Many consider the financial crisis of 2007–2008 to have been the worst since the Great Depression of the 1930s. The world’s debt control system can be likened to a piece of elastic wound tightly around your finger. If there is a particular weak spot in the elastic — in that a borrower is unable to pay their debts — the elastic snaps and the entire system unravels. Banks have put tools in place to reduce the likelihood of such a situation; but this “likelihood” seems ever closer today! What are economists now saying about the near future? Is another economic collapse likely?
James Dale Davidson, who predicted the economic collapse of both 1999 and 2007, wrote:
“There are three key economic indicators screaming SELL. They don’t imply that a 50% collapse is looming – it’s already at our doorstep.”
Marc Faber, an investment advisor and fund manager and publisher of the Gloom Boom & Doom Report newsletter, wrote:
“2017 will be [when] the US economy causes a World Economic Collapse! Trump can’t stop a dollar crisis, stock mark crash or gold and silver prices skyrocketing!”.
Faber was also quoted in an article on The Sovereign Investor: He recently told CNBC that “investors are on the Titanic” and stocks are about to “endure a gut-wrenching drop that would rival the greatest crashes in stock market history.”
Harry Dent, Harvard economist, predicted that the safe-haven of gold would be wiped out during 2017. From a conversation with Economy and Markets:
“While many economists will argue that gold is not in a bubble… and insist it will soar to $2,000, $5,000 and even $10,000, my research has said otherwise… I’ve never been more certain of anything in over 30 years of economic forecasting.”
Ann Rutledge, a fixed income analyst and regular writer for Forbes, analysed economic patterns and felt the slide has been underway since 2013. In 2016 she wrote:
“So, if you ask me whether we are going to have another global financial crisis in 2017… I would say the odds are good. This one probably started in 2013 and by now is well under way.”
Peter Costa, president of Empire Executions, has pulled out of market investments, believing that they are overpriced and that a major correction is on the way. In an interview, he said:
“I think that a lot of these stocks, big cap, small cap, they all got ahead of themselves. And I think that there will be a correction to bring them back to some sort of normalisation in pricing and once it gets back there, I’ll be back in the market.”
Chris Martenson, an economic researcher, wrote:
“GDP growth is very unlikely to support the rate of credit expansion that the Federal Reserve wants (or, more accurately, needs). And what will happen if it indeed doesn’t? A lot of painful, awful things – but central among them is a currency crisis.
“Amidst the ensuing unpleasantness will be an awakening within today’s hyper-financialised markets to the huge imbalance now existing between paper claims and ownership of real things. A massive wealth transfer from those with ‘paper wealth’ (stocks, bonds, dollars) to those owning tangible assets (the productive value of which can’t easily be inflated away) will occur – and quickly, too.”
Michael Covel, a financial strategist, thinks the collapse will start in Europe and then spread to the rest of the world. He explains why in great detail, calling it “the next Lehman moment.”
“Deutsche Bank has startling leverage of 40 times. Leverage is the proportion of debts that a bank has compared with its equity/capital. That means Deutsche has 40 times more debt than equity/capital. Keep in mind that Lehman Bros. was only 31 times leveraged when it imploded in 2008 and sparked the worst global financial crisis since the Great Depression… France’s clear discontent with the EU can’t be overstated. The EU might survive Brexit. But a French divorce from the EU would be cataclysmic, both financially and politically. It would mark the official end of the EU.
“…Bank runs would spread as consumers seek the safety of cash well before the actual earth-shattering event takes place. It would start in French banks… and the knock-on effects would spread to other European banks that have relationships with French banks. This would create a huge decline in confidence, leading to a European-wide decline in bank lending.
“And these bank runs would spread into a more widespread financial crisis in the global financial sector. Non-eurozone financial institutions in the U.S. and Asia would come under immense pressure because they have too heavy exposure to European banks.”
Shares in Germany’s Deutsche Bank fell sharply during 2016, losing almost half their value due to fears about the growth prospects for the global economy and the implications of the low price of oil and prolonged low interest rates. Some economic analysts have called this bank “the most dangerous bank in the world.” Private banking assets at Deutsche fell 28 percent in dollar terms to $227 billion at the end of 2016, sending it tumbling five places to 16th in Scorpio’s rankings of the 25 biggest private banks in the world. The U.S. Department of Justice wanted the bank to pay $14 billion for mis-selling toxic mortgage-backed securities before the 2007-2008 financial crisis.
With the problems plaguing Deutsche Bank in mind, along with other Euro concerns, Sebastian Raedler, European equities analyst, compared the eurozone to a party that is coming to an end. A new term has been coined, Grexit, referring to what some believe to be the imminent exit of Greece from the EU. When Greece was bailed out for the first time in 2010, it was calculated that the Greek Orthodox Church was capable of paying off the country’s entire debts three and a half times over!
On June 13, 2017, the UK’s Express newspaper wrote:
“A key UBS credit impulse which monitors the changes in credit volume has tumbled by six per cent of GDP since last year. It mirrors the same movement seen before the financial crisis 10 years ago, raising fears the global bubble could be about to burst and another credit crunch.”
Not to be outdone by other warnings, the Bank of International Settlements (BIS) — the “central bank for central bankers” — has released its latest annual report, warning that the current looming debt crises in China, Hong Kong and Thailand could precipitate an abrupt collapse, or, as BIS monetary and economic department head Claudio Borio put it:
“That end may come to resemble more closely a financial boom gone wrong, just as the latest recession showed, with a vengeance.”
Economists demonstrate that the growth in China is that of a debt bubble, not anything of real value in terms of tangible assets. Kevin Smith, chief Investment officer of Crescat Capital, Denver, Colorado, wrote in August 2017:
“The timing of the bursting of the Chinese currency and credit bubble is imminent in our view… The bursting of the China credit bubble poses tremendous risk of global contagion because it coincides with record valuations for equities, real estate, and risky credit around the world. The Bank for International Settlements (BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to gross domestic product (GDP) in the household and (non-financial) corporate sector. Three large (G-20) countries are flashing warning signals today for impending banking crises based on such imbalances: China, Canada, and Australia… The China currency and credit bubble has only gotten bigger since early 2016. The big credit bust is still ahead of us, in our strong opinion. The bust in some form will be triggered by bank runs from the masses of Chinese depositors when they learn that they are the ones holding the bag with respect to China’s insolvent banking system.”
An article produced on 15 August 2017 by the BBC delivered the following disturbing report:
“The International Monetary Fund has warned that China’s credit growth is on a ‘dangerous trajectory’… The IMF sets out some disturbing evidence from previous credit booms with similarities to China’s. It says that out of 43, only five were not followed by either a financial crisis or a major slowdown in economic growth….
“The biggest single group of debtors are state-owned enterprises (SOEs), although there have also been large increases in the debts owed by the government, other businesses and households.
“SOEs are a long standing issue in China. Many are what are called zombie companies that are not financially viable and are often in industries where there is excess capacity. They account for the most pressing corporate debt issues, the report says.
“There is also a warning about the housing market. A sudden “correction”, or in other words, a fall in prices, could pose a risk to financial stability.
“The report says that decisive action is needed.”
Is America a cause for economic concern? Alessandro Lombardi, a former global investment banking analyst, wrote before Donald Trump’s election:
“Emerging markets are the soft underbelly of the global economy. Many analysts expect the election of Donald Trump to the White House will change the United States’ economic and monetary policies. This could worsen conditions for businesses in emerging markets that are financed in U.S. dollars. The result might be a global economic collapse in 2017.”
Jim Rogers, who founded the Quantum Fund with George Soros, is on record as saying:
“A $68 trillion ‘Biblical’ collapse is poised to wipe out millions of Americans.”
And finally, Andrew Smithers was quoted in the same article.
“U.S. stocks are now about 80% overvalued.” He then cites a ratio which demonstrates that the only occasions in history that stocks were this risky were 1929 and 1999.
A bubble can only grow so far, no matter how strong it might be. The only measure that is saving the economy so far is the political and economic will to blow the bubble up further. Eventually, it will either deflate rapidly, or burst.
If you want to see a real-time view of America’s finances, take a look at the US Debt Clock.
Stay tuned for the conclusion to this article…