank made false submissions to the Libor-setting committee, which agrees rates daily in London.

At the request of its own traders of interest-rate derivatives, Barclays made false submissions relating to Libor and Euribor (the eurozone benchmark rate). By doing this, Barclays personnel aimed to help their trading colleagues to profit by manipulating Libor.

Rigging the world’s leading benchmark for interest rates is pretty serious stuff. Indeed, in the words of the FSA, “Barclays’ behaviour threatened the integrity of the rates, with the risk of serious harm to other market participants”.

Many in the financial world have been absolutely horrified by the details of this scandal that have been emerging.

One recent CNN article declared that “the stench” coming from London is now “overwhelming”….

The Libor scandal has confirmed what many of us have known for some time: There is something smelly in the London financial world and the stench is now overwhelming.

But It is only when I read the Financial Services Authority report — all 44 pages of it — that is became clear just how widespread, how blatant was the fixing of the benchmark interest rate Libor and Euribor by Barclays. Brazen is the only word for it.

The emails and phone calls reveal that on dozens of occasions those who stood to gain by the decisions asked for favors (and got them) from those who helped set the interest rates.

You can read many examples of the kinds of emails that were exchanged between traders in New York and traders at Barclays in London right here.

What Does This Scandal Mean For The Future?

This scandal is making the global financial system look really, really bad.  Confidence in global financial markets has already been declining, and these new revelations are not going to help at all.  The following is how an article in the Huffington Post put it….

The ballooning interest rate manipulation scandal at Barclays, coupled with stock market instability, is likely to fuel fresh doubts about the integrity of the stock market, insiders said.

“Every time people begin to gain a little confidence, something else comes up,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab. “If it’s not Europe, it’s [troubled] IPOs, or JPMorgan or Barclays. Something new blows up and people say, ‘I knew it was rigged.’”

In addition, we are undoubtedly going to see a huge wave of lawsuits come out of this scandal.  Those lawsuits alone will gum up the financial system for a decade or more.

So needless to say, this is a very big deal.

Sadly, the revelations that have come out about Barclays in recent days are probably just the very tip of the iceberg.  Before this is all over, we are probably going to find out that most of the major global banks were involved.

At a time when the global financial system is already on the verge of a major implosion, this is not welcome news.

This financial scandal is just another reason to be deeply concerned about the second half of 2012.  The house of cards is starting to look really shaky, and nobody knows exactly when it will fall, but anyone with half a brain can see that things are progressively getting worse.

A “perfect storm” is rapidly developing, and when it strikes it is going to be very, very painful.

The Federal Reserve Saves The Stock Market?

The Federal Reserve has saved the stock market!  Well, at least for a day.  That was one heck of a “dead cat bounce” that we saw on Tuesday.  Normally, after the kind of dramatic decline that we saw on Monday there is some sort of a rebound, but on Tuesday the market did not begin to soar until the Federal Reserve pledged to leave interest rates near zero until mid-2013.  Once the Fed made their announcement, the market went haywire.  At one point the Dow was down more than 200 points, but by the end of the day it was up 430 points.  It was a desperate move for the Federal Reserve to pledge not to raise interest rates for the next two years, and it has stabilized financial markets for the moment.  But what is the Fed going to do to save the stock market when it starts crashing next week or next month?  The underlying financial fundamentals continue to get worse and worse.  Europe is a mess, Japan is a mess and the United States is a mess.  The Federal Reserve can try to keep all of the balls in the air for as long as possible, but at some point the juggling act is going to end and the house of cards is going to come crashing down.

This move may calm nerves for a day or two, but there is still a tremendous amount of fear out there at the moment.  Many investors are pouring money into “safe havens” right now.  Huge amounts of cash are being poured into U.S. Treasuries and the price of gold is absolutely soaring.  The price of gold is up about $220 in just the last 30 days alone.

So how high could the price of gold go in the coming months?  Well, analysts at JP Morgan are forecasting that the price of gold could hit $2,500 by the end of this year.

Yes, that is how wild things are becoming.  The Federal Reserve is painting itself into a corner.  Never before has the Fed pledged to leave interest rates near zero for the next two years.  The following is an excerpt from the statement that the Fed released earlier today….

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.  The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.  The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.  The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

Needless to say, the rest of the world is not pleased by this nonsense from the Fed.  Yes, the Fed has stabilized financial markets for the moment, but a lot of ill will is being created with the rest of the globe.  The following is what Bruce Krasting had to say about how the rest of the world is going to react to this latest Fed move….

Brazil, Argentina, Korea, Indonesia are going to scream bloody murder over perpetual ZIRP. Russia is likely to get downright ugly with their rhetoric. I wouldn’t be surprised if they took this opportunity to vote with their feet and just abandon the dollar as a reserve holding. China will also make noise. They will make more calls for a new international currency to replace the dollar. The Central bankers in Japan and Switzerland are puking in the trashcan over this. Bernanke is exporting US deflation to them. Shame on the Fed for pursuing Beggar my neighbor policies. They deserve all the global criticism they are about to get.

The Federal Reserve is using up all of the ammunition it has available and the game has barely even begun.

Things are going to get a lot worse.  The U.S national debt continues to pile up at lightning speed.  The debt ceiling deal essentially does nothing to fix our debt problems.  Thousands of businesses and millions of jobs continue to leave the United States.  As a nation, we are constantly becoming poorer and we are constantly getting into more debt.

Meanwhile, Europe is on the verge of a financial meltdown and Japan has a “zombie economy” at this point.

Many fear that we could be on the verge of another major global recession.  The following is how a recent Der Spiegel article described the current global financial situation….

Many economists have been pointing out that last week’s panic resembled the fear that swept financial markets after the collapse of US investment bank Lehman Brothers in September 2008.

Then as now, banks stopped lending each money. Then as now, banks’ cash deposits at the central bank doubled within days. The European Central Bank reacted by assuring banks of unlimited liquidity in the coming months. It was an emergency measure that led to short-term relief but sparked anxious questions among bankers and stock market players. How long can the central bank keep up its market-soothing liquidity operations before it finally loses its credibility, the most important asset of a central bank? Is the financial crisis about to escalate?

In the old days, the U.S. and Europe could just borrow gigantic stacks of cash in order to solve any problems.  But now things are dramatically changing.

China’s official news agency recently stated that the U.S. needs to understand that things are different now….

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone”

Not that the U.S. government and the Federal Reserve are going to suddenly give up their old habits.  The U.S. government is addicted to debt and the Fed is addicted to printing money.  When push comes to shove, they are going to resort to their favorite tricks.

But at some point the rest of the world is not going to play along anymore.  When that moment arrives, it is going to be very interesting to see what happens.

Meanwhile, the U.S. economy continues to slowly unravel, and people in this country are getting very angry.  Millions of Americans families are barely scraping by right now.  Most Americans just want someone to “fix” things, but unfortunately there are no easy “fixes” to our financial problems.

As our economic problems grow even worse, frustration inside the United States is going to continue to escalate.  A brand new Rasmussen survey found that only 17 percent of Americans now believe that the U.S. government has the consent of the governed.

That was a brand new all-time low.

Faith in the major institutions of our society is already dangerously low and the economy is not even that bad yet.

As horrible as things are now, the truth is that this is rip-roaring prosperity compared to what is coming.

In the months and years ahead, America is going to be greatly tested.  As the recent London riots have shown, things can spiral out of control very quickly.

When the economy completely collapses will America be able to handle it?