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  • Writer's pictureJonathan Buck

We Are Heading Into an Economic Crisis: Act Now to Protect Your Finances

Updated: May 7, 2023

As an economic storm gathers momentum, a growing sense of unease surrounds the global financial system. Governments and central banks do not seem to have a grip on the escalating crisis. Individuals must prepare for a rapid financial collapse, which could leave many unprepared and exposed to substantial risks.

This Crisis is different The speed at which events are unfolding is alarming. In just two days, the Federal Reserve printed over $300 billion to mitigate the effects of the SVB failure. Meanwhile, within two weeks, a staggering $550 billion was withdrawn from local banks, fueling concerns about a systematic breakdown.

Now more than ever, it is crucial to stay vigilant and take proactive measures to safeguard your personal finances. In this article, we will examine the current banking crisis, delve into the warning signs being overlooked, and explore the steps you can take to protect yourself from the impending financial storm. Bank Failures:

This year has witnessed an unprecedented level of bank failures, with three out of the four biggest bank failures of all time occurring in 2023.

Research by Amit Seru, a professor of finance at Stanford Graduate School of Business, found that the U.S. banking system accumulated $2.2 trillion in unrealized losses over the past year.

Banks are Insolvent:

Economist Nouriel Roubini, who predicted the 2007-2008 global financial crisis, argues that most US banks are technically near insolvency, with hundreds already fully insolvent. The rising inflation in 2022 led to higher bond yields, resulting in significant losses for fixed-income investors. Roubini believes that central banks should not assume that a credit crunch will kill inflation, as negative aggregate supply shocks persist and labor markets remain tight. He warns that everyone should prepare for a coming stagflationary debt crisis. Debt Ceiling: For those who don’t know what a debt ceiling is: The debt ceiling is a limit set by the U.S. government on how much money it can borrow to cover its expenses. Think of it like a credit card limit. When the government spends more money than it collects through taxes, it borrows money to make up the difference. The debt ceiling is the maximum amount of debt the government is allowed to have. If the government reaches this limit, it must either cut spending, raise taxes, or increase the debt ceiling to continue borrowing and paying its bills.

Concerns over the commercial real estate (CRE) market have grown following the failures of Silicon Valley Bank and Signature Bank. Analysts from Morgan Stanley, UBS, and Goldman Sachs have shared their outlooks for the sector, ranging from almost apocalyptic (Morgan Stanley: “This Real-time could be worse than the financial crisis”) to manageable losses. The commercial real estate sector faces significant challenges, particularly in office space, as higher interest rates and tighter lending standards put pressure on borrowers and banks alike. Insurances under pressure:

Insurance companies are currently sitting on hundreds of billions of dollars in unrealized losses in their bond portfolios, according to AM Best. However, their vulnerability to liquidity issues is lower than banks. Unfunded Pensions:

Unfunded pension liabilities are a growing concern as state and local pension plans face a projected cumulative $1.3 trillion funding gap. Pension systems primarily rely on investment returns on assets, which are subject to risk, interest rates, and economic volatility. Failure to close this gap can result in severe risks, including increased class sizes, cuts to school services, and tuition hikes. Auto loans:

A potential "car bubble" in the US auto-loan market highlights the country's overall consumer-debt crisis. Americans now owe nearly $1.4 trillion in car and SUV debt, doubling over the past decade. Cheap financing has led to increased borrowing for vehicles, and the recent supply chain issues caused a sharp rise in car prices. The Federal Reserve has begun hiking interest rates to combat inflation, causing car-loan rates to rise as well. While the current situation might not cause a financial crisis like 2008, it could lead to an economic recession due to cutbacks in consumer spending and job losses in the car manufacturing industry. Credit Card Debts:

As the Federal Reserve continues to raise interest rates, credit card debt in the U.S. has reached a record high, with more people carrying debt month-to-month. The Fed's measures aim to combat inflation, but they have also resulted in higher annual percentage rates (APRs) for credit card users, causing them to pay more in interest. With inflation persisting, people increasingly rely on credit cards for everyday expenses.

As a result of these trends, more people are now falling behind on payments, contributing to a growing divide between the financially secure and those struggling with debt. Analysts predict that a resumption of student loan payments, scheduled for the summer, will put further strain on those already burdened by debt. Credit card rates are among the fastest ways higher interest rates affect consumers, with the higher interest rate being passed on to cardholders almost immediately.

Student Loan Bubble:

The $1.8 trillion student debt bubble is on the verge of bursting, with over 4 million Americans predicted to default on their debt. The resumption of federal student loan repayments will result in widespread economic repercussions, including further delinquencies on credit card and auto loan debts. Sovereign debt levels: Fitch Ratings reports that since 2020, there have been 14 separate default events across nine different sovereigns, a significant increase compared to 19 defaults across 13 countries between 2000 and 2019. Currently, a record five Fitch-rated sovereigns are in default: Belarus, Lebanon, Ghana, Sri Lanka, and Zambia. Furthermore, Fitch rates eight sovereigns at 'CCC+' or below, and another nine at 'B-'. Conclusion: Despite the crises and problems mentioned, Fed Chairman Powell questionably still believes in a soft landing and a mild recession. This situation brings to mind April 10, 2008, when the Fed acknowledged a mild recession was in progress, just 158 days before the financial crisis erupted. Insiders, such as Yellen, knew about the looming crisis but did not issue warnings. In the current context of Powell's "soft landing" optimism, the pressing question is not whether an economic downturn will happen, but when it will take place.

We cannot be sure how much time we have left, which is why it's essential to act now and prepare for this scenario. Think of it as Noah's Ark; those who wait too long may not make it through the storm.

It's evident that the Federal Reserve, represented by Jerome Powell, won't issue a warning. To safeguard your financial future, consider alternative investments, such as Bitcoin, and act now!

TL;DR: An unprecedented economic storm is brewing, marked by bank failures, insolvencies, rising debt, and faltering real estate markets. This article explores the warning signs and offers steps to protect your finances from the impending financial collapse. Consider alternative investments like Bitcoin to safeguard your financial future. Start profitable Bitcoin Mining Follow us on Twitter

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