by Martin D. Weiss, Ph.D.
Think Spain is too small to be a major factor in our markets? Think again!
Spain's economy is double the size of Greece's, Ireland's and Portugal's COMBINED.
Spain's total debts, including mortgages and commercial loans, are large enough to bankrupt all of Europe.
Even if the United States manages to escape a direct contagion attack for a while longer, the impact of Spain's demise ALONE will explode on global financial markets with a mega-tonnage that's many times larger than anything we've seen so far from Greece.
Worst of all, Spain has simply run out of time. Its death spiral is under way; its plunge into default, virtually unavoidable.
Here are the horrifying facts ...
Spain's unemployment has skyrocketed to 22.6 percent; and among workers under 25, to an astronomical 48 percent!
At least one million people are at risk of losing their homes — the equivalent of nearly seven million people in the U.S.
Homelessness and begging are rampant; labor strikes and street protests, endemic.
And now, the final blow: Global bond investors are dumping Spanish bonds like a hot potato, driving Spain's borrowing costs through the roof:
Just in the last few weeks, as the contagion of fear struck Spain, global investors have dumped Spanish bonds in wave after wave of panic selling, driving their prices down and their yields to the highest level in euro history.
Result: The Spanish government now has to pay nearly five full percentage points more than Germany for 10-year money. That's nearly quadruple the peak level reached during the 2008 debt crisis ... and beyond the levels that triggered the collapse of Greece.
Worse, last week, the Spanish government suddenly found itself paying through the nose even for short-term money — a whopping 5.11 percent on its 3-month Treasury bills. That's more than double what Spain paid just one month earlier ... and over FIFTY times more than what the U.S. Treasury pays.
The Ultimate Day of Reckoning
Just a few days ago, investors were hoping that confidence in Spain's new incoming leader, Mariano Rajoy, might turn the tide. But it had the opposite effect: Investors now realize that a simple changing of the guards — whether in Greece, Italy or Spain — does nothing to fix the debt problems, and can actually make things worse.
Regardless of new leadership, bond investors have continued to sell, driving borrowing costs through the roof. And surging borrowing costs have emerged as THE event that marks the beginning of the end.
Why? Because it's THE critical moment in time when global investors pull the plug!
It's when they refuse to lend a penny more without charging outrageous rates ... when the country runs into a stone brick wall, unable to continue borrowing from Peter to pay Paul.
It's the ultimate day of reckoning — the same day of reckoning we saw come to Greece, Ireland and Portugal ... but with one very big difference:
Those three countries were small enough to be bailed out without catastrophic repercussions for all of Europe. Spain is not. It's far too big.
It's also the same day of reckoning that's coming to the United States, but with an even bigger difference: There is no country or institution on the planet rich enough to bail out America.
Almost everywhere in the world, especially
in the United States and Europe, the pattern is clear:
First, the government spends everything it has.
Next, the government borrows all it can from its people.
Then, it borrows still more from foreign countries and banks.
Finally, the debts become so onerous that they bring on the contagion — the day of reckoning — we're witnessing now.
Yes, America is still the richest country in the world. But that has merely enabled America's leaders to take the greatest and most dangerous risks in the world.
In fact, you could argue that, in some key aspects, the U.S. is now in WORSE shape than Greece, Ireland, Portugal or Spain have ever been.
Why? One reason is because of a very risky kind of speculation that is extremely popular among the largest American banks.
The world's most famous American investor, Warren Buffett, calls these speculations "financial weapons of mass destruction." I'm talking about special kinds of investments called "derivatives."
These investments were a major cause of the great financial crisis of 2008 and 2009. They nearly destroyed America's largest banks and the entire U.S. economy. So you'd think that, after the 2008 financial crisis, U.S. banks would have learned their lesson.
But you'd be wrong.
According to the Comptroller of the Currency, a division of the U.S. Treasury Department, U.S. banks held $176 trillion in derivatives at the height of the debt crisis in 2008. Today, U.S. banks hold $249 trillion in derivatives — 41 percent more. That fact alone places the U.S. in greater danger than many smaller countries.
America is also in great danger for another big reason: The U.S. is now sitting on the largest pile of federal government debt in the history of civilization — $15 trillion.
That doesn't even include all the debts of U.S. government agencies like Fannie Mae and Freddie Mac. And it doesn't even BEGIN to include the debts the U.S. government owes to retired Americans for Social Security and Medicare.
Add all of the U.S. government debts and obligations, and you'll see how truly big they are: Over $120 trillion!
But it's not just the sheer size of
America's debt that's so frightening.
It's the fact that it's growing so rapidly — at a speed that's far greater than anything we've ever seen before: AT LEAST $1 trillion each and every year.
Now, at this point, you're probably thinking: "But surely — Washington will ultimately do the right thing and STOP bankrupting America — right?"
But the reality is that Washington has consistently made the opposite choice.
The die was cast in 2008, when the U.S. housing bubble burst and giant American banks were going bust.
At the time, the U.S. government could have simply allowed those who had made the big gambles to suffer the natural consequences of their actions. Instead, Washington bailed out the banks, absorbed those bad debts, and spent trillions of dollars to fight the recession.
Some people thought that was a good idea. But look what happened:
In just 12 months between 2007 and 2008, Washington TRIPLED the federal deficit from $161 billion to $459 billion.
Of course, Washington swore that this was a one-time-only event, needed to fight the recession. Well, they lied. The U.S. tripled the deficit again ... to $1.4 trillion in 2009.
Then, AGAIN, they solemnly promised that this, too, was temporary — for "emergency purposes only." But that was a lie, too. The 2010 deficit was $1.3 trillion. It's even larger in 2011. And, in a double-dip recession, the deficit could surge to $2 trillion dollars.
Then, came the great debt ceiling debate that paralyzed Washington this summer. What did they do? They kicked the can forward to November, selecting a "Super Committee" to do the dirty work. And what did the committee produce? Nothing but a super-FAILURE!
All these debts, lies and failures are what inevitably lead to the contagion that we've already seen strike the PIIGS countries — Portugal, Ireland, Italy, Greece and Spain ... and that is now on the near horizon for the United States.
Still skeptical?
Then consider this: In the past, the United States government always borrowed nearly all the money it needed from its own citizens. But in recent years, it has borrowed most of the new money from investors in other countries — especially China.
In fact, the United States now owes foreign investors over $4 trillion dollars. That's more than four times MORE than it owed foreign investors when the U.S. plunged into recession in the early 2000s.
What's next?
In most PIIGS countries, what came next was a sudden hit to the economy.
Their economies were already in a weakened state due to the debt crisis of 2008-2009. Then, adding insult to injury, they've been forced to take Draconian measures to cut jobs, salaries, pensions, health benefits, and more.
The United States is following a similar pattern: Despite the massive amounts of money Washington has thrown at the economy, the recovery has been the most anemic in modern history.
And now, just like the European countries in trouble, instead of pumping money into the economy with more stimulus, the U.S. government will have no choice but to take money OUT of the economy. Result: A vicious cycle of economic decline and the flight of capital.
Look: Throughout history, we've learned that when a nation becomes this deeply indebted and in this much economic trouble, the next step is always the same: In every case, the next step is the contagion that has already struck PIIGS countries.
That's when the U.S. government can no longer borrow and simply runs out of money. That's the moment when all hell breaks loose in America — just as it has in other countries.
I'm talking about a sudden rejection of U.S. debt by the world's investors — an international creditors' revolt that makes it almost impossible for the United States government to borrow.
What will happen when global investors abandon the United States? The answer is chaos — a collapsed economy, a society in turmoil and a government that's so desperate to save itself it could resort to some of the most extreme measures in modern times.
Still finding all this hard to believe? Then consider the ten former chief economists who advised U.S. presidents. They are the chairmen of the White House's Council of Economic Advisors. All of them have since departed from their office, but they recently wrote that that the next debt crisis could "Dwarf 2008!"
That's an absolutely shocking assertion: In 2008, the United States and almost the entire world came within a hair of a massive, devastating meltdown. Most of America's and Europe's largest banks were pushed to the brink of failure. The entire economy of the West was only a few hours away from a fatal collapse.
Now, these ten former White House advisors are warning that this next debt crisis could dwarf the last one. Why? What could cause that?
The answer: They say it's precisely the contagion I just told you about: The fact that it may become next to impossible for the U.S. government to borrow any more money from global investors.
And these ten former presidential advisers are not the only ones ringing the alarm bells.
U.S. Senator Mark Warner says the United States is "approaching financial Armageddon."
Senator Joe Manchin calls this crisis "A fiscal Titanic."
Admiral Mike Mullen, the head of America's military command, the Joint Chiefs of Staff, is warning that this crisis is "the biggest threat to our national security."
And David Walker, the former chief auditor of the United States government, says: "The bottom line is: We're not Greece. But we could end up with their same problems!"
These men are not extremists. They have nothing to gain by trying to scare people. They are merely following the facts to their logical conclusion. And that's what I've done here.
The warnings I've given you are based on nothing more — and nothing less — than economic reality and historical fact. My research team and I have simply analyzed the numbers and told you the truth — just like we did when we issued "D" ratings on nearly every big bank that subsequently failed.
We have no political agenda. We are not affiliated to any political party or government in the United States or elsewhere. We have no national bias for or against any country. We also have no relationship with the tens of thousands of companies or countries that we rate.
In fact, most of them would probably prefer that we just kept our mouths shut. One giant company even threatened my life by saying "Weiss had better shut up or get a bodyguard."
But as President Harry Truman once said, "I never give them hell. I just tell them the truth and they think it's hell."
Our loyalty is with the people — consumers, savers, investors and everyday citizens in every country of the world. We are loyal to the people who rely on us to tell them the truth about what we see in the future, and about the companies or governments they entrust their money to, invest in, or do business with: The good, the bad and the ugly.
This is how my company has become the last line of defense for the average person against greedy CEOs, power-made politicians and corrupt officials everywhere.
And this is why, in just a moment, I am going to give you the steps you need to take to prepare, and I am even going to NAME the global banks most likely to fail.
Nevertheless, if the crisis I've just described is hard for you to imagine, I certainly understand.
Most people think the United States is so strong and powerful, it will never experience this kind of crisis. For most people living in advanced countries, things still seem so "normal" — so routine.
It's hard for them to imagine that such terrible things could happen — and that it could all happen so quickly, in the twinkling of an eye. But isn't that always the case? Isn't there always a calm before the storm? Aren't people always caught by surprise when historic crises strike?
After all — nobody believed the Soviet Union would collapse virtually overnight — and when it did, it caught everybody by surprise. Even the C.I.A. failed to see that one coming!
And remember, for years, Islamic extremists made no secret of their determination to knock down the World Trade Center. They actually tried to do it in 1993. But among the thousands who streamed into the World Trade Center on September 11, 2001, how many — if any — believed they had anything to worry about?
Many of them, including my cousin's own daughter and some friends, just kept going to work as they always had — and thousands paid the ultimate price.
In Japan, even though they had been repeatedly warned, nobody — including my own son, who lives in Tokyo — believed the nuclear power plants would suffer multiple meltdowns. And once again, their denial was costly in the extreme.
Even in my own 40-year career as a financial analyst, I've seen denial exact a hefty price over and over again.
A few years ago, for example, only a handful of people believed our senior analyst Mike Larson when he repeatedly warned that the real estate bubble was about to burst.
And of course, very few listened when we warned that Lehman would go belly up and that even the almighty Bank of America would come within an inch of its life.
So I'm under no delusions here. I know that the vast majority of people around the world will fail to heed this warning and fail to get ready for this crisis.
I sincerely hope — for your family's sake — that you are not among them. Because the precautions required to weather the coming tempest are not difficult.
And even if the storm turns out to be less severe than I fear it may be, the worst that'll happen is that you'll sleep better at night and you could make some money in the process.
So WHEN should you expect to see this cataclysmic event — the moment when Washington runs out of money? Soon. VERY soon.
Last week's super-failure of the Super Committee has demonstrated — for the entire world to see — Washington's utter incapacity to deal with its deficits. And in the months ahead, efforts to avoid the automatic budget cuts will send an even uglier signal.
The global contagion is spreading so quickly, it could strike the United States before yearend.
It's the same contagion that began over two years ago in Greece ... that hit Ireland and Portugal last year ... that slammed into Italy last month ... and is now striking down a fifth country: Spain.Think Spain is too small to be a major factor in our markets? Think again!
Spain's economy is double the size of Greece's, Ireland's and Portugal's COMBINED.
Spain's total debts, including mortgages and commercial loans, are large enough to bankrupt all of Europe.
Even if the United States manages to escape a direct contagion attack for a while longer, the impact of Spain's demise ALONE will explode on global financial markets with a mega-tonnage that's many times larger than anything we've seen so far from Greece.
Worst of all, Spain has simply run out of time. Its death spiral is under way; its plunge into default, virtually unavoidable.
Here are the horrifying facts ...
Spain's unemployment has skyrocketed to 22.6 percent; and among workers under 25, to an astronomical 48 percent!
At least one million people are at risk of losing their homes — the equivalent of nearly seven million people in the U.S.
Homelessness and begging are rampant; labor strikes and street protests, endemic.
And now, the final blow: Global bond investors are dumping Spanish bonds like a hot potato, driving Spain's borrowing costs through the roof:
Result: The Spanish government now has to pay nearly five full percentage points more than Germany for 10-year money. That's nearly quadruple the peak level reached during the 2008 debt crisis ... and beyond the levels that triggered the collapse of Greece.
Worse, last week, the Spanish government suddenly found itself paying through the nose even for short-term money — a whopping 5.11 percent on its 3-month Treasury bills. That's more than double what Spain paid just one month earlier ... and over FIFTY times more than what the U.S. Treasury pays.
The Ultimate Day of Reckoning
Just a few days ago, investors were hoping that confidence in Spain's new incoming leader, Mariano Rajoy, might turn the tide. But it had the opposite effect: Investors now realize that a simple changing of the guards — whether in Greece, Italy or Spain — does nothing to fix the debt problems, and can actually make things worse.
Regardless of new leadership, bond investors have continued to sell, driving borrowing costs through the roof. And surging borrowing costs have emerged as THE event that marks the beginning of the end.
Why? Because it's THE critical moment in time when global investors pull the plug!
It's when they refuse to lend a penny more without charging outrageous rates ... when the country runs into a stone brick wall, unable to continue borrowing from Peter to pay Paul.
It's the ultimate day of reckoning — the same day of reckoning we saw come to Greece, Ireland and Portugal ... but with one very big difference:
Those three countries were small enough to be bailed out without catastrophic repercussions for all of Europe. Spain is not. It's far too big.
It's also the same day of reckoning that's coming to the United States, but with an even bigger difference: There is no country or institution on the planet rich enough to bail out America.
Almost everywhere in the world, especially
in the United States and Europe, the pattern is clear:
First, the government spends everything it has.
Next, the government borrows all it can from its people.
Then, it borrows still more from foreign countries and banks.
Finally, the debts become so onerous that they bring on the contagion — the day of reckoning — we're witnessing now.
Yes, America is still the richest country in the world. But that has merely enabled America's leaders to take the greatest and most dangerous risks in the world.
In fact, you could argue that, in some key aspects, the U.S. is now in WORSE shape than Greece, Ireland, Portugal or Spain have ever been.
Why? One reason is because of a very risky kind of speculation that is extremely popular among the largest American banks.
The world's most famous American investor, Warren Buffett, calls these speculations "financial weapons of mass destruction." I'm talking about special kinds of investments called "derivatives."
These investments were a major cause of the great financial crisis of 2008 and 2009. They nearly destroyed America's largest banks and the entire U.S. economy. So you'd think that, after the 2008 financial crisis, U.S. banks would have learned their lesson.
But you'd be wrong.
According to the Comptroller of the Currency, a division of the U.S. Treasury Department, U.S. banks held $176 trillion in derivatives at the height of the debt crisis in 2008. Today, U.S. banks hold $249 trillion in derivatives — 41 percent more. That fact alone places the U.S. in greater danger than many smaller countries.
America is also in great danger for another big reason: The U.S. is now sitting on the largest pile of federal government debt in the history of civilization — $15 trillion.
That doesn't even include all the debts of U.S. government agencies like Fannie Mae and Freddie Mac. And it doesn't even BEGIN to include the debts the U.S. government owes to retired Americans for Social Security and Medicare.
Add all of the U.S. government debts and obligations, and you'll see how truly big they are: Over $120 trillion!
But it's not just the sheer size of
America's debt that's so frightening.
It's the fact that it's growing so rapidly — at a speed that's far greater than anything we've ever seen before: AT LEAST $1 trillion each and every year.
Now, at this point, you're probably thinking: "But surely — Washington will ultimately do the right thing and STOP bankrupting America — right?"
But the reality is that Washington has consistently made the opposite choice.
The die was cast in 2008, when the U.S. housing bubble burst and giant American banks were going bust.
At the time, the U.S. government could have simply allowed those who had made the big gambles to suffer the natural consequences of their actions. Instead, Washington bailed out the banks, absorbed those bad debts, and spent trillions of dollars to fight the recession.
Some people thought that was a good idea. But look what happened:
In just 12 months between 2007 and 2008, Washington TRIPLED the federal deficit from $161 billion to $459 billion.
Of course, Washington swore that this was a one-time-only event, needed to fight the recession. Well, they lied. The U.S. tripled the deficit again ... to $1.4 trillion in 2009.
Then, AGAIN, they solemnly promised that this, too, was temporary — for "emergency purposes only." But that was a lie, too. The 2010 deficit was $1.3 trillion. It's even larger in 2011. And, in a double-dip recession, the deficit could surge to $2 trillion dollars.
Then, came the great debt ceiling debate that paralyzed Washington this summer. What did they do? They kicked the can forward to November, selecting a "Super Committee" to do the dirty work. And what did the committee produce? Nothing but a super-FAILURE!
All these debts, lies and failures are what inevitably lead to the contagion that we've already seen strike the PIIGS countries — Portugal, Ireland, Italy, Greece and Spain ... and that is now on the near horizon for the United States.
Still skeptical?
Then consider this: In the past, the United States government always borrowed nearly all the money it needed from its own citizens. But in recent years, it has borrowed most of the new money from investors in other countries — especially China.
In fact, the United States now owes foreign investors over $4 trillion dollars. That's more than four times MORE than it owed foreign investors when the U.S. plunged into recession in the early 2000s.
What's next?
In most PIIGS countries, what came next was a sudden hit to the economy.
Their economies were already in a weakened state due to the debt crisis of 2008-2009. Then, adding insult to injury, they've been forced to take Draconian measures to cut jobs, salaries, pensions, health benefits, and more.
The United States is following a similar pattern: Despite the massive amounts of money Washington has thrown at the economy, the recovery has been the most anemic in modern history.
And now, just like the European countries in trouble, instead of pumping money into the economy with more stimulus, the U.S. government will have no choice but to take money OUT of the economy. Result: A vicious cycle of economic decline and the flight of capital.
Look: Throughout history, we've learned that when a nation becomes this deeply indebted and in this much economic trouble, the next step is always the same: In every case, the next step is the contagion that has already struck PIIGS countries.
That's when the U.S. government can no longer borrow and simply runs out of money. That's the moment when all hell breaks loose in America — just as it has in other countries.
I'm talking about a sudden rejection of U.S. debt by the world's investors — an international creditors' revolt that makes it almost impossible for the United States government to borrow.
What will happen when global investors abandon the United States? The answer is chaos — a collapsed economy, a society in turmoil and a government that's so desperate to save itself it could resort to some of the most extreme measures in modern times.
Still finding all this hard to believe? Then consider the ten former chief economists who advised U.S. presidents. They are the chairmen of the White House's Council of Economic Advisors. All of them have since departed from their office, but they recently wrote that that the next debt crisis could "Dwarf 2008!"
That's an absolutely shocking assertion: In 2008, the United States and almost the entire world came within a hair of a massive, devastating meltdown. Most of America's and Europe's largest banks were pushed to the brink of failure. The entire economy of the West was only a few hours away from a fatal collapse.
Now, these ten former White House advisors are warning that this next debt crisis could dwarf the last one. Why? What could cause that?
The answer: They say it's precisely the contagion I just told you about: The fact that it may become next to impossible for the U.S. government to borrow any more money from global investors.
And these ten former presidential advisers are not the only ones ringing the alarm bells.
U.S. Senator Mark Warner says the United States is "approaching financial Armageddon."
Senator Joe Manchin calls this crisis "A fiscal Titanic."
Admiral Mike Mullen, the head of America's military command, the Joint Chiefs of Staff, is warning that this crisis is "the biggest threat to our national security."
And David Walker, the former chief auditor of the United States government, says: "The bottom line is: We're not Greece. But we could end up with their same problems!"
These men are not extremists. They have nothing to gain by trying to scare people. They are merely following the facts to their logical conclusion. And that's what I've done here.
The warnings I've given you are based on nothing more — and nothing less — than economic reality and historical fact. My research team and I have simply analyzed the numbers and told you the truth — just like we did when we issued "D" ratings on nearly every big bank that subsequently failed.
We have no political agenda. We are not affiliated to any political party or government in the United States or elsewhere. We have no national bias for or against any country. We also have no relationship with the tens of thousands of companies or countries that we rate.
In fact, most of them would probably prefer that we just kept our mouths shut. One giant company even threatened my life by saying "Weiss had better shut up or get a bodyguard."
But as President Harry Truman once said, "I never give them hell. I just tell them the truth and they think it's hell."
Our loyalty is with the people — consumers, savers, investors and everyday citizens in every country of the world. We are loyal to the people who rely on us to tell them the truth about what we see in the future, and about the companies or governments they entrust their money to, invest in, or do business with: The good, the bad and the ugly.
This is how my company has become the last line of defense for the average person against greedy CEOs, power-made politicians and corrupt officials everywhere.
And this is why, in just a moment, I am going to give you the steps you need to take to prepare, and I am even going to NAME the global banks most likely to fail.
Nevertheless, if the crisis I've just described is hard for you to imagine, I certainly understand.
Most people think the United States is so strong and powerful, it will never experience this kind of crisis. For most people living in advanced countries, things still seem so "normal" — so routine.
It's hard for them to imagine that such terrible things could happen — and that it could all happen so quickly, in the twinkling of an eye. But isn't that always the case? Isn't there always a calm before the storm? Aren't people always caught by surprise when historic crises strike?
After all — nobody believed the Soviet Union would collapse virtually overnight — and when it did, it caught everybody by surprise. Even the C.I.A. failed to see that one coming!
And remember, for years, Islamic extremists made no secret of their determination to knock down the World Trade Center. They actually tried to do it in 1993. But among the thousands who streamed into the World Trade Center on September 11, 2001, how many — if any — believed they had anything to worry about?
Many of them, including my cousin's own daughter and some friends, just kept going to work as they always had — and thousands paid the ultimate price.
In Japan, even though they had been repeatedly warned, nobody — including my own son, who lives in Tokyo — believed the nuclear power plants would suffer multiple meltdowns. And once again, their denial was costly in the extreme.
Even in my own 40-year career as a financial analyst, I've seen denial exact a hefty price over and over again.
A few years ago, for example, only a handful of people believed our senior analyst Mike Larson when he repeatedly warned that the real estate bubble was about to burst.
And of course, very few listened when we warned that Lehman would go belly up and that even the almighty Bank of America would come within an inch of its life.
So I'm under no delusions here. I know that the vast majority of people around the world will fail to heed this warning and fail to get ready for this crisis.
I sincerely hope — for your family's sake — that you are not among them. Because the precautions required to weather the coming tempest are not difficult.
And even if the storm turns out to be less severe than I fear it may be, the worst that'll happen is that you'll sleep better at night and you could make some money in the process.
So WHEN should you expect to see this cataclysmic event — the moment when Washington runs out of money? Soon. VERY soon.
Last week's super-failure of the Super Committee has demonstrated — for the entire world to see — Washington's utter incapacity to deal with its deficits. And in the months ahead, efforts to avoid the automatic budget cuts will send an even uglier signal.
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