The list of nations around the globe that have collapsing economies just continues to grow. In recent weeks I have written about the ongoing saga in Greece, the stock market crash in China, the debt crisis in Puerto Rico and the economic meltdown in South America. But there are more economic flashpoints that I have not even addressed yet. For example, did you know that a full-blown economic collapse is happening in Iraq right now? And did you know that the economy of Ukraine is contracting rapidly and that it cannot pay its debts?
Back in 2008, the financial crisis was primarily centered on the United States, but this time around it is turning out to be a truly global phenomenon.
When the U.S. “liberated” Iraq, the future for that nation was supposed to be incredibly bright. But instead, things have just gone from bad to worse. This has especially been true since we pulled our troops out and allowed ISIS to run buck wild. At this point unemployment in Iraq is at Great Depression levels, the economy is steadily contracting and government debt is spiraling wildly out of control…
But Iraq’s industry, and the government’s budget, is being squeezed by low oil prices. As a result, the nation’s finances are being hit hard: the market price is now half that needed to break even, expanding the budget deficit, forecast to return to balance until the rise of IS, to a projected 9% of GDP.
In the past, Iraq’s leaders approved budgets without seriously taking into account a drop in the price of oil. Now the severe revenue shortfall is forcing leaders to cut back on new investments. Russia’s Lukoil (OTC:), Royal Dutch Shell (LONDON:), and Italy’s ENI (MILAN:) are also cutting back, eyeing neighboring Iran’s pending economic opening as a safer investment.
Despite improving its finances after the US troop withdrawal, the drop in oil prices and the rising costs of battling IS have pushed Iraq’s economy into a state of near-crisis. According to the IMF, the nation’s GDP shrank by 2.7% in 2014 and unemployment is estimated to be over 25%.
Things are even worse in another nation that was recently “liberated”. The new US-friendly government in Ukraine was supposed to make things much better for average Ukrainians, but instead the economy is absolutely imploding…
The country’s GDP contracted by 6.8 percent last year, and is forecast to shrink by another 9 percent this year — a total loss of roughly 16 percent over two years.
Just like in much of southern Europe, the banks are absolutely overloaded with bad loans and the entire banking system is on the verge of total collapse. The following comes from a CNN article that was posted earlier this year…
Ukraine’s banking sector is one of the weakest parts of the economy. The key interest rates are the highest in 15 years, and experts estimate bad loans make up between one third and one half of all banking assets.
Over 40 banks have been declared bankrupt since the war began, with the country’s fourth largest lender, Delta Bank, going under earlier this week.
Just recently, the government of Ukraine declared that it could not pay its debts. We didn’t hear much about this in the United States, because the Obama administration wants us to believe that their policies over there are a success. But the truth is that Ukraine now needs a “debt restructuring deal” similar to what Greece has received in the past…
Progress between Ukraine and its creditors on a $19 billion restructuring may be losing momentum as a proposed high-level meeting was canceled amid further disagreements over terms.
Ukraine’s $2.6 billion of 2017 notes fell the most in a month after a person familiar with negotiations said a new offer put forward by Ukraine this week would be unacceptable to bondholders. Later on Wednesday, Ukraine’s Finance Ministry said that a Franklin Templeton-led creditor group should prepare an improved offer for meetings next week.
Speaking of Greece, things just continue to unravel over there. Earlier this week we witnessed the greatest one day stock market crash in Greek history, and there was more financial carnage on Wednesday. The following comes from the Economic Policy Journal…
For a second straight day, following the reopening of the Greek stock market, there were heavy losses in Greek banking stocks, with shares across the sector once again falling by about 30 percent, the bottom of their daily limit.
Bank of Piraeus and National Bank of Greece fell the most, falling by the daily limit of 30 percent t. Alpha Bank was 29.7 percent lower and Eurobank Ergasias lost 29.6 percent.
At this point you would have to be blind to not see what is happening. A financial crisis is not just imminent – one is already starting to erupt all over the planet.
And none of us can say that we weren’t warned. In a recent piece, Bill Holter included a long list of ominous financial warnings that were issued over the past two years by either the IMF or the Bank for International Settlements…
- July 2014 – BIS –BIS Issues Strong Warning on “Asset Bubbles”
- July 2014 – IMF –Bloomberg: IMF Warns of Potential Risks to Global Growth
- October 2014 – BIS –”No One Could Foresee this Coming”
- October 2014 IMF Direct Blog — What Could Make $3.8 Trillion in global bonds go up in smoke?
- October 2014 IMF Report –”Heat Wave”-Rising financial risk in the US
- December 2014 – BIS –BIS Issues a new warning on markets
- December 2014 – BIS —BIS Warnings on the US Dollar
- February 2015 – IMF – Shadow Banking — Another Warning from the IMF – This Time on “Shadow Banking”
- March 2015 – Former IMF Peter Doyle – Don’t expect any warning on new crisis -Former IMF Peter Doyle: Don’t Expect any Early Warning from the IMF
- April 2015 IMF – Liquidity Shock –IMF Tells Regulators to Brace for Liquidity Shock
- May 2015 BIS – Need New “Rules of the Game” –BIS: Time to Think about New Global Rules of the Game?
- June 2015 BIS Credit Risk Report –BIS: New Credit Risk Management Report
- June 2015 IMF (Jose Vinals) –IMF’s Vinals Says Central Banks May Have to be Market Makers
- BIS June 2015 (UK Telegraph) –The world is defenseless against the next financial crisis, warns BIS
- July 2015 – IMF – Warns US the System is Still Vulnerable –IMF warns US: Your financial system is (still) vulnerable
- July 2015 – IMF – Warns Pension Funds Could Pose Systemic Risk –IMF warns pension funds could pose systemic risks to the US
Overall, there are currently 24 nations that are dealing with a major financial crisis right now, and there are another 14 nations that are right on the verge of one.
But even though a global financial crisis is already unfolding right in front of our eyes, there are people that come to my website every day and leave comments telling me that everything is going to be just fine.
Biden’s ‘Made In America’ Initiative Crippled By His Own Economic Plan
Democratic nominee Joe Biden released his “Made in America” plan last week. However, at least one critic says none other than Joe Biden himself will fail the plan.
Brian Brenberg, a professor of business and economics at The King’s College in Manhattan, says Biden’s “Made in America” plan is a list of “vague promises” that directly conflict with his own economic plan.
“It amounts to a laundry list of vague promises to create jobs, increase federal spending by hundreds of billions of dollars, and raise taxes on U.S. companies with overseas operations. But the biggest threat to Biden’s “Made in America” goals is his own economic plan,” says Brenberg.
He says if Biden really did want to strengthen businesses and bring back workers, he would make America the greatest country in the world to start a business. But his actions say differently.
“If he were really serious about strengthening businesses and workers here at home, his first step would be to make America the best place on earth to build businesses. That means cutting — not increasing — taxes and regulations he’s already put on the table.”
Flaw’s in Biden’s “Made in America” Plan
Biden’s errors are limited to just his “Made in America” plan, says Brenberg. They also spill over into his “Green New Deal,” however. It was jammed full of “massive new growth-killing taxes, spending, and regulations,” they said. This was all done by the Bernie Sanders-socialism side of the aisle.
The Made in America plan calls for higher taxes on corporations, income, investments, inheritance and social security. Brenberg says the majority of these tax increases are supposed to impact only wealthy individuals. Those are the people who make more than $400,000 per year in income.
The problem though, is that Biden’s new taxes won’t raise enough from the wealthy to cover all the new spending he’s proposing. According to Brenberg, Biden’s tax hikes will raise between $3-4 trillion. This is far too little to cover his $11 trillion in new spending.
“Middle class Americans shouldn’t be surprised when they get pressed into paying for the shortfall,” says Brenberg.
Doing the Opposite of the Intention
He adds that taken as a whole, Biden’s plan disincentives anyone from starting new businesses in the US.
“When you add it all up, making things in Joe Biden’s America is going to be more costly, more complicated, and far less attractive to many companies and would-be entrepreneurs.”
Biden’s camp knows this, which is why Brenberg says the plan specifically penalizes companies for trying to leave the US and move their headquarters or operations to countries with lower taxes.
Tax-inversions, many know them as, spiked during the Obama years when companies fled high taxes here for more favorable locations. That all stopped, says Brenberg, with the Trump tax cuts in 2017. But a Biden victory in November will cause many companies to once again look to move out of the country. Penalizing them is the wrong approach.
“Threatening even more new taxes and rules to keep that from happening is not the answer.”
Encouraging “Made in America”
There is only one way to encourage “Made in America,” according to Brenberg. That is to make it the best place on earth to start and run a business. However, Biden’s plan will do the opposite.
“’Made in America’ works when America is the best place on the planet to start, grow, and invest in a business. That means keeping taxes low, ensuring regulations aren’t burdensome and avoiding utopian schemes to reinvent the economy based on radical ideology.”
“Right now, Joe Biden’s economic plans are failing on all three of those counts,” he says. Brenberg also adds that “no amount of government giveaways, government threats, or ‘Made in America’ branding will make up for it.”
Ron Paul: This Is The Biggest Financial Bubble In History
Dr. Ron Paul believes that we are in the biggest financial bubble in history. He also said that when it pops, it will be very violent.
In a recent interview with Kitco News, Paul covered a wide range of topics. Some of these topics include the Federal Reserve, interest rates, and the economy.
He was asked about the Federal Reserve’s dual mandate of full employment and inflation control. To this, Paul said the Fed shouldn’t even be in the business of worrying about either.
“They shouldn’t even be in the business of pretending that if they want a good, healthy economy, and they want as best the employment possible, and the most balanced pricing system, you have to get rid of the system. You can’t have this artificial system from the Federal Reserve,” he said.
Free Market Should Set Interest Rates
Paul said the free market should be the one setting interest rates. Additionally, when the Fed thinks it has control over things is when problems start.
“You have to have a market rate of interest, and you have to have a money supply that’s determined by the market rather than by the politicians, because we are seeing the results of many, many years of this, especially since 1971 with what is happening now, it’s the runaway spending, we can’t have the runaway spending, if we continue to do this, and the fact that they pretend that they can control things, every time they think they have control then there’s a major correction, which we are in the midst of.”
He said the big event was when the Fed realized last fall that the bubble was starting to pop. He also mentioned that it began doing everything it could to keep it going. This meant cutting rates to zero.
“The big event that turned this whole thing on was in the fall when it was realized that the financial bubble was collapsing and they have destroyed for many, many years the most important function of the market, in the money supply are the interest rates. So we destroyed the pricing structure and that’s why we have so many mistakes, malinvestment, too much debt, too much government, and it wouldn’t happen if you didn’t have a Federal Reserve system that thinks they can manage the economy through monetary manipulation.”
Gold and the Market
Paul said the Fed can print as much money as it wants, but ultimately gold is what underpins the markets.
“I remember when gold was legalized in the 70’s, everybody thought the gold price would soar up, but it had already gone up, but at the time, our Treasury Department and the IMF (International Monetary Fund) dumped a lot of gold just to try and punish the people who knew that gold was a haven. So there’s a lot of monetary and gold manipulations, but ultimately the markets are determined by metals, not by paper money.”
He said we are getting close to a “cataclysmic” end to the bubble. The unfortunate result is that a lot of people will be wiped out financially.
“We are coming desperately close to a cataclysmic end to the current monetary system. I happen to believe it’s the biggest financial bubble in the history of monetary policy for the whole world. And the correction is going to be very violent, and it’s already pretty bad. People are going to get a lot poorer.”
“The bills have to be paid, the economy is going to turn down, and a lot of people have already gotten a lot poorer, but it’s going to get a lot worse unless we wake up and return to some sound economic and monetary policies.”
Despite Setting All-Time High, S&P 500 Vulnerable Due To Uneven Recovery
Despite the S&P 500 closing at a record high last week, the recovery hasn’t been a rising tide that lifts all boats.
Analysis by CNBC shows that the vast majority of stocks have yet to regain their prior highs. In fact, since the previous high on February 19 and the new high on August 18, only 38% of stocks in the S&P 500 are in positive territory over that time frame. An alarming 62% of stocks are still in negative territory since February 19.
Michael Yoshikami, CEO of Destination Wealth Management, appeared on CNBC last week. The described a “shift in demand” during his appearance. He says it’s the reason why some stocks have fully recovered while others are still reeling.
“It’s not as if everything is rising,” he said. “You pull money out of names that really aren’t attractive given current conditions. And that money moves over to companies that are thriving in this environment.”
Recoveries in Different Industries
The recovery has also varied significantly depending on the industry. In consumer staples, health care, and information technology industries, more than half of the stocks have climbed into positive territory. This happened between Feb. 19 and Aug. 18. Contrast that with stocks in the energy and utility sector where less than 10% of stocks are in positive territory since February 19.
Among the stocks hit hardest since the February peak are Norwegian Cruise Lines (-71%), Occidental Petroleum (-67%), and Carnival Corporation (-67%).
Amazingly, despite the eye-popping rally since the March low, there are six stocks that are still in negative territory from March 23 through August 18: Coty Inc., FirstEnergy, Walgreens, Gilead Sciences, Wells Fargo, and Intel.
Just five stocks, Amazon, Alphabet (Google’s parent company), Apple, Microsoft and Facebook account for 20% of the index by weighting, the biggest weighting for the top five stocks in the index since 1980.
Those 5 stocks alone have accounted for 25% of the overall index return since the March lows.
“Divergence Between Winners and Losers”
Brad Neuman, director of market strategy for Alger, a New York fund manager, says this shows a “record divergence between winners and losers.”
“The mega-cap growth and tech companies have done incredibly well in the pandemic,” said Meghan Shue, head of investment strategy for Wilmington Trust. “We think it is probably a bit too far too fast — there is a great deal of optimism priced into the market right now.”
The uneven recovery puts the market in danger. This is according to a man The Wall Street Journal calls “the hedge-fund king you’ve never heard of.”
Jeffrey Talpins, the founder of Element Capital, warned clients in a letter last week about repositioning his hedge fund. He plans on repositioning his $16 billion hedge fund for a potential downturn after an unprecedented rally.
“We believe that the rally has now extended well beyond levels justified by the state of the economy, and with little regard for the myriad of risk factors looming on the horizon.”
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