A Perfect Storm: Brace Yourself for an Epic Economic Meltdown!

• A Perfect Storm: Brace Yourself for an Epic Economic Meltdown! 
  by James Rickards, http://dailyreckoning.com/ 
  Over the coming months, I believe we could see an economic meltdown at least six times the size of the 2007 subprime mortgage meltdown.
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  Circumstances lead me to believe it could play out like the meltdown I experienced in 1998 after Long-Term Capital Management (LTCM) failed. This time, however, there will be several crucial differences that will leave investors and regulators unprepared.
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  In fact, last week, I held a live intelligence briefing called The Perfect Storm: A 1998 Redux to alert Strategic Intelligence readers to the dangers. But what I didn’t mention during the briefing were the two intelligence triggers I used to support my outlook.
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  In 1998, a financial panic almost destroyed global capital markets. It started in Thailand in June 1997 and then spread to Indonesia and Korea. By the summer of 1998, Russia had defaulted on its debt and its currency collapsed. The resulting liquidity crisis caused massive losses at hedge fund Long-Term Capital Management.
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  I know about the losses because I was there. As LTCM’s lead counsel, I was at every executive committee meeting during the height of the crisis that August and September. We were losing hundreds of millions of dollars per day. Total losses over the two-month span were almost $4 billion. But that wasn’t the most dangerous part.
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  Our losses were trivial compared with to the $1 trillion of derivatives trades we had on our books with the biggest Wall Street banks. If LTCM failed, those trillion dollars of trades would not have paid off and the Wall Street banks would have fallen like dominoes. Global markets would have completely collapsed. 
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  The next financial collapse, already on our radar screen, will not come from hedge funds or home mortgages. It will come from junk bonds, especially energy-related and emerging-market corporate debt.
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  The Financial Times recently estimated that the total amount of energy-related corporate debt issued from 2009-2014 for exploration and development is over $5 trillion. Meanwhile, the Bank for International Settlements recently estimated that the total amount of emerging-market dollar-denominated corporate debt is over $9 trillion.
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  Energy-sector debt has been called into question because of the collapse of oil prices. And emerging markets debt has been called into question because of a global growth slowdown, global deflation, and the strong dollar.
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  The result is a $14 trillion pile of corporate debt that cannot possibly be repaid or rolled over under current economic conditions. Not all of this debt will default, but a lot of it will. Most of the energy related debt was issued in the expectation that oil would remain in the $80 to $130 dollar per barrel range
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