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Heading for Economic Collapse
Heading for Economic Collapse
by Stephen Lendman
The late Bob Chapman predicted it years ago. So does Paul Craig Roberts. It could "destroy Western civilization," he believes.
Untenable political and financial decisions put US and European economies on a collision course with disaster. Bailouts and market manipulation delay the inevitable.
A tipping point approaches. Only its timeframe is unknown.
Money power runs world economies. Wall Street and giant European banks run Western societies.
"Financial deregulation converted the financial system (into) a gambling casino....," says Roberts. Zero interest rates destroy household savings. Media scoundrels suppress ugly truths.
Western governments letting banking crooks scam the system for profits "is a system that is headed for catastrophic failure."
Bad news keeps getting worse. Public acknowledgement arrives late. Moody's June 21 downgrade of 15 major banks conceded what's been known for years.
Giant Western banks are zombies. They're insolvent. Taxpayer funded bailouts alone keep them operating. Moody's warned last winter than downgrades were coming. So-called stress tests suppress more than they revealed.
Ellen Brown calls the "derivatives casino....a last-ditch attempt to prop up a private pyramid scheme." It's slowly crumbling under its own weight.
JPMorgan Chase is considered America's most stable bank. Brown calls it bankrupt. Evidence, she says, shows it's acknowledged $2 billion loss perhaps exceeds $30 billion.
Roberts explained that America's five largest banks hold $226 trillion in derivative bets. For example, JPMorgan's total assets approach $2 trillion. Its derivatives holdings exceed $70 trillion. Its risk capital is about $136 billion.
Its "derivative bets are 516 times larger than the capital that covers the bets."
Goldman Sachs "takes the cake," says Roberts. Its $44 trillion in derivatives speculation "is covered by only $19 billion in risk capital."
In other words, its bets are "2,295 times larger than" cash on hand covering them.
Derivatives bets by America's five largest banks exceed US GDP over 15-fold. Corrupt politicians allowing it assure eventual economic collapse.
Banking executives are serial liars. After Moody's downgrades, Citigroup and Bank of America officials said its action failed to reflect "safeguards" in place for years.
Roberts destroyed their argument. So did Brown and other independent analysts.
Moody's and other rating agencies long ago lost credibility. They failed to acknowledge the sub prime crisis until headlines revealed it.
They bogusly call toxic assets safe in return for large fees and big profits.
They're called lagging, not leading indicators. They're many days and dollars short. They're part of the dirty game that scams ordinary people.
RBC Capital Markets analyst Gerard Cassidy said Moody's "action is five years too late."
Stanford University Professor Anat Admati called its downgrades bad news at a time bank "balance sheets are very fragile."
Credit Agricole Securities analyst Mike Mayo said America doesn't have a coherent solution to its banking crisis. Will actions like Moody's make it safer, he asked?
Saying the jury is still out, he doubts it. He also called Thursday's downgrades "unfortunate four years after (a) crisis" that's deepening, not improving.
Evidence shows troubled global banking conditions. Central bank liquidity injections alone prevent collapse. They're running their course. Each new round helps less than previous ones. Ahead they'll be ineffective at a price too great to bear.
They've bailed out banks at the expense of economic growth. Recovery is more distant than earlier. Speculators alone profited. Good times they alone enjoyed are ending.
Economic data show it. The closely watched Markit Eurozone purchasing managers composite index matched May's 46 read. It showed production contracting at the steepest level since June 2009.
Its flash measure dropped from 45.1 in May to 44.8 in June. It reflected a 37-month low. Markit's chief economist, Chris Williamson, said the flash reading "rounded off the weakest quarter for three years."
China's flash PMI fell to 48.1 in June. Manufacturing contracted for the eighth consecutive month. The Fed slashed 2012 and 2013 US growth. Growing numbers of companies are cutting revenue and profit estimates.
Germany's ZEW confidence index plunged to -16.9 from 10.8 in May. It's the largest monthly decline since the 1998 LTCM/Russian debt default crisis.
Moreover, its Ifo business confidence index hit a two-year low, and Italy's consumer confidence plunged to its lowest level since 1996.
US initial jobless claims are rising. On June 21, they reached a 2012 high.
Slowdown is gaining speed. Economic underpinnings look wobbly. In June alone, about 70% of economic reports showed weakness.
The Fed's Operation Twist extension underwhelmed analysts. Officially it's called the Maturity Extension Program. It exchanges short-term debt for longer term holdings. In theory, it's to lower interest rates on 10-year Treasuries. In early June 22 trading, they stood at 1.63%, a near record low.
Housing remains in Depression. In the week ending June 15, mortgage purchase applications plunged 8.5%. Companies keep cutting planned capex expenditures. According to the latest Architectural Billings Index, commercial construction keeps contracting.
Down 22% from their highs, commodity prices entered bear market territory. Oil prices hit an 18-month low. It signals weak demand. Brent fell 8% in one week. It's down 30% from its earlier high.
US factory output reached an 11-month low. Eurozone business activity dropped for the fifth straight month. At a 48.5 read in June, Germany's PMI shows contraction. The Fed's June Philadelphia manufacturing index contracted sharply to -16.6 after dropping 5.8 points in May.
The Jolts (Job Opening/Labor Turnover) survey showed job openings plunged 325,000 in May. It was the steepest drop since Lehman's September 2008 collapse. Only twice before in the past decade did it decline that much. All major categories were affected.
New hires decreased for the second straight month. They're lowest since July 2011. Again all categories showed weakness.
Layoffs keep increasing. Cuts rose in three of the past four months.
Data revisions are mostly negative. Peak levels were reached months ago. The full impact of how weak things are has yet to hit home. So-called recovery is illusion, not reality.
Europe's economic condition is grim. Bailing out Spain gets harder. Economist Jack Rasmus estimates its banks need at least $300 billion, not the publicly announced $78.75 billion.
He added that hundreds of billions more are needed to rescue Spain's regional and central governments. At issue is who'll supply it. Sick economies can't solve their own problems.
Eurozone ones look to Germany for help. It bears the greatest burden when it's economy is weakening.
Italy's troubled economy combined with its 12-month 29% of GDP sovereign financing burden means it can't contribute much.
Europe's PIIGS (Portugal, Ireland, Italy, Greece and Spain) combined with troubled France have a combined public debt of 200% of Germany's GDP. Its own debt to GDP ratio is 80%.
Simple math says it can't backstop the Eurozone. Bailouts can't continue forever. Debt burdened economies head for collapse. Adding more hastens the timeframe.
Troubled Eurozone economies are so weak that cross-border bank-to-bank lending dried up. ECB chairman Mario Draghi calls inter-bank lending "dysfunctional." It's "not working," he said. As it goes, so does business lending altogether.
Rasmus said these developments show deepening crisis conditions. He blames wrongheaded policy measures.
Austerity when stimulus is needed hit hard. Government revenues are down. So is consumption. Business spending keeps falling. Debt keeps rising. A looming train wreck approaches.
Why should households and economies bear the burden of bailing out crooked banks? Why are too big to fail ones allowed to exist? Why do ordinary people put up with politicians scamming them for personal gain? Why do they elect new bums in place of old ones?
When conditions exceed threshold levels too painful to bear, maybe they'll react the way they should have years ago.
A Final Comment
On June 19, the Global Europe Anticipation Bulletin (GEAB) issued a "red alert." Global conditions are "negative, even catastrophic," it said.
The second half of 2012 may "mark a major inflection point of the global system crisis...."
Day of reckoning time approaches. Putting off "the inevitable comes at a high price...."
"The shock of the autumn (of) 2008 will seen like a small summer storm compared to what('s)" coming. The "world system" will be "shake(n)."
GEAB predicts a conversion of geopolitical and economic shocks. They include more Middle East wars, Afpak chaos, "Gulf countries swept away in the turmoil," America's economy in free fall, major bank insolvencies, and money printing madness ended because it no longer works.
Early summer perhaps is the calm before the storm. If GEAB is right, it won't be pleasant on arrival.
Stephen Lendman lives in Chicago and can be reached at lendmanstephen [at] sbcglobal.net.
His new book is titled "How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War"
Visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.