FINANCIAL CRISIS LOOMS AHEAD

The next financial crisis is a "when," not an "if." The previous meltdown in 2008 was caused by the too-big-to-fail banks. Those same banks are now bigger, and their ridiculously leveraged, opaque, over-the-counter derivative bets are also bigger. Nothing has been done to fix a single thing. In other words, everything that was wrong in 2008 is worse today. 50 million people are on food stamps, 24 million unemployed, 11 million on disability, 76% of Americans have no savings at all, 46% have less than $800 in savings And we are witnessing the conversion of America into a part-time working society.

At the start of the last crisis the Federal Reserve's balance sheet was $800 billion. Today it is $3.3 trillion and increasing at $1 trillion a year. What you have, therefore, is a banking system that is bigger and riskier than it was in 2008 and no funds to bail them out when the inevitable takes place because the Federal Reserved is tapped out.

 As long-term bonds, the largest bubble in financial history, is bursting before our eyes, interest rates will continue to rise which will make it more and more difficult for the U.S. Treasury to finance its existing debt with new debt. This Ponzi scheme will go on as long as people and rigged markets remain addicted to the heroin of paper money created out of thin air.

To maintain the confidence and delay the inescapable crisis that looms ahead, the government issues phony numbers on GDP, unemployment, inflation etc. But as the old saying goes: "You can put lipstick on a pig, but it's still a pig."

We are now seeing the beginning of the dreaded loss in confidence. Foreigners just sold a record number of U.S. Treasury bonds in a desperate effort to get out of harm's way. New housing starts just plunged 13% in a single month. This further traps the Fed, since  there is no way for them to taper their $85 billion purchase of bonds per month. Should they do so, the markets and the economy would collapse, and the Fed would have to return with even greater stimulus. Always remember, as another familiar adage makes clear: "The emperor has no clothes."

August 24, 2013