The global debt crisis is back in the headlines. Right now, red flags are popping up all over Europe, with Spain being the most-watched nation. Last Thursday, Standard & Poor's cut its credit rating on Spain by two notches, citing the government's growing budget deficit as a result of economic contraction. A day later, the Spanish government released data showing a record 5,639,500 people are unemployed in that nation, with the unemployment rate hitting 24.4 percent.
Spain may need to pump around $200 billion into its ailing banks. Amazingly, bad loans now make up 8.15 percent of all loans on the books of Spanish banks. That is the highest level in eighteen years. The official debt-to-GDP ratio for Spain is 79 percent, but the actual total is around 130 percent.
Italy is not far behind Spain. Its massive $2.5 trillion outstanding public debt has become a daunting risk for Italian banks. While banks are not obliged to purchase domestic government bonds, they are doingso for a very clear reason. They have purchased so many already that if they don't buy more, a collapse in the bond market would wipe them out.
The banking system in Europe is so critical, the U.S. Federal Reserve, the European Central Bank, and the International Monetary Fund have stepped forward with bailouts totaling $7 trillion.
Egon von Greyerz, a partner at Matterhorn Asset Management out of Switzerland, recently noted how desperate efforts to sustain the current global financial system have become, "So they (the IMF) raised 400 billion from various nations, but where is the money coming from? The majority is coming from Europe and the EU. (They are) all bankrupt. They have no funds. They have to print money. Japan, which has the biggest debt to GDP ratio of most industrialized nations, they are a major contributor of about 60 billion. So it's ridiculous. Here is the bankrupt helping the bankrupt."
The task of controlling the banking crisis is like someone trying to stop a large vat of liquid from boiling over. Each time the vat begins to bubble, governments have poured cold water into the mix to lower the temperature. As they pour more water into the vat, the water level rises closer to the top, and the increased volume makes it harder to manage the brew.
One only needs to look at the results of the recent Long Term Refinancing Operations to see how quickly the debt crisis has returned to the boiling point. In December, the ECB made $1.3 trillion in three-year loans to several European banks to lower the bond rate that had reached unsustainable levels. Once the money became available, the rates on bonds dropped by several basis points. Now that the last portion of the money has been handed out, interest rates have quickly risen back up to dangerous levels.
Several nations have tried to bring their budgets under control by implementing austerity measures. Politicians in France, Italy, Spain, the UK, and Greece have approved spending cuts totaling over $600 billion. European leaders are starting to find that austerity has its own dire economic consequences. When you reduce government spending, the economy will naturally contract.
Austerity may already be doomed at the ballot box. This coming Sunday, France and Greece will hold elections, and the anti-austerity parties have the upper hand. French President Nicolas Sarkozy will likely lose to socialist Francois Hollande, who has attacked government cutbacks. Greece's socialist party leader Evangelos Venizelos has promised no new taxes, or across-the-board wage and pension cuts, if his party participates in a coalition government.
Every time a major central bank like the U.S. Federal Reserve and the European Central Bank gets together for a meeting, the financial press is always speculating about whether there is going to be more money printing. With Western governments running annual shortfalls of nearly $4 trillion, of course, there will be more printing of currency. It's the only way to maintain what has become history's greatest Ponzi scheme.
At some point, the law of mathematics will kick in, and we will reach a flashpoint where the financial rupture will be so quick and overwhelming in scale that the central banks will be powerless to stop the meltdown. With such a huge percentage of the population dependent on the government, the failure of the system will create massive social unrest.
The rise of the Antichrist could dovetail perfectly with this crisis. The Beast is predicted to gain total control over the global banking system. Some type of crisis would be very helpful in setting the stage for such a vast shift in economic power.
"And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads: And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name" (Revelation13:16-17).