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QUESTION: Marty, now the OECD is predicting a financial crash worse than the 2007-2009 event in Europe because they say there is over €1 trillion in bad loans that cannot be collected. They seem to be also changing their opinion to fit your model. Were they there in Berlin?

ANSWER: We cannot comment on if the OECD is following our model or whom has attended a World Economic Conference. They are the most widely attended and many just want to know where the computer stands.

We see a massive banking crisis. The European banks are in deep trouble. Deutsche Bank posted a shocking €6.7 billion euro loss with its shares falling 10% in a day. HSBC bought Republic National Bank in New York for a bit more than that. Barclay’s is pulling out of all emerging markets and cutting 1,000+ jobs.

The collapse in commodities will reek havoc on all emerging market countries, but there is one economy that nobody pays attention to closely: Germany. Yes, it is the largest economy and main supporter of the euro. They need open borders and the euro to maintain their economy that is EXPORT driven. China is advancing more rapidly than Germany and has focused on trying to develop its internal economy. Spain was the richest nation in Europe with all the gold coming in from America, but they failed to develop their internal economy and collapsed. Germany is declining. It cannot be sustained with open borders or the euro because the rest of Europe is in serious decline. The refugee crisis is a nightmare. Now, Italy is demanding taxpayer money to bailout banks in fear that a bail-in will cause a revolution.

Merkel was against allowing in refugees previously, but then changed her position to combat her poor view after her treatment of Greece. Additionally, she had the brilliant idea of bringing in cheap labor to help Germany.

…click on the above link to read the rest of the article…

Why We Need a Recession

January 20, 2016

Why We Need a Recession

According to the National Bureau of Economic Research (NBER), a recession is defined as a “significant decline in economic activity spread across the economy, lasting more than a few months.” Often, this is understood as two consecutive quarters of negative economic growth as measured by a country’s GDP.

Public opinion is generally quite simple in regard to recession: upswings are generally welcomed, recessions are to be avoided. The “Austrians” are however at odds with this general consensus — we regard recessions as healthy and necessary. Economic downturns only correct the aberrations and excesses of a boom. The benefits of recessions include:

Sclerotic structures in the labor market are broken up and labor costs decline.
Productivity and competitiveness increase.
Misallocations are corrected and unprofitable investments abandoned, written off, or liquidated.
Government mismanagement of the economy is exposed.
Investors and entrepreneurs who were taking too great risks suffer losses and prices adjust to reflect consumer preferences.
Recessions also allow a restructuring of production processes.

At the end of the corrective process, the foundation for a renewed upswing is more stable and healthy. We thus see deflationary corrections as a precondition for growth in prosperity that is sustainable in the long term. Ludwig von Mises understood this when he observed:

The return to monetary stability does not generate a crisis. It only brings to light the malinvestments and other mistakes that were made under the hallucination of the illusory prosperity created by the easy money.

Can the Government Save Face?

However, in addition to leading to true temporary hardship for the malinvestment-affected areas of the economy, an economic recession in the near future would represent a harsh loss of face for central bankers. Their controversial monetary policy measures were justified as an appropriate means to nurse the economy back to health. That is, their efforts to end or avoid helpful recessions were claimed to contribute to the eagerly awaited self-sustaining recovery.

…click on the above link to read the rest of the article…

The Oil Crash Of 2016 Has The Big Banks Running Scared

January 19, 2016

The Oil Crash Of 2016 Has The Big Banks Running Scared

Last time around it was subprime mortgages, but this time it is oil that is playing a starring role in a global financial crisis. Since the start of 2015, 42 North American oil companies have filed for bankruptcy, 130,000 good paying energy jobs have been lost in the United States, and at this point 50 percent of all energy junk bonds are “distressed” according to Standard & Poor’s. As you will see below, some of the big banks have a tremendous amount of loan exposure to the energy industry, and now they are bracing for big losses. And the longer the price of oil stays this low, the worse the carnage is going to get.

Today, the price of oil has been hovering around 29 dollars a barrel, and over the past 18 months the price of oil has fallen by more than 70 percent. This is something that has many U.S. consumers very excited. The average price of a gallon of gasoline nationally is just $1.89 at the moment, and on Monday it was selling for as low as 46 cents a gallon at one station in Michigan.

But this oil crash is nothing to cheer about as far as the big banks are concerned. During the boom years, those banks gave out billions upon billions of dollars in loans to fund exceedingly expensive drilling projects all over the world.

Now those firms are dropping like flies, and the big banks could potentially be facing absolutely catastrophic losses. The following examples come from CNN…

For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the “continued deterioration within the energy sector.”

…click on the above link to read the rest of the article…

Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount

January 18, 2016

Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount

Italian bank stocks are crashing (with BMPS down 40% year-to-date) as Reuters reports that investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid. The broad banking sector is down 4% with stocks suspended, and in light of this bloodbath, Italian regulators have decided in their wisdom, to ban short-selling of some bank stocks (which has driven hedgers into the CDS market, spking BMPS credit risk).

Italy’s banking index was down over 4 percent with shares in several lenders, including the country’s biggest retail bank Intesa Sanpaolo and the third biggest lender Banca Monte dei Paschi di Siena, suspended from trading after heavy losses.

Bloodbath for Italian financials in 2016…

But don’t worry:

*MONTE PASCHI CEO CONFIRMS FINANCIAL STABILITY OF BANK
*MONTE PASCHI CEO: STOCK DECLINE NOT JUSTIFIED BY FUNDAMENTALS

As Reuters reports,

Investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid.

Those concerns are trumping expectations about a wave of consolidation set to sweep the sector, with cooperative banks under pressure to merge following a government reform to reduce the number of lenders.

JP Morgan said this month Italian banks should be avoided because low rates are expected to put pressure on revenues more than in other countries and credit problems limit a recovery in provisions.

Traders have suggested exiting investments that have been particularly favoured, such as Popolare di Milano and Intesa, as the stocks have reached key supports.

“I think upside on cooperative banks this year is much more limited,” said a London-based equity sales person.

…click on the above link to read the rest of the article…

US Bank Counterparty Risk Soars After Energy MTM Debacle

January 17, 2016

US Bank Counterparty Risk Soars After Energy MTM Debacle

A few dots are starting to be connected now that we have exposed the debacle of The Fed’s decision to allow banks to mark-to-unicorn their energy loans. “Something” was wrong in recent weeks as the TED-Spread surged (implying rising counterparty uncertainty among banks) and then the last week – since The Fed’s alleged meeting with banks – has seen financial credit and stocks crash.

Coincidence? We don’t think so. In the week since The Fed gave the nod to banks to hide losses on energy loans, credit risk has spiked and stocks tumbled…

It is clear banks are hedging against one another’s systemic risk.

Simply put, it’s 2008 all-over-again as “when in doubt, sell ’em all” is back for the US financial system. When you know/question one bank (or some banks) is not transparent in their loan losses (and implicitly their capital ratios) then contagion (and collateral chains) tells any good fiduciary to sell them all – and the banks themselves will enable a vicious circle as they hedge.

And of course, the unintended consequence of The Fed’s decision to enable cheating in the banks’ energy loans is a surge in financial system instability as banks and the price of oil now become systemically more coupled.

The Citadel Is Breached: Congress Taps the Fed for Infrastructure Funding

January 17, 2016

The Citadel Is Breached: Congress Taps the Fed for Infrastructure Funding

In a landmark infrastructure bill passed in December, Congress finally penetrated the Fed’s “independence” by tapping its reserves and bank dividends for infrastructure funding.

The bill was a start. But some experts, including Congressional candidate Tim Canova, say Congress should go further and authorize funds to be issued for infrastructure directly.

For at least a decade, think tanks, commissions and other stakeholders have fought to get Congress to address the staggering backlog of maintenance, upkeep and improvements required to bring the nation’s infrastructure into the 21^st century. Countries with less in the way of assets have overtaken the US in innovation and efficiency, while our dysfunctional Congress has battled endlessly over the fiscal cliff, tax reform, entitlement reform, and deficit reduction.

Both houses and both political parties agree that something must be done, but they have been unable to agree on where to find the funds. Republicans aren’t willing to raise taxes on the rich, and Democrats aren’t willing to cut social services for the poor.

In December 2015, however, a compromise was finally reached. On December 4, the last day the Department of Transportation was authorized to cut checks for highway and transit projects, President Obama signed a 1,300-page $305-billion transportation infrastructure bill that renewed existing highway and transit programs. According to America’s civil engineers, the sum was not nearly enough for all the work that needs to be done. But the bill was nevertheless considered a landmark achievement, because Congress has not been able to agree on how to fund a long-term highway and transit bill since 2005.

That was one of its landmark achievements. Less publicized was where Congress would get the money: largely from the Federal Reserve and Wall Street megabanks. The deal was summarized in a December 1^st Bloomberg article titled “Highway Bill Compromise Would Take Money from US Banks”:

…click on the above link to read the rest of the article…

A Loophole Allows Banks – But Not Other Companies – to Create Money Out of Thin Air

January 16, 2016

A Loophole Allows Banks – But Not Other Companies – to Create Money Out of Thin Air

One of the Main Causes of Our Economic Problems

The central banks of the United States, England, and German – as well as 2 Nobel-prize winning economists – have all shown that banks create money out of thin air … even if they have no deposits on hand.

The failure of most governments and most mainstream economists to understand this fact – they instead believe the myth that people make deposits at their bank, and these deposits are then lent out to new borrowers – is the main cause of our rampant inequality and economic problems.

But how do banks actually make loans before they have sufficient deposits on hand?

Economics professor Richard Werner – the creator of quantitative easing – noted in September that the field of economics has been lost in the woods for an entire century because it has failed to understand how banks actually create money.

Professor wrote an academic paper in 2014 concluding:

What banks do is to simply reclassify their accounts payable items arising from the act of lending as ‘customer deposits’, and the general public, when receiving payment in the form of a transfer of bank deposits, believes that a form of money had been paid into the bank.

***

The ‘lending’ bank records a new ‘customer deposit’ and informs the ‘borrower’ that funds have been‘deposited’ in the borrower’s account. Since neither the borrower nor the bank actually made a deposit at the bank—nor, in connection with this transaction, anyone else for that matter, it remains necessary to analyse the legal aspects of bank operations. In particular, the legality of the act of reclassifying bank liabilities (accounts payable) as fictitious customer deposits requires further, separate analysis.

…click on the above link to read the rest of the article…

Let The Bail-Ins Begin

January 16, 2016

Let The Bail-Ins Begin

Portugal is starting to bail-in banks. The fascinating aspect that nobody seems to see is that this is a total failure of socialism. The U.S. Federal Reserve was formed in 1913, with the shareholders being the banks, to provide the cash needed to prevent bank failures. To stimulate the economy when the banks could not or would not lend, the Fed was supposed to buy CORPORATE notes. Then World War I came and the politicians ordered the Fed to buy government bonds. Of course, they never returned the Fed to its original purpose.

FDR usurped the Fed, placed it in Washington, and instituted a single national interest rate; each of the branches maintained a different interest rate to attract capital when there were shortages in one district. So it was common to see rates differ around the country based upon the local economic conditions. FDR also created the FDIC because the Fed failed to function during the Great Depression. The creation of the FDIC was sparked by bankers who were willing to let a New York bank fail in 1930 that happened to be named THE BANK OF THE UNITED STATES. Bank runs began nationwide as people assumed that this Bank of the United States was the government or Federal Reserve. The Bank of the United States was a Jewish banks and the other bankers wanted it to fail to get its business. When it was settled, the Bank of the United States eventually paid out 92 cents on the dollar.

Note: The blue tags show the start of when that issue was used in the index and do not reflect the date relative to the chart. Upon that issue date, the bond expired.

Then, for World War II, FDR ordered the Fed to support the U.S. bond market at PAR. Therefore, bonds rose during the war because of this support ordered by FDR.

…click on the above link to read the rest of the article…

With

Welcome To The New Normal: The Dow Crashes Another 390 Points And Wal-Mart Closes 269 Stores

January 16, 2016

Welcome To The New Normal: The Dow Crashes Another 390 Points And Wal-Mart Closes 269 Stores

Did you know that 15 trillion dollars of global stock market wealth has been wiped out since last June? The worldwide financial crisis that began in the middle of last year is starting to spin wildly out of control. On Friday, the Dow plunged another 390 points, and it is now down a total of 1,437 points since the beginning of this calendar year. Never before in U.S. history have stocks ever started a year this badly. The same thing can be said in Europe, where stocks have now officially entered bear market territory. As I discussed yesterday, the economic slowdown and financial unraveling that we are witnessing are truly global in scope. Banks are failing all over the continent, and I expect major European banks to start making some huge headlines not too long from now. And of course let us not forget about China. On Friday the Shanghai Composite declined another 3.6 percent, and overall it is now down more than 20 percent from its December high. Much of this chaos has been driven by the continuing crash of the price of oil. As I write this article, it has dipped below 30 dollars a barrel, and many of the big banks are projecting that it still has much farther to fall.

The other night, Barack Obama got up in front of the American people and proclaimed that anyone that was saying that the economy was not recovering was peddling fiction. Well, if the U.S. economy is doing so great, then why in the world has Wal-Mart decided to shut down 269 stores?…

Walmart (WMT) will close 269 stores around the world in a strategic move to focus more on its supercenters and e-commerce business, the company said Friday.

…click on the above link to read the rest of the article…

2016 Will Be A ‘Cataclysmic Year’ And ‘Investors Should Be Afraid’

January 13, 2016

2016 Will Be A ‘Cataclysmic Year’ And ‘Investors Should Be Afraid’

The Royal Bank of Scotland is telling clients that 2016 is going to be a “cataclysmic year” and that they should “sell everything”. This sounds like something that you might hear from The Economic Collapse Blog, but up until just recently you would have never expected to get this kind of message from one of the twenty largest banks on the entire planet. Unfortunately, this is just another indication that a major global financial crisis has begun and that we are now entering a bear market. The collective market value of companies listed on the S&P 500 has dropped by about a trillion dollars since the start of 2016, and panic is spreading like wildfire all over the globe. And of course when the Royal Bank of Scotland comes out and openly says that “investors should be afraid” that certainly is not going to help matters.

It amazes me that the Royal Bank of Scotland is essentially saying the exact same thing that I have been saying for months. Just like I have been telling my readers, RBS has observed that global markets “are flashing the same stress alerts as they did before the Lehman crisis in 2008″…

RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that the major stock markets could fall by a fifth and oil may reach US$16 a barrel.

The bank’s credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008.

So what should our response be to these warning signs?

According to RBS, the logical thing to do is to “sell everything” excerpt for high quality bonds…

…click on the above link to read the rest of the article…

The International War on Cash

January 12, 2016

The International War on Cash

Back in 2008, I began warning of increasing capital controls that we would see in the future, as a component in the decline of Western economies (Western in the broad sense, including Japan, Australia, etc.)

Along the way, it occurred to me that, at some point, governments might collectively attempt to eliminate paper currency in favour of an electronic currency – transferred from party to party solely through licensed banks. Sound farfetched? Well, maybe, but what if the U.S. and EU agreed on an overall plan, then suggested it to other governments? On the face of it, this smacks of conspiracy theory, yet certainly, all governments would benefit from this control and would be likely to get on board. In fact, it might prove to be the only way out of their present economic problems.

So, how would it play out? Here’s roughly how I saw Phase I:

Link the free movement of cash to terrorism (Create a consciousness that any movement of large sums suggests criminal activity.);
Establish upper limits on the amount of money that can be moved without reporting to some government investigatory agency;
Periodically lower those limits;
Accustom people to making all purchases, however small or large, through a bank card;
Create a consciousness that the mere possession of cash is suspect, since it’s no longer “necessary”.

When I first wrote on the subject, there was considerable criticism as to the possibility that such a programme would ever be attempted, let alone succeed. And, granted, it was so Orwellian that it was understandably seen as a crackpot idea. But since that time, the programme has been developing extremely rapidly. In the last six months alone, it has become so visible that it has even garnered a name – “the War on Cash”.

…click on the above link to read the rest of the article…

“Bail-ins Begin”: Interviews with Greg Hunter and Thom Hartmann

January 10, 2016

“Bail-ins Begin”: Interviews with Greg Hunter and Thom Hartmann

My Dec. 29th article “Bail-ins Begin” prompted two video interviews, with Greg Hunter on USAWatchdog.com, and Thom Hartmann, below.

Fork the Economy

January 8, 2016

I’ve given up on fixing the economy. The economy is not broken. It’s simply unjust. There’s a difference.

We have to stop looking at our economy as a broken system, but one that is working absolutely true to its original design. It’s time to be progressive — and this means initiating systemic changes.

For example, Bernie Sanders’ well-meaning calls to rein in the banking industry by restoring the Federal Reserve’s function as a “regulatory agency” reveals the Left’s inability to grasp the true causes for today’s financial woes. We are not witnessing capitalism gone wrong — an otherwise egalitarian currency system has not been corrupted by greedy bankers — but, rather, capitalism doing exactly what it was programmed to do from the beginning. To fix it, we would have to dig down to its most fundamental code, and rewrite it to serve people instead of power.

First off, the role of the Federal Reserve was never to serve as an “agency.” It’s not like the Environmental Protection Agency, which is charged with regulating corporate destruction of the natural world — however woefully it may be carrying out that purpose. Rather, the Fed is a private corporation — a banker’s bank owned by the banks — created to guarantee the value of currency. It was built to serve the dollar and maintain its value by fighting inflation. When the Fed is feeling magnanimous, it can also lend extra money into existence, in the hope that it will be invested in enterprises that employee people.

The actions of the Fed, however, are limited by the way our money, central currency, was designed to work. It was developed back before the Industrial Age, as a waning European aristocracy sought to stem the rise of the merchant middle class.

…click on the above link to read the rest of the article…

Brave New World of Bank Bail-Ins As Of January 1st

January 5, 2016

Brave New World of Bank Bail-Ins As Of January 1st

On January 1st, 2016, the new bail-in regime became law putting at risk the deposits of savers and companies in the EU.

EU countries join the UK, the U.S., Canada, Australia and New Zealand in having plans for bail-ins in the event of banks and other large financial institutions getting into difficulty. It is now the case that in the event of bank failure, personal and corporate deposits could be confiscated.

The bail-in architecture was seen in the Cyprus bank bail-ins that were seen in 2003. Then, deposits of over €100,000 were confiscated in “haircuts” in order to bail out banks in Cyprus. Now the exact same principles that were used in Cyprus – which we were told was unique and a one off – are going to apply to all of Europe.

Bail-ins and the risks they pose have largely been ignored in most of the media. In one of the very few articles on bail-ins in recent days, Hugh Dixon of Reuters Breaking Views has looked at bail-ins but has focused on the “political risks” rather than that posed to savers and indeed company depositors:

The European Union entered a brave new world of bank “bail-ins” at the start of 2016. Europe has wasted so much taxpayers’ money on bailing out bust banks in recent years that it is right to try to get investors to help foot the bills in future. However, the tough new regime carries big political risks.

The article, ‘EU enters brave new world of bank bail-ins’, is interesting despite ignoring the financial and economic risk of bail-ins – they would likely be very deflationary in a world already beset by deflation – and can be accessed here
Download Our Must Read Bail-In Guides Here:

Protecting Your Savings In The Coming Bail-In Era

From Bail-Outs To Bail-Ins: Risks and Ramifications

Are We Headed for Another Bust?

January 5, 2016

Are We Headed for Another Bust?

On Wednesday December 16, 2015, Federal Reserve Bank policymakers raised the federal funds rate target by 0.25 percent to 0.5 percent for the first time since December 2008. There is the possibility that the target could be lifted gradually to 1.25 percent by December next year.

Fed policymakers have justified this increase with the view that the economy is strong enough and can stand on its own feet. “The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident the inflation will rise over the medium term to its 2 percent objective,” the Fed said in its policy statement.

Unwarranted Optimism

Various key economic indicators such as industrial production don’t support this optimism. The yearly growth rate of production fell to minus 1.2 percent in November versus 4.5 percent in November last year. According to our model the yearly growth rate could fall to minus 3.4 percent by August.

Although the yearly growth rate of the CPI rose to 0.5 percent in November from 0.2 percent in October according to our model the CPI growth rate is likely to visibly weaken.

The yearly growth rate is forecast to fall to minus 0.1 percent by April before stabilizing at 0.1 percent by December next year.

So from this perspective Fed policymakers did not have much of a case to tighten their stance.

%Chng US Industrial Production YOY

Fed policymakers seem to be of the view that the almost zero federal funds rate and their massive monetary pumping has cured the economy, which now seems to be approaching a path of stable economic growth and price stability, so it is held.

With this way of thinking the role of monetary policy is to make sure that the economy is kept at the “correct path” over time.

Following in Greenspan’s Footsteps

…click on the above link to read the rest of the article…

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