In order to understand why there will be a second round to the Great Crisis, we first need to understand why Round 1 (2007-2009) occurred. And that cause can be explained in one simple word: derivatives.
As their name implies, derivatives are securities that are “derived” from underlying assets (homes, debt, etc). While they are technically considered “assets” by the financial community, the fact is that they’re primarily financial instruments that Wall Street created to foist on their clients while collecting even larger fees.
Indeed, if you need proof that derivatives are in fact just Wall Street “make believe” consider that the Street refuses to allow the derivatives markets to be regulated in any way (if the value of these “assets” was clear, they could be traded via a clearing house).
As stated before, derivatives are nothing more than fiction (perpetuated by another fiction: that Wall Street is able to value these things or price them accurately). But thanks to Wall Street’s lobbying power, they’ve become the centerpiece of the financial markets.
Consider that the world stock markets are roughly $36 trillion in size. The world bond market is roughly $72 trillion in size. The derivatives market, in contrast, is currently in the ballpark of $600 TRILLION in size.
If these numbers scare you, you’re not alone. As early as 1998, soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, approached Alan Greenspan, Bob Rubin, and Larry Summers (the three heads of economic policy) about derivatives. She said she thought derivatives should be reined in and regulated because they were getting too out of control. The response from Greenspan and company was that if she pushed for regulation that the market would “implode.”
Remember, this was back in 1998: a full DECADE before the Crisis occurred. And already, the guys in charge of the markets knew that derivatives were such a big problem that trying to regulate them or increase transparency would destroy the market.
So why are these items so accepted? Well, for one thing Wall Street makes $35+ billion per year from trading them, so it has a powerful incentive to keep them untouched. But organizations around the world (companies AND countries) love them as well because they can use them to hide their real liabilities (in the case of Greece and Italy) or to juice earnings: very likely most large publicly traded companies out there have used derivatives at one point or another to massaged their numbers.
All of this came to a screeching halt in 2008, when private US banks became so distrustful of one another’s balance sheet risk (due to derivatives exposure) that interbank liquidity dried up, triggering a systemic implosion for a particular type of derivative called Credit Default Swaps (which was a $50-60 trillion market at the time).
The US Federal Reserve dealt with this situation by suspending accounting policies (permitting banks to lie about their true balance sheet risk), offering to backstop those banks with the greatest derivative exposure (JP Morgan, Bank of America, Goldman Sachs, and Citigroup), shifting trillions of dollars’ worth of toxic debt to the US balance sheet and then funneling trillions of new dollars into the banks most at risk of a derivative collapse.
In simple terms, the Fed attempted to paper over the problems of insolvency that were plaguing the large financial institutions. This scheme could have worked if the Fed had demanded that the large banks decrease their leverage, cease making the deals that created these problems and began regulating the derivatives market.
However, the Fed is run by spineless academics not financial professionals or real businesspeople. So the Fed did not implement any meaningful reform. All it did was temporarily slow the pace of systemic implosion and give Wall Street a “get out of jail free” pass.
As a result of this, Wall Street went back to doing what caused the Financial Crisis in the first place: creating derivatives, increasing leverage, fleecing clients, and paying its employees excessive salaries. Meanwhile, the US’s public balance sheet has become contaminated by the toxic derivatives that the Fed transferred from Wall Street to Uncle Sam.
To be fair, the US was already bankrupt before the Fed did this. However, between all the Wall Street bailouts, ($16 trillion and counting) stimulus efforts, and Quantitative Easing (QE) the US has crossed over from “overly indebted” to the “going to default.”
When the US does default is when the Second Round of the Great Crisis will hit. At that point the financial systems/ economies of entire countries, not just private banks, will collapse.
What will follow will be the equivalent of 2008 on steroids featuring market crashes, debt defaults, civil unrest, food shortages, spikes in crime, etc. The purpose of the reports is to help you prepare for all of these items.
Regarding preparing your loved ones/ family for these items, there are three key actions to focus on. They are:
1) Stockpiling food
2) Buying physical gold/ silver
3) Having actual cash on hand to use if the banks close for a “bank holiday”
All of these moves are low risk investments. The worst thing that can happen is if I’m wrong, you’ve got food on hand, some bullion, and some cash: all items you can use even if the system continues to operate as usual.
BUT, if the system fails again, or another Round of the Crisis hits, these small steps of preparation literally could save you and your loved ones from immense hardship. How many people do you know who could actually get by if the banks closed for a week? How many people do you know actually have food on hand?
Personally, I’d say it’s less than 1% of my contacts. And yet, when it comes to investing some money… food/ water, physical gold/silver, and cash are three of the safest, least risky investments you can make. They cover all your bases in the event of a Crisis.
If you’re looking specific portfolio moves to prepare for the Second Round of the Great Crisis, you can download my FREE report devoted to showing in painstaking detail how to protect yourself and your portfolio from the coming ROUND TWO of the Financial Crisis (round one wiped out $11 TRILLION in wealth).
I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own, which to avoid, and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).
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PS. We also offer a FREE Special Report on the inflation situation in the US. This other FREE Special Report, The Inflationary Disaster explains not only why inflation is here now, why the Fed is powerless to stop it, and three investments that absolutely EXPLODE as a result of this.
All in all its 14 pages contain a literal treasure trove of information on how to take steps to prepare AND profit from what’s to come. And it’s all 100% FREE.
To pick up your copy today, go to http://www.gainspainscapital.com and click on FREE REPORTS.