15 Possible Black Swan Events That Could Trip Up the U.S. Economy

We live in a world that is becoming increasingly unstable, and the potential for an event that could cause "sudden change" to the U.S. economy is greater than ever.
There are dozens of potentially massive threats that could easily push the U.S. economy over the edge during the next 12 months.  A war in the Middle East, a financial collapse in Europe, a major derivatives crisis or a horrific natural disaster could all change our economic situation very rapidly.  Most of the time I write about the long-term economic trends that are slowly but surely ripping the U.S. economy to pieces, but the truth is that just a single really bad "black swan event" over the next 12 months could accelerate our economic problems dramatically.
If oil was cut off from the Middle East or a really bad natural disaster suddenly destroyed a major U.S. city, the U.S. economy would be thrown into a state of chaos.  Considering how bad the U.S. economy is currently performing, it would be easy to see how a major "shock to the system" could push us into the "next Great Depression" very easily.  Let us hope that none of these things actually happen over the next 12 months, but let us also understand that we live in a world that has become extremely chaotic and extremely unstable.
In the list below, you will find some "sudden change" events that are somewhat likely and some that are quite unlikely.  I have tried to include a broad range of potential "black swan events", but there are certainly dozens more massive threats that could potentially be listed.
The following are 15 potentially massive threats to the U.S. economy over the next 12 months....
#1 War With Syria - U.S. Senator John McCain is now publicly calling for U.S. airstrikes against Syria.  A military conflict with Syria becomes more likely with each passing day.
#2 War With Iran - A war in the Middle East involving Iran could literally erupt at any time.  The following is from a Reuters news report that was issued on Monday....

President Barack Obama appealed to Benjamin Netanyahu on Monday to give sanctions time to curb Iran's nuclear ambitions, but the Israeli prime minister offered no sign of backing away from possible military action, saying his country must be the "master of its fate."

#3 A Disorderly Greek Debt Default - Many reporters in Europe seem to think that this is becoming increasingly likely.  So what would a disorderly Greek debt default mean for the global financial system?  A leaked report that was authored by the Institute of International Finance says that a disorderly Greek debt default would have some very serious consequences.  You can read the full text of that leaked report right here.
#4 An Economic Collapse In Spain - Spain has one of the largest economies in Europe and it is rapidly becoming a basket case.  As I have written about previously, the unemployment rate in Spain has hit 19.9 percent, and the unemployment rate for workers under the age of 25 is up to 49.9 percent.  Unfortunately, the situation in Spain continues to deteriorate.  The following is from a recent article by Marc Chandler....

However, the devolution in Spain is particularly troubling. The new fiscal compact had just been signed last week, which includes somewhat more rigorous fiscal rule and enforcement, when Spain's PM Rajoy revealed that this year's deficit would come in around 5.8 percent of GDP rather the 4.4 percent target. This of course follows last year's 8.5 percent overshoot of the 6 percent target.
The problem that for Spain is that the 4.4 percent target was based on forecasts for more than 2 percent growth this year. However, in late February, the EU cuts its forecast to a 1 percent contraction. This still seems optimistic. The IMF forecasts a 1.7 percent contraction, which the Spanish government now accepts.

#5 The Price Of Gasoline - The average price of a gallon of gasoline in the United States has risen for 27 days in a row and is now up to $3.77.  Virtually all forms of economic activity are affected by the price of gasoline, and if the price of gas keeps going up it is eventually going to have dramatic consequences for the U.S. economy.
#6 The Student Loan Debt Bubble - Just like we saw with the housing bubble, the student loan debt bubble just continues to grow and grow and grow.  At some point the nearly 1 trillion dollar bubble is going to burst.  What effect will it have on our financial system when that finally happens?
#7 State And Local Government Debt Crisis - It is being reported that California is running out of cash again and there are cities all over the country that are on the verge of bankruptcy.  Could we see a significant municipal bond crisis in the next 12 months?
#8 The Collapse Of A Major U.S. Bank - A number of top U.S. banks are looking increasingly shaky.  In a recent article, David Trainer explained why he has such serious concerns about Bank of America right now....

In my opinion, there are four actions taken by financial services that signal the company is headed to serious trouble.
1. Management shake-up and major layoffs - lots of layoffs over the past year
2. Exploiting accounting rules to boost earnings - SFAS 159
3. Drawing down reserves to boost earnings: to the tune of $13.3 billion in 2011 and 2012
4. Bilking customers with new fees: tried it before and trying it again
Bank of America has taken all four steps.

#9 A Derivatives Crisis - The International Swaps and Derivatives Association recently ruled that the Greek debt deal will not trigger payouts on credit default swaps.  This is seriously shaking confidence in the global market for derivatives.  But the global financial system simply cannot afford a major derivatives crisis.
Estimates of the notional value of the worldwide derivatives market range from $600 trillion all the way up to $1.5 quadrillion.  The notional value of all derivatives held by Bank of America is approximately $75 trillion.  JPMorgan Chase is holding derivatives with a notional value of approximately $79 trillion.
When the derivatives bubble finally bursts it is going to be a financial horror show unlike anything we have ever seen.
#10 The Fall Of The Japanese Economy - The Japanese economy shrank at a 2.3 percent rate during the fourth quarter of 2011.  Japan has a debt to GDP ratio of over 200 percent and a major debt crisis involving Japan could erupt at any time.
#11 A "Solar Megastorm" - Scientists tell us that there is a "1 in 8 chance" that a "solar megastorm" will hit the earth by 2014.  A recent Daily Mail article detailed what some of the consequences of such an event would be....

'We live in a cyber cocoon enveloping the Earth. Imagine what the consequences might be,' Daniel Baker, of the University of Colorado's Laboratory for Atmospheric and Space Physics told National Geographic when asked about a potential 'megastorm'.

'Every time you purchase a gallon of gas with your credit card, that's a satellite transaction.

'Imagine large cities without power for a week, a month, or a year. The losses could be $1 to $2 trillion, and the effects could be felt for years.

#12 A Major West Coast Earthquake Or Volcanic Eruption - On Monday, there was a 4.0 earthquake in San Francisco and a 6.1 earthquake in Argentina.  Is the "Ring of Fire" waking up again?
#13 Tornado Damage To Major U.S. Cities - Last year, the U.S. experienced one of the worst tornado seasons of all time.  This year, we have already seen the worst tornado outbreak ever recorded in the United States in the month of March.  A couple of towns in Indiana were completely wiped out by that outbreak.  So what should we expect when we get to the heart of tornado season this year?
#14 Severe Drought In The United States - Last summer was one of the driest summers on record in the United States, and in many areas there is simply not enough water available for farmers this year.  Some are even projecting that we could see "dust bowl conditions" return to some areas of the country eventually.
#15 An Asteroid Strike In 2013 - Although scientists tell us that the probability is extremely low, the truth is that there is a slight chance that a sizeable asteroid could hit the earth in February 2013.  The asteroid is estimated to be between 60 and 100 meters wide, and it is projected to pass by our planet "at a distance of under 27,000 km".  If it did hit us (and scientists say that the odds of that happening are very low) it would potentially be as serious an event as the Tunguska Event in Siberia in 1908.  Mac Slavo of shtfplan.com recently described how awesome the Tunguska Event really was....

On June 30, 1908 an incoming meteor exploded approximately 5 miles above Siberia. The force of the air burst explosion, estimated at between 15 and 30 megatons, or about 1000 times bigger than the atomic bomb that destroyed Hiroshima, was so powerful that it annihilated everything in an 830 square mile area, and reports suggest that that explosion was heard up to 1000 miles away. Because of the remoteness of the impact zone, the Tunguska Event over Siberia had very little effect on the human population in the region, but the destruction of some 80 million trees in the area shows just how powerful a blast was created.

Of course there are so many other "sudden change" events that could potentially happen - a terror event in a major U.S. city, a deadly pandemic, an EMP attack, cyberterrorism or a major political scandal could all possibly cause a stock market crash and an economic collapse in the United States.
In the world that we are living in today, you just never know what is going to happen.
So what are all of you concerned about over the next 12 months?
Do you see the potential for some "black swan events" to happen?

Crude Oil Markets Respond With Yawn

Crude oil prices haven't shown any significant response yet to the Russian aggression in Georgia. This is likely because there is no perceived long-term impact on future prices yet. This would probably change if Russia takes control of the pipeline in the south of Georgia or if there were damage to the physical facilities themselves.

Cold War II !!!

CNN, BBC, and Fox reporters on the ground in Georgia this morning are reporting that Russian troops and armored personnel carriers are on the road and moving toward Tbilisi, the capital of Georgia. Both CNN and Fox reporters are also reporting that a few Russian troops are looting cities, including Gori, outside the South Ossetia conflict zone.

Russia's leaders, Putin and Medvedev, have lied to the global community when they said yesterday that they had imposed a ceasefire and a cessation of hostilities in an agreement brokered by French President Sarkozy. They continued the invasion following the agreement. There is no reason to invade the entire country of Georgia in order to protect the citizens of one province. This is nothing short of an invasion and a shameless land grab. Since when does a government (Russia) freely distribute passports to the citizens of another sovereign country, just so they can claim them as “citizens” with the intent to invade? This was a clear set-up from the start.

Tell me how can Russia claim it is simply protecting citizens in Ossetia when it carries out attacks throughout the entire country of Georgia, with a vastly inferior military? And how could Russia have just suddenly had such a huge invasion force conveniently ready and waiting just over the border that was several times larger than the peacekeeping force the UN authorized for them in Ossetia? The Russians have been fomenting rebellion in the region with the intent of provoking a rebellion that the Georgian government would be forced to respond to. They were intentionally baiting the hook and provoking a necessary response from Georgia's elected officials!

Those of us who work in the finance industry should not underestimate the implications of this invasion. At the very least, as Russia uses its military to impose complete control on all (formerly) independent oil supplies between the Caspian Sea and the Mediterranean, this will have horrific implications for supplies of oil to Europe. Europe, if it allows this aggression to be completed, will become entirely dependent on Russia for its energy supplies. Ronald Reagan warned Europeans against building an oil pipeline to Russia, telling them that they would become dependent on Russia for their energy. The pipeline was built anyway. Now, Western Europe is so beholden to Russia that they are afraid to do anything that might provoke their petroleum benefactor. Russia has already threatened Europe's oil supplies if it doesn't get Europe's cooperation. This is a recipe for disaster.

Several years ago, I remember reading interviews with a former Soviet general in which he warned the West that the turn toward greater freedom in Russia was temporary. I don't recall his name, but he was the highest-ranking military person to ever defect to the West. He told of being present and a participant as a plan was created by Russia's military to temporarily liberalize Russia with the intent to deceive the West into disarming.

There are those who claim that Georgian President Saakashvili initiated the conflict by seeking to quell an uprising in South Ossetia. That's absurd. Since when does a country NOT have the right to put down insurrections within its own borders? Article IV Section 4 of the U.S. Constitution provides the executive branch of the federal government the authority to put down domestic insurrections and foreign invasions WITHOUT a declaration of war (although attacks on foreign countries DO require one). Would the United States ignore the threat if Mexico suddenly started shipping arms to the illegal aliens living within the borders of the United States, and supporting revolt against the authority of the U.S. government? Of course not! Would we deny that same authority and response to Georgian officials elected by their own countrymen? The Civil War in America would have ended very differently in the U.S. without that provision of the Constitution, which was employed by Abraham Lincoln.

Others have suggested that the Russians are only doing what Europe and the United States did in Kosovo. One big difference between Kosovo and Ossetia that the Russians prefer that the world ignore in their faulty comparison: Europe and the United States never helped the Kosovars achieve independence as a land grab for themselves. Furthermore, Europe and the United States never colonized Kosovo with their own citizens so as to dilute the local population, as the Russians did in South Ossetia. Europe and the U.S. had nothing personally to gain, and a lot to lose. The Kosovars were victims of constant, repeated, and systemic attempts to eliminate their very existence. The Ossetians have never been such victims. They were citizens of Georgia in revolt from their own government. There is NO moral equivalency! In Ossetia, the Russians seek to annex Ossetia into adjacent Russia, a blatant land grab. That alone speaks to motive. Ossetia will live to regret the day they pined to be part of the new Russian dictatorship. The twin KGB Kings — Putin and Medvedev — will make sure of that!

The Russian bear has awakened from hibernation and is hungry to cannibalize its former children. We in the West had better wake up to the reality of the new world. The cold war is back!

Russia Threatens Tactical War!

Just moments ago, Russia issued a military threat against the United States and Eastern Europe if the defensive missile shield is deployed in Eastern Europe. Wow! It wasn't even a veiled threat. They said they would strike with a tactical military response! No hedging, no veiled or implied military strike. That's the first threat I've heard of a possible World War III! It will be interesting to see the impact on financial markets!

Meanwhile, Crude Oil Gets Even More Expensive!

Meanwhile, the price of crude oil continues to move higher minute by minute. The tensions in South America between Colombia, Ecuador, and Venezuela have caused greater price pressure on crude oil.

Marxism Taking Control Across Latin America

Here is an excellent article that explains more of what I will discuss following:

Colombia Stands As a Beacon of Hope

Ecuador and Venezuela, both with socialist/marxist presidents who have dissolved their legislatures and befriended Cuba's Castro, are threatening Colombia with military action. They have consistently used their oil wealth to both fund marxist guerillas and provide them with safe haven within their borders. Ecuador and Venezuela are also both members of OPEC, while Colombia is not. Colombia also is an exporter of oil, but has far smaller reserves than its two socialist neighbors.

For decades marxist terrorists have carried out relentless terrorist attacks against Colombia's oil pipelines and murdered thousands of innocent Colombian civilians; they then flee back into the neighboring Ecuadorian/Venezuelan jungles to hide. Once, a group of terrorists shot their way into the Colombian Supreme Court building with machine guns, held the judges and employees hostage for days, and then massacred them all, killing the entire Colombian Supreme Court!

In desperation, Colombia's military carried out a successful attack against these marxist guerillas a few days ago inside Ecuadoran territory, killing one of the marxist terrorist leaders that Hugo Chavez has been funding and supporting. They recovered four laptop computers in the raid that prove the connection to both Chavez and Ecuador's marxist government, including presidential campaign contributions to Rafael Correa, Ecuador's president (who, following his election, dissolved the country's legislative body). Consequently, Venezuela's Hugo Chavez is now threatening Columbia militarily and economically. These tensions are pushing oil prices even higher (at the time of this writing, about $106.50/barrel). There appears to be no end in sight for the price of crude oil.

I have lived in both Ecuador and Colombia, and I have fond affection for both their peoples. Colombia always had a better economy, primarily because of its superior economic freedom. They had more products and higher quality goods in their stores. This was so prevalent that many Ecuadorans made livelihoods just smuggling goods of all kinds from Colombia into Ecuador for resale. These goods were high quality, and it's beyond me why they would be banned in Ecuador. What's so dangerous about a gas camp grill, chocolate Mars candy bars (they sure were good, too) or ceramic plates? Columbia's economy has been so good that they have been net exporters of food to Venezuela and other neighboring countries, while Chavez' Venzuela has now sludged from being a net exporter to a net importer of food under his tyranny. Whatever he can't get through intimidation and tyranny, he simply steals or nationalizes.

I feel particularly for the people of Colombia in this case because these terrorist attacks have taken a heavy and relentless toll on the people of Colombia by Chavez' marxist/terrorist thugs for decades. I was there 25 years ago, and the marxist drug lords have been terrorizing the Colombian people for at least that long.

When I was in Ecuador and Colombia, I remember meeting an American who rode his bicycle along the Panamerican highway through Colombia. He was just a penniless bicyclist traveling through the continent. He survived attempts by these guerillas to capture, kidnap, and shoot him as he rode along the highway. That was in 1978. The Colombian people have endured these conditions for that long, with relentless military attacks, funded by Hugo Chavez' vast oil wealth and the cocaine drug lords, who work together to try to destroy the government of Colombia and force its people into a tyrannical dictatorship. So far, they have courageously resisted.

Hundreds of Colombia's politicians who have had the courage to stand up to these brutal murderers have been killed, and one presidential candidate was kidnapped and is still held hostage nearly 5 years later. Most are too afraid to stand up to these goons for fear that they or their families will be murdered. We all have heard horror stories of the brutality of the Colombian drug cartel! The Colombian people live with it every day!

President Alvaro Uribe of Colombia is one of the few people who have stood up to these brutal marxist drug lords and lived. Many have been killed. He is educated at Columbia and Harvard Universities in the United States and is one of the few free-market leaders in Latin America. While South America has turned almost entirely socialist, he and his people have been the lone voice in the South American wilderness for freedom and free markets. He faced enormous opposition from Marxists both inside and outside his country, and remains firm in his principles of political and economic freedom, even while his neighboring Andean countries -- and all of South America -- have descended like dominoes into Marxism in the past few years.

President Uribe deserves the support and help of the United States at this moment of crisis, not in military troops (Colombia already has the best military in the region), but in moral and perhaps economic support. His country is surrounded by well-funded marxist militarists on the North, East, and South who want to depose his free government and impose marxism on his people. He faces daunting odds and opposition.

Meanwhile, the Democrat Congress in the United States continues to block a free trade agreement with Colombia, one of America's few true-blue friends in Latin America. I urge Americans to contact their Congressmen and urge them to ratify the trade agreement. It will help to solidify America's only ally in the region and make Colombia economically strong so that it can continue the battle for its own freedom on the South American continent.

Unfortunately, there appears to be no quick solution to this problem. These tensions have been simmering for 50 years, and crude oil prices are probably going to go much higher still.