It Is Happening Again: 18 Similarities Between The Last Financial Crisis And Tod

[Mark]

It Is Happening Again: 18 Similarities Between The Last Financial Crisis And Today

If our leaders could have recognized the signs ahead of time, do you think that they could have prevented the financial crisis of 2008?  That is a very timely question, because so many of the warning signs that we saw just before and during the last financial crisis are popping up again.  Many of the things that are happening right now in the stock market, the bond market, the real estate market and in the overall economic data are eerily similar to what we witnessed back in 2008 and 2009.  It is almost as if we are being forced to watch some kind of a perverse replay of previous events, only this time our economy and our financial system are much weaker than they were the last time around.  So will we be able to handle a financial crash as bad as we experienced back in 2008?  What if it is even worse this time?  Considering the fact that we have been through this kind of thing before, you would think that our leaders would be feverishly trying to keep it from happening again and the American people would be rapidly preparing to weather the coming storm.  Sadly, none of that is happening.  It is almost as if they cannot even see the disaster that is staring them right in the face.  But without a doubt, disaster is coming. The following are 18 similarities between the last financial crisis and today...

#1 According to the Bank of America Merrill Lynch equity strategy team, their big institutional clients are selling stock at a rate not seen "since 2008".

#2 In 2008, stock prices had wildly diverged from where the economic fundamentals said that they should be.  Now it has happened again.

#3 In early 2008, the average price of a gallon of gasoline rose substantially.  It is starting to happen again.  And remember, whenever the average price of a gallon of gasoline in the U.S. has risen above $3.80 during the past three years, a stock market decline has always followed.

#4 New home prices just experienced their largest two month drop since Lehman Brothers collapsed.

#5 During the last financial crisis, the mortgage delinquency rate rose dramatically.  It is starting to happen again.

#6 Prior to the financial crisis of 2008, there was a spike in the number of adjustable rate mortgages.  It is happening again.

#7 Just before the last financial crisis, unemployment claims started skyrocketing.  Well, initial claims for unemployment benefits are rising again.  Once we hit the 400,000 level, we will officially be in the danger zone.

#8 Continuing claims for unemployment benefits just spiked to the highest level since early 2009.

#9 The yield on 10 year Treasuries is now up to 2.60 percent.  We also saw the yield on 10 year U.S. Treasuries rise significantly during the first half of 2008.

#10 According to Zero Hedge, "whenever the annual change in core capex, also known as Non-Defense Capital Goods excluding Aircraft shipments goes negative, the US has traditionally entered a recession".  Guess what?  It is rapidly heading toward negative territory again.

#11 Average hourly compensation in the United States experienced its largest drop since 2009 during the first quarter of 2013.

#12 In the month of June, spending at restaurants fell by the most that we have seen since February 2008.

#13 Just before the last financial crisis, corporate earnings were very disappointing.  Now it is happening again.

#14 Margin debt spiked just before the dot.com bubble burst, it spiked just before the financial crash of 2008, and now it is spiking again.

#15 During 2008, the price of gold fell substantially.  Now it is happening again.

#16 Global business confidence is now the lowest that it has been since the last recession.

#17 Back in 2008, the U.S. national debt was rapidly rising to unsustainable levels.  We are in much, much worse shape today.

#18 Prior to the last financial crisis, Federal Reserve Chairman Ben Bernanke assured the American people that home prices would not decline and that there would not be a recession.  We all know what happened.  Now he is once again promising that everything is going to be just fine.

Are the American people going to fall for it again?

It doesn't take a genius to see how vulnerable the global economy is right now.  Much of Europe is already experiencing an economic depression, debt levels in Asia are higher than ever before, and the U.S. economy has been steadily declining for most of the past decade.  If you doubt that the U.S. economy has been declining, please see my previous article entitled "40 Stats That Prove The U.S. Economy Has Already Been Collapsing Over The Past Decade".

And the truth is that most Americans already know that we are in deep trouble.  Today, 61 percent of all Americans believe that the country is on the wrong track.

It isn't that so many people are choosing to be pessimistic.  It is just that an increasing number of Americans are waking up to the cold, hard reality that we are facing.

Decades of incredibly foolish decisions have brought us to this point.  We allowed our economic infrastructure to be gutted, we consumed far more wealth than we produced, our politicians kept doing incredibly stupid things but we kept voting the same jokers back into office again and again, and over the past 40 years we have blown up the biggest debt bubble in all of human history.

We have been living so far above our means for so long that most of us actually think that our current economic situation is "normal".

But no, there is nothing normal about what we are experiencing.  We are entering the terminal phase of a colossal debt spiral, and when it flames out the economic devastation is going to be absolutely spectacular.

When the next major wave of the economic collapse comes and unemployment soars well up into the double digits, millions of businesses close and millions of American families lose their homes, I hope that those that are assuring all of us that there will not be an economic collapse will come back and apologize.

There are tens of millions of people out there right now that are not making any preparations at all because they have been promised that everything is going to be okay.  When the next financial crash happens, most of them will be absolutely blindsided by it and many of them will totally give in to despair.

Don't let that happen to you.

http://theeconomiccollapseblog.com/archives/it-is-happening-again-18-similarities-between-the-last-financial-crisis-and-today

[Mark]

The Size Of The Derivatives Bubble Hanging Over The Global Economy Hits A Record High

The global derivatives bubble is now 20 percent bigger than it was just before the last great financial crisis struck in 2008.  It is a financial bubble far larger than anything the world has ever seen, and when it finally bursts it is going to be a complete and utter nightmare for the financial system of the planet.  According to the Bank for International Settlements, the total notional value of derivatives contracts around the world has ballooned to an astounding 710 trillion dollars ($710,000,000,000,000).  Other estimates put the grand total well over a quadrillion dollars.  If that sounds like a lot of money, that is because it is.  For example, U.S. GDP is projected to be in the neighborhood of around 17 trillion dollars for 2014.  So 710 trillion dollars is an amount of money that is almost incomprehensible.  Instead of actually doing something about the insanely reckless behavior of the big banks, our leaders have allowed the derivatives bubble and these banks to get larger than ever.  In fact, as I have written about previously, the big Wall Street banks are collectively 37 percent larger than they were just prior to the last recession.  "Too big to fail" is a far more massive problem than it was the last time around, and at some point this derivatives bubble is going to burst and start taking those banks down.  When that day arrives, we are going to be facing a crisis that is going to make 2008 look like a Sunday picnic.

If you do not know what a derivative is, Mayra Rodríguez Valladares, a managing principal at MRV Associates, provided a pretty good definition in her recent article for the New York Times...

    A derivative, put simply, is a contract between two parties whose value is determined by changes in the value of an underlying asset. Those assets could be bonds, equities, commodities or currencies. The majority of contracts are traded over the counter, where details about pricing, risk measurement and collateral, if any, are not available to the public.

In other words, a derivative does not have any intrinsic value.  It is essentially a side bet.  Most commonly, derivative contracts have to do with the movement of interest rates.  But there are many, many other kinds of derivatives as well.  People are betting on just about anything and everything that you can imagine, and Wall Street has been transformed into the largest casino in the history of the planet.

After the last financial crisis, our politicians promised us that they would do something to get derivatives trading under control.  But instead, the size of the derivatives bubble has reached a new record high.  In the New York Times article I mentioned above, Goldman Sachs and Citibank were singled out as two players that have experienced tremendous growth in this area in recent years...

    Goldman Sachs has been increasing its derivatives volumes since the crisis, and it had a portfolio of about $48 trillion at the end of 2013. Bloomberg Businessweek recently reported that as part of its growth strategy, Goldman plans to sell more derivatives to clients. Citibank, too, has been increasing its derivatives portfolio, despite the numerous capital and regulatory challenges, In fact, its portfolio has risen by over 65 percent since the crisis — the most of any of the four banks — to $62 trillion.

According to official government numbers, the top 25 banks in the United States now have a grand total of more than 236 trillion dollars of exposure to derivatives.  But there are four banks that dwarf everyone else.  The following are the latest numbers for those four banks...

JPMorgan Chase

Total Assets: $1,945,467,000,000 (nearly 2 trillion dollars)

Total Exposure To Derivatives: $70,088,625,000,000 (more than 70 trillion dollars)

Citibank

Total Assets: $1,346,747,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $62,247,698,000,000 (more than 62 trillion dollars)

Bank Of America

Total Assets: $1,433,716,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $38,850,900,000,000 (more than 38 trillion dollars)

Goldman Sachs

Total Assets: $105,616,000,000 (just a shade over 105 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $48,611,684,000,000 (more than 48 trillion dollars)

If the stock market keeps going up, interest rates stay fairly stable and the global economy does not experience a major downturn, this bubble will probably not burst for a while.

But if there is a major shock to the system, we could easily experience a major derivatives crisis very rapidly and several of those banks could fail simultaneously.

There are many out there that would welcome the collapse of the big banks, but that would also be very bad news for the rest of us.

You see, the truth is that the U.S. economy is like a very sick patient with an extremely advanced case of cancer.  You can try to kill the cancer (the banks), but in the process you will inevitably kill the patient as well.

Right now, the five largest banks account for 42 percent of all loans in the entire country, and the six largest banks control 67 percent of all banking assets.

If they go down, we go down too.

That is why the fact that they have been so reckless is so infuriating.

Just look at the numbers for Goldman Sachs again.  At this point, the total exposure that Goldman Sachs has to derivatives contracts is more than 460 times greater than their total assets.

And this kind of thing is not just happening in the United States.  German banking giant Deutsche Bank has more than 75 trillion dollars of exposure to derivatives.  That is even more than any single U.S. bank has.

This derivatives bubble is a "sword of Damocles" that is hanging over the global economy by a thread day after day, month after month, year after year.

At some point that thread is going to break, the bubble is going to burst, and then all hell is going to break loose.

You see, the truth is that virtually none of the underlying problems that caused the last financial crisis have been fixed.

Instead, our problems have just gotten even bigger and the financial bubbles have gotten even larger.

Never before in the history of the United States have we been faced with the threat of such a great financial catastrophe.

Sadly, most Americans are totally oblivious to all of this.  They just have faith that our leaders know what they are doing, and they have been lulled into complacency by the bubble of false stability that we have been enjoying for the last couple of years.

Unfortunately for them, this bubble of false stability is not going to last much longer.

A financial crisis far greater than what we experienced in 2008 is coming, and it is going to shock the world.

http://theeconomiccollapseblog.com/archives/the-size-of-the-derivatives-bubble-hanging-over-the-global-economy-hits-a-record-high