Financial

A Day Of Reckoning For The Euro Has Arrived – 26 TRILLION In Currency Derivatives At Risk

Yanis Varoufakis - posted to Twitter by Utopian FiremanThis is the month when the future of the eurozone will be decided.  This week, Greek leaders will meet with European officials to discuss what comes next for Greece.  The new prime minister of Greece, Alexis Tsipras, has already stated that he will not accept an extension of the current bailout.  Officials from other eurozone countries have already said that they expect Greece to fully honor the terms of the current agreement.  So basically we are watching a giant game of financial “chicken” play out over in Europe, and a showdown is looming.  Adding to the drama is the fact that the Greek government is rapidly running out of money.  According to the Wall Street Journal, Greece is “on course to run out of money within weeks if it doesn’t gain access to additional funds, effectively daring Germany and its other European creditors to let it fail and stumble out of the euro.”  We have witnessed other moments of crisis for Greece before, but things are very different this time because the new Greek government is being run by radical leftists that based their entire campaign on ending the austerity that has been imposed on Greece by the rest of Europe.  If they buckle under the demands of the European financial lords, their credibility will be gone and Syriza will essentially be finished in Greek politics.  But if they don’t compromise, Greece could be forced to leave the eurozone and we could potentially be facing the equivalent of “financial armageddon” in Europe.  If nobody flinches, the eurozone will fall to pieces, the euro will collapse and trillions upon trillions of dollars in derivatives will be in jeopardy.

According to the Bank for International Settlements, 26.45 trillion dollars in currency derivatives are directly tied to the value of the euro.

Let that number sink in for a moment.

To give you some perspective, keep in mind that the U.S. government spends a total of less than 4 trillion dollars a year.

The entire U.S. national debt is just a bit above 18 trillion dollars.

So 26 trillion dollars is an amount of money that is almost unimaginable.  And of course those are just the derivatives that are directly tied to the euro.  Overall, the total global derivatives bubble is more than 700 trillion dollars in size.

Over the past couple of decades, the global financial system has been transformed into the biggest casino in the history of the planet.  And when things are stable, the computer algorithms used by the big banks work quite well and they make enormous amounts of money.  But when unexpected things happen and markets go haywire, the financial institutions that gamble on derivatives can lose massive quantities of money very rapidly.  We saw this in 2008, and we could be on the verge of seeing this happen again.

If no agreement can be reached and Greece does leave the eurozone, the euro is going to fall off a cliff.

When that happens, someone out there is going to lose an extraordinary amount of money.

And just like in 2008, when the big financial institutions start to fail that will plunge the entire planet into another major financial crisis.

So at the moment, it is absolutely imperative that Greece and the rest of the eurozone find some common ground.

Unfortunately, that may not happen.  The new prime minister of Greece certainly does not sound like he is in a compromising mood…

Greece’s new leftist prime minister, Alexis Tsipras, said on Sunday he would not accept an extension to Greece’s current bailout, setting up a clash with EU leaders – who want him to do just that – at a summit on Thursday.

Tsipras also pledged his government would heal the “wounds” of austerity, sticking to campaign pledges of giving free food and electricity to those who had suffered, and reinstating civil servants who had been fired as part of bailout austerity conditions.

Prior to the summit on Thursday, eurozone finance ministers are going to get together on Wednesday to discuss what they should do.  If these two meetings don’t go well this week, we could be looking at big trouble right around the corner.  In fact, Greece is being warned that they only have until February 16th to apply for an extension of the current bailout…

Euro zone finance ministers will discuss how to proceed with financial support for Athens at a special session next Wednesday ahead of the first summit of EU leaders with the new Greek prime minister, Alexis Tsipras, the following day.

However, the chairman of the finance ministers said the following meeting of the Eurogroup on Feb. 16 would be Greece’s last chance to apply for a bailout extension because some euro zone countries would need to consult their parliaments.

“Time will become very short if they (Greece) don’t ask for an extension (by then),” said Jeroen Dijsselbloem.

The current bailout for Greece expires on Feb 28. Without it the country will not get financing or debt relief from its lenders and has little hope of financing itself in the markets.

And as I mentioned above, the Greek government is quickly running out of money.

Most analysts believe that because of the enormous stakes that one side or the other will give in at some point.

But what if that does not happen?

Personally, I believe that the eurozone is doomed in the configuration that we see it today, and that it is just a matter of time before it breaks up.

And I am far from alone.  For example, just check out what former Fed chairman Alan Greenspan is saying…

Mr Greenspan, chairman of the Federal Reserve from 1987 to 2006, said: “I believe [Greece] will eventually leave. I don’t think it helps them or the rest of the eurozone – it is just a matter of time before everyone recognizes that parting is the best strategy.

“The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated – actually even just fiscally integrated won’t do it.”

The Greeks are using all of this to their advantage.  They know that if they leave it could break apart the entire monetary union.  So this gives them a tremendous amount of leverage.  Greek Finance Minister Yanis Varoufakis has even gone so far as to compare the eurozone to a house of cards…

“The euro is fragile, it’s like building a castle of cards, if you take out the Greek card the others will collapse.” Varoufakis said according to an Italian transcript of the interview released by RAI ahead of broadcast.

The euro zone faces a risk of fragmentation and “de-construction” unless it faces up to the fact that Greece, and not only Greece, is unable to pay back its debt under the current terms, Varoufakis said.

“I would warn anyone who is considering strategically amputating Greece from Europe because this is very dangerous,” he said. “Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity?”

After all this time and after so many bailouts, we have finally reached a day of reckoning.

There is a very real possibility that Greece could leave the eurozone in just a matter of months, and the elite know this.

That is why they are getting prepared for that eventuality.  The following is from a recent Wall Street Journal report…

The U.K. government is stepping up contingency planning to prepare for a possible Greek exit from the eurozone and the market instability such a move would create, U.K. Treasury chief George Osborne said on Sunday.

A spokeswoman for the Treasury declined comment on the details of the contingency planning.

The U.K. government has said the standoff between Greece’s new anti-austerity government and the eurozone is increasing the risks to the global and U.K. economy.

“That’s why I’m going tomorrow to the G-20 [Group of 20] to encourage our partners to resolve this crisis. It’s why we’re stepping up the contingency planning here at home,” Mr. Osborne told the BBC in an interview. “We have got to make sure we don’t, at this critical time when Britain is also facing a critical choice, add to the instability abroad with instability at home.”

And if Greece does leave, it will cause panic throughout global financial markets as everyone wonders who is next.

Italy, Spain and Portugal are all in a similar position.  Every one of them could rapidly become “the next Greece”.

But of even greater concern is what a “Grexit” would do to the euro.  If the euro falls below parity with the U.S. dollar, the derivatives losses are going to be absolutely mind blowing.  And coupled with the collapse of the price of oil, we could be looking at some extreme financial instability in the not too distant future.

When big banks collapse, they don’t do it overnight.  But we often learn about it in a single moment.

Just remember Lehman Brothers.  Their problems developed over an extended period of time, but we only learned the full extent of their difficulties on one very disturbing day in 2008, and that day changed the world.

As you read this, big financial troubles are brewing in the background.  At some point, they are going to come to the surface.  When they do, the entire planet is going to be shocked.

 

It Is About To Get Ugly: Oil Is Crashing And So Is Greece

Hindenburg Disaster - Public DomainThe price of oil collapsed by more than 8 percent on Wednesday, and a decision by the European Central Bank has Greece at the precipice of a complete and total financial meltdown.  What a difference 24 hours can make.  On Tuesday, things really seemed like they were actually starting to get better.  The price of oil had rallied by more than 20 percent since last Thursday, things in Europe seemed like they were settling down, and there appeared to be a good deal of optimism about how global financial markets would perform this month.  But now fear is back in a big way.  Of course nobody should get too caught up in how the markets behave on any single day.  The key is to take a longer term point of view.  And the fact that the markets have been on such a roller coaster ride over the past few months is a really, really bad sign.  When things are calm, markets tend to steadily go up.  But when the waters start really getting choppy, that is usually a sign that a big move down in on the horizon.  So the huge ups and the huge downs that we have witnessed in recent days are likely an indicator that rough seas are ahead.

A stunning decision that the European Central Bank has just made has set the stage for a major showdown in Europe.  The ECB has decided that it will no longer accept Greek government bonds as collateral from Greek banks.  This gives the European Union a tremendous amount of leverage in negotiations with the new Greek government.  But in the short-term, this could mean some significant pain for the Greek financial system.  The following is how a CNBC article described what just happened…

“The European Central Bank is telling the Greek banking system that it will no longer accept Greek bonds as collateral for any repurchase agreement the Greek banks want to conduct,” said Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.

“This is because the ECB only accepts investment grade paper and up until today gave Greece a waiver to this clause. That waiver has now been taken away and Greek banks now have to go to the Greek Central Bank and tap their Emergency Liquidity Assistance facility for funding,” he said.

And it certainly didn’t take long for global financial markets to respond to this news…

The Greek stock market closed hours ago, but the exchange-traded fund that tracks Greek stocks, GREK, crashed during the final minutes of trading in the US markets.

The euro is also getting walloped, falling 1.3% against the US dollar.

The EUR/USD, which had recovered to almost 1.15, fell to nearly 1.13 on news of the action taken by the ECB.

But this is just the beginning.

In coming months, I fully expect the euro to head toward parity with the U.S. dollar.

And if the new Greek government will not submit to the demands of the EU, and Greece ultimately ends up leaving the common currency, it could potentially mean the end of the eurozone in the configuration that we see it today.

Meanwhile, the oil crash has taken a dangerous new turn.

Over the past week, we have seen the price of oil go from $43.58 to $54.24 to less than 48 dollars before rebounding just a bit at the end of the day on Wednesday.

This kind of erratic behavior is the exact opposite of what a healthy market would look like.

What we really need is a slow, steady climb which would take the price of oil back to at least the $80 level.  In the current range in which it has been fluctuating, the price of oil is going to be absolutely catastrophic for the global economy, and the longer it stays in this current range the more damage that it is going to do.

But of course the problems that we are facing are not just limited to the oil price crash and the crisis in Greece.  The truth is that there are birth pangs of the next great financial collapse all over the place.  We just have to be honest with ourselves and realize what all of these signs are telling us.

And it isn’t just in the western world where people are sounding the alarm.  All over the world, highly educated professionals are warning that a great storm is on the horizon.  The other day, I had an economist in Germany write to me with his concerns.  And in China, the head of the Dagong Rating Agency is declaring that we are going to have to face “a new world financial crisis in the next few years”…

The world economy may slip into a new global financial crisis in the next few years, China’s Dagong Rating Agency Head Guan Jianzhong said in an interview with TASS news agency on Wednesday.

“I believe we’ll have to face a new world financial crisis in the next few years. It is difficult to give the exact time but all the signs are present, such as the growing volume of debts and the unsteady development of the economies of the US, the EU, China and some other developing countries,” he said, adding the situation is even worse than ahead of 2008.

For a long time, I have been pointing at the year 2015.  But this year is not going to be the end of anything.  Rather, it is just going to be the beginning of the end.

During the past few years, we have experienced a temporary bubble of false stability fueled by reckless money printing and an unprecedented accumulation of debt.  But instead of fixing anything, those measures have just made the eventual crash even worse.

Now a day of reckoning is fast approaching.

Life as we know it is about to change dramatically, and most people are completely and totally unprepared for it.

This Housing Chart Destroys The Arguments Of The Economic Optimists

Chart - Public DomainDid you know that the rate of homeownership in the United States has fallen to a 20 year low?  Did you know that it has been falling consistently for an entire decade?  For the past couple of years, the economic optimists have been telling us that the economy has been getting better.  Well, if the economy really has been getting better, why does the homeownership rate keep going down?  Yes, the ultra-wealthy have received a temporary financial windfall thanks to the reckless money printing the Federal Reserve has been doing, but for most Americans economic conditions have not been improving.  This is clearly demonstrated by the housing chart that I am about to share with you.  If the economy really was healthy, more people would be getting good jobs and thus would be able to buy homes.  But instead, the homeownership rate has continued to plummet throughout the entire “Obama recovery”.  I think that this chart speaks for itself…

Homeownership Rate 2015

Of course this homeownership collapse began well before Barack Obama entered the White House.  Our economic problems are the result of decades of incredibly bad decisions.  But anyone that believes that things have “turned around” for the middle class under Barack Obama is just being delusional.

If the U.S. economy truly was in “good shape”, the percentage of Americans that own homes would not be at a 20 year low…

The U.S. homeownership rate fell to the lowest in more than two decades in the fourth quarter as many would-be buyers stayed on the sidelines, giving the rental market a boost.

The share of Americans who own their homes was 64 percent in the fourth quarter, down from 64.4 percent in the previous three months, the Census Bureau said in a report. The rate was at the lowest since the second quarter of 1994, data compiled by Bloomberg show.

Rising prices and a tight supply of lower-end listings have put homes out of reach for some entry-level buyers, who also face strict mortgage standards. The share of U.S. homebuyers making their first purchase dropped in 2014 to the lowest level in almost three decades, the National Association of Realtors reported last week.

And it appears that this trend is actually accelerating.  During 2014, the rate of homeownership plummeted by a total of 1.2 percentage points for the year.  That was the largest one year decline that has ever been measured.

So why is this happening?

Well, in order to buy a home you have got to have a good job, and good jobs are in very short supply these days.

Over the past decade, the quality of the jobs in our economy has steadily declined as good jobs have been replaced by low paying jobs.  In addition, government policies are absolutely murdering small business.  At this point, small business ownership in the U.S. is hovering near record lows.

This has resulted in millions of people falling out of the middle class, and it has contributed to the growing divide between the wealthy and the rest of the country.

If our economy was working the way that it should, the middle class would be thriving.

But instead, it is being systematically destroyed.  If you doubt this, I have some statistics that I would like to share with you.  The following facts come from my previous article entitled “The Death Of The American Dream In 22 Numbers“…

#1 The Obama administration tells us that 8.69 million Americans are “officially unemployed” and that 92.90 million Americans are considered to be “not in the labor force”.  That means that more than 101 million U.S. adults do not have a job right now.

#2 One recent survey discovered that 55 percent of Americans believe that the American Dream either never existed or that it no longer exists.

#3 Considering the fact that Obama is in the White House, it is somewhat surprising that 55 percent of all Republicans still believe in the American Dream, but only 33 percent of all Democrats do.

#4 After adjusting for inflation, median household income has fallen by nearly $5,000 since 2007.

#5 After adjusting for inflation, “the median wealth figure for middle-income families” fell from $78,000 in 1983 to $63,800 in 2013.

#6 At this point, 59 percent of Americans believe that “the American dream has become impossible for most people to achieve”.

You can read the rest of that article right here.

The group that has been hit the hardest by all of this has been young adults.

Back in 2005, the homeownership rate for households headed up by someone under the age of 35 was approximately 43 percent.

Today, it has declined to about 35 percent.

From a very early age, we push our young people to go to college, and today more of them are getting secondary education than ever before.

But when they leave school, the “good jobs” that we promised them are often not there, and most of them end up entering the “real world” already loaded down with massive amounts of debt.

According to the Pew Research Center, close to four out of every ten households that are led by someone under the age of 40 are currently paying off student loan debt.

It is hard to believe, but total student loan debt in this country is now actually higher than total credit card debt.  At this point, student loan debt has reached a grand total of 1.2 trillion dollars, and that number has grown by an astounding 84 percent just since 2008.

If you are already burdened with tens of thousands (or in some cases hundreds of thousands) of dollars of debt when you get out of school and you can’t find a decent job, there is no way that you are going to be able to afford to buy a house.

So we have millions upon millions of young people that should be buying homes and starting families that are living with their parents instead.

Back in 1968, well over 50 percent of all Americans in the 18 to 31-year-old age bracket were already married and living on their own.

But today, that number is actually below 25 percent.  Instead, approximately 31 percent of all U.S. adults in the 18 to 34-year-old age bracket are currently living with their parents.

Something has fundamentally gone wrong.

Our economy is broken, and anyone that cannot see this is just being foolish.

So what is the solution?

Please feel free to share what you think by posting a comment below…

The Shemitah: The Biblical Pattern Which Indicates That A Financial Collapse May Be Coming In 2015

The Shemitah- Financial Collapse In 2015Does a mystery that is 3,500 years old hold the key to what is going to happen to global financial markets in 2015?  Could it be possible that the timing of major financial crashes is not just a matter of coincidence?  In previous articles on my website, I have discussed some of the major economic and financial cycle theories and their proponents.  For example, in an article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“, I examined a number of economic cycle theories that seem to indicate that the second half of this decade is going to be a nightmare economically.  But the cycle that I am going to discuss in this article is a lot more controversial than any of those.  In his most recent book, Jonathan Cahn has demonstrated that almost all of the major financial crashes in U.S. history are very closely tied to a seven year pattern that we find in the Bible known as “the Shemitah”.  Since that book was released, I have been asked about this repeatedly during radio appearances.  So in this article I am going to attempt to explain what the Shemitah is, and what this Biblical pattern seems to indicate may happen in 2015.  If you are an atheist, an agnostic, or are generally skeptical by nature, this article might prove quite challenging for you.  I would ask that you withhold judgment until you have examined the evidence.  When I first heard about these things, I had to go verify the facts for myself, because they are truly extraordinary.

So precisely what is “the Shemitah”?

In the Bible, the people of Israel were commanded to let the land lie fallow every seven years.  There would be no sowing and no reaping, and this is something that God took very seriously.  In fact, the failure to observe these Sabbath years was one of the main reasons cited in the Scriptures for why the Jewish people were exiled to Babylon in 586 BC.

But there was more to the Shemitah year than just letting the land lie fallow.

On the last day of the Shemitah year, the people of Israel were instructed to perform a releasing of debts.  We find the following in Deuteronomy chapter 15…

At the end of every seven years you shall grant a relinquishing of debts. This is the manner of the relinquishing: Every creditor that has loaned anything to his neighbor shall relinquish it. He shall not exact it of his neighbor, or of his brother, because it is called the Lord’s relinquishment.

This happened at the end of every seven years on Elul 29 – the day right before Rosh Hashanah on the Biblical calendar.

So what does this have to do with us today?

Well, if you go back to the last day of the Shemitah year in 2001, you will find that there was an absolutely horrifying stock market crash.

On September 17th, 2001 (which was Elul 29 on the Jewish calendar), we witnessed the greatest one day stock market crash in U.S. history up to that time.  The Dow fell an astounding 684 points, and it was a record that held for precisely seven years until the end of the next Shemitah year.

At the end of the next Shemitah year in 2008, another horrifying stock market crash took place.  On September 29th, 2008 the Dow plummeted 777 points, which still today remains the greatest one day stock market crash of all time.  It turns out that September 29th, 2008 corresponded with Elul 29 on the Jewish calendar – the precise day when the Bible calls for a releasing of debts.

So on the very last day of the last two Shemitah years, the stock market crashed so badly that it set a brand new all-time record.

And now we are in another Shemitah year.  It began last fall, and it will end next September.

Could it be possible that we will see another historic market crash?

Author Jonathan Cahn has correctly pointed out that we should never put God in a box.  Just because something has happened in the past does not mean that it will happen again.  But we should not rule anything out either.

Perhaps God is using His calendar to make a point.  Cahn believes that if we are going to see something happen, it will probably occur as the Shemitah year comes to an end…

Cahn has pointed that, according to his research, the worst of the worst usually happens at the end of the Shemitah year, not at the beginning. In fact, the last day of the year, Elul 29 on the Hebrew calendar, which will occur on Sept. 13, 2015, is the most dreaded day.

The pattern revealed in “The Mystery of the Shemitah” is that the beginning of the Shemitah’s impact is often subtle, but leads to a dramatic climax.

“The beginning may mark a change in direction, even a foreshadow of what will come to a crescendo at the Shemitah’s end,” he said.

And this time around, far more people are paying attention.  Back in 2001 and 2008, most Americans had absolutely no idea what a “Shemitah year” was.  But now it is being talked about on some of the most prominent alternative news websites on the Internet.  For example, the following is what Joseph Farah of WND has to say about the Shemitah year…

Farah believes the date Sept. 13, 2015 bears close watching – though he is quick to admit he has no idea what, if anything, will happen in America.

“A clear pattern has been established,” he says. “I don’t believe it’s a coincidence what happened in America on Elul 29 in 2001 and 2008. It would be foolish to ignore the possibility that a greater judgment might be in the works – especially if America continues to move away from God and His Word.”

The Shemitah year that we are in now does end on September 13th, 2015 – and that falls on a Sunday so the markets will be closed.

But what it comes to the Shemitah, we aren’t just looking at one particular day.

And it is very interesting to note that there will also be a solar eclipse on September 13th, 2015.  Over the past century, there have only been two other times when a solar eclipse has corresponded with the end of a Shemitah year.  Those two times were in 1931 and 1987, and as Jonathan Cahn has told WND, those solar eclipses foreshadowed major financial disasters…

In 1931, a solar eclipse took place on Sept. 12 – the end of a “Shemitah” year. Eight days later, England abandoned the gold standard, setting off market crashes and bank failures around the world. It also ushered in the greatest monthlong stock market percentage crash in Wall Street history.

In 1987, a solar eclipse took place Sept. 23 – again the end of a “Shemitah” year. Less than 30 days later came “Black Monday” the greatest percentage crash in Wall Street history.

Is Cahn predicting doom and gloom on Sept. 13, 2015? He’s careful to avoid a prediction, saying, “In the past, this ushered in the worst collapses in Wall Street history. What will it bring this time? Again, as before, the phenomenon does not have to manifest at the next convergence. But, at the same time, and again, it is wise to take note.”

So what is going to happen this time?

We will just have to wait and see.

But without a doubt so many of the same patterns that we witnessed just prior to the financial crash of 2008 are happening again right before our very eyes.

It has been said that those that do not learn from history are doomed to repeat it.

Perhaps you believe that there is something to “the Shemitah”, or perhaps you think that it is all a bunch of nonsense.

But at least now you know what everyone is talking about.  What you choose to do with this information is up to you.

 

Radical Leftists Win Election In Greece – Future Of Eurozone In Serious Jeopardy

Euro Sign - Public DomainRadical leftists have been catapulted to power in Greece, and that means that the European financial crisis has just entered a dangerous new phase.  Syriza, which is actually an acronym for “Coalition of the Radical Left” in Greek, has 36 percent of the total vote with approximately 80 percent of the polling stations reporting.  The current governing party, New Democracy, only has 28 percent of the vote.  Syriza leader Alexis Tsipras is promising to roll back a whole host of austerity measures that were imposed on Greece by the EU, and his primary campaign slogan was “hope is on the way”.  Hmmm – that sounds a bit familiar.  Clearly, the Greek population is fed up with the EU after years of austerity and depression-like conditions.  At this point, the unemployment rate in Greece is sitting at 25.8 percent, and the Greek economy is approximately 25 percent smaller than it was just six years ago.  The people of Greece are desperate for things to get better, and so they have turned to the radical leftists.  Unfortunately, things may be about to get a whole lot worse.

Once they formally have control of the government, Syriza plans to call for a European debt conference during which they plan to demand that the repayment terms of their debts be renegotiated.  But the rest of Europe appears to be highly resistant to any renegotiation – especially Germany.

Syriza says that it does not plan to unilaterally pull Greece out of the eurozone, and that it also intends for Greece to continue to use the euro.

But what happens if Germany will not budge?

Syriza’s entire campaign was based on promises to end austerity.  If international creditors refuse to negotiate and continue to insist that Greece abide by the austerity measures that were previously put in place, what will Syriza do?

Will Syriza back down and lose all future credibility with Greek voters?

Since 2010, the Greek people have endured a seemingly endless parade of wage reductions, pension cuts, tax increases and government budget cutbacks.

The Greek people just want things to go back to the way that they used to be, and they are counting on Syriza to deliver.

Unfortunately for Syriza, delivering on those promises is not going to be easy.  They may be faced with a choice of either submitting to the demands of their international creditors or choosing to leave the eurozone altogether.

And if Greece does leave the eurozone, the consequences for all of Europe could be catastrophic…

Syriza risks overplaying its hand, said International Capital Strategies’ Rediker. “Given that the ECB controls the liquidity of the Greek banking system, and also serves as its regulator through the SSM (Single Supervisory Mechanism), going toe-to-toe with the ECB is one battle that could end very badly for the Greek government.”

If the ECB were to stop funding the liquidity of the Greek banks, the banks could collapse—an event that could lead to Greece abandoning the euro and printing its own money once more.

Milios didn’t believe it would come to that, saying, “No one wants a collapse of banks in the euro zone. This is going to be Lehman squared or to the tenth. No one wants to jeopardize the future of the euro zone.”

Hopefully cooler heads will prevail, because one bad move could set off a meltdown of the entire European financial system.

Even before the Greek election, the euro was already falling like a rock and economic conditions all over Europe were already getting worse.

So why would the Greeks risk pushing Europe to the brink of utter disaster?

Well, it is because economic conditions in Greece have been absolutely hellish for years and they are sick and tired of it.

For example, the BBC is reporting that many married women have become so desperate to find work in Greece that they are literally begging to work in brothels…

Some who have children and are struggling to support them have turned to sex work, to put food on the table.

Further north, in Larissa, Soula Alevridou, who owns a legal brothel, says the number of married women coming to her looking for work has doubled in the last five years.

“They plead and plead but as a legal brothel we cannot employ married women,” she says. “It’s illegal. So eventually they end up as prostitutes on the streets.”

When people get this desperate, they do desperate things – like voting radical leftists into power.

But Greece might just be the beginning.  Surveys show that the popularity of the EU is plummeting all over Europe.  Just check out the following excerpt from a recent Telegraph article…

Europe is being swept by a wave of popular disenchantment and revolt against mainstream political parties and the European Union.

In 2007, a majority of Europeans – 52 per cent – trusted the EU. That level of trust has now fallen to a third.

Once, Britain’s Euroscepticism was the exception, and was seen as the biggest threat to the future of the EU.

Now, other countries pose a far bigger danger thanks to the political discontents unleashed by the euro.

At this point, the future of the eurozone is in serious jeopardy.

I have a feeling that major changes in Europe are on the way which are going to shock the planet.

Meanwhile, the rest of the globe continues to slide toward another major financial crisis as well.

So many of the things that preceded the last financial crisis are happening once again.  This includes a massive crash in the price of oil.  Most people have absolutely no idea how critical the price of oil is to global financial markets.  I like how Gerald Celente put it during an interview the other day…

I began getting recognition as a trend forecaster in 1987. The Wall Street Journal covered my forecast. I said, ‘1987 would be the year it all collapses.’ I said, ‘There will be a stock market crash.’ One of the fundamentals I was looking at were the crashing oil prices in 1986.

Well, we see crashing oil prices today and the banks are much more concentrated and levered up in the oil patch than they were in 1987. From Goldman Sachs to Morgan Stanley banks have been involved in major debt financing, derivatives and energy transactions. But much of this debt has not been sold to investors and now we are going to start seeing some big defaults.

By itself, the Greek election would be a significant crisis.

But combined with all of the other economic and geopolitical problems that are erupting all over the planet, it looks like the conditions for a “perfect storm” are rapidly coming together.

Unfortunately, the overall global economy is in far worse shape today than it was just prior to the last major financial crisis.

This time around, the consequences might just be far more dramatic than most people would ever dare to imagine.

This Is The Beginning Of The End For The Euro

The Euro - A Woman Rides The BeastThe long-anticipated collapse of the euro is here. When European Central Bank president Mario Draghi unveiled an open-ended quantitative easing program worth at least 60 billion euros a month on Thursday, stocks soared but the euro plummeted like a rock.  It hit an 11 year low of $1.13, and many analysts believe that it is going much, much lower than this.  The speed at which the euro has been falling in recent months has been absolutely stunning.  Less than a year ago it was hovering near $1.40.  But since that time the crippling economic problems in southern Europe have gone from bad to worse, and no amount of money printing is going to avert the financial nightmare that is slowly unfolding right before our eyes.  Yes, there may be some temporary euphoria for a few days, but it is important to remember that reckless money printing worked for the Weimar Republic for a little while too before it turned into an utter disaster.  Now that the ECB has decided to go this route, it is essentially out of ammunition.  The only thing that it could potentially do beyond this is to print even larger quantities of money.  As the global financial crisis begins to unfold over the next couple of years, the ECB is pretty much going to be powerless to do anything about it.  Over the next couple of months, we can expect the euro to continue to head toward parity with the U.S. dollar, and eventually it is going to go to all-time lows.  Meanwhile, the future of the eurozone itself is very much in doubt.  If it does break up, the elite of Europe will probably try to put it back together in some sort of new configuration, but the damage will already have been done.

Over the next 18 months, the European Central bank will create more than a trillion euros out of thin air and will use that money to buy debt.  The following is how this new QE program for Europe was described by the Telegraph…

“The combined monthly purchases of public and private sector securities will amount to €60bn euros,” said Mr Draghi at a press conference following a meeting of the ECB’s governing council.

“They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation,” he added, meaning the package will amount to at least €1.1 trillion.

Mr Draghi’s package of asset purchases, including bonds issued by national governments and EU institutions such as the European Commission, is intended to boost the eurozone’s flagging economy and to ward off the spectre of deflation.

When you print more money, you drive down the value of your currency.  And the euro has already been crashing for months as you can see from the chart below…

The Euro Is Collapsing

As I write this, the euro is down to $1.13.  And most analysts seem to agree that it is likely heading even lower.

How low could it ultimately go?

One prominent currency strategist recently told CNBC that he believes that it is actually heading beneath parity with the U.S. dollar…

The euro plunged to an 11-year low on Thursday, after the European Central Bank announced that it would begin a 60-euro monthly asset purchasing program. But it could still have a ways to fall.

Brown Brothers Harriman global head of currency strategy Marc Chandler predicts that the euro, which fell as low as 1.1362 on Thursday after trading near 1.4000 in May, is heading below 1.0. That widely watched level is the point at which it will just take a single U.S. dollar to purchase a euro, a condition known in the currency markets as “parity.”

I totally agree with Chandler.

In fact, I believe that the euro is ultimately going to break the all-time record low against the dollar.

I also believe that the current configuration of the eurozone is eventually going to fall to pieces.  The euro may survive as a currency, but Europe is ultimately going to look a whole lot different than it does right now.

In fact, we could see things start to come apart for the eurozone as soon as Sunday.  If Syriza wins a decisive victory in the upcoming Greek elections, it could create all sorts of chaos…

The polls put Alexis Tsipras and Syriza ahead of the ruling New Democracy party of Greek Prime Minister Antonis Samaras.

Tsipras has vowed to convince the ECB and euro zone to write down the value of their Greek debt holdings to allow him to increase public spending and stimulate job growth.

“There is a good chance they could win, and if they begin moving away from fiscal austerity, other members of the EU are going to say: ‘No more lending, no more life support.’ On Monday morning you’ll know,” De Clue said.

But of course Europe is far from alone.  Financial problems are erupting all over the planet, and central banks are getting desperate.

Over the past week, seven major central banks have made moves to fight deflation.  But the more that they cut interest rates and print money, the less effect that it has.  And eventually, the people of the world are going to seriously lose confidence in these central banks as they realize what a sham the system really is.

I think that these recent words from Marc Faber are very wise…

“My belief is that the big surprise this year is that investor confidence in central banks collapses. And when that happens — I can’t short central banks, although I’d really like to, and the only way to short them is to go long gold, silver and platinum,” he said. “That’s the only way. That’s something I will do.”

So what do you think?

Do you agree with Marc Faber?

And what do you think is next for the euro?

Do you agree with me that it is going to record lows?

Please feel free to share what you think by posting a comment below…

Swiss Shocker Triggers Gigantic Losses For Banks, Hedge Funds And Currency Traders

Trading - Public DomainThe absolutely stunning decision by the Swiss National Bank to decouple from the euro has triggered billions of dollars worth of losses all over the globe.  Citigroup and Deutsche Bank both say that their losses were somewhere in the neighborhood of 150 million dollars, a major hedge fund that had 830 million dollars in assets at the end of December has been forced to shut down, and several major global currency trading firms have announced that they are now insolvent.   And these are just the losses that we know about so far.  It will be many months before the full scope of the financial devastation caused by the Swiss National Bank is fully revealed.  But of course the same thing could be said about the crash in the price of oil that we have witnessed in recent weeks.  These two “black swan events” have set financial dominoes in motion all over the globe.  At this point we can only guess how bad the financial devastation will ultimately be.

But everyone agrees that it will be bad.  For example, one financial expert at Boston University says that he believes the losses caused by the Swiss National Bank decision will be in the billions of dollars…

“The losses will be in the billions — they are still being tallied,” said Mark T. Williams, an executive-in-residence at Boston University specializing in risk management. “They will range from large banks, brokers, hedge funds, mutual funds to currency speculators. There will be ripple effects throughout the financial system.”

Citigroup, the world’s biggest currencies dealer, lost more than $150 million at its trading desks, a person with knowledge of the matter said last week. Deutsche Bank lost $150 million and Barclays less than $100 million, people familiar with the events said, after the Swiss National Bank scrapped a three-year-old policy of capping its currency against the euro and the franc soared as much as 41 percent that day versus the euro. Spokesmen for the three banks declined to comment.

And actually, if the total losses from this crisis are only limited to the “billions” I think that we will be extremely fortunate.

As I mentioned above, a hedge fund that had 830 million dollars in assets at the end of December just completely imploded.  Everest Capital’s Global Fund had heavily bet against the Swiss franc, and as a result it now has lost “virtually all its money”…

Marko Dimitrijevic, the hedge fund manager who survived at least five emerging market debt crises, is closing his largest hedge fund after losing virtually all its money this week when the Swiss National Bank unexpectedly let the franc trade freely against the euro, according to a person familiar with the firm.

Everest Capital’s Global Fund had about $830 million in assets as of the end of December, according to a client report. The Miami-based firm, which specializes in emerging markets, still manages seven funds with about $2.2 billion in assets. The global fund, the firm’s oldest, was betting the Swiss franc would decline, said the person, who asked not to be named because the information is private.

This is how fast things can move in the financial marketplace when things start getting crazy.

It can seem like you are on top of the world one day, but just a short while later you can be filing for bankruptcy.

Consider what just happened to FXCM.  It is one of the largest retail currency trading firms on the entire planet, and the decision by the Swiss National Bank instantly created a 200 million dollar hole in the company that desperately needed to be filled…

The magnitude of the crisis for U.S. currency traders became clear Friday when New York-based FXCM, a publicly traded U.S. currency broker, and the largest so far to announce it was in financial trouble after suffering a 90-percent drop in the firm’s stock price, reported the firm would need a $200-$300 million bailout to prevent capital requirements from being breached. Highly leveraged currency traders, including retail customers, were unable to come up with sufficient capital to cover the losses suffered in their currency trading accounts when the Swiss franc surged.

Currency traders worldwide allowed to leverage their accounts 100:1, meaning the customer can bet $100 in the currency exchange markets for every $1.00 the customer has on deposit in its account, can result in huge gains from unexpected currency price fluctuations or massive and devastating losses, should the customer bet wrong.

Fortunately for FXCM, another company called Leucadia came riding to the rescue with a 300 million dollar loan.

But other currency trading firms were not so lucky.

For example, Alpari has already announced that it is going into insolvency…

Retail broker Alpari UK filed for insolvency on Friday.

The move “caused by the SNB’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity,” Alpari, the shirt sponsor of English Premier League soccer club West Ham, said in a statement.

“This has resulted in the majority of clients sustaining losses which exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm that it has entered into insolvency.”

And Alpari is far from alone.  Quite a few other smaller currency trading firms all over the world are in the exact same boat.

Unfortunately, this could potentially just be the beginning of the currency chaos.

All eyes are on the European Central Bank right now.  If a major round of quantitative easing is announced, that could unleash yet another wave of crippling losses for financial institutions.  The following is from a recent CNBC article…

One of Europe’s most influential economists has warned that the quantitative easing measures seen being unveiled by the European Central Bank (ECB) this week could create deep market volatility, akin to what was seen after the Swiss National Bank abandoned its currency peg.

“There was so much capital flight in anticipation of the QE to Switzerland, that the Swiss central bank was unable to stem the tide, and there will be more effects of that sort,” the President of Germany’s Ifo Institute for Economic Research, Hans-Werner Sinn, told CNBC on Monday.

As I have written about previously, we are moving into a time of greatly increased financial volatility.  And when we start to see tremendous ups and downs in the financial world, that is a sign that a great crash is coming.  We witnessed this prior to the financial crisis of 2008, and now we are watching it happen again.

And this is not just happening in the United States.  Just check out what happened in China on Monday…

Chinese shares plunged about 8% Monday after the country’s securities regulator imposed margin trading curbs on several major brokerages, a sign that authorities are trying to rein in the market’s big gains. It was China’s largest drop in six years.

Sadly, most Americans have absolutely no idea what is coming.

They just trust that Barack Obama, Congress and the “experts” at the Federal Reserve have it all figured out.

So when the next great financial crisis does arrive, most people are going to be absolutely blindsided by it, even though anyone that is willing to look at the facts honestly should be able to see it steamrolling directly toward us.

Over the past couple of years, we have been blessed to experience a period of relative stability.

But that period of relative stability is now ending.

I hope that you are getting ready for what comes next.

What In The World Just Happened In Switzerland?

Swiss Francs - Public DomainCentral banks lie.  That is what they do.  Not too long ago, the Swiss National Bank promised that it would defend the euro/Swiss franc currency peg with the “utmost determination”.  But on Thursday, the central bank shocked the financial world by abruptly abandoning it.  More than three years ago, the Swiss National Bank announced that it would not allow the Swiss franc to fall below 1.20 to the euro, and it has spent a mountain of money defending that peg.  But now that it looks like the EU is going to launch a very robust quantitative easing program, the Swiss National Bank has thrown in the towel.  It was simply going to cost way too much to continue to defend the currency floor.  So now there is panic all over Europe.  On Thursday, the Swiss franc rose a staggering 30 percent against the euro, and the Swiss stock market plunged by 10 percent.  And all over the world, investors, hedge funds and central banks either lost or made gigantic piles of money as currency rates shifted at an unprecedented rate.  It is going to take months to really measure the damage that has been done.  Meanwhile, the euro is in greater danger than ever.  The euro has been declining for months, and now the number one buyer of euros (the Swiss National Bank) has been removed from the equation.  As things in Europe continue to get even worse, expect the euro to go to all-time record lows.  In addition, it is important to remember that the Asian financial crisis of the late 1990s began when Thailand abandoned its currency peg.  With this move by Switzerland set off a European financial crisis?

Of course this is hardly the first time that we have seen central banks lie.  In the United States, the Federal Reserve does it all the time.  The funny thing is that most people still seem to trust what central banks have to say.  But at some point they are going to start to lose all credibility.

Financial markets like predictability.  And gigantic amounts of money had been invested based on the repeated promises of the Swiss National Bank to use “unlimited amounts” of money to defend the currency floor.  Needless to say, there are a lot of people in the financial world that feel totally betrayed by the Swiss National Bank today.  The following comes from an analysis of the situation by Bruce Krasting…

Thomas Jordan, the head of the SNB has repeated said that the Franc peg would last forever, and that he would be willing to intervene in “Unlimited Amounts” in support of the peg. Jordan has folded on his promise like a cheap suit in the rain. When push came to shove, Jordan failed to deliver.

The Swiss economy will rapidly fall into recession as a result of the SNB move. The Swiss stock market has been blasted, the currency is now nearly 20% higher than it was a day before. Someone will have to fall on the sword, the arrows are pointing at Jordan.

The dust has not settled on this development as of this morning. I will stick my neck out and say that the failure to hold the minimum rate will result in a one time loss for the SNB of close to $100B. That’s a huge amount of money. It comes to 20% of the Swiss GDP!

Most experts are calling this an extremely bad move by the Swiss National Bank.

But in the end, they may have had little choice.

The euro is falling apart, and the Swiss did not want to be married to it any longer.  Unfortunately, when any marriage ends the pain can be enormous.  The following comes from CNBC…

How do you know you’re looking at a bad marriage?

Well if one or both of the spouses can’t wait to get out as soon as the smallest crack in the door opens, you have a pretty good clue.

Something like that just happened in Europe as we learned the real reason why so many traders were still invested in the euro: They had nowhere else to go.

As the Swiss National Bank unlocked the doors on its cap on trading euros for Swiss francs, the rush to exit the euro was faster than one of those French bullet trains.

But this move has not been bad for everyone.  In fact, for many of those that live in Switzerland but work in neighboring countries what happened on Thursday was very fortuitous…

“I heard the news this morning. I’m so happy!” Vanessa, who refused to give her last name, told AFP outside of one of many mobbed exchange offices in Geneva.

She has reason to be extatic: she is one of some 280,000 people working in Switzerland but living and paying bills in eurozone countries France, Germany or Italy.

These so-called “frontaliers”, or border-crossers, are the biggest winners in Thursday’s Swiss franc surge, seeing their incomes jump 30 percent in the blink of an eye.

In normal times, things like this very rarely happen.

But in times of crisis, things can change very rapidly.  We are moving into a time of great volatility in global financial markets, and great volatility is often a sign that a great crash is coming.

This move by the Swiss National Bank is just the beginning.  Expect more desperate moves on the global economic chessboard in the days ahead.  But in the end, none of those moves is going to prevent what is coming.

And one of these days, another extremely important currency peg is going to end.  Right now, the Chinese have tied their currency very tightly to the U.S. dollar.  This has helped to artificially inflate the value of the dollar.  Unfortunately, as Robert Wenzel has noted, someday the Chinese could suddenly pull the rug out from under our currency, and that would be really bad news for us…

In other words, the SNB is no People’s Bank of China type patsy, where the PBOC has taken on massive amounts of dollar reserves to prop up the dollar.

Will the PBOC learn anything from SNB? If so, this will not be good for the US dollar.

So keep a close eye on what happens in Europe next.

It is going to be a preview of what is eventually coming to America.

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