Daily Email Newsletter

Enter your email address:

Posts Tagged ‘Greece’
America’s Bubble Economy Is Going To Become An Economic Black Hole
Friday, 24 May 2013 16:03
No Comments

Submitted by Michael Snyder of The Economic Collapse blog,

What is going to happen when the greatest economic bubble in the history of the world pops?  The mainstream media never talks about that.  They are much too busy covering the latest dogfights in Washington and what Justin Bieber has been up to.  And most Americans seem to think that if the Dow keeps setting new all-time highs that everything must be okay. (Read more…)  Sadly, that is not the case at all.

Right now, the U.S. economy is exhibiting all of the classic symptoms of a bubble economy.  You can see this when you step back and take a longer-term view of things.  Over the past decade, we have added more than 10 trillion dollars to the national debt.  But most Americans have shown very little concern as the balance on our national credit card has soared from 6 trillion dollars to nearly 17 trillion dollars.

Meanwhile, Wall Street has been transformed into the biggest casino on the planet, and much of the new money that the Federal Reserve has been recklessly printing up has gone into stocks.  But the Dow does not keep setting new records because the underlying economic fundamentals are good.  Rather, the reckless euphoria that we are seeing in the financial markets right now reminds me very much of 1929.  Margin debt is absolutely soaring, and every time that happens a crash rapidly follows.

But this time when a crash happens it could very well be unlike anything that we have ever seen before.  The top 25 U.S. banks have more than 212 trillion dollars of exposure to derivatives combined, and when that house of cards comes crashing down there is no way that anyone will be able to prop it back up.  After all, U.S. GDP for an entire year is only a bit more than 15 trillion dollars.

But most Americans are only focused on the short-term because the mainstream media is only focused on the short-term.  Things are good this week and things were good last week, so there is nothing to worry about, right?

Unfortunately, economic reality is not going to change even if all of us try to ignore it.  Those that are willing to take an honest look at what is coming down the road are very troubled.  For example, Bill Gross of PIMCO says that his firm sees “bubbles everywhere”…

We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions.

And unfortunately, it is not just the United States that has a bubble economy.  In fact, the gigantic financial bubble over in Japan may burst before our own financial bubble does.  The following is from a recent article by Graham Summers…

#000000;”>First and foremost, Japan is the second largest bond market in the world. If Japan’s sovereign bonds continue to fall, pushing rates higher, then there has been a tectonic shift in the global financial system. Remember the impact that Greece had on asset prices? Greece’s bond market is less than 3% of Japan’s in size.

 

#000000;”>For multiple decades, Japanese bonds have been considered “risk free.” As a result of this, investors have been willing to lend money to Japan at extremely low rates. This has allowed Japan’s economy, the second largest in the world, to putter along marginally.

 

#000000;”>So if Japanese bonds begin to implode, this means that:

#000000;”>

#000000;”>1)   The second largest bond market in the world is entering a bear market (along with commensurate liquidations and redemptions by institutional investors around the globe).

#000000;”>2)   The second largest economy in the world will collapse (along with the impact on global exports).

#000000;”>

#000000;”>Both of these are truly epic problems for the financial system.

And of course the entire global financial system is a giant bundle of debt, risk and leverage at this point.  We have never seen anything like this in world history.  When you step back and take a good, hard look at the numbers, they truly are staggering.  The following statistics are from one of my previous articles entitled “Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers“…

-$70,000,000,000,000 – The approximate size of total world GDP.

-$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world.  It has nearly doubled in size over the past decade.

-$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States.  But those banks only have total assets of about 8.9 trillion dollars combined.  In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.

-$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range.  At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.

The financial meltdown that happened back in 2008 should have been a wake up call for the nations of the world.  They should have corrected the mistakes that happened so that nothing like that would ever happen again.  Unfortunately, nothing was fixed.  Instead, our politicians and the central bankers became obsessed with reinflating the system.  They piled up even more debt, recklessly printed tons of money and kicked the can down the road for a few years.  In the process, they made our long-term problems even worse.  The following is a recent quote from John Williams of shadowstats.com…

The economic and systemic solvency crises of the last eight years continue. There never was an actual recovery following the economic downturn that began in 2006 and collapsed into 2008 and 2009. What followed was a protracted period of business stagnation that began to turn down anew in second- and third-quarter 2012. The official recovery seen in GDP has been a statistical illusion generated by the use of understated inflation in calculating key economic series (see Public Comment on Inflation). Nonetheless, given the nature of official reporting, the renewed downturn likely will gain recognition as the second-dip in a double- or multiple-dip recession.

 

What continues to unfold in the systemic and economic crises is just an ongoing part of the 2008 turmoil. All the extraordinary actions and interventions bought a little time, but they did not resolve the various crises. That the crises continue can be seen in deteriorating economic activity and in the panicked actions by the Federal Reserve, where it proactively is monetizing U.S. Treasury debt at a pace suggestive of a Treasury that is unable to borrow otherwise.

And there are already lots of signs that the next economic downturn is rapidly approaching.

For example, corporate revenues are falling at Wal-Mart, #000000;”>Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM.

Would revenues at Wal-Mart be falling if the economy was getting better?

U.S. jobless claims hit a six week high last week.  We aren’t in the danger zone yet, but once they hit 400,000 that will be a major red flag.

And even though we are still in the “good times” relatively speaking, the federal government is already talking about tightening welfare programs.  In fact, there are proposals in Congress right now to make significant cuts to the food stamp program.

If food stamps and other welfare programs get cut, that is going to make a lot of people very, very angry.  And that anger and frustration will get even worse when the next economic downturn strikes and millions of people start losing their jobs and their homes.

What we are witnessing right now is the calm before the storm.  Let us hope that it lasts for as long as possible so that we can have more time to prepare.

Unfortunately, this bubble of false hope will not last forever.  At some point it will end, and then the pain will begin.

    



 
Pinpointing Europe’s Social Unrest Hot-Spots
Thursday, 23 May 2013 08:41
No Comments

Following the ongoing rioting in until-now-calm Sweden, we thought it interesting to revisit the increasing chance of more broad-based social unrest in Europe. With the summer rapidly approaching, austerity still heavy in the air (well fauxsterity at least), there is a massive and growing divide not only between core and peripheral nations’ youth unemployment but also within a nation. For instance, while Greece tops the overall youth unemployment level in Europe, 4 of the Top 5 regions (some with youth unemployment levels of over 70%) are from Spain. As lip-service is paid to addressing this pressing issue by the French and Germans (who themselves are increasingly at loggerheads over policy), as Bloomberg’s Niraj Shah notes, the chasm between the rich and poor in Europe continues to gap ever wider.

(Read more…)

 

    



 
Europe’s Quantitative Easing
Thursday, 23 May 2013 07:57
No Comments

Submitted by Mark J. Grant, author of Out of the Box,

Most people do not think that Europe engages in Quantitative Easing. They know that the United States engages in it, that Britain engages in it and now that Japan engages in it but they think that Europe has so far refused to be involved. They think this because this is what they have been told. (Read more…) Unfortunately this is inaccurate.
 
The European Quantitative Easing takes place every day just not in the manner utilized by America and others. However, it takes place all the same and it is done in a manner to circumvent the rules of the European Union. This is also why the ECB has such a massive balance sheet.
 
What Europe has done is gotten around their own regulations which forbid the ECB from lending money directly to nations. This is supposed to be handled by the ESM and approved by the various parliaments. Since this is either politically impossible in some countries or politically a nightmare in others the ECB has concocted a scheme to bypass the political rules with all of Europe’s politicians blinking and nodding in silent agreement.
 
In Spain, as one example, the ECB lent the banks $172 billion. This was done by the country of Spain guaranteeing the debt of the banks and various bank securitizations and then the bank debt and the bank securitizations were pledged to the ECB who handed them back the cash. The money, in large part, has been used to buy the debt of Spain which, in fact, hands the sovereign back the cash. A good trick, an interesting ruse which is the major reason, perhaps the only reason, why the yield of Spain’s debt has declined.
 
In Greece, as another example, the same game has gone on. Not only does the EU not count contingent liabilities as part of a country’s debt to GDP ratio, where Greece has guaranteed the debt of their banks, but no inclusion is made of the money handed to the sovereign as a result of assets pledged at the ECB and funneled back to the sovereign nation. One more good trick!
 
Another ploy is what has happened in Belgium and various other countries.  Dexia got into trouble and Belgium, France and Luxembourg had to step up and lend the bank money. However it was not called a loan or termed a loan and was marked on their balance sheet as an “investment” so it actually increased the assets of the various countries as any proper categorization, a “loan,” would have raised their debt to GDP ratios. Magic abounds in Europe.
 
In fact all over Europe, in almost all of the countries, the ECB has accepted bank debt and corporate debt guaranteed by some nation and handed back cash to the banks that can either loan money to the sovereign or buy their debt in the open market when auctioned.
 
There is much ballyhoo that sovereign yields have gone lower because of the better economics in Europe. Europe is in a major recession. Even an idiot savant would not take this notion at face value and yet that is what is contended. The truth is that yields have gone lower because the ECB hands the banks money which is utilized to force them lower. The banks are just a conduit in this scheme; nothing more.
 
Now the ECB holds about 80% of their assets at face value declaring them “risk free.” This is another part of the farce because the banks get the money at the “risk free” rate of 100% of the loan or securitization. These securitizations include mortgages, commercial loans, construction loans, gyro stands in Athens and only God and perhaps Mr. Draghi and his band of merry men knowing what else is in them.
 
Make no mistake; Europe is fully engaged in Quantitative Easing.
 
There are rumors, snippets in the wind, that one or more of the French banks has gotten into trouble. Each time, perhaps, loans were securitized and handed to the ECB which handed cash bank to the bank or banks. It is impossible to know but with a banking system four times the size of the GDP of the nation it would not surprise me to find that certain items had been incorrectly categorized if not covered up.
 
Then let’s play out this scheme to its logical conclusion. The loans in the securitization do not pay. Bankrupt companies, Real Estate that has gone south, construction that has stopped and there is no ability to pay from the primary sources. Then what? More securitizations pledged, more cash handed out to the banks and new loans pay old loans and the scheme continues. The singular hope here is for growth and when none commences very bad things could happen.
 
‘Tis but a mid-summers night’s dream
Crafted by some clever bard
A pleasant slumber upon a balmy day
Pray tell what happens when the dreamer awakens?