FedUpUSA

Posts Tagged ‘Poverty’

Is the coming financial collapse going to be inflationary or deflationary?  Are we headed for rampant inflation or crippling deflation?  This is a subject that is hotly debated by economists all over the country.  Some insist that the wild money printing that the Federal Reserve is doing combined with out of control government spending will eventually result in hyperinflation.  Others point to all of the deflationary factors in our economy and argue that we will experience tremendous deflation when the bubble economy that we are currently living in bursts.  So what is the truth?  Well, for the reasons listed below, I believe that we will see both.  The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis.  This will happen so quickly that many will get “financial whiplash” as they try to figure out what to do with their money.  We are moving toward a time of extreme financial instability, and different strategies will be called for at different times.

So why will we see deflation first?  The following are some of the major deflationary forces that are affecting our economy right now…

The Velocity Of Money Is At A 50 Year Low

The rate at which money circulates in our economy is the lowest that it has been in more than 50 years.  It has been steadily falling since the late 1990s, and this is a clear sign that economic activity is slowing down.  The shaded areas in the chart represent recessions, and as you can see, the velocity of money always slows down during a recession.  But even though the government is telling us that we are not in a recession right now, the velocity of money continues to drop like a rock.  This is one of the factors that is putting a tremendous amount of deflationary pressure on our economy…

The Trade Deficit

Even single month, far more money leaves this country than comes into it.  In fact, the amount going out exceeds the amount coming in by about half a trillion dollars each year.  This is extremely deflationary.  Our system is constantly bleeding cash, and this is one of the reasons why the federal government has felt a need to run such huge budget deficits and why the Federal Reserve has felt a need to print so much money.  They are trying to pump money back into a system that is constantly bleeding massive amounts of cash.  Since 1975, the amount of money leaving the United States has exceeded the amount of money coming into the country by more than 8 trillion dollars.  The trade deficit is one of our biggest economic problems, and yet most Americans do not even understand what it is.  As you can see below, our trade deficit really started getting bad in the late 1990s…

Wages And Salaries As A Percentage Of GDP

One of the primary drivers of inflation is consumer spending.  But consumers cannot spend money if they do not have it.  And right now, wages and salaries as a percentage of GDP are near a record low.  This is a very deflationary state of affairs.  The percentage of low paying jobs in the U.S. economy continues to increase, and we have witnessed an explosion in the ranks of the “working poor” in recent years.  For consumer prices to rise significantly, more money is going to have to get into the hands of average American consumers first…

When The Debt Bubble Bursts

Right now, we are living in the greatest debt bubble in the history of the world.  When a debt bubble bursts, fear and panic typically cause the flow of money and the flow of credit to really tighten up.  We saw that happen at the beginning of the Great Depression of the 1930s, we saw that happen back in 2008, and we will see it happen again.  Deleveraging is deflationary by nature, and it can cause economic activity to grind to a standstill very rapidly.

During the next major wave of the economic collapse, there will be times when it will seem like hardly anyone has any money.  The “easy credit” of the past will be long gone, and large numbers of individuals and small businesses will find it very difficult to get loans.

When the debt bubble bursts, cash will be king – at least for a short period of time.  Those that do not have any savings at all will really be hurting.

And some of the financial elite seem to be positioning themselves for what is coming.  For example, even though he has been making public statements about how great stocks are right now, the truth is that Warren Buffett is currently sitting on $49 billion in cash.  That is the most that he has ever had sitting in cash.

Does he know something?

Of course there will be a tremendous amount of pressure on the U.S. government and the Federal Reserve to do something once a financial crash happens.  The response by the federal government and the Federal Reserve will likely be extremely inflationary as they try to resuscitate the system.  It will probably be far more dramatic than anything we have seen so far.

So cash will not be king for long.  In fact, eventually cash will be trash.  The actions of the U.S. government and the Federal Reserve in response to the coming financial crisis will greatly upset much of the rest of the world and cause the death of the U.S. dollar.

That is why gold, silver and other hard assets are going to be so good to have in the long-term.  In the short-term they will experience wild swings in price, but if you can handle the ride you will be smiling in the end.

In the coming years, we are going to experience both inflation and deflation, and neither one will be pleasant at all.

Get prepared while you still can, because time is running out.

The Economic Collapse

The middle class American worker is in danger of becoming an endangered species.  The politicians are not telling you the truth, and the mainstream media is certainly not telling you the truth, but the reality is that there is nothing but bad news on the horizon for workers in the United States.  In the old days, when the big corporations that dominate our society did well, that also meant good things for American workers since those corporations would need more of us to work for them.  But in the emerging one world economic system that our economy is being merged into, those corporations have other choices now.  For instance, the big corporations can now choose to limit the number of “expensive” American workers that they employ by shipping millions of jobs to the other side of the world.  And from their perspective, it makes perfect sense.  They can make much bigger profits by hiring people on the other side of the planet to work for them for less than a dollar an hour.  If they can get good production out of those people, then why should they hire Americans for ten to twenty times as much, plus have to give those Americans health insurance and other benefits?  Another major factor in the slow, agonizing death of the American worker is technology.  We live during a period when technology is advancing at a pace that is almost unimaginable at the same time that it is steadily becoming cheaper and cheaper.  That means that it is going to become easier and easier for companies to replace workers with robots and computers.  As I have written about previously, it is being projected that our economy will lose millions of jobs to technology in the coming years.  Yes, some of us will still be needed to help build the robots and the computers, but not all of us will.  And of course the overall general weakness of the economy is not helping matters either.  The American people inherited the greatest economic machine in the history of the world, and we have wrecked it.  Decades of very foolish decisions have resulted in the period of steady economic decline that we are experiencing now.

America is simply not the economic powerhouse that it once was.  Back in 2001, the U.S. economy accounted for 31.8 percent of global GDP.  By 2011, the U.S. economy only accounted for 21.6 percent of global GDP.  That is a collapse any way that you want to look at it.

Today, American workers are living in an economy that is rapidly declining, and their jobs are steadily being stolen by robots, computers and foreign workers that live in countries where it is legal to pay slave labor wages.  Politicians from both political parties refuse to do anything to stop the bleeding because they think that the status quo is working just great.

So don’t expect things to get better any time soon.

The following are 10 amazing charts that demonstrate the slow, agonizing death of the American worker…

#1 Wages And Salaries As A Percentage Of GDP

As you can see, wages as a percentage of GDP are hovering near an all-time record low.  That means that American workers are bringing home a smaller share of the economic pie than ever before.

#2 Average Annual Hours Worked Per Employed Person In The United States

We are an economy that is rapidly trading good paying full-time jobs for low paying part-time jobs.  The decline in average annual hours worked that we have witnessed represents the equivalent of losing millions of jobs.  There has been an explosion of “the working poor” in the United States, and this trend is probably only going to accelerate in the years to come.

#3 Manufacturing Employment

As you can see, there are less Americans working in manufacturing today than there was in 1950 even though the population of the country has more than doubled since then.  The United States has lost more than 56,000 manufacturing facilities since 2001, and yet our politicians stand around and do nothing about it.

#4 Employment-Population Ratio

This is one of my favorite charts.  It shows that there has been absolutelyno employment recovery at all since the end of the last recession.  The percentage of working age Americans that have a job has stayed under 59 percent for 44 months in a row.  How much worse will things get when the next major economic downturn strikes?

#5 Labor Force Participation Rate

This is how the Obama administration is getting the “unemployment rate” to magically go down.  They are pretending that millions upon millions of Americans simply do not want to work anymore.  As you will notice, the decline of the labor force participation rate has accelerated greatly since Barack Obama entered the White House.

#6 Duration Of Unemployment

The average amount of time that it takes an unemployed worker to find a new job has declined slightly, but it is still far above normal historical levels.  It is a crying shame that it takes the average unemployed worker two-thirds of a year to find a new job, but this is the new economic reality that we are all living in.

#7 Delinquency Rate On Residential Mortgages

Since there are not enough jobs for all of us, and since our wages are not rising as rapidly as the cost of living is, a whole bunch of us are falling behind on our mortgages.  As you can see, the mortgage delinquency rate has only dropped slightly and is still way, way above typical levels.

#8 New Homes Sold

American workers also don’t have enough money to go out and buy new homes either.  Yes, new home sales have rebounded slightly this year, but we are nowhere near where we used to be.

#9 Consumer Credit

Millions of American families continue to resort to going into debt in a desperate attempt to make ends meet.  After a slight interruption during the last recession, consumer credit once again is growing at a frightening pace.

#10 Self-Employment At A Record Low

Since there aren’t enough jobs for everyone, why aren’t more Americans trying to start their own businesses?  Well, the reality of the matter is that the government has made it exceedingly difficult to start your own business today.  Taxes, rules, regulations and red tape are choking the life out of millions of small businesses in the United States.  As a result, the percentage of self-employed Americans is at a record low.

As all of these long-term trends continue, the middle class will continue to shrink, poverty in America will continue to explode and government dependence will continue to rise.

The numbers don’t lie.  Today, the number of Americans on Social Security Disability now exceeds the entire population of Greece, and the number of Americans on food stamps now exceeds the entire population of Spain.

We are in the midst of a horrifying economic collapse, and the next major wave of that collapse is rapidly approaching.

Are you ready?

The Economic Collapse

Unemployment, Taxes and Unfunded Retirement are Squeezing Each Generation

The American spirit is rooted in the belief of a better tomorrow. Its success has been due to generations of men and women who toiled, through both hardship and boom times, to make that dream a reality.

But at some point over the past several decades, that hope for a better tomorrow became an expectation. Or perhaps a perceived entitlement is more accurate.

It became assumed that the future would be more prosperous than today, irrespective of the actual steps being taken in the here and now.

And for a prolonged time – characterized by plentiful and cheap energy, accelerating globalization, technical innovation, and the financialization of the economy – it seemed like this assumption was a certain bet.

But these wonderful tailwinds that America has been enjoying for so many decades are sputtering out. The forces of resource scarcity, debt saturation, price inflation, and physical limits will impact our way of life dramatically more going forward than living generations have experienced to date.

And Americans, who had the luxury of abandoning savings and sacrifice for consumerism and credit financing, are on a collision course with that reality. Like the grasshopper in Aesop’s fable, they have partied away the fair seasons and winter is now on the way, which they are not prepared for.

The prudent thing to do here would be to have an honest, adult-sized conversation with ourselves about our level of (un)readiness and how best to use the resources and time we have left while the system still works more or less the way we’re used to. There are certainly strategies and steps we can take in the here and now to best match priorities to needs, and meet the future as prepared as possible.

But you won’t find this discussion in the national media. Our politicians insist on charting a course of more of the same, no matter how unsustainable, adamant not to touch any political third rails – for fear of not pleasing the electorate and/or donors. Major media outlets have abandoned the investigative journalism that once held the mirror of truth up to power, and instead, run superficial puff pieces that conclude with platitudes – for fear of not offending viewers and/or sponsors. The message is clear: The future will be better as soon as economic growth returns. Or oil prices come down. Or the iPhone 6 comes out. Or whatever the magic bullet du jour.

So it’s up to the concerned and critical-thinking among us to look at the math, the hard data underlying the headlines, and construct what we can best calculate to be true.

And the truth is: The three adult generations in the U.S. are suffering, and their burdens are likely to increase with time. Each is experiencing a squeeze that is making it harder to create value, save capital, and pursue happiness than at any point since WWII. At that point, we were a creditor nation with an economy exploding into dominance on the world stage. Now, however, the U.S. is the largest debtor nation and our economic hegemony is increasingly at siege across a number of fronts.

A continuation of the status quo is a decision to sleepwalk face-first into the constraints hurtling towards us.

Instead, shouldn’t we stop fooling ourselves and ask: What should we be doing differently?

We’ll address that after we walk through the numbers.

Seniors Woefully Unprepared for Retirement

In the late 1970s, the 401k emerged as a new retirement vehicle. Among its touted benefits was the ability of the individual to save as much as s/he thought prudent for his/her financial future. Companies loved the new private savings plans because they gave them a way out of putting aside mandatory savings for worker pensions. For a long time, everyone thought this was a big step forward.

Three decades later, what we’re realizing is that this shift from dedicated-contribution pension plans to voluntary private savings was a grand experiment with no assurances. Corporations definitely benefited, as they could redeploy capital to expansion or bottom line profits. But employees? The data certainly seems to show that the experiment did not take human nature into account enough – specifically, the fact that just because people have the option to save money for later use doesn’t mean that they actually will.

First off, not every American worker (by far) is offered a 401k or similar retirement plan through work. But of those that are, 21% choose not to participate (source).

As a result, 1 in 4 of those aged 45-64 and 22% of those 65+ have $0 in retirement savings (source). Forty-nine percent of American adults of all ages aren’t saving anything for retirement.

Of those with retirement savings, the numbers are not good. Over half of US retirees have less than $25,000 in savings:

(Source)

Most planners advise saving enough before retirement to maintain annual living expenses at about 70-80% of what they were during one’s income-earning years. Medicare out-of-pocket costs alone are expected to be between $240,000 and $430,000 over retirement for a 65-year-old couple retiring today.

The gap between retirement savings and living costs in one’s later years is pretty staggering:

• As the table above shows, nearly 83% of retired households have less saved than Medicare costs alone will consume.
• One-third of retired households are entirely dependent on Social Security. On average, that’s only $1,230 per month – a hard income to live on. (source)
• 34 percent of older Americans depend on credit cards to pay for basic living expenses such as mortgage payments, groceries, and utilities. (source)

As for Medicare, the out-of-pocket costs could easily soar over retirement. The Wall Street Journal reportsthat the current estimate of Medicare’s unfunded liability now tops $42 Trillion. Such a mind-boggling gap makes it highly likely that current retirees will not receive all of the entitlements they are being promised.

And the denial being shown by baby boomers entering retirement is frightening. Many simply plan to work longer before retiring, with a growing percentage saying they plan to work “forever”.

But the data shows that declining health gives older Americans no choice but to leave the work force eventually, whether they want to or not. Years of surveys by the Employment Benefit Research Institute show that fully half of current retirees had to leave the work force sooner than desired due to health problems, disability, or layoffs.

Add to this the nefarious impact of the Federal Reserve’s prolonged 0% interest rate policy, which makes it extremely hard for retirees with fixed-income investments to generate a meaningful income from them.

The number of Americans aged 65 years and older is projected to more than double in the next 40 years:

Will the remaining body of active workers be able to support this tsunami of underfunded seniors? Don’t bet on it.

Taxes and Inflation Are Sucking Productive Workers Dry

To borrow from another fable, U.S. policy is doing its best to kill the goose that lays the golden eggs. Bottlenecked between retirees and the younger “millennial” generation is the current “productive peak” working class. As government, mired in debt and budget deficits, grows desperate to boost tax receipts and keep interest rates on its debt manageable, it is increasingly both siphoning capital and stealing purchasing power from those generating income.

History shows that this cannot continue indefinitely. Eventually you exhaust the incentive for working and your productive class goes on strike.

How close are we to that breaking point? It’s not hard to find a litany of articles on the Internet these days warning that it’s coming soon:

Personal Incomes & the Decline of the American Saver

If we put all of this together we can see a picture of the average American.  The chart below shows the annual change in personal incomes combined with the annual change in personal expenditures.  What is clear is that consumption has been supported by rising transfer receipts (welfare) and a drop in the personal savings rate which is now at the lowest level since just prior to the last recession.  The consumer is clearly struggling to maintain their current standard of living and all indications are that they are going to lose this battle.

Consumer Spending Drought: 16 Signs That the Middle Class Is Running out of Money

Is “discretionary income” rapidly becoming a thing of the past for most American families?  Right now, there are a lot of signs that we are on the verge of a nightmarish consumer spending drought.  Incomes are down, taxes are up, many large retail chains are deeply struggling because of the lack of customers, and at this point nearly a quarter of all Americans have more credit card debt than money in the bank.  Considering the fact that consumer spending is such a large percentage of the U.S. economy, that is very bad news.  How will we ever have a sustained economic recovery if consumers don’t have much money to spend?  Well, the truth is that we aren’t ever going to have a sustained economic recovery.  In fact, this debt-fueled bubble of false hope that we are experiencing right now is as good as things are going to get.  Things are going to go downhill from here, and if you think that consumer spending is bad now, just wait until you see what happens over the next several years

Looking from a bird’s-eye view, real wages have been falling in the U.S. for decades. The below chart includes numbers based on the officially reported Consumer Price Index (or CPI, the methodology of which has been changed many times to make the output “kinder and gentler”), as well as those from ShadowStats, which applies a standardized and less fuzzy methodology to try to get to a truer picture. You can see that according to ShadowStats (the dark blue line), real wages have been plummeting in recent years as the Federal Reserve has been running the money-printing machines at full tilt:

Meanwhile, the cost of living has soared as the Fed’s liquidity has found its way into the commodities markets and driven prices of essentials higher:

So today’s worker is enjoying paying for substantially costlier goods with a materially devalued income – that is, if they are fortunate enough to have an income. Unemployment in the U.S. is still painfully high. Even the recently-celebrated declines are due to a jump in part time jobs as workers take on multiple jobs to simply get by. Full-time jobs are actually on the decline.

At the same time, in pursuit of greater efficiencies, U.S. corporations are investing more than ever in automation. Many of the less-skilled jobs lost during the Great Recession are simply not coming back, as human labor is increasingly replaced by robots and intelligent machines.

And yes, while the stock market is up nicely in the past year, the wealth gains from this are hyper-concentrated within the top 10% – really the top 1%, as this excellent video visualizes. (Warning: viewing this may make the blood boil.) The mean U.S. household currently only has about $50k in savings (and that average is skewed upwards by the super-rich).

These workers have also been whipsawed over the past decade by several asset bubbles blown by central banks that have knee-capped their efforts to amass wealth. The S&P 500 stock index has just returned to price territory last seen in 2001 and 2007, and housing prices are only slowly beginning to rise again in the aftermath of the vicious correction begun in 2007. Sadly, it seems that new bubbles in stocks, bonds and housing are being inflated once again – sure to take a large swath of wealth from these workers when they burst.

Perhaps the arriving cohort of younger workers will be able to support their elders once they hit their peak earning years.  We can hope.

But again, the prospects do not look encouraging.

Millennials at Risk of Becoming a Lost Generation

Pity the recent college graduate. The cost of higher education has been far outstripping inflation for years, largely due to that fact that most colleges have no exposure to their students’ ability to repay their loans. So universities actually have an incentive to continue to raise tuition and other fees as high as the market will possibly bear.

The average graduate student has a student loan balance of over $27,000 (not including credit-card or other types of debt that many students also have). This puts them into a hole early in their adult lives that delays their ability to create families, buy a first home, or start businesses.

This challenge to capital formation is compounded by the frighteningly high unemployment rate ofapproximately 12% for those under 30. Not only are companies still hiring conservatively, but given the factors mentioned above, younger workers find themselves competing with older ones for entry-level positions to an extent not seen in living memory.

It’s no wonder there’s a growing perception that going deep into debt for a college diploma isn’t a smart trade-off. A number of today’s graduates will be finally paying off their balances around the same time their own children are heading off to college.

And along with the joys of debt-serfdom, younger workers are realizing they can’t count on:

• loyalty from the companies they work for
• a national infrastructure that is the envy of the world
• low oil prices
• affordable healthcare
• affordable home prices
• easy access to credit
• Social Security

…and a number of other elements of the “American promise” that preceding generations were able to take for granted.

It’s no surprise that millions of young workers are giving up on searching for work.

Of course, the big danger for this generation’s members is that the longer they go without work experience, the less appealing they become to employers when hiring does begin to pick back up. Tomorrow’s new college graduates will be hired for entry-level positions, leaving many of today’s unskilled seekers “unemployable” – a lost generation.

Let’s Stop Fooling Ourselves

In summary, if we’re being honest with ourselves, the current narrative of recovery being pushed by Wall Street and the mainstream media doesn’t make any sense. The American experience of rising standards of living and general prosperity have always rested upon a deep and healthy middle class. That middle class, by almost any available economic or financial measure, is steadily losing ground as a direct consequence of Fed and DC policies.

By forcing the stock market higher, the Fed has simply made a small minority of the country better off  By funneling endless amounts of free money to the biggest banks, the Fed has enriched the banking system. The Fed truly seems to believe that this is the right course of action: that a stable and profitable banking system coupled to rising stock prices will somehow generate the necessary confidence within the middle class required for them to once again go on a borrowing binge.

Because that’s what the system has devolved into, for better or worse: our economy is founded on credit and borrowing, not earnings and savings. The problem is, outside of the manufactured statistics of government and the manufactured stock prices of the Fed, the median family has far less earning power this year than last. And it knows in its heart of hearts that DC will tax more and return less as time goes on, and that job security no longer exists as corporations ruthlessly pursue bottom line results. Quite rationally, many families are realizing that’s not an appropriate environment for taking on more debt.

More profoundly, the big picture numbers just don’t add up. A nation that’s collectively in hock to the tune of 373% of GDP – not including entitlement liabilities  which launch that figure to more than 1000% – needs to seriously face the fact that it cannot make good on its current promises, let alone entertain making them larger. And yet here we are, with every outlet of the current power structure vigorously promoting that “all is well” while minimizing or completely ignoring those who would seek to open a dialog about the wisdom, or lack thereof, of ramming asset prices higher and supporting historically ruinous levels of deficit spending by printing money out of thin air.

Adam Taggart – Peak Prosperity

The Economic Collapse

You can thank the reckless money printing that the Federal Reserve has been doing for the incredible bull market that we have seen in recent months.  When the Federal Reserve does more “quantitative easing”, it is the financial markets that benefit the most.  The Dow and the S&P 500 have both hit levels not seen since 2007 this month, and many analysts are projecting that 2013 will be a banner year for stocks.  But is a rising stock market really a sign that the overall economy is rapidly improving as many are suggesting?  Of course not.  Just because the Federal Reserve has inflated another false stock market bubble with a bunch of funny money does not mean that the U.S. economy is in great shape.  In fact, the truth is that things just keep getting worse for average Americans.  The percentage of working age Americans with a job has fallen from 60.6% to 58.6% while Barack Obama has been president, 40 percent of all American workers are making $20,000 a year or less, median household income has declined forfour years in a row, and poverty in the United States is absolutely exploding.  So quantitative easing has definitely not made things better for the middle class.  But all of the money printing that the Fed has been doing has worked out wonderfully for Wall Street.  Profits are soaring atGoldman Sachs and luxury estates in the Hamptons are selling briskly.  Unfortunately, this is how things work in America these days.  Our “leaders” seem far more concerned with the welfare of Wall Street than they do about the welfare of the American people.  When things get rocky, their first priority always seems to be to do whatever it takes to pump up the financial markets.

When QE3 was announced, it was heralded as the grand solution to all of our economic problems.  But the truth is that those running things knew exactly what it would do.  Quantitative easing always pumps up the financial markets, and that overwhelmingly benefits those that are wealthy.  In fact, a while back a CNBC article discussed a very interesting study from the Bank of England which showed a clear correlation between quantitative easing and rising stock prices…

It said that the Bank of England’s policies of quantitative easing – similar to the Fed’s – had benefited mainly the wealthy.

Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households.

Many said the BOE’s easing added to social anger and unrest. Dhaval Joshi, of BCA Research wrote that  “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it.”

So should we be surprised that stocks are now the highest that they have been in more than 5 years?

Of course not.

And who benefits from this?

The wealthy do.  In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.

Unfortunately, all of this reckless money printing has a very negative impact on all the rest of us.  When the Fed floods the financial system with money, that causes inflation.  That means that the cost of living has gone up even though your paycheck may not have.

If you go to the supermarket frequently, you know exactly what I am talking about.  The new “sale prices” are what the old “regular prices” used to be.  They keep shrinking many of the package sizes in order to try to hide the inflation, but I don’t think many people are fooled.  Our food dollars are not stretching nearly as far as they used to, and we can blame the Federal Reserve for that.

For much more on rising prices in America, please see this article: “Somebody Should Start The ‘Stuff Costs Too Much’ Party“.

Sadly, this is what the Federal Reserve does.  The system was designed to create inflation.  Before the Federal Reserve came into existence, the United States never had an ongoing problem with inflation.  But since the Fed was created, the United States has endured constant inflation.  In fact, we have come to accept it as “normal”.  Just check out the amazing chart in the video posted below…

The chart in that video kind of reminds me of a chart that I shared in aprevious article…

Not that I expect the United States to enter a period of hyperinflation in the near future.

Actually, despite all of the reckless money printing that the Fed has been doing, I expect that at some point we are going to see another wave of panic hit the financial markets like we saw back in 2008.  The false stock market bubble will burst, major banks will fail and the financial system will implode.  It could unfold something like this…

1 – A derivatives panic hits the “too big to fail” banks.

2 – Financial markets all over the globe crash.

3 – The credit markets freeze up.

4 – Economic activity in the United States starts to grind to a halt.

5 – Unemployment rises above 20 percent and mortgage defaults soar to unprecedented levels.

6 – Tax revenues fall dramatically and austerity measures are implemented by the federal government, state governments and local governments.

7 – The rest of the globe rapidly loses confidence in the U.S. financial system and begins to dump U.S. debt and U.S. dollars.

I write about derivatives a lot, because they are one of the greatest threats that the global financial system is facing.  In fact, right now a derivatives scandal is threatening to take down the oldest bank in the world…

Banca Monte dei Paschi di Siena, the world’s oldest bank, was making loans when Michelangelo and Leonardo da Vinci were young men and before Columbus sailed to the New World. The bank survived the Italian War, which saw Siena’s surrender to Spain in 1555, the Napoleonic campaign, the Second World War and assorted bouts of plague and poverty.

But MPS may not survive the twin threats of a gruesomely expensive takeover gone bad and a derivatives scandal that may result in legal action against the bank’s former executives. After five centuries of independence, MPS may have to be nationalized as its losses soar and its value sinks.

So when you hear the word “derivatives” in the news, pay close attention.  The bankers have turned our financial system into a giant casino, and at some point the entire house of cards is going to come crashing down.

In response to the coming financial crisis, I believe that our “leaders” will eventually resort to money printing unlike anything we have ever seen before in a desperate attempt to resuscitate the system.  When that happens, I believe that we will see the kind of rampant inflation that so many people have been warning about.

…

The Economic Collapse