Draghi and Bernanke's Worst Nightmares Are About to Unfold

Phoenix Capital Research's picture


Ben Bernanke and Mario Draghi must be absolutely terrified.


These two men, in the last two weeks, have both initiated open-ended bond buying programs. The purpose of these programs, aside from keeping insolvent banks in business, was to scare the markets into believing that no matter what happens, the Central Banks will be able to step in and support the financial system.


From a philosophical standpoint, this was Draghi’s and Bernanke’s “all in” moment. I won’t say they they’ve gone “nuclear,” as they have yet to truly monetize everything, but they’re not far from that.


And they’ve both failed.


Spain, which I’ve been warning will bring about the break-up of the Euro, saw the yields on its ten-year bonds break back above 6% yesterday. This is absolutely extraordinary. It indicates that within two weeks of the ECB announcing it’s going to do an “unlimited” bond purchasing plan, Spanish bonds are once again imploding.


Indeed, if you analyze the Spanish ten-year yield chart from a technical analysis perspective, you’d say that it’s bounce off former resistance (indicating that it’s now support) and is ready for the next leg up (north of 7% again).



This is Game Over for the ECB.


The EBC cannot announce an even larger program now as that would completely destroy its credibility in the markets.


Congratulations Mario Draghi, the markets were intimidated by your promise of unlimited bond buying for a total of less than two weeks.


On the other side of the pond, Ben Bernanke is rapidly approaching his own Game Over moment.


The US Federal Reserve bought roughly three quarters of all Treasury issuance last year. Let that sink in for a moment. Roughly $0.74 out of every $1 in debt created by the US in 2011 was bought by the US Fed… not by the bond market, not by foreign countries, but by our own Central Bank.


Despite this massive intervention, the US economy (according to the ECRI) has officially re-entered a recession. This is why the Fed announced QE 3 now, because Bernanke is growing truly desperate, both in terms of losing control of the markets and the potential of losing his job if Mitt Romney is elected President.


So the Fed chose to monetize Mortgage Backed Securities this time around. And the result is that the US Treasury market is tanking. If it takes out its trendline, things will get very ugly very fast.



Here’s a thought… what happens if the Treasury market begins to implode despite the Fed buying roughly 75% of all Treasury issuance?


GAME OVER for Bernanke and the Fed.  


The only option left would be to monetize everything, which would mean hyperinflation (all hyperinflationary episodes have been created by monetization of deficits… you can pull this off until you lose credibility… at which point you suffer a currency crisis).


Congratulations Ben Bernanke, you’ve managed to screw up the capital markets so badly that the US is on the verge of its own European-style debt crisis… despite you taking over the entire interbank money-market and nearly all US Treasury issuance.


Folks, this is the reality we’re dealing with. The ECB and Fed have gone “all in” in their efforts to stop the debt implosion… and they’ve failed. All they’ve done is unleashed an even more serious inflationary storm than the one we were already facing.


The time to start preparing is now. The printers are running. The Great Currency Debasement has begun. Some folks will walk out of this mess winners. Most will walk out as losers.


At Phoenix Capital Research, we’re taking steps to insure our clients are among the winners. We have a host of FREE Special Reports devoted to helping readers prepare for the coming Debt Implosions in both the US and Europe.


We also feature a special report devoted to inflation as well as which investments will perform best during periods of high inflation (periods like the one we’re entering).


All of this is available 100% FREE at www.gainspainscapital.com


Best Regards,


Phoenix Capital Research








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WhiteNight123129's picture

The guys who have money and no debt on this blog: Do something for your country spend some cash anyway inflation is coming eventually, buy some stuff, buy something for your girlfriend or wife (or gay lover) whatever, spend some money you make by speculating. For those who feel poor and in debt, keep your Silver for now and do not rush to repay your debts, there will be nominal increase in wages (not in real terms) but it will help repay your debts later.



The Trade Group's picture

So a few days after apologizing for getting everything wrong.. he starts sending out the same old gibberish. Enough Graham! You suck!

new game's picture

ben needs to slide the keyboard over to the treas.

oh that right it has to go thru the 19 primary dealers for the bankers skim job...

this smells fouler than the nastyist puke laden shit pile of rotten fucken fish i've even wifffed...

rsnoble's picture

"only option left monetize everything"

Then based on previous performance it's 100% certain that's next.

MrBoompi's picture

Sounds like Benny needs to slip Graham a billion or two and he might stop writing these types of articles.

LawsofPhysics's picture

" what happens if the Treasury market begins to implode despite the Fed buying roughly 75% of all Treasury issuance?"

Simple, they buy 100%.

WhiteNight123129's picture

THe Fed cares more about the 10 years than the 30 years, if the yield curves steepens enough (but not catastrophically), you flush people with net cash out of their cash. Long term yield starting to rise has always been associated with rising commodities price and change in price structure. Declining long term rates always associated with leveraging and supressing price of commodities historically, there are also demand supply factors as well, and to that extent the China boom has upset this relationship between long term rates and commodities. Long term rates rising will make stocks go up and down like after 1937 when the money printing rally started in 1933 ended.

Inflation is the best way to force the Rich and Corporation to spend, but they are fucking slow to get it. Only Buffet got it and it spent all his cash in a share buy-back and for hte first time in 50 years with no discount to NAV. He can see longer term this old f***, he is not stupid. But the other guys, damn they have no clue about the end result of the game....THey are as smart as the Japanese consumer who believes Yen = Gold. As a result they have self-fullfilling deflation in Japan. Dumb Japanese consumers.... The more they accumulate debt the worst it gets when capital isf finally dis hoarded back and converted into circulation.... and then the deleveraging in Japan is going to be much faster and much more furious (though one has to net the Gov debt with Consumers savings and then the debt is a lot lower than one thinks...) I mean they can not indefinitely remove part of the circulation and convert that into monied-capital which they are doing, this is the recipe for fireworks when it finally pops and goes the other way around. The Fed should have gone to 0 interest rates much earlier so that the reversal would have started at a lower level of debt, Gold was doing that, Bimettalism was a way of printing money when times were rally tough (when you had contraction, the more undervalued metal in jewelry would come to the rescue and you would print new minted Silver Coins during the crisis if Gold was the more overvalued metal, or if you were running on Silver and had a crunch, the idle Gold would come to the rescue and Gold would enter back the circulation. It would be the fuse, the undervalued metal would stay idle in jewelry bars and so forth and come to the rescue in the form of newly (printed) minted coins. That was the printing of the days, and people say bimettalism is not printing.... what utter crap. Idle bullions not needed in good times would be the printing fuse in bad times, so that the guys anticipating the crunch would melt their bars into coins and buy the cheap assets and preventing the collapse as much as possible. 




honestann's picture

And then 200%.  How can they buy 200%?  Simple!  He'll just tell Obama to raise spending so much that the federal deficit doubles --- then buy all of that.

The predators are in heaven!  They love this.

Zero Govt's picture

Bubble Ben and never-super Mario must learn the hard way that a printer does not create wealth nor repair rotten banking/political systems

the truth comes to all economically dysfunctional retards

lasvegaspersona's picture

One has to admit the both Draghi and Bernacke did pretty remarkable things. Why now?  What are we missing that both would take it to the limit? Yes by acting together they assure that the dollar and Euro will not look bad compared to each other. 

I assume Bernacke needs to feed the beast that is the US government and Draghi is stalling until the dollar fails in a hyperinflationary event, at which point gold fills the asset side to the ECB balance sheet and entirely replaces the dollar which now provides about 30% of the value on the asset side.

Both do seem to have made 'last ditch' efforts. Really, where can they go from here and not loose (remaining) credibility? If Bernacke says: " I meant $100 billion a month" would that make much of a difference?

lasvegaspersona's picture

The opposite of optimism is....Phoenix Capital Research....not that he is wrong, just that he forms the most pessimistic boundry...

boogerbently's picture

....and you gotta go some to surpass ZH.

alp's picture

ZH is all about pessimism: "zero-sum" game and death.

"Zero Hedge: On a long enough timeline the survival rate for everyone drops to zero."

avidtango's picture

But the vast majority here (if posts are to be believed) are enthralled with pessismism - doom, gloom, end of the world, violence, anarchy, survivalism.   Even if the future of our economy is extremely bleak, I am confident that after a collapse, we will rise.  That means coming to our senses about real wealth, work and living without financing 50% of our lifestyle with phony paper shuffling.





WhiteNight123129's picture

The reality is that the Fed is pointing its flame thower at the ones who have capital the Rich and the Corporations so they are forced to spend it. And they will, so capital accumulated out of the consumption in the leverage cycle gets dis-hoarded back into the circulation. Go Benny fuck the Stockbrokers all in cash, force him to spend his "dollars" force the debt of teh consumers down by making nominal wages up as a result of capital dishoarding. The collateral damage will be on commodities price, but if people have a job and more confetti dollars, debt is easier to repay at least. Benny please fuck the cash of AAPL, GOOG etc.... fuck the cash of those wall street guys all in bonds.

The reality is that the consumers have net debt.

honestann's picture

Hey, a happy ending is always possible!

What's the best case happy ending?  All predators are eraticated by angry mobs.  This includes all government executives and workers, all central bank executives and workers, all large financial corporation executives and workers, most large corporation executives and workers, and everyone else running scams.  Then the 99% of the population who are the total freaking morons who sanction, support and defend those predators die off quickly and painlessly.

Then the less than 1% who have always been sane, honest and productive inherit the earth.

I sure don't like the odds on a happy ending this time around, but I guess we'll find out.

orca's picture

Mario and Ben have said that they will buy essentially every piece of shit, but they haven't told us at what level they will buy said shit. Crucial difference and that's what accounts for the uptick in "yield".

alp's picture

Exactly, I think they cannot bluff anymore and instead have to show some action. But what kind of action are they able to do other than monetizing everything? I think they are indeed running fast out of options and losing credibility quickly.

avidtango's picture

Oh ye of little faith.  The central bankers may keep hitting their head against the wall over and over but they can always come up with excuses as to why they weren't hurt and media friendly explanations as to why they should do it again.  Their ingenuity is explaining failure is matched only by our willingness to wholeheartedly accept it.  

Snakeeyes's picture

Just released. Mortgage lending in US FELL in 2011. Hard for the Fed to generate construction employment or housing when lending is declining.


boogerbently's picture

Banks know this will "blow over", why would they want to lend for 30 years at these low rates?

Ned Zeppelin's picture

Banks aren't lending their money, except around the margins. They are mortgage originators and processors for the goverment.  Almost all mortgages are federal, and are sold into the the agencies.  Then when packaged, the Fed buys them.  No one else wants them at these rates.  

lasvegaspersona's picture

HOW will it blow over? The problem is that we are not in a down part of a cycle. We are near the end of a fiat currency's life. The dollar is already long in the tooth and the derivatives that have been concocted to keep it going are almost not enough.

AT's picture

Notice the big uptick in GS postings? He's working the marketing hard now to replace all the subscribers who lost money on his last round of predictions.

Jack Sheet's picture

Yeah, 5 times nothing is unfortunately still nothing.

sosoome's picture

Him leaning towards inflation may be a sign to lean the other way.

johnjkiii's picture

QEternity turns out to be a 2 day event. I wonder how long it will take before lenders wake up and begin to demand higher rates here? When they do the fit will really hit the shan!

boogerbently's picture

With the further erosion in the EU, will gold:

Fall in response to the perceived "comparative" strength of the USDollar,


Rise with the increased buying from investors abandoning the EU?

lasvegaspersona's picture

I see people turning to physical gold as a way to save outside the system. It will not happen in large numbers as the concept is simply too foreign and (as Greenspan pointed out) the governement hates gold and rails against it. Those who do will ulimately find themselves among the few who possess real assets.

eddiebe's picture

My guess is that events are and will unfold just about exactly the way Mario and Ben want. To think that they are all in, or that they have used nuclear options is ridiculous. Who knows exactly what their plans entail ( other than their handlers)? One thing you can bet on: They'll try and most likely get more of what you and I have one way or the other.

Precious's picture

They will own everything and nothing at the same time.

LMAOLORI's picture



Actually they will own you as a debt slave. We are the US in the treasury repayment.

boogerbently's picture

When you think about it, it follows nicely with our unlimited and open ended support of welfare/disability/medicaid/education....