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The
global economy has become so incredibly unstable at this point that it is not
going to take much to plunge the world into a horrific economic
nightmare. The foundations of the world economic system are so decayed
and so corrupted that even a stiff breeze could potentially topple the entire
structure over. Over the past couple of months a constant parade of bad
economic news has come streaming in from Europe, Asia and the United
States. Signs of an impending economic slowdown are everywhere. So what
"tipping point" will trigger the next global economic
downturn? Nobody knows for sure, but potential tipping points are all
around us.
Today,
the global economic system is even more vulnerable than it was back in
2008. Virtually none of the systemic problems that contributed to the
2008 collapse have been fixed. Yesterday, in The
Wall Street Journal it was reported that there is definitely going to be
another financial crisis around the corner because we haven’t solved
any of the things that caused the previous crisis.
The
"financial reform" law that Barack Obama and the Congress passed a
while back was a complete and total joke. They might as well have
written the law on toilet paper for all the good that it is doing.
We have not learned from our mistakes and our
future economic lessons are going to be even more painful.
The
reality is that the world is drowning in a mountain of debt. The
global financial system is packed with toxic derivatives, everyone is
leveraged to the hilt and it’s just a matter of time before the
dominoes start falling. I am not the only one that is warning that another
financial collapse is coming. In fact, a lot of very smart people have
been warning about the next financial collapse.
Tipping Point #1: Syria
Syria is
a situation to watch very, very closely. The Syrian government is in a
lot of trouble right now. Sadly, the instability inside Syria probably
makes war with Israel even more likely.
Make no mistake - a war between Israel and
Syria has been brewing for a long, long time and at some point it will
happen. When it happens, the entire Middle East may erupt in warfare.
Just the other day, a very troubling incident happened in the area around the
Golan Heights. As reported in Barron’s daily, "About
20 pro-Palestinian demonstrators were killed and 325 injured yesterday when
Israeli forces opened fire on them as they crossed the border from Syria into
occupied territories." I can only conclude that at this point,
the Syrian government is probably glad that the attention has been taken off
of them at least for a while. The Syrian government has been getting a lot of
bad press lately. Syria is one tipping point that we all need to keep a
close eye on.
Tipping Point #2: Iran
The
Iranian nuclear program is in the news again. A new report claims that Iran
could have a nuclear weapon within 2 months. The report is based on recent findings by the International
Atomic Energy Agency. Airstrikes alone would be incapable of stopping
Iran's nuclear weapons program at this point. Instead, a "military
occupation" would be required.
It is a
minor miracle that a war with Iran has not erupted yet. It seems almost
inevitable that at some point either the United States or Israel will use
military force to try to stop Iran's nuclear program.
When that happens, it is going to cause a
major shock to the global economy.
Tipping Point #3: Libya
NATO has
made it abundantly clear that Moammar Gadhafi will no longer be
tolerated. In fact, NATO apparently plans to reduce Tripoli to a heap
of smoking ruins if that is what it takes to bring about the fall of Gadhafi.
It turns out that NATO believes that the United Nations gave it permission to bomb
television stationsand to make attack runs with helicopters. By
using attack helicopters NATO has moved dangerously closeto turning the Libya operation into a ground invasion. Historically, using
attack helicopters are the last step before the land operation.
So why
is Libya a potential tipping point? It isn't because Gadhafi is a threat. He
is toast. It is because the rest of the world is watching what is happening
in Libya, and that is raising global tensions. Even if Gadhafi falls, the
Libyan operation will still be a failure because it has brought us all
significantly closer to World War III.
Tipping Point #4: More Revolutions in the
Middle East
The
revolutions throughout the Middle East earlier this year sent oil prices
absolutely skyrocketing and they have remained at elevated levels and in case
you haven't noticed, revolutions continue to sweep the Middle East.
Have you
seen what has been happening in Yemen lately? Yemeni President Ali Abdullah
Saleh has burns over 40% of his body and he has suffered a collapsed lung as a result of a recent
attack. If violence and protests throughout the Middle East become even more
intense as the weather warms up this summer that could have a very
significant impact on world financial markets.
Tipping Point #5: Fukushima
The
mainstream news has gotten a bit tired of covering it, but the situation at
Fukushima is still a complete and total disaster. Japan's Nuclear Emergency
Response Headquarters admitted on Monday that three reactors experienced
"full meltdowns"
in the aftermath of the earthquake and tsunami in March. Did it really take
them nearly three months to figure this out, or were they lying to the rest of
the world all of this time? The truth is that the nuclear disaster at
Fukushima is far worse than the mainstream media has been telling us. Land
around Fukushima, now radioactive dead zone; eerily resembles two targets
struck by atomic bombs. The economic impact of the Fukushima
disaster is going to continue to unfold over an extended period of
time. It turns out that Japanis now officially in a
recession. Their economy contracted at a 3.7 percent
annualized rate during the first quarter. Look for more bad economic numbers
to come out of Japan for the rest of the year. Considering the fact
that the Japanese economy is the third largest economy in the world, the fact
that they are struggling so badly right now is not a good sign for the rest
of us.
Tipping Point #6: Oil Prices
The
price of oil is going to continue to be one of the biggest economic stories
for the rest of this year and for 2012 as well.
The last time U.S. energy expenditures were
over 9 percent of GDP was in 2008 and
we quickly plunged into the deepest economic downturn since the Great
Depression. Well, we have reached the significant 9 percent figure once
again in 2011, and many fear that once again high oil
prices will cause another major economic decline.
Tipping Point #7: Government Austerity
In the
United States, it is not just the federal government that is drowning in
debt. All over America, there are state and local governments that are financial
basket cases.
I
don't always agree with the time frames that Meredith Whitney puts out there,
but I almost always agree with her analysis. She is absolutely correct that
we are going to see a massive municipal bond crisis.Meredith
Whitney is issuing a fresh warning to mutual funds, banks, and politicians:
The state of state finances is far worse than what we have been told and it
is the middle class taxpayers who will eventually carry the burden. Many state and local governments are attempting to get their
budgets balanced by making huge budget cuts. However, most of the time
these austerity programs also include the elimination of a lot of government
jobs. Research is projecting that state and local governments will combine to
slash a whopping 450,000 jobs by
the end of next year. That begs the question, where will the half a million
jobs come from to replace all of those lost jobs? Wait I know - the service
industry. "Do you want fries with that?"
Tipping Point #8: The European Sovereign Debt
Crisis
Greece
is just the tip of the iceberg in Europe. Moody's downgraded Greek debt again
last Wednesday and this time Moody's downgraded Greek debt by three
levels. At this point, the yield on 10-year Greek bonds is
over 15 percent. The EU has been going crazy trying to deal
with the Greek debt crisis. The truth is that a default by the Greek
government would be absolutely catastrophic. The kind of chaos a Greek
default would set off on world financial markets. Greece, however, is not the
only major European nation with a massive debt problem. The government of
Ireland is already indicatingthat they may need another bailout. Portugal, Spain and Italy are also on the verge of collapse. You
don’t need to be a weatherman to know which way the wind is blowing. At
some point the whole house of cards come crashing down. Everyone needs to
keep watching what is going on in Europe. The status quo is not
sustainable and it simply cannot go on forever.
Tipping Point #9: The Dying U.S. Dollar
The Euro
is not the only major currency that is in trouble.
The U.S. dollar is also slowly dying. On
April 18th, Standard & Poor’s altered its outlook on U.S.
government debt from "stable" to "negative" and warned
that the U.S. could soon lose its prized AAA rating.
The sad truth is that faith in the U.S.
dollar and in U.S. Treasuries is rapidly declining. The mainstream news
is not reporting on it much, but right now the Chinese are
rapidly dumping U.S. government debt.
As the dollar declines, so will the
purchasing power of average Americans. We are already seeing a
tremendous amount of inflation in 2011. This,
however, is just the beginning. A lot worse is going to be coming down the
road.
Tipping Point #10: Drought
A lot of
people doubt that we will ever see a majorglobal
food crisis but one is coming. It is just a matter of
time.
Even now, many areas of the world are
experiencing very serious droughts. Parts of
China, the biggest grower, had the least rain in a century, some European
regions are the driest in 50 years and almost half the winter-wheat crop in
the U.S., the largest exporter, is rated poor or worse. Inventory is dropping
8.8 percent, the most in five years. I predict that prices will rise 20
percent to as high as $9.25 a bushel by Dec. 31.
Are you
concerned yet? You should be. However, if you prefer some mindless pabulum
that will make you feel better, I have some of that for you too.
Yesterday,
in an interview with Larry Summers, he told
CNBC
"We definitely hit a slower patch, but I
think the basic fact that the terrible financial strains we had are abating,
remains in place, and I expect this recovery to continue for a substantial
period of time."
Does that make you feel better? Larry Summers
says that everything is going to be okay. It would be great if Summers was
actually right, but sadly he is not. Indeed, I consider Larry Summers to be a
contrarian indicator. The man has a long history of being a professional
liar.
Sadly, the worst economic times that America
has ever seen lie ahead.
When the
U.S. dollar dies and our financial system collapses we are not going to be
able to get all of the things that we need from the rest of the world so
cheaply any longer. The rioting that we will see in the street will make the
social unrest in the Middle East look like a ride at Epcot.
Sadly,
the economic news just
seems to get worse and worse.
What is eventually going to happen in this
country is going to be so nightmarish that most Americans could not even
imagine it right now.
So what are our intrepid leaders doing to
prepare for the coming economic crisis? They are very busy with other more
important matters, like sending out lewd photos over Twitter.
While we
have become the laughing stock of the world, the economic collapse of our
once great nation is staring at us square in the face.
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