Stocks

Black Monday

gc2smOff the keyboard of Michael Snyder

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Published on The Economic Collapse on August 24, 2015

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The First Time EVER The Dow Has Dropped By More Than 500 Points On Two Consecutive Days

New York City Empire State Building - Public DomainOn Monday, the Dow Jones Industrial Average plummeted 588 points. It was the 8th worst single day stock market crash in U.S. history, and it was the first time that the Dow has ever fallen by more than 500 points on two consecutive days. But the amazing thing is that the Dow actually performed better than almost every other major global stock market on Monday.  In the U.S., the S&P 500 and the Nasdaq both did worse than the Dow. In Europe, almost every major index performed significantly worse than the Dow.  Over in Asia, Japanese stocks were down 895 points, and Chinese stocks experienced the biggest decline of all (a whopping 8.46 percent). On June 25th, I was not kidding around when I issued a “red alert” for the last six months of 2015. I had never issued a formal alert for any other period of time, and I specifically stated that “a major financial collapse is imminent“. But you know what? As the weeks and months roll along, things will eventually be even worse than what any of the experts (including myself) have been projecting. The global financial system is now unraveling, and you better pack a lunch because this is going to be one very long horror show.

Our world has not seen a day quite like Monday in a very, very long time. Let’s start our discussion where the carnage began…

Asian Markets

For weeks, the Chinese government has been taking unprecedented steps to try to stop Chinese stocks from crashing, but nothing has worked. As most Americans slept on Sunday night, the markets in China absolutely imploded

As Europe and North America slept on Sunday night, Chinese markets went through the floor — the Shanghai Composite index of stocks fell by 8.49%, the biggest single-day collapse since 2007.

It wasn’t alone. Hong Kong’s Hang Seng fell 5.17%, and Japan’s Nikkei fell 4.61%. Stocks in Taiwan, the Philippines, Singapore, and Thailand also tumbled.

Things would have been even worse in China if trading had not been stopped in most stocks. Trading was suspended for an astounding 2,200 stocks once they hit their 10 percent decline limits.

Overall, the Shanghai Composite Index is now down close to 40 percent from the peak of the market, and the truth is that Chinese stocks are still massively overvalued when compared to the rest of the world.

That means that they could very easily fall a lot farther.

European Markets

The selling momentum in Asia carried over into Europe once the European markets opened. On a percentage basis, all of the major indexes on the continent declined even more than the Dow did

In Europe, the bloodbath from Friday continued unabated. The German Dax plunged 4.7%, the French CAC 40 5.4%, UK’s FTSE 100 dropped 4.7%. Euro Stoxx 600, which covers the largest European companies, was down 5.3%.

But wait… Europe is where the omnipotent ECB and other central banks have imposed negative deposit rates. The ECB is engaged in a massive ‘whatever it takes” QE program to inflate stock markets. But it’s not working. Omnipotence stops functioning once people stop believing in it.

U.S. Markets

Even before U.S. markets opened on Monday morning, the New York Stock Exchange was already warning that trading would be halted if things got too far out hand, and it almost happened

The thousands of companies listed by the New York Stock Exchange and Nasdaq Stock Market will pause for 15 minutes if the Standard & Poor’s 500 Index plunges 7 percent before 3:25 p.m. New York time. The benchmark got close earlier, falling as much as 5.3 percent.

There were other circuit breakers in place for later in the day if too much panic selling ensued, but fortunately none of those were triggered either. Here is more from Bloomberg

Another circuit breaker kicks in if the S&P 500 extends its losses to 13 percent before 3:25 p.m. If the plunge reaches 20 percent at any point during today’s session, the entire stock market will shut for the rest of the day.

When the U.S. markets did open, the Dow plunged 1,089 points during the opening minutes of trading. If the Dow would have stayed at that level, it would have been the worst single day stock market crash in U.S. history by a wide margin.

Instead, by the end of the day it only turned out to be the 8th worst day ever.

And in case you are wondering, yes, investors are losing a staggering amount of money. According to MarketWatch, the total amount of money lost is now starting to approach 2 trillion dollars

As of March 31, households and nonprofits held $24.1 trillion in stocks. That’s both directly, and through mutual funds, pension funds and the like. That also includes the holdings of U.S.-based hedge funds, though you’d have to think that most hedge funds are held by households.

Using the Dow Jones Total Stock Market index DWCF, -4.21% through midmorning trade, that number had dropped to $22.32 trillion.

In other words, a cool $1.8 trillion has been lost between now and the first quarter — and overwhelmingly, those losses occurred in the last few days.

Unfortunately, U.S. stock prices are still nowhere near where they should be. If they were to actually reflect economic reality, they would have to fall a lot, lot lower.

For example, there is usually a very strong correlation between commodity prices and the S&P 500, but in recent times we have seen a very large divergence take place. Just check out the chart in this article. At this point the S&P 500 would have to fall another 30 to 40 percent or commodities would have to rise 30 or 40 percent in order to close the gap. I think that the following bit of commentary sums up where we are quite nicely

“Markets are afraid of further economic weakness in China, further pain in global commodity markets and uncertain about Fed and PBoC policy — what they will do and what the impact will be,” Societe Generale’s Kit Juckes wrote on Monday. “The divergence between global commodity prices and equities is not a new theme but the danger now is that they begin to re-correlate – as they did when the dotcom bubble burst in 2000 and what had previously been an emerging market crisis became a US recession.”

And commodities were absolutely hammered once again on Monday.

For instance, the price of U.S. oil actually fell below 38 dollars a barrel at one point.

What we are watching unfold is incredible.

Of course the mainstream media is bringing on lots of clueless experts that are talking about what a wonderful “buying opportunity” this is. Even though those of us that saw this coming have been giving a detailed play by play account of the unfolding crisis for months, the talking heads on television still seem as oblivious as ever.

What is happening right now just doesn’t seem to make any sense to the “experts” that most people listen to. I love this headline from an article that Business Insider posted on Monday: “None of the theories for the Black Monday market crash add up“. Yes, if you are willingly blind to the long-term economic and financial trends which are destroying us, I guess these market crashes wouldn’t make sense.

And if stocks go up tomorrow (which they probably should), all of those same “experts” will be proclaiming that the “correction” is over and that everything is now fine.

But don’t be fooled by that. Just because stocks go up on any particular day does not mean that everything is fine. We are in the midst of a financial meltdown that is truly global in scope. This is going to take time to fully play out, and there will be good days and there will be bad days.  The three largest single day increases for the Dow were right in the middle of the financial crisis of 2008. So one very good day for stocks is not going to change the long-term analysis one bit.

It isn’t complicated. Those that follow my writing regularly know that I have repeatedly explained how things were setting up in textbook fashion for another global financial crisis, and now one is unfolding right in front of our eyes.

At this point, everyone should be able to very clearly see what is happening, and yet most are still blind.

Why is that?

Global Market Crash In Progress

Off the keyboard of Michael Snyder

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Published on The Economic Collapse on August 17, 2015

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23 Nations Around The World Where Stock Market Crashes Are Already Happening

You can stop waiting for a global financial crisis to happen.  The truth is that one is happening right now.  All over the world, stock markets are already crashing.  Most of these stock market crashes are occurring in nations that are known as “emerging markets”.  In recent years, developing countries in Asia, South America and Africa loaded up on lots of cheap loans that were denominated in U.S. dollars.  But now that the U.S. dollar has been surging, those borrowers are finding that it takes much more of their own local currencies to service those loans.  At the same time, prices are crashing for many of the commodities that those countries export.  The exact same kind of double whammy caused the Latin American debt crisis of the 1980s and the Asian financial crisis of the 1990s.

As you read this article, almost every single stock market in the world is down significantly from a record high that was set either earlier this year or late in 2014.  But even though stocks have been sliding in the western world, they haven’t completely collapsed just yet.

In much of the developing world, it is a very different story.  Emerging market currencies are crashing hard, recessions are starting, and equity prices are getting absolutely hammered.

Posted below is a list that I put together of 23 nations around the world where stock market crashes are already happening.  To see the stock market chart for each country, just click the link…

1. Malaysia

2. Brazil

3. Egypt

4. China

5. Indonesia

6. South Korea

7. Turkey

8. Chile

9. Colombia

10. Peru

11. Bulgaria

12. Greece

13. Poland

14. Serbia

15. Slovenia

16. Ukraine

17. Ghana

18. Kenya

19. Morocco

20. Nigeria

21. Singapore

22. Taiwan

23. Thailand

Of course this is just the beginning.  The western world is going to feel this kind of pain as well very soon.  I want to share with you an excerpt from an article that just appeared in the Telegraph entitled “Doomsday clock for global market crash strikes one minute to midnight as central banks lose control“.  You see, the Telegraph is not just one of the most important newspapers in the UK – it is truly one of the most important newspapers in the entire world.  When it speaks on financial matters, millions of people listen very carefully.  So for the Telegraph to declare that the countdown to a “global market crash” is “one minute to midnight” is a very, very big deal…

When the banking crisis crippled global markets seven years ago, central bankers stepped in as lenders of last resort. Profligate private-sector loans were moved on to the public-sector balance sheet and vast money-printing gave the global economy room to heal.

Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.

I encourage you to read the rest of that excellent article right here.  It contains lots of charts and graphs, and it discusses many of the exact same things that I have been hammering on for months.

When one of the newspapers of record for the entire planet starts sounding exactly like The Economic Collapse Blog, then you know that it is late in the game.

Others are sounding the alarm about an imminent global financial crash as well.  For example, just consider what Egon von Greyerz recently told King World News

Eric, I fear that this coming September – October all hell will break loose in the world economy and markets. A lot of factors point to that, both fundamental and technical indicators and this indicates that we could have a number of shocks this autumn.

Sadly, most investors will hold stocks, bonds and property and will see any decline in value as an opportunity. It will be a long time and a very big fall before they realize that the system will not help them this time because the central bankers have run out of ammunition to save the global financial system one more time. Yes, we will see more massive money printing, but it will just make things worse. And at some stage, which could be quite soon, real fear will set in, a fear of a magnitude the world has not experienced before.

Hmm – there is another example of someone talking about September.  It is funny how often that month keeps coming up.

And of course most of the major stock market crashes in U.S. history have been in the fall.  Just go back and take a look at what happened in 1929, 1987, 2001 and 2008.

The “smart money” has been pulling their money out of stocks for quite a while now, and at this point a lot of others have hopped on the bandwagon.  The following comes from CNBC

The flight of investor money from U.S. stocks has turned into a stampede.

In fact, the $78.7 billion leaving domestic equity-focused funds has been worse in 2015 than it was even during the financial crisis years, when the S&P 500 tumbled some 60 percent, according to data released Friday by Morningstar. The total is the highest since 1993.

Domestic equity funds surrendered $20.4 billion in July alone and have seen $158.6 billion in redemptions over the past 12 months. Even a strong flow of money into passively managed exchange-traded funds has been unable to offset the stream to the exit among retail investors, who generally focus more on mutual funds than ETFs.

A global financial crisis has already begun.

So those that were claiming that one would not happen in 2015 are already wrong.

Over the coming months we will find out how bad it will ultimately be.

Sometimes I get criticized for talking about these things.  There are a few people out there that don’t like all of the “doom and gloom” that I discuss on my website.  Apparently it is a bad thing to talk about the things that really matter and we should all just be “keeping up with the Kardashians” instead.

I consider myself just to be another watchman on the wall.  From our spots on the wall, watchmen such as myself all over the nation are sounding the alarm about what we clearly see coming.

If we saw what was coming and we did not warn the people, their blood would be on our hands.  But if we do warn the people, then we have done our duty.

Every day I just do the best that I can with what I have been given.  And there are many others just like me that are doing exactly the same thing.

Those that do not like the warning message are going to feel really stupid when things start falling apart all around them and they finally realize how wrong they truly were.

Greece Votes NO – Let The Chaos Begin…

Off the keyboard of Michael Snyder

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Published on The Economic Collapse on July 5, 2015

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The result of the referendum in Greece is a great victory for freedom, but it is also threatens to unleash unprecedented economic chaos all across Europe.  With almost all of the votes counted, it is being reported that approximately 61 percent of Greeks have voted “no” and only about 39 percent of Greeks have voted “yes”.  This is a much larger margin of victory for the “no” side than almost everyone was anticipating, and it represents a stunning rejection of European austerity.  Massive celebrations have erupted on the streets of Athens and other major Greek cities, but the euphoria may not last long.  Greek Prime Minister Alexis Tsipras is promising that Greece will be able to stay in the euro, but that gives EU bureaucrats and the IMF a tremendous amount of power, because at this point the Greek government is flat broke.  Without more money from the EU and the IMF, the Greek government will not be able to pay its bills and virtually all Greek banks will inevitably collapse.  Meanwhile, the rest of Europe is about to experience a tremendous amount of pain as financial markets respond to the results of this referendum.  The euro is already plummeting, and most analysts expect European bond yields to soar and European stocks to drop substantially when trading opens on Monday morning.

Personally, I love the fact that the Greek people decided not to buckle under the pressure being imposed on them by the EU and the IMF.  But amidst all of the celebration, the cold, hard reality of the matter is that your options are extremely limited when you are out of money.

How is the Greek government going to pay its bills without any money?

How are the insolvent Greek banks going to operate without any money?

How is the Greek economy going to function without any money?

Now that the Greek people have overwhelmingly rejected the demands of the creditors, it will be very interesting to see what the EU and the IMF do.  Prior to the referendum, European leaders were insisting that a “no” vote would put an end to negotiations and would force Greece to leave the euro.

Now that the results are in, are they going to change their tune?  Because the ball is definitely in their court

“This does two things: it legitimises the stance of the Greek government and it leaves the ball in Europe’s court,” ANZ Bank analysts said in a note.

Europe either folds or Greece goes bankrupt; over to you Merkel.”

So would they actually let Greece go bankrupt?

It is going to be fascinating to watch what happens over the next few days.  Right now, Greek banks are on life support.  If the European Central Bank decides to pull the plug, they would essentially destroy the entire Greek banking system.  The only thing that can keep Greek banks alive and kicking is more intervention from the ECB.  The following comes from the New York Times

Now that Greek voters have said no to the economic demands of its international creditors, the fate of the country’s struggling banks is in the hands of the European Central Bank.

Greece’s banks, closed since last Monday because they are perilously low on cash, have been kept alive in recent weeks by emergency loans from the European Central Bank. On Monday, the central bank’s policy makers plan to convene to determine how much longer they are willing to prop up the Greek banks, now that the country has essentially said no to the unpopular dictates of the other eurozone countries.

Of much greater concern to the rest of the world is how financial markets are going to respond to all of this.  As I write this article, things already appear to be unraveling.  The following comes from CNBC

Germany’s Dax is indicated sharply lower from Friday’s close at around 4 percent, while the euro was down 2 percent against the yen as the news emerged. U.S. stocks are expected to open around 1 percent lower Monday, according to recent stock futures data.

What could be most important for those worried about contagion from the Greek crisis is how Portuguese, Spanish and Italian government bonds perform in Monday morning trade.

If these peripheral euro zone countries, often lumped in with Greece, suffer a sharp spike in yields, this could cause alarm about whether Greece leaving the currency might cause further contagion to other weaker euro zone economies.

This could potentially become a “trigger event” that unleashes a wave of financial panic all over Europe.  And once financial panic begins, it is very difficult to end.

If the EU and the IMF want to avoid a crisis, they could just give in to the new Greek government.  But that would be politically risky for certain high profile European leaders.  For instance, Angela Merkel would face a huge backlash back home if she conceded to the new Greek government now.  And other German leaders are already calling the referendum result a “disaster”

German politicians branded the result a ‘disaster’, with the country’s economy minister Sigmar Gabriel Sigmar accusing Tsipras of ‘tearing down the last bridges on which Greece and Europe could have moved towards a compromise’.

He added: ‘Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness.’

And the president of the European Parliament, a German, told a German radio station over the weekend that a “no” vote would almost certainly mean that the Greeks will be forced out of the euro

If after the referendum, the majority is a ‘no,’ they will have to introduce another currency because the euro will no longer be available for a means of payment,” Martin Schulz, European Parliament president, said on German radio.

That is pretty strong language, eh?

Here is yet another quote from Schulz

Without new money, salaries won’t be paid, the health system will stop functioning, the power network and public transport will break down, and they won’t be able to import vital goods because nobody can pay,” he said.

So at this point it is all up to the EU and the IMF, and in particular the focus will be on the Germans.

What will they decide to do?

Will they give in, or will they force the Greeks to leave the euro?

If the Greeks do transition from the euro to a new currency, it will be a process that takes months (if not longer).  You just can’t change ATMs, computer systems, cash registers, etc. overnight.  So a move to the drachma  would not be as simple as many are suggesting…

British firms like De La Rue, which prints 150 currencies worldwide, are believed to have been contacted with a view to providing such services.

It’s done in great secrecy to prevent currency speculation. The other big problem is the logistical challenges of switching a currency. All ATMs, computers and other machinery of commerce that bears the euro symbol will have to be adjusted. It could, and would, take months.

And if Greece does leave, it will be a massive shock for global financial markets.  Faith in the European project will be shattered, the euro will drop like a rock, bond yields all over the continent will rise to unsustainable levels and major banks all over Europe will fail.

I think that the following quote from Romano Prodi sums things up quite well

Romano Prodi, former chief of the European Commission and Italy’s ex-premier, said it is the EU’s own survival that is now at stake as the botched handling of the Greek crisis escalates into a catastrophe. “If the EU cannot resolve a small problem the size of Greece, what is the point of Europe?

Meanwhile, we should all keep in mind that a financial crisis has already erupted over in Asia as well.  Chinese stocks have lost 30 percent of their value in just the last three weeks.  In fact, the amount of “paper wealth” wiped out in China over the past three weeks is approximately equivalent to “10 times Greece’s gross domestic product”

A dizzying three-week plunge in Chinese equities has wiped out $2.36 trillion in market value — equivalent to about 10 times Greece’s gross domestic product last year.

The great financial collapse of 2015 is well underway, and it should be a very interesting week for global markets.

But no matter what happens this week, we all need to keep in mind that this is just the tip of the iceberg.

A “perfect storm” is on the way, and we all need to get prepared for it while we still can.

 

Financial Turmoil In Europe, China And The United States

Off the keyboard of Michael Snyder

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Published on The Economic Collapse on June 19, 2015

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As we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe.  In Greece, a full blown bank run is happening right now.  Approximately 2 billion euros were pulled out of Greek banks in just the past three days, Barclays says that capital controls are “imminent” unless a debt deal is struck, and there are reports that preparations are being made for a “bank holiday” in Greece.  Meanwhile, Chinese stocks are absolutely crashing.  The Shanghai Composite Index was down more than 13 percent this week alone.  That was the largest one week decline since the collapse of Lehman Brothers.  In the U.S., stocks aren’t crashing yet, but we just witnessed one of the largest one week outflows of capital from the bond markets that we have ever witnessed.  Slowly but surely, we are starting to see the smart money head for the exits.  As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.

I don’t think that most people understand how serious things have gotten already.  In Greece, so much money has been pulled out of the banks that the European Central Bank admits that Greek banks may not be able to open on Monday

The European Central Bank told a meeting of euro zone finance ministers on Thursday that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday, officials with knowledge of the talks said.

Greek savers have withdrawn about 2 billion euros from banks over the past three days, with outflows accelerating rapidly since talks between the government and its creditors collapsed at the weekend, banking sources told Reuters.

All over social media, people are sharing photos of long lines at Greek ATMs as ordinary citizens rush to get their cash out of the troubled banks.  Here is one example

 

And if there is no debt deal by the end of this month, the Greek debt crisis is going to totally spin out of control and financial chaos will begin to erupt all over Europe.  But instead of trying to be reasonable, EU president Donald Tusk “has delivered an ultimatum to Greece”, and it almost appears as if EU officials are more concerned about winning a power struggle than they are about averting financial catastrophe…

EU president Donald Tusk has delivered an ultimatum to Greece, claiming the country must ‘accept an offer or default’ at an emergency summit set for Monday – in a last-ditch effort to stop the debt-stricken nation crashing out of the euro.

‘We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default,’ Mr Tusk said today.

His comments come as Greek Prime Minister Alexis Tsipras warned that his country’s exit from the eurozone would trigger the collapse of the single currency.

‘The famous Grexit cannot be an option either for the Greeks or the European Union,’ he said in an Austrian newspaper interview.

‘This would be an irreversible step, it would be the beginning of the end of the eurozone.’

While all of this has been going on, the obscene stock market bubble in China has started to implode.  Just check out the following numbers from Zero Hedge

As the carnage began last night in China we noted the extreme levels of volatility the major indices had experienced in recent weeks. By the close, things were ugly with the broad Shanghai Composite down a stunning 13.3% on the week – the most since Lehman in 2008 (with Shenzhen slightly better at down 12.8% and CHINEXT down a record-breaking 14.99%).

Under normal circumstances, numbers like these would be reason for a full-blown financial panic over in Asia.  But these are not normal times.  Even with these losses, stock prices in China are still massively overinflated.  For example, USA Today is reporting that the median stock over in China is “trading at 95 times earnings”…

Margin debt in China has soared to a record $363 billion, according to Bloomberg, and the median stock in mainland China is now trading at 95 times earnings, which even tops the price-to-earnings multiple of 68 back at the 2007 peak.

That is absolutely ridiculous.  When a stock is trading at 25 or 30 times earnings it is overpriced.  So these numbers that are coming out of China are beyond crazy, and what this means is that Chinese stocks have much, much farther to fall before they get back to any semblance of reality.

Meanwhile, in the U.S. money is flowing out of bonds at a staggering pace.  The following quote originally comes from Bank of America

“High grade credit funds suffered their biggest outflow this year, and double the previous week (and also the biggest since June 2013). High yield outflows also jumped to $1.1bn, the biggest since the start of the year. However, government bond funds suffered the most amid the recent spike in volatility, with outflows surging to the highest weekly number on record ($2.7bn). This brings the total outflow from fixed income funds to almost $6bn over the last week, the highest since the Taper Tantrum and the third highest outflow ever.”

What this means is that big trouble is brewing in the bond markets.  This is something that I warned about in my previous article entitled “Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode“.

For the moment, U.S. stocks are doing fine.  But just about everyone can see that we in a massive financial bubble that could burst at any time.  Presidential candidate Donald Trump says that what we are witnessing is a “big fat economic and financial bubble like you’ve never seen before”

Yesterday during an interview on MSNBC, presidential candidate Donald Trump said he has some big names in mind for the Treasury secretary if he wins the White House. “I’d like guys like Jack Welch. I like guys like Henry Kravis. I’d love to bring my friend Carl Icahn.” He also opined on the economy and the stock market, admitting that the Fed has benefited people like him but that the economy and is in a “big fat economic and financial bubble like you’ve never seen before.

Ron Paul also believes that this financial bubble is going to end very badly.  Just check out what he told CNBC earlier this week

Despite record highs in the market, former Rep. Ron Paul says the Fed’s easy money policies have left stocks and bonds are on the verge of a massive collapse.

“I am utterly amazed at how the Federal Reserve can play havoc with the market,” Paul said on CNBC’s “Futures Now” referring to Thursday’s surge in stocks. The S&P 500 closed less than 1 percent off its all-time high. “I look at it as being very unstable.”

In Paul’s eyes, “the fallacy of economic planning” has created such a “horrendous bubble” in the bond market that it’s only a matter of time before the bottom falls out. And when it does, it will lead to “stock market chaos.”

Yes, this financial bubble has persisted far longer than many believed possible, but all irrational bubbles eventually burst.

And you know what they say – the bigger they come the harder they fall.

When this gigantic financial bubble finally implodes, it is going to be absolutely horrifying, and the entire planet is going to be shocked by the carnage.

The Crash of 2015: Going Global

Off the keyboard of Thomas Lewis

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Published on the Daily Impact on May 26, 2015

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Titanic_sinking,_painting_by_Willy_StöwerJust in the past week, the headlines have been coming like triphammer blows: in Bloomberg News, “Something has gone wrong with the global consumer,” (according to JP Morgan); in International Business Times, “G7 Finance Ministers to address faltering global growth;” in London’s Telegraph, “HSBC fears world recession with no lifeboats left;” in OilPrice.com, “Clock running out for struggling oil companies;” and even in the mainstream vanilla Washington Post, a column by Robert Samuelson predicts “China’s coming crash,” then puts a question mark at the end to make sure we don’t worry too much.

When you add these concerns to longer standing ones about wild gyrations in the world’s stock and bond markets; the advent of peak oil in pretty much every oil-exporting country in the world; the onset of the effects of global climate change in California, the Middle East, North Africa, Brazil and elsewhere; it becomes apparent that optimism ought to be listed as a disorder requiring medical intervention.

What’s wrong with the global consumer? In the imortal words of Howard Davidowitz, a leading expert on retail, consumers “don’t have any f’ing money.” It is slowly — way too late — dawning on the Masters of the Universe that unless ordinary people have money to spend — and by that we mean real money, not more credit cards or a third mortgage — the Masters are toast.

According to J.P. Morgan economist Joseph Lupton, “It would be difficult to overstate the recent downside surprise in global consumer spending.” Lower gas prices were supposed to stimulate spending. They didn’t. The high stock markets were supposed to encourage enough job creation to seriously dent unemployment rates and stimulate spending. They didn’t. The lackluster numbers of early spring were supposed to be the result of bad weather. They weren’t. “Clearly,” says Lupton, “something is off track.”

Indeed. International shipping is at historic lows. Energy consumption is declining. In the US, the trucking industry is starting to show weakness. At the same time rail-freight shipments are declining sharply. Retail stores are closing by the thousands. While, obliviously, the stock market soars to new heights.  

Meanwhile, says International Business Times, “Finance ministers from the world’s largest developed economies meet in Germany this week against a backdrop of faltering global growth, scant inflationary pressures and a bond market in turmoil.” They’ll get to all this after they have figured out how to keep Greece from nuking the European Union by defaulting on its obligations because Greece hasn’t got any f’’ing money, either. Even if they can figure out how to amputate Greece without getting an infection, they will still be looking at either anemic growth or actual contraction in the powerhouse economies of the United States, China, Canada and Europe.

Now, even if you believe, as I do, that the notion of infinite growth on a finite planet is ridiculous, and the notion that all growth is always good is suicidal, you still live, as I do, in a system that will crash if its faith on growth is broken. So pay attention to these idiots. They’re driving.

Meanwhile, a report written by and for HSBC, the world’s third largest bank, likens the world economy to the Titanic, “sailing across the ocean without any lifeboats.” In fact the report is titled “The World Economy’s Titanic Problem,” and was written by a writer of financial horror stories appropriately named Stephen King. In his relentless account, the world’s central bankers have expended every bit of ammunition they have to stop the approaching iceberg of debt and depression, and the iceberg is bigger and closer than ever. You will stifle a scream as you read.

This gathering emergency is only invisible to those whose paychecks require that they do not see it. Unfortunately, that includes many journalists and virtually all politicians. The rest of us need to take another look at the pile of boards on the aft deck of the Titanic and get to work on our personal lifeboats. Now.

Oil and the Economy: Where are We Headed in 2015-16?

Off the keyboard of Gail Tverberg

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Published on Our Finite World on January 6, 2014

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The price of oil is down. How should we expect the economy to perform in 2015 and 2016?

Newspapers in the United States seem to emphasize the positive aspects of the drop in prices. I have written Ten Reasons Why High Oil Prices are a Problem. If our only problem were high oil prices, then low oil prices would seem to be a solution. Unfortunately, the problem we are encountering now is extremely low prices. If prices continue at this low level, or go even lower, we are in deep trouble with respect to future oil extraction.

It seems to me that the situation is much more worrisome than most people would expect. Even if there are some temporary good effects, they will be more than offset by bad effects, some of which could be very bad indeed. We may be reaching limits of a finite world.

The Nature of Our Problem with Oil Prices

The low oil prices we are seeing are a symptom of serious problems within the economy–what I have called “increased inefficiency” (really diminishing returns) leading to low wages. See my post How increased inefficiency explains falling oil prices. While wages have been stagnating, the cost of oil extraction has been increasing by about ten percent a year, described in my post Beginning of the End? Oil Companies Cut Back on Spending.

Needless to say, stagnating wages together with rapidly rising costs of oil production leads to a mismatch between:

  • The amount consumers can afford for oil
  • The cost of oil, if oil price matches the cost of production

The fact that oil prices were not rising enough to support the higher extraction costs was already a problem back in February 2014, at the time the article Beginning of the End? Oil Companies Cut Back on Spending was written. (The drop in oil prices did not start until June 2014.)

Two different debt-related initiatives have helped cover up the growing mismatch between the cost of extraction and the amount consumers could afford:

  • Quantitative Easing (QE) in a number of countries. This creates artificially low interest rates and thus encourages borrowing for speculative activities.
  • Growth in Chinese spending on infrastructure. This program was funded by debt.

Both of these programs have been scaled-back significantly since June 2014, with US QE ending its taper in October 2014, and Chinese debt programs undergoing greater controls since early 2014. Chinese new home prices have been dropping since May 2014.

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

The effect of scaling back both of these programs in the same timeframe has been like a driver taking his foot off of the gasoline pedal. The already slowing world economy slowed further, bringing down oil prices. The prices of many other commodities, such as coal and iron ore, are down as well. Instead of oil prices staying up near the cost of extraction, they have fallen closer to the level consumers can afford. Needless to say, this is not good if the economy really needs the use of oil and other commodities.

It is not clear that either the US QE program or the Chinese program of infrastructure building can be restarted. Both programs were reaching the limits of their usefulness. At some point, additional funds begin going into investments with little return–buildings that would never be occupied or shale operations that would never be profitable. Or investments in Emerging Markets that cannot be profitable without higher commodity prices than are available today. 

First Layer of Bad Effects 

  1. Increased debt defaults. Increased debt defaults of many kinds can be expected, including (a) Businesses involved with oil extraction suffering from low prices (b) Laid off oil workers not able to pay their mortgages, (c) Debt repayable in US dollars from emerging markets, including Russia, Brazil, and South Africa, because with their currencies now very low relative to the US dollar, debt is difficult to repay (d) Chinese debt related to overbuilding there, and (e) Debt of failing economies, such as Greece and Venezuela.
  2. Rising interest rates. With defaults rising, interest rates can be expected to rise, so that those making the loans will be compensated for the rising risk of default. In fact, this is already happening with junk-rated oil loans. Furthermore, it is possible that the US Federal Reserve will raise target interest rates in 2015. This possibility has been mentioned for several months, as part of normalizing interest rates.
  3. Rising unemployment. We know that nearly all of the increased employment since 2008 in the US took place in states with shale oil and gas production. As these programs are cut back, US employment is likely to fall. The UK and Norway are likely to experience drops in employment related to oil production, as their oil programs are cut. Countries of South America and Africa dependent on commodity exports are likely to see their employment cut back as well.
  4. Increased recession. The combination of rising interest rates and rising unemployment will almost certainly lead to recession. At first, some of the effects may be offset by the impact of lower oil prices, but eventually recessionary effects will predominate. Eventually, broken supply chains may become a problem, if companies with poor credit ratings cannot get financing they need at reasonable rates.
  5. Decreased oil supply, starting perhaps in late 2015. The timing is not certain. Businesses are likely to continue extraction where wells are already in operation, since most costs have already been paid. Also, some businesses have purchased price protection in the derivative market. They will likely continue drilling.
  6. Disruptions in oil exporting countries, such as Venezuela, Russia, and Nigeria. Oil exporters generally get the majority of their government revenue from taxes on oil. If oil prices remain low, oil-related tax revenue will drop greatly, necessitating cutbacks   in food subsidies and other programs. Some countries may experience overthrows of existing governments and a sharp drop in oil exports. Central governments may even disband, as happened with the Soviet Union in 1991.
  7. Defaults on derivatives, because of sharp and long-lasting changes in oil prices, interest rates, and currency relativities. Securitized debt may also be at risk of default.
  8. Continued low oil prices, except for brief spikes, because of high interest rates, recession, and low “demand” (really affordability) for oil.
  9. Drop in stock market prices. Governments have been able to “pump up” stock market prices with their QE programs since 2008. At some point, though, higher interest rates may draw investors away from the stock market. Stock prices may also decline reflecting the poor prospects of the economy, with rising unemployment and fewer goods being manufactured.
  10. Drop in market value of bonds. When interest rates rise, the market value of existing bonds falls. Bonds are also likely to experience higher default rates. The combined effect is likely to lead to a drop in the equity of financial institutions. At least at first, this effect is likely to occur mostly outside the US, because the “flight to security” will tend to raise the level of the US dollar and lower US interest rates.
  11. Changes in international associations. Already, there is discussion of Greece dropping out of the Eurozone. Associations such as the European Union and the International Monetary Fund will find it increasingly difficult to handle problems, as their rich countries become poorer, and as loan defaults become increasing problems.

In total, eventually we are likely to experience a much worse situation than we did in the 2007-2009 period, although this may not be evident at first. It will be only over a period of time, after some of the initial “dominoes fall” that we will see what is really happening. Initially, economies of oil importing countries may appear to be doing fairly well, thanks to low oil prices. It will be later that the adverse impacts begin to take over, and eventually dominate.

Major Concerns

Inability to restart oil supply, even if prices should temporarily rise. The production of oil from US shale formations has been enabled by very low interest rates. If there is a major round of debt defaults by the shale industry, interest rates are unlikely to fall back to previously low levels. Because of the higher interest rates, oil prices will have to rise to an even a higher price than required in the past–in other words, to more than $100 barrel, say $125 to $140 barrel. There will also be a lag in restarting production, meaning that high prices will need to be maintained for some time. Bringing oil prices to a high level for a long time seems impossible without crashing the economies of oil importers. See my post, Ten Reasons Why High Oil Prices are a Problem.

Derivatives and Securitized Debt Defaults. The last time we had problems with these types of financial instruments was 2008. Governments around the world made huge payments to banks and other financial institutions, in order to bail them out of their difficulties. The financial services firm Lehman Brothers was allowed to go bankrupt.

Governments have declared that if this happens again, they will do things differently. Instead of bailing institutions out, they will make changes that will make these events less likely to happen. They will also make changes in how shortfalls are funded.  In many cases, the result will be a bail-in, where depositors share in the losses by “haircuts” to their deposits.

Unfortunately, from what I can see, the changes governments have made are basically too little, too late. The new sharing of losses will have as bad, or worse, impacts on the economy than the previous government bailouts of banks. Regulators do not seem to understand that models used in pricing derivatives and securitized debt are not designed for a finite world. The models appear to work reasonably well when the economy is distant from limits. Once the economy gets close to limits, many more adverse events occur than the models would have predicted, potentially causing huge problems for the system.1

What we are likely to be encountering now is a combination of defaults of many kinds simultaneously–derivatives, securitized debt, and “ordinary” debt. Many of these risks will be shared among institutions, so that banking problems will be widespread. The sizes of the losses are likely to be very large. Businesses may find that funds intended for payroll or needed to pay suppliers are subject to haircuts. How can they operate in such a situation?

It is even possible that accounts under deposit insurance limits will be subject to haircuts. While deposit insurance is available in theory, the amount held in reserve is not very great. It could easily be exhausted by a few large claims (the scenario in Iceland a few years ago). If governments choose not to make up for shortfalls in funding of the insurance programs, the shortfalls could end up with depositors.

Peak Oil. There seems to be a distinct possibility that we will be reaching the peak in world oil supply very soon–2014 or 2015, or even 2016. The way we reach this peak though, is different from what most people imagined: low oil prices, rather than high oil prices. Low oil prices are brought about by low wages and the inability to add sufficient new debt to offset the low wages. Because the issue is one of affordability, nearly all commodities are likely to be affected, including fossil fuels other than oil. In some sense, the issue is that a financial crash is bringing down the financial system, and is bringing commodities of all kinds with it.

Figure 2 shows an estimate of future energy production of various types. The steep downslope is likely because of the financial problems we are headed into.2

Figure 2. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.Figure 2. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings. Renewables in this chart includes hydroelectric, biofuels, and material such as dung gathered for fuel, in addition to renewables such as wind and solar. (It is based on an IEA inclusive definition.)

A major point of this chart is that all fuels are likely to decline simultaneously, because the cause is financial. For example, how does an oil company or a coal company continue to operate, if it cannot pay its employees and suppliers because of bank-related problems?

Our Long-Term Debt Problem. Long-term debt is an important part of our current system because (a) it enables buyers to afford products, and (b) it helps keep commodity prices high enough to encourage extraction. Unfortunately, long-term debt seems to require economic growth, so that we can repay debt with interest.

Figure 3. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

 Figure 3. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Economists conjecture that economic growth can continue, even if the extraction of fossil fuels and other commodities declines (as in Figure 2). But how likely is this in practice? Without fossil fuels, we can exchange baby-sitting services and we can give each other back rubs, but how much can we really do to grow the economy?

Almost any economic activity we can think of requires the use of petroleum or electricity and the use of commodities such as iron and copper. A more realistic view would seem to be that without the materials we generally use, our economy is likely to shrink. With this shrinkage, long-term debt will become increasingly impossible. This is one of the big problems we are encountering.

Our Physics Problem. Politicians and businesses of all types would like to advance the idea that our economy will continue forever; the politicians and businesses of every kind are in charge. Everything will turn out well.

Unfortunately, history is littered with examples of civilizations that hit diminishing returns, and then collapsed. Research indicates that the when early economies underwent collapse, the shape of the decline wasn’t straight down–declines tended to take a period of years. Not everyone died, either.

Figure 4. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.Figure 4. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

Physics gives us a reason as to why such a pattern is to be expected. Physics tells us that civilizations are dissipative structures. The world we live in is an open system, receiving energy from the sun. Examples of other dissipative structures include galaxy systems, the solar system, the lives of plants and animals, and hurricanes. They are born, grow, and eventually stop dissipating energy and die. New dissipative structures often arise, if sufficient energy sources are available to dissipate. Thus, there may be new economies in the future.

We would like to think that we can stop this process, but it is not clear that we can. Perhaps economies are expected to reach limits and eventually collapse. It is only if economies can add large amounts of inexpensive energy resources (for example, by discovering how to make use of fossil fuels, or by discovering a less-settled area of the world, or even by adding China to the World Trade Organization in 2001) that this scenario can be put off.

What Can We Do?

Renewable energy is has recently been advertised as the solution to nearly all of our problems. If my analysis of our problems is correct, renewable energy is not a solution to our problems. I mentioned earlier that adding China to the World Trade Organization in 2001 temporarily helped solve world energy problems, with its ramp up of coal production after joining (note bulge in coal consumption after 2001 in Figure 5). In comparison, the impact of non-hydro renewables has been barely noticeable in the whole picture.

Figure 5. World energy consumption by source, based on data of BP Statistical Review of World Energy 2014.Figure 5. World energy consumption by source, based on data of BP Statistical Review of World Energy 2014. Renewables are narrowly defined, excluding hydro-electric, liquid biofuels, and materials gathered by the user, such as branches and dung.

Guaranteed prices for renewable energy are likely to be an increasing problem, as the cost of fossil fuel energy falls, and as buyers become increasingly unable to afford high energy prices. Issues with banks, making it difficult to pay employees and suppliers, are likely to be a problem whether an energy company uses renewable energy sources or not.

The only renewable energy sources that may be helpful in the long term are one that do not require buying goods from a distance, and thus do not require the use of banks. Trees growing in a local forest might be an example of such renewable energy.

Another solution to the problems we are reaching would seem to be figuring out a new financial system. Unfortunately, debt–and in fact growing debt–seems to be essential to our current system. We can’t extract fossil fuels without a debt-based system, in part because debt allows profits to be moved forward, and thus lightens the burden of paying for products made with a fossil-fuel based system. If a financial system uses only on the accumulated profits of a system without fossil fuels, it can expand only very slowly. See my post Why Malthus Got His Forecast Wrong. Local currency systems have also been suggested, but they don’t fix the problem of, say, electricity companies not being able to pay their suppliers at a distance.

Adding more debt, or taking steps to hold interest rates even lower, is probably the closest we can come to a reasonable way of temporarily putting off financial collapse. It is not clear where more debt can be added, though. The reason current debt programs are being discontinued is because, after a certain level of expansion, they primarily seem to create stock market bubbles and encourage investments that can never pay back adequate returns.

One possible solution is that a small number of people with survivalist skills will make it through the bottleneck, in order to start civilization over again. Some of these individuals may be small-scale farmers. The availability of cheap, easy to use, local energy is likely to be a limiting factor on population size, however. World population was one billion or less before the widespread use of fossil fuels.

We don’t have much time to fix our problems. In the timeframe we are looking at, the only other solution would seem to be a religious one. I don’t know exactly what it would be; I am not a believer in The Rapture. There is great order underlying our current system. If the universe was formed in a big bang, there was no doubt a plan behind it.  We don’t know exactly what the plan for the future is. Perhaps what we are encountering is some sort of change or transformation that is in the best interests of mankind and the planet. More reading of religious scriptures might be in order. We truly live in interesting times!

Notes:

[1] Derivatives and Securitized Debt are often priced using the Black-Scholes Pricing Model. It assumes a normal distribution and statistical independence of adverse results–something that is definitely not the case as we reach limits. See my 2008 post that correctly forecast the 2008 financial crash.

[2] Points are plotted at five-year intervals, so the chart is a bit more pointed than it would have been if I had plotted individual years. The upper limit at 2015 is an approximation–it could be a year or so different.

Monetary Heroin Cold Turkey

Off the keyboard of Michael Snyder

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Published on Economic Collapse on October 29, 2014

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From This Day Forward, We Will Watch How The Stock Market Performs Without The Fed’s Monetary Heroin

Money - Public DomainMark this day on your calendars.  The Dow is at 16974, the S&P 500 is at 1982 and the NASDAQ is at 4549.  From this day forward, we will be looking to see how the stock market performs without the monetary heroin that the Federal Reserve has been providing to it.  Since November 2008, the Fed has created about 3.5 trillion dollars and pumped it into the financial system.  An excellent chart illustrating this in graphic format can be found right here.  Pretty much everyone agrees that this has been a tremendous boon for the financial markets.  As you will see below, even former Fed chairman Alan Greenspan says that quantitative easing was “a terrific success” as far as boosting stock prices.  But he also says that QE has not been very helpful to the real economy at all.  In essence, the entire quantitative easing program was a massive 3.5 trillion dollar gift to Wall Street.  If that sounds unfair to you, that is because it is unfair.

So why is the Federal Reserve finally ending quantitative easing?

Well, officially the Fed says that it is because there has been so much improvement in the labor market

The Fed’s language, however, did suggest that they were getting more comfortable with the economy’s improvement. It cited “solid job gains,” citing a “substantial improvement in the outlook for the labor market,” as well as pointing out that “underutilization” of labor resources is “gradually diminishing.”

But that is not true at all.

The percentage of Americans that are working right now is about the same as it was during the depths of the last recession.  Just check out this chart…

Employment Population Ratio 2014

So there has been no “employment recovery” to speak of at all.

And as I wrote about yesterday, the percentage of Americans that are homeowners has been steadily falling throughout the quantitative easing era…

Homeownership Rate 2014

So let’s put the lie that quantitative easing helped the “real economy” to rest.  It did no such thing.

Instead, what QE did do was massively inflate stock prices.

The following is an excerpt from a Wall Street Journal report about a speech that former Fed chairman Alan Greenspan made to the Council on Foreign Relations on Wednesday

Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.

He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.

Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”

Moving forward, what did Greenspan tell the members of the Council on Foreign Relations that they should do with their money?

This might surprise you…

Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.

Wow.

It almost sounds like Greenspan has been reading the Economic Collapse Blog.

Since November 2008, every time there has been an interruption in the Fed’s quantitative easing program, the stock market has gone down substantially.

Will that happen again this time?

Well, the market is certainly primed for it.  We are repeating so many of the very same patterns that we saw just prior to the last two financial crashes.

For example, there have been three dramatic peaks in margin debt in the last twenty years.

One of those peaks came early in the year 2000 just before the dotcom bubble burst.

The second of those peaks came in the middle of 2007 just before the subprime mortgage meltdown happened.

And the third of those peaks happened earlier this year.

You can view  a chart that shows these peaks very clearly right here.

The Federal Reserve appears to be confident that the stock market will be okay without the monetary heroin that it has been supplying.

We shall see.

But it should be deeply troubling to all Americans that this unelected, unaccountable body of central bankers has far more power over our economy than anyone else does.  During election season, our politicians get up and give speeches about what they will “do for the economy”, but the truth is that they are essentially powerless compared to the immense power that the Federal Reserve wields.  Just a few choice words from Janet Yellen can cause the financial markets to rise or fall dramatically.  The same cannot be said of any U.S. Senator.

We are told that monetary policy is “too important” to be exposed to politics.

We are told that the independence of the Federal Reserve is “sacred” and must never be interfered with.

I say that is a bunch of nonsense.

No organization should have the power to print up trillions of dollars out of thin air and give it to their friends.

The Federal Reserve is completely and totally out of control, and Congress needs to start exerting power over it.

The first step is to get in there and do a comprehensive audit of the Fed’s books.  This is something that U.S. Senator Ted Cruz called for in a recent editorial for USA Today

Americans are seeing near-zero interest rates on their savings accounts while median incomes are falling, and millions of people are facing higher gas prices, food prices, electricity prices, health insurance prices. Enough is enough, the Federal Reserve needs to open its books — Americans deserve a sound and stable dollar.

Whether you agree with Ted Cruz on other issues or not, this is one issue that all Americans should be able to agree on.

If you study any of our major economic problems, usually you will find that the Federal Reserve is at the heart of that problem.

So if we ever hope to solve the issues that are plaguing our economy, the Fed is going to need to be dealt with.

Hopefully the American people will start to send more representatives to Washington D.C. that understand this.

Germany & Japan Hit the Skids

Off the keyboard of Michael Snyder

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Published on The Economic Collapse on October 8, 2014

Pigs on the Wing in Japan & Germany

Pigs on the Wing in Japan & Germany

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Serious Financial Trouble Is Erupting In Germany And Japan

Stock Market Collapse - Public DomainThere are some who believe that the next great financial crash will not begin in the United States.  Instead, they are convinced that a financial crisis that begins in Europe or in Japan (or both) will end up spreading across the globe and take down the U.S. too.  Time will tell if they are ultimately correct, but even now there are signs that financial trouble is already starting to erupt in both Germany and Japan.  German stocks have declined 10 percent since July, and that puts them in “correction” territory.  In Japan, the economy is a total mess right now.  According to figures that were just released, Japanese GDP contracted at a 7.1 percent annualized rate during the second quarter and private consumption contracted at a 19 percent annualized rate.  Could a financial collapse in either of those nations be the catalyst that sets off financial dominoes all over the planet?

This week, the worst German industrial production figure since 2009 rattled global financial markets.  Germany is supposed to be the economic “rock” of Europe, but at this point that “rock” is starting to show cracks.

And certainly the civil war in Ukraine and the growing Ebola crisis are not helping things either.  German investors are becoming increasingly jittery, and as I mentioned above the German stock market has already declined 10 percent since July

German stocks, weighed down by the economic fallout spawned by the Ukraine-Russia crisis and the eurzone’s weak economy, are now down more than 10% from their July peak and officially in correction territory.

The DAX, Germany’s benchmark stock index, has succumbed to recent data points that show the German economy has ground to a halt, hurt in large part by the economic sanctions levied at its major trading partner, Russia, by the U.S. and European Union as a way to get Moscow to butt out of Ukraine’s affairs. The economic slowdown in the rest of the debt-hobbled eurozone has also hurt the German economy, considered the economic locomotive of Europe.

In trading today, the DAX fell as low as 8960.43, which put it down 10.7% from its July 3 closing high of 10,029.43 and off nearly 11% from its June 20 intraday peak of 10,050.98.

And when you look at some of the biggest corporate names in Germany, things look even more dramatic.

Just check out some of these numbers

The hardest hit sectors have been retailers, industrials and leisure stocks with sports clothing giant Adidas down 37.7pc for the year, airline Lufthansa down 27pc, car group Volkswagen sliding 23.6pc and Deutchse Bank falling 20.2pc so far this year.

Meanwhile, things in Japan appear to be going from bad to worse.

The government of Japan is more than a quadrillion yen in debt, and it has been furiously printing money and debasing the yen in a desperate attempt to get the Japanese economy going again.

Unfortunately for them, it is simply not working.  The revised economic numbers for the second quarter were absolutely disastrous.  The following comes from a Japanese news source

On an annualized basis, the GDP contraction was 7.1 percent, compared with 6.8 percent in the preliminary estimate. That makes it the worst performance since early 2009, at the height of the global financial crisis.

The blow from the first stage of the sales tax hike in April extended into this quarter, with retail sales and household spending falling in July. The administration signaled last week that it is prepared to boost stimulus to help weather a second stage of the levy scheduled for October 2015.

Corporate capital investment dropped 5.1 percent from the previous quarter, more than double the initial estimate of 2.5 percent.

Private consumption was meanwhile revised to a 5.1 percent drop from the initial reading of 5 percent, meaning it sank 19 percent on an annualized basis from the previous quarter, rather than the initial estimate of 18.7 percent, Monday’s report said.

For the moment, things are looking pretty good in the United States.

But as I have written about so many times, our financial markets are perfectly primed for a fall.

Other experts see things the same way.  Just consider what John Hussman wrote recently…

As I did in 2000 and 2007, I feel obligated to state an expectation that only seems like a bizarre assertion because the financial memory is just as short as the popular understanding of valuation is superficial: I view the stock market as likely to lose more than half of its value from its recent high to its ultimate low in this market cycle.

At present, however, market conditions couple valuations that are more than double pre-bubble norms (on historically reliable measures) with clear deterioration in market internals and our measures of trend uniformity. None of these factors provide support for the market here. In my view, speculators are dancing without a floor.

And it isn’t just stocks that could potentially be on the verge of a massive decline.  The bond market is also experiencing an unprecedented bubble right now.  And when that bubble bursts, the carnage will be unbelievable.  This has become so obvious that even CNBC is talking about it…

Picture this: The bond market gets spooked by a sudden interest rate scare, sending a throng of buyers streaming toward the exits, only to find a dearth of buyers on the other side.

As a result, liquidity evaporates, yields soar, and the U.S. finds itself smack in the middle of another debt crisis no one saw coming.

It’s a scenario that TABB Group fixed income head Anthony J. Perrotta believes is not all that far-fetched, considering the market had what could be considered a sneak preview in May 2013. That was the “taper tantrum,” which saw yields spike and stocks sell off after then-Federal Reserve Chairman Ben Bernanke made remarks that the market construed as indicating rates would rise sooner than expected.

If the strength of our financial markets reflected overall strength in the U.S. economy there would not be nearly as much cause for concern.

But at this point our financial markets have become completely and totally divorced from economic reality.

The truth is that our economic fundamentals continue to decay.  In fact, the IMF says that China now has the largest economy on the planet on a purchasing power basis.  The era of American economic dominance is ending.  It is just that the financial markets have not gotten the memo yet.

Hopefully we still have at least a few more months before stock markets all over the world start crashing.  But remember, we are entering the seventh year of the seven year cycle of economic crashes that so many people are talking about these days.  And we are definitely primed for a global financial collapse.

Sadly, most people did not see the crash of 2008 coming, and most people will not see the next one coming either.

Masters of the Universe Head for Exits

From the keyboard of Thomas Lewis
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It may be time to put your money under the mattress again.

It may be time to put your money under the mattress again.

First published at The Daily Impact  September 9, 2014

The list of stock market players who are talking openly about the danger of an imminent crash (in doublespeak, that’s “correction”) is growing fast. This is all the more remarkable when you remember that it is generally against the best interests of players to warn people away from the game at which they are making their money. They are, in a sense, yelling “Fire!” in a crowded casino; either they know nobody is going to pay any attention, or they are sitting next to a pre-dug tunnel out. Or there really is a fire.

Rich people are in general given too much deference in our money-worshiping culture. We don’t do that here. But people who speak against their apparent interests are especially interesting, and it usually behooves us to listen to what they have to say.  

Here, then, an incomplete compendium of the players who have complained about their heartburn in the last ten days or so:

Mark Faber, market newsletter publisher: “I think it’s very likely that we’re seeing, in the next 12 months, an ’87-type of crash.” On October 19. 1987, the market lost 22.6% of its value — about $500 billion — in the largest one-day crash in history.

Sam Zell, billionaire investor: “The stock market is at an all time [high], but economic activity is not at an all-time [high]. It’s very likely that something has to give here.”

George Soros, legendary billionaire investor: Has placed a $2.2 billion bet — called a put, or hedge — that a market collapse is imminent.

The Bank for International Settlements (BIS), the central bank for central banks: “Financial markets have been exuberant over the past year … dancing mainly to the tune of central bank decisions. Growth has picked up, but long-term prospects are not that bright. Financial markets are euphoric, but progress in strengthening banks’ balance sheets has been uneven and private debt keeps growing. Macroeconomic policy has little room for maneuver to deal with any untoward surprises that might be sprung, including a normal recession.” Translated from central bank obfuscation, the above can be interpreted as “Run! Run for your lives!”

Carl Icahn, legendary billionaire investor: “very worried” about US equity markets, i.e. the stock market, because “you have to worry about the excessive printing of money” (by the Federal Reserve).

Jeremy Grantham, contrarian hedge fund manager: the crash is coming, and it will be “unlike any other” we have seen. “We have never had this before. It’s going to be very painful for investors.”

Mark Spitznagel, hedge fund manager: “We have no right to be surprised by a severe and imminent stock market crash. In fact, we must absolutely expect it.”

Mark Cook, legendary investor and guru: Sees a 20% market pullback within 12 months. Describes the difference between stock prices and business performance this way: “It’s like being in the Twilight Zone. Imagine going outside when it’s raining and getting sunburned. That’s the environment we’re in right now.”

As we have reported here over and over again, none of these people seem to be aware of, let alone include in their calculations, the impending collapse of the shale-oil bubble, which raises all the risk factors in the market by orders of magnitude. Scared as they are, the Masters of the Universe aren’t nearly scared enough.

 

***

 

Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

 

 

CRASH2: the roadsigns become so frequent, people can’t see them for looking

Off the keyboard of John Ward

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Published on The Slog on August 29, 2014

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  THIS WAY TO THE CRASH

https://hat4uk.files.wordpress.com/2014/08/crash.pngDespite a consensus expecting US disposable income to grow by 0.2% in July, it fell by 0.1% – for the first time in six months. Having endured the jobless recovery, it looks like Americans might now be in for the cashless recovery.

In Russia, the economy is rapidly weakening: inflation is high, the ruble is weak, interest rates are climbing, and disposable incomes have dropped.

Eurozone inflation fell to its lowest level since November 2009 this August, as analysts warned that price growth in the currency bloc is “worryingly low”. “This is yet another bad indicator of the health of the eurozone economy”, said Luke Bartholomew, of Aberdeen Asset Management. Give that man a kupee doll.

Meanwhile, Italy – the country long targeted by The Slog as the real European basket case – saw its consumer prices drop by the most since records began. It’s the eurozone’s third-largest economy…and so firmly entrenched in recession, prices fell at twice the expected rate.

In the UK, retail behemoth Tesco has issued another profit warning, and its intention to slash the dividend by 75%. That’s a very big number indeed, and the company’s bland statement blaming “challenging” trading conditions cannot hide the reality: Tesco is losing out bigtime to the bottom-rung discounters, particularly Lidl. Every Lidl helps, as they say….but this sort of share loss and growth doesn’t happen during an economic recovery.

Neither does a stalled housing market. It is quickly becoming clear that, despite British Chancellor George Osborne’s Help to Buy scam, UK house prices have stagnated: more than normal numbers of sales are falling through due to nervous buyers in the residential property market. UK values edged up by just 0.1% from July to August for the second month in a row. Vendors in England and Wales got around 96% of their asking price in August – a third fall: if that level drops to 94%, sector analysts say price drops will accelerate.

Global manufacturing output continues to engage reverse gear, as a result of which mining giants are staring at a $US30bn slump in revenue during the next 12 months. The price of iron ore has collapsed some 36% during 2014.

Even those famous O’Neill Brics are somewhat out of true. The Brazilian economy was this afternoon declared officially to be in recession – something of a bummer for Dilma Rousseff’s re-election bid.

Before these latest developments, dear Reader, you heard that German gdp shrank by 0.2%, the French economy flatlined for the second quarter running, in China an spectrum of indicators suggested faltering growth, and falling energy demand was beginning to make the Russian economy look not so much sick as poorly.

And how, pray, have the markets, bourses and other misleading outcomes reacted?

The Dow Jones was flat. The FTSE was up 0.2%. The French CAC 40 edged 0.34% higher. The Australian S&P/ASX 200 index gained 0.08% to 5,629. The European Euro Stoxx 50 added 0.42%. The German DAX rose 0.22%

They’re coming to take us away haha/ They’re coming to take us away/To the funny farm/Where life is beautiful all the time

Great stuff, Ward: 6.30 pm BST on a Friday is the perfect aperture for this kind of bad news. Ed

Earlier at The Slog: All aboard for the Trojan Horse to BUPA

…and so it BEGINS

Off the keyboard and microphone of RE

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Published on the Doomstead Diner on March 2, 2014

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The Frosbite Falls Daily Rant is the latest Feature of the Collapse Cafe on the Doomstead Diner.  It can be found daily on the Homepage of the Diner on the right menu bar.

The transcript for this rant can be found at the bottom of this article.

Day 2 has arrived here in the Valve War between Ukraine and Russia, centered mainly in Crimea at the moment, but bound to move Eastward as time goes by here.  I covered a few of the main issues in the daily rant yesterday, for today we will look a little more closely at the logistics involved here.

As you can see from the Infographic at the top of the page, this isn’t a small military exercise by any means.  More than 10,000 troops are being repositioned, which is quite a tidy sum considering the Ruskies were downsizing their Military.

2008 Russian military reform

(H/T Newzy Joe on the Diner for this table)

While the Ruskie military is still pretty large, you have to remember that all “active personnel” are not “Boots on the Ground” aka Grunts who do the dirty work and get regularly sent to the Great Beyond in one of these actions.  So Vlad is committing quite a large percentage of what is left of his military assets to try and take control of Ukraine.

While the mostly Russian speaking eastern Ukrainians are mostly lined up with Vlad, even they don’t necessarily want to become a vassal state of Russia again.  They only got out from under the old USSR hegemony 20 years ago!  The Western half of the population definitely isn’t too happy about this state of affairs, so you basically have now a War in all but official declaration, and even that gets closer all the time.

NATO and Obama-sama still haven’t done anything but bluster, and it is unlikely they will do much on the military end at this time.  The NATO countries don’t have that many troops they can call up at the drop of a hat (or bomb), and most available FSoA military assets are currently deployed far and wide at a bazillion global Military bases as well as being mired down in places like Afghanistan.

However, just because they don’t have military assets to throw at this problem doesn’t make them helpless, they do have financial ones.  Accelerating Capital Flight out of both Ukraine and Russia can do a lot more damage to Vlad the Impaler’s political control than a Firefight in Sevastopol.  So this is probably where we have to look for the Action to be next week from the NATO/western Illuminati end.

http://www.downloadswallpapers.com/wallpapers/2012/agosto/medio/navios-e-naves-no-oceano-wallpaper-21713.jpgLogistically speaking, all the “Big Power” Militaries of the Ruskies, the Chinese and the FSoA are over-extended past what they can actually support anymore to try and control far flung regions of the earth.  The Chinese are buying up African Land and Oz Mines, but they need their own Million Man Army right at home to keep control.  The Ruskies have the same problem, their last failed adventure outside of their own region in Afghanistan was  a magnificent failure, and subsequent adventures inside their sphere have not faired much better.  All their border states like Georgia are contantly in virtul revolt; just keeping the lid on there stretches them pretty thin.  For the FSoA part, we send Carrier Groups willy-nilly around the world as a “show of force” in each latest Hotspot, but we only got like 11 or so of these Carrier Groups I believe.  Drop a couple in the Mediterranean, a couple in the Indian Ocean, a couple in the South China Sea, a couple in the North Atlantic, a couple off the coast of Brasil and one in the Gulf of Mejico and POOF, you are frehs OUT of Carrier Groups!  Not to mention all a Carrier Group does at best is to allow you to control the local Sea Lanes and drop Death From Above on the nearby locals, they don’t allow you to put enough Boots on the ground in ANY of these places to do much more than take over a few Goobermint Buildings in the central city, for that you gotta mobilize a lot of troops ships, land tanks and APC yadda yadda.

In all likelihood at this point, it appears that the “Powerful” Goombermints and Militaries of Russia, china and the FSoA will soon be engaged much more in keeping their own Local Populations in control, so trying to control anywhere else is pretty much a non-starter.  Ukraine is close enough physically to Russia with enough traditional ties they can make this physical attempt one more time, but they will face a constant state of revolt inside Ukraine, just like Georgia and the rest of the peripheral states now really starting to hurt.

The problems in Ukraine will move themselves quickly enough to Poland, Hungary, Belarus etc, and the Western European states will see Blowback as Gazprom energy gets shut off at critical Valves through Central Europe.  This further roils the markets and their economies, already very shaky to begin with, so they too will begin to topple.

Building up this whole interconnected Global system has been ongoing for 500 years here.  It will come apart a whole lot quicker than that.  The World Trade Center is the best analogy I can come up with here.  The project had it’s inception right near the end of WWII in 1943, took until the 60s to get funding, and didn’t open up until 1973.

The idea of establishing a World Trade Center in New York City was first proposed in 1943. The New York State Legislature passed a bill authorizing New York Governor Thomas E. Dewey to begin developing plans for the project[11] but the plans were put on hold in 1949.[12] During the late 1940s and 1950s, economic growth in New York City was concentrated in Midtown Manhattan. To help stimulate urban renewal in Lower Manhattan, David Rockefeller suggested that the Port Authority build a World Trade Center in Lower Manhattan.[13]

Initial plans, made public in 1961, identified a site along the East River for the World Trade Center.[14] As a bi-state agency, the Port Authority required approval for new projects from the governors of both New York and New Jersey. New Jersey Governor Robert B. Meyner objected to New York getting a $335 million project.[15] Toward the end of 1961, negotiations with outgoing New Jersey Governor Meyner reached a stalemate.[16]

At the time, ridership on New Jersey’s Hudson and Manhattan Railroad (H&M) had declined substantially from a high of 113 million riders in 1927 to 26 million in 1958 after new automobile tunnels and bridges had opened across the Hudson River.[17] In a December 1961 meeting between Port Authority director Austin J. Tobin and newly elected New Jersey Governor Richard J. Hughes, the Port Authority offered to take over the Hudson & Manhattan Railroad to have it become the Port Authority Trans-Hudson (PATH). The Port Authority also decided to move the World Trade Center project to the Hudson Terminal building site on the west side of Lower Manhattan, a more convenient location for New Jersey commuters arriving via PATH.[16] With the new location and Port Authority acquisition of the H&M Railroad, New Jersey agreed to support the World Trade Center project.[18]


A good 20-30 years to get those buildings up.  They came down in seconds.  So it will go with this as well, when it Blows, it will Blow Big and it will Blow Fast.  In the words of Leonard Cohen,

Everybody knows it’s coming apart
Take one last look at this Sacred Heart
Before it blows
And everybody knows

Transcript of the Ukraine-Russia War Rant

Greetings Doomfans, and welcome to another edition of the Frosbite Falls Daily Rant.

Tonight we are revisiting a topic from a few nights ago, the ongoing spinout in Ukraine. A few nights ago it was a Civil War in progress, tonight it is a WORLD WAR in the making.

Reason? Vlad the Impaler, the Noble ex-head of the KGB over in Ruskieville decided since he could not or would not Pony Up $35-50B in FOREX scratch the Ukrainians need to keep their version of the Industrial Society running, the better option was simply to roll over them with APCs, Helicopters and Troop ships!

On the NATO side of this battle, John Kerry offered up chump change of $1B in loans from the sharks at the IMF, which barely could keep an Oligarch in Maseratis and Airbus Double Decker Private Jets for a week or two, much less pay off on Pensions to the Ukrainian Population.

Why does EITHER side here give a Flying Fuck who is wandering the halls of the Ukrainian Parliament and running the show there? Why not just leave them alone and let them work out their OWN fucking problems?

Two main reasons. First off, Ukraine has a shit load of pipelines running across the territory which ship Gazprom Energy from Mother Russia over to Western Europe, which is a MAJOR source of FOREX revenue for the Ruskie Oligarchs, including of course Vlad the Impaler.

Second reason is Ukraine is (like everybody else) in HUGE debt to the TBTF banks, and if they don’t get some new Hard Currency FOREX Scratch to roll over their old loans, they will default. This will play nasty HAVOC with the Russian banks, which have the biggest exposure, but of course all the TBTF banks in the West are exposed to this mess also in the Daisy Chain Circle Jerk of derivatives, interbank loans and Worthless Collateral they used to rehypothecate still other loans made elsewhere. If anybody here on either side has to write down Ukrainian debt, the TBTF banks will have to pay a LOT of Overtime to their Accountants so they can cover it up and not be blatantly Insolvent, just Shadow Insolvent.

For their own part, the Ukrainians hold one Ace in the Hole, they actually have their fingers on the valves that transit NG over from Mother Russia to Eurotrash. If SOMEBODY doesn’t pony up some more money for them to keep going here, the average J6P Ukrainian has NOTHING LEFT TO LOSE, so why not blow a few Pipelines and pass the Suffering on to the folks to the West and East of them? They shut down the pipelines, the Eurotrash runs short on energy to keep the Lights on, and the ruskies run short of Forex to keep the Rouble floating as a Happy Currency. Everybody suffers with them!

Herein lies the big PROBLEM with Vlad the Impaler’s physical takeover of the apparatus of Goobermint in Ukraine, the Western interests don’t necessarily have to retaliate with rolling their own APCs and Helicopter Gunships into Ukraine on a UN Sponsored “Peacekeeping” Mission, they can simply mount a concerted Financial Attack on the Rouble. Putin’s Goobermint already has plenty of issues maintaining control over the pretty vast Ruskie territory (even though shrunk from the Lacyon days Back in the USSR), if the Rouble gets driven down in FOREX trade and they can’t sell NG to Western Europe, their own economy will flush down the toilet in a big hurry.

For the Ruskies to take control of this problem on the Physical Level, they have to control the ENTIRE transit of Energy from the Ruskie Gas Fields across to the Eurotrash Konsumers of that energy, and they cannot do that simply by holding Crimea, which they also can’t do with a few 1000 Shock Troops. All that enables them to do is hold a few Goobermint Buildings and install some Puppet Leaders there. They have to roll across the WHOLE of Ukraine, and they have to not only prop up Puppet Leaders in Goobermint, they have to keep the local VERY unhappy population from dropping a few IEDs at critical nodes in the NG pipeline transport system. That will take a LOT more boots on the ground to do, and it is highly questionable that Vlad the Impaler could bring such a force to bear. Very similar to NATO trying to control the energy transit down in MENA with so many of the locals hostile to them.

It remains to be seen how this will play out medium to long term, and in what manner. However, both sides are between a Rock & a Hard Place. Under no circumstances can I see will the Energy flow through Ukraine continue Unimpeded. This will negatively affect all of Europe and Russia too. Neither side can back down here, so escalation seems likely. Duck and cover Doomers, we are now at DefCon Orange.

And that’s all the Doom, this time until next time here on the Frostbite Falls Daily Rant.

 

Knarf plays the Doomer Blues

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