Monday, March 10, 2014

We Are In FAR Worse Shape Than We Were Just Prior To The Last Great Financial Crisis

Dees Illustration
Michael Snyder
Activist Post

None of the problems that caused the last financial crisis have been fixed. In fact, they have all gotten worse. The total amount of debt in the world has grown by more than 40 percent since 2007, the too big to fail banks have gotten 37 percent larger, and the colossal derivatives bubble has spiraled so far out of control that the only thing left to do is to watch the spectacular crash landing that is inevitably coming.

Unfortunately, most people do not know the information that I am about to share with you in this article. Most people just assume that the politicians and the central banks have fixed the issues that caused the last great financial crisis. But the truth is that we are in far worse shape than we were back then. When this financial bubble finally bursts, the devastation that we will witness is likely to be absolutely catastrophic.

Too Much Debt

One of the biggest financial problems that the world is facing is that there is simply way too much debt.  Never before in world history has there ever been a debt binge anything like this.

You would have thought that we would have learned our lesson from 2008 and would have started to reduce debt levels.

Instead, we pushed the accelerator to the floor.

It is hard to believe that this could possibly be true, but according to the Bank for International Settlements the total amount of debt in the world has increased by more than 40 percent since 2007...
The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates, according to the Bank for International Settlements.
The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion in the same period, according to data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S.’s gross domestic product.
That is a recipe for utter disaster, and yet we can't seem to help ourselves.

And of course the U.S. government is the largest offender.

Back in September 2008, the U.S. national debt was sitting at a total of 10.02 trillion dollars.
As I write this, it is now sitting at a total of 17.49 trillion dollars.

Is there anyone out there that can possibly conceive of a way that this ends other than badly?

Too Big To Fail Is Now Bigger Than Ever

During the last great financial crisis we were also told that one of our biggest problems was the fact that we had banks that were "too big to fail".

Well, guess what?

Those banks are now much larger than they were back then.  In fact, the six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger since the last financial crisis.

Meanwhile, 1,400 smaller banks have gone out of business during that time frame, and only one new bank has been started in the United States in the last three years.

So the problem of "too big to fail" is now much worse than it was back in 2008.

The following are some more statistics about our "too big to fail" problem that come from a previous article...

-The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets.

-Approximately 1,400 smaller banks have disappeared over the past five years.

-JPMorgan Chase is roughly the size of the entire British economy.

-The four largest banks have more than a million employees combined.

-The five largest banks account for 42 percent of all loans in the United States.

-Bank of America accounts for about a third of all business loans all by itself.

-Wells Fargo accounts for about one quarter of all mortgage loans all by itself.

-About 12 percent of all cash in the United States is held in the vaults of JPMorgan Chase.

The Derivatives Bubble

Most people simply do not understand that over the past couple of decades Wall Street has been transformed into the largest and wildest casino on the entire planet.

Nobody knows for sure how large the global derivatives bubble is at this point, because derivatives trading is lightly regulated compared to other types of trading.  But everyone agrees that it is absolutely massive.  Estimates range from $600 trillion to $1.5 quadrillion.

And what we do know is that four of the too big to fail banks each have total exposure to derivatives that is in excess of $40 trillion.

The numbers posted below may look similar to numbers that I have included in articles in the past, but for this article I have updated them with the very latest numbers from the U.S. government.  Since the last time that I wrote about this, these numbers have gotten even worse…

JPMorgan Chase
Total Assets: $1,989,875,000,000 (nearly 2 trillion dollars)
Total Exposure To Derivatives: $71,810,058,000,000 (more than 71 trillion dollars)

Total Assets: $1,344,751,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $62,963,116,000,000 (more than 62 trillion dollars)

Bank Of America
Total Assets: $1,438,859,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $41,386,713,000,000 (more than 41 trillion dollars)

Goldman Sachs
Total Assets: $111,117,000,000 (just a shade over 111 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $47,467,154,000,000 (more than 47 trillion dollars)

During the coming derivatives crisis, several of those banks could fail simultaneously.

If that happened, it would be an understatement to say that we would be facing an "economic collapse".

Credit would totally freeze up, nobody would be able to get loans, and economic activity would grind to a standstill.

It is absolutely inexcusable how reckless these big banks have been.

Just look at those numbers for Goldman Sachs again.

Goldman Sachs has total assets worth approximately 111 billion dollars (billion with a little "b"), but they have more than 47 trillion dollars of total exposure to derivatives.

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 427 times greater than their total assets.

I don't know why more people aren't writing about this.

This is utter insanity.

During the next great financial crisis, it is very likely that the rest of the planet is going to lose faith in the current global financial system that is based on the U.S. dollar and on U.S. debt.

When that day arrives, and the U.S. dollar loses reserve currency status, the shift in our standard of living is going to be dramatic.  Just consider what Marin Katusa of Casey Research had to say the other day...
It will be shocking for the average American… if the petro dollar dies and the U.S. loses its reserve currency status in the world there will be no middle class.
The middle class and the low class… wow… what a game changer. Your cost of living will quadruple.
The debt-fueled prosperity that we are enjoying now will not last forever.  A day of reckoning is fast approaching, and most Americans will not be able to handle the very difficult adjustments that they will be forced to make.  Here is some more from Marin Katusa...
Imagine this… take a country like Croatia… the average worker with a university degree makes about 1200 Euros a month. He spends a third of that, after tax, on keeping his house warm and filling up his gas tank to get to work and get back from work.
In North America, we don’t make $1200 a month, and we don’t spend a third of our paycheck on keeping our house warm and driving to work… so, the cost of living… food will triple… heat, electricity, everything subsidized by the government will triple overnight… and it will only get worse even if you can get the services.
All of this could have been prevented if we had done things the right way.

Unfortunately, we didn't learn any of the lessons that we should have learned from the last financial crisis, and our politicians and the central banks have just continued to do the same things that they have always done.

So now we all get to pay the price.

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

This article may be re-posted in full with attribution.


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Mark F said...

You cannot solve a debt problem with more debt.... it's that simple. This Ponzi scheme has run it's course. My only question is, will this take 3 years to wind down or are we headed for a sudden smoking hole?

Any way you look at it, life in the USA is going to have a significant downturn. Think about a dollar that is worth 20% of what it was. It will come down to food, water, shelter...... nothing more. We're going to step back into the early 1900's. Massive bank failures, massive business failures and social disorder.

Everyone seems to think "this can't happen here", YES IT CAN. Look at Venezuela right now. We're going to be worse off. Even a little preparation is better than none.

My only hope is that the bankers get exactly what they deserve. Throw in the governmental puppets also. It's us or them. I want it to be "us."

Anonymous said...

You cannot solve poverty with a monetary system, so there will always be unsolved social problems instead of equity and peace, plenty for all.

Underlying the monetary system is "class" creation by determining what everyone is worth and everything. Accounting, like an obsession!! Instead of valuing everything and everyone.... "they" put a made-up number on everything and everyone, so there is this feeding frenzy, scarcity creation no matter how hard you work, and a hierarchy held in place that does not work for us!!

The hierarchy created is a control mechanism. Money was sold to us as a convenience to trade services and heck of a salesman. It interferes, changes at their whim so you can be rich one day, poor the next, controls human behavior, gives you permission as to what you can have, how much and if you can have it at all....all based on "class".

And if you've noticed after the many discussion you've likely had over things gone so terribly wrong in the world, as soon as you begin to talk about any issue, pick one, anyone, in no time you are no longer talking about your creative solution to a problem, you are talking about money.....and those who control the money decide if money will be channeled in the direction of the problem to solve it or not. Considering the number of problems we are facing and the enormity of them, I'd say they are putting more money into creating new and bigger problems than solving any of the existing ones. Just stacking them up.

We live on a planet of abundance.
We all have deep desires for peace, love, harmony. It's natural.
The earth just needs to be properly cared for so she can keep on giving to sustain life. We need to return to nature, to what is all ways including our behavior. This whole money thing is not natural. Put people together in a situation and they will naturally find a way to solve it...provided there are no control mechanisms manipulating the people from their natural behavior. The best in people will come forward. Look at what happens in disasters.

And just because the money system fails to work, it does not mean we have to starve or live in lack or any of these conjured images. The best thing that could happen is that all these monetary systems and systems designed to keep a "elite" class in place come to an end. The rest of us have always done the work, we are still fully capable of contributing, working, and doing what we are inclined to do with our talents and skills to sustain lives and help others...and truly live free! It's just the most natural way we are. What we have been living is unnatural. That's why it is not working and failing. If the monetary system fails, all of their systems cease to work.....and that's when we will truly be free to be our natural selves. Let the healing begin!!

Anonymous said...

And the assets on bank balance sheets are things like loans and investments. Loans valued at whatever fiction the banks and their regulators deem necessary to keep up the illusion of bank profitability and solvency and investments based on the illusion that paper unbacked by any real world collateral is worth what the bankers say it is.

What could possibly go wrong?

Other than the banks, regulators, and politicians laying plans to transfer bondholder, stockholder, and other creditor liabilities of the banks to the capital accounts of the banks to bolster their capital ratio. And depositor accounts are and have always been on the liability side of the balance sheet. It may be an asset to you but it is a liability to a bank.

Bail-ins baby, its whats for dinner!

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