10 Reasons the Next Financial Crisis Will Be Worse than the Last
Markets are far more volatile now in the wake of Brexit and Trump's election.
Against all odds, the U.S. has elected Donald Trump as its new president and no one can predict how the
next four years will go. As a commander in chief, Trump now has the power to declare a nuclear war and
nobody can legally stop him. Britain has left the EU and other European countries are planning to follow
their example. No matter where you are located in the western world, uncertainty is in the air like never before.
The U.S. Government has its Eye on Retirement Accounts. In 2010 Portugal seized retirement
account assets to help plug holes with government deficits and debt. Ireland and France did the same in 2011,
as did Poland in 2013. The U.S. government has been watching. Since 2011, Treasury has taken money from
government workers’ pension funds on four separate occasions to cover deficits in federal spending. Investing
billionaire legend Jim Rogers believes that private accounts will be the next ones the government raids.
Top 5 US Banks Now Larger Than Before the Crisis. You learned about the five largest banks in
the U.S. and their systemic importance as the unfolding financial crisis threatened to collapse them.
Legislators and regulators promised they would address this issue once the crisis was contained. Over five
years after the crisis ended, the five biggest banks are even bigger and more critical to the system
than before the crisis began. The government made the problem worse when it forced some of these
so called “too big to fail” banks to absorb the failing ones. Any of these banking behemoths failing now would
be absolutely catastrophic.
Danger from Derivatives Threatens the Banks More Now than in 2007/2008. The derivatives that
crashed the banks back in 2008 did not disappear as regulators promised. Today the derivatives exposure of the
five biggest American banks is a whopping 45% greater than before the economic collapse of 2008. The
derivative bubble is over $273 trillion now versus the $187 trillion of 2008.
U.S. Interest Rates are Already at Abnormal Lows so the Fed has Little Room to Cut Rates.
Even after raising interest rates once last year, the Federal funds rate is still in the range of ¼ to ½
percent. Consider that before the crisis erupted in August of 2007, the Federal funds interest rates sat at
5.25%! In the next crisis, the Fed will have less than half a percentage point total it can reduce rates to
stimulate the economy.
American Banks Are Not the Safest Place for Your Money. Global Finance magazine puts out a
yearly list of the top 50 safest global banks. Only 5 of those are U.S. based. The top spot an American bank
commands is only #39.
The Fed Balance Sheet is Still Expanded from the Financial Crisis of 2008. The Fed still has
nearly $1.8 trillion in mortgage backed securities on its balance sheet from the 2008 financial crisis. This
is more than double the less than $1 trillion it held before the crisis began. When mortgage backed securities
go bad again, the Federal Reserve has a lot less maneuverability to absorb bad assets than before.
The FDIC Admits it Lacks Reserves to Cover Another Banking Crisis. The latest FDIC’s annual
report shows that they will not have sufficient reserves to adequately insure the nation’s banking deposits
for minimally another five years. This stunning revelation admits that they can only cover 1.01% of U.S. bank
held deposits, or $1 out of every $100 of your bank account deposits.
Long Term Unemployment Is Still Higher than Before the Great Recession. Unemployment was 4.4%
in early 2007 before the last crisis began. While the unemployment rate has finally reached the 4.7% levels
seen as the financial crisis began to ravage the U.S. economy, the long term unemployment remains high and the
employment participation rate significantly lower more than five years after the previous crisis ended.
Joblessness could be much higher in the wake of the coming crisis.
American Businesses Failing at a Record Pace. In the beginning of 2016, the Gallup CEO Jim
Clifton announced that American business failures are now greater than new business startups for the first
time in over three decades. The dearth of medium and small businesses has huge implications for an economy
long driven by free enterprise. Bigger businesses are not immune to the problems either. Even American
economic heavy weights like Microsoft (reducing 18,000 jobs) and McDonald’s (shutting down 700 stores for the
year) are suffering from this dismal trend.
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