With major markets all over the globe on the move, today James Turk not only told King World News that the world is headed for another terrifying collapse, and discussed the scary part regarding why it will be even worse this time around.
James Turk: “It is getting very ugly for the big banks, Eric. The price of many bank shares are in clear downtrends, particularly the European banks. Many of them are being swamped by unsecured loans that will never be repaid and will therefore have to be written-off as total losses…
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James Turk continues: “The country in worst shape is probably Italy. The banks there have non-performing loans – which are those that are impaired and not meeting the original borrowing terms – that in the aggregate dwarf total bank equity. Even worse, non-performing loans in Italian banks have risen again over the past year from 17% to 18%. It is hard to imagine that 18% of all loans within that country are non-performing, but the Italian economy is in trouble as evidenced by its 11.7% unemployment rate.
Spain, Portugal and others have growing bad debt problems in their banks too, and we have to recognize that these bad debts may be insurmountable. That’s because the bad debts in many banks are larger than the bank’s capital, so they can’t take these losses because it would wipe out their book equity. In other words, many banks are insolvent because the difference between the true value of their assets and the value at which they are reported on bank balance sheets is in the aggregate greater than the shareholder equity of the bank.
So we have to remember not to be misled just because these banks are still open for business. Even though many of them are insolvent, they remain liquid because of the largesse of the European Central Bank, which bends over backwards to keep insolvent banks from failing because of the alternative choices when they do fail.
Either the government bails out the bank, or depositors do like occurred in Cyprus and Greece with bail-ins and other schemes that cause losses to depositors or prevent them from withdrawing their money. But the situation in the US is not much better, as we can see on the following chart.
This chart from the Federal Reserve shows the year-over-year rate of change of delinquent loans owed to US banks. The chart was just recently updated through January 2016, meaning it lags by 6 months and therefore does not capture the weak economic conditions so far this year, which I expect have worsened delinquencies.
When the rate of change crosses zero, it has been a good indicator of recessions. Importantly, it is now signaling that a recession is beginning, providing more evidence that supports the same conclusion from a variety of other economic indicators. The upshot is that counterparty risk is likely to gain increasing attention in the months ahead. In fact, I think that a rush to safety has already begun.
We clearly see the rush to safety in alternatives outside of the banking system such as the rising price of Bitcoin, which rose another 4% last week and has nearly doubled in price from its January low. And the rising price of gold and silver this year indicates that the precious metals are benefiting too.
World Headed For Another Terrifying Collapse
But here’s the scary part: If these early indicators about bank problems are correct, and I believe that they are, we face another 2008-type crisis for the simple reason that debts today are much bigger and therefore more unmanageable than they were eight years ago. Huge debt loads and bank non-performing loans in a slowing economy promise a train wreck.
Fortunately, we all know how to get to the other side of the valley with our wealth intact. We do the same thing we did in 2008 – own physical gold and physical silver. After all, they are the ultimate safe havens. ***KWN has just released an extraordinary audio interview with Egon von Greyerz discussing new information about the endgame, the gold and silver markets, and much more, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***Also just released: Forget The Pullback – Here’s The Jaw-Dropping Roadmap To $10,000 Gold And $500 Silver CLICK HERE.
***Andrew Maguire’s remarkable KWN audio interview has now been released, and you can access it by CLICKING HERE OR ON THE IMAGE BELOW.