Uh Oh! The Last Time This Happened, the Global Financial System Went Into Freefall
Things aren’t Looking Good
Holy smokes, 2016 is intense!The world economy is literally seizing up, and vaporizing vast amounts of wealth from investors. In just 2 weeks, over $3 trillion in wealth has been wiped out. I’ve been watching markets tank all over the entire world, and it’s starting to smell like August/September of last year again.
Anyone remember Black Monday just 4 short months ago? Seems like an eternity ago now. Yet, I warned back then that the carnage felt across the global equity markets was just a warm up. I said that shortly we’d be revisiting that action, and that what was to come would make it seem like a blip. Well, as you can see on this chart, we’ve finally gotten a crucial breakdown that I’ve been anticipating for some time now.
My friends, they say a picture is worth a thousand words, well folks, that chart spells absolute disaster! Brent Crude crashed through the all-important $30 level.
West Texas Intermediate and Brent Crude have both literally caved in to levels not seen since 2004! This is unreal! Not even during the previous financial crisis did oil prices print such disastrously low numbers.
This has staggering implications for countries, populaces, and investors the world over.
“Watchman, so oil’s lower! Who cares? What on earth does the price of oil have to do with the state of global health?”
It has everything to do with it.
Oil Contracts and Sovereign Nations
We live in a world that is run on oil. Oil is not only the lubricant of the global economy, it is quite virtually the engine of all major economic activity. Without infinite, cheap credit, and a healthy oil price, global activity grinds to a halt.
Major superpowers in our world are heavily(too heavily) dependent upon a reasonably high oil price, in order to pay their bills, and sustain their economies and trade.
Countries like Canada, the US, Saudi Arabia, and Russia are just a short list of such powers.
The problem for all of them, is that the Fed, with their recent interest rate hike, has just ensured that the cheap credit they’ve depended on, is now drying up around the world. This has put these countries’ energy revenue streams in deep, deep trouble.
For instance, take Canada! With its vast Athabasca Oil Sands, it has the third largest known oil reserves on the planet, and is actually an energy exporter. For years, it has been known as a country with a strong credit rating, a strong currency, and a surplus of commodity wealth.
However, the latest Fed rate hike, coupled with crashing commodity and oil prices have absolutely pulled the rug out from under the Canadian currency, and thrown it into a tailspin!
Just look at the havoc that’s being wrought upon the Loonie!
They’ve gone from over parity with the US Dollar, to just 69 cents in just 3 years!
That is a bloodbath. Again, not during the last financial crisis in 2008/2009 did the Loonie fall anywhere near this level.
This means that not only do the Canadians have to worry about a tightening credit market, a falling stock market, and a collapsing commodity/energy sector, they’re unfortunately experiencing the painful results of a faltering currency nosedive.
Prices are soaring in Canada, due to the falling Loonie, which is resulting from falling oil and commodity prices.
It’s not just Canada though that’s feeling the pinch. That same effect is being felt once more in an even bigger global power, whose currency is under severe pressure/attack yet again!
Russia’s Ruble Weakness
You’ll remember that precisely one year ago, the Ruble was under coordinated attack by the banksters, for a number of reasons. Putin and his right hand at the Central Bank of Russia, Elvira Nabiullina, stopped the collapse of the Ruble, only by raising interest rates to a jaw-dropping 17%.
With the enormous interest rate judo move, and the recovering oil price, the Russian Ruble was able to regain much of its earlier losses. However, in recent months, the currency slide in the Ruble is back with a vengeance, but don’t take my word for it. Just look here:
The Ruble has now gone to new lows against the Dollar, at an exchange rate of just .013 to per Ruble, the Russian economy is also under pressure. Amazingly, thus far, their stock market hasn’t done that badly(coming off a mere 10% from its highs). It is nowhere near the 80% collapse it experienced during the last crisis in 2008, but if oil remains at these levels, or goes lower, mark my words: the undertow will drag Russian stocks down with it.
From the Ruble, to the South African Rand(pictured beneath, and which just experienced a 10% crash in one day):
To the Indian Rupee(pictured below, which is also at lows against the US Dollar):
To the Brazilian Real:
The emerging markets(read, the BRICS) are all under assault. The only BRICS member that has not been under pressure with their currency is China, whose Yuan would be even stronger than it is, if they’d not been purposefully devaluing it.
Yet, China’s stock markets have been slammed as well, with multiple halts in Shanghai, as the Shanghai index dipped as low as sub-3000(just a few percentage points away from its previous low last year).
This is an important ‘line in the sand’ for the Chinese authorities, and if they don’t hold the line here, there could be real chaos in world equity markets in the days ahead.
Remember though, it gets worse…because, as the carnage intensifies, there’s another cause which is underlying all this chaos in oil and energy…
Last Days of the Petro Dollar
The Petrodollar is being unwound. Russia just announced that they would be creating a “Russian Oil Benchmark”, where oil would no longer be traded for in US Dollars(but in Rubles), and both China and Russia will deal in energy(and with each other) without using Dollars in their trade settlement.
The last pillars of the Petrodollar are being demolished. The problem is that this process will be extremely painful for all involved(though it’s necessary), because it is exacerbating the currency fluctuations, and even worse….
It is endangering gargantuan amounts of derivatives contracts, which are directly priced around, and based on, the price of oil. How much money are we talking about?
We’re talking about trillions of dollars. Many trillions…
Sovereign nations, governments, and businesses have all locked in business trades and sovereign treaties, with oil futures on a forward basis, at much higher oil prices than they are now. These countries desperately need those prices they agreed to, in order to keep the lights on, and maintain business as usual.
The collapsing oil price is creating havoc in those derivatives, and putting pressure on these sovereigns to begin using their US Dollar reserves to shore up their account deficits, which are mad worse by the falling oil prices.
But, wait, it gets even worse than that, as this recent Zerohedge headline shows…
The Shale Defaults Begin Here: Banks Quietly Shrink These 25 Companies’ Credit Facilities
In the US Shale Industry, the oil boom we’ve enjoyed for the last decade has come at an incredible cost, with most of the shale companies going into deep debt, with the premise that those debts would be repaid on a business model requiring much higher oil prices!
At $35 per barrel of oil and under, quite virtually all shale is heavily, heavily, underwater…and has been for some time. For Pete’s sake, much of the shale boom didn’t even work at $80 per barrel, so this elongated period of plummeting oil has tightened a heavy noose around the necks of US shale oil producers.
The banks who’ve loaned these indebted companies money, have now begun to shrink the base assets that these companies can borrow from for future projects and payments. Some of these companies’ credit lines have now basically shrunk as much as 50%.
This is a catastrophe! With peak shale oil, which we experienced several years ago, an oil price of just 1/3 what it was 2 years ago, and a constricting line of credit….the days of US shale are numbered.
When the industry convulses and largely goes under, it will be curtains for the dreams of US energy independence for quite some time, as well as trillions of dollars of annual energy production, and hundreds of thousands of jobs.
Oil is a very big deal, and it is screaming that all is not right in the world. Tread with caution going forward, brothers, some very turbulent days lie directly ahead.
Exactly one month ago, I wrote that Janet Yellen and the Fed had run out of time, and that they’d be forced to likely raise interest rates, which would act as a pin to pop the global credit/equity bubble we’d been witnessing for years.
They did act, and they did raise rates, and it has literally been like watching a bull in a china shop! Their actions have literally started to bring down the house.
The global stock markets, which by all accounts should’ve already been pummeled much lower several months ago, have suddenly been cast back down into the abyss.
Equity markets, from Shanghai, to Europe, to New York City, have been beaten like a punching bag.
Folks still aren’t paying much attention yet, but they will. They are used to hearing bad headlines, only to see it all work out in the end. The day is coming soon where that will not be the case.
There is a day coming that will not be like previous days. The masses will calmly wait for central banks to step in, only to hear those central banks say that they won’t step in, because they can’t.
There will come a point where the sociopathic banking forces in our world, will admit that the scheme they devised has come undone(much of it, purposefully). The oil and stock market routes, along with extreme currency fluctuations, and tightening credit markets…
These are all violent tremors, growing ever louder, ever bigger, and ever more destructive.
They’re advance indicators that the ground is about to open up beneath the feet of billions of people, and change everything they’ve come to know.
These tremors, these cracks in the earth, are forewarnings of the Big One. They truly are. Sadly, most Americans, instead of running for safer, solid ground, are looking at these enormous cracks, and shrugging them off as a mere curiosity. They’re about to be totally blindsided by a tectonic, permanent shift in the world economy.
Do not be one of them.
Global peak silver production is coming (or is here). However, that all depends on what happens in 2016 and its impact on the base metal mining industry. The base metal mining industry (zinc-lead & copper) supplies 58% of world silver supply.
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