Some sobering facts regarding our financial markets today
The world's most powerful governments have printed more paper money in the last three years than in the prior half century! Read that again and think about it carefully for a moment. If just ONE government ran its money-printing presses 24/7, that would be dangerous enough. But we now have ALL FOUR of the most powerful central banks in the world doing this, all at once.
Go to this web site to see the chart showing you the size of each central bank's balance sheet -- a measure for the total money-printing operations to date. There you will see that the U.S. Federal Reserve (FED) has nearly TRIPLED the size of its balance sheet, by buying bonds and other assets (many of them "toxic'), mostly from banks, by way of its "quantitative easing" (QE) program -- thereby increasing the size of its balance sheet from about 6% of our national GDP just three years ago to almost 17% of GDP today.
Meanwhile, the Bank of England (BOE) has followed in lockstep with the U.S., doing essentially the same thing -- as has the European Central Bank (ECB), which has quickly expanded its balance sheet from about 20% of European GDP to close to 30% of GDP. Finally, the Bank of Japan (BOJ) has also run up the size of its balance sheet assets to about 30% of its economy's GDP!
Total amount of QE expenditures on the balance sheets of these four central banks: More Than $10 Trillion! That's $10 trillion in funny money that's been pumped into the global economy, which is absolutely unprecedented!
Even in the early 1930s, when the nation's entire banking system shut down ... and even in the early 1980s, when hundreds of U.S. banks were failing each year, the Fed and other central banks never went anywhere near this far. (The sole exception: The central bank of Germany in the 1920s, which printed so much money that it eventually led to loaves of bread that required a wheelbarrow full of cash to purchase.)
But here's the greatest worry of all: this unprecedented flood of money into the international economy is not having the effect that was hoped for. Rather, it's running into the law of diminishing returns, i.e. ever more money created and distributed, but ever less in the way of economic results.
Think how worrying that must be for the masterminds behind this giant global money operation! They had hoped that, after dumping all these trillions into their respective economies, that that would have created an economic boom. But the anticipated boom has not taken place. Instead, the U.S. economy is stumbling again, Japan's economy is dead in the water, and Europe's is sinking straight into another recession.
The "masterminds' also hoped that, after dishing out so much liquid cash to their biggest banks, those institutions would naturally be in far better shape today than previously. But, again, we see nothing of the kind! Sure, some banks have improved and may continue to do so. But many of the world's largest have used most of that new money to double down on their riskiest bets, in the so-called (and still unregulated) derivatives and toxic-bonds casinos! Prime examples: Big European banks. Over the past few months, they have used the bulk of the cheap new money they borrowed from the ECB to buy precisely the same high-interest junk that got them into so much trouble in the first place -- the toxic bonds of weak countries like Spain, Portugal, and Italy!
As a result, European banks now hold 135 billion euros in Greek bonds, 192 billion in Portuguese bonds, 411 billion in Irish bonds, 634 billion in Spanish bonds, and a whopping 801 billion euros in Italian bonds -- more than ever before.
And guess which countries are the headquarters of the biggest banks with the most dangerous exposure, with the biggest load of these toxic/junk bonds! Germany and France -- the core euro-zone nations with the ultimate responsibility of backstopping the debt crisis!
The "masterminds" behind this giant, global, funny-money operation hoped that, with all that funny money pouring into the banks of their distressed neighbors, global investors would finally breathe a sigh of relief and stop worrying about massive sovereign defaults. Instead, investors are again abandoning sovereign government bonds in droves. In Spain, for example, they're driving bond prices into the gutter. Worse, they're driven up the cost of insuring against a Spanish government default to the highest level of all time! And in Italy, we see the same pattern.
But if you think this is just another Greece, consider this: Combined, the economies of Spain and Italy are more than TWELVE times larger than Greece's economy. Spain's economy alone is larger than Australia's, South Korea's -- even Saudi Arabia's. And Italy's economy is larger than Russia's, India's, or Canada's! If Spain and Italy default on their bonds, the ramification would be unprecedented.
So where does all this leave us? In the middle of what may well prove to be the deadliest financial cycle ever.
To better understand why this is so, please review this recent sequence of events
First, some the world's largest banks in the U.S. and Europe came within a whisker of failure in the wake of the great housing bust and the global debt crisis that we're just now passing through.
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