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Jim Willie, the Crumbling Global Economy, and the Dollar Crisis

Tuesday, December 15, 2015 8:18

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(Before It's News)

If you’ve watched the news, John “Rambo” Kerry is in Moscow right now getting ready to meet with Putin for some very tough talks on Syria and the Ukraine, and you can be sure the topic of lifting sanctions on Russia will be a key factor in those talks. In the first video below, Jim Willie is asked right off the bat if the U.S. is responsible (deliberately) for the fall of oil prices which are crushing Russia. According to Jim, there are likely other factors all working together to drive down oil, rather than a systematic plan engineered by the U.S. for the purposes of harming Russia. Falling oil prices are going to bring a world of problems to the U.S. economy here soon enough, as our economy teeters on the brink of oblivion. Here’s why:

What we are seeing, is precisely what Jim Willie predicted in September. The Dollar isn’t exactly “normal” the way other currencies are, and emerging markets are suffering greatly right now. Other currencies around the world trade on their own merit. Because we are the reserve currency, when other central banks intervene, they do so specifically against the dollar. In addition, many countries, (like China) maintain a pegged relationship to the Greenback. Therefore, in a world dominated by interventionist banks, the factors that push the dollar have been inverted. The dollar falls when fundamentals either improve abroad or deteriorate at home. Economic conditions have been deteriorating here at home for some time. Unfortunately for the U.S. and the Dollar, the entire world hasn’t caught on, which is causing them to exit out of equities in mass, and into the greenback for what they think is “security.” That in turn, is causing the value of the Dollar to increase, putting severe pressure on many of the emerging markets fleeing to the Dollar, and oil markets internationally.

Jim Willie on Current Market

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Emerging markets, already fragile, owe their debts denominated in Dollars, so a rising Dollar means they have to pay back more, thereby crippling their economies. Here at home, the rising Dollar is lowering oil prices, and while that does weaken Russia, don’t forget big oil here in the U.S. has trillions tied up in junk bonds from their fracking operations. As Jim explains, those operations barely saw profit at $100 a barrel, so $30 a barrel is becoming a huge problem. If you read, The “Real” Reason Obama Rejected the Keystone Pipeline, you learned that many have speculated the reason Obama shot down the pipeline was to help the Saudi’s by driving the price of oil back UP! The thing is, it’s not JUST the Saudi’s that rising oil prices would help. Fracking companies, already illiquid, and operating in the red, with trillions in bonds out there, are now facing a potential rate hike by the Fed that looks all to possible, as CRAZY as that sounds. James Rickards, a central bank critic and chief global strategist at West Shore Funds recently said, “The Fed is on the brink of committing a historic blunder that may rank with the mistakes it made in 1927 and 1929. By raising into weakness, they will likely cause a recession.” Richards goes on, “The Fed should have raised interest rates in 2010 and 2011 and if they did that they would actually be in a position to cut them today.”

As Michael Snyder has previously said, “If the Fed does follow through with an interest rate hike in December, that is going to make things even worse. The U.S. dollar will surge even more, and emerging markets will be in even more trouble.” In both We Have Never Seen Global Trade Collapse This Dramatically Outside of a Major Recession, and in Jim Willie and 20 Reasons Why Quitting Prepping After September Was Wrong, Michael Snyder, Jim Willie, and Peter Schiff all explain why the Fed’s decision to raise rates would have catastrophic results on emerging markets and the overall effect that will have on the death of the U.S. Dollar. For a while, it seemed IMPOSSIBLE the Fed would raise rates. Why? Because if QE1, QE2, and QE3 have worked (like we’re told they have), then the Fed COULD raise rates, and there would be no blow back. Here’s the problem: We are in a BOGUS, JOBLESS recovery, and the Fed knows that! How do they know? Does anyone remember the 2 Day Crash That Was Larger Than Any 1 Day Market Crash In U.S. History last time there was any serious whispering about the Fed raising rates? We’re fed (no pun intended) LIES about how the unemployment rate is “down,” yet we have over 94 MILLION Americans not working, and the lowest male employment participation rate in history…

Previously, and in the video below where Peter Schiff talked about the Fed raising rates in December, Peter Had Accused Janet Yellen and the Fed of Repeatedly Conning the World Financial Markets, and until now, the worst part was that the world kept falling for the what seemed like a con. Now, there is legitimate fear that raising rates might not be a con and if raised, they could cause complete financial failure. As Jim Rickards points out, there is nowhere left to cut….

Schiff on Dec Rate Hike

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The PetroDollar, or U.S. Dollar, is already on the verge of losing its status completely. That would mean instant third world status for the U.S. according to Jim Willie, and he’s right. Even if the Fed keeps rates where they are, the U.S. hardly gets a reprieve but it doesn’t mean instant chaos. Outside of Western Europe, and South America, VERY LITTLE Saudi oil is coming to the U.S., and that oil is still denominated in dollars. It used to be 30-40%, now the amount is in the teens. Most is going to Korea, Japan, and China, who wants to do away with the Dollar completely. Just recently China established another Yuan exchange in L.A. where the RMB will trade on the Forex, the exchange will convert currency into Yuan, much of which is being used by U.S. retailers to pay for inventory in China, and the exchange will sell Yuan based bonds as well. NONE of that bodes well for the Dollar.

To get some idea just how bad this is for the U.S., in the third video below, Michael Maloney explains what I have tried to explain for two years about the death of the Dollar as the World Reserve Currency, but he does a much better job than I do of course. He explains that the death of the U.S. Dollar as the World Reserve Currency is NOT something that happens overnight, but rather a process that is WELL UNDERWAY, as over 23 Countries have left the U.S. Dollar, and that was as of July. Conditions have only deteriorated since. If you do nothing else to learn about how the death of the Dollar is happening right now, and how it affects you personally, watch the next 24 minutes video. You will NOT be sorry!

Will the U.S. Dollar Collapse in 2016?

The U.S. is championing an economic rebound few are even aware of. But it needs to, since so many central banks are concerned with its prospects for growth and fear a devalued U.S. dollar. Unless the U.S. can get its debt under control and its economy on solid ground, the American dollar will continue to lose favor as a reserve currency. If that happens, the U.S. will actually have to rely on its own economic output—just like every other country. Then we are screwed!

End of the Dollar – What it Means

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Michael Snyder Writes:

Just within the past few days, three major high yield funds have completely imploded, and panic is spreading rapidly on Wall Street. Funds run by Third Avenue Management and Stone Lion Capital Partners have suspended payments to investors, and a fund run by Lucidus Capital Partners has liquidated its entire portfolio. We are witnessing a race for the exits unlike anything that we have seen since the great financial crash of 2008, and many of those that choose to hesitate are going to end up getting totally wiped out. In case you are wondering, this is what a financial crisis looks like. In 2008, other global stock markets started to tumble, then junk bonds began to crash, and finally U.S. stocks followed. The exact same pattern is playing out again, and the carnage that we have seen so far is just the tip of the iceberg.

Since the end of 2009, a high yield bond ETF that I watch very closely known as JNK has been trading in a range between 36 and 42. I have been waiting all this time for it to dip below 35, because I knew that would be a sign that the next major financial crisis was imminent.

In September, it closed as low as 35.33 at one point, but that was not the signal that I was looking for. Finally, early last week JNK broke below 35 for the very first time since the last financial crisis, and since then it has just kept on falling. As I write this, JNK has plummeted all the way to 33.42, and Bloomberg is reporting that many bond managers “are predicting more carnage for high-yield investors”…

Top bond managers are predicting more carnage for high-yield investors amid a market rout that forced at least three credit funds in the past week to wind down.

Lucidus Capital Partners, a high-yield fund founded in 2009 by former employees of Bruce Kovner’s Caxton Associates, said Monday it has liquidated its entire portfolio and plans to return the $900 million it has under management to investors next month. Funds run by Third Avenue Management and Stone Lion Capital Partners have stopped returning cash to investors, after clients sought to pull too much money.

When it says that those firms “have stopped returning cash to investors”, what that means is that many of those investors will be lucky to get pennies on the dollar when it is all said and done.

Like I said, now that the crisis has started, the ones that are going to lose the most are those that hesitate.

And just check out some of the very big names that are “warning of more high-yield trouble ahead”…

Scott Minerd, global chief investment officer at Guggenheim Partners, predicts 10 percent to 15 percent of junk bond funds may face high withdrawals as more investors worry about getting their money back. He joins money managers Jeffrey Gundlach, Carl Icahn, Bill Gross and Wilbur Ross in warning of more high-yield trouble ahead.

In this type of environment, the Federal Reserve would have to be completely insane to raise interest rates.

Unfortunately, that appears to be exactly what is going to happen.

If the Fed raises rates, that is going to make corporate debt defaults even more likely and will almost certainly drive high-yield bonds down even further…

Higher rates could make corporate bond defaults more likely and investors are already bailing out of the sector, pulling $3.8 billion out of high-yield funds in the week ended December 9, the biggest move in 15 weeks. The effective yield on U.S. junk bonds is now 17 percent, the highest level in five years, according to Bank of America Merrill Lynch data.

A whole host of prominent names are warning that the Fed is about to make a tragic mistake. One of them is James Rickards…

“The Fed should have raised interest rates in 2010 and 2011 and if they did that they would actually be in a position to cut them today,” said James Rickards, a central bank critic and chief global strategist at West Shore Funds. “The Fed is on the brink of committing a historic blunder that may rank with the mistakes it made in 1927 and 1929. By raising into weakness, they will likely cause a recession.”

In 2015, we have already seen stocks crash all over the globe. Coming into December, more than half of the 93 largest stock market indexes in the world were down more than 10 percent year to date, and some of them were down by as much as 30 or 40 percent. At this point, conditions are absolutely perfect for a frightening collapse of U.S. markets, and the Federal Reserve is about to pour gasoline on to the fire.

Anyone that says that “nothing is happening” is either completely misinformed or is totally crazy.

I like how James Howard Kunstler summarized what we are currently facing…

Equities barfed nearly four percent just last week, credit is crumbling (nobody wants to lend), junk bonds are tanking (as defaults loom), currencies all around the world are crashing, hedge funds can’t give investors their money back, “liquidity” is AWOL (no buyers for janky securities), commodities are in freefall, oil is going so deep into the sub-basement of value that the industry may never recover, international trade is evaporating, the president is doing everything possible in Syria to start World War Three, and the monster called globalism is lying in its coffin with a stake pointed over its heart.

The financial markets held together far longer than many people thought that they would, but now they are finally coming apart at the seams.

Moving forward, the “winners” are going to be the people that pull their money out the fastest. This is especially true for high risk funds like the three that just imploded. If you hesitate, you could end up losing everything.

And as this rush for the exits accelerates, sellers are going to greatly outnumber buyers, and this is going to push prices down at a very rapid pace. We are going to hear a lot about a “lack of liquidity” in the days ahead, but the truth is that what we will really be looking at is a good old-fashioned panic.