Global Currencies

12 Signs That An Imminent Global Financial Crash Has Become Even More Likely

Time Spinning Skyline - Public DomainDid you see what just happened?  The devaluation of the yuan by China triggered the largest one day drop for that currency in the modern era.  This caused other global currencies to crash relative to the U.S. dollar, the price of oil hit a six year low, and stock markets all over the world were rattled.  The Dow fell 212 points on Tuesday, and Apple stock plummeted another 5 percent.  As we hurtle toward the absolutely critical months of September and October, the unraveling of the global financial system is beginning to accelerate.  At this point, it is not going to take very much to push us into a full-blown worldwide financial crisis.  The following are 12 signs that indicate that a global financial crash has become even more likely after the events of the past few days…

#1 The devaluation of the yuan on Tuesday took virtually the entire planet by surprise (and not in a good way).  The following comes from Reuters…

China’s 2 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit Wall Street and other global equity markets as it raised fears of a new round of currency wars and fed worries about slowing Chinese economic growth.

#2 One of the big reasons why China devalued the yuan was to try to boost exports.  China’s exports declined 8.3 percent in July, and global trade overall is falling at a pace that we haven’t seen since the last recession.

#3 Now that the Chinese have devalued their currency, other nations that rely on exports are indicating that they might do the same thing.  If you scan the big financial news sites, it seems like the term “currency war” is now being bandied about quite a bit.

#4 This is the very first time that the 50 day moving average for the Dow has moved below the 200 day moving average in the last four years. This is known as a “death cross”, and it is a very troubling sign.  We are just about at the point where all of the most common technical signals that investors typically use to make investment decisions will be screaming “sell”.

#5 The price of oil just closed at a brand new six year low.  When the price of oil started to decline back in late 2014, a whole lot of people were proclaiming that this would be a good thing for the U.S. economy.  Now we can see just how wrong they were.

At this point, the price of oil has already fallen to a level that is going to be absolutely nightmarish for the global economy if it stays here.  Just consider what Jeff Gundlach had to say about this in December…

And back in December 2014, “Bond King” Jeff Gundlach had a serious warning for the world if oil prices got to $40 a barrel.

“I hope it does not go to $40,” Gundlach said in a presentation, “because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be — to put it bluntly — terrifying.”

#6 This week we learned that OPEC has been pumping more oil than we thought, and it is being projected that this could cause the price of oil to plunge into the 30s…

Increased pumping by OPEC as Chinese demand appears to be slackening could drive oil to the lowest prices since the peak of the financial crisis.

West Texas Intermediate crude futures skidded through the year’s lows and looked set to break into the $30s-per-barrel range after the Organization of the Petroleum Exporting Countries admitted to more pumping and China devalued its currency, sending ripples through global markets.

#7 In a recent article, I explained that the collapse in commodity prices that we are witnessing right now is eerily similar to what we witnessed just before the stock market crash of 2008.  On Tuesday, things got even worse for commodities as the price of copper closed at a brand new six year low.

#8 The South American debt crisis of 2015 continues to intensify.  Brazil’s government bonds have been downgraded to just one level above junk status, and the approval rating of Brazil’s president has fallen into the single digits.

#9 Just before the financial crisis of 2008, a surging U.S. dollar put an extraordinary amount of stress on emerging markets.  Now that is happening again.  Emerging market stocks just hit a brand new four year low on Tuesday thanks to the stunt that China just pulled.

#10 Things are not so great in the United States either.  The ratio of wholesale inventories to sales in the United States just hit the highest level since the last recession.  What that means is that there is a whole lot of stuff sitting in warehouses out there that is waiting to be sold in an economy that is rapidly slowing down.

#11 Speaking of slowing down, the growth of consumer spending in the United States has just plummeted to multi-year lows.

#12 Deep inside, most of us can feel what is coming.  According to Gallup, the number of Americans that believe that the economy is getting worse is almost 50 percent higher than the number of Americans that believe that the economy is getting better.

Things are lining up perfectly for a global financial crisis and a major recession beginning in the fall and winter of 2015.

But just because things look like they will happen a certain way does not necessarily mean that they will.  All it takes is a single “event” of some sort to change everything.

So what do you believe will happen in the months ahead?

Please feel free to join the discussion by posting a comment below…

The Last, Great Run For The U.S. Dollar, The Death Of The Euro And 74 Trillion In Currency Derivatives At Risk

Dollars Euros - Public DomainAre we on the verge of an unprecedented global currency crisis?  On Tuesday, the euro briefly fell below $1.07 for the first time in almost a dozen years.  And the U.S. dollar continues to surge against almost every other major global currency.  The U.S. dollar index has now risen an astounding 23 percent in just the last eight months.  That is the fastest pace that the U.S. dollar has risen since 1981.  You might be tempted to think that a stronger U.S. dollar is good news, but it isn’t.  A strong U.S. dollar hurts U.S. exports, thus harming our economy.  In addition, a weak U.S. dollar has fueled tremendous expansion in emerging markets around the planet over the past decade or so.  When the dollar becomes a lot stronger, it becomes much more difficult for those countries to borrow more money and repay old debts.  In other words, the emerging market “boom” is about to become a bust.  Not only that, it is important to keep in mind that global financial institutions bet a tremendous amount of money on currency movements.  According to the Bank for International Settlements, 74 trillion dollars in derivatives are tied to the value of the U.S. dollar, the value of the euro and the value of other global currencies.  When currency rates start flying around all over the place, you can rest assured that someone out there is losing an enormous amount of money.  If this derivatives bubble ends up imploding, there won’t be enough money in the entire world to bail everyone out.

Do you remember what happened the last time the U.S. dollar went on a great run like this?

As you can see from the chart below, it was in mid-2008, and what followed was the worst financial crisis since the Great Depression…

Dollar Index 2015

A rapidly rising U.S. dollar is extremely deflationary for the overall global economy.

This is a huge red flag, and yet hardly anyone is talking about it.

Meanwhile, the euro continues to spiral into oblivion…

Euro U.S. Dollar

How many times have I said it?  The euro is heading to all-time lows.  It is going to go to parity with the U.S. dollar, and then it is eventually going to go below parity.

This is going to cause massive headaches in the financial world.

The Europeans are attempting to cure their economic problems by creating tremendous amounts of new money.  It is the European version of quantitative easing, but it is having some very nasty side effects.

The markets are starting to realize that if the value of the U.S. dollar continues to surge, it is ultimately going to be very bad for stocks.  In fact, the strength of the U.S. dollar is being cited as the primary reason for the Dow’s 332 point decline on Tuesday…

The Dow Jones industrial average fell more than 300 points to below the index’s 50-day moving average, wiping out gains for the year. The S&P 500 also closed in the red for the year and breached its 50-day moving average, which is an indicator of the market trend. Only the Nasdaq held onto gains of 2.61 percent for the year.

There’s “concern that energy and the strength in the dollar will somehow be negative for the equities,” said Art Hogan, chief market strategist at Wunderlich Securities. He noted that the speed of the dollar’s surge was the greatest market driver, amid mixed economic data and concerns about the Federal Reserve raising interest rates.

And as I noted above, when the U.S. dollar rises the things that we export to other nations become more expensive and that hurts our businesses.

This is so basic that even the White House understands it…

Despite reassurance from The Fed that a strengthening dollar is positive for US jobs, The White House has now issued a statement that a “strengthening USD is a headwind for US growth.”

But even more important, a surging U.S. dollar makes it more difficult for emerging markets all over the world to borrow new money and to repay old debts.  This is especially true for nations that heavily rely on exporting commodities…

It becomes especially ugly for emerging market economies that produce commodities. Many emerging market countries rely on their natural resources for growth and haven’t yet developed more advanced industries. As the products of their principal industries decline in value, foreign investors remove available credit while their currency is declining against the U.S. dollar. They don’t just find it difficult to pay their debt – it is impossible.

It has been estimated that emerging markets have borrowed more than 3 trillion dollars since the last financial crisis.

But now the process that created the emerging markets “boom” is starting to go into reverse.

The global economy is fueled by cheap dollars.  So if the U.S. dollar continues to rise, that is not going to be good news for anyone.

And of course the biggest potential threat of all is the 74 trillion dollar currency derivatives bubble which could end up bursting at any time.

The sophisticated computer algorithms that financial institutions use to trade currency derivatives are ultimately based on human assumptions.  When currencies move very little and the waters are calm in global financial markets, those algorithms tend to work really, really well.

But when the unexpected happens, some of the largest financial firms in the world can implode seemingly overnight.

Just remember what happened to Lehman Brothers back in 2008.  Unexpected events can cripple financial giants in just a matter of hours.

Today, there are five U.S. banks that each have more than 40 trillion dollars of total exposure to derivatives of all types.  Those five banks are JPMorgan Chase, Bank of America, Goldman Sachs, Citibank and Morgan Stanley.

By transforming Wall Street into a gigantic casino, those banks have been able to make enormous amounts of money.

But they are constantly performing a high wire act.  One of these days, their reckless gambling is going to come back to haunt them, and the entire global financial system is going to be severely harmed as a result.

As I have said so many times before, derivatives are going to be at the heart of the next great global financial crisis.

And thanks to the wild movement of global currencies in recent months, there are now more than 74 trillion dollars in currency derivatives at risk.

Anyone that cannot see trouble on the horizon at this point is being willingly blind.

6 Charts Which Prove That Central Banks All Over The Globe Are Recklessly Printing Money

If the U.S. dollar is being devalued so rapidly, then why does it sometimes increase in value against other global currencies?  Well, it is because everybody is recklessly printing money now.  The 6 charts which you are about to see below prove this.  The truth is that it is not just the U.S. Federal Reserve which has been printing money like there is no tomorrow.  Out of control money printing has also been happening in the UK, in the EU, in Japan, in China and in India.  There are times when one particular global currency will fall faster than the others, but the reality is that they are all being rapidly devalued.  Unfortunately, this is a recipe for a global economic nightmare.

Right now you can almost smell the panic as it rises in global financial markets.  Investors all over the world are racing to get out of paper and to get into hard assets.  Just about anything that is “real” and “tangible” is hot right now.  Gold hit a record high last year and it is on the rise again.  In fact, it just hit a new five-week high.  Demand for silver is becoming absolutely ridiculous right now.  Oil is marching up towards $100 a barrel again.  Agricultural commodities have exploded in price over the past year.  Many investors are even gobbling up art and other collectibles.

Paper money is no longer considered to be safe.  All over the globe investors are watching all of the reckless money printing that has been going on and they are becoming alarmed.  An increasing number of investors and financial institutions are putting their wealth into hard assets that are real and tangible in an effort to preserve their wealth.

The other day, a reader of this column named James sent me some charts that he had put together.  I thought they were so good that I asked him if I could include them in an article.  These charts show how central banks all over the globe have been recklessly printing money.  Over the last 30 years virtually the entire world has developed a great love affair with fiat currency….

So is everyone printing money?

The U.S. is printing lots of money…..

Source, The St. Louis Fed

The Bank of England is printing lots of money…..

Source: The BoE

The EU is printing lots of money….

Source: The ECB

Japan is printing lots of money…..

Source: The BoJ

China is printing lots of money…..

Source: The People’s Bank of China

India is printing lots of money…..

Source: Reserve Bank of India

Of course anyone with half a brain can see where all of this is ultimately headed.  In the end, inflation is going to spiral out of control and we are going to witness financial implosion on a global scale.

So why don’t these nations just adopt sound money?

Well, it turns out that if you are a member of the IMF, you are specifically prohibited from having gold-backed currency.

Yes, you read that correctly.

In fact, U.S. Representative Ron Paul once sent an open letter to the U.S. Treasury and the Federal Reserve asking about this and he received no response.  The following is the content of that letter….

Dear Sirs:

I am writing regarding Article 4, Section 2b of the International Monetary Fund (IMF)’s Articles of Agreement. As you may be aware, this language prohibits countries who are members of the IMF from linking their currency to gold. Thus, the IMF is forbidding countries suffering from an erratic monetary policy from adopting the most effective means of stabilizing their currency. This policy could delay a country’s recovery from an economic crisis and retard economic growth, thus furthering economic and political instability.

I would greatly appreciate an explanation from both the Treasury and the Federal Reserve of the reasons the United States has continued to acquiesce in this misguided policy. Please contact Mr. Norman Singleton, my legislative director, if you require any further information regarding this request. Thank you for your cooperation in this matter.

Ron Paul
U.S. House of Representatives

Sadly, the truth is that the global elite don’t want nations to start adopting gold-backed currencies.  They want countries to use fiat currencies that they can openly manipulate for their own benefit.

At this point, every nation on earth (to the best of my knowledge) uses a fiat currency.  All of the major global currencies are being continually devalued.  In fact, there are times when counties will purposely devalue their currencies even more rapidly in order to gain a competitive advantage in world trade.

This is why so many investors now have such an aversion to paper currency.  It starts losing value the moment you take possession of it.

In some areas of the world, “gold fever” is absolutely exploding.  For example, China imported five times as much gold in 2010 as it did in 2009.  On the Shanghai Gold Exchange, trading volume soared 43 percent during the first 10 months of 2010.

Gold, silver and other precious metals are now seen as a great hedge against inflation worldwide.  Investors all over the globe are demonstrating a strong preference for “real money” over “paper money”.

So what does all of this mean?

It means that some tremendous imbalances are being built up in the global financial system.  The central banks of the world must continue to inflate these bubbles with constantly increasing amounts of paper money and debt in order to keep the game going.  If at some point the reckless money printing comes to a screeching halt it is going to unleash hell on global financial markets.

But if all of this reckless money printing continues we are eventually going to see horrific inflation all over the planet.  In fact, we are already seeing significant inflation happening in many areas of the globe.  Almost every single day a new headline about inflation in China seems to pop up in the financial news.  Rising food prices are sparking unrest in the Middle East and elsewhere.  Even U.S. consumers are starting to see some uncomfortable price increases at the gas pump and in the supermarket.

So it is not just Federal Reserve Chairman Ben Bernanke that is off his rocker.  The whole world is going crazy with money printing.

Hopefully this whole thing is not going to end as badly as many of us fear that it will.  But right now the central banks of the world are pumping unprecedented amounts of cash into the global financial system, and those in the global financial system are funneling a very large percentage of that cash into hard assets.  Unless something changes, that is going to mean that prices for basic necessities such as food and gas are going to continue to rise.

This is quite a fine mess that we are in.

Does anyone see a way out?