Greece

14 Signs That The World Economy Is Getting Weaker

The United States is not the only one with massive economic problems right now.  The truth is that just about wherever you look around the globe things are getting even worse.  China is experiencing a substantial economic slowdown, and Japan has resorted to yet another round of money printing in an effort to keep the Japanese economy moving.  Unemployment in Europe continues to get even worse, and the riots this week in Spain and in Greece have been absolutely frightening at times.  In the United States there are a whole host of signs that another recession is approaching, and the number of American CEOs that say that they plan to eliminate jobs in the coming months is rapidly rising.  The world economy is more interconnected today than ever before, and that means that we are all in this together.  Just remember what happened back in 2008 and 2009.  The economic pain that started on Wall Street was felt in every corner of the planet.  So anyone that believes that the United States (or any other major nation for that matter) is going to escape the next wave of the economic crisis is simply not being realistic.  Why do you think central banks all over the world are in “panic mode” right now?  They are firing all of their ammunition and printing money like there is no tomorrow in an attempt to keep the system together.  Unfortunately, it is not going to work.

If the powers that be had an “easy button” that would quickly fix everything, they would have pressed it by now.  But despite all of their efforts things continue to unravel.  If you want to get an idea of where we are headed,  just look at what is already happening in Europe.   Unemployment has risen above 24 percent in Greece and above 25 percent in Spain.

Those two nations are on the “bleeding edge” of the next wave of economic problems.  Unemployment is rising almost everywhere else in Europe as well, and things are eventually going to get really bad in Asia and in North America too.

So hold on to your seat belts – it is going to be a bumpy ride.

The following are 14 signs from around the globe that the world economy is getting weaker….

#1 Things in China do not look good right now.  The Shanghai Composite index fell to its lowest point in over 3 years earlier this week.  Will the S&P 500 soon follow suit?

#2 The Bank of Japan has resorted to yet another round of money printing in a desperate attempt to try to bolster the faltering Japanese economy….

In Asia, the Bank of Japan has long been manufacturing money out of thin air. It has just announced an eighth round of money printing to prop up the ailing Japanese economy. The Bank of Japan is to purchase 10 trillion yen of bonds to add further liquidity into the financial system. Now it has 80 trillion yen of bonds in its portfolio, equivalent to 20 per cent of Japan’s gross domestic product.

#3 In Spain, violent demonstrations over the state of the Spanish economy just outside the national Parliament building in Madrid on Tuesday evening made headlines all over the globe.  You can view video of police brutally beating young Spanish protesters during those demonstrations right here.

#4 As unemployment hovers around the 25 percent mark, foraging through garbage bins for food has become so rampant in Spain that one city has actually started putting locks on supermarket garbage bins “as a public health precaution“.

#5 Despite all of the money printing that the ECB has been doing, the yield on 10 year Spanish bonds has risen back up to about 6 percent again.

#6 The economic protests in Greece are getting completely and totally out of control.  Just check out this description of the “Day of Rage” that took place in Greece earlier this week….

Police fired stun grenades and tear gas at protesters yesterday as tens of thousands poured into the streets of Athens as part of a nationwide strike to challenge a new round of austerity measures that are expected to cut wages, pensions and healthcare once again.

Dozens of youths, some masking their faces with helmets and T-shirts, hurled Molotov cocktails and rocks at police who fired back in an effort to scatter the angry crowds around the parliament building. More than 50,000 people are believed to have participated in the mass walk-out in Athens alone.

#7 The unemployment rate in France has risen for 16 months in a row and is now the highest that it has been in over a decade.

#8 As I wrote about recently, the number of unemployed workers in Italy has increased by more than 37 percent over the past year.

#9 New orders for durable goods in the United States fell by a whopping 13.2 percent in August.  That was the largest decline that we have seen since the middle of the last recession (January 2009).

#10 According to the Bureau of Economic Analysis, U.S. GDP only grew at a 1.3 percent annual rate during the second quarter of 2012 as opposed to the 1.7 percent annual rate previously reported.

#11 The U.S. Postal Service is about to experience its second financial default in just the past two months….

The U.S. Postal Service will default this week on a $5.6 billion congressionally mandated obligation to pre-fund retiree health benefits, marking the second time in two months the cash-strapped agency has done this.

#12 It looks like General Motors is on a path that will lead to bankruptcy (again).

#13 According to a recent survey conducted by State Street Global Advisors, 71 percent of “investors in a survey of 300 around the world, including the largest pension funds, asset managers and private banks, fear an imminent Lehman-like event.”

#14 According to a recent survey of American CEOs by Business Roundtable, the number of CEOs that plan to eliminate jobs has risen significantly from earlier this year….

The CEOs’ decline in confidence comes alongside a worsening employment outlook. Thirty-four percent of the 138 CEOs surveyed said in this quarter’s survey that they expected their companies to cut jobs in the next six months, compared to just 20 percent in the second quarter. Likewise, only 29 percent say they expect employment to grow in the next half year, down from 36 percent last quarter.

But the mainstream media in the United States would like us to believe that everything is getting better.

The mainstream media would like us to believe that QE3 is going to stimulate lots of new hiring all over America, and they are greatly celebrating the fact that the S&P 500 hit a five year high on Thursday.

Well, those on Wall Street should celebrate this monetary “sugar high” while they still can.  Of course QE3 was going to cause stock prices to rise in the short-term, but the reality of the matter is that QE3 is not going to do a thing to stop the financial markets from crashing when the time comes for them to crash.

Economies tend to flourish in a stable, predictable environment.  When you start recklessly printing money, it may help your economic numbers in the short-term, but it disrupts the stability of the system.

And once you have created a tremendous amount of instability, it is really, really hard to convince people that you can create stability once again.

When it comes to economics, confidence is one of the most important ingredients.  If people lose confidence in the system, it almost does not matter what else you do.

As I wrote about the other day, quantitative easing worked for the Weimar Republic for a little while, but in the end it resulted in total disaster.

It will also end in total disaster for us.

All over the globe financial authorities are playing all sorts of games in an attempt to keep the system functioning smoothly.  But these games are going to steadily undermine confidence in the system, and that is going to prove to be absolutely deadly.

Take advantage of this period of relative stability while you still can, because when it is gone it is not coming back.

11 Things That Can Happen When You Allow Your Country To Become Enslaved To The Bankers

Why are Greece, Spain, Italy, Portugal and so many other countries experiencing depression-like conditions right now?  It is because they have too much debt.  Why do they have too much debt?  It is because they allowed themselves to become enslaved to the bankers.  Borrowing money from the bankers can allow a nation to have a higher standard of living in the short-term, but it always results in a lower standard of living in the long-term.  Why is that?  It is because you always have to pay back more money than you borrowed.  And when you get to the point of having a debt to GDP ratio in excess of 100%, you are basically drowning in debt.  Huge amounts of money that could be going to providing essential services and stimulating your economy are now going to service your horrific debt.  Today, citizens in Greece, Spain, Portugal and Italy are experiencing a standard of living far below what they should be because the bankers have trapped them in endless debt spirals.  Sadly, the vast majority of the people living in those countries have absolutely no idea what is at the root cause of their problems.

The truth is that no sovereign nation on earth ever has to borrow a single penny from anyone.

In theory, there is nothing stopping a government from printing up debt-free money and spending it into circulation.

But that is not the way our world works.

Instead, our national governments borrow money that has been zapped into existence out of thin air by central banks.

Now what kind of sense does that make?

Why don’t our governments just create the money themselves?

If the government of Greece had been directly issuing debt-free Greek currency all these years, they would have a national debt of zero and they would not be in the middle of a deep depression today.

So why isn’t anyone proposing that they go to such a system?

Instead, everyone is trying to figure out a way that the Greeks can muddle through this depression and keep paying on their unsustainable debts.

It is such a tragedy what has happened to Greece.  The city of Boston has a larger economy than the entire nation of Greece at this point.

But this is what happens when you allow the bankers to trap your country in debt.  The central banking systems of the world are designed to be endless debt spirals that systematically transfer wealth from the people through the governments and into the hands of the ultra-wealthy.

Just look at what is happening in the United States.  The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.

Greece, Spain, Italy, Portugal and the rest of the nations of the western world did not get into all this debt by accident.

This happened by design.

And we can see what happens when the system starts to unravel by looking at what is happening in Greece and in Spain right now.

The following are 11 things that can happen when you allow your country to become enslaved to the bankers….

#1 At some point nations that are drowning in debt must implement “austerity measures” in an attempt to stay solvent. 

This causes economic slowdown and unemployment skyrockets.  We are seeing this happen in Greece, Spain and a whole bunch of other nations right now.

Over the past four years, the Greek economy has contracted by close to 25 percent.  Just this week it was announced that the unemployment rate in Greece has risen to 23.1 percent.

A year ago it was just 16.8 percent

In Spain, the unemployment rate is even higher.  It has hit 24.6 percent, and some analysts expect it to eventually reach 30 percent.

This would have never happened if these nations had not gotten into so much debt.

#2 Economic progress can actually go backwards in a debt-based system.

In Greece, a very large number of citizens have actually been giving up their cars and have gone back to riding bikes….

The high cost of road tax, fuel and repairs is forcing Greeks to ditch their cars in huge numbers. According to the government’s statistics office, the number of cars on Greek roads declined by more than 40 percent in each of the last two years. Meanwhile, more than 200,000 bikes were sold in 2011, up about a quarter from the previous year.

#3 Your banking system will inevitably melt down at some point.

Every debt bubble eventually bursts, and authorities all over Europe are desperately trying to keep the European banking system from completely imploding.

But despite their efforts, people are pulling money out of banks in southern Europe at a staggering pace.  Just check out the slow motion bank run that is unfolding in Spain….

Capital outflows from Spain more than quadrupled in May to €41.3 billion ($50.7 billion) compared with May 2011, according to figures released on Tuesday by the Spanish central bank.

In the first five months of 2012, a total of €163 billion left the country, the figures indicate. During the same period a year earlier, Spain recorded a net inflow of €14.6 billion.

#4 In all countries with a debt-based system, eventually your taxes will be raised to ridiculous levels.

When the income tax was introduced in the United States back in 1913, the vast majority of Americans were in the 1 percent tax bracket.

Throughout the years there have been countless promises that taxes would be limited, but those promises always end up getting broken.

Even when they give us “tax cuts” with one hand, they usually end up raising taxes ten different ways with the other hand.

In the United States today, we are literally taxed in dozens and dozens of different ways.

Our politicians love to come up with new and inventive ways to tax us without us really even feeling it.

In the end, they are going to take as much away from us as they can possibly get away with.

Just look at what is happening in France.

The newly elected socialist president of France says that his party plans to raise the top tax rate in France to 75 percent.

But even though our politicians tax us to death, they still manage to run up gigantic mountains of debt on top of that.

#5 Your currency slowly but steadily becomes worthless.

Most people don’t realize that inflation is a tax.  Every dollar you currently have in the bank is constantly losing value.  That is because in a debt-based system like we have, the total amount of money and the total amount of debt is supposed to keep perpetually expanding.

Since the Federal Reserve was created, the U.S. dollar has declined in value by well over 95 percent.

This did not happen by accident.  Every other major currency around the globe has been steadily declining in value as well.

#6 When things get bad enough, there will be rioting in the streets. 

A few weeks ago, a total of more than a million public employees took to the streets in more than 80 different Spanish cities.  You can view footage of some of the violent clashes with police that took place right here.

#7 When a debt-based economy crashes, money becomes very tight and shortages tend to happen.

Just look at what is happening in Greece.  Medicine shortages have become a tremendous problem.  The following is from a recent Bloomberg article….

Mina Mavrou, who runs a pharmacy in a middle-class Athens suburb, spends hours each day pleading with drugmakers, wholesalers and colleagues to hunt down medicines for clients. Life-saving drugs such as Sanofi (SAN)’s blood-thinner Clexane and GlaxoSmithKline Plc (GSK)’s asthma inhaler Flixotide often appear as lines of crimson data on pharmacists’ computer screens, meaning the products aren’t in stock or that pharmacists can’t order as many units as they need.

“When we see red, we want to cry,” Mavrou said. “The situation is worsening day by day.”

The 12,000 pharmacies that dot almost every street corner in Greek cities are the damaged capillaries of a complex system for getting treatment to patients. The Panhellenic Association of Pharmacists reports shortages of almost half the country’s 500 most-used medicines.

#8 Your population will eventually become so desperate that they will start banding together to loot food and supplies from stores. 

When people have no work and they cannot feed their families they often find themselves doing things that they never imagined that they would do.  Just check out what is happening in Spain right now….

Unemployed fieldworkers and other members of the union went to two supermarkets, one in Ecija (Sevilla) and one in Arcos de la Frontera (Cadiz) and loaded up trolleys with basic necessities. They said that the people were being expropriated and they planned to “expropriate the expropriators”.

The foodstuffs, including milk, sugar, chickpeas, pasta and rice, have been given to charities to distribute, who say they are unable to cope with all the requests for help they receive. Unemployment in the Sierra de Cadiz is now 40%.

#9 If things get bad enough, even essential services may start shutting down.

Authorities in Greece are legitimately concerned that there may be interruptions in the supply of natural gas and electricity.  Suppliers are leaving bills unpaid for extended periods of time, and one day millions of Greeks may wake up to find that the power to their homes has been cut off….

Greece’s power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country’s electricity and natural gas system.

“RAE is taking crisis initiatives throughout next week to avert the collapse of the natural gas and electricity system,” the regulator’s chief Nikos Vasilakos told Reuters.

RAE took the decision after receiving a letter from Greece’s natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company.

#10 In an economic depression, many people begin to totally lose hope.

An increasing number of parents in southern Europe are facing such desperate situations that they are actually abandoning their babies.

The following is from a recent CNBC article….

According to SOS Villages, a European charity that attempts to help families in financial hardship before abandonment occurs, in the last year alone 1,200 children in Greece and 750 in Italy have been abandoned. That is almost double the 400 children abandoned in Italy a year ago, and up from 114 children abandoned in Greece in 2003.

#11 Just like we saw during the Great Depression of the 1930s, there is a spike in suicides when an economy crashes.

Greece has never seen anything like what is happening now.  The suicide rate has been absolutely soaring.

The following is from a Reuters article back in April….

On Monday, a 38-year-old geology lecturer hanged himself from a lamp post in Athens and on the same day a 35-year-old priest jumped to his death off his balcony in northern Greece. On Wednesday, a 23-year-old student shot himself in the head.

In a country that has had one of the lowest suicide rates in the world, a surge in the number of suicides in the wake of an economic crisis has shocked and gripped the Mediterranean nation – and its media – before a May 6 election.

If you live in the United States, you need to watch what is happening in Europe very closely, because similar conditions will come to the United States soon enough.

Just like Europe, we have allowed ourselves to become enslaved to the bankers, and now we will suffer the consequences.

Sadly, most Americans do not even realize how we got into this mess.  The following is from a recent article by Professor Steven Yates….

It should have been clear that the country—indeed, Western civilization itself—was on the wrong trajectory as governments and central banks, working in tandem, severed ties between their currencies and precious metals, allowing massive credit expansion to run rampant and the national debt to skyrocket—making, e.g., the pseudo-prosperity of the roaring 1990s possible. Nixon had “closed the gold window” on August 15, 1971; our national debt was around $400 billion. Slightly over ten years later, the debt crossed the $1 trillion threshold. Ten years after that, it reached $6 trillion. When George W. Bush left office having been the biggest spending Republican in U.S. history, it had risen to over $11 trillion. Today, under the watch of the catastrophic Obama presidency, by the time this reaches print the national debt might have surmounted $16 trillion with no end in sight.

The United States has accumulated the greatest mountain of debt in the history of the world and it will totally crush us at some point.

Unfortunately, the vast majority of Americans are living paycheck to paycheck and are totally unprepared for the economic chaos that is coming.

One study found that 64 percent of all Americans have less than $1000 in the bank.

Can you believe that?

Even though we could be on the verge of another global food crisis, most Americans do not have enough food in their homes to last a single month.

Even though the U.S. economy is on the verge of another recession, most Americans are still running out and buying toys that they don’t need and paying for them with credit cards that they should not be using.

If you want to see where we are headed, just look at Greece and Spain.

They are going through economic hell, and we will be joining them soon enough.

Get ready while you can.

11 Signs That Time Is Quickly Running Out For The Global Financial System

Are we rapidly approaching a moment of reckoning for the global financial system?  August is likely to be a relatively slow month as most of Europe is on vacation, but after that we will be moving into a “danger zone” where just about anything could happen.  Historically, a financial crisis has been more likely to happen in the fall than during any other time, and this fall is shaping up to be a doozy.  Much of the focus of the financial world is on whether or not the euro is going to break up, but even if the authorities in Europe are able to keep the euro together we are still facing massive problems.  Countries such as Greece and Spain are already experiencing depression-like conditions, and much of the rest of the globe is sliding into recession.  Unemployment has already risen to record levels in some parts of Europe, major banks all over Europe are teetering on the brink of insolvency, and the flow of credit is freezing up all over the planet.  If things take a really bad turn, this crisis could become much worse than the financial crisis of 2008 very quickly.

All over the world people are starting to write about the possibility of a major economic crisis starting this fall.

For example, a recent article in the International Business Times discussed how some economists around the globe are fearing the worst for the coming months….

The consensus? The world economy has entered a final countdown with three months left, and investors should pencil in a collapse in either August or September.

Citing a theory he has been espousing since 2010 that predicts “a future lack of policy flexibility from the monetary and fiscal side,” Jim Reid, a strategist at Deutsche Bank, wrote a note Tuesday that gloated “it feels like Europe has proved us right.”

“The U.S. has the ability to disprove the universal nature of our theory,” Reid wrote, but “if this U.S. cycle is of completely average length as seen using the last 158 years of history (33 cycles), then the next recession should start by the end of August.”

The global financial system is so complex and there are so many thousands of moving parts that it is always difficult to put an exact date on anything.  In fact, history is littered with economists that have ended up looking rather foolish by putting a particular date on a prediction.

But without a doubt we are starting to see storm clouds gather for this fall.

The following are 11 more signs that time is quickly running out for the global financial system….

#1 A number of very important events regarding the financial future of Europe are going to happen in the month of September.  The following is from a recent Reuters article that detailed many of the key things that are currently slated to occur during that month….

In that month a German court makes a ruling that could neuter the new euro zone rescue fund, the anti-bailout Dutch vote in elections just as Greece tries to renegotiate its financial lifeline, and decisions need to be made on whether taxpayers suffer huge losses on state loans to Athens.

On top of that, the euro zone has to figure out how to help its next wobbling dominoes, Spain and Italy – or what do if one or both were to topple.

#2 Reuters is reporting that Spanish Economy Minister Luis de Guindos has suggested that Spain may need a 300 billion euro bailout.

#3 Spain continues to slide deeper into recession.  The Spanish economy contracted 0.4 percent during the second quarter of 2012 after contracting 0.3 percent during the first quarter.

#4 The unemployment rate in Spain is now up to 24.6 percent.

#5 According to the Wall Street Journal, a new 30 billion euro hole has been discovered in the financial rescue plan for Greece.

#6 Morgan Stanley is projecting that the unemployment rate in Greece will exceed 25 percent in 2013.

#7 It is now being projected that the Greek economy will shrink by a total of 7 percent during 2012.

#8 German Finance Minister Wolfgang Schäuble says that the rest of Europe will not be making any more concessions for Greece.

#9 The UK economy has now plunged into a deep recession.  During the second quarter of 2012 alone, the UK economy contracted by 0.7 percent.

#10 The Dallas Fed index of general business activity fell dramatically to -13.2 in July.  This was a huge surprise and it is yet another indication that the U.S. economy is rapidly heading into a recession.

#11 As I have written about previously, a banking crisis is more likely to happen in the fall than at any other time during the year.  The global financial system will enter a “danger zone” starting in September, and none of us need to be reminded that the crashes of 1929, 1987 and 2008 all happened during the second half of the year.

So is there any hope on the horizon?

European leaders have tried short-term solution after short-term solution and none of them have worked.

Now countries all over Europe are sliding into depression and the authorities in Europe seem to be all out of answers.  The following is what one eurozone diplomat said recently….

“For two years we’ve been pumping up the life raft, taking decisions that fill it with just enough air to keep it afloat even though it has a leak,” the diplomat said. “But now the leak has got so big that we can’t pump air into the raft quickly enough to keep it afloat.”

The boat is filling up with water faster than they can bail it out.

So what is the solution?

Well, some of the top names in economics on both sides of the Atlantic are urging authorities to keep the debt bubble pumped up by printing lots and lots more money.

For example, even though the U.S. government is already running trillion dollar deficits New York Times “economist” Paul Krugman is boldly proclaiming that now is the time to print and borrow even more money.  He is proud to be a Keynesian, and he says that “you should be a Keynesian, too.”

Across the pond, the International Business Editor of the Telegraph, Ambrose Evans-Pritchard, is strongly urging the ECB to print more money….

Needless to say, I will be advocating 1933 monetary stimulus à l’outrance, or trillions of asset purchases through old fashioned open-market operations through the quantity of money effect (NOT INTEREST RATE ‘CREDITISM’) to avert deflation – and continue doing so until nominal GDP is restored to its trend line, at which point the stimulus can be withdrawn again.

But is more money and more debt really the solution to anything?

In the United States, M2 recent surpassed the 10 trillion dollar mark for the first time ever.  It has increased in size by more than 5 times over the past 30 years.

Unfortunately, our debt has been growing much faster than GDP has over that time period.

For example, during the second quarter of 2012 U.S. government debt grew by 274.3 billion dollars but U.S. GDP only grew by 117.6 billion dollars.

Our problem is not that there is not enough money floating around.

Our problem is that there is way, way too much debt.

But this is how things always go with fiat currencies.

There is always the temptation to print more.

That is one of the big reasons why every single fiat currency in history has eventually collapsed.

Printing more money will not solve our problems.  It will just cause our problems to take a different form.

In the end, nothing that the authorities can do will be able to avert the crisis that is coming.

A lot of people are starting to realize this, and that is one reason why we are seeing so much economic pessimism right now.

For example, according to a new Rasmussen poll only 14 percent of all Americans believe that children in America today will be “better off” than their parents.

That is an absolutely stunning figure, but it just shows us where we are at.

Our economy has been in decline for a long time, and now we are rapidly approaching another major downturn.

You better buckle up, because this downturn is not going to be pleasant at all.

12 Signs That Spain Is Shifting Gears From Recession To Depression

Where have we seen this before?  Bond yields soar above the 7 percent danger level.  Check.  The stock market crashes to new lows.  Check.  Industrial activity plummets like a rock and the economy contracts.  Check.  The unemployment rate skyrockets to more than 20 percent.  Check.  The bursting of a massive real estate bubble pushes the banking system to the brink of implosion.  Check.  Broke local governments beg the broke national government for bailouts.  Check.  The international community pressures the national government to implement deep austerity measures which will slow down the economy even more and hordes of violent protesters take to the streets.  Check.  All of this happened in Greece, it is happening right now in Spain, and mark my words it will eventually happen in the United States.  Every debt bubble eventually bursts, and right now Spain is experiencing a level of economic pain that very, very few people saw coming.  The recession in Spain is rapidly becoming a full-blown economic depression, and at this point there is no hope and no light at the end of the tunnel.

The bad news for the global economy is that Spain is much larger than Greece.  According to the United Nations, the Greek economy is the 32nd largest economy in the world.  The Spanish economy, on the other hand, is the 4th largest economy in the eurozone and the 12th largest economy on the entire planet.  It is nearly five times the size of the Greek economy.

Financial markets all over the globe are very nervous right now because if the Spanish government ends up asking for a full-blown bailout it could spell the end for the eurozone.  There simply is not enough money to do the same kind of thing for Spain that is being done for Greece.

Of course European officials are going to do their best to keep the eurozone from collapsing, but what they have completely failed to do is to keep these countries from falling into depression.

As I have written about previously, Greece has already been in an economic depression for some time.

I warned that Spain, Italy, Portugal and a bunch of other European nations were going down the exact same path.

Now we are watching a virtual replay of what happened in Greece take place in Spain.

Unfortunately, the global financial system may not be able to handle a complete implosion of the Spanish economy.

The following are 12 signs that Spain is shifting gears from recession to depression….

#1 At one point on Monday, the IBEX stock market index fell to 5,905, which was the lowest level in nearly ten years.  When it hit 5,905 that represented a drop of about 12 percent over just two trading days.  If that happened in the United States, it would be the equivalent of the Dow falling by about 1500 points in 48 hours.

#2 So far this year, the Spanish stock market is down more than 25 percent.  Back in 2008, the IBEX 35 was well over 15,000.  Today it is sitting just above 6,000.

#3 Spain has banned many forms of short selling for 3 months.

#4 The yield on 10 year Spanish bonds is now well above the 7 percent “danger level”.

#5 Thanks to the problems in Spain, the euro continues to fall like a rock.  On Monday it hit a new two year low against the U.S. dollar, and it is near a twelve year low against the Japanese yen.

#6 During the first quarter of 2012, the Spanish economy contracted by 0.3 percent.  During the second quarter of 2012, the Spanish economy contracted by 0.4 percent.

#7 Local governments all over Spain are flat broke and need to be bailed out by the broke national government.  The following is from a recent CNBC article….

Adding to Madrid’s woes, media reports suggested another half a dozen of Spain’s 17 regional authorities, facing an undeclared funding crisis, were ready to follow Valencia in seeking aid from the central government.

#8 The percentage of bad loans on the books of Spanish banks has reached an 18 year high.  European officials have already promised a 100 billion euro bailout for Spain’s troubled banking system, but most analysts agree that 100 billion euros will not be nearly enough.

#9 Spanish industrial output declined for the ninth month in a row in May.

#10 The unemployment rate in Spain is up to an astounding 24.6 percent.  The unemployment rate in Spain is already higher than it was in the United States at the peak of the Great Depression of the 1930s.

#11 The youth unemployment rate in Spain is now over 52 percent.

#12 The Spanish government has just announced a whole bunch of new tax increases and spending cuts which will cause the Spanish economy to slow down even more.  In response to these austerity measures, people are taking to the streets all over Spain.  Last week, 100,000 demonstrators poured into the streets to protest in Madrid alone.

Sadly, the nightmare in Spain is just beginning.

If the yield on 10 year Spanish bonds stays above 7 percent, that is going to be a really bad sign.  According to the Wall Street Journal, the 7 percent level is key as far as investor confidence is concerned….

Monday’s dramatic market moves suggest Spain may be stuck in a spiral that culminates in a bailout from other euro-zone countries.

“The rise in the 10-year yield well beyond 7% carries a very distinct reminder of events in Greece in April 2010, Ireland in October 2010 and Portugal in February 2011,” said analysts at Bank of New York Mellon. “In each case, a decisive move beyond 7% signaled the start of a collapse in investor confidence that, in each case, led to a bailout within weeks,” they added.

So keep an eye on that number in the weeks ahead.

Meanwhile, the Spanish economy continues to get worse with each passing month.

So just how bad are things in Spain right now?

Just check out this excerpt from a recent article by Mark Grant….

Recently two noted Spanish economists were interviewed. One was always an optimist and one was always a pessimist. The optimist droned on and on about how bad things were in Spain, the dire situation with the regional debt, the huge problems overtaking the Spanish banks and the imminent collapse of the Spanish economy. In the end he said that the situation was so bad that the Spanish people were going to have to eat manure. The pessimist was shocked by the comments of his colleague who had never heard him speak in such a manner. When it was the pessimist’s turn to speak he said that he agreed with the optimist with one exception; the manure would soon run out.

That may make you laugh, but for those in Europe going through these horrific economic conditions it is no laughing matter.

On Sunday, Greek Prime Minister Antonis Samaras actually told former U.S. president Bill Clinton that Greece is already in a “Great Depression“.

Like Spain, the unemployment rate in Greece is well above 20 percent and the youth unemployment rate is above 50 percent.

The only reason the Greek financial system has not totally collapsed is because of outside assistance, but now there are indications that the assistance may soon be cut off.

At this point there are persistent rumors that the IMF does not plan to give any more aid money to Greece unless Greece “shapes up”.

Meanwhile, the suffering in Greece just gets worse and worse.

Sadly, most Americans pay very little attention to what is going on in Greece and Spain.

Most Americans just assume that we will always have “the greatest economy on earth” and that we can take prosperity for granted.

Unfortunately, the truth is that the United States already has more government debt per capita than either Greece or Spain does.

Just like Greece and Spain, we are also rapidly traveling down the road to economic oblivion, and depression-like conditions will arrive in this country soon enough.

So enjoy these last months of economic prosperity while you still can.

A whole lot of pain is on the horizon.

Four Reasons To Be Even Less Optimistic About The Global Financial System Than You Were Last Month

The cracks in the ice are getting bigger.  At this point it is really hard to have much confidence in the global financial system at all.  They told us that MF Global was an isolated incident.  Well, the horrific financial scandal over at PFGBest is essentially MF Global all over again.  They told us that we would not see a huge wave of municipal bankruptcies in the United States.  Well, three California cities have declared bankruptcy in less than a month.  They told us that we could have faith in the integrity of the global financial system.  Well, now we are finding out that global interest rates have been fixed by insiders for years.  They told us that Greece was an isolated problem and that none of the larger European nations would experience anything remotely similar.  Well, what is happening in Spain right now looks like an instant replay of exactly what happened in Greece.  So who are we supposed to believe?  Why does it seem like nearly everything that “the authorities” tell us turns out to be a lie?   What else haven’t they been telling us?

The following are four reasons to be even less optimistic about the global financial system than you were last month….

#1 PFGBest Is MF Global All Over Again

Do you remember that whole MF Global thing?

Do you remember how hundreds of millions of dollars of customer funds were “missing” due to “accounting irregularities”?

Well, it is happening again.

PFGBest is a brokerage firm in Cedar Falls, Iowa that mostly handles agricultural futures.

All hell broke loose when the National Futures Association discovered that a bank account that was supposed to be holding 225 million dollars of customer funds was only holding about 5 million dollars instead.

So where is the other 220 million dollars?

That is a very good question.

Of course it is not a promising sign that the head of PFGBest tried to commit suicide when this news came out.

A lot of PFGBest clients are going to be absolutely devastated by this scandal.  The following is from a recent Reuters article….

Farmers on Tuesday fumed at the prospect of financial losses, or at a minimum a lengthy wait for the return of frozen funds, due to alleged mismanagement at brokerage PFGBest, and some said they had been burned for the last time.

The U.S. futures industry reeled as regulators accused Iowa-based PFGBest of misappropriating more than $200 million in customer funds for more than two years, a new blow to trader trust just months after MF Global’s collapse.

Centered in the heart of farm belt, the firm handled agricultural futures accounts for a number of clients who grow corn, soybeans and cotton.

But it is not just PFGBest clients that are going to feel the pain of this scandal.

The truth is that this is going to deeply shake confidence in the entire global financial system.

Many dismissed what happened at MF Global as an “isolated incident”.

But now it is happening again.

Fool me once, shame on you.

Fool me twice, shame on me.

#2 A Third California City Goes Bankrupt In Less Than A Month

First it was Stockton.

Then it was Mammoth Lakes.

Now it is San Bernardino’s turn.

On Tuesday, the city council of San Bernardino, California voted to file for bankruptcy.

An article in the Los Angeles Times detailed the issues at the heart of San Bernardino’s financial problems….

The city’s fiscal crisis has been years in the making, compounded by the nation’s crushing recession and exacerbated by escalating pension costs, lucrative labor agreements, Sacramento’s raid on redevelopment funds and a city reserve that is tapped out, officials said.

While it would be easy to dump on the state of California (and that is something I have done quite often), the truth is that we are seeing municipal debt problems erupting all over the United States.

For example, the city of Scranton, Pennsylvania has such severe financial problems that the mayor of Scranton has ordered that all city employees be paid minimum wage until a solution to the crisis is found.

If this was television, Dwight Schrute would find a way to save the day for Scranton.

Unfortunately, this is real life and Dwight Schrute does not exist in real life.

#3 The Liborgate Scandal Keeps Getting Worse

We have been taught that we should all have faith in the integrity of the global financial system.

What a bunch of baloney that turned out to be.

It turns out that banksters have been colluding to fix global interest rates for years.

“Liborgate” is being called the biggest financial scandal in history.  Libor is important because it is one of the key benchmarks used to set prices for hundreds of trillions of dollars of loans, securities and derivatives.

British banking giant Barclays has already admitted that they were involved in manipulating Libor.

Barclays has already agreed to pay $453 million in fines to British and U.S. authorities.

But the truth is that it would have been totally impossible for Barclays to have manipulated Libor by themselves.

So who else was involved?

That was a question that was discussed in a recent article in The Economist….

Over the past week damning evidence has emerged, in documents detailing a settlement between Barclays and regulators in America and Britain, that employees at the bank and at several other unnamed banks tried to rig the number time and again over a period of at least five years. And worse is likely to emerge. Investigations by regulators in several countries, including Canada, America, Japan, the EU, Switzerland and Britain, are looking into allegations that LIBOR and similar rates were rigged by large numbers of banks. Corporations and lawyers, too, are examining whether they can sue Barclays or other banks for harm they have suffered. That could cost the banking industry tens of billions of dollars. “This is the banking industry’s tobacco moment,” says the chief executive of a multinational bank, referring to the lawsuits and settlements that cost America’s tobacco industry more than $200 billion in 1998. “It’s that big,” he says.

As many as 20 big banks have been named in various investigations or lawsuits alleging that LIBOR was rigged. The scandal also corrodes further what little remains of public trust in banks and those who run them.

So what does all of this mean?

The Wall Street Journal says that the credibility of the entire global financial system is at stake….

At stake is both the integrity of the world’s financial system and the credibility of the U.K. authorities to police it. Long before the current scandal, many European policy makers had concluded that London during the boom was the Wild West, whose loose standards are a threat to European financial stability. The Libor scandal suggests U.S. regulators have reached similar conclusions. The Commodities Futures Trading Commission, the U.S. regulatory body that first started investigating rate-fixing, left little doubt how seriously it regards the abuses it uncovered.

Once faith is shattered, it is incredibly difficult to rebuild.

And right now it is really hard to come up with a decent argument why anyone should trust their money to such a corrupt system.

#4 Spain Is Turning Into Greece

A central government drowning in debt?

Check.

A banking system on the verge of collapse?

Check.

Politicians pushing a forced austerity program that includes much higher taxes, much lower government spending and greatly reduced pay for government workers?

Check.

Wild rioting in the streets by protesters?

Check.

Let’s see….where have we seen this before?

Can anyone still possibly deny that Spain is going down the exact same road that Greece has gone?

Spanish Prime Minister Mariano Rajoy is proposing a huge slate of tough austerity measures including a 3 point increase in the Value Added Tax on goods and services.  If that 3 point hike is implemented, the Value Added Tax will rise to 21 percent.

Could you imagine going to the store and paying a 21 percent sales tax?

Ouch.

Rajoy is promising that these measures will get Spain back on the right track.

Of course we have already seen how well such austerity measures have worked in Greece.

The unemployment rate in Spain is already up to 24.4 percent, and now these austerity measures will slow the economy down even more.

No wonder there is rioting in the streets.  You can see high quality footage of the rioting that has been going on in Spain this week right here.  At one point police were seen firing rubber bullets at the protesters.

But of course the citizens of Spain could not live way above their means forever.  At some point every debt bubble ends, and when that happens the results are often incredibly painful.

This is a lesson that the United States has not learned either.  When we stop racking up more than a trillion dollars of additional government debt every year our “adjustment” will be exceedingly painful as well.

A little over a week ago, I wrote an article entitled “17 Reasons To Be EXTREMELY Concerned About The Second Half Of 2012“. I never imagined that things would get so much worse in just a week.

Everything seems to be accelerating these days.

That includes the decay that is happening in society.  A few days ago I made a list of 25 signs that society is falling apart, but then another story came along after I had finished my article that topped all of the examples in my list.  The following is how one man in West Virginia has been treating his wife….

During the conversation, according to the criminal complaint, Lizon’s wife told the woman that her husband had kept her chained up with metal padlocks and chains for about 10 years. The woman noticed scar tissue on the victim’s hands and ankles. Lizon’s wife told the woman that the scars were from the chains tearing into her skin.

Lizon’s wife told the woman that she and her husband were originally from Czechoslovakia, and that they live in Leroy, W.Va.

According to the complaint, the woman told investigators that the feet of Lizon’s wife were “mutilated and swollen,” one of which was missing a considerable amount of skin. Lizon’s wife told the woman that her husband smashed her foot with a bucket or scoop attachment of a farm tractor.

Lizon’s wife also told the woman Lizon called her his “slave,” and that whenever her husband entered the room she had to kneel down before him, according to the complaint.

Can you imagine anyone doing that?

Can you imagine any husband chaining his wife up for 10 years?

That is so sick that it is beyond words to describe it.

Unfortunately, that is not just one isolated incident of depravity in a world filled with goodness.

The truth is that the entire world system is saturated with depravity and corruption.

If anyone is willing to stand up for “the integrity of the global financial system”, I challenge you to leave a comment below explaining to the rest of us why we should still have blind faith in the system after everything that has happened.

I don’t imagine that too many people will even attempt to take me up on that challenge.

10 Things That We Can Learn About Shortages And Preparation From The Economic Collapse In Greece

When the economy of a nation collapses, almost everything changes.  Unfortunately, most people have never been through anything like that, so it can be difficult to know how to prepare.  For those that are busy preparing for the coming global financial collapse, there is a lot to be learned from the economic depression that is happening right now in Greece.  Essentially, what Greece is experiencing is a low level economic collapse.  Unemployment is absolutely rampant and poverty is rapidly spreading, but the good news for Greece is that the global financial system is still operating somewhat normally and they are getting some financial assistance from the outside.  Things in Greece could be a whole lot worse, and they will probably get a whole lot worse before it is all said and done.  But already things have gotten bad enough in Greece that it gives us an idea of what a full-blown economic collapse in the 21st century may look like.  There are reports of food and medicine shortages in Greece, crime and suicides are on the rise and people have been rapidly pulling their money out of the banks.  Hopefully this article will give you some ideas that you can use as you prepare for the economic chaos that will soon be unfolding all over the globe.

The following are 10 things that we can learn about shortages and preparation from the economic collapse in Greece….

#1 Food Shortages Can Actually Happen

Most people assume that they will always be able to run out to their local supermarket or to Wal-Mart and get all of the supplies they need.

Unfortunately, that is a false assumption.  The truth is that our food distribution system is extremely vulnerable.

In Greece, many people are starting to totally run out of food.  Even some government institutions (such as prisons) are now reporting food shortages.  The following was originally from a Greek news source….

The financing for many prisons has decreased to a minimum for some months now, resulting in hundreds of detainees being malnourished and surviving on the charity of local communities.

The latest example is the prison in Corinth where after the supply stoppage from the nearby military camp, the prisoners are at the mercy of God because, as reported by prison staff, not even one grain of rice has been left in their warehouses. When a few days earlier the commander of the camp announced to the prison management the transportation stoppage, citing lack of food supplies even for the soldiers, he shut down the last source of supply for 84 prisoners. The response of some Corinth citizens was immediate as they took it upon themselves to support the prisoners, since all protests to the Justice ministry were fruitless.

#2 Medicine Is One Of The First Things That Becomes Scarce During An Economic Collapse

If you are dependent on medicine in order to survive, you might want to figure out how you are going to get by if your supply of medicine is totally cut off someday.

In Greece, medicine shortages have become a massive problem.  The following is from a recent Bloomberg article….

Mina Mavrou, who runs a pharmacy in a middle-class Athens suburb, spends hours each day pleading with drugmakers, wholesalers and colleagues to hunt down medicines for clients. Life-saving drugs such as Sanofi (SAN)’s blood-thinner Clexane and GlaxoSmithKline Plc (GSK)’s asthma inhaler Flixotide often appear as lines of crimson data on pharmacists’ computer screens, meaning the products aren’t in stock or that pharmacists can’t order as many units as they need.

“When we see red, we want to cry,” Mavrou said. “The situation is worsening day by day.”

The 12,000 pharmacies that dot almost every street corner in Greek cities are the damaged capillaries of a complex system for getting treatment to patients. The Panhellenic Association of Pharmacists reports shortages of almost half the country’s 500 most-used medicines. Even when drugs are available, pharmacists often must foot the bill up front, or patients simply do without.

#3 When An Economy Collapses, So Might The Power Grid

Try this some time – turn off all power to your home for 24 hours and try to live normally.

Sadly, most people simply do not understand just how dependent we are on the power grid.  Without power, all of our lives would change dramatically.

In Greece, authorities are warning of an impending “collapse” of the power grid.  If it goes down for an extended period of time in Greece, the consequences would be catastrophic….

Greece’s power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country’s electricity and natural gas system.

“RAE is taking crisis initiatives throughout next week to avert the collapse of the natural gas and electricity system,” the regulator’s chief Nikos Vasilakos told Reuters.

RAE took the decision after receiving a letter from Greece’s natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company.

#4 During An Economic Collapse You Cannot Even Take Water For Granted

If the power grid goes down, you will soon no longer have clean water coming out of your faucets.  That is one of the reasons why it is absolutely imperative that the power grid stay operable in Greece.

Sadly, most people don’t understand just how vulnerable our water system is.  In a previous article, I quoted from a report that discussed how rapidly our water supply would be in jeopardy in the event of a major transportation disruption….

According to the American Water Works Association, Americans drink more than one billion glasses of tap water per day. For safety and security reasons, most water supply plants maintain a larger inventory of supplies than the typical business. However, the amount of chemical storage varies significantly and is site specific. According to the Chlorine Institute, most water treatment facilities receive chlorine in cylinders (150 pounds and one ton cylinders) that are delivered by motor carriers. On average, trucks deliver purification chemicals to water supply plants every seven to 14 days. Without these chemicals, water cannot be purified and made safe for drinking. Without truck deliveries of purification chemicals, water supply plants will run out of drinkable water in 14 to 28 days. Once the water supply is drained, water will be deemed safe for drinking only when boiled. Lack of clean drinking water will lead to increased gastrointestinal and other illnesses, further taxing an already weakened healthcare system.

What will you do when clean water stops coming out of your faucets?

You might want to start thinking about that.

#5 During An Economic Crisis Your Credit Cards And Debit Cards May Stop Working

Most people have become very accustomed to using either debit cards or credit cards for almost everything.

But what would happen if the financial system locked up for a period of time and you were not able to use them?

This is something that the citizens of Greece are potentially facing in the coming months, and this is something that all of us need to start thinking about.

#6 Crime, Rioting And Looting Become Commonplace During An Economic Collapse

Big corporations are already making extensive plans for how to protect their stores in the event that Greece switches from the euro to the drachma.

The following is from a recent Reuters article….

British electrical retailer Dixons has spent the last few weeks stockpiling security shutters to protect its nearly 100 stores across Greece in case of riot.

The planning, says Dixons chief Sebastian James, may look alarmist but it’s good to be prepared.

Company bosses around Europe agree. As the financial crisis in Greece worsens, companies are getting ready for everything from social unrest to a complete meltdown of the financial system.

#7 During A Financial Meltdown Many Average Citizens Will Start Bartering

During this economic depression, alternative currencies have already been popping up in Greece.

When things fall apart on a global scale, will you have things to barter for the things that you need?

#8 Suicides Spike During An Economic Collapse

When you think of the Great Depression of the 1930s, what do you think of?

Many people think of images of people jumping out of buildings.

Well, something similar has been happening in Greece.  Suicide statistics in Greece have been absolutely soaring during the last couple of years.

Once prosperity disappears, many people feel as though life is not worth living anymore.

#9 Your Currency May Rapidly Lose Value During An Economic Crisis

Just remember what happened in Germany during the Weimar Republic and what has happened recently in places like Zimbabwe.

The truth is that it can happen anywhere.

Right now, Greeks are pulling their money out of the banks because they are worried that their euros will be turned into drachmas which would rapidly lose value.

If I was living in Greece I would definitely be concerned about that.  The return of the drachma seems to get closer with each passing day.  Just check out these screenshots.

#10 When Things Hit The Fan The Government Will Not Save You

Has the government of Greece come to the rescue of all of those that are deeply suffering right now?

Of course not.  The truth is that the Greek government can barely take care of itself at the moment.

History has shown us that governments simply cannot be counted on when things hit the fan.

Just remember what happened during the aftermath of Hurricane Katrina.

In the end, the only one that can be counted on to take care of you and your family is you.

So you better start preparing.

Unfortunately, as I wrote about the other day, time is rapidly running out for the global financial system.

Even some of the top economic officials in the world are warning that another major crisis could be on the way.

Just check out what World Bank President Robert Zoellick said the other day….

“Events in Greece could trigger financial fright in Spain, Italy and across the eurozone. The summer of 2012 offers an eerie echo of 2008.”

He also compared a potential exit of Greece from the eurozone to the collapse of Lehman Brothers back during the last financial crisis….

“If Greece leaves the eurozone, the contagion is impossible to predict, just as Lehman had unexpected consequences.”

So what are some things that the average person can do to get prepared?

Well, a recent article on SHTFplan.com entitled “The List: A to Z Survival for the Abysmal Times Ahead” contains hundreds of ideas for preparing for the chaotic economic environment that we are heading into.

Preparation is going to look different for every family.  No two situations are exactly the same.

But there are some practical steps that nearly all of us can take to better position ourselves for what is coming.  Now is the time to get educated and now is the time to take action.

Or you could be like all of those that laughed at Noah while he was building that big boat.

In the end, things did not work out too well for those folks.


Eurobonds: The Issue That Could Shatter Europe

Would you pool your debt with a bunch of debt addicts that have no intention of reducing their wild spending habits?  Of course you wouldn’t.  But that is exactly what Germany is being asked to do.  Increasingly, “eurobonds” are being touted as the best long-term solution to the financial crisis in Europe.  These eurobonds would represent jointly issued debt by all 17 members of the eurozone.  This debt would also be guaranteed by all 17 members of the eurozone.  This would allow all countries in the eurozone to enjoy the same credit rating that Germany does, and borrowing costs for nations such as Greece, Portugal, Italy and Spain would plummet.  But borrowing costs for Germany would rise substantially.  In fact, it is being estimated that Germany could be facing an extra 50 billion euros a year in interest expenses.  So over ten years that would come to about 500 billion euros.  Needless to say, Germany is not thrilled about this idea.  But new French President Francois Hollande is pushing eurobonds very hard, and he has the support of the OECD, the IMF and many top Italian politicians.  In the end, this could be the key to the future of the eurozone.  If the Germans give in and decide that they are willing to deeply subsidize their profligate neighbors indefinitely, then the euro could potentially be saved.  If not, then this issue could end up shattering Europe.

It is easy to try to portray the Germans as the “bad guys” in all this, but try to step into their shoes for a minute.

If you had some relatives that were spending wildly and that had already run up $100,000 in credit card debt, would you be a co-signer on their next credit card application?

Of course not.

The recent elections in France and Greece made it abundantly clear that the populations of those two countries are rejecting austerity.

Instead, they want a return to the debt-fueled prosperity that they have always enjoyed in the past.

Unfortunately, they need German help to be able to do that.

That is why new French President Francois Hollande is pushing so hard for eurobonds.  He wants the rest of the eurozone to be able to “piggyback” on Germany’s sterling credit rating so that everyone can return to the days of wild borrowing and spending.

But Germans greatly fear what a co-mingling of eurozone debt could eventually mean.  Not only would Germany’s borrowing costs rise dramatically, but there is also a concern that the rest of the eurozone could eventually pull Germany down with them.

Austria, Finland and the Netherlands are also against eurobonds, but the key is Germany.

For now, Germany is not budging on the issue of eurobonds at all.  The following is a statement that German Chancellor Angela Merkel made during a recent speech in Berlin….

“It’s just about not spending more than you collect. It’s astonishing that this simple fact leads to such debates”

And she is right.

Why is it so controversial to insist that people not spend more than they bring in?

But this is the problem that is created when you create a false lifestyle fueled by debt that goes on for decades.  People become accustomed to that false standard of living and they throw hissy fits when that false standard of living begins to disappear.

The Germans don’t want to make great sacrifices just so the Greeks, the French and the Italians can go back to borrowing and spending wildly.

Why would the Germans want to do that?

And as a recent CNN article noted, German politicians believe that eurobonds are explicitly banned under existing EU treaties anyway….

“There is no way of introducing them under the current [EU] treaties. Indeed, there is an explicit ban on them,” one senior German official said, adding Berlin would not drop its opposition in the foreseeable future. “That’s a firm conviction which will not change in June.”

But politicians such as Hollande are complaining that austerity could seriously damage living standards throughout Europe.

And Hollande is right about that.

When you inflate your standard of living with borrowed money for many years, eventually there comes a time when you must pay a great price.

Anyone that has ever been in trouble with credit card debt knows how painful that can be.

It is shameful for the rest of Europe to be pleading and begging Germany to help them.

They should take care of themselves.

As I wrote about the other day, Greece would be much better off in the long run if it left the euro and created a new financial system based on sound financial principles.

But in the financial press all over the world there are calls for someone to come up with a “plan” to “rescue” Europe.  For example, the following is from a recent Wall Street Journal article….

There have been two main responses to the crisis: austerity, and kicking cans down roads. Austerity, in case you haven’t noticed, is so last year. It’s out. Which means that unless something else is found, some other comprehensive plan, the other main response, can kicking, is going to run out of road.

Just about everybody backed the idea of eurobonds, except for the Germans, and since they’re the ones with all the money, they’re kind of the only ones whose vote counts anyway. So, it’s time to go to plan B. Only there’s no Plan B, and there’s no time, either.

If Germany does not agree to subsidize the rest of the eurozone, will that ultimately mean that the eurozone will be forced to break up?

Probably.

And that would cause a huge amount of pain in the short-term.

But the euro never was a good idea in the first place.  It was foolish to expect a monetary union to work smoothly in the absence of fiscal and political union.

And to be honest, the entire world would be a better place with less European integration.  The EU has become a horrifying bureaucratic nightmare and it would be wonderful if the entire thing broke up.

But for now, the only thing that is in danger is the euro.

Increasingly, it is looking like Greece may be the first country to exit the euro.

This week, former Greek Prime Minister Lucas Papademos admitted that the Greek government is considering making preparations for Greece to leave the euro.

Not only that, Reuters is reporting that top officials in the eurozone are now working on “contingency plans” for a Greek exit from the euro….

Each euro zone country will have to prepare a contingency plan for the eventuality of Greece leaving the single currency, euro zone sources said on Wednesday.

Officials reached the consensus on Monday afternoon during an hour-long teleconference of the Eurogroup Working Group (EWG).

As well as confirmation from three euro zone officials, Reuters has seen a memo drawn up by one member state detailing some of the elements that euro zone countries should consider.

So obviously a Greek exit from the euro has become a very real possibility.

A recent Bloomberg article detailed how a Greek exit from the euro could play out during the 46 hours that global financial markets are closed over the weekend….

Greece may have only a 46-hour window of opportunity should it need to plot a route out of the euro.

That’s how much time the country’s leaders would probably have to enact any departure from the single currency while global markets are largely closed, from the end of trading in New York on a Friday to Monday’s market opening in Wellington, New Zealand, based on a synthesis of euro-exit scenarios from 21 economists, analysts and academics.

Over the two days, leaders would have to calm civil unrest while managing a potential sovereign default, planning a new currency, recapitalizing the banks, stemming the outflow of capital and seeking a way to pay bills once the bailout lifeline is cut. The risk is that the task would overwhelm any new government in a country that has had to be rescued twice since 2010 because it couldn’t manage its public finances.

Right now, nobody is quite sure what is going to happen next and panic is spreading throughout the European financial system.

At this point, everyone is afraid of what is going to happen if Greece is forced to start issuing drachmas again.  As CNBC is reporting, some big European corporations are already beginning to implement their own “contingency plans”….

Big tourism operators like TUI of Germany and Kuoni of Britain are demanding the addition of so-called drachma clauses to contracts with Greek hoteliers should the euro no longer be in use here. British newspapers are filled with advice columns for travelers worried about the wisdom of planning a vacation in Greece, or even Portugal and Spain, should the euro crisis worsen. Large multinational companies like Vodafone Group, Reckitt Benckiser and Diageo have taken to sweeping cash every day from euro accounts back to Britain to limit their exposure.

Sadly, this is probably only a small taste of the financial anarchy that is coming.

France is likely to keep pushing hard for the creation of eurobonds.

Germany is likely to keep fiercely resisting this.

At some point, a moment of crisis will arrive and a call will have to be made.

Will Germany give in or will political turmoil end up shattering Europe?

It will be interesting to see how all of this plays out.

Jim Cramer Is Predicting Bank Runs In Spain And Italy And Financial Anarchy Throughout Europe

During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that “financial anarchy” is coming to Europe and that there will be “bank runs” in Spain and Italy in the next few weeks.  This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using.  In fact, if Cramer is not careful, people will start accusing him of sounding just like The Economic Collapse Blog.  It may not happen in “the next few weeks”, but the truth is that the European banking system is in a massive amount of trouble and if Greece does leave the euro it is going to cause a tremendous loss of confidence in banks in countries such as Spain, Italy and Portugal.  There are already rumors that the “smart money” is pulling out of Spanish and Italian banks.  So could we see some of these banks collapse?  Would they get bailed out if they do collapse?  It is so hard to predict exactly how “financial anarchy” will play out, but it is becoming increasingly clear that the European financial system is heading for a massive amount of pain.

Posted below is a clip of Jim Cramer making his bold predictions during his appearance on Meet The Press.  He is obviously very, very disturbed about the direction that Europe is heading in….

But what is Europe supposed to do?  Even though “austerity measures” have been implemented in many eurozone nations, the truth is that they are all still running up more debt.  Are European nations just supposed to run up massive amounts of debt indefinitely and pretend that there will never been any consequences?

That is apparently what Barack Obama wants.  During the G-8 summit that just concluded, Obama urged European leaders to pursue a “pro-growth” path.

Of course to Obama a “pro-growth” economic plan includes spending trillions of dollars that you do not have without any regard for what you are doing to future generations.

Germany has been trying to get the rest of the eurozone to move much closer to living within their means, but as the recent elections in France and Greece demonstrated, much of the rest of the eurozone is not too thrilled with the end of debt-fueled prosperity.

In Greece, the recent elections failed to produce a new government, so new elections will be held on June 17th.

Many EU politicians are trying to turn these upcoming elections into a referendum on whether Greece stays in the eurozone or not.  If the next Greek government is willing to honor the austerity agreements that have been previously agreed to, then Greece will probably stay in the eurozone for a while longer.  If the next Greek government is not willing to honor the austerity agreements that have been previously agreed to, then Greece will probably be forced out of the eurozone.

The following is what John Praveen, the chief investment strategist at Prudential International Investments Advisers, had to say about the political situation in Greece recently….

“If the pro-euro major parties fail to muster enough support to form a coalition and the radical left Syriza party and other anti-euro, anti-austerity parties secure a majority, the risk of a disorderly Greek exit from the Euro increases and could roil markets”

Right now, polls show the leading anti-austerity party, Syriza, doing very well.  The leader of Syriza, Alexis Tsipras, has declared that he plans “to stop the experiment” with austerity and that what the rest of the eurozone has tried to do in Greece is a “crime against the Greek people“.

But the Germans do not see it that way.  The Germans just want the Greeks to stop spending far more money than they bring in.

The Germans do not want to endlessly bail out the Greeks if the Greeks are not willing to show some financial discipline.

As we approach the June 17th elections, the financial markets are likely to be quite nervous.  According to Art Hogan of Lazard Capital Partners, many investors are deeply concerned about how “sloppy” a great exit from the euro could be….

“Next week is only one of the four weeks we have to wait until the Greek election. Every utterance out of Greece makes us think about their [possible] exit and how sloppy that could be”

Most Greek citizens want to remain in the eurozone and most European politicians want Greece to remain in the eurozone, but it is looking increasingly likely as if that may not happen.

In fact, there are reports that preparations are rapidly being made for a Greek exit.  According to Reuters, “contingency plans” for the printing of Greek drachmas have already been drawn up….

De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday.

And even EU officials are now acknowledging that plans for a Greek exit from the euro are being developed.  The following is what EU Trade Commissioner Karel De Gucht said during one recent interview….

“A year and a half ago, there may have been the danger of a domino effect,” he said, “but today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn’t make it.”

When these kinds of things start to become public, that is a sign that officials really do not expect Greece to remain a part of the euro.

And Greece is rapidly beginning to run out of money.  According to a recent Ekathimerini article, the Greek government is likely to run out of money at the end of June….

The public coffers are seen running dry at the end of June, but this will depend on two key factors. First, revenue collection: In the first 10 days of May, inflows were about 15 percent lower than projected but there are fears that the slide may reach 50 percent. The GAO will have a picture for the first 20 days on May 23, while the last three days of the month are considered crucial, when 1.5 billion euros of the month’s budgeted total of 3.6 billion are expected to flow in.

Second, whether the IMF and EFSF installments are disbursed: This is not certain, as the decision will be purely political for both providers and evidently partly linked to political developments. Earlier this month the eurozone approved a disbursement 1 billion short of the 5 billion euros that were expected.

If Greece runs out of money and if the rest of Europe cuts off the flow of euros, Greece would essentially be forced to leave the euro.

So the last half of June looks like it could potentially be a key moment for Greece.

Meanwhile, the Greek banking system is struggling to survive as hundreds of millions of euros get pulled out of it.  The following is from a recent CNN article….

The Greek financial system is straining hard for cash.

Consumers and businesses are making massive withdrawals from Greece’s banks — leading to concern the beleaguered nation could be forced out of the eurozone by a banking crisis even before its government runs out of cash.

Deposits are the lifeblood of any bank, and Greeks pulled 800 million euros out of the banking system on Tuesday alone, the most recent day for which figures are available.

If Greece does leave the euro and the Greek banking system does collapse, that is going to be a clear signal that a similar scenario will be allowed to play out in other eurozone nations.

That is why Jim Cramer, myself and many others are warning that there could soon be bank runs all over the eurozone.

Sadly, the banking crisis in Europe just seems to get worse with each passing day.

For example, the Telegraph has reported that wealthy individuals are starting to pull money out of Spanish banking giant Santander….

Customers with large deposits have started withdrawing cash from Santander, the bank has admitted, as it tried to reassure concerned members of the public that their money is safe.

Round and round we go.  Where all this will stop nobody knows.

If Greece does end up leaving the euro, that could set off a chain of cascading events that could potentially be absolutely catastrophic.

Former Italian Prime Minister Romano Prodi recently stated that the “whole house of cards will come down” if Greece leaves the euro.

And if the “house of cards” does come down in Europe, that is going to greatly destabilize the global derivatives market.

You see, the truth is that the global derivatives market is very delicately balanced.  The assumption most firms make is that things are not going to deviate too much from what is considered “normal”.

If we do end up seeing “financial anarchy” in Europe, that is going to greatly destabilize the system and we could rapidly have a huge derivatives crisis on our hands.

And as we saw with JP Morgan recently, losses from derivatives can add up really fast.

Originally, we were told that the derivatives losses that JP Morgan experienced recently came to a total of only about 2 billion dollars.

Now, we are told that it could be a whole lot more than that.  According to the Wall Street Journal, JP Morgan could end up losing about 5 billion dollars (or more) before it is all said and done….

J.P. Morgan Chase & Co. is struggling to extricate itself from disastrous wagers by traders such as the “London whale,” in a sign that the size of its bets could bog down the bank’s unwinding of the trades and deepen its losses by billions of dollars.

The nation’s largest bank has said publicly that its losses on the trades have surpassed $2 billion, and people familiar with the matter have said they could over time reach $5 billion.

And if Europe experiences a financial collapse, the losses experienced by U.S. firms could make that 5 billion dollars look like pocket change.  The following is from a recent article by Graham Summers….

According to Reuters once you include Spain and Italy as well as Credit Default Swaps and indirect exposure to Europe, US banks have roughly $4 TRILLION in potential exposure to the EU.

To put that number in perspective, the entire US banking system is $12 trillion in size.

Interesting days are ahead my friends.

Let us hope for the best, but let us also prepare for the worst.

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