Economist John Williams, above, says that the Fed is still dealing with the fallout of the 2008 financial
meltdown. Williams says, “They are still fighting the instabilities of 2008
that has not played itself out. When it does, they are going to be flooding the
system with liquidity. It’s either that or they let the system fail. They
decided in 2008 not to let the system fail. As they flood the system with
liquidity, you will see weakness in the dollar. You will see a return of
inflation domestically. You will see all sorts of other factors rallying such
as traditional inflation hedges of gold and silver. If the dollar takes a
significant hit, which I expect it will, that also will put upside pressure on
oil prices. They did virtually nothing and did not address the things that led
to the panic . . . now the economy is turning down anew.” Join Greg Hunter as he goes one on one with
economist John Williams, founder of ShadowStats.com.
Greg Mannarino states the SITUATION is CRITICAL; The Stock Market is Melting down and The Worst Is Yet To Come. Watch the video below.
https://www.youtube.com/watch?v=ff5YCr9ba_g
Last time around it was subprime mortgages, but this time it is oil that
is playing a starring role in a global financial crisis.
Since the start of 2015, 42 North American oil companies have filed for
bankruptcy, 130,000 good paying energy jobs have been lost in the United
States, and at this point 50 percent of all energy junk bonds are
"distressed" according to Standard & Poors.
As you will see below, some of the big banks have a tremendous amount of
loan exposure to the energy industry, and now they are bracing for big losses.
And the longer the price of oil stays this low, the worse the carnage is
going to get.
Today, the price of oil has been hovering around 29 dollars a barrel, and
over the past 18 months the price of oil has fallen by more than 70 percent.
This is something that has many U.S. consumers very excited.
The average price of a gallon of gasoline nationally is just $1.89 at the
moment, and on Monday it was selling for as low as 46 cents a gallon at one
station in Michigan.
But this oil crash is nothing to cheer about as far as the big banks are
concerned. During the boom years, those banks gave out billions upon
billions of dollars in loans to fund exceedingly expensive drilling projects
all over the world.
Now those firms are dropping like flies, and the big banks could
potentially be facing absolutely catastrophic losses. The following
examples come from CNN&
For instance, Wells Fargo (WFC) is sitting on more than $17 billion in
loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves
to cover losses because of the continued deterioration within the energy
sector.
JPMorgan Chase (JPM) is setting aside an extra $124 million to cover
potential losses in its oil and gas loans. It warned that figure could rise to
$750 million if oil prices unexpectedly stay at their current $30 level for the
next 18 months.
Citigroup is another bank that also has a tremendous amount of
exposure&
Citigroup (C) built up loan loss reserves in the energy space by $300
million. The bank said the move reflects its view that oil prices are
likely to remain low for a longer period of time.
If oil stays around $30 a barrel, Citi is bracing for about $600 million
of energy credit losses in the first half of 2016. Citi said that figure could
double to $1.2 billion if oil dropped to $25 a barrel and stayed there.
For the moment, these big banks are telling the public that the damage can
be contained.
But didnt they tell us the same thing about subprime mortgages in 2008?
We are already seeing bank stocks start to slide precipitously. People are
beginning to realize that these banks are dangerously exposed to a lot of
really bad deals.
If the price of oil were to shoot back up above 50 dollars in very short
order, the damage would probably be manageable. Unfortunately, that does
not appear likely to happen. In fact, now that sanctions have been lifted
on Iran, the Iranians are planning to flood the world with massive amounts of
oil that they have been storing in tankers at sea&
Iran has been carefully planning for its return from the economic penalty
box by hoarding tons of oil in tankers at sea.
Now that the U.S. and European Union have lifted some sanctions on Iran,
the OPEC country can begin selling its massive stockpile of oil.
The sale of this seaborne oil will allow Iran to get an immediate
financial boost before it ramps up production. The onslaught of Iranian oil is
coming at a terrible time for the global oil markets, which are already
drowning in an epic supply glut.
Just the other day, I explained that some of the biggest banks in the
world are now projecting that the price of oil could soon fall much, much
lower.
Morgan Stanley says that it could go as low as 20 dollars a barrel, the
Royal Bank of Scotland says that it could go as low as 16 dollars a barrel, and
Standard Chartered says that it could go as low as 10 dollars a barrel.
But the truth is that the price of oil does not need to go down one penny
more to have a catastrophic impact on global financial markets. If it
just stays right here, we will see an endless parade of layoffs, energy company
bankruptcies and debt defaults. Without any change, junk bonds will
continue to crash and financial institutions will continue to go down like
dominoes.
We are already experiencing a major disaster. Things are already so
bad that some forms of low quality crude oil are literally selling for next to
nothing. The following comes from Bloomberg...
Oil is so plentiful and cheap in the U.S. that at least one buyer says it
would pay almost nothing to take a certain type of low-quality crude.
Flint Hills Resources LLC, the refining arm of billionaire brothers
Charles and David Kochs industrial empire, said it offered to pay $1.50 a
barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to
a corrected list of prices posted on its website Monday. It had previously
posted a price of -$0.50. The crude is down from $13.50 a barrel a year ago and
$47.60 in January 2014.
While the near-zero price is due to the lack of pipeline capacity for a
particular variety of ultra low quality crude, it underscores how dire things
are in the U.S. oil patch.
A chart that I saw posted on Zero Hedge earlier today can help put all of
this into perspective. Whenever the price of oil falls really low
relative to the price of gold, there is a major global crisis. Right now
an ounce of gold will purchase more oil than ever before, and many believe that
this indicates that a new great crisis is upon us...
The number of barrels of oil that a single ounce of gold can buy has never,
ever been higher.
All over the planet, big banks are absolutely teeming with bad loans.
And to be honest, the big banks in the U.S. are probably in better shape
than some of the major banks in Europe and Asia. But once the dominoes
start to fall, very few financial institutions are going to escape unscathed.
In the coming days I would expect to see more headlines like we just got
out of Italy. Apparently, Italian banks are nearing full meltdown mode,
and short selling has been temporarily banned. To me, it appears that we
are just inches away from full-blown financial panic in Europe.
However, just like with the last financial crisis, you never quite know
where the next "explosion" is going to happen next.
But one thing is for sure the financial crisis that began during the
second half of 2015 is raging out of control, and the pain that we have seen so
far is just the beginning.
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