The Crisis

The Collapse Of Italy’s Banks Threatens To Plunge The European Financial System Into Chaos

March 7, 2016March 7, 2016 by Michael

The Italian banking system is a “leaning tower” that truly could completely collapse at literally any moment. And as Italy’s banks begin to go down like dominoes, it is going to set off financial panic all over Europe unlike anything we have ever seen before. I wrote about the troubles in Italy back in January, but since that time the crisis has escalated. At this point, Italian banking stocks have declined a whopping 28 percent since the beginning of 2016, and when you look at some of the biggest Italian banks the numbers become even more frightening. On Monday, shares of Monte dei Paschi were down 4.7 percent, and they have now plummeted 56 percent since the start of the year. Shares of Carige were down 8 percent, and they have now plunged a total of 58 percent since the start of the year. This is what a financial crisis looks like, and just like we are seeing in South America, the problems in Italy appear to be significantly accelerating.

So what makes Italy so important?

Well, we all saw how difficult it was for the rest of Europe to come up with a plan to rescue Greece. But Greece is relatively small – they only have the 44th largest economy in the world.

The Italian economy is far larger. Italy has the 8th largest economy in the world, and their government debt to GDP ratio is currently sitting at about 132 percent.

There is no way that Europe has the resources or the ability to handle a full meltdown of the Italian financial system. Unfortunately, that is precisely what is happening. Italian banks are absolutely drowning in non-performing loans, and as Jeffrey Moore has noted, this potentially represents “the greatest threat to the world’s already burdened financial system”…

Shares of Italy’s largest financial institutions have plummeted in the opening months of 2016 as piles of bad debt on their balance sheets become too high to ignore. Amid all of the risks facing EU members in 2016, the risk of contagion from Italy’s troubled banks poses the greatest threat to the world’s already burdened financial system.

At the core of the issue is the concerning level of Non-Performing Loans (NPL’s) on banks’ books, with estimates ranging from 17% to 21% of total lending. This amounts to approximately €200 billion of NPL’s, or 12% of Italy’s GDP. Moreover, in some cases, bad loans make up an alarming 30% of individual banks’ balance sheets.

Things have already gotten so bad that the European Central Bank is now monitoring liquidity levels at Monte dei Paschi and Carige on a daily basis. The following comes from Reuters…

The European Central Bank is checking liquidity levels at a number of Italian banks, including Banca Carige and Monte dei Paschi di Siena , on a daily basis, two sources close to the matter said on Monday.

Italian banking shares have fallen sharply since the start of the year amid market concerns about some 360 billion euros of bad loans on their books and weak capital levels.

The ECB has been putting pressure on several Italian banks to improve their capital position. The regulator can decide to monitor liquidity levels at any bank it supervises on a weekly or daily basis if it has any concern about deposits or funding.

A run on the big Italian banks has already begun. Italians have already been quietly pulling billions of euros out of the banking system, and if these banks continue to crumble this “stealth run” could quickly become a stampede.

And of course panic in Italy would quickly spread to other financially troubled members of the eurozone such as Spain, Portugal, Greece and France. Here is some additional analysis from Jeffrey Moore…

A deteriorating financial crisis in Italy could risk repercussions across the EU exponentially greater than those spurred by Greece. The ripple effects of market turmoil and the potential for dangerous precedents being set by EU authorities in panicked response to that turmoil, could ignite yet more latent financial vulnerabilities in fragile EU members such as Spain and Portugal.

Unfortunately, most Americans are completely blinded to what is going on in the rest of the world because stocks in the U.S. have had a really good run for the past couple of weeks. Headlines are declaring that the risk of a new recession “has passed” and that the crisis “is over”. Meanwhile, South America is plunging into a full-blown depression, the Italian banking system is melting down, global manufacturing numbers are the worst that we have seen since the last recession, and global trade is absolutely imploding.

Other than that, things are pretty good.

Seriously, it is absolutely critical that we don’t allow ourselves to be fooled by every little wave of momentum in the stock market.

It is a fact that sales and profits for U.S. corporations are declining. This is a trend that began all the way back in mid-2014 and that has accelerated during the early stages of 2016. The following comes from Wolf Richter…

Total US business sales – not just sales by S&P 500 companies but also sales by small caps and all other businesses, even those that are not publicly traded – peaked in July 2014 at $1.365 trillion, according to the Census Bureau. By December 2015, total business sales were down 4.6% from that peak. A bad 18 months for sales! They’re back where they’d first been in January 2013!

Sales by S&P 500 companies dropped 3.8% in 2015, according to FactSet, the worst year since the Financial Crisis.

I know that a lot of people have been eagerly anticipating a complete and total global economic collapse for a long time, and many of them just want to “get it over with”.

Well, the truth is that nobody should want to see what is coming. Personally, I rejoice for every extra day, week or month we are given. Every extra day is another day to prepare, and every extra day is another day to enjoy the extremely comfortable standard of living that our debt-fueled prosperity has produced for us.

Most Americans have absolutely no idea how spoiled we really are. Even just fifty years ago, life was so much harder in this country. If we had to go back and live the way that Americans did 100 or 150 years ago, there are very few of us that would be able to successfully do that.

So enjoy the remaining days of debt-fueled prosperity while you still can, because great change is coming, and it is going to be extremely bitter for most of the population.

Plunging Manufacturing Numbers Mean That It Is Time To Hit The Panic Button For The Global Economy

March 1, 2016March 1, 2016 by Michael

We haven’t seen numbers like these since the last global recession. I recently wrote about how global trade is imploding all over the planet, and the same thing is true when it comes to manufacturing. We just learned that manufacturing in China has now been contracting for seven months in a row, and as you will see below, U.S. manufacturing is facing “its toughest period since the global financial crisis”. Yes, global stocks have bounced back a bit after experiencing dramatic declines during January and the first part of February, and this is something that investors are very happy about. But that does not mean that the crisis is over. All bear markets have their ups and downs, and this one will not be any different. Meanwhile, the cold, hard economic numbers that keep coming in are absolutely screaming that a new global recession is here.

Just consider what is happening in China. Manufacturing activity continues to implode, and factories are shedding jobs at the fastest pace since the last financial crisis…

Chinese manufacturing suffered a seventh straight month of contraction in February.

China’s official Purchasing Managers’ Index (PMI) stood at 49.0 in February, down from the previous month’s reading of 49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.

A private survey also showed China’s factories shed jobs at the fastest rate in seven years in February, raising doubts about the government’s ability to reduce industry overcapacity this year without triggering a sharp jump in unemployment.

For years, the expansion of the Chinese economy has helped fuel global economic growth. But now things have shifted dramatically.

At this point, things are already so bad that the Chinese government is admitting that millions of workers are going to lose their jobs at state-controlled industries in China…

China’s premier told visiting U.S. Treasury Secretary Jacob Lew on Monday his government is pressing ahead with painful reforms to shrink bloated coal and steel industries that are a drag on its slowing economy and ruled out devaluing its currency as a short-cut to boosting exports.

Premier Li Keqiang’s comments to Lew on Monday were in line with a joint declaration by financial officials from the Group of 20 biggest rich and developing economies who met over the weekend in Shanghai. They pledged to avoid devaluations to boost sagging trade and urged governments to speed up reforms to boost slowing global growth.

Across all state-controlled industries, as many as six million workers could be out of a job, with almost two million in the coal industry alone.

But it isn’t just China. Right now manufacturing activity is slowing down literally all over the planet, and this is exactly what we would expect to see if a new global recession had begun. The following chart and analysis come from Zero Hedge…

As the below table shows, 28 regions have reported so far. Seven saw improvements in their manufacturing sectors in February, twenty recorded a weakening, and India was unchanged. This means that over 70% of the world saw manufacturing sentiment deteriorate in February compared to January.

In terms of actual expansion, there were 21 countries in positive territory and 7 in negative. In particular, Greece moved from neutral to contraction territory, while Taiwan dropped below breakeven from expansion.

Unfortunately, most Americans don’t really pay much attention to what is going on in the rest of the world. For most of us, what really matters is what is happening inside the good ole USA.

And of course the news is not good. There were more signs of trouble for U.S. manufacturing in the February numbers, and this continues a trend that stretches back well into last year. The following is what Chris Williamson, the chief economist at Markit, had to say about these numbers…

“The February data add to signs of distress in the US manufacturing economy. Production and order book growth continues to worsen, led by falling exports. Jobs are being added at a slower pace and output prices are dropping at a rate not seen since mid-2012.

“The deterioration in the manufacturing sector’s performance since mid-2014 has broadly tracked the dollar’s rise, which makes US goods more expensive in overseas markets and leads US consumers to favour cheaper imported goods.

“With other headwinds including the downturn in the oil sector, heightened uncertainty due to financial market volatility, global growth worries and growing concerns about the presidential election, it’s no surprise that the manufacturing sector is facing its toughest period since the global financial crisis.“

Over the past couple of decades, the U.S. economy has lost tens of thousands of manufacturing facilities. We desperately need a manufacturing renaissance – not another manufacturing decline.

As good paying manufacturing jobs have been shipped overseas, they have been replaced by low paying service jobs. As a result, the middle class is shrinking and the ranks of the poor are exploding.

It is hard to believe, but today more than 45 million Americans are on food stamps, and a significant percentage of those individuals actually have jobs. They are called “the working poor”, and it is becoming a major crisis in this nation.

And no matter what Obama may say, unemployment remains a major problem in the United States as well. At this point, unemployment rates in 36 states are higher than they were just before the last recession hit in 2008.

Of course a lot of people are going to look at this article and will point to the stock market gains of the past couple of weeks as evidence that “things are getting better”. It is this kind of clueless approach that is keeping the American people from coming together on solutions to our problems.

The truth is that the United States has been experiencing economic decline for decades. Our economic infrastructure has been gutted, the middle class is steadily deteriorating, and we have amassed the biggest pile of debt in the history of the world.

Anyone that believes that things are “just fine” is in a massive state of denial. Consuming far more wealth than we produce is not a formula for a sustainable economy, and it is just a matter of time before we find this out the hard way.

21 New Numbers That Show That The Global Economy Is Absolutely Imploding

February 16, 2016February 16, 2016 by Michael

After a series of stunning declines through the month of January and the first half of February, global financial markets seem to have found a patch of relative stability at least for the moment. But that does not mean that the crisis is over. On the contrary, all of the hard economic numbers that are coming in from around the world tell us that the global economy is coming apart at the seams. This is especially true when you look at global trade numbers. The amount of stuff that is being bought, sold and shipped around the planet is falling precipitously. So don’t be fooled if stocks go up one day or down the next. The truth is that we are in the early chapters of a brand new economic meltdown, and I believe that all of the signs indicate that it will continue to get worse in the months ahead. The following are 21 new numbers that show that the global economy is absolutely imploding…

#1 Chinese exports fell by 11.2 percent year over year in January.

#2 Chinese imports were even worse in January. On a year over year basis, they declined a whopping 18.8 percent.

#3 It may be hard to believe, but Chinese imports have now plunged for 15 months in a row.

#4 In India, exports were down 13.6 percent on a year over year basis in January.

#5 In Japan, exports declined 8 percent in December on a year over year basis, while imports plummeted 18 percent.

#6 For the sixth time in six years, Japanese GDP growth has gone negative.

#7 In the United States, exports were down 7 percent on a year over year basis in December.

#8 U.S. factory orders have fallen for 14 months in a row.

#9 The Restaurant Performance Index in the United States has dropped to the lowest level that we have seen since 2008.

#10 This month the Baltic Dry Index fell below 300 for the first time ever.

#11 It is now cheaper to rent a 1,100 foot merchant vessel than it is to rent a Ferrari.

#12 Orders for Class 8 trucks in the United States dropped by 48 percent on a year over year basis in January.

#13 Due to a lack of demand for trucks, Daimler just laid off 1,250 U.S. workers.

#14 Even though Saudi Arabia and Russia have agreed to freeze oil production at current levels, the price of U.S. oil has still fallen below 30 dollars a barrel.

#15 It is being reported that 35 percent of all oil and gas companies around the world are at risk of falling into bankruptcy.

#16 According to CNN, 67 oil and gas companies in the United States filed for bankruptcy during 2015.

#17 The number of job cuts in the United States skyrocketed 218 percent during the month of January according to Challenger, Gray & Christmas.

#18 All over America, retail stores are shutting down at a stunning pace. The following list of store closures comes from one of my previous articles…

-Wal-Mart is closing 269 stores, including 154 inside the United States.

-K-Mart is closing down more than two dozen stores over the next several months.

-J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.

-Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.

-The Gap is in the process of closing 175 stores in North America.

-Aeropostale is in the process of closing 84 stores all across America.

-Finish Line has announced that 150 stores will be shutting down over the next few years.

-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.

#19 The price of gold is enjoying its best quarterly performance in 30 years.

#20 Global stocks have fallen into bear market territory, which means that about one-fifth of all global stock market wealth has already been wiped out.

#21 Unfortunately for global central banks, they have pretty much run out of ammunition. Since March 2008, central banks have cut interest rates 637 times and they have purchased a staggering 12.3 trillion dollars worth of assets. There is not much more that they can do, and now the next great crisis is upon us.

Without any outside influences, the global economy and the global financial system will continue to rapidly fall apart.

But if we do have a major “black swan event” take place, that could cause the bottom to fall out at any moment.

In particular, I am deeply concerned about the possibility that World War III could be sparked in the Middle East. In an article that I published earlier today entitled “Turkey Is Asking The United States To Take Part In A Ground Invasion Of Syria“, I included a quote from Turkish Foreign Minister Mevlut Cavusoglu that reveals just how eager Turkey and Saudi Arabia are for war to begin…

“Some countries like us, Saudi Arabia and some other Western European countries have said that a ground operation is necessary,” Turkish Foreign Minister Mevlut Cavusoglu told Reuters in an interview.

However, this kind of action could not be left to regional powers alone. “To expect this only from Saudi Arabia, Turkey and Qatar is neither right nor realistic. If such an operation is to take place, it has to be carried out jointly, like the (coalition) air strikes,” he said.

The Turks and the Saudis very much want the United States to take a leading role in any ground invasion of Syria, but the Obama administration is not likely to do that.

So we shall see if the Turks and the Saudis are willing to go ahead without us. Let us hope that they do not decide to invade Syria, because that could start the biggest war in the Middle East that any of us have ever seen.

Unfortunately, Turkey is already attacking.

Turkey has been shelling Kurdish and Syrian military positions in northern Syria for four days in a row even though the Obama administration has been urging them to stop.

The first month and a half of 2016 has already been quite chaotic, and the stage is set for global events to greatly accelerate during the months ahead.

Sadly, the mainstream media in the United States is largely ignoring the preparations for a ground invasion of Syria, and they keep telling us that the global economy is going to be just fine, so most ordinary Americans are going to be absolutely blindsided by what is about to happen.

Birth Pangs Of The Coming Great Depression

January 29, 2015January 29, 2015 by Michael

The signs of the times are everywhere – all you have to do is open up your eyes and look at them. When a pregnant woman first goes into labor, the birth pangs are usually fairly moderate and are not that close together. But as the time for delivery approaches, they become much more frequent and much more intense. Economically, what we are experiencing right now are birth pangs of the coming Great Depression. As we get closer to the crisis that is looming on the horizon, they will become even more powerful. This week, we learned that the Baltic Dry Index has fallen to the lowest level that we have seen in 29 years. The Baltic Dry Index also crashed during the financial collapse of 2008, but right now it is already lower than it was at any point during the last financial crisis. In addition, “Dr. Copper” and other industrial commodities continue to plunge. This almost always happens before we enter an economic downturn. Meanwhile, as I mentioned the other day, orders for durable goods are declining. This is also a traditional indicator that a recession is approaching. The warning signs are there – we just have to be open to what they are telling us.

And of course there are so many more parallels between past economic downturns and what is happening right now.

For example, volatility has returned to the markets in a big way. On Tuesday the Dow was down about 300 points, on Wednesday it was down another couple hundred points, and then on Thursday it was up a couple hundred points.

This is precisely how markets behave just before they crash. When markets are calm, they tend to go up. When markets get really choppy and start behaving erratically, that tells us that a big move down is usually coming.

At the same time, almost every major global currency is imploding. For much more on this, see the amazing charts in this article.

In particular, I am greatly concerned about the collapse of the euro. The Swiss would not have decoupled their currency from the euro if it was healthy. And political events in Greece are certainly not going to help things either. Economic conditions across Europe just continue to get worse, and the future of the eurozone itself is very much in doubt at this point. And if the eurozone does break up, a European economic depression is almost virtually assured – at least in the short term.

And I haven’t even mentioned the oil crash yet.

There is only one other time in all of history when the price of oil collapsed by more than 60 dollars, and that was just prior to the horrific financial crisis of 2008.

Since the last financial crisis, the oil industry has been a huge source for job growth in this country. The following is an excerpt from a recent CNN article…

The oil sector has added over a half million jobs — many of them high paying — since the recession ended in June 2009. That’s 13% of all US job growth over that period.

Now energy companies and related sectors are laying off thousands. Expect that trend to continue, bears say.

But losing good jobs is just the tip of the iceberg of this oil crisis.

At this point, the price of oil has already dropped to a catastrophically low level. The longer it stays at this level, the more damage that it is going to do. If the price of oil stays at this level for all of 2015, we are going to have a complete and total financial nightmare on our hands…

For the first time in 18 years, oil exporters are pulling liquidity out of world markets rather than putting money in. The world is now fast approaching a world reserve currency shift. If we see 8 to 12 months at these oil prices; U.S. shale industry will be wiped out. The effect on junk bonds will cascade to the rest of the stock market and U.S. economy.

…and this time there will be nothing left to catch the falling knife before it hits the American economy right in the heart. Not the FED nor the U.S. government can stop what’s coming. Liquidity will freeze up, our credit will be downgraded, the stock market will start to collapse, and then we can expect the FED to come in and hyper-inflate the dollar. This will cause the world to finish abandoning the world reserve currency in the last rungs of trade. This will be the end of the petrodollar.

Something that I have not discussed so far this year is the looming crisis in emerging market debt.

As economic problems spread around the world, a number of “emerging markets” are in danger of having their debt downgraded. And many investment funds have rules that prohibit them from holding any debt that is not “investment grade”. Therefore, we could potentially see some of these giant funds dumping massive amounts of emerging market debt if downgrades happen.

This is a really big deal. As a Business Insider article recently detailed, we could be talking about hundreds of billions of dollars…

Russia this week became the first of the major economies to lose its investment grade status from Standard & Poor’s, falling out off the top ratings category for credits deemed to have a low risk of default for the first time in a decade.

If Moody’s and Fitch follow, conservative investors barred from owning junk securities must sell their holdings. JPMorgan estimates this means they may ditch $6 billion in Russian government rouble and dollar debt.

Russia may have company. Almost $260 billion worth of sovereign and corporate bonds – nearly a tenth of outstanding emerging market (EM) debt – is in danger of being relegated to junk, according to David Spegel, head of emerging debt at BNP Paribas, who calls such credits “falling angels”.

And no article of this nature would be complete without mentioning derivatives.

I could not possibly overemphasize the danger that the 700 trillion dollar derivatives bubble poses to the global financial system.

As we enter the coming Great Depression, derivatives are going to play a starring role. Wall Street has been pumped full of funny money by global central banks, and our financial markets have been transformed into the greatest casino in the history of the world. When this house of cards comes crashing down, and it will, it is going to be a financial disaster unlike anything that the planet has ever seen.

And yes, global central banks are very much responsible for setting the stage for what we are about to experience.

I really like the way that David Stockman put it the other day…

The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world.

Over that span, the collective balance sheet of the major central banks has soared by nearly $11 trillion, meaning that honest price discovery has been virtually destroyed. This massive “bid” for existing financial assets based on credit confected from thin air drove long-term bond yields to rock bottom levels not seen in 600 years since the Black Plague; and pinned money market costs at zero—-for 73 months running.

What is the consequence of this drastic financial repression along the entire yield curve? The answer is bond prices which keep rising regardless of credit risk, inflation or taxes; and rampant carry trade speculation that can’t get out of its own way because central banks have made the financial gamblers’ cost of goods—the “funding” cost of their trades—-essentially zero.

Of course I am not the only one warning that a new Great Depression is coming. For instance, just consider what British hedge fund manager Crispin Odey is saying…

British hedge fund manager Crispin Odey thinks we’ve entered an economic downturn that is “likely to be remembered in a hundred years,” and central banks won’t be able to stop it.

In his Odey Asset Management investor letter dated Dec. 31, Odey writes that the shorting opportunity “looks as great as it was in 07/09.”

“My point is that we used all our monetary firepower to avoid the first downturn in 2007-09,” he writes, “so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World Effects. This is the heart of the message. If economic activity far from picks up, but falters, then there will be a painful round of debt default.”

Even though most average citizens are completely oblivious to what is happening, many among the elite are heeding the warning signs and are feverishly getting prepared. As Robert Johnson told a stunned audience at the World Economic Forum the other day, they are “buying airstrips and farms in places like New Zealand“. They can see the horrifying storm forming on the horizon and they are preparing to get out while the getting is good.

It can be very frustrating to write about economics, because things in the financial world can take an extended period of time to play out. Sadly, most people these days have extremely short attention spans. We live in a world of iPhones, iPads, YouTube videos, Facebook updates and 48 hour news cycles. People no longer are accustomed to thinking in long-term time frames, and if something does not happen right away we tend to get bored with it.

But the economic world is not like a game of “Angry Birds”. Rather, it is very much like a game of chess.

And unfortunately for us, checkmate is right around the corner.

Warning Signs That We Should Prepare For The Worst

January 18, 2012January 18, 2012 by Michael

The warning signs are all around us. All we have to do is open up our eyes and look at them. Almost every single day there are more prominent voices in the financial world telling us that a massive economic crisis is coming and that we need to prepare for the worst. On Wednesday, it was the World Bank itself that issued a very chilling warning. In an absolutely startling report, the World Bank revised GDP growth estimates for 2012 downward very sharply, warned that Europe could be on the verge of a devastating financial crisis, and declared that the rest of the world better “prepare for the worst.” You would expect to hear this kind of thing on The Economic Collapse Blog, but this is not the kind of language that you would normally expect to hear from the stuffed suits at the World Bank. Obviously things have gotten bad enough that nobody is even really trying to deny it anymore. Andrew Burns, the lead author of the report, said that if the sovereign debt crisis gets even worse we could be looking at an economic crisis that could be even worse than the last one: “An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09.” Burns also stated that the “importance of contingency planning cannot be stressed enough.” In other words, Burns is saying that it is time to prepare for the worst. So are you ready?

But of course it isn’t just the World Bank that is warning about these things. The chorus of voices that is warning about the next great financial crisis just seems to grow by the day.

Some of these voices were profiled in a Bloomberg article the other day entitled “Apocalypse How? Dire ’12 Forecasts“. The following is just a sampling of quotes from that article….

-John Mauldin, president of Millennium Wave Advisors: “We’ve got a cancer. That cancer is debt”

-Mark Spitznagel of Universa Investments: “Too much malinvestment has been kept alive, and history shows an inevitable wipeout, which started in 2000.”

-Michael Panzner of Financial Armageddon: “The fundamental outlook is even worse now than it was a few weeks ago, given (the lack of positive) developments in Europe and growing evidence that the economies of major countries around the world are deteriorating fast.”

If you have time, you should go check out the rest of that article. It really is fascinating.

When this crisis is over, all sorts of people are going to be running around claiming that they predicted it. But it does not take a genius to see what is coming. All you have to do is open up your eyes and look at the flashing red warning signs.

So what should we all be looking for next?

March 20th is a key date to keep your eye on. That is the day when Greece will either makes its 14.5 billion euro bond payment or it will default.

Greece does not have a prayer of making that payment without help. If Greece can convince the EU and the IMF to release the next scheduled bailout payment and if Greece can reach a satisfactory deal with private bondholders, then the coming Greek default might be “orderly”. But if something goes wrong, the coming Greek default might be quite “disorderly”.

At this point, almost everyone in the financial world is anticipating a Greek default of one form or another….

-Edward Parker, the managing director for Fitch’s sovereign and supranational group in Europe, the Middle East and Africa, recently declared that a Greek default is inevitable….

“It is going to happen. Greece is insolvent so it will default.”

-Moritz Kraemer, the head of S&P’s European sovereign ratings unit, made the following statement on Bloomberg Television on Monday:

“Greece will default very shortly. Whether there will be a solution at the end of the current rocky negotiations I cannot say.”

-Richard McGuire, a strategist at Dutch bank Rabobank, was recently quoted by CNBC as saying the following….

“People often ask if Greece is going to default which … is a misnomer because Greece is (already) defaulting”

-Diane Swonk, the chief economist at Mesirow Financial in Chicago, says that the default by Greece will probably be an “orderly” one but that the situation could change at any moment….

“It appears at the moment that the market is accepting a Greek default as inevitable, and it will be an orderly default. But that can change on a dime.”

But whether there is a default or not, the reality is that Greece is already experiencing a full-blown economic depression. In Greece, 20 percent of all retail stores have already shut down. The unemployment rate for those under the age of 24 is now at 39 percent. Large numbers of Greeks are trying to get themselves and their money out of the country while they still can.

Pessimism regarding Greece is at an all-time high. Michael Fuchs, the deputy leader of Angela Merkel’s political party, recently made the following statement….

“I don’t think that Greece, in its current condition, can be saved.”

But of course Greece is not the only declining economy in Europe by a long shot.

Italy has a much larger economy, and if Italy totally collapses it will be an absolute nightmare for the entire globe.

Right now, the Bank of Italy is forecasting a significant recession for the Italian economy in 2012. The following is from a statement that Bank of Italy has just released….

“The uncertainty that surrounds the medium-term perspectives of the Italian economy … are extraordinarily high and are directly linked to the evolution of the eurozone debt crisis”

Italy’s youth unemployment rate has hit the highest level ever, and nearly all sectors of the Italian economy are showing signs of slowing down.

Plus there is the looming problem of Italian debt. As I wrote about yesterday, when you add the maturing debt that the Italian government must roll over in 2012 to their projected budget deficit, it comes to 23.1 percent of Italy’s GDP.

Originally it was hoped that the economic problems in Europe could be contained to just a few countries. But now it has become clear that is just not going to happen.

Trends forecaster Gerald Celente recently explained to ABC Australia that much of Europe is already essentially experiencing an economic depression….

“If you live in Greece, you’re in a depression; if you live in Spain, you’re in a depression; if you live in Portugal or Ireland, you’re in a depression,” Celente said. “If you live in Lithuania, you’re running to the bank to get your money out of the bank as the bank runs go on. It’s a depression. Hungary, there’s a depression, and much of Eastern Europe, Romania, Bulgaria. And there are a lot of depressions going on [already].”

The troubling news out of Europe just seems to keep coming in waves. Here are some more recent examples….

-Manufacturing activity in the euro zone has fallen for five months in a row.

-Germany’s economy actually contracted during the 4th quarter of 2011.

-It is being reported that the Spanish economy contracted during the 4th quarter of 2011.

-Bad loans in Spain recently hit a 17-year high and the unemployment rate is at a 15-year high.

So will all of this economic trouble eventually spread to the United States?

Of course it will.

The global economy is more interconnected today than ever. Back in 2008 the financial crisis that started on Wall Street ended up devastating economies all over the planet. The same thing will happen during this next great financial crisis.

Only this time the U.S. is in a much weaker position. The U.S. debt problem has gotten much worse since the last crisis.

During 2008, our national debt crossed the 10 trillion dollar mark. Less than 4 years later, we have crossed the 15 trillion dollar mark.

So what are we going to do the next time large numbers of banks fail and unemployment skyrockets?

Where are we going to get the money to bail out all of those banks and to take care of all of those newly unemployed people?

Some people say that socialism is the answer, but the truth is that we are already a socialist welfare state. If you can believe it, nearly half of all Americans live in a household that receives some form of financial benefits from the U.S. government.

During the next great crisis, the number of people that are dependent on the government will go even higher.

If you don’t want to end up dependent on the government, you should heed the warning signs and you should use this time to prepare for the hard times that are coming.

When even the World Bank tells us to hope for the best but to prepare for the worst, you know that it is late in the game.

Unfortunately, the vast majority of people out there only believe what they want to believe. They don’t want to believe that a great economic crisis is coming, and so when it does happen they are going to be absolutely blindsided by it.