By Christopher R Rice, Underground
I’ve been re posting articles about the causes of this upcoming economic crash but it’s a lot to read through so I’m putting the highlights together, kind of connecting the dots for you and then I’ll give you links to the original articles / my sources for further research.
The appearance of prosperity means nothing if the fundamentals do not support the optimism. That is to say, a bullish stock market, a high dollar index and a low unemployment percentage mean nothing.
I relate these points because the future I am about to suggest here might sound outlandish to some, because it is so contrary to the “official” accounting of our current financial world.
David Stockman: Well, a lot of people said in 1999, “Yeah, maybe there’s a little bit of froth out there.” But, you don’t understand this time is different and then within three months, devastating collapse. Remember they called it the “Goldilocks Economy” in late 2007/2008? You had the Chairman of the Council of Economic Advisors saying, “No recession in sight anywhere,” in June. Okay, so no one sees it coming until suddenly there is an event, a black swan, something unexpected or unpredicted that tells everybody that the emperor is naked. You know who is naked? The Fed. They’re running a con game.
The stock market, the greatest false indicator of all time, is on the verge of implosion; and the banking elites are positioning themselves to avoid blame for this implosion while the rest of us are being sold on the most elaborate recovery con-game ever conceived.
People need to understand the threat is at their doorstep. It’s not a few years off or a decade away; it’s here now. We are right in the middle of collapse.
1.) Our financial system is based on a pyramid of debt, and we have allowed Wall Street to operate like a giant casino. Our entire economy has essentially become a colossal Ponzi scheme.
A rather minor business cycle slowdown in 1994 was fought with a tidal wave of new credit under Fed chairman Alan Greenspan. That ultimately resulted in the Dot Com Bubble crash of 2000, but the lesson went unlearned.
Instead the Fed concluded that the idea was sound, but was simply not taken far enough. The elite cheerleading squad, captained by Paul Krugman, fully supported a doubling down, and the corporate media unquestioningly went along with the program.
So Greenspan and Bernanke created the Housing Bubble 1.0 by offering the world’s credit markets a price of money so low it couldn’t be refused. Housing was the story, and the Fed supplied the credit.
As predicted by a scant few of us, that all blew up spectacularly in 2008. And no constructive lessons were drawn from that experience, either.
With the political aircover to “save the system” (from the problems that it created!), Bernanke, Yellen, Kuroda and Draghi then led the most aggressive, coordinated central bank bender in all of human history.
Trillions and trillions were printed up, and many times that amount were leveraged and loaned.
Here we all are; stuck together in a world awash with credit. $250 trillion in debt. Four times that amount in unfunded liabilities. And a mind-bogglingly massive amount of tangled financial derivatives roughly the same size as both those debts and liabilities put together.
2.) Most people simply don’t understand the gravity of the situation. Nothing was ever fixed after the last financial crisis. Instead, we went on the greatest debt binge that humanity has ever seen, and central banks started creating trillions of dollars out of thin air and recklessly injected that hot money into the financial system.
In response to the financial crisis of 2008, the Fed under Chairman Ben Bernanke launched an aggressively expansionist monetary policy designed to prop up the financial system, the securities markets, and the broader economy. Hinging on massive purchases of government bonds to push interest rates near zero, this policy is frequently referred to as quantitative easing.
CNBC: The numbers are daunting if not shocking: $12.3 trillion of money printing, nearly $10 trillion in negative-yielding global bonds, 654 interest rate cuts since Lehman Brothers collapsed in 2008.
Those actions have resulted in global growth in advanced economies that likely won’t eclipse 2 percent this year, inflation levels that remain well below targets and a burgeoning global debt problem that remains unresolved, withstood only through the lowest interest rates the world has seen in 5,000 years.
Flooding the market with trillions of new fiat currency units and pushing interest rates to zero for the greater part of a decade made a new crisis inevitable.
So now we are in the terminal phase of the largest financial bubble in human history, and there is no easy way out.
And that is why our leaders have been piling on the debt and global central banks have been recklessly creating money.
Debt brings consumption from the future into the present, and so it increases short-term economic activity at the expense of long-term financial health.
CNBC: Total household debt rose by $193 billion to an all-time high of $13.15 trillion at year-end 2017. The highest total ever, even more than was owed right before the crash in 2007.
But it is inevitable that our bad choices would catch up with us, and the pain that we are going to experience is going to be absolutely off the charts.
This crash will be unlike anything the world has ever seen. Put simply, there has never been this much debt in the system (hundreds of trillions worldwide), so there will be no historical precedence for the crash.
3.) Global stocks are falling precipitously once again, and banking stocks are leading the way. If this reminds you of 2008, it should, because that is precisely what we witnessed back then. Banking stocks collapsed as fear gripped the marketplace, and ultimately many large global banks had to be bailed out either directly or indirectly by their national governments as they failed one after another. The health of the banking system is absolutely paramount, because the flow of money is our economic lifeblood. When the flow of money tightens up during a credit crunch, the consequences can be rapid and dramatic just like we witnessed in 2008.
So let’s keep a very close eye on banking stocks. Global systemically important bank stocks surged in the aftermath of Trump’s victory in 2016, but now they are absolutely plunging. They are now down a whopping 27 percent from the peak, and that puts them solidly in bear market territory.
U.S. banking stocks are not officially in bear market territory yet, but they are getting close. At this point, they are now down 17 percent from the peak…
The US KBW Bank index, which tracks large US banks and serves as a benchmark for the banking sector, is down 2.5% at the moment. It has dropped 17% from its post-Financial Crisis high on January 29.
Of course European banking stocks are doing much worse. Right now they are down 27 percent from the peak and 23 percent from a year ago. The following comes from Wolf Richter…
But unlike their American brethren, the European banks have remained stuck in the miserable Financial Crisis mire – a financial crisis that in Europe was followed by the Euro Debt Crisis. The Stoxx 600 bank index, which covers major European banks, including our hero Deutsche Bank, has plunged 27% since February 29, 2018, and is down 23% from a year ago
I wish that we didn’t have a global economic system that was so dependent on the “too big to fail” banks, but we do.
If they aren’t healthy, nobody is going to be healthy for long, and it is starting to look and feel a whole lot like 2008.
But unlike 2008, we also have a global trade war to contend with.
4.) I have previously warned my readers that the damage caused by this trade war would get progressively worse the longer that it lasts.
Many companies have been trying to ride it out, but eventually the money runs out and layoffs start happening…
Anyone who thought that this trade war would not have very serious consequences was just fooling themselves. According to one source, tariffs paid by U.S. businesses are up 45 percent compared to a year ago.
Investors were initially giddy about Trump’s promises of fiscal stimulus, deregulation of energy, health care, and financial services, and steep cuts in corporate, personal, estate, and capital-gains taxes.
According to the nonpartisan Tax Policy Center, almost half of the benefits from Trump’s proposed tax cuts would go to the top 1% of income earners.
Yet the corporate sector’s animal spirits may soon give way to primal fear: the market rally is already running out of steam.
5.) Under Trump, fiscal deficits have pushed up interest rates and the dollar even further, and hurt the economy in the long term.
Trump’s fiscal stimulus has fueled inflation more than it has growth. Inflation forced the Federal Reserve to hike up interest rates sooner and faster than it otherwise would have done, which has drove up long-term interest rates and the value of the dollar still more.
This undesirable policy mix of excessively loose fiscal policy and tight monetary policy tightens financial conditions, hurting blue-collar workers’ incomes and employment prospects.
It is worth remembering how America’s 1930 Smoot-Hawley Tariff Act triggered global trade wars that exacerbated the Great Depression.
The Nobel laureate economist Edmund S. Phelps has described Trump’s direct interference in the corporate sector as reminiscent of corporatist Nazi Germany and Fascist Italy.
To be sure, expectations of stimulus, lower taxes, and deregulation did boost the economy and the market’s performance in the short term. But, as the vacillation in financial markets indicates, the president’s inconsistent, erratic, and destructive policies have taken their toll on domestic and global economic growth in the long run.
The stock markets worst enemy is unpredictability and Trump is considered to be very unpredictable. Can you feel it? How greed is now giving way to fear?
Additionally, an increasingly interconnected world economy means that the spark that ignites a stock market plunge in the U.S. can be lit anywhere around the globe.
6.) The Great Crash of 1929 is mostly associated with plummeting stock prices on two consecutive trading days, “Black Monday” and “Black Tuesday,” October 28 and 29, 1929, in which the Dow fell 13% and 12%, respectively. But this was only the most dramatic episode in a longer term bear market.
After peaking at a value of 381.17 on September 3, 1929, the Dow eventually would hit bottom on July 8, 1932, at 41.22, for a cumulative loss of 89%. It would take until November 23, 1954 – over 25 years later – for the Dow to regain its pre-crash high. The Great Crash is generally considered to be one of the factors contributing to the onset of the Great Depression of the 1930s.
Concerned about speculation in the stock market, the Federal Reserve “responded aggressively” with tight money policies starting in 1928, which helped to spark the Great Crash, per the Federal Reserve Bank of San Francisco (FRBSF). Moreover, in 1929 the Fed pursued a policy of denying credit to banks that extended loans to stock speculators, according to Federal Reserve History.
Former FED chairman Alan Greenspan, is among those who now warn that, by continuing this easy money policy for years after the 2008 crisis was stemmed, the Fed has created new financial asset bubbles.
Janet Yellen Warns Another Financial Crisis Could Be Brewing (Fortune)
Janet Yellen, former chairwoman of the Federal Reserve, is sounding a warning bell about another financial crisis in the making, saying the loss of authority by banking regulators and the move toward deregulation are worrisome.
Yellen pointed to leverage loans—those extended to businesses with weaker credit—as a primary area of concern, since regulators are currently powerless to address them at the top level. Instead, they can only focus on problems at individual banks.
“I think things have improved, but then I think there are gigantic holes in the system,” Yellen told a New York audience Monday night, as quoted by CNBC. “I’m not sure we’re working on [the leverage loan issue] in the way we should, and then there remain holes, and then there’s regulatory pushback. So I do worry that we could have another financial crisis.”
The IMF‘s latest Financial Stability Report, is a surprisingly candid discussion on the topic of whether “Rising Medium-Term Vulnerabilities Could Derail the Global Recovery”, which is a politically correct way of saying the financial system is on the verge of crashing.
When there is fear and panic in the air, lending tends to really tighten up, and a major credit crunch is just about the last thing that we need right now.
It’s been really bad for global markets so far, and more trouble is brewing. Hold on to your hats, because it looks like it is going to be a bumpy ride ahead.
7.) 1 January 2018 is the date when a host of new regulations are set to come in force, which will “constrain lending ability and prompt banks to only advance money to the best borrowers, which could accelerate bankruptcies worldwide,” according to Bloomberg. Other rules to come in play will require banks to stop using their own international risk assessment measures for derivatives trading.
Ironically, the introduction of similar well-intentioned regulation in January 2008 (through Basel II) laid the groundwork to rupture the global financial architecture, making it vulnerable to that year’s banking collapse.
After January 2018, we are seeing the probability of a new crisis convergence in global energy, economic and food systems.
Today, we are all supposed to quietly believe that the economy is in ‘recovery.’
If the U.S. economy collapses, you would not have access to credit.
Banks would close. Demand would outstrip supply of food, gas and other necessities. If the collapse affected local governments and utilities, then water and electricity would no longer be available. As people panic, they would revert to survival and self-defense modes. The economy would return to a traditional economy, where those who grow food barter for other services.
A U.S. economic collapse would create global panic. Demand for the dollar and U.S. Treasurys would plummet. Interest rates would skyrocket. Investors would rush to other currencies, such as the yuan, euro or even gold. It would create not just inflation, but hyperinflation as the dollar became dirt cheap.
8.) The global selloff has erased $5 trillion from stock and bond markets in October alone!
By unilaterally manipulating interest rates and the money supply, central banks create the monetary conditions leading to economic booms that become economic busts. And they do a great job of concealing the fact that they usually initiate the bust through their own actions as well.
We’ve never seen anything like the current bubble we’re in. Stocks, bonds, real estate, fine art, you name it — nearly everything has been inflated to all-time highs. When this Everything Bubble pops, the pain is going to be especially calamitous.
And it’s increasingly looking like the “pop” has sounded.
Now that the world’s central banking cartel is taking a long-overdue pause from printing money and handing it to the wealthy elite, the collection of asset price bubbles nested within the Everything Bubble are starting to burst.
The cartel (especially the ECB and the Fed) is hoping it can gently deflate these bubbles it created, but that’s a fantasy. Bubbles always burst badly; it’s their nature to do so. Economic suffering and misery always accompany their termination.
It’s said that “every bubble is in search of a pin”. History certainly shows they always manage to find one.
Greed on the way up and then fear on the way down. But neither has much influence without a tempting yarn and a lot of easy credit.
In their quest for power and glory (and accompanied by a dead-flat learning curve), the world’s central banks are now pursuing their third, largest, and most ill-considered attempt to defeat the business cycle by replacing it with a credit cycle. The fact that the prior two credit cycles blew up spectacularly doesn’t seem to be deterring them in the slightest.
How bad will it get? Honestly, pretty damn bad. Worse than 2000 and worse than 2008.
The 2008 crisis, which was about consumer debt, was triggered by mortgages. We still have consumer debt crisis problems ahead, adding the next financial crisis is likely to be in corporate debt.
The credit cycle is just that much larger this time.
The recent market volatility is just the beginning of the downslide.
Just “printing less” is causing the major stock indexes to stumble, while plunging the peripheral emerging markets into bear market territory.
And China increasingly has less and less motivation to help the US financial elites by rescuing their markets for them. Besides, the Chinese authorities have their own massive collapsing bubbles to contend with right now.
9.) The globalists have stretched the whole of the world thin. They have removed almost every pillar of support from the edifice around us, and like a giant game of Jenga, are waiting for the final piece to be removed, causing the teetering structure to crumble. Once this calamity occurs, they will call it a random act of fate, or a mathematical inevitability of an overly complex system. They will say that they are not to blame. That we were in the midst of “recovery”. That they could not have seen it coming.
With almost every major economy on the globe on the verge of collapse and most now desperately inflating, taxing, or outright stealing in order to hide their situation, with multiple tinderbox environments being facilitated in the Pacific with China, North Korea, and Japan, and in the Middle East and Africa with Egypt, Syria, Iran, Pakistan, Yemen, Mali, etc., there is no doubt that we are living in a linchpin-rich era. It is inevitable that one or more of these explosive tension points will erupt and cause a chain reaction around the planet. The linchpin and the chain reaction will become the focus of our epoch, rather than the men who made them possible in the first place.
In the economic arena, one might say that the collapse of Lehman Bros. was the “linchpin” that triggered the landslide in the derivatives market which is still going on to this day. However, the derivatives market bubble was a carefully constructed house of cards, deliberately created with the help of multiple agencies and institutions. The private Federal Reserve had to artificially lower interest rates and inject trillions upon trillions into the housing market, the international banks had to invest those trillions into mortgages that they KNEW were toxic and likely never to be repaid. The Federal Government had to allow those mortgages to then be chopped up into derivatives and resold on the open market. The ratings agencies had to examine those derivatives and obviously defunct mortgages and then stamp them AAA. The SEC had to ignore the massive fraud being done in broad daylight while sweeping thousands of formal complaints and whistle blowers under the rug.
This was not some “random” event caused by uncontrolled “complexity”. This was engineered complexity with a devious purpose. The creation of the derivatives collapse was done with foreknowledge, at least by some. Goldman Sachs was caught red handed betting against their OWN derivatives instruments! Meaning they knew exactly what was about to happen in the market they helped build!
Many of these organizations and corporations operate a revolving door within the U.S. government. Monsanto has champions, like Donald Rumsfeld who was on the board of directors of its Searle Pharmaceuticals branch, who later went on to help the company force numerous dangerous products including Aspartame through the FDA. Goldman Sachs and JP Morgan have a veritable merry-go-round of corrupt banking agents which are appointed to important White House and Treasury positions on a regular basis REGARDLESS of which party happens to be in office.
10.) Very few Americans have any significant savings today. Most live on credit and those with savings have it stored in financial instruments that will be wiped out as the bankers collapse the system to hide the theft they have been involved in for decades. Those who think they will retire with their IRA, pensions or social security will suddenly find them all gone never to return leaving them with no means to care for themselves.
Those that own very few assets free and clear will become the new homeless as they become jobless and default on all of their credit obligations. All of the social safety nets that exist now to keep people fat and happy will fail leaving mobs of people to roam the streets to seek out what they need to survive. One only has to look at Venezuela today to see where this will all lead.
Understanding what will likely happen and insuring you have a plan to deal with it is the only hope you will have of coming through the coming bad years in tact. Those who trust in government or only live for today will reap what they sow and it will be unpleasant at best if they survive at all. A simple strategy to insure you do not suffer does not have to be expensive or complicated. The best plans are simple and allow you to adapt to the changing times.
When the next great depression hits it will be unlike anything we have lived through before. Nothing will be as it seems and only those that have the resources to adapt will come through it whole. Preparation is the key to adapting to future events and those without resources will reap a bitter harvest as they struggle to survive. No announcements will be made, no warnings will be given by the establishment, it will just suddenly happen out of the blue and everyone will say it was unpredictable. But those who prepared will know better.
History shows, pundits obsess over what precisely triggers a crash, as if that matters. It doesn’t, because ’cause’ of a bubble’s bursting can be anything.
Remember, the markets always surge before the crash. We’ve had the surge, so we know what comes next.
Click for more: How to Prepare
Click for more: Survival skills
HOW DID THIS HAPPEN?
Once the US stopped being the world’s largest industrial powerhouse, ceding ground first to Germany and Japan, then to China, it went along accumulating prodigious levels of debt, essentially confiscating and spending the world’s savings, while defending the US dollar with the threat of violence. It was, for a time, understood that the exorbitant privilege of endless money printing needs to be defended with the blood of American soldiers. The US saw itself, and positioned itself, as the indispensable country, able to control and to dictate terms to the entire planet, terrorizing or blockading various other countries as needed. Now all of these ideological shibboleths are in shambles.
• The pro-democracy rhetoric is still dutifully spouted by politicians and mass-media mouthpieces, but in practice the US is no longer a democracy. It has been turned into a lobbyist’s paradise in which the lobbyists are no longer confined to the lobby but have installed themselves in congressional offices and are drafting prodigious quantities of legislation to suit the private interests of corporations and oligarchs. Nor is the American penchant for democracy traceable in the support the US lavishes on dictatorships around the world or in its increasing tendency to enact and enforce extraterritorial laws without international consent.
• Laissez-faire capitalism is also very much dead, supplanted by crony capitalism nurtured by a thorough melding of Washington and Wall Street elites. Private enterprise is no longer free but concentrated in a handful of giant corporations while about a third of the employed population in the US works in the public sector. The US Department of Defense is the largest single employer in the country as well as in the whole world. About 100 million of working-age able-bodied Americans do not work. Most of the rest work in service jobs, producing nothing durable. An increasing number of people is holding onto a precarious livelihood by working sporadic gigs. The whole system is fueled—including parts of it that actually produce the fuel, such as the fracking industry—by debt. No sane person, if asked to provide a workable description of capitalism, would come up with such a derelict scheme.
• Free trade was talked up until very recently, if not actually implemented. Unimpeded trade over great distances is the sine qua non of all empires, the US empire included. In the past, warships and the threat of occupation were used to force countries, such as Japan, to open themselves up to international trade. Quite recently, the Obama administration was quite active in its attempts to push through various transoceanic partnerships, but none of them have succeeded. And now Trump has set about wrecking what free trade there was by a combination of sanctions and tariffs, in a misguided attempt to rekindle America’s lost greatness by turning inward. Along the way, sanctions on the use of the US dollar in international trade, especially with key energy exporting nations such as Iran and Venezuela, are accelerating the process by which the US dollar is being dethroned as the world’s reserve currency, demolishing America’s exorbitant privilege of endless money-printing.
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