Monday, April 11, 2016

Amid deepening slump, geopolitical and class tensions mount

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The World Trade Organisation reported earlier this week that 2016 will see the growth in world trade fall below 3 percent for the fifth consecutive year, the slowest rate since the 1980s. This is another indication that, far from experiencing a “recovery,” the world economy is gripped by worsening stagnation.
The WTO said the volume of world trade would increase by only 2.8 percent this year, the same as in 2015. Significantly, it did not predict a bounce back in trade as it has in recent years.
The latest forecast is in line with a clear pattern established over the past six years. In the wake of the global financial crisis of 2008, world trade plunged in 2009, at one point falling at an even faster rate than at the beginning of the 1930s. There was a sharp recovery in 2010-2011, but since then the rate of increase of world trade has consistently remained below even the meagre levels of global economic growth. WTO economists wrote that “such a long, uninterrupted spell of slow but positive trade growth is unprecedented.”
The present situation stands in marked contrast to the years leading up to 2008, when trade experienced a rapid expansion, roughly double the rate of growth of the global economy.
The WTO report was issued on the eve of next week’s spring meetings of the International Monetary Fund and the World Bank, at which the IMF is expected to follow the pattern of recent years and revise downward its world economic growth forecast.
In a speech delivered in Frankfurt earlier this week, IMF Managing Director Christine Lagarde set the tone for the meetings, declaring that while the “recovery continues,” it remains “too slow, too fragile, and risks to its durability are increasing.”
She noted that world trade growth had slowed and financial stability risks had increased, with recent market turbulence “reflecting lower confidence in the effectiveness of policies”—a reference to fears that the quantitative easing measures of central banks, together with negative interest rates, are worsening, not improving, the situation. She added that “these dynamics could become self-reinforcing.”
The global outlook had weakened further over the past six months, she said, “exacerbated by China’s relative slowdown, lower commodity prices, and the prospect of financial tightening for many countries.” Emerging markets had largely driven what recovery had taken place, and it had been expected that advanced economies would “pick up the ‘growth baton.’”
However, Lagarde acknowledged, “That has not happened.” Downturns in Russia and Brazil had been larger than expected, while “many African and low-income countries also face diminished prospects.”
The worsening situation facing Africa was highlighted by a report issued by Capital Economics, a consultancy firm, which predicted that growth in the sub-Saharan region would fall this year to just 2.9 percent, its lowest rate in 17 years. John Ashbourne, the economist who prepared the report, said that risks to the “bleak forecast” were “almost entirely to the downside,” and that even the lowered growth prediction would be achieved only if “acute crises are avoided.” He concluded that “In sum, the much-vaunted ‘rise” [of Africa] seems to have stalled.”
In the face of this worsening global economic outlook, Lagarde repeated the IMF’s warnings of a tendency to turn inwards, close borders and retreat into protectionism. “As history has told us—time and again—this would be a tragic course,” she said. The answer was not fragmentation, but cooperation.
But every tendency is heading in the other direction. At the G20 meeting earlier this year, the IMF’s call for a coordinated economic boost to the world economy was rejected before it could even be placed on the table because of irreconcilable differences between the major economic powers.
Rather than increased collaboration, the geopolitical situation is characterised by a rise of economic nationalism reminiscent of the conditions that led to World War II, as every capitalist government, faced with a slowdown in world trade and growth, seeks to boost its position at the expense of its rivals through protectionist measures and the lowering of the value of its currency.
Both the European Central Bank and the Bank of Japan have sought to advance their own economic agendas by pushing down the value of the euro and the yen through negative interest rates and quantitative easing measures.
However, with the US Federal Reserve for the present moving away from further interest rate hikes, their efforts have been thwarted as the value of the US dollar has stopped rising. This has prompted an angry response in Japan—the Financial Times headlined an article “Japan lashed out against rise of the yen”—with the chief cabinet secretary, Yoshihide Suga, telling a press conference that the government was watching the foreign exchange markets with a “sense of tension” and would “take measures as appropriate.”
All of the major capitalist governments, having no economic solution, are increasing military spending and making their preparations for war, seeking to resolve the crisis by what Leon Trotsky called “mechanical means.”
The ongoing economic breakdown of the global capitalist system and the accompanying drive to war can be resolved only through the intervention of the international working class, the initial signs of which are emerging.
The growing support in the United States for Bernie Sanders, based on his denunciations of social inequality and Wall Street and his claims to be a socialist, and the mounting crisis of the official two-party system are of profound global significance.
Notwithstanding the fact that Sanders himself does not represent socialism, but rather is seeking to channel the movement back behind the Democratic party, the US presidential campaign indicates that in a country where any reference to socialism was taboo and anticommunism was a virtual state religion, the sleeping giant of world politics, the American working class, is beginning to stir into action.
Likewise, the eruption of strikes and demonstrations against the Hollande government in France, in the face of antidemocratic laws imposed as part of the bogus “war on terror,” has brought a “whiff of 1968” to the air.
The ruling classes are conscious of the potential dangers they face in the US, Europe and around the world. As she issued her downbeat assessment of global prospects, Lagarde warned of dangers to social stability and remarked that with the growth of individual fortunes and “persistent, excessive and rising inequality,” it is no wonder that “perceptions abound that the cards are stacked against the common man—and woman—in favour of elites.”

The War on Savings: The Panama Papers, Bail-Ins, and the Push to Go Cashless

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Exposing tax dodgers is a worthy endeavor, but the “limited hangout” of the Panama Papers may have less noble ends, dovetailing with the War on Cash and the imminent threat of massive bail-ins of depositor funds.
The bombshell publication of the “Panama Papers,” leaked from a Panama law firm specializing in shell companies, has triggered both outrage and skepticism. In an April 3 article titled “Corporate Media Gatekeepers Protect Western 1% From Panama Leak,” UK blogger Craig Murray writes that the whistleblower no doubt had good intentions; but he made the mistake of leaking his 11.5 million documents to the corporate-controlled Western media, which released only those few documents incriminating opponents of Western financial interests. Murray writes:
Do not expect a genuine expose of western capitalism. The dirty secrets of western corporations will remain unpublished.
Expect hits at Russia, Iran and Syria and some tiny “balancing” western country like Iceland.
Iceland, of course, was the only country to refuse to bail out its banks, instead throwing its offending bankers in jail.
Pepe Escobar calls the released Panama Papers a “limited hangout.” The leak dovetails with the attempt of Transparency International to create a Global Public Beneficial Ownership Registry, which can collect ownership information from governments around the world; and with UK Prime Minister David Cameron’s global anti-corruption summit next month. According to The Economist, “The Panama papers give him just the platform he needs to persuade other governments, and his own, to turn their tough talk of recent years into action.”
The Daily Bell suspects a coordinated global effort linked to the push to go cashless. It’s all about knowing where the money is and who owns it, in order to tax it, regulate it, “sanction” it, or confiscate it:
Without privacy, authoritarianism flourishes because it is impossible to build and expand private networks that would act as a deterrent . . . . A worldwide transparency regime virtually guarantees abuses and corruption from those in power.
This is a reason why the “cashless society” idea is such a bad one. When no one is able to use cash, financial histories will be easily available via electronic bank records.
Michael Snyder of also links the Panama Papers with the push to go cashless:
. . . [W]ith this Panama Paper leak and all its pre-conditioning against tax havens, people aren’t realizing yet that very soon, once Negative Interest Rates and Bail-Ins are being openly discussed and prepared for implementation, the whole tax haven or tax dodger discussion in the media will quickly switch from talking about corrupt billionaires and shell companies half way around the world, and instead will be talking about something much closer to home . . . .
In my strong opinion this whole thing is all part of the coming capital control war, which ties directly in with the coming transition to a biometric digital currency, the implementation of Negative Interest Rates, the rollout of large scale systemic bail-ins, and the demonization and eventual criminalization of physical assets that are outside of direct taxation control (which again would be done using the pre-conditioned guise of “tax havens”, with physical precious metals and physical cash being the main targets).
War on Corruption or War on Savers?
What we may be witnessing here is the 1% going after the 10% of people who, according to German researcher Margrit Kennedy, do not need to borrow but are “net savers.” Today the remaining 90% are “all borrowed up.” Either they are unwilling to borrow more or the banks are unwilling to lend to them, since they are poor credit risks. Who, then, is left to feed the machine that feeds the 1%, and more specifically the 0.001%? The power brokers at the top seem to want it all, and today that means going after those just below them on the financial food chain. The challenge is in squeezing money from people who don’t need to borrow. How to legally confiscate their savings?
Enter bail-ins, negative interest, all-digital currencies, and the elimination of “tax havens.”
Bail-ins allow the largest banks to gamble with impunity with their depositors’ money. If the banks make bad bets and become insolvent, they can legally confiscate the deposits to balance their books, through an “orderly resolution” scheme of the sort mandated in the Dodd-Frank Act.
Negative interest is a fee or private tax on holding funds in the bank.
Eliminating cash prevents the bank runs that these assaults on people’s savings would otherwise trigger. Money that exists only as digital entries cannot be withdrawn and stored under a mattress.
Exposing tax havens shows the predators where the money is and who has title to it, facilitating its confiscation and preventing the funding of massive rebellions against confiscation.
Orchestrated at Davos
That could help explain those coordinated developments we’ve been seeing across the central-bank-controlled world, proliferating particularly after the January summit of the World Economic Forum in Davos, Switzerland, where the global elite gather to discuss the hot economic issues of the day.
According to one Morgan Stanley attendee, a notable topic this year was the need for “a rapid introduction of a cashless society so that even more negative deposit interest rates could be introduced in Europe to offset likely secular stagnation.” With the use of physical cash curtailed, J.P. Morgan estimates the European Central Bank could ultimately bring interest rates as low as negative 4.5%.
“Secular stagnation,” the official justification for negative interest, means a chronic shortfall in demand: not enough money chasing goods and services. Today virtually all money is created by banks when they make loans; and when old loans are paid off, new ones must be taken out to maintain the money supply. Central banks have traditionally dropped interest rates to stimulate this continual borrowing, but interest rates have now effectively been pushed to zero. The argument is that they can be pushed below zero – but only if cash withdrawals, and hence bank runs, are not an option.
That is the argument; but as Paul Craig Roberts, former Assistant Secretary of the Treasury for Economic Policy, observes:
The notion is that the economy’s poor economic performance is not due to the failure of economic policy but to people hoarding their money. The Federal Reserve and its coterie of economists and presstitutes maintain the fiction of too much savings despite the publication of the Federal Reserve’s own reportthat 52% of Americans cannot raise $400 without selling personal possessions or borrowing the money.
In an article titled “Exposing the Hidden Agenda of Davos 2016”, Zerohedge reports on a flurry of activity during and after Davos related to the push to go cashless. But stimulating demand may just be the cover story for something darker behind this orchestrated effort.
Rescuing the Economy or the Banks? 
Of greater concern at Davos than “secular stagnation” was the imminent insolvency of some major banks. Ambrose Evans-Pritchard, writing in January from Davos, quoted William White, former chief economist of the Bank for International Settlements, who warned:
The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up.
. . . European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed.
The European banking system may have to be recapitalized on a scale yet unimaginedand new “bail-in” rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it. [Emphasis added.]
It seems the War on Cash is being waged, not to stimulate the economy, but to save the lucrative private banking scheme at all costs. Quelling the riots likely to result from the mass confiscation of deposits could also underly the heightened push for a global “security state” and for those “anti-corruption” measures designed to determine where the money is and who owns it.
Postscript: Bail-ins under the new 2016 European Recovery and Resolution Directive began officially today, April 10, in Austria. Ominously, it was in Austria that a major bank bankruptcy triggered the Great Depression in 1931.

The Wages of Sin

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When Plato wrote “The Republic,”his lament for a lost Athenian democracy, he did not believe democracy could be recovered. The classical world, unlike our own, did not see time as linear. Time was cyclical. It inevitably brought decay and eventually death. This true for both individuals and societies. And in his “Republic,” Plato proposed that those who attempted in the future to create the ideal state carry out a series of draconian measures, including banning drama and music, which diverted the citizen from performing civic duties and instilled corruption, and removing children from their parents to provide a proper indoctrination. Plato wanted to slow the process of dissolution. He wanted to stymie change. But that decay and death would come was certain, even in Plato’s ideal state.

History has proved the ancient Greeks correct: All cultures decay and die. Dying cultures, even when they cannot fully articulate their reality, begin to deeply fear change. Change, they find, brings with it increasing dysfunction, misery and suffering. This fear of change soon becomes irrational. It compounds decay and accelerates morbidity. To see modern-day victims of this process, we need only look to white American workers who once had good manufacturing jobs and benefited from the structures of white supremacy.

Those who promise to miraculously roll back time rise up in decaying cultures to hypnotize a bewildered and confused population. Plastic surgeons who provide the illusion of eternal youth, religious leaders who promise a return to a simplified biblical morality, political demagogues who hold out the promise of a renewed greatness, and charlatans offering techniques for self-advancement and success all peddle magical thinking. A desperate population, fearing change, clamors for greater and greater illusion. The forces that ensure collective death—including corporate capitalism, the fossil fuel industry and the animal agriculture industry—are blotted out of consciousness.

When a society laments the past and dreads the future, when it senses the looming presence of death, it falls down a rabbit hole. And as in the case of Alice—who “went on saying to herself, in a dreamy sort of way, ‘Do cats eat bats? Do cats eat bats?’ and sometimes, ‘Do bats eat cats?’ for, you see, as she couldn’t answer either question, it didn’t much matter which way she put it”—language becomes unmoored from experience. Daily discourse, especially public discourse, is, as our presidential campaign illustrates, reduced to childish gibberish.

Jobs are gone. Schools are closed. Neighborhoods and cities are in ruin. Despair and poverty dominate lives. Civil liberties are abolished. War is endless. The society self-medicates. Democracy is a fiction. “Austerity” decisions by government such as the latest slashing of the federal food stamp program, a move that could remove a million people from the rolls, bring more jolts. Shocks like these, as Alvin Tofflerwrote, eventually trigger emotional overload; they are “the shattering stress and disorientation that we induce in individuals by subjecting them to too much change in too short a time.” And, finally, reality is too much to bear and is banished.

Climate change and the looming financial crisis will transform these emotional short circuits into what anthropologists call “crisis cults.” Crisis cults serve up illusions of recovered grandeur and empowerment during times of collapse, anxiety and disempowerment. A mythologized past will magically return. The old social hierarchies and rules will again apply. Prescribed rituals and behaviors, including acts of violence to cleanse the society of evil, will vanquish malevolent forces. These crisis cults—they have arisen in most societies that faced destruction, from Easter Island to Native Americans at the time of the 1890 Ghost Dance—create hermetically sealed tribes. We are already far down this road.

I spent last weekend in the Second Presbyterian Churchin Elizabeth, N.J., helping to clear out piles of old books, church records, plastic flowers, worn choir robes and other detritus that were dusty remnants of the white working-class congregation that filled these pews a few decades ago.

Elizabeth was devastated by the 1982 closure of its Singer plant, which had been built in 1873 and at one time had 10,000 workers. The 1,000 or so African-Americans at the plant worked mostly in a foundry that made cast-iron parts for the sewing machines. The work was poorly paid and dangerous. White workers, many of them German, Italian, Irish, Jewish, Polish or Lithuanian immigrants, dominated the safer and better-paid factory floor. The city was built around the sprawling plant. Generations of residents organized their lives and their families on the basis of Singer jobs or income that the facility indirectly produced. And then, after a long decline, the factory was gone.

The year Singer closed its flagship factory in Elizabeth there were 2,696 plant shutdowns across the United States, resulting in 1,287,000 job losses. Singer workers in Elizabeth under the age of 55 lost all retirement benefits, even if they had worked for the company for decades. Small businesses in the city that depended on the plant went bankrupt.

In postindustrial cities across America it is now clear, after the passage of years, that the good jobs and stability once provided by factories such as the Singer plant have been lost forever. The pent-up anger and frustration among the white working class have given birth to dark pathologies of hate. The hate is directed against those of different skin color or ethnicity who somehow seem to have heralded the changes that destroyed families and communities.

This sentiment, on display at Donald Trump rallies, will outlive the Trump campaign even should the candidate be, as I expect, deposed by the party elites. It is a very dangerous force. It presages violence against all who appear to have been empowered at the expense of the white working class—African-Americans, Muslims, undocumented workers, homosexuals, feminists, artists and intellectuals—and will feed the rise of a Christianized fascism.

“Generations from the same family worked for Singer,” the Rev. Michael Granzen, the senior minister at the Elizabeth church, said of the white workers who lost their jobs. “They suffered, when the plant was closed, not only economic loss but a loss of identity. They were stripped of their daily work routines. They lost social bonds. They no longer had generational goals. They lost hope in the future. They could no longer count on a steady income, health coverage and a secure retirement. Marriages and neighborhoods were torn apart. There was an increase in domestic violence, drug use, alcoholism and crime.

“Many white blue-collar workers blamed and scapegoated the newer black and Latino workers for the plant closure,” he said. “White racism is largely about this loss of self-worth. It is about the fear of nihilism. It creates a false grandiosity to compensate for a deep insecurity. We see this dynamic being played out in postindustrial cities across the country.”

Most of these former manufacturing hubs have seen whites flee. Hispanics and blacks, living in terrible poverty, now populate decaying neighborhoods there. Sixty percent of Elizabeth’s population today is made up of Latinos, many from Central America.

Elizabeth, like many other cities, has become an internal colony of the poor. It helps provide the bodies that feed the system of mass incarceration. And it, along with other suffering urban centers, has been turned into a toxic dumping ground.

“The environmental hazards multiplied in the years after Singer closed,” Granzen said. “As with other cities experiencing industrial decline in New Jersey—such as Camden, Newark, Trenton and Patterson—white-controlled political structures in the state turned to dumping hazardous and toxic wastes in cities like Elizabeth, which already had their own toxic legacies. The ethos of racial profiling that undermined the worth of nonwhite bodies was reflected in this environmental racism. The lives of nonwhites were seen as of lesser value.”

The insidious forms of institutional racism that define America explode as societal death approaches. They express themselves in displays of racial violence. White vigilante groups, desperate to prevent further change, engage in the same use of indiscriminant lethal force practiced by police against unarmed people of color. The continued failure by government to reintegrate the working class back into the economy, to give people hope, dooms us all. 

Plato begins “The Republic” by having Socratesgo to the port at Piraeus, the most decadent spot in ancient Athens. It was filled with taverns and brothels. It was home to thieves, prostitutes, soldiers and armed gangs. Egyptian, Median, Germanic, Phoenician and Carthaginian sailors and other foreigners—Athenians lumped them together as barbarians—congregated along the seafront.

The port was also where the Athenian war fleet, made up of black triremeships with bronze-sheathed rams on the prow, was stationed in rows of military boathouses. These warships helped turn Athens from a democratic city-state into an empire in the 5th century BC. And, as Plato and his pupil Aristotle understood, the building of empire, any empire, extinguishes democracy.

The Greek polis, or city-state, soon to be swallowed up by the Macedonian empire, was the nucleus that—like early New England town halls in the United States—made it possible for an individual to be a political being, to have agency and a voice. Empire requires a centralized, authoritarian government that has no use for the demos. Greek democracy, always a patriarchy, was with the rise of empire extinguished. Corruption and a lust for power defined the new ruling elites. The citizen, as in our system of “inverted totalitarianism,”became irrelevant. As the Athenian general Thucydides noted, the tyranny that Athens imposed on the outer reaches of empire, it eventually imposed on itself. Athens, like the United States centuries later, was hollowed out from the inside by the corrosive force of empire. The brutal tools of control used initially in distant parts of the empire—in our case militarized police, drones, suspension of civil liberties, wholesale surveillance and mass incarceration—migrated back to the homeland. This is how most empires die. They commit suicide.

The loss of civic virtue, Plato wrote, left a population hypnotized by the illusions flickeringon the wall of a cave. Such distorted images of reality—our electronic hallucinations are beyond Plato’s imagination—fuel irrational beliefs and desires. They foster a visionless existence. Our images are skillfully manipulated by the elites to keep the population entertained and passive. Those who seek to question the illusions are, Socrates warned, usually attacked and killed by the mob, which does not want its comforting myths punctured. When reality is too painful to bear, a population does not seek freedom or truth; it becomes an accomplice to its own enslavement. Epicureanism, the reduction of life to the pursuit of fleeting individual pleasure, seduces the public. Cynicism rules. Distrust is everywhere. The community breaks down, and, as Plato writes, “all goes wrong when, starved for lack of anything good in their own lives, men turn to public affairs hoping to snatch from thence the happiness they hunger for. They set about fighting for power, and their internecine conflict ruins them and their country.” This collapse creates a dream world “where men live fighting one another about elaborate shadows and quarreling for power, is if that were a great prize. …”

At the end, death arrives as a relief.

We are no more immune to the forces of decay and death than were ancient Athens, ancient Egypt, ancient Rome, the Mayans, the Aztecs, Easter Island, Europe’s feudal society of lords and serfs, and the monarchal empires in early 20th-century Europe. Human nature has not changed. We will react as those before us reacted when they faced collapse. We will be increasingly consumed by illusion. We will seek to stop time, to prevent change, to embrace magical thinking in a desperate effort to return to an idealized past. Many will suffer.

This time, collapse will be planetwide. There will be no new lands to conquer, no new peoples to subjugate, no new natural resources to plunder and exploit. Climate change will teach us a brutal lessen about hubris.

The wages of sin, as Paul writes in his Letter to the Romans, is death—first moral and intellectual death and then physical death. The first, we already are experiencing. It would be reassuring to believe we could as a species avoid the second. But if human history is any guide, we are in for it. And the worse it gets, the more we seek to thwart change through magical thinking, the more our eventual extinction as a species is assured.

Economic Collapse Is Erupting All Over The Planet As Global Leaders Begin To Panic

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Mainstream news outlets are already starting to use the phrase “economic collapse” to describe what is going on in some areas of our world right now.  For many Americans this may seem a bit strange, but the truth is that the worldwide economic slowdown that began during the second half of last year is starting to get a lot worse.  In this article, we are going to examine evidence of this from South America, Europe, Asia and North America.  Once we are done, it should be obvious that there is absolutely no reason to be optimistic about the direction of the global economy right now.  Thewarnings of so many prominent experts are now becoming a reality, and what we have witnessed so far are just the early chapters of a crushing economic crisis that will affect every man, woman and child in the entire world.
Let’s start with Brazil.  It has the 7th largest economy on the entire planet, and it is already enduring its worst recession in 25 years.  In fact, at the end of last year Goldman Sachs said that what was going on down there was actually a “depression“.
But now the crisis in Brazil has escalated significantly.
I want to share with you an excerpt from a recent article entitled “Brazil: Economic collapse worse than feared“.  I know, that title sounds like it comes directly fromThe Economic Collapse Blog, but I didn’t write it.
It actually comes from CNN
Amid political chaos, Brazil’s economic collapse is worse than its government once believed.
In the midst of rising calls to impeach President Dilma Rousseff, Brazil’s central bank announced Thursday that it now expects the country’s economy to shrink 3.5% this year.
That’s worse than the central bank’s previous estimate for a 1.9% contraction. The darker forecast matches what the International Monetary Fund projected for Brazil — Latin America’s largest country — and what many independent economists have suspected.
It is one thing for Michael Snyder to tell you that Brazil is in the midst of “economic collapse”, but it is another thing entirely for CNN to say it.
And of course I have been warning about the crisis down in Brazil for quite some time now.  For much more on this, please see my previous article entitled “The Economic Collapse Of South America Is Well Underway“.
Meanwhile, things are actually much worse in Venezuela than they are in Brazil.  Food and basic supplies are in short supply, the inflation rate has hit 720 percent, and crime is completely out of control.
The following is from an article in the Independent entitled “Venezuela is on the brink of complete economic collapse“…
The only question now is whether Venezuela’s government or economy will completely collapse first.
The key word there is “completely.” Both are well into their death throes. Indeed, Venezuela’s ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it’s hard to see that getting any better for them any time soon — or ever.
Incumbents, after all, don’t tend to do too well when, according to the International Monetary Fund, their economy shrinks 10 percent one year, an additional 6 percent the next, and inflation explodes to 720 percent. It’s no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.
Once again we see a very respected mainstream publication using the phrase “economic collapse” to describe what is happening in South America.
You can find some stunning video of the “economic Armageddon” that is taking place in Venezuela right here.  I would encourage you to watch that video, because what is happening down there will eventually be happening here.
Meanwhile, over in Europe the collapse of the Italian banking system has entered a disturbing new chapter.  Italy’s finance minister has called a meeting in Rome for Monday that will be focusing on a “last resort” bailout plan for the troubled banks…
Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan.
Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks, Monte dei Paschi di Siena, from contagion, according to people involved in the talks.
Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. Lenders’ profitability has been hit by a crippling three-year recession.
As Italy descends into financial chaos, the rest of the continent better be paying attention.
Do you remember how hard it was for the rest of Europe to rescue Greece?
Well, Greece has the 44th largest economy on the planet.
Italy has the 8th.
It would be hard to overstate the seriousness of what is going on over in Europe, and it is not just Italy we are talking about.  All over the continent major banks are in deep trouble, and the chairman of France’s second largest  retail bank recently told reporters that “I am much more worried than I was in 2009“.
And there is very good reason for concern.  On Sunday, we learned that a major “bail-in” had just been announced for one of Austria’s most prominent banks.  The following comes from Zero Hedge
And then today, following a decision by the Austrian Banking Regulator, the Finanzmarktaufsicht or Financial Market Authority,Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG.
The highlights from the announcement:
Today, the Austrian Financial Market Authority (FMA) in its function as the resolution authority pursuant to the Bank Recovery and Resolution Act (BaSAG – Bundesgesetz ├╝ber die Sanierung und Abwicklung von Banken) has issued the key features for the further steps for the resolution of HETA ASSET RESOLUTION AG. The most significant measures are:
  • a 100% bail-in for all subordinated liabilities,
  • a 53.98% bail-in, resulting in a 46.02% quota, for all eligible preferential liabilities,
  • the cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG,
  • as well as a harmonisation of the maturities of all eligible liabilities to 31.12.2023.
According to the current resolution plan for HETA, the wind-down process should be concluded by 2020, although the repayment of all claims as well as the legally binding conclusion of all currently outstanding legal disputes will realistically only be concluded by the end of 2023. Only at that point will it be possible to finally distribute the assets and to liquidate the company.
The dominoes are starting to fall in Europe, and I would expect even bigger announcements in the weeks and months to come.
Over in Asia, economic chaos is beginning to prevail as well.
In China, the stock market is already down more than 40 percent from the peak, Chinese exports were down 25.4 percent on a year over year basis in February, and Chinese economic numbers overall have not been this poor since the depths of the last global recession.
At the same time, the Japanese economy is really struggling right now.  As I wrote about the other day, Japanese GDP has shrunk for two out of the last three quarters, we just saw Japanese industrial production experience the biggest one month decline that we have witnessed since the tsunami of 2011, and business sentiment has fallen to a three year low.  The Nikkei has dropped by about 5,000 points from where it was last summer, and some analysts believe that Japanese markets “are being destroyed” due to massive intervention by the Bank of Japan.
Here in the United States, we haven’t been hit quite as hard as the rest of the world just yet, but there are lots of very disturbing warning signs all around us.
At the end of last week, we learned that it is being projected that U.S. GDP will have grown by just 0.1 or 0.2 percent during the first quarter of 2016.  And on Monday corporate earnings reporting season begins, and it is expected to be a very, very bad one.  The following comes from Business Insider
We are about to get confirmation that earnings growth for America’s biggest companies was negative in the first quarter, compared to the same period a year ago.
When aluminum giant Alcoa releases its results on Monday, it will mark the unofficial start of the heaviest reporting season for S&P 500 companies.
The final scoreboard is expected to show a 9.1% earnings drop for the quarter, according to FactSet senior earnings analyst John Butters.
If these projections turn out to be accurate, it will be the fourth quarter in a row of earnings declines.  This is something that we never see outside of a recession.
And for a whole bunch more numbers which indicate that the U.S. economy is in very serious trouble, please see my previous article entitled “19 Facts That Prove Things In America Are Worse Than They Were Six Months Ago“.
Of course I am just another voice in the crowd when it comes to predicting that the U.S. economy is headed for rough times.  For example, just check out what Societe Generale economist Albert Edwards is saying
A tidal wave is coming to the US economy, according to Albert Edwards, and when it crashes it’s going to throw the economy into recession.
…the profit recession facing American corporations is going to lead to a collapse in corporate credit.
“Despite risk assets enjoying a few weeks in the sun our fail-safe recession indicator has stopped flashing amber and turned to red”
He continued:
Whole economy profits never normally fall this deeply without a recession unfolding. And with the US corporate sector up to its eyes in debt, the one asset class to be avoided — even more so than the ridiculously overvalued equity market — is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default.
As you can see, it isn’t just one nation or one region of the world that we need to be concerned about.
Economic chaos is erupting literally all over the planet, and global leaders are starting to panic.
Unfortunately, they have had seven years to try to fix things since the last global recession, and they didn’t get the job done.  Anyone that believes that by some miracle they will be able to pull us out of the fire this time and that everything will somehow be okay is simply engaged in wishful thinking.