Economists Warning

Two articles/warnings about the economy over the next year. It might be wise to heed these warnings.

Economist Caution: Prepare For 'Massive Wealth Destruction'

Saturday, 21 Jul 2012 05:34 PM

By Christian Hill

Take immediate steps to protect your wealth . . . NOW!

That’s exactly what many well-respected economists, billionaires, and noted authors are telling you to do — experts such as Marc Faber, Peter Schiff, Donald Trump, and Robert Wiedemer. According to them, we are on the verge of another recession, and this one will be far worse than what we experienced during the last financial crisis.

Marc Faber, the noted Swiss economist and investor, has voiced his concerns for the U.S. economy numerous times during recent media appearances, stating, “I think somewhere down the line we will have a massive wealth destruction. I would say that well-to-do people may lose up to 50 percent of their total wealth.”

When he was asked what sort of odds he put on a global recession happening, the economist famous for his ominous predictions quickly answered . . . “100 percent.”

Faber points out that this bleak outlook stems directly from Federal Reserve Chairman Ben Bernanke’s policy decisions, and the continuous printing of new money, referred to as “quantitative easing” in the media.

Faber’s pessimism is matched by well-respected economist and investor Peter Schiff, the CEO of Euro Pacific Capital. Schiff remarks that the stock market collapse we experienced in 2008 “wasn’t the real crash. The real crash is coming.” 

Schiff didn’t stop there. Most alarming is his belief that daily life will get dramatically worse for U.S. citizens.

Read more: Economist Caution: Prepare For 'Massive Wealth Destruction' 

Could This Be a Trick to Drive Even 
More Investors to U.S. Treasuries?

Thursday, September 13th, 2012
By Michael Lombardi, MBA for Profit Confidential

The financial crisis of 2008-2009 crumbled the U.S. economy to a degree not seen since the great depression. Now another economic problem is emerging—a problem 46 times bigger than the gross domestic product (GDP) of the U.S. economy.

It’s the financial crisis involving derivatives markets.

Starting next year, to “prevent” another financial crisis, traders need to back up their derivatives by top-rated collateral such as U.S. Treasuries. (Source: Bloomberg, September 11, 2012.) The current value of the derivatives markets stands at about $648 trillion!

This collateral rule was the result of the Dodd-Frank Act, which was passed in the midst of the financial crisis of 2008. Companies like American International Group Inc (NYSE/AIG) did not have their derivatives backed up by enough capital; American International ended up needing a $182.3-billion bailout to protect itself from collapse.

It has been said that the worst financial crisis since the Great Depression was caused by derivatives backed by insufficient collateral. Hence, one would think raising the collateral requirement by which derivatives are backed should avert another financial crisis. It sounds like a great idea, in a perfect world. But it’s not the case in this current U.S. economy.

Two important points here:

The U.S. Treasury market is worth about $11.0 trillion. But the derivatives market is worth $648 trillion. The demand for U.S. Treasuries will surge next year, as derivative players rush to back their derivatives with U.S. Treasuries. Doesn’t this almost guarantee the yields on U.S. Treasuries will fall even lower?

Bank of America Corporation (NYSE/BAC) and JP Morgan & Chase Co (NYSE/JPM) have the biggest derivative components on their balance sheets. Together, they hold $140 trillion of derivatives instruments! If the collateral requirement to hold derivatives is increased, then banks will have to hoard more cash in the case their derivatives position goes against them.

But backing derivatives with liquid collateral causes a cascading effect—lending could be curtailed as cash requirements increase. But if we have no lending, we have no growth, and the lingering effects of the financial crisis continue.

As I have been writing, the U.S. economy is at a critical point. The derivative collateral issue is just going to be another red light. These regulations are being implemented at a time when banks are still struggling to fix their balance sheets and lending is soft. Sure, we do not want another financial crisis in our economy, so more regulation is important, but the U.S. economy is still battling the previous financial crisis.

Read more here: http://www.profitconfidential.com/debt-crisis/could-this-be-a-trick-to-drive-even-more-investors-to-u-s-treasuries/?subid=OUTBRAIN