On the heels of another wild trading week in world markets, today one of the top economists in the world sent King World News an incredibly powerful piece warning that the global economy and financial system are on the edge of total collapse. Below is the fantastic piece from Michael Pento.
By Michael Pento of Pento Portfolio Strategies
March 1 – (King World News) – In 1982 the artist formerly known as Prince released a popular party anthem called “1999.” The song was a premonition that 1999 would be a year we would all aspire to “party like." It was obvious that Prince was making reference to the excitement associated with ringing in a new century. Unbeknownst to him, the accommodative policies of the Federal Reserve would lead to a festal bubble in NASDAQ stocks, making his call to party in 1999 that much more appropriate.
After that hangover lapsed, our central bank — in full cooperation with the Wall Street top casino sites — was once again donning party hats by the mid-2000s.The Fed’s cheap money, along with the private banks’ proclivity to create credit, produced similar merriment in the housing market. The fallout after this party ended was much more severe than the previous monetary orgy.
Today, even as most Americans are still suffering the ill effects brought forth by all the aforementioned partying, the festivities on Wall Street’s trading floors have reached their apogee. Although GDP growth has remained below trend for years and household incomes have stagnated, the corrupt carnival barkers who dominate the financial services industry have caused investors to party like its 1999 and 2007 combined….
Continue reading the Michael Pento piece below…
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Dotcom Bubble II
Last year venture capital investments reached a level that was last seen during the dotcom bubble, as they poured a staggering $48.3 billion into startup companies. One of those companies, Pinterest Inc., recently announced that it is looking to raise $500 million in a new round of funding, which will double the company’s valuation to a hefty $11 billion. That’s a frothy valuation for an on-line scrapbook. But there is no room for honest price discovery in an environment where money is free and failure has been annulled. And if you are ever invited to one of these gluttonous venture capitalist galas and are looking for a ride, check out Uber Technologies, an Internet car service company valued at a whopping $41 billion.
Reckless Lending Skyrockets To Subprime Borrowers
Today’s festivities span well beyond the 1999 Internet startup theme. Those who missed their invite to the NASDAQ bubble and the real estate flipping bash will be happy to learn that subprime lending is back to its profligate peaks. In fact, loans to consumers with low credit scores have reached the highest level since the start of the financial crisis. In fact, almost four out of every 10 loans for autos, credit cards, and personal borrowings in the U.S. went to subprime customers during the first 11 months of 2014. That amounted to more than 50 million consumer loans and credit cards totaling more than $189 billion, the highest levels since 2007.
Despair On Main Street
But as Wall Street resumes its gaiety, Main Street is still mired in despair. According to a new report from Bankrate, 24 percent of Americans have more credit card debt than emergency savings. And 13 percent of consumers don't have any credit card debt but don't have any savings either.
The jobs picture, paraded by Wall Street and government as the one bright spot in an otherwise lackluster recovery, just isn’t as rosy as it appears. According to the Federal Reserve Bank of Atlanta, "The economy has been generating full-time general-service jobs at a much slower pace than in the past." In fact, the economy has 2.5 million more part-time workers and 2.2 million fewer full-time workers than it did at the start of the Great Recession in December 2007.
Another $60 Trillion Of Debt While Global Economy More Fragile Than Ever
Despite what the mainstream news media would have you believe, the economy is more fragile today than ever. In fact, the virtually free money and QEs provided by many central banks have caused economies to pile on an additional $60 trillion of debt on top of the already unsustainable and insolvent conditions that existed in 2007.
Precipice Of Collapse
Sadly, the mindset of governments and central banks remains unchanged from the collapse of the previous two bubbles. Unprecedented money printing and artificially produced low interest rates have created a perpetual happy hour. And they again have placed all of us at the precipice of a collapse in equities and real estate prices.
Some observers will point to the six-year stock market rally as evidence that all is well. They also argue that record-low bond yields show that investors have complete confidence in sovereign nations to service their debt. But these are not the results of free-market price discovery. Rather, these are the results of the ability of central banks to use free money to inflate asset prices.
Another reason for today’s complacency is the widespread belief that banks are now properly capitalized — unlike the condition at the start of the Great Recession. U.S. banks, once loaded with insolvent mortgage securities, are now thought to “safely” hold more than $4 trillion in Treasury, agency, and mortgage-backed securities. And thanks to Basel III and the Dodd-Frank legislation, these banks have $2 trillion of Treasuries that carry a zero-risk weighting in their capital ratios.
Danger For Banks
Therefore, these banks only appear to be well-capitalized. Once the sovereign debt bubble bursts and investors dump their bond fund holdings, interest rates will soar. Banks then will become capital-constrained and again will be forced to hold illiquid assets that cannot be sold without destroying their balance sheets. In addition, rising interest rates will put a severe strain on the global economy, which is now saturated with a record amount of debt in relation to total output.
Unless you believe that the world economy has entered a multi-decade recession like Japan, interest rates have nowhere to go but up, and dramatically. The problem is that debt levels are at all-time highs. Once the cost of money rises, this part-time working, no-savings, asset-bubble-driven, and debt-laden economy will collapse. And the next time the wheels fall off Wall Street’s party bus, the crash will be more severe than 1999 and 2007 combined. ***JUST RELEASED: Chris Powell gave one of the most terrifying audio interviews of 2015 CLICK HERE OR ON THE IMAGE BELOW.
To learn more about Michael Pento’s financial management services CLICK HERE. You can also sign up for Michael Pento's weekly podcast at his website.
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