America’s “economy continues to decline. There’s no recovery in sight.”
“Off with their heads 2.0….The global ponzi scheme is under collapse….whether it’s in Egypt, Tunisia, whether it’s in the UK, Greece. Watch out for Spain. Here comes Italy. Ireland’s coming up the backstretch. It’s only going to get much worse.”
“The people know the score….What killed capitalism (is explained) in four simple words: too big to fail…The banks are failing, and they want the people to bail them out….I want to make this clear.
The IMF is nothing more than the International Mafia Federation, the loan sharks of last resort, and the people know it. They call it privatization. Adults call it stealing valuable public assets, and selling them to your friends really cheaply.”
“The politicians only represent the people who give them the most amount of money….And what do these austerity measures bring – a lot more poverty and unemployment.”
“Are in a state of uneasiness, and it’s only a matter of time before they degenerate further. The real question is will everything break loose between now and the end of the year?”
“problems are coming together like a bad dream. This could be a replay of 2008, but for a different set of reasons.”
“Wall Street plans to get smaller this summer.” Faced with economic weakness, “many of the biggest firms are preparing for deep cuts in jobs and other costs.”
“It’s a tense environment right now,” suggesting hard times perhaps returning soon.
“Are falling like ten-pins. (We believe that) euro, (Eurozone) and European Union problems….are unsolvable.”
“Little has been done to repair” the 2008 debt crisis. Conditions across Europe, Britain and America are no better. Sooner or later Greece will default, perhaps causing “a collapse of the world financial system, as we know it….The entire financial sectors” in Western countries “are more vulnerable now than ever” and getting worse.
“The likelihood of Greek debt default is much higher than ever, what Western governments and media won’t explain until its debt bubble implosion no longer can be hidden.”
“The probability of a Greek default is FOUR times greater today than (when) European officials announced” their bailout.
“The most investors were willing to pay for $10 million in Greek debt default coverage was $52,000. Today, they’re paying 45 times more!”
(1) Already reeling from America’s greatest housing depression, US banks face more crushing burdens ahead because of their exposure to European banks that have loaned billions to Greece. When they’re hit, US banks go with them, those most exposed hammered hardest.
(2) Vulnerable US money funds have “half of their $1.6 trillion in assets in European banks.” Moreover, “50 million Americans have money in those funds!” When Greece defaults, they’ll be hard-pressed to repay what they borrowed. As a result, “breaking the buck” may follow, meaning their share price value will fall below $1, what most investors once thought impossible, but it happened after Lehman collapsed.
In late June, even Bernanke admitted that European bank exposure “pose(s) some concern to money market mutual funds,” a rare divergence from past rosy scenario predictions.
However, danger signs extend well beyond money funds. Virtually all global debt markets are vulnerable, including corporate commercial paper and US Treasuries. When crisis conditions deepen globally, no financial assets are safe. As a result, catastrophic consequences are possible.
(3) “Washington is suffering from the same debt disease as Athens,” multiplied many times over. As a result, every hardship Greece now faces offers “a sneak preview of what could be in store (for America), barring” an unlikely major political miracle as lawmakers debate exacerbating measures, not healing ones. No wonder Weiss advises, “Above all, stay safe!”
With red flags emerging everywhere, now’s “not the time to float along with the Fed, but to fight it,” meaning safety is essential over risk as beating odds gets longer in a global economy getting sicker, not better, but don’t expect Western governments or media to explain.
WHY THE GREAT GREEK TRAGEDY
HAS BARELY BEGUN
Despite the biggest sovereign bailout in history and despite all the happy talk last week about a new infusion of emergency cash, the probability of a Greek debt default is now the highest ever!
Even when Lehman Brothers failed and even when the likelihood of a global collapse was at an all-time peak, the most investors were willing to pay for $10 million in Greek debt default coverage was only $52,000. Today, they’re paying 45 times more!
Because THEY KNOW that the Draconian austerity package just passed last week by the Greek parliament ~ higher taxes on entrepreneurs and the poor, spending cuts for seniors and others, and the fire sale of government assets ~ won’t do a darn thing to help Greece avoid a default on its debts.
They FULLY UNDERSTAND that these measures will actually hurt the country’s chances for survival in the near term.
They KNOW that each time you raise taxes and cut spending, the economy takes a hits, government revenues go down, and the country finds it even closer to impossible to pay its bills and debts coming due.
The much-ballyhooed loans Greece just qualified for will only help it survive for two to three months ~ through the summer, but not a single second longer.
You can believe the same politicians who have consistently and deliberately deceived you about this debt crisis from day one (see also “Government Lying about Debt Crisis“).
Or you can believe the global investors who have no agenda but to protect their own investments from the true risks.
The choice should be obvious: Despite what they may be saying in Athens, Berlin, Washington or on Wall Street … no matter what the media may try to sell you … the handwriting is on the wall: Greece is in the final stages of an historic collapse. Nothing can stop it now.Believe the politicians, forget about the crisis and go back to the old days of buy-and-hold investing.
Or, believe the reality of the marketplace and continue to err on the side of caution.
But in today’s shrinking, hyper-connected world, the consequences of a Greek default could not be more important to you, me and every other U.S. investor.
It will crush U.S. banks. It’s no secret the real estate crisis is back ~ falling home prices, a tsunami of home foreclosures and more. And despite short-term rallies, it’s virtually impossible to envision a scenario in which bank earnings are not adversely impacted.
This is why bank stocks took such a big hit in May and June. Wells Fargo, for example, was flying high near $34 per share. Then, without warning, it suddenly plunged 24% ~ to $26.
Bank of America hit $15 per share and then plunged more than 30% ~ all the way down to $11 per share. And nearly every major bank ~ JPMorgan Chase, Regions Financial, and others ~ show the same pattern.
But here’s something that not everybody knows:
Those same U.S. banks have loaned huge amounts of money to European banks.
And because those European banks have, in turn, loaned billions to Greece, they will be among the first casualties of a Greek default.
U.S. money market funds: Did you know that U.S. money funds have invested half of their $1.6 trillion in assets in European banks?
It’s true: And 50 million Americans have money in those funds!
That’s not good news. When Greece defaults on its loans, many European banks will find it impossible to repay what they borrowed from U.S. money market funds.
That could force many to “break the buck” ~ allow their shares to fall in value below $1 each. Even the worry that it could happen can cause the financial markets to freeze and send investors stampeding to withdrawal money.
Impossible? Absolutely not! That’s exactly what happened after the collapse of Lehman Brothers in 2008. One fund that owned Lehman debt, the Reserve Primary Fund suffered mass withdrawals, which, in turn, caused a run on many other funds.
Last week, even the eternally oblivious Fed chief Ben Bernanke fretted publicly about the stability of U.S. money funds:
“They do have substantial exposure to European banks in the so-called core countries: Germany, France, etc.,” he said. “So to the extent that there is indirect impact on the core European banks, that does pose some concern to money market mutual funds.”
Many investors aren’t waiting. In the last two weeks, they have withdrawn $45.6 billion from prime money market funds, according to data from the Investment Company Institute.
But the risk goes beyond just money market funds. After the Lehman panic in 2008, virtually the entire global market for short-term debts ~ especially corporate IOUs called commercial paper ~ froze up.
Without the Federal Reserve stepping in to make massive, blanket guarantees, thousands of companies could not have borrowed ~ even to roll over debts coming due ~ no matter how good their credit rating. We would have seen a chaotic chain reaction of defaults.
This is the kind of SYSTEMIC risk that caused Washington to throw $700 billion in TARP funds at the problem last time around. But this time, with Congress vowing never to do such a thing again, there is no safety net.
The consequences could be catastrophic.
Washington is suffering from the same debt disease as Athens. Yes, in Greece, the illness is more advanced. But including government agencies like Fannie Mae and Freddie Mac, the U.S. government, like Greece, has passed the critical danger threshold of more money tied up in debts than the entire economy produces in each year! (A debt/GDP ratio of over 100%.)
Indeed, nearly everything you’re seeing in Greece right now:
The huge cutbacks in government spending on seniors …
The substantial tax increases ~ not just on “the rich,” but on every portion of the population …
The soaring interest rates and unemployment …
Even the protests and riots …
Are little more ~ and little LESS ~ than a sneak preview of what could be in store for us right here in the States, barring a major miracle in Washington.
MONEY SAFE AT A TIME LIKE THIS?
Do not believe the authorities. Distrust what you hear from Washington or Wall Street. Follow the facts and nothing but the facts.
Do not count on government guarantees to always protect you from losses. Ultimately, as governments seek to protect their own finances, they will pull back from their role as lender, investor and guarantor of last resort.
Ultimately, if a major bank like JPMorgan Chase or Bank of America cannot meet its obligations, it could be on its own, and investors or even depositors may have to pay a steep price.
Make sure your bank or insurance company has the financial wherewithal to fulfill its promises independently ~ without government handouts or guarantees. That’s what our Weiss Financial Strength ratings do for you. For a free Weiss Rating on your institution, go to www.weisswatchdog.com.
Continue to monitor the rating as this crisis unfolds. Hard to do? Not at all! Once you’ve added your institution to your Weiss Watchdog watchlist, we will automatically notify you whenever the Weiss Rating has changed, giving you the new rating along with specific instructions on what to do next.
Reduce the risk in your investment portfolio. While you’re at www.weisswatchdog.com, check the investment ratings of your stocks. Especially if they are D+ or lower, they are likely to be among the most vulnerable.