Sunday, August 23, 2015

Financial Collapse Coming - Paving The Way For Global Financial System

The news is everywhere and impossible to ignore. A casual glance at any newspaper or publication usually contains at least one headline on the coming financial collapse. What better way to see a world-ruler arrive on the scene and offer the solutions? (in addition to a Middle East peace plan). A world-wide financial collapse would obviously lead the way for a central currency, which of course would have to have a global governance. This has already been outlined many times by George Soros. 

The articles below are just a small sample of similar articles published just in the course of a single weekend. There are many many more available - all saying basically the same things:

As much as the financiers on Wall Street and the officials at the Fed would like the party to keep going, it looks it’s finally about to stop. Years of bailouts and monetary expansion have created one of the most inflated and artificial economic booms in history, and now it appears that this global economic bubble is deflating. Markets across the board are melting down as we speak, and the financial crash that supposedly “fringe” analysts have been predicting since 2008, is finally upon us. Take a look at what’s going down right now.

  • The Dow has fallen 1300 points from its peak. On Friday alone, it fell by 530 points, making it the 9th worst stock market crash in US history.
  • The Shanghai composite fell by more than 11% this week. All told, China’s stock market has lost a third of its value since its previous peak, and the only thing holding it up is their government’s intervention. It lost 4% of its value on Friday after it was revealed that their manufacturing activity had reached a 77 month low.
  • 400 of the world’s richest people lost a total of $182 billion this week, amounting to 6.3% of their collective wealth. When the people who benefit the most from inflated markets are getting hurt, you know that the bubble is bursting.
  • The dollar’s rally may be finally nearing its end. Its value has fallen slightly, but consistently for the past 2 weeks.
  • Commodities have fallen to a 13 year low. The price of copper has reached a 6 year low while oil has suffered its longest decline since 1986.

That last one is very telling. You can always tell when the global economy is in bad shape based on the value of various commodities. It’s one of the strongest indicators for an economy, since it reveals how many real, tangible goods are being produced. Curiously, many of these commodities have been falling in value throughout the supposed recovery that we’ve been in since 2009.

The only commodity that is doing well right now is gold, which has reached a six week high, and just had its best week since last January. Given the safe haven status that gold holds, it’s clear now that confidence in the US dollar and the global economy, is slowly slipping.

With all of this information at hand, it would be hard to deny that we may be finally witnessing the same kind of crash that we endured in 2008. Anyone who thought that we’ve been in a genuine recovery for the past 6 years, was foolish. But anyone who thinks that global markets will simply bounce back from what has occurred over the past few weeks, is downright crazy.

A notable investor is warning that the Chinese economy might not just be slowing down, it could even be contracting. 
Marc Faber, the editor and publisher of the Gloom, Boom & Doom Report, says he believes the official economic growth figures from the Chinese government completely bely actual conditions on the ground, and that the economy is in much worse shape than investors are being led to believe. 
“The Chinese growth was maximum 4 percent. Now, in my view, it is maximum 2 percent and maybe even negative,” he told Greg Bonnell on The Business News. 
Faber suggests China has been slowing down for the past three years, triggering weakness in the price of commodities such as copper, gold and crude oil as the world’s second-largest economy consumes fewer of those raw materials. He says that in turn has caused a “vicious circle” of tumbling incomes for commodity-producers and subsequent cost-cutting initiatives. That fallout has taken a major toll on many national economies, with Canada among those most significantly hit.
“What we have is a general downturn in the global economy at the present time that will have a negative impact on earnings,” he said. “That’s why the markets are selling off and emerging markets have been selling off for a long time. The U.S. was in lalaland to believe that their economy and their corporate earnings would not be affected.”
Faber says U.S. equity markets are currently “extremely oversold” and that a short-term rebound may be in the mix, but he argues more pain is likely to emerge. He also highlights precious metals as the one asset class that may offer a glimmer of hope for commodity-producing economies such as Canada and some safety for investors looking to shield their investments.
“There’s not much other good news for Canada at the present time,” he said.

The US government might not be able to save the financial system from blowing up during the next crisis.
Casey readers know that the US government fought the 2008 financial crisis with the biggest monetary stimulus in world history. It “printed” more than $3 trillion dollars. It cut interest rates to near zero. It bailed out dozens of huge companies by giving them loans.
This helped the financial system survive. But it also created huge unintended consequences… like the illusion that the government can save us from any crisis, no matter how big. This false confidence is a big reason why US stocks and bonds have gone on to new record highs.

The Wall Street Journal thinks the US government won’t have the “ammo” to rescue the financial system next time:
The Federal Reserve will have fewer monetary weapons in the next recession. It has less room to cut rates, and its swollen portfolio will make it harder to launch new rounds of bond buying.
The federal debt load, meanwhile, along with political rancor over deficits could dull the government’s capacity to stimulate the economy with tax cuts or spending.

• The US government has three main “tools” for pumping cash into the economy to fight a crisis…
One, it can lower interest rates. This makes it cheaper to borrow money.
But the Federal Reserve cut rates to near zero in 2008, and it hasn’t raised them since. So there’s almost no room to cut rates in the next crisis.
Two, it can cut taxes. This puts more cash in the hands of Americans and businesses.
But the government is in no position to cut taxes. It already spends about half a trillion more than it takes in. And it owes lenders $18 trillion… a number that doesn’t even include programs like Social Security, Medicare, and Medicaid. Economists estimate these programs will cost at least $100 trillion. Doug Casey thinks the total cost is closer to $200 trillion.
Three, it can “print” money, or what many call quantitative easing (QE). This is when the Fed pumps money into the economy by buying bonds from the private sector.
The Wall Street Journal explains why the Fed won’t be able to easily print money during the next crisis.
The next downturn could further expand Fed bond holdings, but with the central bank’s balance sheet already exceeding $4 trillion, there are limits to how much more the Fed can buy.
In the last crisis, the government proved it would do anything to keep the financial system together. After it uses up its traditional tools, it will likely create new, more dangerous, ones.
It might find a new way to print money. It might make interest rates negative to force Americans to spend instead of save.

We can’t know exactly. But whatever it does, it will likely involve creating trillions of dollars. This is one big reason why we recommend owning physical gold, the only “currency” that governments can’t make less valuable.

Nobel laureate Robert Shiller of Yale University warned that this week’s market bloodbath may get even nastier.

"It could be followed by even bigger and bigger moves," he told CNBC. "I have a general bias towards down because the market is overpriced, but these things unfold over years."
Shiller advised that the current plunge could "create aftershocks in either direction in the short-term," but he cautioned investors to not "over-focus on the latest news."

"When people who don't normally pay attention to the market are brought in, it can feed on itself like an epidemic," he said.

Shiller said that a stock-market correction, traditionally considered to be a 10 percent drop in a short time period, wouldn’t be “the end of the world.”

He spoke as worries of a deepening China economic slowdown intensified on Friday after a private survey showed the factory sector shrank at its fastest rate in almost 6-1/2-years in August, hammering global stocks and commodity prices.

U.S. stocks dropped sharply for a second day following a sell-off in major indexes around the world on the growing evidence that China's economy is slowing. The Dow Jones industrial average fell 296 points, or 1.7 percent, to 16,694 as of midday Friday Eastern time.

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