For many decades, our economy has been debt dependent and this has created the biggest bubble in history. Stock market, education, banking and housing are all big bubbles that have been inflated for many years. However, these bubbles in the American economy have just begun bursting and this global panic is the pin that is popping the bubbles.
The Federal Reserve has created an economy where we have the biggest bubble in history and the current economic crisis is just the beginning. More air will come out of the bubble and a lot of damage will be done to our bloated economy.
The current move by the Trump’s administration to send cash to all Americans will be disastrous to the economy. This is like dropping money from a helicopter. It doesn’t help but instead this will cause extremely high levels of inflation and prices for basic products will just skyrocket in a short time. Pumping more money to the economy does not add any value; we need real product not just paper.
The stock market crash has already begun and economists are predicting that there will be a 40 percent collapse from the all time highs. We are expecting the market to crash further and in the process trillions of dollars will be lost from the stock market. At the same time, the bond market is also headed to the same direction as the stock market. In the last 5 weeks, more than $25 trillion of ‘paper’ wealth has been lost from the markets and this has wiped the gains we have had for the last 3 years.
The US government has begun a bailout cascade and right now everyone is being bailed out. Airlines, hotels and manufacturers are all being bailed out. This economic crisis is so to a point where even individual workers have to be bailed out. The question is who is going to pay for all this. Everyone is thinking that this is government’s money, but the US government gets money from the US citizens. At the end of the day, American taxpayers will have to pay for this. At the same time, the Federal Reserve might be prompted to print more money. We will have a lot of cash chasing only a few products and this will make the prices double or even quadruple in within a few months. The government is advocating for destructive monetary policies that have destroyed other nations like Venezuela. It looks as if a big economic storm is finally here with us and it will take years for the economy to recover. While the United States is busy dishing out ‘helicopter’ money and more bailouts, the US sovereign risk is starting to get weird.
At the same time, some of the biggest banks in the world are having troubles with their credit risk which has begun exploding in a fashion that is similar to that of Lehman crisis. Despite continuous pumping of liquidity from the Federal Reserve, financial conditions are tightening at a historic rate. These problems in the financial sector might end up being the most dramatic collapse of the banking sector.
The stock market is going through the worst period in history. This type of market selloff was last seen during the great depression to a point where the US government has to step in and take an equity stake is some of the companies. President trump has condemned stock buybacks by some US companies even as the stock market continues plummeting. The stock market is a big mess right now and saying that the market is falling like a stone will be a big understatement. Just a few days ago, we had the biggest Dow collapse in history while the S&P 500 has also hit historic lows. We have the biggest variance shock in history and this crash has turned out to be the fastest rate at which a bull market has turned to a bear market. In less than a month, the market has fallen from all time highs and the stock market has plunged more than 20 percent.
Right now the white house is desperately trying to help the collapsing economy. Experts are predicting that this crisis will cost the US economy more than $4 trillion and this will lead to a roughly 5 percent drop in the united states GDP. Worldwide, there will be about $12 trillion in corporate loses because of this panic. The airlines and hotel industry are the hardest hit and they are reporting catastrophic losses. The airlines sector will lose $820 billion while the hotels and restaurants are expected to lose up to $225 billion. The lockdown across the nation has ravaged many America corporations and the treasury secretary Steven Mnuchin is accepting that we can have depression era unemployment levels where more than 20 percent of Americans might lose their jobs in the next few months. Right now many companies are making layoffs and other companies like American Airlines and Delta Airlines have already instituted hiring freezes because of this disruption in their operations.
Jobless claims are hitting record highs because hundreds of people are losing their jobs every day. What is happening with the US economy now has not been seen for many decades and what we have is a serious economic crisis that can easily end up being an economic depressio0n like what we had in 1929. If the economic condition does not change now, many people will go broke and hundreds of companies will have to go bankrupt in the next 2-4 months. Wall Street is already a bloodbath as the stock market crashes and soon this will extend to the banking sector.
We are at a point where there is a need for debt restructuring and monetization. The economy now looks the same way it was during the great depression. The government might end up printing more money to try and boost the economy and in the near future, we might see more quantitative easing. This Increased printing of money by the Federal Reserve will usher in a new wave of dollar devaluation and the dollar might end up shedding some of it value.
In the middle of this economic meltdown, the banking sector is in the middle of everything. In fact the banking industry is more troubled even more than any other part of the economy. People are underestimating the effect of this economic crisis to the banking industry. The stock market might continue plummeting and this is already a big hit to the economy. However, the biggest problem lies within the banking industry. We owe the banks more than $250 trillion in terms of global debts like mortgages, business loans, credit card debt and government debt. This is where the biggest problem lies because the current economic crisis, millions of people will lose their jobs. This means that they will not have cash to pay their debts and this will trigger a tsunami of loan defaults from individuals, businesses and even governments. This will be the biggest collapse in the banking sector in history.
In the middle of these economic troubles, we have historic decline in oil prices and this means that many oil companies will soon go out of business.
Millions of retail businesses are already struggling and it is just a matter of time before they go bankrupt especially those that have been temporarily shut down because of the public health policies. Cumulatively, all these businesses have trillions of dollars in debt and if they go out of business, their defaults will be crushing to the whole banking sector.
On the same note, our banks are already super leveraged because the worldwide bank capital is only $10 trillion. T the same time, we have a $250 trillion global debt. This means that we have a 1:25 leverage. This is cancerous to the whole global banking sectors because incase this economic crisis leads to a 4 percent default, it means that most banks will go bankrupt within a very short period of time.
When we consider the trillions the banks have in derivatives, it is very clear that a big disaster is ahead of us. We have a full-blown banking crisis because our banks are bloated with debt just like our economy. Many banks are in already in trouble and the Deutsche bank is already at a tipping point. This bank is at the verge of a collapse. All the way from last year, they have been cutting down on the number of their workers. This is just one example of many troubled banks in Europe. For now these banks can use their accounting tricks to hide their risks but they will not survive for long. We have a serious economic meltdown that will hit the banking industry in a big way and many banks will not survive.
The economic crisis we are experiencing right now will culminate to historic levels of default within a matter of months if this trend continues. When compared to what is coming, the 2008 financial crisis will look like nothing.