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11 Signs That Time Is Quickly Running Out For The Global Financial System

Are we rapidly approaching a moment of reckoning for the global financial system?  August is likely to be a relatively slow month as most of Europe is on vacation, but after that we will be moving into a "danger zone" where just about anything could happen.  Historically, a financial crisis has been more likely to happen in the fall than during any other time, and this fall is shaping up to be a doozy.  Much of the focus of the financial world is on whether or not the euro is going to break up, but even if the authorities in Europe are able to keep the euro together we are still facing massive problems.  Countries such as Greece and Spain are already experiencing depression-like conditions, and much of the rest of the globe is sliding into recession.  Unemployment has already risen to record levels in some parts of Europe, major banks all over Europe are teetering on the brink of insolvency, and the flow of credit is freezing up all over the planet.  If things take a really bad turn, this crisis could become much worse than the financial crisis of 2008 very quickly.

All over the world people are starting to write about the possibility of a major economic crisis starting this fall.

For example, a recent article in the International Business Times discussed how some economists around the globe are fearing the worst for the coming months....

The consensus? The world economy has entered a final countdown with three months left, and investors should pencil in a collapse in either August or September.

Citing a theory he has been espousing since 2010 that predicts "a future lack of policy flexibility from the monetary and fiscal side," Jim Reid, a strategist at Deutsche Bank, wrote a note Tuesday that gloated "it feels like Europe has proved us right."

"The U.S. has the ability to disprove the universal nature of our theory," Reid wrote, but "if this U.S. cycle is of completely average length as seen using the last 158 years of history (33 cycles), then the next recession should start by the end of August."

The global financial system is so complex and there are so many thousands of moving parts that it is always difficult to put an exact date on anything.  In fact, history is littered with economists that have ended up looking rather foolish by putting a particular date on a prediction.

But without a doubt we are starting to see storm clouds gather for this fall.

The following are 11 more signs that time is quickly running out for the global financial system....

#1 A number of very important events regarding the financial future of Europe are going to happen in the month of September.  The following is from a recent Reuters article that detailed many of the key things that are currently slated to occur during that month....

In that month a German court makes a ruling that could neuter the new euro zone rescue fund, the anti-bailout Dutch vote in elections just as Greece tries to renegotiate its financial lifeline, and decisions need to be made on whether taxpayers suffer huge losses on state loans to Athens.

On top of that, the euro zone has to figure out how to help its next wobbling dominoes, Spain and Italy - or what do if one or both were to topple.

#2 Reuters is reporting that Spanish Economy Minister Luis de Guindos has suggested that Spain may need a 300 billion euro bailout.

#3 Spain continues to slide deeper into recession.  The Spanish economy contracted 0.4 percentduring the second quarter of 2012 after contracting 0.3 percent during the first quarter.

#4 The unemployment rate in Spain is now up to 24.6 percent.

#5 According to the Wall Street Journal, a new 30 billion euro hole has been discovered in the financial rescue plan for Greece.

#6 Morgan Stanley is projecting that the unemployment rate in Greece will exceed 25 percent in 2013.

#7 It is now being projected that the Greek economy will shrink by a total of 7 percent during 2012.

#8 German Finance Minister Wolfgang Schäuble says that the rest of Europe will not be making any more concessions for Greece.

#9 The UK economy has now plunged into a deep recession.  During the second quarter of 2012 alone, the UK economy contracted by 0.7 percent.

#10 The Dallas Fed index of general business activity fell dramatically to -13.2 in July.  This was a huge surprise and it is yet another indication that the U.S. economy is rapidly heading into a recession.

#11 As I have written about previously, a banking crisis is more likely to happen in the fall than at any other time during the year.  The global financial system will enter a "danger zone" starting in September, and none of us need to be reminded that the crashes of 1929, 1987 and 2008 all happened during the second half of the year.

So is there any hope on the horizon?

European leaders have tried short-term solution after short-term solution and none of them have worked.

Now countries all over Europe are sliding into depression and the authorities in Europe seem to be all out of answers.  The following is what one eurozone diplomat said recently....

"For two years we've been pumping up the life raft, taking decisions that fill it with just enough air to keep it afloat even though it has a leak," the diplomat said. "But now the leak has got so big that we can't pump air into the raft quickly enough to keep it afloat."

The boat is filling up with water faster than they can bail it out.

So what is the solution?

Well, some of the top names in economics on both sides of the Atlantic are urging authorities to keep the debt bubble pumped up by printing lots and lots more money.

For example, even though the U.S. government is already running trillion dollar deficits New York Times "economist" Paul Krugman is boldly proclaiming that now is the time to print and borrow even more money.  He is proud to be a Keynesian, and he says that "you should be a Keynesian, too."

Across the pond, the International Business Editor of the Telegraph, Ambrose Evans-Pritchard, is strongly urging the ECB to print more money....

Needless to say, I will be advocating 1933 monetary stimulus à l'outrance, or trillions of asset purchases through old fashioned open-market operations through the quantity of money effect (NOT INTEREST RATE 'CREDITISM') to avert deflation – and continue doing so until nominal GDP is restored to its trend line, at which point the stimulus can be withdrawn again.

But is more money and more debt really the solution to anything?

In the United States, M2 recent surpassed the 10 trillion dollar mark for the first time ever.  It has increased in size by more than 5 times over the past 30 years.

Unfortunately, our debt has been growing much faster than GDP has over that time period.

For example, during the second quarter of 2012 U.S. government debt grew by 274.3 billion dollarsbut U.S. GDP only grew by 117.6 billion dollars.

Our problem is not that there is not enough money floating around.

Our problem is that there is way, way too much debt.

But this is how things always go with fiat currencies.

There is always the temptation to print more.

That is one of the big reasons why every single fiat currency in history has eventually collapsed.

Printing more money will not solve our problems.  It will just cause our problems to take a different form.

In the end, nothing that the authorities can do will be able to avert the crisis that is coming.

A lot of people are starting to realize this, and that is one reason why we are seeing so much economic pessimism right now.

For example, according to a new Rasmussen poll only 14 percent of all Americans believe that children in America today will be "better off" than their parents.

That is an absolutely stunning figure, but it just shows us where we are at.

Our economy has been in decline for a long time, and now we are rapidly approaching another major downturn.

You better buckle up, because this downturn is not going to be pleasant at all.

Economic Collapse

Drought and wild fires destroy Russian harvest

Russia is currently in the grips of an extremely strong heat wave. City and town residents are suffocating from the sweltering heat. For example, it is about 30 degrees in Moscow with prospects of the thermometer going up in the next few days. The heat wave situation is aggravated by wild fires producing clods of poisonous smoke. The wood rich Siberian taiga near Krasnoyarsk is fighting 83 fires on the territory of 12.130 hectares. As for rural Russia, that only last year was the world’s third-biggest grain producer, it suffers colossal damages. It threats to destroy a significant part of the crops. If last year’s harvest amounted to 94 million tons, this year it is a predicted at 80 to 85 million. Given the situation, earlier in July the Agriculture Ministry had to revise its harvest predictions.

As Rossiyskaya Gazeta writes, the hardest hit are the important grain-producing areas including Kuban, Stavropol, Volgograd, Volga, Rostov-on-Don, Lipetsk, Penza, Ulyanovsk, Kurgan and Altai. Nevertheless, Arkady Zlochevsky, president of the Russian Grain Union thinks that “The risks are there, but then there is a chance to avoid them.” Zlochevksy added that there will be 85 million tons of crops and the size of the harvest would depend on the weather. With the leftover stocks from previous harvests, the export potential will then be about 18-20 million tons. Although this is less than last year, when the country exported more than 26 million tons, it is still better than 2010, when the droughts and wild fires in Russia ruined about a third of all the grain harvested and the country had to impose an embargo on grain exports. The area of Russia’s irrigated fields is about 2.5 million hectares, and Russia has 44 million hectares of land under spring crops this year. “The biggest losses are not caused by the weather, it is rather the failure to comply with production rules in bad weather,” said Zlochevsky.

On the other hand Oleg Sukhanov, head of the market analysis unit at the Institute for Agricultural Market Studies, thinks that Russia may gather in only 77 million tons of grain. And, Sukhanov said, “that is not the worst-case scenario.”

His forecast is worrisome as Russia’s annual domestic consumption amounts to 67 million to 72 million tons. As is expected this year Russia may consume up to 68.5 million tons of grain and so, considering the remaining stocks from previous years, Sukhanov’s institute colleagues are putting the Russian grain export potential this year at a mere 13.5 million tons.

If so, that would be all we will be able to sell to our traditional buyers of grain in the Middle East and North Africa, and some Southeast Asian countries that joined them last year. “But this is not a long-term trend. Next season, Russia might have a good crop and again become a leader among world grain exporters,” Sukhanov said.

Despite the poor forecast for this year, Russia has ambitious plans for increasing its grain exports. The new edition of the national program fordevelopment of agriculture for 2013-2020, adopted in early July, set a target of a 115-million-ton grain harvest by 2020, which should bring Russia within reach of the United States, the traditional leader on the global grain market.

The current Russian predicament begins to tell on the world prices. Although there is no acute grain shortage in the world, other major grain producers, including the United States, Ukraine, Kazakhstan and China, are experiencing some problems. Forecasts in these countries account for the current high grain prices, about $330 per ton of food wheat.Sukhanov believes global grain prices could rise by another 10 percent before the year is out.

However, our experts do not believe that this will make a big difference in the prices of bread, meat and other staples because the share of grain in the end product is small. For example, in Russia, grain accounts for only 23 percent of a loaf of white bread.So, as the saying in Russia went some 20 years ago, “the fight for the harvest is going on.”

Voice of Russia

Finland Heat record broken Monday

The temperature exceeded the 30-degree mark in Tohmajärvi, Lieksa and Juuka in North Karelia, close to the Russian border.

But the Finnish Meteorological Institute (FMI) says that a cooler weather front has already arrived in western Finland and will start moving eastwards soon, making the current heatwave quite short-lived.

More storms thunder in

Severe thunderstorms are expected to whip up very strong wind gusts on Monday, warns the FMI.

Winds may reach speeds of 25 metres per second in North Ostrobothnia and western Finland, and elsewhere in the country gusts of some 15 m/s are expected.

Additionally, heavy rainfall is forecast for various parts of Finland on Monday.

Thunderstorms left thousands without electricity in different parts of Finland on Sunday. Most of them had been fixed by Monday afternoon. At 1pm, some 200 Fortum customers were still without power. Elenia (formerly known as Vattenfall) had about 1,200 customers without service at that time.
Yle

Record high of 111 degrees for Little Rock

LITTLE ROCK, Ark. — Triple-digit heat intensified across Arkansas on Monday, setting records in at least two cities and increasing the danger for wildfires.

Temperatures exceeded 100 in some areas, and are expected to stick around for much of the week. Low humidity also is settling in, increasing the threat for wildfires.

The daytime high reached 111 degrees in Little Rock, which not only broke the date's record but marked the third-highest temperature ever recorded in the state's capital city. The previous record for July 30 was 108 degrees in 1986.

Little Rock reached 114 degrees last year on Aug. 3, the city's hottest day in 132 years of records. The city's second-highest temperature on record occurred July 31, 1986, when it hit 112 degrees.

Also Monday, a record was set in Jonesboro, where the mercury peaked at 104, a degree higher than the record set in 1986.

National Weather Service senior forecaster Joe Goudsward warned that little relief from the high temperatures is expected soon.

"There will be some scattered thunderstorms pop up in the heat of the day but as far as anything organized or widespread, it's not expected," Goudsward said.

An upper-level ridge of high pressure is parked over the region. It's expected to shift a bit to the west, but it may only shave five or six degrees off daytime highs, Goudsward said. After a brief cool-down, the ridge is forecast to rebuild, he said.

Arkansas' all-time high is 120 degrees, set in Ozark on Aug. 10, 1936.

Solar Storm Expected to Hit Earth Tuesday

A medium-size solar flare erupted from the sun this weekend, hurling a cloud of plasma and charged particles toward Earth on a cosmic path that is expected to deliver a glancing blow to our planet tomorrow (July 31), according to space weather forecasters.

The M6-class solar flare exploded from the sun on Saturday (July 28), unleashing a wave of plasma and charged particles, called a coronal mass ejection (CME), into space. The CME is expected to reach Earth tomorrow, and could deliver a glancing blow to Earth's magnetic field at around 11 a.m. EDT (1500 GMT), according to the website Spaceweather.com, which regularly monitors space weather events.

"This is a slow-moving CME," astronomer Tony Phillips wrote on Spaceweather.com. "The cloud's low speed (382 km/s estimated) combined with its glancing trajectory suggests a weak impact is in the offing. Nevertheless, polar geomagnetic storms are possible when the cloud arrives."

Space

Second India blackout in two days cuts power to 670 million

(Reuters) - Grids supplying electricity to half of India's 1.2 billion people collapsed on Tuesday, trapping coal miners, stranding train travelers and plunging hospitals into darkness in the second major blackout in as many days.

Stretching from Assam, near China, to the Himalayas and the northwestern deserts of Rajasthan, the outage was the worst to hit India in more than a decade and embarrassed the government, which has failed to build up enough power capacity to meet soaring demand.

"Even before we could figure out the reason for yesterday's failure, we had more grid failures today," said R. N. Nayak, chairman of the state-run Power Grid Corporation.

Prime Minister Manmohan Singh has vowed to fast-track stalled power and infrastructure projects as well as introduce free market reforms aimed at reviving India's flagging economy. But he has drawn fire for dragging his feet.

By the afternoon rush-hour, only about 40 percent of power was back up. Electricity had not been restored to all of the sweltering capital, New Delhi, and streets were clogged with commuters trying to get home.

"It's certainly shameful. Power is a very basic amenity and situations like these should not occur," said Unnayan Amitabh, 19, an intern with HSBC bank in New Delhi, as he was giving up on the underground train system and flagging down an auto-rickshaw to get home.

"They talk about big ticket reforms but can't get something as essential as power supply right."

Power Minister Sushilkumar Shinde blamed the system collapse on some states drawing more than their share of electricity from the over-burdened grid.

Asia's third-largest economy suffers a peak-hour power deficit of about 10 percent, dragging on economic growth.

"This is the second day that something like this has happened. I've given instructions that whoever overdraws power will be punished," said Shinde, hours before he was promoted to interior minister in a cabinet reshuffle.

More than a dozen states with a population of 670 million people were without power.

Two hundred miners were stranded in three deep coal shafts in the state of West Bengal when their electric elevators stopped working. Eastern Coalfields Limited official Niladri Roy said workers at the mines, one of which is 700 meters (3,000 feet) deep, were not in danger and were being taken out.

Train stations in Kolkata were swamped and traffic jammed the streets after government offices closed early in the dilapidated coastal city of 5 million people.

The power failed in some major city hospitals and office buildings had to fire up diesel generators.

By mid-evening, services had been restored on the New Delhi metro system.

"PUSHED INTO DARKNESS"

On Monday, India was forced to buy extra power from the tiny neighboring kingdom of Bhutan to help it recover from a blackout that hit more than 300,000 million people.

Indians took to social networking sites to ridicule the United Progressive Alliance (UPA) government, in part for promoting Shinde despite the power cuts.

Narendra Modi, an opposition leader and chief minister in Gujarat, a state that enjoys a surplus of power, was scornful.

"With poor economic management UPA has emptied pockets of common man; kept stomachs hungry with inflation & today pushed them into darkness!," he said on his Twitter account.

The country's southern and western grids were supplying power to help restore services, officials said.

The problem has been made worse by a weak monsoon in agricultural states such as wheat-belt Punjab and Uttar Pradesh in the Ganges plain, which has a larger population than Brazil.

With less rain to irrigate crops, more farmers resort to electric pumps to draw water from wells.

India's electricity distribution and transmission is mostly state run, with private companies operating in Delhi, Mumbai and Kolkata. Less than a quarter of generation is private nationwide.

More than half the country's electricity is generated by coal, with hydro power and nuclear also contributing.

Power shortages and a creaky road and rail network have weighed heavily on the country's efforts to industrialize. Grappling with the slowest economic growth in nine years, the government recently scaled back a target to pump $1 trillion into infrastructure over the next five years.

Major industries have their own power plants or diesel generators and are shielded from outages. But the inconsistent supply hits investment and disrupts small businesses.

High consumption of heavily subsidized diesel by farmers and businesses has fuelled a gaping fiscal deficit that the government has vowed to tackle to restore confidence in the economy.

But the poor monsoon means a subsidy cut is politically difficult.

On Tuesday, the central bank cut its economic growth outlook for the fiscal year that ends in March to 6.5 percent, from the 7.3 percent assumption made in April, putting its outlook closer to that of many private economists.

"This is going to have a substantial adverse impact on the overall economic activity. Power failure for two consecutive days hits sentiment very badly," said N. Bhanumurthy, a senior economist at National Institute of Public Finance and Policy.

Reuters