Posts tagged loans
By Mac Slavo
Potent Propaganda: The College Debt Bubble Is Set to Explode (Micro Documentary)
This month President Obama issued a directive that will penalize “for-profit” trade schools because students are amassing huge levels of debt they can’t pay off. According to the President and the Department of Education these specialty training schools promise to train students and prepare them for a career in everything from computer design to personal training. But when graduates get out of school they often lack the skills necessary to land the high paying jobs they were promised, leaving many without the income to service their loans.
The proposed regulations would penalize career oriented programs that produce graduates without the training needed to find a job with a salary that will allow them to pay off their debt. Schools, for-profit or not, that don’t comply would lose access to the federal student aid programs.
“Today, too many of these programs fail to provide students with the training that they need at taxpayers’ expense and the cost to these students’ futures.”
What President Obama won’t tell you is that it’s not just trade schools that promise young and optimistic high school graduates a future full of big money and easy living. And though most universities claim they are non-profit pedagogic institutions whose goal is to serve and mold young minds for the future, the fact is that there is a ton of money to be made by everyone involved including teachers, administrators, banks and periphery industries that service colleges.
According to a new documentary from Crush the Street obscene debt levels are being amassed on all levels of secondary education – even if the college in question is not “for profit.”
If you have kids entering college, in college, or graduates living with you at home, the following documentary is one you’ll want to share – just so they know exactly how they’ve been brainwashed into believing that the road to success requires a degree. Moreover, it reveals the reasons for why college education costs are sky rocketing, as well as the end result of the trillion dollar bubble that is sure to pop in coming years.
A Must Watch For Anyone Entering Higher Education: The College Bubble
The official fiscal year 2010 default rate was 14.7% and we can only expect that to be higher for the following years. No one but the government would guarantee a loan for anyone to go to college, for any curriculum with little regards for the likelihood of the individual to repay the loan.
The government gladly invests taxpayer dollars into student grants and loans. This is what has been driving the increase in college tuition bringing it above and beyond the average student and family.
For teenagers the propaganda is so potent that high school students in many cases have blind optimism that they will land their dream career after college and have the income to easily pay off any loan balances occurred along the way.
Some graduates are left with over 100,000 in debt and can barely find any job, let alone the one they pictured themselves getting into four years ago.
For starters, we are now living in a new economy, much different from the one our parents and grandparents experienced after World War II. Many of America’s high paying jobs have been outsourced to foreign countries. Manufacturing has been shifted to slave-labor economies like China. The majority of jobs left in America are low-paying, minimum wage labor. So the competition for the few high paying jobs remaining is extremely fierce.
This is why a huge percentage of American adults – nearly 30% – are living with their parents, and that includes graduates who just got out of school with tens of thousands in debt.
The government interference that caused home prices to rise ahead of the 2008 financial crisis and saw more people buy homes than ever before, is the very same effect we’re seeing in college education.
We all remember how that ended up.
College tuition cannot rise indefinitely. Eventually something will cause the great college bubble to pop.
Outstanding student loan debt is over $1.2 trillion. This is nearly 50% higher than outstanding credit card debt.
The longer the status quo is kept, the bigger the bubble is going to get… and thus the larger the crash will be.
In the coming years student loan payments will get so high that it’ll be unmanageable… even for the students that get the dream job that they were told their degree would award them.
Massive defaults will occur and colleges will soon be worse off. Prices will need to be readjusted to maintain the maximum income when attendance levels crash. Professors will face pay cuts or layoffs, along with administration, maintenance, construction and anyone else working for or at a college or university.
As an example, take a high school graduate who wants to become a teacher. She’ll spend four years in school and take on around $80,000 of debt. When she gets out of school, she’ll make around $35,000 a year. At that rate it would literally take her two decades to pay off her loan. Others might not be so lucky and will end up shackled with debt for their entire life, or they’ll simply default. Consider a liberal arts major who, in essence, is being trained for a “career t”hat produces a service that the majority of Americans won’t have the money to pay for. How will this individual pay back tens of thousands of dollar in debt?
The simple answer? They won’t.
There are certainly jobs out there that require higher education. But even those industries, such as the medical field, are being gutted from within.
This is just another example of what happens when government gets involved in the free market. Overblown prices, life-long debt commitments, and a future of destitution is what college graduates can expect over coming decades.
What high schoolers don’t realize – and many will never be taught under Common Core’s curriculum – is that the key elements for success are, among other things, self-education, focus, adaptability, resilience, persistence and an optimistic attitude. You know, all of those things that made America great to begin with. A college degree is secondary.
Image credit: http://www.shtfplan.com
The Looting Of Ukraine Has Begun
According to a report in Kommersant-Ukraine, the finance ministry of Washington’s stooges in Kiev who are pretending to be a government has prepared an economic austerity plan that will cut Ukrainian pensions from $160 to $80 so that Western bankers who lent money to Ukraine can be repaid at the expense of Ukraine’s poor. http://www.kommersant.ua/doc/2424454 It is Greece all over again.
Before anything approaching stability and legitimacy has been obtained for the puppet government put in power by the Washington orchestrated coup against the legitimate, elected Ukraine government, the Western looters are already at work. Naive protesters who believed the propaganda that EU membership offered a better life are due to lose half of their pension by April. But this is only the beginning.
The corrupt Western media describes loans as “aid.” However, the 11 billion euros that the EU is offering Kiev is not aid. It is a loan. Moreover, it comes with many strings, including Kiev’s acceptance of an IMF austerity plan.
Remember now, gullible Ukrainians participated in the protests that were used to overthrow their elected government, because they believed the lies told to them by Washington-financed NGOs that once they joined the EU they would have streets paved with gold. Instead they are getting cuts in their pensions and an IMF austerity plan.
The austerity plan will cut social services, funds for education, layoff government workers, devalue the currency, thus raising the prices of imports which include Russian gas, thus electricity, and open Ukrainian assets to takeover by Western corporations.
Ukraine’s agriculture lands will pass into the hands of American agribusiness.
One part of the Washington/EU plan for Ukraine, or that part of Ukraine that doesn’t defect to Russia, has succeeded. What remains of the country will be thoroughly looted by the West.
The other part hasn’t worked as well. Washington’s Ukrainian stooges lost control of the protests to organized and armed ultra-nationalists. These groups, whose roots go back to those who fought for Hitler during World War 2, engaged in words and deeds that sent southern and eastern Ukraine clamoring to be returned to Russia where they resided prior to the 1950s when the Soviet communist party stuck them into Ukraine.
At this time of writing it looks like Crimea has seceded from Ukraine. Washington and its NATO puppets can do nothing but bluster and threaten sanctions. The White House Fool has demonstrated the impotence of the “US sole superpower” by issuing sanctions against unknown persons, whoever they are, responsible for returning Crimea to Russia, where it existed for about 200 years before, according to Solzhenitsyn, a drunk Khrushchev of Ukrainian ethnicity moved southern and eastern Russian provinces into Ukraine. Having observed the events in western Ukraine, those Russian provinces want to go back home where they belong, just as South Ossetia wanted nothing to do with Georgia.
Washington’s stooges in Kiev can do nothing about Crimea except bluster. Under the Russian-Ukraine agreement, Russia is permitted 25,000 troops in Crimea. The US/EU media’s deploring of a “Russian invasion of 16,000 troops” is either total ignorance or complicity in Washington’s lies. Obviously, the US/EU media is corrupt. Only a fool would rely on their reports. Any media that would believe anything Washington says after George W. Bush and Dick Cheney sent Secretary of State Colin Powell to the UN to peddle the regime’s lies about “Iraqi weapons of mass destruction,” which the weapons inspectors had told the White House did not exist, is clearly a collection of bought-and-paid for whores.
In the former Russian provinces of eastern Ukraine, Putin’s low-key approach to the strategic threat that Washington has brought to Russia has given Washington a chance to hold on to a major industrial complex that serves the Russian economy and military. The people themselves in eastern Ukraine are in the streets demanding separation from the unelected government that Washington’s coup has imposed in Kiev. Washington, realizing that its incompetence has lost Crimea, had its Kiev stooges appoint Ukrainian oligarchs, against whom the Maiden protests were partly directed, to governing positions in eastern Ukraine cities. These oligarchs have their own private militias in addition to the police and any Ukrainian military units that are still functioning. The leaders of the protesting Russians are being arrested and disappeared. Washington and its EU puppets, who proclaim their support for self-determination, are only for self-determination when it can be orchestrated in their favor. Therefore, Washington is busy at work suppressing self-determination in eastern Ukraine.
This is a dilemma for Putin. His low-key approach has allowed Washington to seize the initiative in eastern Ukraine. The oligarchs Taruta and Kolomoyskiy have been put in power in Donetsk and Dnipropetrovsk, and are carrying out arrests of Russians and committing unspeakable crimes, but you will never hear of it from the US presstitutes. Washington’s strategy is to arrest and deep-six the leaders of the secessionists so that there no authorities to request Putin’s intervention.
If Putin has drones, he has the option of taking out Taruta and Kolomoyskiy. If Putin lets Washington retain the Russian provinces of eastern Ukraine, he will have demonstrated a weakness that Washington will exploit. Washington will exploit the weakness to the point that Washington forces Putin to war.
The war will be nuclear.
Reprinted with permission from www.paulcraigroberts.org
Image credit: http://www.paulcraigroberts.org
About Dr. Paul Craig Roberts
Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.
REVEALED: IMF, Ukraine & the Profitability of Manufactured Revolutions
Whether the government of Ukraine asked for the International Monetary Fund (IMF) to assess their needs for money, or Christine Lagarde, acting director of the IMF simply felt it was a good sound investment, there are now talks of indebting this region to the technocrats.
Lagarde said: “We are ready to respond and, in the coming days, will send an IMF fact-finding team to Kiev to undertake a preliminary dialogue with the authorities. “This will enable the IMF to make its usual technical, independent assessment of the economic situation in Ukraine and, at the same time, begin to discuss with the authorities the policy reforms that could form the basis of a Fund-supported program.”
In essence, the IMF is determining if their investments in this country will yield a decent return.
As of now, the Ukrainian government owes $13 billion to banking institutions. Russia has frozen accounts for Kiev worth $15 billion; making the transition into democracy quite easy.
In a white paper , the IMF explained that inequality is fostering this nation’s growth as citizens watch the wealthy redistribute their money amongst themselves.
According to the IMF redistribution of wealthy is a “win-win situation” that can encourage “pro-growth effect” and ensure a “faster and more durable” economy.
The paper states: “There is surprisingly little evidence that increases in tax rates impede medium-to-long-run economic growth. We find that higher inequality seems to lead to lower growth. Redistribution, in contrast, has a tiny and statistically insignificant (slightly negative) effect.”
Gerry Rice, spokesperson for the IMF explained that members of the IMF will arrive in the Ukraine next week. While this process could take several months, the plan to infuse fiat financial assistance could be expedited with the help of the US government.
Should the US guarantee $1 billion of loans to the Ukraine, the IMF could be persuaded to become less guarded in their initial assessment of need.
Secretary of State John Kerry explained that the president has been mulling over a separate assistance package to add to the IMF’s loans.
Kerry said: “Personally, I don’t think it is enough for us to be heralding the advent of democracy and to applaud the courage and conviction of the people who brought about this transition and then just not do anything. I think that is unconscionable.”
Two years ago, the UN, the IMF and the World Bank (WB) met in Tokyo , to discuss the Middle East and their economies of which recent Arab Springs have paved the way for globalist influence in the region.
Kim Yong-Yim, president of the WB, remarked that these revolutions have allowed for the international community to refine their development of such areas.
In burgeoning nations, the WB and IMF have traditionally given loans to governments that would be impossible to repay.
In exchange, the sovereignty of those nations is compromised as the WB demands repayment in natural resources. The succession of multi-national corporations in those countries is evidence of the swindle the IMF and WB preformed along with the International Financing Institution (IFI) that forces a grave reduction of governmental spending with the initiation of austerity against the people of those nations.
The WB defines “civil society” as being transformed by what they refer to as perfect opportunities to stabilize the economy of a nation in terms of bringing them to the whims of the international community by way of unplayable loans within a volatile revolutionary setting.
At a meeting held in 2011, the World Bank postulated on how “international financial institutions [can] facilitated citizen empowerment” by way of manufactured uprisings.
Through the use of civilian armies protesting against their government, the WB sees grand schemes whereby they can manipulate the developing situation and implement public policies that suit their agenda by coercion.
As the IMF and WB continue to move under cover of an ignorant populace, their hand in the destabilization of nations goes unnoticed. In the countries they control through economic terrorism, it is abundantly clear how much influence they wield.
As fake revolutions continue to plague the Middle East and spread throughout the world, their ardent cry for “democracy” imbues the UN and other corporate entities to aid with seemingly friendly support of the transitions taking place.
In 2011, Canadian Prime Minister Stephen Harper asserted that international aid to post-revolutionary countries should be facilitated by the central banks in those countries and announced at a G8 summit that Canada would not be directly offering “financial assistance” to those countries implanted with Arab Springs.
It is believed by multi-stakeholders and investors that Arab Springs is the “only bastions against extremism in the Arab World.”
The WB is focusing on controlling private sector development once these nations are toppled by internal uprisings. Once in those places of power, the international community can assess how a nation is able to hide their wealth and use international mandate to retrieve assets in off-shore accounts or trustee corporations.
UN Secretary-General Ban Ki-moon has made Arab Springs his top priority and is committing the resources of the international community to moving these nations “toward democracy”.
Ban said that he encourages the younger generation to rise up against their governments and expressed disappointment at the Occupy Movement for not being as effective as other manufactured revolutions.
Documents in JPMorgan settlement reveal how every large bank in U.S. has committed mortgage fraud
Published by TheRealNews
Bill Black: Justice Dept.’s failure to understand pervasive schemes of fraud in financial industry obstructs meaningful prosecution of banks
Too Big To Fail Is Now Bigger Than Ever Before
The too big to fail banks are now much, much larger than they were the last time they caused so much trouble. The six largest banks in the United States have gotten 37 percent larger over the past five years. Meanwhile, 1,400 smaller banks have disappeared from the banking industry during that time. What this means is that the health of JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley is more critical to the U.S. economy than ever before. If they were “too big to fail” back in 2008, then now they must be “too colossal to collapse”. Without these banks, we do not have an economy. The six largest banks control 67 percent of all U.S. banking assets, and Bank of America accounted for about a third of all business loans by itself last year. Our entire economy is based on credit, and these giant banks are at the very core of our system of credit. If these banks were to collapse, a brutal economic depression would be guaranteed. Unfortunately, as you will see later in this article, these banks did not learn anything from 2008 and are being exceedingly reckless. They are counting on the rest of us bailing them out if something goes wrong, but that might not happen next time around.
Ever since the financial crisis of 2008, our politicians have been running around proclaiming that they will not rest until they have fixed “the too big to fail problem”, but instead of fixing it those banks have rapidly gotten even larger. Just check out the following figures which come from the Los Angeles Times…
Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That’s up to $2.1 trillion.
And the assets of JPMorgan Chase & Co., the nation’s biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.
We are witnessing a consolidation of the banking industry that is absolutely stunning. Hundreds of smaller banks have been swallowed up by these behemoths, and millions of Americans are finding that they have to deal with these banking giants whether they like it or not.
Even though all they do is move money around, these banks have become the core of our economic system, and they are growing at an astounding pace. The following numbers come from a recent CNN article…
-The assets of the six largest banks in the United States have grown by 37 percent over the past five years.
-The U.S. banking system has 14.4 trillion dollars in total assets. The six largest banks now account for 67 percent of those assets and the other 6,934 banks account for only 33 percent of those assets.
-Approximately 1,400 smaller banks have disappeared over the past five years.
-JPMorgan Chase is roughly the size of the entire British economy.
-The four largest banks have more than a million employees combined.
-The five largest banks account for 42 percent of all loans in the United States.
As I discussed above, without these giant banks there is no economy. We should have never, ever allowed this to happen, but now that it has happened it is imperative that the American people understand this. The power of these banks is absolutely overwhelming…
One third of all business loans this year were made by Bank of America. Wells Fargo funds nearly a quarter of all mortgage loans. And held in the vaults of JPMorgan Chase is $1.3 trillion, which is 12% of our collective cash, including the payrolls of many thousands of companies, or enough to buy 47,636,496,885 of these NFL branded toaster ovens. Thanks for your business!
A lot of people tend to focus on many of the other threats to our economy, but the number one potential threat that our economy is facing is the potential failure of the too big to fail banks. As we saw in 2008, when they start to fail things can get really bad really fast.
And as I have written about so many times, the number one threat to the too big to fail banks is the possibility of a derivatives crisis.
Former Goldman Sachs banker and best selling author Nomi Prins recently told Greg Hunter of USAWatchdog.com that the global economy “could implode and have serious ramifications on the financial systems starting with derivatives and working on outward.” You can watch the full video of that interview right here.
And Nomi Prins is exactly right. Just like we witnessed in 2008, a derivatives panic can spiral out of control very quickly. Our big banks should have learned a lesson from 2008 and should have greatly scaled back their reckless betting.
Unfortunately, that has not happened. In fact, according to the OCC’s latest quarterly report on bank trading and derivatives activities, the big banks have become even more reckless since the last time I reported on this. The following figures reflect the new information contained in the latest OCC report…
Total Assets: $1,948,150,000,000 (just over 1.9 trillion dollars)
Total Exposure To Derivatives: $70,287,894,000,000 (more than 70 trillion dollars)
Total Assets: $1,306,258,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $58,471,038,000,000 (more than 58 trillion dollars)
Bank Of America
Total Assets: $1,458,091,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,543,003,000,000 (more than 44 trillion dollars)
Total Assets: $113,743,000,000 (a bit more than 113 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $42,251,600,000,000 (more than 42 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 371 times greater than their total assets.
How in the world can anyone say that Goldman Sachs is not being incredibly reckless?
And remember, the overwhelming majority of these derivatives contracts are interest rate derivatives.
Wild swings in interest rates could set off this time bomb and send our entire financial system plunging into chaos.
After climbing rapidly for a couple of months, the yield on 10 year U.S. Treasury bonds has stabilized for the moment.
But if that changes and interest rates start going up dramatically again, that is going to be a huge problem for these too big to fail banks.
And I know that a lot of you don’t have much sympathy for the big banks, but remember, if they go down we go down too.
These banks have been unbelievably reckless, but when they fail, we will all pay the price.
Image credit: http://theeconomiccollapseblog.com
Posted by Robert Wenzel
Student Loans Now Have the Highest Delinquency Rate Among All Major Consumer Credit Asset Classes
File under: Getting kids hooked on debt and irresponsible, early in life.
There is about 1.2 trillion dollars worth of student loans outstanding with all but 15% of that owned or guaranteed by the government. The chart below shows the student loan amount held directly by the federal government. That balance is rising at about $110 bn per year, reports Sober Look.
The Most Important Number In The Entire U.S. Economy
There is one vitally important number that everyone needs to be watching right now, and it doesn’t have anything to do with unemployment, inflation or housing. If this number gets too high, it will collapse the entire U.S. financial system. The number that I am talking about is the yield on 10 year U.S. Treasuries. When that number goes up, long-term interest rates all across the financial system start increasing. When long-term interest rates rise, it becomes more expensive for the federal government to borrow money, it becomes more expensive for state and local governments to borrow money, existing bonds lose value and bond investors lose a lot of money, mortgage rates go up and monthly payments on new mortgages rise, and interest rates throughout the entire economy go up and this causes economic activity to slow down.
On top of everything else, there are more than 440 trillion dollars worth of interest rate derivatives sitting out there, and rapidly rising interest rates could cause that gigantic time bomb to go off and implode our entire financial system. We are living in the midst of the greatest debt bubble in the history of the world, and the only way that the game can continue is for interest rates to stay super low. Unfortunately, the yield on 10 year U.S. Treasuries has started to rise, and many experts are projecting that it is going to continue to rise.
On August 2nd of last year, the yield on 10 year U.S. Treasuries was just 1.48%, and our entire debt-based economy was basking in the glow of ultra-low interest rates. But now things are rapidly changing. On Wednesday, the yield on 10 year U.S. Treasuries hit 2.70% before falling back to 2.58% on “good news” from the Federal Reserve.
Historically speaking, rates are still super low, but what is alarming is that it looks like we hit a “bottom” last year and that interest rates are only going to go up from here. In fact, according to CNBC many experts believe that we will soon be pushing up toward the 3 percent mark…
Round numbers like 1,700 on the S&P 500 are well and good, but savvy traders have their minds on another integer: 2.75 percent
That was the high for the 10-year yield this year, and traders say yields are bound to go back to that level. The one overhanging question is how stocks will react when they see that number.
“If we start to push up to new highs on the 10-year yield so that’s the 2.75 level—I think you’d probably see a bit of anxiety creep back into the marketplace,” Bank of America Merrill Lynch’s head of global technical strategy, MacNeil Curry, told “Futures Now” on Tuesday.
And Curry sees yields getting back to that level in the short term, and then some. “In the next couple of weeks to two months or so I think we’ve got a push coming up to the 2.85, 2.95 zone,” he said.
This rise in interest rates has been expected for a very long time – it is just that nobody knew exactly when it would happen. Now that it has begun, nobody is quite sure how high interest rates will eventually go. For some very interesting technical analysis, I encourage everyone to check out an article by Peter Brandt that you can find right here.
And all of this is very bad news for stocks. The chart below was created by Chartist Friend from Pittsburgh, and it shows that stock prices have generally risen as the yield on 10 year U.S. Treasuries has steadily declined over the past 30 years…
When interest rates go down, that spurs economic activity, and that is good for stock prices.
So when interest rates start going up rapidly, that is not a good thing for the stock market at all.
The Federal Reserve has tried to keep long-term interest rates down by wildly printing money and buying bonds, and even the suggestion that the Fed may eventually “taper” quantitative easing caused the yield on 10 year U.S. Treasuries to absolutely soar a few weeks ago.
So the Fed has backed off on the “taper” talk for now, but what happens if the yield on 10 year U.S. Treasuries continues to rise even with the wild money printing that the Fed has been doing?
At that point, the Fed would begin to totally lose control over the situation. And if that happens, Bill Fleckenstein told King World News the other day that he believes that we could see the stock market suddenly plunge by 25 percent…
Let’s say Ben (Bernanke) comes out tomorrow and says, ‘We are not going to taper.’ But let’s just say the bond market trades down anyway, and the next thing you know we go through the recent highs and a month from now the 10-Year is at 3%. And people start to realize they are not even tapering and the bond market is backed up….
They will say, ‘Why is this happening?’ Then they may realize the bond market is discounting the inflation we already have.
At some point the bond markets are going to say, ‘We are not comfortable with these policies.’ Obviously you can’t print money forever or no emerging country would ever have gone broke. So the bond market starts to back up and the economy gets worse than it is now because rates are rising. So the Fed says, ‘We can’t have this,’ and they decide to print more (money) and the bond market backs up (even more).
All of the sudden it becomes clear that money printing not only isn’t the solution, but it’s the problem. Well, with rates going from where they are to 3%+ on the 10-Year, one of these days the S&P futures are going to get destroyed. And if the computers ever get loose on the downside the market could break 25% in three days.
And as I have written about previously, we have seen a huge spike in margin debt in recent months, and this could make it even easier for a stock market collapse to happen. A recent note from Deutsche Bank explained precisely why margin debt is so dangerous…
Margin debt can be described as a tool used by stock speculators to borrow money from brokerages to buy more stock than they could otherwise afford on their own. These loans are collateralized by stock holdings, so when the market goes south, investors are either required to inject more cash/assets or become forced to sell immediately to pay off their loans – sometimes leading to mass pullouts or crashes.
But of much greater concern than a stock market crash is the 441 trillion dollar interest rate derivatives bubble that could implode if interest rates continue to rise rapidly.
Deutsche Bank is the largest bank in Europe, and at this point they have 55.6 trillion euros of total exposure to derivatives.
But the GDP of the entire nation of Germany is only about 2.7 trillion euros for a whole year.
We are facing a similar situation in the United States. Our GDP for 2013 will be somewhere between 15 and 16 trillion dollars, but many of our big banks have exposure to derivatives that absolutely dwarfs our GDP. The following numbers come from one of my previous articles entitled “The Coming Derivatives Panic That Will Destroy Global Financial Markets“…
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.
And remember, the biggest chunk of those derivatives contracts is made up of interest rate derivatives.
Just imagine what would happen if a life insurance company wrote millions upon millions of life insurance contracts and then everyone suddenly died.
What would happen to that life insurance company?
It would go completely broke of course.
Well, that is what our major banks are facing today.
They have written trillions upon trillions of dollars worth of interest rate derivatives contracts, and they are betting that interest rates will not go up rapidly.
But what if they do?
And the truth is that interest rates have a whole lot of room to go up. The chart below shows how the yield on 10 year U.S. Treasuries has moved over the past couple of decades…
As you can see, the yield on 10 year U.S. Treasuries was hovering around the 6 percent mark back in the year 2000.
Back in 1990, the yield on 10 year U.S. Treasuries hovered between 8 and 9 percent.
If we return to “normal” levels, our financial system will implode. There is no way that our debt-addicted system would be able to handle it.
So watch the yield on 10 year U.S. Treasuries very carefully. It is the most important number in the entire U.S. economy.
By Don Pittis, CBC News
Detroit bankruptcy: Is it a warning sign of things to come?
Detroit’s financial meltdown has lessons for Canada and the rest of the global economy, Don Pittis writes
What if Detroit isn’t a blip? What if, instead, the city’s decision to enter bankruptcy proceedings is a sign of things to come?
Crazy talk? Maybe. But that was the prediction in a recent book by Wall Street financial analyst Meredith Whitney, best known for being one of the very few mainstream analysts to foresee the 2008 banking meltdown.
Interestingly, she also predicted this week’s Detroit bankruptcy.
That may seem less impressive now that it has happened. On the other hand, the screams of outrage from lenders who are being offered 10 cents on the dollar for their billions in bonds by Detroit show that it wasn’t obvious to them.
“I wish there had been a lot more outrage over the past 10, 20 years,” said Kevyn Orr, the bankruptcy expert charged with cleaning up Detroit’s accumulated financial mess, at a news conference Friday.
- Read the latest on Detroit’s financial situation
- Detroit’s crumbling dream fuels art scene
- See photos of decaying Detroit
- Debt-laden places like Detroit offer lessons for Canadian policymakers, Don Pittis wrote in April
The fact is, long after Detroit’s decline had become obvious, the city’s government kept borrowing and lenders kept lending.
Some of the municipal debt against the future was hidden in the city’s own books in the form of off-balance-sheet pension responsibilities. Other borrowing was obvious to everyone, in the form of bonds secured — at least notionally — by Detroit’s future tax revenue.
The whole house of cards teetered on a fiction that the city would return to its former prosperity. But somewhere between 1960, when Detroit had the highest income per person in the United States, and now, the city fell into a vicious circle of decline.
As good jobs left, so did educated people. Nearly half the population is now functionally illiterate. And while loans and liabilities were accumulated when the city had nearly 2 million people, now 700,000 bear all the responsibility for its debts.
Police and fire services are abysmal. Parks are closed. The murder rate is surging. Many bondholders assumed the city would simply continue to raise taxes to cover the interest payments. But as Orr said after the bankruptcy filing, there is just no way he can raise taxes any further. If he did, more and more taxpayers would simply pull up stakes and go somewhere else.
According to Orr, this is a disaster you could have seen coming years ago. Sure, the city was irresponsible in its borrowing — but just as in the sub-prime loan collapse, it is the responsibility of lenders to make sure they will get paid. It’s as if the bondholders who lent the cash hadn’t seriously considered where the money would come from to repay their loans.
Which is exactly Meredith Whitney’s point. In her book Fate of the States: The New Geography of American Prosperity she says the Detroit crisis is far from unique. “Awash in new tax revenues, cities and states borrowed and spent as if the good times would never end. Unfortunately, they did,” Whitney says in the book written well before the current bankruptcy filing.
She says that in the wake of the U.S. property meltdown of the past few years, the cities and states that found themselves dangerously in hock were also the ones that had hidden pension debt, just like Detroit.
She says lenders have been poor at taking that into account. “State and local governments have underfunded — even non-funded — their pension funds for years now, and they can’t seem to break the habit,” Whitney writes. “In New Jersey, actual debt is at least four times greater than bonds outstanding.”
Part of Whitney’s analysis is especially interesting to Canada. Looking at the American experience, she says that the accumulation of debt in places that were formerly prosperous is contributing to a population shift to areas like the Midwest and the Dakotas, the former “flyover” states.
North of the border, we are seeing something similar as the old industrial areas of Canada struggle to deal with debt while the prairie provinces boom. In some ways Detroit is an analogy and a warning to the rest of the global economy.
Instead of taking our knocks during the bad times, governments borrowed and central banks created money to help us through, assuming that good times would soon return. If the world bounces back and returns to growth, if the tax base resumes its growth, all will be well.
That didn’t happen in Detroit. It may not happen in Greece and Portugal. As she makes very clear, while Whitney is not predicting widespread defaults, she warns that Detroit is only one of the governments that won’t be able to make their payments. In the wake of this week’s events, lenders who were skeptical of her thesis are likely to scoff a little less.
Detroit’s problems are far from over. Bankruptcy is no picnic, and the city faces at least 15 months of court battles. Provisions of Chapter 9, the bankruptcy rule for cities, have never been used for a collapse of this magnitude.
Compared to the day he took the job, Orr looks haggard. But by taking its knocks now, going through the painful process of bankruptcy draws a line under Detroit’s problems, just as it did for Chrysler and General Motors when they filed for bankruptcy almost exactly four years ago.
As Michigan governor Rick Snyder said at Friday morning’s press conference, this is a chance for Detroit to carve out a new future: “Now is our opportunity to end 60 years of decline.”
Copyright © CBC 2013
Republished with permission
41 IMF Bailouts And Counting – How Long Before The Entire System Collapses?
Broke nations are bailing out other broke nations with borrowed money. Round and round we go – where we stop nobody knows. As of April, 41 different countries had active financial “arrangements” with the IMF. Sometimes they are called “bailouts” and sometimes they are called other things, but in every single case they involve loans. And most of the time, these loans come with very stringent conditions. It is a form of “global governance” that most people don’t even know about.
For decades, the IMF has been able to use money as a way to force developing nations to do what it wants them to do. But up until fairly recently, this had mostly only been done with poor nations. But now an increasing number of wealthy nations are turning to the IMF for help. We have already seen Greece, Portugal, Ireland and Cyprus receive bailouts which were partly funded by the IMF, Spain has received a bailout for its banking sector, and as I noted yesterday, it is being projected that Italy will need a major bailout within six months. How long can this go on before the entire system collapses?
Well, that would depend on how much money the lender has.
And so where does the IMF get their money?
The IMF gets their money from a bunch of nations that are absolutely drowning in debt themselves.
The IMF is funded by “wealthy” nations that dominate the global economy. The following is how Wikipedia describes the IMF’s quota system…
The IMF’s quota system was created to raise funds for loans. Each IMF member country is assigned a quota, or contribution, that reflects the country’s relative size in the global economy. Each member’s quota also determines its relative voting power. Thus, financial contributions from member governments are linked to voting power in the organization.
These are the five largest contributors to IMF funding…
United States – 16.75%
Japan – 6.23%
Germany – 5.81%
France – 4.29%
UK – 4.29%
But those countries are in trouble themselves. The U.S. has a debt to GDP ratio of over 100%. Japan has a debt to GDP ratio of over 200%.
The truth is that these countries are funding the IMF with borrowed money.
So what happens when the contributors run out of money and can’t contribute anymore?
All over the globe, an increasing number of countries are reaching out to the IMF for help. For example, on Thursday we learned that Pakistan is getting a new bailout from the IMF…
Pakistan and the International Monetary Fund have reached an initial agreement on a bailout of at least $5.3 billion.
Pakistani Finance Minister Muhammad Ishaq Dar and IMF mission chief Jeffrey Franks announced the agreement at a press conference Thursday.
And the new government in Egypt is hoping that the revolution that just occurred will not stop the flow of IMF funds…
Graduate student borrowers are defaulting on almost US$1 billion in federal loans that were given out to the poor. US colleges such as Yale, Penn State and George Washington are coming after them in the courts, suing for nonpayment.
All three colleges have pursued lawsuits against students who defaulted on their Perkins loans. The exact number of lawsuits is not known, but just last year alone the University of Pennsylvania filed at least a dozen lawsuits over the Federal Perkins Loan, Bloomberg reported.
Colleges are suing to collect unpaid Perkins Loans, given out by individual colleges to students who demonstrate extreme financial hardship.
Colleges depend on repayment of money to finance the new Perkins loans and so when graduates fail to pay back the borrowed sum, the current students are put at risk of not receiving new loans.
Between June 2010 and 2011 students defaulted on $964 million in Perkins loans, 20 per cent more than five years ago, Bloomberg reports.
The result is that the colleges go after the students in courts to collect the money.
“If you borrow to go to school, it may not be just the government that ends up coming after you if you can’t pay,” attorney Deanne Loonin told Bloomberg. “We offer credit very easily.” If the student doesn’t benefit financially from the education, “the government or the school comes after them very aggressively.”
Borrowers with multiple debts often put aside paying back the Perkins loans because it has a lower interest rate than other private loans.
After graduating with a Perkins loan, students get a nine-month grace period and a 5 per cent per annum interest rate afterwards.
Perkins is given out to those from low-income families and “they may have the least ability to pay it back,” Associate Director of Student Financial Support for the University of California System Nancy Coolidge told Bloomberg.
As the cost of higher education continues to soar, more and more students are forced to take out loans, which increased US education debt to US$1 trillion.
The average size of student loan debt has also almost doubled from US$17,233 in 2005 to US$27,253 in 2012, according to a study released by FICO Labs.
The increased amount of debt is connected to the increased number of defaults on loans, Daily Free Press quotes the study as saying.
In addition, a poor economy and high unemployment make it very difficult for recent graduates to repay their loans.
Around 5.9 million people nationwide have fallen at least 12 months behind in their payments.