Will Corporated Debt Prove our Undoing? Resources to Survive a Crash

Poor Man Survival

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Corporate Debt Will Prove Damaging to our Economy

So many financial crisis’ to worry about-what do we do? Answers below!

Right now the entire nation is buzzing about the very first debates for Democratic presidential contenders in 2019, and much of the focus of those debates will be on the economy.  A total of 20 candidates will participate in those debates, and the vast majority of them don’t have a prayer of actually winning the nomination.  Of course all of them will have “plans” for “fixing” the economy, but the truth is that most of those plans really aren’t that radically different from what has been tried in the past.  No matter who has been in the White House, our insatiable appetite for debt [both government and private] has allowed us to enjoy a tremendously bloated standard of living that was far beyond what we actually deserved.

It seems to me those Dems running for president all want to erode more of our rights, increase taxes to crazy levels to pay for their pie-in-the-sky programs and grow government to huge levels-We already have too much government at every level interfering with our lives and stealing from our pocketbook.

The reality of the matter is that we are at the very end of the greatest debt bubble in the history of the world, and the way we live is about to dramatically change no matter who we send to Washington.

By nature of our sick economic system, it’s (rightly) assumed by many “in the know” that not only are we headed for another financial crisis…

But that such crushing, debilitating, and panic-inducing events are all but inevitable.

(Even people who don’t understand how the economy works get a sense it’s doomed.)

“Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money.

“Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created…”

“It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt.”

Furthermore, this game of musical chairs is 100% reliant upon banks continuing to pump debt into the system…

 

Corporate Debt: Origin of Next Crisis

By Jim Rickards

The case for a pending financial collapse is well grounded. Financial crises occur on a regular basis including 1987, 1994, 1998, 2000, 2007-08.

That averages out to about once every five years for the past thirty years. There has not been a financial crisis for ten years so the world is overdue. It’s also the case that each crisis is bigger than the one before and requires more intervention by the central banks.

The reason has to do with the system scale. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

In basic terms, this means a market panic far larger than the Panic of 2008.

Today, systemic risk is more dangerous than ever because the entire system is larger than before.

Due to central bank intervention, total global debt has increased over $150 trillion over the past 15 years.

Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

Each credit and liquidity crisis starts out differently and ends up the same.

Each crisis begins with distress in a particular overborrowed sector and then spreads from sector to sector until the whole world is screaming, “I want my money back!”

First, one asset class has a surprise drop. The leveraged investors sell the sinking asset, but soon the asset is unwanted by anyone. Margin calls roll in. Investors then sell good assets to raise cash to meet the margin calls. This spreads the panic to banks and dealers who were not originally involved with the weak asset.

Soon the contagion spreads to all banks and assets, as everyone wants their money back all at once. Banks begin to fail, panic spreads and finally central banks step in to separate winners and losers and re-liquefy the system for the benefit of the winners.

Typically, small investors (and some bankrupt banks) get hurt the worst while the big banks get bailed out and live to fight another day.

That much panics have in common. What varies in financial panics is not how they end but how they begin. The 1987 crash started with computerized trading. The 1994 panic began in Mexico. The 1997–98 panic started in Asian emerging markets but soon spread to Russia and the big banks. The 2000 crash began with dot-coms. The 2008 panic was triggered by defaults in subprime mortgages.

The problem is that regulators are like generals fighting the last war. In 2008, the global financial crisis started in the U.S. mortgage market and spread quickly to the overleveraged banking sector.

Since then, mortgage lending standards have been tightened considerably and bank capital requirements have been raised steeply. Banks and mortgage lenders may be safer today, but the system is not. Risk has simply shifted.

What will trigger the next panic?

My answer is always the same: We can be certain the crisis is coming and can estimate its magnitude, but no one knows exactly when it will happen or what the specific catalyst will be.

When it happens, it could unfold very quickly. There may not be time or opportunity in the middle of the crisis to take defensive measures. That’s why I keep reminding my readers that the time to prepare by increasing allocations to cash and gold is now.

With that said, it is useful to consider the most likely flash points for the next crisis and to monitor events as a way to improve one’s chances of seeing a crisis at the early stages.

So many credit crises are brewing, it’s hard to keep track without a scorecard. The mother of all credit crises is coming to China with over a quarter-trillion dollars owed by insolvent banks and state-owned enterprises, not to mention off-the-books liabilities of provincial governments, wealth management products and developers of white elephant infrastructure projects.

Then there’s a possible emerging-markets credit crisis, with a parade of potentially bankrupt borrowers vulnerable to hot money capital outflows and a slowdown of growth in developing economies.

Close on their heels is the U.S. student loan debacle, with over $1.5 trillion in outstanding debts and default rates approaching 20%.

Now we’re facing a devastating wave of junk bond defaults. The next financial collapse, already on our radar screen, will quite possibly come from junk bonds.

That’s not my view alone.

Prominent economist Carmen Reinhart, for example, says the place to watch is U.S. high-yield debt, aka “junk bonds.”

Since the great financial crisis, extremely low interest rates allowed the total number of highly speculative corporate bonds, or “junk bonds,” to rise about 60% — a record high.

Many businesses became extremely leveraged as a result. Estimates put the total amount of junk bonds outstanding at about $3.7 trillion.

The danger is that when the next downturn comes, many corporations will be unable to service their debt.

Defaults will spread throughout the system like a deadly contagion, and the damage will be enormous.

This is from a report by Mariarosa Verde, Moody’s senior credit officer:

This extended period of benign credit conditions has helped many weak, highly leveraged companies to avoid default… These companies are poised to default when credit conditions eventually become more difficult… The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress eventually arrives.

If default rates are only 10% — a conservative assumption — this corporate debt fiasco will be at least six times larger than the subprime losses in 2007-08.

For now, it’s not clear which way things will break next. Volatility is back and markets are still in a precarious position.

But the stock market is ultimately going to collapse in the face of rising credit losses and tightening credit conditions. Once the tsunami hits, no one will be spared. When it does hit, many investors will be caught completely unprepared.

You don’t want to be heavily exposed to these markets. It’s far better to get out too early than too late. Once the market falls apart, it’ll be too late to act.

That’s why now is the time to buy gold, while it’s still cheap (even with its recent run-up).

When you need it most, once the crisis hits, it’ll cost a fortune. Preparation means 10% percent of your investable assets in gold (and possibly silver) and another 30% in cash.

That allocation will preserve wealth and provide dry powder for bottom-fishing in the crisis to come.

SIDEBAR:

A new survey from financial information website Bankrate.com found that everyday Americans have a less favorable view of the economy than experts do. All the experts rated the economy as being “excellent” or “good,” compared to just 59 percent of others. And 39 percent of everyday Americans said the economy was “not so good” or “poor.”

Bankrate surveyed around 1,000 people and nine economic experts for the study.

The survey also included a question about when the next recession would begin.  Approximately 40 percent of average hard working Americans felt that a recession had either already begun or would begin very soon, but none of the “experts” felt that way…

Everyday Americans also said they expect a recession to hit sooner than the experts predict. A fifth of Americans polled said they believe the recession has already begun, and 21 percent said they expected it to begin within six months or a year. However, all the experts said they don’t expect a recession to begin for either one to two years or more than two years.

 A different survey has found that 71 percent of all Americans say that they “are unprepared for another financial crisis”…

Meanwhile, 43% of Americans say they feel financially insecure and 71% are unprepared for another financial crisis, such as going bankrupt or losing their home, a survey of 24,070 adults released this week by market researcher YouGov found. Some 55% of those who feel unprepared say they’re not confident that they will be able to afford retirement; they’re more likely than those who feel financially secure to say the government should make sure everyone has health insurance.

 

RELATED RESOURCES

 

In modern days, economic collapse is one of the most likely disasters that people all over the world must contend with. Even in an economic stronghold such as the United States, the possibility of economic collapse looms large. In fact, many experts predict that the U.S. is due for an economic downturn, the severity of which is yet to be seen. But considering that the fundamental problems behind the last crash were never really fixed, it will probably be pretty bad.

 Aside from the financial consequences, though, there are plenty of other scary things that follow in the wake of an economic collapse. Below, we’ll cover some of these frightening possibilities in order to highlight why it is so important to be prepared.

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 Of course, the survival skills necessary to navigate a city during a disaster – whether it’s a major disaster such as a foreign attack or a personal disaster such as a robbery – are quite different from the skills many preppers may be accustomed to.

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For those who are preparing for tougher times, canned foods are invaluable. Of all the food storage methods, few are more convenient or long-lasting than canned food.

 If all you’ve ever done is browse the canned goods aisle of your supermarket, you may be surprised to learn just how much variety there is when it comes to canned foods. There is a lot more than just canned meat, veggies, and soups. All sorts of foods can be canned.

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Bruce, the “Poor Man”

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