Crisis

The Worst Financial Nightmare In Illinois History Erupts As State Comptroller Declares ‘We Are In Massive Crisis Mode’

Margaret Thatcher once said that the big problem with socialist governments is that “they always run out of other people’s money”, and unfortunately we are witnessing this play out in a major way in the state of Illinois right now.  At this point, the Illinois state government has more than 15 billion dollars of unpaid bills.  Yes, you read that correctly.  They are already 15 billion dollars behind on their bills, and they are on pace to take in 6 billion dollars less than they are scheduled to spend in 2017.  It is the worst financial crisis in the history of Illinois, and State Comptroller Susana Mendoza sounds like she is about ready to tear her hair out in frustration…

“I don’t know what part of ‘We are in massive crisis mode’ the General Assembly and the governor don’t understand. This is not a false alarm,” said Mendoza, a Chicago Democrat. “The magic tricks run out after a while, and that’s where we’re at.”

It’s a new low, even for a state that’s seen its financial situation grow increasingly desperate amid a standoff between the Democrat-led Legislature and Republican Gov. Bruce Rauner. Illinois already has $15 billion in overdue bills and the lowest credit rating of any state, and some ratings agencies have warned they will downgrade the rating to “junk” if there’s no budget before the next fiscal year begins July 1.

Would you continue to do work for the Illinois state government if you knew that they were this far behind on their bills and that it is doubtful that you would be paid any time in the foreseeable future?

Of course the answer to that question is quite obvious.  As contractual relationships break down, social services are starting to suffer, and there is not much hope that things will take a turn for the better any time soon.

At this point things have gotten so bad that the Illinois Department of Transportation is planning to cease all roadwork starting on July 1st, and even the Powerball lottery is threatening to cut all ties with the state…

As reported previously, the state Transportation Department said it would stop roadwork by July 1 if Illinois entered its third consecutive fiscal year without a budget – the longest such stretch of any US state – while the Powerball lottery said it may be forced to dump Illinois over its lack of budget. For now, state workers have continued to receive pay because of court orders, but school districts, colleges and medical and social service providers are under increasing strain.

So what has caused this unprecedented crisis?

At the core, the problem is political.  A tense standoff between a Republican governor and a Democratic legislature has resulted in the state going 700 days without a budget…

On May 31, Illinois will have gone 700 days without a budget, an unprecedented political failure. Also on May 31, if a budget is not passed, it could mean that the state could go until 2019—an unimaginable idea, except that senators have already imagined it.

How does a state, led by a successful businessman as governor, a brilliant political strategist in the House, and a consummate dealmaker in the Senate, end up in this kind of political disorganization? Bad political errors led to bad political incentives, and as the problem worsened, so did the political risk of solutions—and what politicians had to ask of their constituents.

This is another example of how deeply divided we are as a nation right now.  Democrats hate Republicans and Republicans hate Democrats, and it is getting to the point where the two parties cannot work together on even the most basic things.

In the end, the state of Illinois is either going to have to cut spending dramatically, raise taxes substantially or some combination of both.  And since the Democrats have very large majorities in both chambers of the state legislature, I wouldn’t count on spending being cut that much.

This is the thing with big government – it always has a tendency to get even bigger.  And the bigger government gets, the more of our money and the more of our freedom it takes away.

That is why I am a huge advocate of dramatically shrinking the size of government on the federal, state and local levels.  Like Rand Paul has often said, I want a government so small that I can barely see it.

When you let government get out of control, what you end up with is a ravenous beast that has an endless appetite for more of your money.  In Illinois, the money is all gone and the beast is desperately hungry for more.

Sadly, what is happening in Illinois is just the tip of the iceberg.  If stock prices start declining from these massively inflated levels, state pension funds all over America are going to be in crisis mode very rapidly.  And a new recession would greatly accelerate the financial problems of a whole bunch of states that are already dealing with huge budget shortfalls.

Unfortunately, experts all over the country are warning that the next major downturn is coming very quickly.  For example, just consider what Bernard Arnault just told CNBC…

A financial crisis could be just around the corner, according to the chief executive of LVMH, who has described the global economic outlook as “scary”.

“For the economic climate, the present situation is…mid-term scary,” Bernard Arnault told CNBC Thursday.

“I don’t think we will be able to globally avoid a crisis when I see the interest rates so low, when I see the amounts of money flowing into the world, when I see the stock prices which are much too high, I think a bubble is building and this bubble, one day, will explode.”

There is always a price to pay for going into too much debt.

A financial day of reckoning can be delayed for a while, but eventually bad financial decisions are going to catch up with you.  The state of Illinois is learning this lesson in a very harsh manner right now, and the country as a whole is on the exact same path as Illinois.

I am often criticized for endlessly warning about America’s coming day of reckoning, but you can’t pile up the biggest mountain of debt in the history of the world without paying a price.

Just like the state of Illinois, we will pay for decades of exceedingly foolish decisions, and unfortunately this is going to cause severe economic pain throughout our entire society.

The Next Financial Crisis Has Already Arrived In Europe, And People Are Starting To Freak Out

Did you know that the sixth largest bank in Spain failed in spectacular fashion just a few days ago?  Many are comparing the sudden implosion of Banco Popular to the collapse of Lehman Brothers in 2008, and EU regulators hastily arranged a sale of the failed bank to Santander in order to avoid a full scale financial panic.  Sadly, most Americans have no idea that a new financial crisis is starting to play out over in Europe, because most Americans only care about what is going on in America.  But we should be paying attention, because the EU is the second largest economy on the entire planet, and the euro is the second most used currency on the entire planet.  The U.S. financial system is already teetering on the brink of disaster, and this new financial crisis in Europe could turn out to be enough to push us over the edge.

If EU regulators had not arranged a “forced sale” of Banco Popular to Santander, we would probably be witnessing panic on a scale that we haven’t seen since 2008 in Europe right about now.  The following comes from the Telegraph…

Spanish banking giant Santander has stepped in to the rescue ailing rival Banco Popular by taking over the failing lender for €1 in a watershed deal masterminded by EU regulators to avoid a damaging collapse.

Santander will tap its shareholders for €7bn in a rights issue to raise the capital needed to shore-up Popular’s finances in a dramatic private sector rescue of Spain’s sixth-largest lender.

It will inflict losses of approximately €3.3bn on bond investors and shareholders but crucially will avoid a taxpayer bailout.

But now that a “too big to fail” bank like Banco Popular has failed, investors are immediately trying to figure out which major Spanish banks may be the next to collapse.  According to Wolf Richter, many have identified Liberbank as an institution that is highly vulnerable…

After its most tumultuous week since the bailout days of 2012, Spain’s banking system is gripped by a climate of fear, uncertainty and distrust. Rather than allaying investor nerves, the shotgun bail-in and sale of Banco Popular to Santander on Tuesday has merely intensified them. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers; they took risks in order to make a buck, and they bore the consequences. That’s how it should be. But bank investors don’t like not getting bailed out.

Now they’re worrying it could happen again. As Popular’s final days showed, once confidence and trust in a bank vanishes, it’s almost impossible to restore them. The fear has now spread to Spain’s eighth largest lender, Liberbank, a mini-Bankia that was spawned in 2011 from the forced marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria.

On Thursday, shares of Liberbank dropped by an astounding 20 percent, and that was followed up by another 19 percent decline on Friday.

Spanish authorities responded by banning short sales of Liberbank shares, and that caused a short-term rebound in the stock price.

But we haven’t seen this kind of chaos in European financial markets in a very long time.

Meanwhile, Nick Giambruno is sounding the alarm about a much bigger bubble.  At this moment, more than a trillion dollars worth of Italian government bonds have negative yields…

Over $1 trillion worth of Italian bonds actually have negative yields.

It’s a bizarre and perverse situation.

Lending money to the bankrupt Italian government carries huge risks. So the yields on Italian government bonds should be near record highs, not record lows.

Negative yields could not exist in a free market. They’re only possible in the current “Alice in Wonderland” economy created by central bankers.

You see, the European Central Bank (ECB) has been printing money to buy Italian government bonds hand over fist. Since 2008, the ECB and Italian banks have bought over 88% of Italian government debt, according to a recent study.

The moment that the ECB stops wildly buying Italian bonds, the party will be over and the Italian financial system will crash.  Unfortunately for Italy, the Germans are pressuring the ECB to quit printing so much money, and the Germans usually get their way in these things.

But if the Germans get their way this time, we could be facing a complete and utter nightmare very quickly.  Here is more from Nick Giambruno…

Once the ECB—the only large buyer—steps away, Italian government bonds will crash and rates will soar.

Soon it will be impossible for the Italian government to finance itself.

Italian banks—which are already insolvent—will be decimated. They hold an estimated €235 billion worth of Italian government bonds. So the coming bond crash will pummel their balance sheets.

It’s shaping up to be a lovely train wreck.

And all of this is happening in the context of a global economy that appears to be headed for a major downturn.

For example, the last time that global credit growth showed down this rapidly was during the last financial crisis…

From peak to trough the deceleration in global credit growth is now approaching that during the global financial crisis (-6% of global GDP), even if the dispersion of the decline is much narrower. Currently 55% of the countries in our sample have experienced a -0.3 standard deviation deterioration in their credit impulse (median over 12 months) compared to 77% of countries in Dec ’09 when the median decline was -1.4 stdev.”

Of course the last time global credit growth decelerated this dramatically, global central banks intervened on a scale that was unlike anything that we had ever seen before.

But this time around it is happening at a time when global central banks are very low on ammo…

More importantly, back in 2009, not only China, but the Fed and other central banks unleashed the biggest injection of credit, i.e. liquidity, the world has ever seen resulting in the biggest asset bubble the world has ever seen. And, this time around, the Fed is set to hike for the third time in the past year, even as the ECB and BOJ are forced to soon taper as they run out of eligible bonds to monetize. All this comes at a time when US loan growth is weeks away from turning negative.

As such, what “kickstarts” the next spike in the credit impulse is unclear. What is clear is that if the traditional 3-6 month lag between credit inflection points, i.e. impulse, and economic growth is maintained, the global economy is set for a dramatic collapse some time in the second half.

There are so many experts that are warning about big economic trouble in our immediate future.  I would like to say that all of the experts that are freaking out are wrong, but I can’t do that.

I have not seen an atmosphere like this since 2008 and 2009, and everything points to an acceleration of the crisis as we enter the second half of this year.

The Debt Crisis Of 2017: Once Their Vacation Ends, Congress Will Have 4 Days To Avoid A Government Shutdown On April 29

April 2017 could turn out to be one of the most important months in U.S. history that we have seen in a very long time.  On April 6th, Donald Trump attacked Syria on the 100th anniversary of the day that the U.S. officially entered World War I, and now at the end of this month we could be facing an unprecedented political crisis in Washington.  On Friday, members of Congress left town for their two week “Easter vacation”, and they won’t resume work until April 25th.  What this means is that Congress will have precisely four days when they get back to pass a bill to fund government operations or there will be a government shutdown starting on April 29th.

Up to this point, there has been very little urgency by either party to move a spending bill forward.  It is almost as if everyone is already resigned to the fact that a government shutdown will happen.  The Democrats will greatly benefit from a government shutdown because they can just blame the entire mess on the Republicans.  But for the GOP, this is essentially the equivalent of political malpractice.

To me, there is simply no way that Congress is going to be able to agree on a bill that funds the entire government in just four days.  And it turns out that this upcoming deadline comes exactly on the 100th day of Trump’s presidency…

The U.S. government is poised to shut down on Day 100 of Donald Trump’s presidency, unless Congress can pass a new spending bill or a continuing resolution before the current one expires on April 28.

Since Congress is currently on a two-week recess, there will be a sense of urgency to get a new bill passed once they reconvene on April 25. Leaders in both chambers would have four days to craft a new proposal that each side can agree on and get it on the president’s desk for Trump to sign.

If the Republicans control the White House, the Senate and the House of Representatives, why will it be so difficult to get an agreement on a spending bill?

Well, first of all, look at how difficult it was for the Republicans to agree on a bill to repeal and replace Obamacare.  At this point, it doesn’t look like that is going to happen at all.

More importantly, any bill to fund the government is going to require 60 votes in the Senate.  The “nuclear option” that the Republicans just used to push the Gorsuch Supreme Court nomination through is not available in this case under current Senate rules because a spending bill of this nature would not qualify.

So the Democrats have leverage, and they plan to use it to the maximum.  Senate Minority Leader Chuck Schumer is already promising to block any spending bill that includes funds for a border wall or that defunds Planned Parenthood…

The threat from Senate Minority Leader Chuck Schumer and other Democratic leaders sets up a climactic first showdown with the president, particularly with their inclusion of Trump’s signature border wall proposal.

“If Republicans insist on inserting poison pill riders such as defunding Planned Parenthood, building a border wall, or starting a deportation force, they will be shutting down the government and delivering a severe blow to our economy,” Schumer said in a statement.

Up until now, Trump hasn’t needed Democratic votes to stock his cabinet or advance the repeal of Obamacare, but a spending bill keeping the government open is subject to a 60-vote threshold in the Senate.

Do you understand what this means?

President Trump is going to be under an immense amount of pressure to end the government shutdown once it begins, but to do so will mean that he has to give up his goal of getting a border wall.

Do you think that Trump will just throw in the towel and forget about his beloved border wall after giving countless speeches promising one?

It is a game of chicken between Trump and the Democrats, and I don’t think that either side will give in easily.

Of even greater importance is the debate over the funding of Planned Parenthood.

There are members of the Freedom Caucus that will absolutely not vote for any spending bill that includes funding for Planned Parenthood.  But without the Freedom Caucus, there aren’t enough Republican votes to get a spending bill through the House of Representatives.

Alternatively, Senate Minority Leader Chuck Schumer is vowing that his party will block any funding bill that attempts to defund Planned Parenthood in the Senate.

If Planned Parenthood is not defunded now, it never will be defunded.  This is one of the most pivotal moments in recent U.S. political history, and the outcome is going to have extraordinary consequences for our nation.

For those that are optimistic that there will not be a government shutdown, do you actually expect me to believe that this battle over the funding of Planned Parenthood will somehow get resolved in just four days?

Give me a break.

And of course there are dozens of other major issues that have to be resolved as well.  For example, Senator McCain is promising note to vote for any bill unless it includes an enormous increase in military spending, while many Senate Democrats would be very much against such a move.

I don’t see any way that a government shutdown is going to be avoided at this point, and the longer it goes on the more financial markets are going to get rattled.

Meanwhile, we continue to get even more signs that a substantial slowdown has begun for the U.S. economy.  Last week, we learned that only 98,000 jobs were added in March, and that was only about half of what most analysts were expecting.

And since it takes approximately 150,000 jobs a month just to keep up with population growth, that means that we are losing ground.

At the same time, the Atlanta Fed’s GDPNow forecasting model is now projecting that U.S. GDP growth for the first quarter of 2017 will be just 0.6 percent on an annualized basis.

That is absolutely pathetic, and as I have said before, I wouldn’t be surprised at all if we actually end up with a negative number for the first quarter.

If we do indeed get a negative number for the first quarter and that is followed by another negative number for the second quarter, that will mean that a new recession has already started right now but we just haven’t gotten official confirmation yet.

And lots of other things are already happening which have not happened since the last recession.  For instance, this is the first time since the last financial crisis when there has been no growth for commercial and industrial lending for at least six months.

In addition, commercial bankruptcies spiked during the last recession, and now it is happening again…

Commercial bankruptcy filings, from corporations to sole proprietorships, spiked 28% in March from February, the largest month-to-month move in the data series of the American Bankruptcy Institute going back to 2012.

Of course consumer bankruptcies are rising at an alarming rate as well.  The following comes from Wolf Richter…

In December, bankruptcy filings rose 4.5% from a year earlier. In January they rose 5.4%. It was the first time consumer bankruptcies rose back-to-back since 2010. I called it “a red flag that’ll be highlighted only afterwards as a turning point.”

In March, consumer bankruptcy filings rose 4% year-over-year, to 77,900, the highest since March 2015, when 79,000 filings occurred, according to the American Bankruptcy Institute data.  The turning point has now been confirmed.

If you would like, I could keep talking about the bad economic news for a couple thousand more words.  U.S. credit card debt has just surpassed the one trillion dollar mark, a major crisis has arrived for the U.S. auto industry, thousands of retail stores are closing all over America, our pension funds are underfunded by trillions of dollars, and the U.S. national debt is now sitting at a grand total that is just shy of 20 trillion dollars.  The only reason that we have not crossed that 20 trillion dollar mark yet is because the debt ceiling deadline has already passed, and that is another thing that Congress needs to address very quickly if they want to avoid a major crisis.

Needless to say, the last thing that we need at this point is another war or two on top of everything else.

Unfortunately, a U.S. aircraft carrier strike group headed by the USS Carl Vinson is heading toward North Korea right at this moment, and Russia and Iran are promising to “respond with force” to any new U.S. attacks on Syria.  I will be writing quite a bit more about all of this on End Of The American Dream later today.

Those that were hoping for some sort of “reprieve” under Donald Trump can forget all about that now.  The pace of global events is really starting to accelerate, and the U.S. is already in a more precarious position than it was at any point in 2016.

The clouds have been building for a very long time, and now the storm is almost upon us.  I hope that you have been getting prepared, because a day of reckoning for the United States of America is closing in very rapidly.

Global Financial Markets Plunged Into Chaos As Italy Overwhelmingly Votes ‘No’

italy-flag-map-public-domainItalian voters have embraced the global trend of rejecting the established world order, but the “no” vote on Sunday has plunged global financial markets into a state of utter chaos.  The euro has already fallen to a 20 month low, Italian government bonds are poised for a tremendous crash, and futures markets are indicating that both U.S. and European stock markets will be way down when they open on Monday.  It is being projected that Italian Prime Minister Matteo Renzi’s referendum on constitutional reforms will be defeated by about 20 percentage points when all the votes have been counted, and Renzi has already announced that he plans to resign as a result.  When new elections are held it looks like comedian Beppe Grillo’s Five-Star movement will come to power, and the European establishment is extremely alarmed at that prospect because Grillo wants to take Italy out of the eurozone.  In the long run Italy would be much better off without the euro, but in the short-term the only thing propping up Italy’s failing banking system is support from Europe.  Without that support, the 8th largest economy on the entire planet would already be in the midst of an unprecedented financial crisis.

I know that I said a lot in that first paragraph, but it is imperative that people understand how serious this crisis could quickly become.

This “no” vote virtually guarantees a major banking crisis for Italy, and many analysts fear that it could trigger a broader financial crisis all across the rest of the continent as well.

Just look at what has already happened.  All of the votes haven’t even been counted yet, and the euro is absolutely plummeting…

The euro dropped 1.3 percent to $1.0505, falling below its 1 1/2-year low of $1.0518 touched late last month, and testing its key support levels where the currency has managed to rebound in the past couple of years.

A break below its 2015 March low of $1.0457 would send the currency to its lowest level since early 2003, opening a way for a test of $1, or parity against the dollar, a scenario which many market players now see as a real possibility.

In early 2014, there were times when one euro was trading for almost $1.40.  For a very long time I have been warning that the euro was eventually heading for parity with the U.S. dollar, and now we are almost there.

Meanwhile, Italian government bonds are going to continue to crash following this election result.  This is going to make it even more difficult for the Italian government to borrow money, and that will only aggravate their ongoing financial troubles.

But the big problem in Italy is the banks.  At this moment there are eight banks in imminent danger of collapsing, and virtually all of the rest of them are in some stage of trouble.  The following comes from a Bloomberg article about the crisis that Italian banks are facing right at this moment…

They’re burdened with a mountain of bad loans. Their stocks have cratered. And they have to operate in an economy prone to recession and political upheaval.

Signs have been mounting for months that Italy’s weakest lenders, and in particular Banca Monte dei Paschi di Siena SpA, were sliding toward the precipice, threatening to reignite a broader crisis.

And we may get some news regarding the fate of Banca Monte dei Paschi di Siena as early as Monday morning if what the Sydney Morning Herald is reporting is correct…

A last-gasp rescue for Monte dei Paschi di Siena, the world’s oldest surviving bank, has been thrown into doubt after reformist prime minister Matteo Renzi decisively lost a referendum on constitutional reform on Sunday.

MPS and advisers JPMorgan and Mediobanca will meet as early as Monday morning to decide whether to pull a plan to go ahead with a €5bn recapitalisation, the FT reports, citing people informed of the plan.

Senior bankers will decide whether to pursue their underwriting commitments or exercise their right to drop the transaction due to adverse market conditions, these people said. In the event the banks drop the capital plan, the Italian state is expected to nationalise the bank, say senior bankers.

If Banca Monte dei Paschi di Siena fails, major banks all over Italy (and all over the rest of Europe) could start going down like dominoes.

So what were Italians voting on anyway?

Well, the truth is that the constitutional reforms that were proposed actually sound quite boring…

“The changes involve sharply reducing the size of one of the chambers of Parliament — the Senate — shifting its powers to the executive, and eliminating the Senate’s power to bring down government coalitions.

“The amendments also shift some powers now held by the regions to the central government, thereby reducing frequent and lengthy court battles between Rome and the regional governments.”

The reason why this vote was ultimately so important is because it became a referendum on Renzi’s administration.  The fact that he announced in advance that he would resign if it did not get approved gave a tremendous amount of fuel to the opposition.

So now Beppe Grillo’s Five-Star Movement stands poised to come to power, and that could be very bad news for those that are hoping to hold the common currency together.

The following is how NPR recently summarized the main goals of the Five-Star Movement…

“It calls for a government-guaranteed, universal income, abolishing Italy’s fiscal commitments to the European Union and a referendum on Italy’s membership in the Euro — a prospect that could unravel the entire single currency Eurozone.”

If Italy chooses to leave the euro, it will probably mean the end of the common currency, and the continued existence of the entire European Union would be called into question.

So this vote on Sunday was huge.  The Brexit had already done a tremendous amount of damage to the long-term prospects for the European Union, and now the crisis in Italy is sending political and financial shockwaves throughout the entire continent.

Over the next few weeks, keep a close eye on the euro and on Italian government bonds.

If they both continue to crash, that will be a sign that a major European financial crisis is now upon us.

And what happens in Europe definitely does not stay in Europe.

If Europe goes down, we are going to go down too.

At this point we still have almost a month left in 2016, but 2017 is already shaping up to be a very troubling year.  As always, let us hope for the best, but let us also keep preparing for the worst.

During The Coming Economic Crisis Two-Thirds Of The Country Will Be Out Of Cash Almost Immediately

money-one-dollar-bills-public-domainDid you know that almost 70 percent of the U.S. population is essentially living paycheck to paycheck?  As you will see below, a brand new survey has found that 69 percent of all Americans have less than $1,000 in savings.  Of course one of the primary reasons for this is that most of us are absolutely drowning in debt.  In fact, the total amount of household debt in the United States now exceeds 12 trillion dollars.  So many Americans are so busy just trying to pay off their existing debts that they can’t even think about saving anything for the future.  If economic conditions remain relatively stable, the fact that so many of us are living on the edge probably won’t kill us.  But the moment the economy plunges into another 2008-style crisis (or worse), we could be facing a situation where two-thirds of the country is in imminent danger of running out of cash.

If you are living paycheck to paycheck, you live under the constant threat of your life being totally turned upside down if that paycheck ever goes away.  During the last crisis, millions of Americans lost their jobs very rapidly, and because so many of them were living paycheck to paycheck all of a sudden large numbers of people couldn’t pay their mortgages.  As a result, multitudes of American families went through the extremely painful process of foreclosure.

Unfortunately, it appears that we have not learned anything from the last go around.  According to the brand new survey that I mentioned above, 69 percent of all Americans have less than $1,000 in savings…

Last year, GoBankingRates surveyed more than 5,000 Americans only to uncover that 62% of them had less than $1,000 in savings. Last month GoBankingRates again posed the question to Americans of how much they had in their savings account, only this time it asked 7,052 people. The result? Nearly seven in 10 Americans (69%) had less than $1,000 in their savings account.

Breaking the survey data down a bit further, we find that 34% of Americans don’t have a dime in their savings account, while another 35% have less than $1,000. Of the remaining survey-takers, 11% have between $1,000 and $4,999, 4% have between $5,000 and $9,999, and 15% have more than $10,000.

Perhaps the most alarming fact from this survey is that 62 percent of all Americans had less than $1,000 in savings last year.  So that means that this number has gotten 7 percent worse over the last 12 months.

How did that happen?  I thought the mainstream media was telling us that the economy was getting better…

Look, if you don’t have an emergency fund you are in danger of losing everything.  This is a point that I have been making over and over again for years, and in an article about this new survey USA Today made this point very strongly as well…

This data is particularly worrisome since the recommendation is for Americans to have six months in expenses saved in case of an emergency, such as a large medical expense, car repair bill, or losing your job. Without this emergency fund to fall back on, millions of Americans could be risking financial disaster.

As the publisher of The Economic Collapse Blog, people are constantly asking me what they should do to get prepared for what is coming.

The number one thing that I always suggest is to build up an emergency fund.

In a chaotic situation it is always hard to anticipate accurately what is going to happen, but without a doubt we are all going to need to continue to pay our bills and to buy things for our families during the next crisis.

Yes, someday the U.S. dollar will become rather worthless, but until that happens you are going to need to continue to put a roof over the heads of your family and to put food on the table.

And you are going to need money to do those things.

Some time ago, the Federal Reserve also found that a large percentage of Americans are living on the edge of financial disaster.  They discovered that 47 percent of all Americans could not even come up with $400 to pay for an unexpected emergency room visit without borrowing the money or selling something that they own.

If you can’t even come up with $400 you are really hurting, but that is the status of about half the country these days.

We are continually being told that the economy is strong, but that is simply not the truth.

In fact, it turns out that the period from 2005 to 2015 was the worst period for per capita real GDP growth in modern American history.  The following comes from Zero Hedge…

  1. Growth was unusually strong in the 1960s and early 1970s. In every year from 1966 through 1973, per-capita income was up between 30 percent and 40 percent from a decade earlier. Thus, it’s not surprising that many Americans recall this as a great period for the nation’s economy.
  2. In every year from 1984 to 2007 — a period that economists call the Great Moderation, because of the way both growth and interest rates stabilized — per-person income was up between 20 percent and 30 percent from a decade earlier. That’s ample reason for Americans to view this as a good period for the economy.
  3. Cumulative per-person growth from 2005 to 2015 was lower than in any prior decade in the sample. That certainly helps explain why many Americans are unhappy with the nation’s recent economic performance.

And as I repeat over and over, Barack Obama is on track to be the one and only president in all of American history to never have a single year when the economy grew by at least 3 percent, and he has had eight years to try to accomplish that feat.

Why doesn’t Donald Trump ever bring up that amazing fact?  I would think that he could get a lot of mileage out of that number.

At this point, nobody can deny that the middle class is shrinking.  61 percent of all Americans lived in middle class households in 1971, but now the middle class makes up a minority of the population for the very first time in our history.

Back in 1970, the middle class brought home approximately 62 percent of all income, but today that figure has plummeted to just 43 percent.

Those that are still doing well often dismiss those that are struggling by barking out such phrases as “get a job”, but the truth is that getting a good job is not so easy these days.

The most recent statistics show that there are 7.9 million Americans that are considered to be officially unemployed.  When you add that number to the 94.1 million working age Americans that are considered to be “not in the labor force”, you get a grand total of 102 million working age Americans that do not have a job right now.

And just because you do have a job does not mean that everything is okay.  As I have discussed previously, 51 percent of all U.S. workers make less than $30,000 a year according to the Social Security Administration.

Everywhere you look things seem to be getting worse and not better.  Not too long ago I documented the explosion of tent cities all over the country as poverty continues to rise, and I discussed how one study found that some young women in our impoverished inner cities are so desperate that they are actually trading sex for food.

Sadly, it isn’t just a few hard cases that we are talking about.  Even in areas of the country that are supposed to be “doing well” we are seeing record-setting poverty numbers.  For example, it was recently reported that the number of New Yorkers sleeping in homeless shelters just set a brand new all-time high, and the number of New York families permanently living in homeless shelters is up 60 percent over the past five years.

If things are this bad during an “economic recovery”, what are they going to look like once the economy really starts imploding?

And considering the fact that almost 70 percent of the population has virtually no savings, could our nation handle an extended economic downturn that may be even worse than what we experienced in 2008 and 2009?

As a nation we truly are living on the edge, and it isn’t going to take very much at all to push us into oblivion.

Tent Cities Full Of Homeless People Are Booming In Cities All Over America As Poverty Spikes

HomelessJust like during the last economic crisis, homeless encampments are popping up all over the nation as poverty grows at a very alarming rate.  According to the Department of Housing and Urban Development, more than half a million people are homeless in America right now, but that figure is increasing by the day.  And it isn’t just adults that we are talking about.  It has been reported that that the number of homeless children in this country has risen by 60 percent since the last recession, and Poverty USA says that a total of 1.6 million children slept either in a homeless shelter or in some other form of emergency housing at some point last year.  Yes, the stock market may have been experiencing a temporary boom for the last couple of years, but for those on the low end of the economic scale things have just continued to deteriorate.

Tonight, countless numbers of homeless people will try to make it through another chilly night in large tent cities that have been established in the heart of major cities such as Seattle, Washington, D.C. and St. Louis.  Homelessness has gotten so bad in California that the L.A. City Council has formally asked Governor Jerry Brown to officially declare a state of emergency.   And in Portland the city has extended their “homeless emergency” for yet another year, and city officials are really struggling with how to deal with the booming tent cities that have sprung up…

There have always been homeless people in Portland, but last summer Michelle Cardinal noticed a change outside her office doors.

Almost overnight, it seemed, tents popped up in the park that runs like a green carpet past the offices of her national advertising business. She saw assaults, drug deals and prostitution. Every morning, she said, she cleaned human feces off the doorstep and picked up used needles.

“It started in June and by July it was full-blown. The park was mobbed,” she said. “We’ve got a problem here and the question is how we’re going to deal with it.”

But of course it isn’t just Portland that is experiencing this.  The following list of major tent cities that have become so well-known and established that they have been given names comes from Wikipedia…

Most of the time, those that establish tent cities do not want to be discovered because local authorities have a nasty habit of shutting them down and forcing homeless people out of the area.  For example, check out what just happened in Elkhart, Indiana…

A group of homeless people in Elkhart has been asked to leave the place they call home. For the last time, residents of ‘Tent City’ packed up camp.

City officials gave residents just over a month to vacate the wooded area; Wednesday being the last day to do so.

The property has been on Mayor Tim Neese’s radar since he took office in January, calling it both a safety and health hazard to its residents and nearby pedestrian traffic.

“This has been their home but you can’t live on public property,” said Mayor Tim Neese, Elkhart.

If they can’t live on “public property”, where are they supposed to go?

They certainly can’t live on somebody’s “private property”.

This is the problem – people don’t want to deal with the human feces, the needles, the crime and the other problems that homeless people often bring with them.  So the instinct is often to kick them out and send them away.

Unfortunately, that doesn’t fix the problem.  It just passes it on to someone else.

As this new economic downturn continues to accelerate, our homelessness boom is going to spiral out of control.  Pretty soon, there will be tent cities in virtually every community in America.

In fact, there are people that are living comfortable middle class lifestyles right at this moment that will end up in tents.  We saw this during the last economic crisis, and it will be even worse as this next one unfolds.

Just like last time around, the signs that the middle class is really struggling can be subtle at first, but when you learn to take note of them you will notice that they are all around you.  The following comes from an excellent article in the New York Post…

Do you see grocery stores closing? Do you see other retailers, like clothing stores and department stores, going out of business?

Are there shuttered storefronts along your Main Street shopping district, where you bought a tool from the hardware store or dropped off your dry cleaning or bought fruits and vegetables?

Are you making as much money annually as you did 10 years ago?

Do you see homes in neighborhoods becoming run down as the residents either were foreclosed upon, or the owner lost his or her job so he or she can’t afford to cut the grass or paint the house?

Did that same house where the Joneses once lived now become a rental property, where new people come to live every few months?

Do you know one or two people who are looking for work? Maybe professionals, who you thought were safe in their jobs?

Don’t look down on those that are living in tents, because the truth is that many “middle class Americans” will ultimately end up joining them.

The correct response to those that are hurting is love and compassion.  We all need help at some point in our lives, and I know that I am certainly grateful to those that have given me a helping hand at various points along my journey.

Sadly, hearts are growing cold all over the nation, and the weather is only going to get colder over the months ahead.  Let us pray for health and safety for the hundreds of thousands of Americans that will be sleeping in tents and on the streets this winter.

Global Recession? The Canadian Economy Shrinks At The Fastest Pace Since The Last Financial Crisis

Canada - Public DomainThings have not been this bad for the Canadian economy since the last global recession.  During the second quarter of 2016, Canada’s GDP contracted at a 1.6 percent annualized rate.  That was the worst number in seven years, and it was even worse than most analysts were projecting.  This comes at a time when bad news is pouring in from all corners of the global economy.  While things in the United States are still relatively stable for the moment, the same cannot be said for much of the rest of the planet.  Canada in particular has been hit very hard by the collapse in oil prices, and the massive wildfire in northern Alberta back in May certainly did not help things.  The following comes from the BBC…

The recent drop in GDP was larger than analysts had projected, but not far off the predicted 1.5% loss.

“[The figure] could have been worse, given the hit from the wildfire, and clearly confirms the disappointing downward trend in exports over the last few months,” said Sal Guatieri, senior economist at BMO Capital Markets.

In May, wildfires devastated the parts of northern Alberta where much of Canada’s oil and natural gas is produced.

For many years, high oil prices and booming exports enabled the Canadian economy to significantly outperform the U.S. economy.  But now conditions have changed dramatically, and all of the economic bubbles up in Canada are starting to burst.  This includes the housing bubble, as we have seen home sales in the hottest markets such as Vancouver drop through the floor late in the summer.  In fact, it is being reported that home sales during the first two weeks of August in British Columbia were down a whopping 51 percent on a year over year basis.

Do you remember the housing bubble in the U.S. that helped fuel the last financial crisis?  Well, a very similar bubble is now bursting up in Canada, and some investors have positioned themselves to make a tremendous amount of money when the whole thing comes violently crashing down.  The following comes from Wolf Richter…

This summer, famed short seller Marc Cohodes came out of retirement (he now raises chickens on a farm in Sonoma County, CA, and sells the eggs for a fortune in San Francisco) and jumped into ring with a number of interviews on TV and in the print media, and this too rattled some nerves – largely because it hit home.

“I think it’s a money laundering-induced market,” he said as we reported at the time. “Where the local politicians, or the BC Liberals, are kept or in cahoots with the real estate brokers, developers, lawyers, that angle. And they have sought Chinese money to keep the market propped up and it won’t last,” he said. “China has capital controls on, and Vancouver has become the money laundering mecca of either the world or North America, and something is going to change and change drastically.”

If the price of oil does not rebound in a major way, the Canadian economy is going to continue to deeply struggle.

Meanwhile, one of the biggest economies in Africa is also shrinking.  Nigeria is yet another oil-dependent economy that has fallen on really hard times, and during the latest quarter their GDP shrunk by 2.06 percent on an annualized basis…

Nigeria has slipped into recession, with the latest growth figures showing the economy contracted 2.06% between April and June.

The country has now seen two consecutive quarters of declining growth, the usual definition of recession.

Its vital oil industry has been hit by weaker global prices, according to the Nigerian Bureau of Statistics (NBS).

There are so many signs that indicate that the global economy has entered a new major downturn.  Yes, the U.S. is doing better than almost everyone else for the moment, but this will not last indefinitely.  Our planet is more interconnected than ever before, and just as we saw in 2008, big trouble on one side of the globe quickly affects the other side.

Today we also learned that the 7th largest container shipping company in the entire world has completely imploded.  Total global trade has been declining for quite some time now, and it was inevitable that this sort of thing would start happening…

After years of relentless decline in the Baltic Dry index…

… today the largest casualty finally emerged on Wednesday when South Korea’s Hanjin Shipping, the country’s largest shipping firm and the world’s seventh-biggest container carrier, filed for court receivership after losing the support of its banks, leaving its assets frozen as ports from China to Spain denied access to its vessels.

Over in Europe, an emerging banking crisis continues to simmer just under the surface.

Most Americans are completely oblivious to the fact that major global financial problems could be just around the corner, but CNBC is reporting that banks over in Europe are “preparing for an economic nuclear winter situation”…

European banks, in particular, have had a very tough six months as the shock and volatility around Brexit sent banking stocks south. Major European banks like Deutsche Bank and Credit Suisse saw their shares in free-fall after the referendum’s results were announced. In the U.K., RBS was the worst-hit, with its shares plunging by more than 30 percent since June 24.

The current uncertainty over when the U.K. will start the process of quitting the EU has banks on tenterhooks. But a source told CNBC that banks are “preparing for an economic nuclear winter situation.”

Speaking on the condition of anonymity due to the sensitive nature of the topic, a source from a major investment bank told CNBC that financial services firms have put together a strategy in place that takes into account the worst-case scenario that could happen by the end of this year.

So precisely what would an “economic nuclear winter” look like?

I don’t know, but it certainly does not sound good.

We should be thankful that things have been as calm and stable as they have been so far in 2016, but nobody should be fooled into thinking that our problems have been fixed.

The truth is that the global debt bubble is at an all-time high, the banks are being more reckless and are more vulnerable than ever before, and troubling economic numbers continue to pour in from all over the planet.

The stage is certainly set for the next major global economic crisis, and it isn’t going to take much to push the world over the edge.

Which Items Will Disappear First During A Major National Emergency?

End Times Ruins Apocalypse - Public DomainOne day in the not too distant future, a major emergency will strike this nation, and that will set off a round of hoarding unlike anything we have ever seen before.  Just think about what happens when a big winter storm or a hurricane is about to hit one of our major cities – inevitably store shelves are stripped bare of bread, milk, snow shovels, etc.  Even though winter storms and hurricanes are just temporary hurdles to overcome, they still cause many people to go into panic mode.  So what is going to happen when we have a real crisis on our hands?

We can get some clues about which items will disappear first during a major national emergency by taking a look at where such a scenario is already playing out.  One recent survey found that over 80 percent of all basic foodstuffs are currently unavailable in Venezuela, and about half the country can no longer provide three meals a day for their families.  Thankfully, some stores still have a few things that they are able to offer, but other key items are completely gone.  The following comes from USA Today…

Oh, there are some things to buy. Besides salt, there are fresh vegetables and fruits, dairy products but no milk, some cereal, lots of snacks and a few canned goods.

The only meat is sausages; there are three kinds of cheese. The only problem: A kilogram of each costs more than a fourth of our monthly minimum wage of 15,050 bolivars.

But basic foodstuffs – the things most Venezuelans want to eat  such as corn meal, wheat flour, pasta, rice, milk, eggs, sugar, coffee, chicken, mayonnaise, margarine, cooking oil and beef – are conspicuous by their absence. And there is no toilet paper, no sanitary napkins, no disposable baby diapers, no shampoo, no toothpaste, no hand soap and no deodorant.

Do you have plenty of the items in bold above stored up?

If not, you may want to stock up while you still can.

Venezuela was once the wealthiest nation in all of South America, but now lines for food often begin as early as three in the morning.  Some people have become so desperate that they are actually hunting cats, dogs and pigeons for food, and there are even a few very sick people that have been killing and eating zoo animals.

Someday similar things will happen in the United States and Europe too.

When that day arrives, will you be prepared?

One of the things that got my attention from the article quote above was the lack of milk.  My wife is always telling me that we should store up more dried milk, and I believe that she is right.

Just imagine not having any milk and not being able to get any more.

What would you do?

Another thing that really stood out to me in the article was the fact that there is a severe shortage of personal hygiene items.  Most people don’t really think of those as “prepper goods”, but the truth is that life will become very uncomfortable without them very rapidly.

What would you do if there was no more toilet paper?

And if you have a little one, how are you going to manage without any diapers?

In general, it is wise to always have an extra supply of just about everything that you use on a daily basis stored away somewhere in your home.  The generation that went through the Great Depression of the 1930s understood this concept very well, but most of us that are younger have had it so good for so long that we don’t even really grasp what a real crisis looks like.

Another thing that we are seeing happen right now in Venezuela is the rise of a barter economy…

Many of my urban friends are now planting vegetables in their outdoor spaces – if they have any – or in pots. Another friend, who is a hairdresser, is charging clients food to do their hair. For a shampoo and dry, she charges a kilo of corn meal, saying that she doesn’t have time to stand in line like some of her clients.

As you prepare for what is ahead, you may want to consider stocking up on some items that would specifically be used for bartering in a crisis situation.

For example, you may not drink coffee, but there are millions upon millions of people that do.  In a crisis situation, there will be many that will be extremely desperate to get their hands on some coffee, and so any coffee that you store away now may become a very valuable asset.

We live in a world where one out of every eight people already goes to bed hungry each night, and where one out of every three children is underweight.  As global weather patterns become more extreme, as natural disasters continue to become more frequent and more intense, and as terror and war continue to spread, it is inevitable that the stress on the global food system is going to continue to grow.

Today you can waltz into Wal-Mart and buy giant cartloads of very inexpensive food, but it will not always be that way.

Unfortunately, more than half the country is currently living paycheck to paycheck, and most Americans do not have any emergency food stored up at all.

In addition to food and personal hygiene supplies, here are some other items that are likely to disappear very rapidly during a major national emergency…

-Flashlights

-Batteries

-Generators

-Propane

-Can Openers

-Water Filters

-Water Containers

-Anything Related To Self-Defense

-Axes

-Knives

-Sleeping Bags

-Tents

-First Aid Kits

-Matches

-Candles

-Firewood

-Shovels

-Bottled Water

-Warm Clothing

-Lanterns

-Portable Radios

So in addition to food and personal hygiene items, you may want to do an inventory of the items that I have listed above and see where you may have some holes in your preparation plans.

I understand that there will be some people that will read this article and think that all of us “preppers” are being just a tad ridiculous.

But when a major emergency strikes this nation and you haven’t done anything to prepare, you will dearly wish that you had bothered to take action while there was still time remaining to do so.

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