More Warnings of Looming Financial Crash

Although it is hardly a torrent, there is growing coverage of the imminent blowout of the financial system, on a scale much greater than 2007-2008.

*  The Daily Telegraph‘s Jeremy Warner, citing the collapse of the junk debt-saddled Third Avenue Focused Credit Fund, warned in a Dec. 16 column that the system is headed for a bigger crash than 2008.  “Are we about to see history repeat itself?  That’s been the question on everybody’s lips since the closure last week—or ‘shuttering,’ to use the technical term—of the Third Avenue Focused Credit Fund, one of a number of funds set up to chase yields in a world of poor to non-existent rates of return. Two other smaller U.S. funds have also since taken action to prevent investors from removing their money.  It’s all eerily reminiscent of the events leading up to the credit crunch of seven years ago. Did we learn nothing from the greatest financial crisis in history; and by treating its symptoms with vast quantities of central bank money printing, did we not merely set ourselves up for the next one?”

Warner cited the concentration of junk debt in the shale oil and gas sector, and cited a recent Standard & Poors forecast of a 50 percent bankruptcy rate for all energy related junk bonds, as evidence that the situation is nearing blowout.  Warner quoted Carl Icahn warning that the corporate distressed debt market is a “keg of dynamite that sooner or later will blow up.”  Warner concluded that “the world economy has never been more awash with debt.  In this sense, the high yield squall may well be a harbinger of much worse to come.”

*  Ambrose Evans-Pritchard warned on Dec. 19 that the global coal sector is also headed for a major crash, as was recently warned of, in a report by the International Energy Agency.  While some of the decline in coal output is driven by China’s energy modernization program, the impact on the financial bubble behind the coal sector is nearing a danger point.

*  Edward Lotterman, a columnist for the Pioneer Press in the Minneapolis-St. Paul area, warned in a Dec. 20 column that the incoming President of the Minneapolis Federal Reserve Bank, Neel Kashkari, is facing a new too-big-to-fail crash.  He ended his analysis by warning, “So despite pious promises from presidential candidates eschewing all future bailouts, we are even more vulnerable to a financial crisis than we were in 2007. We are rim of the abyss on which we teetered just seven years ago.  Few if any politicians are talking about it.”