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Economic Red Flags

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The economiccollapseblog ran with a post entitled “22 Red Flags That Indicate That Very Serious Doom Is Coming For Global Financial Markets”. How many do you need to form a picture?

#1 According to CNN, the level of selling by insiders at corporations listed on the S&P 500 is the highest that it has been in almost a decade.  Do those insiders know something that the rest of us do not?

#2 Home prices in the United States have fallen for six months in a row and are now down 35 percent from the peak of the housing market.  The last time that home prices in the U.S. were this low was back in 2002.

#3 It is now being projected that the Greek economy will shrink by another 5 percent this year.

#4 Despite wave after wave of austerity measures, Greece is still going to have a budget deficit equivalent to about 7 percent of GDP in 2012.

#5 Interest rates on Italian and Spanish sovereign debt are rapidly rising.  The following is from a recent RTE article….

Spain’s borrowing rate nearly doubled in a short-term debt auction as investors fretted over the euro zone’s determination to deal with its debts. 

And Italy raised nearly €3.5 billion in a short-term bond sale today but at sharply higher interest rates amid fresh concerns over the euro zone outlook, the Bank of Italy said.

#6 The government of Spain recently announced that its 2011 budget deficit was much larger than originally projected and that it probably will not meet its budget targets for 2012 either.

#7 Amazingly, bad loans now make up 8.15 percent of all loans on the books of Spanish banks.  That is the highest level in 18 years.  The total value of all toxic loans in Spain is equivalent to approximately 13 percent of Spanish GDP.

#8 One key Spanish stock index has already fallen by more than 19 percent so far this year.

#9 The Spanish government has announced a ban on all cash transactions larger than 2,500 euros.  Many are interpreting this as a panic move.

#10 It is looking increasingly likely that a major bailout for Spain will be needed.  The following is from a recent Reuters article….

Economic experts watching Spain don’t know how much money will be needed or precisely when, but some are near certain that Madrid will eventually seek a multi-billion euro bailout for its banks, and perhaps even for the state itself.

#11 Analysts at Moody’s Analytics are warning that Italy has now reached financially unsustainable territory….

“Italy is already out of fiscal space, in our estimate.” said Moody’s. “Its debt levels relative to GDP already exceed a manageable level. The manageable limit for Italian 10-year bond yields is estimated at 4.2pc. As of Wednesday, Italian 10-year yields were 5.46pc.”

#12 It is being projected that the Portuguese economy will shrink by 5.7 percent during 2012.

#13 There is even trouble in European nations that have been considered relatively stable up to this point.  For example, the Dutch government collapsed on Monday after austerity talks broke down.

#14 The head of the IMF, Christine Lagarde, says that there are “dark clouds on the horizon” for the global economy.

#15 The top economist for the IMF, Olivier Blanchard, recently made this statement: “One has the feeling that at any moment, things could get very bad again.”

#16 A recent IMF report admitted that the current financial crisis could lead to the break up of the eurozone….

Under these circumstances, a break-up of the euro area could not be ruled out. The financial and real spillovers to other regions, especially emerging Europe, would likely be very large.

This could cause major political shocks that could aggravate economic stress to levels well above those after the Lehman collapse.

#17 George Soros is publicly declaring that the European Union could soon experience a collapse similar to what happened to the Soviet Union.

#18 A member of the European Parliament, Nigel Farage, stated during one recent interview that it is inevitable that some major banks in Europe will collapse….

There are going to be some serious banking collapses and the impact of that on some sovereign states, will be serious. I’m afraid we’ve gotten to a point where we really can’t stop this now. We’re beginning to reach a stage where however much false money you create, the problem becomes bigger than the people trying to solve it. We are very close to that point.

When I talk about the threats and the risk that this thing could wind up in some kind of rebellion, some sort of awful social cataclysm, they (other European politicians) are now very worried indeed. They will talk to you in private, but in public, nobody dares utter a word.

I think the deterioration, in the last two or three weeks, in the eurozone is very serious indeed. It’s the bond spreads in Italy and Spain. It’s the fact that youth unemployment is now over 50% in some of these Mediterranean countries.

It’s riot and disorder on the streets. And yet a month ago I was here and there was Herman Van Rumpuy telling us, ‘We’ve turned the corner. Everything is solved. There are no more problems with the eurozone.’ What a pack of jokers they look like.”

#19 The IMF is projecting that Japan will have a debt to GDP ratio of 256 percent by next year.

#20 Goldman Sachs is projecting that the S&P 500 will fall by about 11 percent by the end of 2012.

#21 Over the past six months, hundreds of prominent bankers have resigned all over the globe.  Is there a reason why so many are suddenly leaving their posts?

#22 The 9 largest U.S. banks have a total of 228.72 trillion dollars of exposure to derivatives.  That is approximately 3 times the size of the entire global economy.  It is a financial bubble so immense in size that it is nearly impossible to fully comprehend how large it is.

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Maastricht Treaty was a suicide pact

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Steve Keen was on Vincent Browne Show last week and gave his views on Euro and Ireland. ZeroHedge reported on the show as follows:

Economic Debunker Steve Keen is interviewed by outspoken Irish journalist Vincent Browne and no holds are barred as he describes the Maastricht Treaty as a suicide pact of critically poor central-planning design of a supposed market-economy, based on financial crises never occurring, locking European governments into an austere path when stimulus is required. “Ultimately the Euro has to fail and the longer we continue the farce of believing we can make it function the larger the ultimate crash will be” is how Keen portrays the situation and describes the foreign-exchange, fiscal policy, and monetary policy shackles that have created and exaggerated the situation. This leads into a longer discussion of the state of the World and its inability to ‘export into the ponzi’ like Japan could from 1990 to 2010 since the entire developed world is trying to do the same thing and “there is no ponzi scheme on Mars that we can export to” leaving the globe without Japan’s initial way out. The must-watch 10 minute interview goes on to discuss the endgame (a break in the political compact based on austerity pressures and military or political coups) as Keen sums up “it’s amazing to see us repeating the same mistakes that were made during the 1930s but we are doing just that.” ending with some potential solutions noting that there is no easy way out of this.

“You need to have accelerating debt forever to have rising asset prices forever and not even debt can accelerate forever”

 

Check out the solution that Steve Keen has backed.

Nigel Farage – The Euro is Doomed !

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Nigel Farage – “The Euro will break up, its just a matter of how”. He simplifies the EU bullshit spin on the euro very well. Not as entertaining as usual, but worth the look anyway.

Spain Heading For Full Collapse Of Economy (ZeroHedge)

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The Spanish economy reads like a disaster zone. The IBEX has fallen hugely. Check out the analysis from ZeroHedge.

Spain is about to enter a full-scale Crisis.

A few facts about Spain:

•    Total Spanish banking loans are equal to 170% of Spanish GDP.

•    Troubled loans at Spanish Banks just hit an 18-year high.

•    Spanish Banks are drawing a record €316.3 billion from the ECB

      (up from €169.2 billion in February).

Things have gotten so bad that Spanish citizens are pulling their money out of Spain en masse: €65 billion left the Spanish banking system in March 2011 alone.

As bad as they are, even these data points don’t do justice to the toxic sewer that is the Spanish banking system.

Case in point, over HALF of all Spanish mortgages are owned by Spanish cajas.

How bad a state are the cajas in?

Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn’t have to reveal their loan to value ratios, the quality of collateral they took for making loans… or anything for that matter.

So, with Spain today, we have a totally unregulated banking system sitting atop HALF of ALL Spanish mortgages after a housing bubble that makes the one that happened in the US look like a small bump.

Stock Market (IBEX)

If you don’t want to take my word for it, have a look at the Spanish stock market. It’s been in a free fall for over a month as Spain’s banking system teeters on the brink of collapse (remember they’re drawing over €300 BILLION in emergency loans from the ECB.

 

ZeroHedge reckon Spain has one month left before it takes everything with it.

With that in mind, I believe we have at most a month before Spain drags down the entire EU. The Spanish economy and banking system are too large to be bailed out. The IMF and ECB know this.

Moreover, worldwide banking exposure to Spain is well over €1 TRILLION. What impact do you think that might have on the EU which has an entire banking system that is leveraged at 26 to 1 (Lehman Brothers was leveraged at 30 to 1 when it collapsed)?

Heck even Ben Bernanke and others have issued warnings that Europe could drag down the US banking system if it crumbles.

 

Opps, Egypt Cuts Israel Off from 40% Of Its Natural Gas Supply

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Its all kicking off now. Egypt out of the blue has just cut Israel off from the natural gas supply. Currently 40% of Israel’s supply comes from Egypt. Apparently it was people power to forced this move after constantly attacking the pipeline.

Egypt’s energy companies have terminated a long-term deal to supply Israel with gas after the cross-border pipeline sustained months of sabotage since a revolt last year, a stakeholder in the deal said on Sunday.

Ampal-American Israel Corporation, a partner in the East Mediterreanean Gas Company (EMG), which operates the pipeline, said the Egyptian companies involved had notified EMG they were “terminating the gas and purchase agreement”. 

The company said in a statement that the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company had notified them of the decision, adding that “EMG considers the termination attempt unlawful and in bad faith, and consequently demanded its withdrawal”

It said EMG, Ampal, and EMG’s other international shareholders were “considering their options and legal remedies as well as approaching the various governments”.

Before the sabotage, Egypt supplied about 40 percent of Israel’s natural gas, which is the country’s main energy source.

Israeli officials have said the country was at risk of facing summer power outages due to energy shortages.

Companies invested in the Israeli-Egyptian venture have taken a hit from numerous explosions of the cross-border pipeline and are seeking compensation from the Egyptian government of billions of dollars.

Ampal and two other companies have sought $8 billion in damages from Egypt for not safeguarding their investment.

As usual ZeroHedge has a very interesting view point.

The only question Israel may want to answer now is whether it wants to get cozy with Russia, whose nat gas it may suddenly be very, very attractive. And for that to happen, it means a huge softening in its anti-Iran tone, which in turn will have a huge impact on regional geopolitics, and specifically the risk of war in Iran, and thus the price of Brent. All of this, of course assumes, Israel does not immediately retaliate against Egypt, recently a big recipient of US aid, not to mention tear gas, and start a pre-emptive two front pre-war…

 

Source: ZeroHedge

Ireland – New Currency Solution

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Steve Keen has proposed a solution to Ireland’s debt problems with a new currency IRP which be issued on a 1:1 basis with the euro. Over time for every euro spent will be taken out of the economy to pay off Ireland’s debts and change given in the new IRP. This would be done until eventually the debt is paid off, and then the IRP can be given up and traded back to euros afterwards. check out the full proposal below. Of course its radical ideas like this that can sort out this problem but will our banker owned politicians go for this. The answer lies in how well-informed our electorate are and how politically active they want to become. My opinion is “Normalcy Bias” will win the day as usual.

An excellent idea which could be used for other eurozone countries.

 

 

Source: A plan for economic recovery

US Brings Back Debtors Prison via Loophole

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Yesterday on alternativeeconomics we mentioned a story of how US Corporations are exploiting prisoners as a source of cheap labour. A story appeared today on the Daily Mail of debtor’s prisons coming back in the US through the back door. More and more people are being through in prison for not paying debt even though debtor prisons were illegal for over 150 years.

A breast cancer survivor who was sent to prison over a mistaken $280 medical bill has highlighted the return of debtor’s prisons in the U.S.

Illinois resident Lisa Lindsay had received the medical bill in error and was told she did not have to pay up.

However, the bill was turned over to a collection agency and state troopers arrived at her home and took her away in handcuffs.

….

Debt collectors have become so aggressive claim some that poor people who are behind on payments of as little as $25 a month are being sent to jail.

Even though debtor’s prisons have been illegal since 1833, lenders are being accused of exploiting legal loopholes to have their borrowers found and sent to jail until they pay up.

So how do they get around the loophole and get debtors locked up?

Acting within the law, debtors aren’t arrested  for nonpayment, rather for failing to arrive to court hearings thereby falling foul of contempt of court laws.

This results in a police arrest warrant being issued for ‘failure to appear’, the debtor is tracked down, packed off to jail and can only get out by paying the set bail bond which of course matches the amount owed.

Affecting everyone who owes money from health care services to automobile loans, debt collectors are using publicly funded courts, sheriff deputies and county jails to pressure people with prison to pay back their money reports CBS News.
The fightback begins

And now some state legislators are trying to plug this loophole by making court notices be served in person rather than mail, arrest warrants to expire after a year and the bail bond returned to the debtor not the lender.

Following a spate of hard-working people being forced to spend time in prison, state legislators across the U.S are examining ways to change the law. In fact in Illinois alone, legislation designed to plug loopholes aimed at debtors is waiting to pass through the state senate.

‘Creditors have been manipulating the court system to extract money from the unemployed, veterans, even seniors who rely solely on their benefits to get by each month,’ said Illinois Attorney General Lisa Madigan last month in a statement voicing support for the legislation.

‘Too many people have been thrown in jail simply because they’re too poor to pay their debts. We cannot allow these illegal abuses to continue.’

A 2010 report by the American Civil Liberties Union that examined five states – Georgia, Louisiana, Michigan, Ohio, and Washington — discovered that people were being imprisoned at ‘increasingly alarming rates’ through legal debts.

Government and State use threat of prison against people.
‘In this era of shrinking budgets, state and local governments have turned aggressively to using the threat and reality of imprisonment to squeeze revenue out of the poorest defendants who appear in their courts.’

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