Can you hear that?  It almost sounds like a little bit of peace and quiet.  This year, the holiday season has been fairly uneventful, and for that we should be very grateful.  But it isn’t going to last long.  2012 is going to be a much more difficult year for the U.S. economy and the global financial system than 2011 has been.  So if things are going well for you right now, enjoy this little bubble of peace and tranquility while you can.  Because while things may look calm on the surface right now, the truth is that this is a very scary Christmas for financial professionals and world leaders.  Most of them know how fragile the global financial system is at the moment.  Most of them know that we are living in the greatest bubble of debt, leverage and financial risk that the world has ever seen.  As I wrote about the other day, world leaders would not be throwing huge bailouts around like crazy if everything was going to be just fine.  The truth is that we are rapidly approaching another financial crisis that may end up being even worse than the horrific crash of 2008.

Despite unprecedented efforts by the European Central Bank, the yield on 10 year Italian bonds is nearly up to 7 percent again.

Keep an eye on the yield on 10 year Italian bonds.  That is going to be one of the most important financial numbers in the world in the coming months.

But Italy is not the only problem.  The reality is that several European governments are teetering on the verge of default right now.  Meanwhile, confidence in the European financial system has been absolutely shattered and a devastating credit crunch has set in.  Nobody (other than the ECB) wants to loan money to the banks and the banks are massively cutting back on loans to businesses and consumers.  This is causing the money supply to fall.  The ECB is trying to hold things together with chicken wire and duct tape, but it isn’t going to work.

In major financial centers such as the City of London, this is a very scary Christmas and the outlook for the new year looks very frightening.  Because financial activity has dried up so dramatically, a number of firms are already shutting down.  The following comes from a recent Bloomberg article….

London’s stockbrokers are shrinking as Europe’s sovereign debt crisis and competition from international firms squeezes revenue and fees.

“This isn’t just a blip, this is much worse,” said Tim Linacre, who is stepping down as chief executive officer of Panmure (PMR) Gordon & Co., a 135-year-old brokerage. “It’s a desert for activity, which is why you are seeing some firms throw in the towel.”

In the past month, Altium Capital closed its securities unit. Evolution Group Plc (EVG), Merchant Securities Group Plc, Arbuthnot Securities Ltd. and Collins Stewart Hawkpoint Plc have all accepted takeover offers from larger competitors.

“It feels worse than any other time,” said Lorna Tilbian, an executive director at Numis Corp. who began her career in 1984. “All I hear about is people putting up a white flag.”

Many out there are wondering if we are about to face another crisis like the one we saw back in 2008.

Unfortunately, none of the underlying problems that caused that crisis were ever really fixed.

We did not learn from history so now we are in for another round of pain.

In fact, Chris Martenson believes that this next crisis will be even worse than 2008….

There are clear signs of a liquidity crunch in the asset markets right now, and the question I keep hearing is, Is this 2008 all over again?

No, it’s worse. Much worse.

In 2008 there was a lot more faith and optimism upon which to draw. But both have been squandered to significant degrees by feckless regulators and authorities who failed to properly address any of the root causes of the first crisis even as they slathered layer after layer of thin-air money over many of the symptoms.

Anyone who has paid attention knows that those “magic potions” proved to be anything but. Not only are the root causes still with us (too much debt, vast regional financial imbalances, and high energy prices), but they have actually grown worse the entire time.

Frightening stuff.

A couple of months ago, I wrote about the coming derivatives crisis that could potentially wipe out the entire global financial system.

When the next great financial crisis strikes, there is going to be a lot of focus on derivatives once again.

Top global financial authorities such as Ben Bernanke continue to insist that derivatives are perfectly safe.

But there are other voices in the financial world that are warning that we are heading for financial armageddon.  For example,just check out what Mark Faber is saying….

“I am convinced the whole derivatives market will cease to exit. Will become zero. And when it happens I don’t know: you can postpone the problems with monetary measures for a long time but you can’t solve them… Greece should have defaulted – it would have sent a message that not all derivatives are equal because it depends on the counterparty.”

That is very strong language.

Faber also believes that the stock market is going to get hit really, really hard during the coming crisis….

“I am ultra bearish. I think most people will be lucky if they still have 50% of their money in 5 years time. You have to have diversification – some real estate in the countryside, some gold and some equities because if you think it through, say Germany 1900 to today, we had WWI, we had hyperinflation, WWII, cash holders and bondholders they lost everything 3 times, but if you owned equities you’d be ok. In equities in general you will not lose it all, it may not be a good investment, unless you put it all in one company and it goes bankrupt.”

Some of the top financial officials in the entire world have also used some very scary language in recent weeks.

The head of the International Monetary Fund, Christian Lagarde, recently stated that we could soon see conditions “reminiscent of the 1930s depression” and that no country on earth “will be immune to the crisis”….

“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating”

But most people are so busy opening up the cheap plastic presents under their Christmas trees (that were mostly made overseas) that they aren’t even paying attention to these warnings.

Look, when the money supply falls significantly it is almost impossible to avoid a recession.  Just look at the historical numbers.

Unfortunately, money supply numbers all over Europe are falling dramatically right now as an article in the Telegraph recently noted….

All key measures of the money supply in the eurozone contracted in October with drastic falls across parts of southern Europe, raising the risk of severe recession over coming months.

Confidence in the banking system in Europe has never been this low in the post-World War II era.  Sadly, most people simply do not understand how bad things have gotten for major European banks.  One Australian news source recently put it this way….

“If anyone thinks things are getting better, they simply don’t understand how severe the problems are,” a London executive at a global bank said. “A major bank could fail within weeks.”

Others said many continental banks, including French, Italian and Spanish lenders, were close to running out of the acceptable forms of collateral, such as US Treasury bonds, that could be used to finance short-term loans.

Some have been forced to lend out their gold reserves to maintain access to US dollar funding.

The outlook is very ominous.

Financial professionals all over the globe are telling us what is coming if we are willing to listen.

The following comes from a report recently produced by Credit Suisse’s Fixed Income Research unit….

“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”

The first six months of 2012 are going to be a very key time.  National governments and big European banks are scheduled to roll over huge mountains of debt.  But if they can’t find any takers that could bring the global financial system to a moment of great crisis very quickly.

The following is how former hedge fund manager Bruce Krasting recently described the problem that Italy is facing….

At this point there is zero possibility that Italy can refinance any portion of its $300b of 2012 maturing debt. If there is anyone at the table who still thinks that Italy can pull off a miracle, they are wrong. I’m certain that the finance guys at the ECB and Italian CB understand this. I repeat, there is a zero chance for a market solution for Italy.

But even if we don’t see a formal default by a major European nation such a Italy, that doesn’t mean that major European banks are going to make it through the crippling recession that has now begun in Europe.

Charles Wyplosz, a professor of international economics at Geneva’s Graduate Institute, is absolutely convinced that we are going to see some major European banks collapse….

“Banks will collapse, including possibly a number of French banks that are very exposed to Greece, Portugal, Italy and Spain.”

Authorities in Europe are saying the “right things” publicly, but privately they are preparing for the worst.

As the Telegraph recently reported, the British government is now making plans based on the assumption that a collapse of the euro is only “just a matter of time”….

Yes, we are heading for a huge financial collapse and massive economic trouble.

So enjoy the good times while we still have them.

They are not going to last too much longer.

The Economic Collapse

Welcome my friends to the collapse of 2011.

Remember the mantra that “consumers have delevered” which has been run over the last two years as an incessant bark from the media, attempting to goad you, the consumer, into more spending and more consumption to “lift the economy.”

This claim has been a lie and a fraud upon the public and the new Fed Z1 makes this clear.  The peak household credit liability was $13.92 trillion.  It currently stands at $13.30 trillion, a reduction of a mere 4.6%.

This all came from home mortgages going ka-boom; $10.6 trillion to $9.9 trillion, a reduction of $700 billion.  Total net reduction in liability was $620 billion; ex-mortgages consumer leverage has actually increased.

The DAX is now down nearly 10% in two days and the rest of the global markets are reacting in the same sort of fashion.  This should not surprise; the same mantra of “we’ve de-levered” and “cash is at all time highs on the sidelines” has been claimed for years, and it’s the worst sort of half-truth.

See, cash is indeed at high levels.  But debt has gone higher, and yet nobody mentions the liability side.  As an example non-financial business credit stands at $11.02 trillion, just barely down from the 2008 high of $11.15 trillion – and nearly a clean double from the year 2000 level of $6.21 trillion.

There’s been no material “de-levering” at all.  In fact the World Economic Forum claimed that in order to hit the “expected” GDP growth numbers we would have to double outstanding credit – that is, add $100 trillion in the next ten years.

But all credit comes with interest due, which means it is a forward promise to pay tomorrow for that which you wish to consume in some form or fashion today.  This interest is a drag on growth as it forces transfer payments from the debtor to the creditor.

Now look closely at the following chart.

This is updated with the latest Z1.  You’ve seen this chart dozens of times, and I’ll get to history in a minute.  But the ominous part of the chart is in fact right there… and you’ll probably miss it.

But first, here’s history up until 1980:

Note that while credit rose through the 1950s and 60s, so did GDP.  And while the first seeds of the bubble game were apparent in in the 1970s, up until 1975 or so there was no manifestation of the sort of bubble economics that created this mess, and indeed we actually had a quarter in 1977 when we increased output as much as we increased debt.

Here’s 1980 forward:

Note the incessant bubble economics since 1980.  In fact 1980 was the last time (other than during the depths of the collapse in 08 and 09) that we actually put in a single three month period where there was more economic growth than there was new debt creation.

To those who claim that modern fiat monetary systems demand this sort of dynamic, go back to the chart above it.  We’ve been on fiat money since the 1930s, and yet we ran through the 1950s, 1960s, and part of the 1970s with the monetary and credit system in balance.  It can be done but doing so requires that your growth be real and a function of production – not bubble finance.

Here’s the problem you probably missed in the first chart though - see that red box?  We topped out at the end of last year and turned downward.  This pattern is the same one that we saw in 2007, but from much higher levels.  We’re in big trouble folks, right here and now, and this data is always three months behind.

What’s worse is the corporate balance sheet picture:

Note that corporate equity value compared against assets has gone back into “bubble” mode and leverage is again expanding.

Indeed, we’re above the levels of 2007 and trying to break out from the 09/10 levels.  More-importantly we’re well beyond double the leverage level that for forty years was a reasonable “lid” on corporate leverage levels.

Claims that corporations have “de-levered” are also a lie, and this puts stock prices at extreme risk, as they are at present predicated on nothing more than the lie that “everything is ok” rather than tangible business valuations.

Finally, we have this from El-Erian:

The facts are striking and worrisome. Private institutions around the world, and even some public ones, have sharply reduced short-term lending to French banks. Credit markets now put their risk of default at levels indicative of a BB rating, which is fundamentally inconsistent with sound banking operations. Bank equity now trades at a 50 per cent discount to tangible book value on average. To make things worse, the ratio of market capital to total assets has fallen to 1 – 1.5 per cent (compared with six to eight per cent for healthier banks).

Right.  But that equity value discount is not limited to French banks, as El-Erian is talking about.  It is in fact even worse here in the United States, where we have major banks trading at one third of alleged “book value.”

As I have repeatedly pointed out were these balance sheets accurate anyone with money could make an instant 100% or greater profit by simply buying these companies up.  It’s not happening, which means that either all of those with capital are individually and collectively stupid or the balance sheets are lies.

JP Morgan is trading this morning at prices seen in 2008 after Lehman’s failure.  So is Bank of America, Goldman Sachs, Morgan Stanley, Citibank and others.  And this morning – now FedEx is as well!

A couple of weeks ago I opined that were you caught “long” equities you’d likely get another opportunity to unload them at reasonable prices before all hell broke loose.  It appears that yesterday was that opportunity in the morning, as we’re now trading seventy S&P points, or about 6.6%, below where we were yesterday morning.  You’ve once again had your 401k and IRA whacked by the incessant lies and scams promulgated by your government and the “financial wizards” who seduced you back into the markets with half-truths and siren songs.

The market opened this morning down 300+ DOW points and the VIX slammed through the 40 level.  There will clearly be bounces along the line but as things stand right now the underlying financial conditions have not changed one iota from where they were in 2007.  Instead of allowing those who were overlevered to go bust and have capitalism do what it does best – creative destruction of the foolish – we instead took private effectively-defaulted risk and transferred it to the public balance sheet.

But that’s a scam – it simply moves the deck chairs on the economic Titanic, because governments can only raise funds through two means: They can borrow money (increasing leverage) or they can tax it (decreasing consumption or investment by private parties.)  The obvious “borrow it” choice was made here in the US and elsewhere, but just as with private borrowing government borrowing has limits and we’re now running into them, and deficit spending creates false demand signals in the economy that must eventually end.

Recognition that you’ve been scammed can be a truly ugly thing.  It is usually violent at an emotional and financial level, and more often than one would like it has a habit of being violent in the physical sense as well.

Well, America (and the world), you’ve been scammed by the financial institutions and governments for the last 30 years.  2008 was the first spasm of recognition but was short-circuited by…. you guessed it…. even more scams.  Rather than demand truth and an end to the games the American consumer lapped up the frauds and schemes of the politicians on both sides of the aisle who conspired with the financiers to rip you off once again.

The opportunity to address these issues as I have been tirelessly attempting to do, was ignored by those in policy roles in Washington DC.  Those who have been reading The Ticker are well-aware of my efforts going back into 2007 and through the 2008 Presidential campaign on both sides of the aisle, along with my efforts since.

They’ve been ignored with the political establishment choosing to knob-job the banks and lie to you, the public, rather than address the fact that the entire last 30 years have been one gigantic economic scam and that what they were attempting to do could not, as a matter of mathematics, succeed.

Now recognition of that fact is dawning on people in a convulsive fashion, and markets of all sorts are reacting as one would expect when their entire worldview is exposed as having been a gigantic and intentional pyramid scheme constructed of debt layered upon debt that cannot be paid down.  The wrong thing was done in 2008 and there is zero evidence that our government has changed one iota in their singular focus on misdirection and lies in this regard.

Welcome to awareness; I hope you’ve taken the last couple of years to become prepared.

Will global financial markets reach a breaking point during the month of October?  Right now there are all kinds of signs that the financial world is about to experience a nervous breakdown.  Massive amounts of investor money is being pulled out of the stock market and mammoth bets are being made against the S&P 500 in October.  The European debt crisis continues to grow even worse and weird financial moves are being made all over the globe.  Does all of this unusual activity indicate that something big is about to happen?  Let’s hope not.  But historically, the biggest stock market crashes have tended to happen in the fall.  So are we on the verge of a “Black October”?

The following are 21 signs that something big is about to happen in the financial world and that global financial markets are on the verge of a nervous breakdown….

#1 We are seeing an amazing number of bets against the S&P 500 right now.  According to CNN, the number of bets against the S&P 500 rose to the highest level in a year last month.  But that was nothing compared to what we are seeing for October.  The number of bets against the S&P 500 for the month of October is absolutely astounding.  Somebody is going to make a monstrous amount of money if there is a stock market crash next month.

#2 Investors are pulling a huge amount of money out of stocks right now.  Do they know something that we don’t?  The following is from a report in the Financial Post….

Investors have pulled more money from U.S. equity funds since the end of April than in the five months after the collapse of Lehman Brothers Holdings Inc., adding to the $2.1 trillion rout in American stocks.

About $75 billion was withdrawn from funds that focus on shares during the past four months, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group, and EPFR Global, a research firm in Cambridge, Massachusetts. Outflows totaled $72.8 billion from October 2008 through February 2009, following Lehman’s bankruptcy, the data show.

#3 Siemens has pulled more than half a billion euros out of two major French banks and has moved that money to the European Central Bank.  Do they know something or are they just getting nervous?

#4 On Monday, Standard & Poor’s cut Italy’s credit rating from A+ to A.

#5 The European Central Bank is purchasing even more Italian and Spanish bonds in an attempt to cool down the burgeoning financial crisis in Europe.

#6 The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank have announced that they are going to make available an “unlimited” amount of money to European commercial banks in October, November and December.

#7 So far this year, the largest bank in Italy has lost over half of its value and the second largest bank in Italy is down 44 percent.

#8 Angela Merkel’s coalition is getting embarrassed in local elections in Germany.  A recent poll found that an astounding 82 percent of all Germans believe that her government is doing a bad job of handling the crisis in Greece.  Right now, public opinion in Germany is very negative toward the bailouts, and that is really bad news for Greece.

#9 Greece is experiencing a full-blown economic collapse at this point.  Just consider the following statistics from a recent editorial in the Guardian….

Consider first the scale of the crisis. After contracting in 2009 and 2010, GDP fell by a further 7.3% in the second quarter of 2011. Unemployment is approaching 900,000 and is projected to exceed 1.2 million, in a population of 11 million. These are figures reminiscent of the Great Depression of the 1930s.

#10 In 2009, Greece had a debt to GDP ratio of about 115%.  Today, Greece has a debt to GDP ratio of about 160%.  All of the austerity that has been imposed upon them has done nothing to solve their long-term problems.

#11 The yield on 1 year Greek bonds is now over 129 percent.  A year ago the yield on those bonds was under 10 percent.

#12 Greek Deputy Finance Minister Filippos Sachinidis says that Greece only has enough cash to continue operating until next month.

#13 Italy now has a debt to GDP ratio of about 120% and their economy is far, far larger than the economy of Greece.

#14 The yield on 2 year Portuguese bonds is now over 17 percent.  A year ago the yield on those bonds was about 4 percent.

#15 China seems to be concerned about the stability of European banks.  The following is from a recent Reuters report….

A big market-making state bank in China’s onshore foreign exchange market has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, two sources told Reuters on Tuesday.

#16 European central banks are now buying more gold than they are selling.  This is the first time that has happened in more than 20 years.

#17 The chief economist at the IMF says that the global economy has entered a “dangerous new phase“.

#18 Israel has dumped 46 percent of its U.S. Treasuries and Russia has dumped 95 percent of its U.S. Treasuries.  Do they know something that we don’t?

#19 World financial markets are expecting that the Federal Reserve will announce a new bond-buying plan this week that will be designed to push long-term interest rates lower.

#20 If some wealthy investors believe that the Obama tax plan has a chance of getting through Congress, they may start dumping stocks before the end of this year in order to avoid getting taxed at a much higher rate in 2012.

#21 According to a study that was recently released by Merrill Lynch, the U.S. economy has an 80% chance of going into another recession.

When financial markets get really jumpy like this, all it takes is one really big spark to set the dominoes in motion.

Hopefully nothing really big will happen in October.

Hopefully global financial markets will not experience a nervous breakdown.

But right now things look a little bit more like 2008 every single day.

None of the problems that caused the financial crisis of 2008 have been fixed, and the world financial system is more vulnerable today than it ever has been since the end of World War II.

As I wrote about yesterday, the U.S. economy has never really recovered from the last financial crisis.

If we see another major financial crash in the coming months, the consequences would be absolutely devastating.

We have been softened up and we are ready for the knockout blow.

Let’s just hope that the financial world can keep it together.

We don’t need more economic pain right about now.

The Economic Collapse

Are you prepared yet?

No?

Well I’m sorry, because it’s too late now.

I mean really, honestly too late.

The market figured it out and it didn’t take very long – in fact, it took less than an hour.

This latest distortion by The Fed has just destroyed the last bit of earnings power the banks had.  It’s gone.  All to preserve the ponzi scheme in the Federal Government – the same Federal Government that just sent a bleat to Bernanke about tampering with the economy.

The very same legislators that will now do nothing about what was just done.

You got that?  They will do nothing.

What did Bernanke’s act tell us?

He burned the furniture for warmth today.  He and the rest of the Fed cabal are done; this was the card that was known to do much more damage than it could ever help anyone – or anything.  He burned the furniture to allow the Federal Government Ponzi to continue for one more year while utterly screwing the private lending industry of all sorts from banks on down.

There is no shortage of lendable money.  There hasn’t been since this entire mess began.  The problem was that money was too easy, not too tight, and people ran into the wall on their ability to pay.

You cannot drink yourself sober.

The game is over folks.  Europe is now the lynchpin between here and the SPX at 500, and that’s a short-term stop between here and an entirely-possible outcome of where it began in 1980.

That’s S&P 100, not 500, and Dow 800.

I know what the comments are going to be on this statement already: That can’t happen because of divisors.

Oh really?  It sure can happen as companies go bankrupt and get replaced, then the replacements collapse too.

Those “high fliers” that held up reasonably well today?  My advice is to sell them while they’re still way up, before they wind up way down.  $100 in S&P 500 earnings next year?  You’re on drugs gentlemen.

To those who say it can’t happen I will point out that there were lots of 50% gap-down opens in the 2000-2003 time frame. Fortunately I wasn’t long any of them when they happened but I assure you that just as they’ve happened many times before they will again.

I will also point out that in 2007 and early 2008 the same people who made these very same claims kept you long and in the market as you watched 60% of your portfolio vanish.

We still refuse to fact the fact that we have twice as much debt in the system as a whole as we can sustain and four times as much in political promises on top of that and neither private enterprise (read: Banks) or government, on either side of the aisle, will cut the crap out.

I’ll go ahead and make the prediction now: This time will be worse than 2008 and we’ll measure from SPX 1370, which makes the minimum downside target under 600.  And no, this time it won’t recover with more “hopium” and fraud – that card has already been played which means the pension funds and annuities across this nation are going to get smoked, exactly as I warned about four years ago.

There are some very ominous rumblings coming from the European continent this morning.

First, Greece has the mother and father of all inverted yield curves, with the 1 year now trading at or near an implied 100% interest rate.

That’s not really news though – it’s been there for the last few days.

The new news is that some of the T-Bill auctions they ran were technical fails, with failures to place the entire offering.

This is no longer a liquidity event.  It is now a “no money in the checking account” event.

Greece’s attempt to elicit “voluntary” rollovers is under doubt as well.

The underlying error and problem is that authorities both in Europe and here have refused to take my counsel (and that of few other people, as the economic world seems to be prone before the banksters) on enforcing one dollar of capital with the banking institutions in question.

Coupled with balance sheet lies this means that there is severe and imminent risk of a complete collapse initiating somewhere in the European banking system.  That, in turn, is why the screaming from the IMF and others about the “need” to take various emergency actions to prevent a Greek default.

But there is no preventing a Greek default.

Greece passed that event horizon more than a year ago.

The lesson in here is that the technical point where one passes beyond the event horizon and thus default is inevitable occurs quite a bit earlier than recognition of that fact in the markets, or among the governments in question.

There is something we had better pay attention to here in the United States embedded in this episode, providing that the banking system in Europe survives this excursion and thus it matters to us in the intermediate term.

That lesson is:

• You will not know at the time in question that default is inevitable, which is the exact point I’ve made now for four years – fiscal consolidation always drives the ratios the wrong way for a while.  This makes it impossible for anyone to give you an exact point beyond which you’re screwed.  In turn this means you must not dance close to the edge of the cliff, lest you step over the line and the apparent solid ground under you disappear.
• You must not permit institutions to lie about their exposures and valuation of their alleged “assets.”  You’d think we learned this in 2008, but we did not.  We had damn well better learn it quickly, and act on it – right now.  We still have a window on this in the United States but it is closing rapidly.  If we do not learn this lesson from what is going on over in Europe we are absolutely fooked when this dynamic moves over here, and it inevitably will, perhaps within weeks or months rather than years.
• We must move toward One Dollar of Capital.  Yes, that’s going to piss off the banksters who will no longer be able to lever up on the back of the taxpayer.  Too damn bad.  This is the source of the socialized losses and all of the “tanks in the streets” threats and it must end.  This is not about social justice or any such thing – it is about the fact that the banksters, if allowed to continue this behavior, will bankrupt nations through this process.  If you doubt they will then you doubt Greece’s problems are real, but they clearly are.  You can’t have this one both ways folks.

I am getting extremely pessimistic in the intermediate term with regard to markets – in particular credit markets and then the economy as a whole.  This is not simply due to the ongoing and un-paid for “stimulus” measures, including Obama’s latest demands.

It is due to the fact that financial terrorism has become the means of survival for these large banking institutions and we have not only continued to negotiate with the terrorists, we have given into their demands on a serial basis both here and abroad.

Despite some better-than-expected macro data overnight (admittedly marginal), investors continue to retreat from any European exposure as sovereign stress leads to financial stress and drags non-financials into an austerity-driven slowdown. The snaps wider in credit markets are very reminiscent of crises past when being hedged at any cost was more important than any short-term trade opportunity.

It appears we are entering an endgame of sorts and with the vitriol from Merkel (isn’t considering possibility of Euro Breakup), Draghi (don’t ‘expect’ bond purchases forever), Schaeuble (Tobin Tax is warranted, aid is conditional, and Euro ‘joint liability’ won’t fix crisis) growing louder and more strained and where decisions are being forced on a broad swathe of desperate politicians and bankers by a market-driven maelstrom.

Both equity and credit markets are bearing the brunt but credit seems the most aggressively beaten down (beta adjusted):

Main +12 to 177bps

XOver +44 to 738bps (handily wider than a closed HY now for over a week)

SovX +13 to 322bps

SENFIN +20 to 266bps

SUBFIN +33 to 476bps

Main Ex-FINLs +10 to 155bps

Germany +5 to 83.5bps

France +14 to 184bps

PIIGS (average) +18 to 1002bps

GDP-weighted European sovereign risk is breaking to new wides at 260bps (as Greek 10Y spreads among others make new Euro-era wides):

As we have noted in the past, short-sale bans don’t work – French and Spanish banks on the list are now notably negative:

European equity indices are a sea of red:

And ES is hurting overnight (retracing more than 50% of the recent swing low-to-high):

Chart gallery courtesy of Bloomberg

ZeroHedge

Goldman Sachs is doing it again.  Goldman is telling the public that everything is going to be just fine, but meanwhile they are advising their top clients to bet on a huge financial collapse.  On August 16th, a 54 page report authored by Goldman strategist Alan Brazil was distributed to institutional clients.  The general public was not intended to see this report.  Fortunately, some folks over at the Wall Street Journal got their hands on a copy and they have filled us in on some of the details.  It turns out that Goldman Sachs secretly believes that an economic collapse is coming, and they have some very interesting ideas about how to make money in the turbulent financial environment that we will soon be entering.  In the report, Brazil says that the U.S. debt problem cannot be solved with more debt, that the European sovereign debt crisis is going to get even worse and that there are large numbers of financial institutions in Europe that are on the verge of collapse.  If this is what people at the highest levels of the financial world are talking about, perhaps we should all start paying attention.

There is a tremendous amount of fear in the global financial community right now.  As I wrote about the other day, the financial world is about to hit the panic button.  Things could start falling apart at any time.  Most of these big banks will not admit how bad things are publicly, but privately there is a whole lot of freaking out going on.

According to the Wall Street Journal, Brazil believes that “as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China’s growth may not be sustainable.”

Perhaps most startling of all is what the report has to say about the debt problems of the United States and Europe.

For example, this following excerpt from the report sounds like it could have come straight from The Economic Collapse Blog….

“Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world’s base currency?”

Remember, this statement was not written by some guy on the Internet.  A top Goldman Sachs analyst put it into a report for institutional investors.

The report also goes into great detail about the financial crisis in Europe.  Brazil writes about how the euro is headed for trouble and about how dozens of financial institutions in Europe could potentially be in danger of collapse.

But in any environment Goldman Sachs thinks that it can make money.  The following is how Business Insider summarized the advice that Brazil gave in the report regarding how to make money off of the impending collapse in Europe….

• Buy a six-month put option on the Euro versus the Swiss Franc, thus betting the Euro will drop against the Franc (the Franc being the currency that an official Goldman report recently referred to as the most overvalued in the world)
• Buy a five-year credit default swap on an index of European corporate debt—the iTraxx 9. This is a bet that some of these companies will default, and your insurance policy, the CDS, will pay off

This is so typical of Goldman Sachs.  They will say one thing publicly and then turn around and do the total opposite privately.

For example, prior to the financial crisis of 2008, Goldman Sachs was putting together mortgage-backed securities that they knew were garbage and marketing them to investors as AAA-rated investments.  On top of that, Goldman then often privately bet against those exact same securities.

The CEO of Goldman Sachs has even acknowledged that the investment bank engaged in “improper” behavior during 2006 and 2007.

For much more on the history of all this, please see this article: “How Goldman Sachs Made Tens Of Billions Of Dollars From The Economic Collapse Of America In Four Easy Steps“.

So will Goldman Sachs ever get into serious trouble for any of this?

No, of course not.

Yeah, they will get a slap on the wrist from time to time, but the reality is that the top levels of the federal government are absolutely littered with ex-employees of Goldman Sachs.  Goldman is one of the “too big to fail” banks and they are going to continue to do pretty much whatever they feel like doing.

Sadly, the power of the “too big to fail” banks just continues to grow.  At this point, the “big six” U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to approximately 60 percent of America’s gross national product.

Goldman Sachs was the second biggest donor to Barack Obama’s campaign in 2008, so don’t expect Obama to do anything about any of this.

We have a financial system that is deeply, deeply corrupt and all of that corruption is a big reason why things are falling apart.

Sadly, the 54 page report mentioned above is right – we really are facing a global debt meltdown and we really are heading for an economic collapse.

You aren’t going to hear the truth from the mainstream media or from our politicians because “keeping people calm” is much more of a priority to them than telling the truth is.

The debt crisis in the United States is unsustainable and the debt crisis in Europe is unsustainable.  Right now we are in the calm before the storm, and nobody knows exactly when the storm is going to strike.

But let there be no doubt – it is coming.

The amazing prosperity that we have enjoyed for the last several decades has largely been a debt-fueled illusion.  It was a great party while it lasted, but now it is coming to an end and the aftermath of the coming crash is going to be absolutely horrific.

Keep watch and get prepared.  We don’t know exactly when the collapse is going to happen, but it is definitely on the way and now even Goldman Sachs is admitting that.

The Economic Collapse

It would be a good idea to become grounded in it folks, because it’s coming, and it’s not going to be fun if you’re not well-grounded in the facts.

Let’s take a few examples, some of them from the forum and some from my own personal experience, and flesh them out.

Take many if not most allegedly “middle-class” and “upper middle-class” business owners and managers.  They live in a nice 3,500 sq/ft house in the suburbs with a manicured lawn and the service that comes once a week.  Their home is immaculate and full of granite counter tops and Viking appliances.  There are two $50,000 automobiles in the driveway – and perhaps another one, or some sort of recreational vehicle (a boat or RV) in the garage or a nearby storage area.

Now look at how much actual wealth they have, on a balance-sheet basis.  Their home is likely underwater or has limited equity – 10 or 20% of the current market value at most.  Their vehicles are not owned outright, they all have notes on them.  There’s $100,000 or less in their retirement accounts, but they’re middle-aged – in their 40s.

On the spending side they have a $200/month cellphone bill for themselves and their kids ($2,400 a year), spend $300/month on utilities ($3,600 a year) and pay $5,000 or more in property taxes and hazard insurance.  Between these there’s more than $10,000 that goes out the front door, plus their income tax burden.  This family also eats out a couple of times a week ($200/month or $2,400 a year) and in general treats money and credit as though it’s something they have access to and thus will use.

This prototypical family manages to make it work predicated on being paid by the government for the use of leverage through the mortgage tax deduction.  This has induced them to (among other things) refinance serially, since as a loan amortizes the interest percentage drops and so does the tax write-off. To keep that “extra” $3,000 a year in deduction the family has buried itself in debt – intentionally – through serial refinances, while stripping every dime of equity they could get their hands on to spend on their lifestyle.  What they don’t admit to is that they’re simply pyramiding debt upon debt, goaded on by a tax system that has encouraged profligacy, immaturity and a mathematically-inevitable economic collapse.

As they head toward “retirement age” their children have gone off on their own.  They treated their kids as chattel during the time they were kids, smothering them and yet at the same time showering them with “things.”  A car at 16.  An extravagant prom experience.  Travel-team soccer at hundreds of dollars a month.  New clothes from the latest trendy place – several times a year.  A college that costs $20,000/year.  None of this was earned by Junior, it was “deserved” because the little darlings “should have the best.”

These people will argue, to the last man and woman, that they’ve done “everything right all their lives.”

They’re deluded, and if you’re reading this you’re probably one of them.

The fact is that the bubble that made possible the appearance of rapid accumulation of wealth was just that – a bubble.  It was a fraud.  This prototypical family, and the majority of Americans live like this even today, having learned nothing from the last few years,  is literally one disruption in the ability to put leverage upon leverage from a full-blown economic disaster.

But bubbles always pop.

Always.

It’s not a bubble eh?  Care to rethink that in light of this chart?

If you want to know where that came from, look right here:

When did the market start to take off?  Right after 1980, right when the government, industry and you set forth upon the path of borrowing more and more money to spend beyond your means, saving nothing, investing nothing.

This drove asset prices higher.  But this game must eventually end, because every dollar you borrow comes with interest, and eventually you are unable to borrow any more, since your borrowing has outrun your earnings capacity.

That’s what happened in 2007.  It is why all the games with QEx have failed – all they did was create more “excess reserves” that could be loaned out, but the economy’s ability to absorb more loans and pay more interest has been exceeded.

Pressing that bet further and further will not work.  It cannot work.

Now we’re in trouble, and lots of it.  We’re faced with the reality of what we’ve done because when that leverage comes out of the system and it will the market is likely to go right back where it started – or fairly close to it.  Contemplate that, and read the Ticker I posted yesterday, because that’s the macro economic impact of that leverage being removed.

But on a personal note the impact is going to suck too. In no particular order you might want to consider all of the following:

• Americans have levered themselves up to the gills.  Despite claims in the media, that leverage has not been taken down.  Think about yourself, your family, neighbors and friends. Would you be ok if you had no credit cards, in fact no credit of any sort, no government handouts and no job – for six months.  Very few families would be able to survive such a thing without ending up in the street, yet without that ability you have excessive financial leverage in your life.  You have not removed that leverage.  You had better start – now.  If you didn’t believe in the risk in 2007 when I started writing about this, the 2008/09 market collapse should have convinced you.  If that wasn’t enough this latest swoon should have underlined the point.  If neither of those two events has made clear what you must do – right now – then like it or not you deserve what’s going to happen to you, despite the fact that I’m sure I’ll get hate mail for saying it.
• Can you make it in “retirement” – by whatever means, including continuing to work, without government support?  If not, you’re not unlevered.  You’ve simply believed the lies told to you by the political establishment that it could lever itself up on an indefinite forward basis and give the benefits to you despite the fact that the demographics – that the Baby Boomers were going to retire en-masse and overload the Medicare and Social Security systems – has been known for more than 30 years.  The government did nothing about it because fixing this would have meant curtailing forward promises of benefits or massive tax increases thirty years ago.  Today, that problem cannot be solved with tax increases as the money is not there and cannot be extracted from the economy.  As a consequence major benefit cuts are going to happen, irrespective of the political demands placed on the government.  You must be prepared to survive and continue onward without any government support.  Figure it out, right now and alter your lifestyle today, or suffer the consequences.

• Did you successfully transition your relationship with your children (if any) from one of dependence to one of mutual respect?  This doesn’t always work, by the way.  Kids are independent human beings, and no matter how you parent them some percentage will be anti-social jackasses as will some parents.  This is reality.  However, it doesn’t help if you treated your kids as chattel or worse, abused them or worse, or showered them with all sorts of “entitlements” as kids, because now they’ll expect the same as adults!  Historically the solution to getting older meant living in extended family units.  It will again – if you didn’t ruin those connections with your children.  If you did, I hope you’re wealthy – truly wealthy – or you’re in lots of trouble.  Begging sucks as does apologizing for your previous acts along with repairing broken family relationships but it beats the hell out of starving and/or freezing to death.  Choose wisely and choose today.

• Got faith?  There may or may not be a God, but it’s a fact that there’s a congregation in the corner Church on Sunday.  Consider that if the Zombie Apocalypse comes knocking your local faith community may be the best option for mutually-arranged self-defense, the patching of any holes that might get made in places you’d rather not have them, and the provision of basic human needs, including most-particularly something hot to put down the pie hole.  Is faith practical?  You decide, and consider this along with the following indisputable fact: Once you know for sure if there’s a God it’s too late to change your mind.

• Resolve self-regulation issues – now.  The majority of Americans are overweight or obese.  A minority exercise three times a week for 20 minutes at a moderate to intense level of activity.  One of the Christian “seven deadly sins” is gluttony, and it’s not just found in the bottle or the dope bag – it’s also found in the grocery store, at the fast-food joint and on the couch.  America has enjoyed the ability to call “911″ any time and have an ambulance magically appear to whisk you to the hospital when you feel that nasty tightness in your chest.  In fact, an amazing number of municipalities have managed to vote into place ridiculous tax increases (including my local area) to pay for exactly that.  Instead, a volunteer fire department would be sufficient without the “ALS” ambulance service at a quarter of the cost – and the average homeowner, who pays $250 a year or more for that “enhanaced” level of service, could buy more than enough running shoes and save five times that much or more on food not consumed – and not need the EMS!  The same thing happens in the doctor’s office every day: “Doc, do you have a pill for that?”  Guess what – we can’t afford to pay for your pills, the EMS, or the hospital – you can’t cover it individually and we can’t cover it as a society.  Therefore, either solve your self-regulation issues or suffer the inevitable consequences.  It’s time to grow up America.
• Come to grips with your mortality.  If you prefer to use faith, that’s fine.  If you don’t believe in God, that’s fine too – Darwin will do as well.  Nonetheless we are all mortal and we are going to have to deal with the fact that we cannot have medical services we are unable to personally pay for.  This is a major shift after the idiotic moves of the last 30 years, but it is nonetheless a fact.  Leverage enabled the pulling forward of demand for medical services into today that were promised to be paid for tomorrow, but now tomorrow has come and there’s no more ability to pull that demand forward.  See the “Self-Regulation” bullet point above and consider that your success or failure in dealing with that will materially change your interaction with this point, then choose.  If you believe that with the global finance ponzi collapsing you’ll be able to demand a pair of $100,000 hips, a $90,000 prostate cancer treatment or $250,000 for bypass surgery from “society”, you’re wrong.  The money doesn’t exist any more, which means you either earn and stash it yourself during your productive years, do what you need to so those things are unnecessary (to the extent you can), or face the fact that we all die and your time might be now.

If you’d like the above in a “religious” format someone on the forum posted a link to the a sermon tracking much of the above.  Yeah, it’s 45 minutes.  But it’s pretty much spot-on in Christian terms.

Time is short; choose wisely.

So another week goes in the books with the market averages down about 5% each.

In Europe it’s much worse.  The DAX was off about 10% in the last two days.  Bank stocks worldwide are collapsing, with some threatening their 2008/09 lows and a few exceeding them.

The US market as a whole has lost nearly 20%, nearly straight down, with four straight weeks of losses.  The entirety of the “gains” since QE2 was announced are now gone – a year of market advance destroyed in less than four weeks.

Why is your 401k and IRA being ravaged – again?

Simply put, we have not stopped financial institution lies.

Sarbanes-Oxley allegedly makes every public company CEO attest under penalty of perjury (and a separate criminal offense) that the financials they present to the public are true, correct and complete.  If this law is being followed and violations prosecuted can someone explain to me why Colonial Bank, along with others, failed and then had their assets valued by the FDIC during consolidation at 20, 30, even 40% less than the publicly-presented values on those balance sheets just weeks before?

Why aren’t the executives who “signed” those balance sheets all facing federal indictment?

This is not (just) a United States problem, but the banks over in Europe that are in trouble have, in many cases, branches here in the US and trade in United States markets.  Some – such as Barclays, Credit Suisse, Deutsche Bank and HSBC, are even “primary dealers” and thus participants in US Treasury auctions.  Why is not US law applied to those firms that are considered “essential” to US financial stability?

Our government has turned balance-sheet games and lies into a legitimate business model.  This in turn has left the markets worldwide subject to rumor and innuendo, along with fact.  This is not acceptable in a financial system that is claimed to “need” these big institutions to remain stable.

The simple fact of the matter is that our entire market structure over the last 30+ years has been built on fraudulent edifice after fraudulent edifice.  The premise of “Credit Default Swaps” being traded over the counter means that there’s no nightly margin position enforcement and “netting” sounds great but is by and large a scam.  You cannot ask a bank CEO exactly how much his bank is underwater or to the good in his present positions across these markets and get an accurate answer, because he doesn’t know.  This lack of knowledge is both intentional and structural – and it must change right now.

This is distinct from trading in the regulated markets.  When I trade futures if I’m underwater by $200,000 in my positions that is tracked “by the minute” and my buying power reflects that.  Each night I am forced to post cash against any underwater positions, and it is “held back” from my cash balance.  If I run out of cash then an ominous number appears on my screen: Dollars to liquidation – and it means what it says; when that gets to zero the brokerage automatically closes my positions and my account goes poof!

Why don’t we implement the same thing for banks?  Markets have prices for nearly everything.  If there’s no price, then the value is simple: For the purpose of required reserves it’s zero.  That is, you must have one dollar of actual capital against anything you claim has no market price, or for which you refuse to accept the market’s valuation.

We must also end ZIRP.  Right now.  Pull liquidity out of the system (start by selling down The Fed’s balance sheet until it is at normal levels) until the short end of the curve rises to at least 1% above inflation.  Borrowing is supposed to come with a cost and it should be expensive enough that it is unattractive to do so for anything except productive purposes – that is, it should be unattractive to borrow to consume, speculate or try to create Ponzi schemes.  Left alone the market guarantees this will be the case – if The Fed won’t stop interfering on its own then it must be forced to do so.

This stops all the BS immediately.  It prevents market panics.  It protects depositors without the possibility of one dime of loss of their funds.  It forces bondholders to do diligence on what they’re lending money for and what institutions are doing with it.  It forces all credit instruments onto an exchange or forces banks to hold one dollar of capital for each dollar of notional exposure.  If they want to trade them over the counter that’s fine, but then they are by doing so refusing to accede to a market price valuation and by doing so must accept that they are unsecured credits – in full.

Oh, it also prevents banks from levering up 50:1, 30:1 or whatever, hiding risk and claiming that all is ok without strict proof.

But it is that strict proof and transparency that the market needs.  It is how we prevent market panics, it is how we prevent “bear raids” and it is how we stop the insanity.

Yes, it also stops banks from looting the population and transferring huge percentages of domestic output to themselves.  It prevents governments from financing their desire to deficit spend with various fraudulent artifices (such as was done in the case of Greece) in order to hide their exposures.  It forces recognition that both government and private industry cannot grow credit faster than productive output and ends the Ponzi schemes.

It will result in a major, worldwide adjustment to the economy.  Downward.  GDP will contract – inevitably.  All the big banks with these lies on their balance sheets will fail.  This is good, not bad, as there will be new banks and sound banks that will take their place.  Unemployment will temporarily go up, not down and tax receipts will temporarily dive.  As such this path of action must come with fundamental tax and spending reform – not the crap being bandied about by both political parties, but something such as The Fair Tax or the proposal I put forward last week, not the intentionally bogus statements from people like Buffett.  It must come with trade reform such that we stop allowing wage and environmental arbitrage to be used as bludgeons – both by us and by other nations.  It must come with medical system (NOT “Medicare” and “Medicaid”) reform because the simple fact of the matter is that we cannot continue to support the outrageous looting that the medical industry in all its forms imposes on America.  It must come with the removal of leverage from the educational system, especially the post-secondary system, as there is no defense available on an economic basis for a 20-year old taking out $40, 50 or even $100,000 in debt for an “education” that is of dubious value in the marketplace.  Education must be returned to a cost structure that can be paid for by an enterprising individual willing to flip pizzas or fix computers during weekends and evenings, exactly as it was in the 1980s.

All of this has to happen now, and the first part of it – reconciling the banks and their bogus accounting – must occur today.  Europe is on the brink of a funding lockup, and if it occurs then the “bare bank tits” that I spoke of quite often in 2007 and 2008 are once again going to be exposed to the market and shown to be silicone-filled fakes.

There are many who say this is not 2008.  They’re right – it’s worse by an order of magnitude.  We now have financial institutions that are effective elements of the state that have bought unpayable bonds from nations, and then used them as collateral to lever up against.  The embedded losses at today’s market prices are enough to destroy all of these institutions and again the question arises on exactly who wrote credit protection against them and do they have the money.  The answer to the latter is exactly as it was in 2008: NO.

The problem is that this time around we in the United States have not only destroyed capital formation and savers with ZIRP and thus have little or no Federal Reserve policy response available, the Federal Government has taken on $4.5 trillion in new debt in a puerile and futile attempt to “stimulate the economy” and yet has failed at the goal.  Most of that money went straight into people’s pockets who had little cash and thus it should have been highly-efficient in promoting consumption and been passed back to through to sustainable production – or so the economists told us.

They were wrong: All it did was temporarily replace productive output; unemployment did not come down materially, the employment participation rate has not moved and thus the tax base has not recovered.

We tried their prescriptions, we used up our time and treasure with a path that I said at the time would not work as credit capacity within the economy had been exhausted and now we’re faced with the reality: We do the right thing and accept the consequences, here and now, or we risk a 1930′s style Creditanstalt collapse.

If you thought that 2011 was a bad year for the world economy, just wait until you see what happens in 2012.  The U.S. and Europe are both dealing with unprecedented debt problems, the financial markets are flailing about wildly, austerity programs are being implemented all over the globe, prices on basics such as food are soaring and a lot of consumers are flat out scared right now.  Many analysts now fear that a “perfect storm” could be brewing and that we could actually be headed for an economic pocalypse in 2012.  Hopefully that will not happen.  Hopefully our leaders can keep the global economy from completely falling apart.  But right now, things don’t look good.  After a period of relative stability, things are starting to become unglued once again.  The next major financial panic could literally happen at any time.  Sadly, if we do see an economic apocalypse in 2012, it won’t be the wealthy that suffer the most.  It will be the poor, the unemployed, the homeless and the hungry that feel the most pain.

The following are 20 signs that we could be headed for an economic apocalypse in 2012….

#1 Back in 2008 we saw major rioting around the world due to soaring food prices, and now global food prices are on the rise again.  Global food prices in July were 33 percent higher than they were one year ago.  Price increases for staples such as maize (up 84 percent), sugar (up 62 percent) and wheat (up 55 percent) are absolutely devastating poverty-stricken communities all over the planet.  For example, one expert is warning that 800,000 children living in the Horn of Africa could die during this current famine.

#2 The producer price index in the U.S. has increased at an annual rate of at least 7.0% for the last three months in a row.  We are starting to see huge price increases all over the place.  For example, Starbucks recently jacked up the price of a bag of coffee by 17 percent.  If inflation keeps accelerating like this we could be facing some very serious problems by the time 2012 rolls around.

#3 The U.S. “Misery Index” (unemployment plus inflation) recently hit a 28 year high and many believe that it is going to go much, much higher.

#4 Jared Bernstein, the former chief economist for Vice President Joe Biden, says that the unemployment rate in this country will not go below 8% before the 2012 election.  In fact, Bernstein says that “the most optimistic forecast would be for about eight-and-a-half percent.”

#5 Working class jobs in the United States continue to disappear at an alarming rate.  Back in 1967, 97 percent of men with a high school degree between the ages of 30 and 50 had jobs.  Today, that figure is 76 percent.

#6 There are all kinds of indications that U.S. economic growth is about to slow down even further.  For example, pre-orders for Christmas toys from China are way down this year.

#7 One recent survey found that 9 out of 10 U.S. workers do not expect their wages to keep up with the rising cost of basics such as food and gasoline over the next year.

#8 U.S. consumer confidence is now at its lowest level in 30 years.

#9 Today, an all-time record 45.8 million Americans are on food stamps.  It is almost inconceivable that the largest economy on earth could have so many people dependent on the government for food.

#10 As the economy crumbles, we are also witnessing the fabric of society beginning to come apart.  The recent flash mob crimes that we are starting to see all over America are just one example of this.

#11 Some desperate Americans are already stealing anything that they can get their hands on.  For example, according to the American Kennel Club, dog thefts are up 32 percent this year.

#12 Small businesses all over the United States are having a really difficult time getting loans right now.  Perhaps if the Federal Reserve was not paying banks not to make loans things would be different.

#13 The U.S. national debt is like a giant boulder that our economy must constantly carry around on its back, and it is growing by billions of dollars every single day.  Right now the debt of the federal government is $14,592,242,215,641.90.  It has gone up by nearly 4 trillion dollars since Barack Obama took office.  S&P has already stripped the U.S. of its AAA credit rating, and more downgrades are certain to come if the U.S. does not get its act together.

#14 Tensions between the United States and China are rising again.  A new opinion piece on Chinadaily.com is calling for the Chinese government to use its holdings of U.S. debt as a “financial weapon” against the United States if the U.S. follows through with a plan to sell more arms to Taiwan.  The U.S. and China are the two biggest economies in the world, so any trouble between them would mean economic trouble for the rest of the globe as well.

#15 Most state and local governments in the U.S. are deep in debt and flat broke.  Many of them are slashing jobs at a feverish pace.  According to the Center on Budget and Policy Priorities, state and local governments have eliminated more than half a million jobs since August 2008.  UBS Investment research is projecting that state and local governments in the U.S. will cut 450,000 more jobs by the end of 2012.  How those jobs will be replaced is anyone’s guess.

#16 The U.S. dollar continues to get weaker and weaker.  This is renewing calls for a new global currency to be created to replace the U.S. dollar as the reserve currency of the world.

#17 The European sovereign debt crisis continues to get worse.  Countries like Portugal, Italy and Greece are on the verge of an economic apocalypse.  All of the financial problems in Europe are even beginning to affect the core European nations.  For example, German industrial production declined by 1.1% in June.  There are all kinds of signs that the economy of Europe is slowing down and is heading for a recession.  French President Nicolas Sarkozy and German Chancellor Angela Merkel are proposing that a new “economic government” for Europe be set up to oversee this debt crisis, but nothing that the Europeans have tried so far has done much to solve things.

#18 The Federal Reserve is so desperate to bring some sort of stability to financial markets that it has stated that it will likely keep interest rates near zero all the way until mid-2013.  The Federal Reserve is operating in “panic mode” almost constantly now and they are almost out of ammunition.  So what is going to happen when the real trouble starts?

#19 Central banks around the world certainly seem to be preparing for something.  According to the World Gold Council, central banks around the globe purchased more gold during the first half of 2011 than they did all of last year.

#20 Often perception very much influences reality. One recent survey found that 48 percent of Americans believe that it is likely that another great Depression will begin within the next 12 months.  If people expect that a depression is coming and they quit spending money that actually increases the chance that an economic downturn will occur.

There is already a tremendous amount of economic pain on the streets of America, but unfortunately it looks like things may get even worse in 2012.

The once great economic machine that was handed down to us by our forefathers is falling to pieces all around us and we are in debt up to our eyeballs.  The consequences of our bad economic decisions are hurting some of the most vulnerable members of our society the most.

As the following video shows, large numbers of formerly middle class Americans are now living in their cars or sleeping in the streets….

http://www.youtube.com/watch?v=ICx3AfSlc-w

It is a crying shame what is happening out there on the streets of America today.

Please say a prayer for all of those that are sleeping in cars or tents or under bridges tonight.

Soon even more Americans will be joining them.

The Economic Collapse