The latest news out of Europe is that the EU will have plenty of funds to bail out Greece. Never mind that a global stock market panic led to a near 1000 point drop in the Dow Jones last week, that IMF head Christine Lagarde said the organization needs more money to make good on emergency rescue packages, that Treasury Secretary Geithner suggested Europe is the most serious threat to the stability of the world economy, that signs of economic slowdown are everywhere, and even mainstream economists are now warning of another Great Depression.
Ignore all of that. The stock market is rising. So long as the arrows on the market indexes are green, everything is fine.
But what if, and we know this sounds crazy… what if things really aren’t fine?
Porter Stansberry, who has been right on the money (literally) for the last several years with respect to how the financial crisis would unfold and how to not only protect and grow your wealth, but prepare yourself for the chaos that is sure to follow, gives us his take on what happens next:
So… here’s what will happen next. Soon, Greece will default. This will begin a chain reaction of European bank failures, because most banks in Europe have only written off a small portion (21%) of the value of the Greek bonds they hold. French banks are particularly vulnerable right now. This, in turn, will cause banks to stop lending to each other out of fear.
It will also lead to big losses in the commercial paper market. That’s how the crisis will spread to the U.S. – our money-market funds still hold roughly 42% of the assets in loans to Europe’s banks. Companies with exposure to European financial assets (like GE) and those that depend heavily on the commercial paper market for funding (like Capital One) will see their share prices plummet. As the global economy stalls and then moves into recession, unemployment will worsen… and political tensions will greatly increase. I expect large-scale civil unrest in both Europe and the U.S.
In the short term, commodities are also likely to fall sharply. The crisis is nearing a breaking point. Europe represents the world’s largest economic area. I expect oil will fall at least in half from its peak. You could see silver fall, temporarily, by maybe another 30%. Gold could fall by maybe 25% from its peak. Base metal and energy commodities – stuff like copper and coal – will get crushed, like they did in 2008. In short, this is Europe’s turn to have a Lehman Brothers-like banking collapse. Only this time, it will involve dozens of huge banks and several different countries, all of which have different ideas about how the crisis should be solved.
And that means it will probably be a longer and deeper crisis than Lehman Brothers. But… sooner or later… we’re going to see a massive reversal. The Fed will step in to support the ECB, and a tremendous amount of new euro will be issued. I expect the euro to fall to parity – 1:1 – with the dollar before this crisis is over.
As we’ve mentioned before – the Great Depression of the 1930’s originated not because of the 1929 stock market crash, as high school history teachers would have us believe. Rather, it began when European banks and nations began defaulting on their debt.
Porter Stansberry points out that Europe is the largest economic zone in the world – exceeding even the United States – and they are going under. The subsequent consequences on the streets of Europe and America are going to surprise a lot of people. Mr. Stansberry has made it a point to warn of civil unrest before. It’s coming – make no mistake.
Realistically speaking, what do you think is going to happen when peoples’ pension funds, retirement accounts, savings, purchasing power and jobs are wiped out?
Despite what we see from mainstream media in their ever shortening 24 hour breaking news cycle, there is no resolution, just as there has been no resolution for the last three years. Stansberry continues:
Is there a chance I’m wrong? Is there any realistic way to solve this crisis without a Greek default and a European banking crisis? I don’t see how.
I wish I had better news… or a more promising strategy I could endorse. But as always, I’ve got to write what I believe.
Folks, the indicators are everywhere. We can stick our heads in the sand and play pretend, or we can face reality and take action to insulate ourselves as best we can. Ignore the warning signs to your detriment.
The next leg down is going to be fast, volatile and violent – and the United States will be right in the middle of it.