Echoes of the Great Depression: Dow has worst Thanksgiving week since 1932

November 25, 2011 – NEW YORK – Stocks closed in negative territory in thin, shortened trading Friday as investors were reluctant to go long ahead of the weekend and amid ongoing worries over the euro zone. The Dow and S&P posted their worst Thanksgiving week since the Great Depression on a percentage basis. “Again, we’re trading on very thin volume—You’re going to have continued downward pressure over the next 30 days,” said Todd Schoenberger, managing director at LandColt Trading. “It’s very difficult to be long this market because you have so many issues—there’s more potential for negative headlines than positive ones.” In Europe, S&P downgraded Belgium one notch to AA from AA-plus, further underscoring worries over the euro zone debt contagion. Earlier, EU officials said euro zone member states were discussing dropping private sector involvement from the permanent bailout mechanism. An Italian T-bill auction offered a fresh indication of investors’ lack of confidence in the country’s newly-appointed government and broader fears that the euro zone debt crisis cannot be contained. Yields shot up to new euro era highs. -CNBC excerpt

Do not pass go- do not collect $200: The financial system that underpins the Eurozone is, itself, unraveling. A slew of downgrades by Western rating agencies leveled at sovereign countries have made the risk of borrowing in the face of rising bond yields that much riskier. This week, Portugal credit rating was slashed to junk status by Fitch. Similarly, this week, Hungary was downgraded to junk by Moody’s. Today, the hammer also fell on Belgium as its credit rating was downgraded by Standard & Poor from AA+ to AA. France could be next and still more nations like the UK could follow where debt to GDP ratio is already pushing 65%. It goes without saying that there are inertia forces at work, whether by design or circumstance, to unravel the financial skeleton whereby European countries swap loans between each other and trade debts to service the Euro. -The Extinction Protocol


Financial doomsday looms for 2012: The good news is that if we get through 2012 without the financial collapse of a big bank or a Eurozone government, our economy will probably muddle through, flatlining rather than falling back into acute recession. The bad news is that 2012 is the year of greatest risk that a bloated bank or over-extended government will be unable to repay its debts – because it is a year when a frightening volume of the loans that were taken out in the boom years fall due for repayment. In private equity, for example, much of the money that was borrowed to finance the buyouts of big companies from 2005-7 has to be paid back in the coming year. In practice, it would mean replacing old debts with new debts – borrowing new money to repay existing creditors. That said, the amount of debt maturing for private-equity owned companies pales into insignificance compared with the debts of banks that have to be repaid or refinanced in 2012. -BBC http://www.bbc.co.uk/news/business-15889136


Spain is crumbling: No one has grasped yet the seriousness of where this crisis is at. For all practical purposes, Spain is already in a depression. Spain’s unemployment rate is already 22%- 3 points from the peak high seen in the U.S. during the Great Depression in 1933: “From an estimated annual rate of 3.3 percent during 1923-29, the unemployment rate rose to a peak of about 25 percent in 1933. The economy reached its trough in 1933; but although unemployment had reached its peak, economic recovery was slow, hesitant, and far from complete.” In 1930 the unemployment rate was 8.9 percent, or equal to today. By 1931 it was nearly 16 percent. Then, after peaking at nearly 25 percent in 1933, the unemployment rate slowly abated…yet it was still nearly 15 percent in 1940.

Spain’s mounting woes: The fact that Spain hasn’t collapsed yet, faces a record amount of sovereign debt, and has very high bond yields means unemployment could go even higher than a 30 or 35% percentile range. I don’t think anyone is quite prepared yet for adverse economic conditions where up to a full one-third of a country’s citizenry is unemployed. High unemployment was just one characteristic of the Great Depression of the 1930′s- we are already starting to see others. On November 21, (the same day this video aired) the Bank of Spain took over Banco de Valencia, making it the latest casualty of the collapse in Spain’s property boom and the first retail bank to seek a bailout. Since the start of Spain’s financial crisis, the central bank has taken control of three savings banks – CCM, Cajasur and Caja de Ahorros del Mediterraneo (CAM), which is due to be sold off in auction by mid-December. There may be three other banks teetering on the brink.


November 26, 2011 – LONDON – As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible. Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis. The Treasury confirmed earlier this month that contingency planning for a collapse is now under way. A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time. “It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph. Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest. Greece has seen several outbreaks of civil disorder as its government struggles with its huge debts. British officials think similar scenes cannot be ruled out in other nations if the euro collapses. Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash. Fuelling the fears of financial markets for the euro, reports in Madrid yesterday suggested that the new Popular Party government could seek a bail-out from either the European Union rescue fund or the International Monetary Fund. There are also growing fears for Italy, whose new government was forced to pay record interest rates on new bonds issued yesterday. The yield on new six-month loans was 6.5 per cent, nearly double last month’s rate. And the yield on outstanding two-year loans was 7.8 per cent, well above the level considered unsustainable. Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default. -Telegraph

In an interview, former Dutch politician Frits Bolkestein predicted the “inevitable” breakdown of the Euro. He says Eurobonds would be a “disastrous” idea, saying…”That means that the Netherlands must pay more interest. I have calculated that thing up to seven billion euros per year. Each year, we already have problems to eighteen billion cut in four years.” And he says he would not “shed a tear” if Italy left. Ultimately he sees the emergency of a “Neuro” comprise of Germany and other Northern European economies. –Business Insider