Russia and China have just signed what is being called “the gas deal of the century”, and the two countries are discussing moving away from the U.S. dollar and using their own currencies to trade with one another. This has huge implications for the future of the U.S. economy, but the mainstream media in the United States is being strangely quiet about all of this. For example, I searched CNN’s website to see if I could find something about this gas deal between Russia and China and I did not find anything. But I did find links to “top stories” entitled “Celebs who went faux red” and “Adorable kid tugs on Obama’s ear“. Is it any wonder why the mainstream media is dying? If a particular story does not fit their agenda, they will simply ignore it. But the truth is that this new agreement between Russia and China is huge. It could end up fundamentally changing the global financial system, and not in a way that would be beneficial for the United States.
The former chief economist at the World Bank, Justin Yifu Lin, is advising the Chinese government that the time has come for a single global currency. Lin, who is also a professor at Peking University, says that the U.S. dollar “is the root cause of global financial and economic crises” and that moving to a “global super-currency” will bring much needed stability to the global financial system. And considering how recklessly the Federal Reserve has been pumping money into the global financial system and how recklessly the U.S. government has been going into debt, it is hard to argue with his logic. Why would anyone want to trust the United States to continue to run things after how badly we have abused our position? The United States has greatly benefited from having the de facto reserve currency of the planet for the past several decades, but now that era is coming to an end. In fact, the central bank of China has already announced that it will no longer be stockpiling more U.S. dollars. The rest of the world is getting tired of playing our game. Our debt is wildly out of control and we are creating money as if there was no tomorrow. As the rest of the world starts moving away from the U.S. dollar, global power is going to shift even more to the East, and that is going to have very serious consequences for ordinary Americans.
Did you know that financial institutions all over the world are warning that we could see a “mega default” on a very prominent high-yield investment product in China on January 31st? We are being told that this could lead to a cascading collapse of the shadow banking system in China which could potentially result in “sky-high interest rates” and “a precipitous plunge in credit“. In other words, it could be a “Lehman Brothers moment” for Asia. And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion. That is an increase of $14 trillion in just a little bit more than 5 years. Much of that “hot money” has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?
Is the global economic downturn going to accelerate as we roll into the second half of this year? There is turmoil in the Middle East, we are seeing things happen in the bond markets that we have not seen happen in more than 30 years, and much of Europe has already plunged into a full-blown economic depression. Sadly, most Americans will never understand what is happening until financial disaster strikes them personally. As long as they can go to work during the day and eat frozen pizza and watch reality television at night, most of them will consider everything to be just fine. Unfortunately, the truth is that everything is not fine. The world is becoming increasingly unstable, we are living in the terminal phase of the greatest debt bubble in the history of the planet and the global financial system is even more vulnerable than it was back in 2008. Unfortunately, most people seem to only have a 48 hour attention span at best these days. They don’t have the patience to watch long-term trends develop. And the coming economic collapse is not going to happen all at once. Rather, it is like watching a very, very slow-motion train wreck happen. The coming economic nightmare is going to unfold over a number of years. Yes, there will be moments of great panic, but mostly it will be a steady decline into economic oblivion. And there are a lot of indications that the second half of this year is not going to be as good as the first half was. The following are 19 reasons to be deeply concerned about the global economy as we head into the second half of 2013…
Do you want to know the primary reason why rapidly rising interest rates could take down the entire global financial system? Most people might think that it would be because the U.S. government would have to pay much more interest on the national debt. And yes, if the average rate of interest on U.S. government debt rose to just 6 percent (and it has actually been much higher in the past), the federal government would be paying out about a trillion dollars a year just in interest on the national debt. But that isn’t it. Nor does the primary reason have to do with the fact that rapidly rising interest rates would impose massive losses on bond investors. At this point, it is being projected that if U.S. bond yields rise by an average of 3 percentage points, it will cause investors to lose a trillion dollars. Yes, that is a 1 with 12 zeroes after it ($1,000,000,000,000). But that is not the number one danger posed by rapidly rising interest rates either. Rather, the number one reason why rapidly rising interest rates could cause the entire global financial system to crash is because there are more than 441 TRILLION dollars worth of interest rate derivatives sitting out there. This number comes directly from the Bank for International Settlements – the central bank of central banks. In other words, more than $441,000,000,000,000 has been bet on the movement of interest rates. Normally these bets do not cause a major problem because rates tend to move very slowly and the system stays balanced. But now rates are starting to skyrocket, and the sophisticated financial models used by derivatives traders do not account for this kind of movement.
According to a study that was just released by Boston Consulting Group, the wealthiest one percent now own 39 percent of all the wealth in the world. Meanwhile, the bottom 50 percent only own 1 percent of all the wealth in the world combined. The global financial system has been designed to funnel wealth to the very top, and the gap between the wealthy and the poor continues to expand at a frightening pace. The global elite continue to hoard wealth and heap together enormous mountains of treasure in these troubled days even though the economic suffering around the planet continues to grow. So exactly how have the global elite accumulated so much wealth? Well, one of the primary ways is through the use of debt. As I have written about previously, there is about 190 trillion dollars of debt in the world but global GDP is only about 70 trillion dollars. Our debt-based global financial system systematically transfers wealth from us and our governments into the hands of the global elite. And of course the gigantic banks and corporations that the elite control are constantly gobbling up everything of value that they can find: natural resources, profitable small businesses, real estate, politicians, etc. Money, power, ownership and control are becoming very, very tightly concentrated at the top of the food chain, and that is a very dangerous thing for humanity. When too much money and power gets into too few hands, it almost always results in tyranny.
A new set of regulations that most people have never even heard of that was developed by an immensely powerful central banking organization that most people do not even know exists is going to have a dramatic effect on the global financial system over the next several years. The new set of regulations is known as “Basel III”, and it was developed by the Bank for International Settlements. The Bank for International Settlements has been called “the central bank for central banks”, and it is headquartered in Basel, Switzerland. 58 major central banks (including the Federal Reserve) belong to the Bank for International Settlements, and the decisions made in Basel often have more of an impact on the direction of the global economy than anything the president of the United States or the U.S. Congress are doing. All you have to do is to look back at the last financial crisis to see an example of this. Basel II and Basel 2.5 played a major role in precipitating the subprime mortgage meltdown. Now a new set of regulations known as “Basel III” are being rolled out. The implementation of these new regulations is beginning this year, and they will be completely phased in by 2019. These new regulations dramatically increase capital requirements and significantly restrict the use of leverage. Those certainly sound like good goals, the problem is that the entire global financial system is based on credit at this point, and these new regulations are going to substantially reduce the flow of credit. The only way that the giant debt bubble that we are all living in can continue to persist is if it continues to expand. By restricting the flow of credit, these new regulations threaten to burst the debt bubble and bring down the entire global economy.
Somebody out there is sure getting prepared for something really big. We have just witnessed a takedown of gold and silver unlike anything that we have witnessed in decades. On Monday, the price of gold had fallen by more than 10 percent at one point. It shocked investors all over the globe, and overall what we have just seen was the largest two day decline in the price of gold in 30 years. The price of silver dropped even more rapidly on Monday. It was down more than 14 percent at one point. There was an atmosphere of “panic selling” as investors and financial institutions raced to liquidate their holdings of silver and gold. But was this exactly what someone out there wanted? As I wrote about the other day, big banks and news outlets all over the world have been boldly proclaiming for weeks that gold is entering a “bear market” and that now is the time for all of us to sell our gold. In particular, Goldman Sachs reportedly told their clients earlier this month that they “recommend initiating a short COMEX gold position“. Was that just a “good guess” on their part, or was something else going on? Were they actually trying to help create a “selling frenzy” that would drive the price of gold much lower?
Why is the global economy in so much trouble? How can so many people be so absolutely certain that the world financial system is going to crash? Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail. In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts. So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts. Overall, there is about 190 trillion dollars of total debt on the planet. But global GDP is only about 70 trillion dollars. And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars. So we have a gigantic problem on our hands. The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives. We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing. And when it falls, it is going to be the largest financial disaster in the history of the planet.
Is the financial system of Europe on the verge of a meltdown? I have always maintained that the next wave of the economic crisis would begin in Europe, and right now the situation in Europe is unraveling at a frightening pace. On Monday, European stocks had their worst day in over six months, and over the past four days we have seen the EUR/USD decline by the most that it has in nearly seven months. Meanwhile, scandals are erupting all over the continent. A political scandal in Spain, a derivatives scandal in Italy and banking scandals all over the eurozone are seriously shaking confidence in the system. If things move much farther in a negative direction, we could be facing a full-blown financial crisis in Europe very rapidly. So watch the financial markets in Europe very carefully. Yes, most Americans tend to ignore Europe because they are convinced that the U.S. is “the center of the universe”, but the truth is that Europe actually has a bigger population than we do, they have a bigger economy then we do, and they have a much larger banking system than we do. The global financial system is more integrated today than it ever has been before, and if there is a major stock market crash in Europe it is going to deeply affect the United States and the rest of the globe as well. So pay close attention to what is going on in Europe, because events over there could spark a chain reaction that would have very serious implications for every man, woman and child on the planet.
An immensely powerful international organization that most people have never even heard of secretly controls the money supply of the entire globe. It is called the Bank for International Settlements, and it is the central bank of central banks. It is located in Basel, Switzerland, but it also has branches in Hong Kong and Mexico City. It is essentially an unelected, unaccountable central bank of the world that has complete immunity from taxation and from national laws. Even Wikipedia admits that “it is not accountable to any single national government.” The Bank for International Settlements was used to launder money for the Nazis during World War II, but these days the main purpose of the BIS is to guide and direct the centrally-planned global financial system. Today, 58 global central banks belong to the BIS, and it has far more power over how the U.S. economy (or any other economy for that matter) will perform over the course of the next year than any politician does. Every two months, the central bankers of the world gather in Basel for another “Global Economy Meeting”. During those meetings, decisions are made which affect every man, woman and child on the planet, and yet none of us have any say in what goes on. The Bank for International Settlements is an organization that was founded by the global elite and it operates for the benefit of the global elite, and it is intended to be one of the key cornerstones of the emerging one world economic system. It is imperative that we get people educated about what this organization is and where it plans to take the global economy.
The mainstream media in the United States is almost totally ignoring one of the most important trends in global economics. This trend is going to cause the value of the U.S. dollar to fall dramatically and it is going to cause the cost of living in the United States to go way up. Right now, the U.S. dollar is the primary reserve currency of the world. Even though that status has been chipped away at in recent years, U.S. dollars still make up more than 60 percent of all foreign currency reserves in the world. Most international trade (including the buying and selling of oil) is conducted in U.S. dollars, and this gives the United States a tremendous economic advantage. Since so much trade is done in dollars, there is a constant demand for more dollars all over the globe from countries that need them for trading purposes. So the Federal Reserve is able to flood our financial system with dollars without it causing a tremendous amount of inflation because the rest of the world ends up soaking up a lot of those dollars. But now that is changing. China and Russia have been spearheading a movement to shift away from using the U.S. dollar in international trade. At the moment, the shift is happening gradually, but at some point a tipping point will come (for example if Saudi Arabia were to declare that it will no longer take U.S. dollars for oil) and the entire global financial system is going to change. When that tipping point comes the global demand for U.S. dollars is going to absolutely plummet and nightmarish inflation will come to the United States. If such a scenario sounds far out to you, then you have not been paying attention. In fact, China and Russia have been working very hard to move us toward exactly such a scenario.
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.
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….
We always knew that the financial markets were rigged, but this is getting ridiculous. It is now being alleged that 20 major banks have been systematically fixing global interest rates for years. Barclays has already been fined hundreds of millions of dollars for manipulating Libor (the London Inter Bank Offered Rate). But Barclays says that a whole bunch of other banks were doing this too. This is shaping up to be the biggest financial scandal in history, and criminal investigations have been launched on both sides of the Atlantic. What those investigations are likely to uncover could shake the financial markets to their very core. In the end, this scandal could absolutely devastate confidence in the global financial system and it could potentially bring down a number of major global banks. We have never seen anything quite like this before.
What Is Libor?
As mentioned before, Libor is the London Inter Bank Offered Rate. A recent Washington Post article contained a pretty good explanation of what that means….
In the simplest terms, LIBOR is the average interest rate which banks in London are charging each other for borrowing. It’s calculated by Thomson Reuters — the parent company of the Reuters news agency — for the British Banking Association (BBA), a trade association of banks and financial services companies.
Our world is becoming increasingly unstable, and millions of Americans are feverishly preparing for what they consider to be “the end of the world as we know it”. In fact, it is estimated that there are now approximately 3 million “preppers” in the United States. But for people that have never done much prepping before, getting started can be both confusing and intimidating. In fact, I get more questions about prepping than anything else. People are constantly asking me how they can prepare for the difficult times that are coming. Well, in this article I have compiled 120 powerful pieces of advice for preppers. No two situations are exactly the same, and almost every prepper approaches preparation differently, but there are some basic principles that apply to almost everyone. And without a doubt, a lot of people that are not preparing now are going to regret it in the years ahead. The global financial system is falling apart, the United States and Europe are absolutely drowning in debt, earthquakes and volcanic eruptions are becoming more frequent, signs of social decay are everywhere and war could erupt in the Middle East at any time. Actually, it is absolutely amazing that there are so many people out there that still believe that “prepping” is not necessary.
The recent elections in France and in Greece have thrown the global financial system into an uproar. Fear and worry are everywhere and nobody is quite sure what is going to happen next. All of the financial deals that Greece has made over the past few years may be null and void. Nobody is going to know for sure until a new government is formed, and at this point it looks like that is not going to happen and that there will need to be new elections in June. All of the financial deals that France has made over the past few years may be null and void as well. New French President Francois Hollande seems determined to take France on a path away from austerity. But can France really afford to keep spending money that it does not have? France has already lost its AAA credit rating and French bond yields have started to move up toward dangerous territory. And Greek politicians are delusional if they think they have any other choice other than austerity. Without European bailout money (which they won’t get if they don’t honor their current agreements), nobody is going to want to lend Greece a dime.
If you enjoy watching financial doom, then you are quite likely to really enjoy the rest of 2012. Right now, red flags are popping up all over the place. Corporate insiders are selling off stock like there is no tomorrow, major economies all over Europe continue to implode, the IMF is warning that the eurozone could actually break up and there are signs of trouble at major banks all over the planet. Unfortunately, it looks like the period of relative stability that global financial markets have been enjoying is about to come to an end. A whole host of problems that have been festering just below the surface are starting to manifest, and we are beginning to see the ingredients for a “perfect storm” start to come together. The greatest global debt bubble in human history is showing signs that it is getting ready to burst, and when that happens the consequences are going to be absolutely horrific. Hopefully we still have at least a little bit more time before the global financial system implodes, but at this point it doesn’t look like anything is going to be able to stop the chaos that is on the horizon.
Well, it is official. The restructuring deal between Greece and private investors has been pushed through and the International Swaps and Derivatives Association has ruled that this is a credit event which will trigger credit-default swap contracts. The ISDA is saying that there are approximately $3.2 billion in credit-default swap contracts on Greek debt outstanding, and most analysts expect that the global financial system will be able to absorb these losses. But still, 3.2 billion dollars is nothing to scoff at, and some of these financial institutions that wrote a lot of these contracts on Greek debt are going to be hurting. This deal with private investors may have “rescued” Greece for the moment, but the consequences of this deal are going to be felt for years to come. For example, now that Greece has gotten a sweet “haircut” from private investors, politicians in Portugal, Italy, Spain and other European nations are going to wonder why they shouldn’t get some “debt forgiveness” too. Also, private investors are almost certainly going to be less likely to want to loan money to European nations from now on. If they will be required to take a massive haircuts at some point, then why in the world would they want to lend huge amounts of money to European governments at super low interest rates? It simply does not make sense. Now that Greece has defaulted, the whole game is going to change. This is just the beginning.
The global financial system is not a game of checkers. It is a game of chess. All over the world today, news headlines are proclaiming that this new Greek debt deal has completely eliminated the possibility of a chaotic Greek debt default. Unfortunately, that is simply not the case. Rather, the truth is that this new deal actually “sets the table” for a Greek debt default. When I was studying and working in the legal arena, I learned that sometimes you make an agreement so that you can get the other side to break it. That may sound very strange to the average person on the street, but this is how the game is played at the highest levels. It is all about strategy. And in this case, the new debt deal imposes such strict conditions on Greece that it is almost inevitable that Greece will fail to meet some of them. When Greece does fail, Germany and the other northern European nations may try to claim that they “did everything that they could” but that Greece just did not “live up to its obligations”. So does this mean that we will definitely see a chaotic Greek debt default? No. What this does mean is that the chess pieces are being moved into position for one.