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The Biggest Bubble in History is About to Pop
If you are an investor, your big concern should not be about what to stocks… but what happens when the bond bubble goes bust.
For 30+ years, Western countries have been papering over the decline in living standards by issuing debt. In its simplest rendering, sovereign nations spent more than they could collect in taxes, so they issued debt (borrowed money) to fund their various welfare schemes.
This was usually sold as a “temporary” issue. But as politicians have shown us time and again, overspending is never a temporary issue. Today, a whopping 47% of American households receive some kind of Government benefit. This is not temporary… this is endemic.
All of this is spending is being financed by borrowed money… hence, the bond bubble, the biggest bubble in financial history: an incredible $100 trillion monster that is now growing by trillions of dollars every few months.
We do not write that point for effect. The US alone has issued over $1 trillion in NEW debt in the last eight weeks.
The reasons it did this? Because it doesn’t have the money to pay off the debt that is coming due from the past… so it simply issues NEW debt to raise the money to pay back the OLD debt.
Sounds a lot like a Ponzi scheme… but the US is not alone in this regard. Globally, the sovereign debt bubble is over $100 trillion in size. Just about every major nation on the planet is sporting a Debt to GDP ratio of 100%+ and that is just including “on the balance sheet” debts… not unfunded liabilities like Medicare or Social Security.
This is why the Fed and every other Central Bank on earth is terrified of interest rates rising; because anything even resembling the normalization of interest rates would mean entire countries going bust.
Remember when interest rates move, they tend to move quickly. Consider Italy. It was considered one of the pillars of the EU since it adopted the Euro in 1999. Because of this, the markets were happy to allow Italy to borrow at stable rates with the yield on the ten year Italy government bond well below 5% for most of the last decade.
Then, in the span of a few weeks, everything came unhinged and the yields on Italy government bonds spiked, rising over 7%: the dreaded level at which a country is considered to be insolvent and set for default. It was only through extraordinary lending mechanisms from the European Central bank (the LTRO 1 and LTRO 2 programs to the tune of hundreds of billions of Euros… for an economy that is €2 trillion in size) that Italy was saved from potential systemic collapse.
Again, Italy went from being a former pillar of Europe to insolvent in a matter of weeks… all because interest rates spiked a mere 2% higher than usual.
Italy is not alone here. Western nations in general are in a similar state. This is why QE has been such a popular monetary tool for the Central Banks (since 2008 they’ve spent $11 trillion buying assets, usually sovereign bonds). QE was never meant to create jobs or generate economic growth… it was a desperate ploy by Central Banks to put a floor under the bond market so rates wouldn’t rise.
It’s also why Central Banks have kept interest rates at zero or even negative: again, they cannot afford to have rates rise. In the US, every 1% increase in interest rates means between $150-$175 billion more in interest payments on our debt per year.
Forget stocks, forget your concerns about this or that valuation metric, the REAL issue is what happens when the Bond Bubble pops. When that happens it won’t be individual banks going bust, it will be ENTIRE NATIONS.
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
You can pick up a FREE copy at:
http://www.phoenixcapitalmarketing.com/roundtwo.html
Best Regards
Phoenix Capital Research
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Just venting/ranting because I have seen so much chart porn that says "this level has never happened before, and these were the exact conditions just before crash of XXXX" I've seen literally hundreds of articles these last few years that give a perfectly analytical reason of why a crash is IMMINENT, only to have the Banksters and their whore media whip up the muppets into moar buying. I can't imagine the amount manipulation it must require to hold this house of cards in place...
@eyeroller - No problem, I've been known to go on a rant about this stuff from time to time, too, especially lately. Agree with you, I've probably seen those same hundreds of articles and could not imagine the manipulation even going on this long. I'm now completely clueless as to how long it actually can go on. I've never seen anything like it before on this scale. Unreal.
Thanks for the insight.. just take out the pen and regurgitate what others have written about...
How many times did I f*cking read this in the last 5 years or so?
"The Biggest Bubble in History Is About to Pop"
You mean, Phoenix Capital blogs are finally going to end? Yippee....
Being literal can sometimes be a great character flaw.
How many times did I f*cking read this in the last 5 years or so?
Four hundred seventeen octillion, nine hundred three septillion, one hundred twenty-two sextillion, forty-seven quintillion, seven hundred nineteen quadrillion, four hundred ninety-two trillion, six hundred sixty-nine billion, one hundred thirty-seven million, four hundred eighty thousand and ninety-two.
Ooops. Since I began typing the above paragraph, there's been a few quintillion more added.
There are no character flaws here my friend.
But one day I will be as great as you are.
Are you autistic by any chance?
Reading the message multile times does not make the message any less truthful.
And just because it hasn't happened yet...doesn't mean it won't.
It just means you'd be a fool for not hedging accordingly.
I've been hedging for longer than you can imagine my friend. But even the hedge itself needs a hedge these days. Stacking works as long as you have the means. I am at the un-stacking phase now. Hopefully I don't reach the bottom before the end begins.
cifo
unstack the gold last my friend...
Cifo...it seems maybe they aren't all "friends"
Autistic? No, I'm an idiot savant without the savant part.
Says it all, really.
Only war can save us now.
How about an economy that works for the majority of people?
instead of the vampire, bankster Rentier profit siphoning monopolist.
I say we hang a bunch of them and THEN see what happens.
Dear Woody,
Must say I like that idea...I´m just worried what will happen if the banksters are removed out of the equation. What will happen if you remove the guys that are tipping the global scales ever so slightly in the favor of the west? We live like kings (in comparison) but over there in Asia they live like paupers and still they outproduce and outinvest us.
Do you really think it will be calm seas and happy sailing once the standard of living over here goes to par with our real assets...not our leveraged assets. Let´s say the Fed just rides off into the sunset and no more 0-interest and all that. What do you think a decent 5%-interest will do to all of us?
What we are seeing is a huge re-balancing between different parts of the world and what is being done about it is to try to slow it down.
that was true once. Not anymore.
Hell , that's nothing to worry about ... I have a $100T Zimbabwe note in my office , they can have it... PROBLEM SOLVED.
What the politicians got this man.
"This is why the Fed and every other Central Bank on earth is terrified of interest rates rising; because anything even resembling the normalization of interest rates would mean entire countries going bust."
Then maybe the central banks, in their wisdom, decide to never raise rates. It's not like the markets have any significant influence...that's what the last several years of ZH have taught us.
Would everyone, please, shed their debt (fiat money) and get fizz?
Rates will stay at 0 - until the end of our natural life span. There´s no alternative. Think about what that will mean...another long time fighting the Fed while others are reaping the benefit of the huge wealth transfer.
The bubble bursting will come to pass but I seriously doubt that even the U.S. has even hit phase III. Much higher to go. And in th mean time other such as Japan and Europe are jumping in feet first into the 0-rate pool and are somewhere around 09-10 time frame. And eventually China will also come in.
The most interesting play of all times is Russia. Will U.S . of Wall St succeed with their economic warfare and birng about regimechange in Russia installing a new Yeltsin? The evaluation of Russia is enourmosly distorted - something like a p/e 2-3 for the whole stock exchange. After that puppy has popped and sucken in enough money to go to 15 it may be time to get out of markets all together.
Remember, going broke is a slow process for a long while, then it happens all at one. Take Japan, they've been keeping the ship afloat for 25 years because they had a lot of money to burn through and they could still export their high end products to the rest of the world during most of that time. But now their debt is starting to struggle them, Kuroda's latest move corroborates they're in code red now. Same is happening to China, only a bit faster: still large holdings of foreign bonds (aka money to burn through), but also lots of debt, in part due to impressive malinvestments (they're in good company by the way: they build empty cities, the US invests in a ridiculously expensive military apparatus and Europe is a welfare queen), and a shrinking export market for their low end products, because of the global slowdown and cheaper producers in other Asian countries.
The problem with keeping the interest rates low ad aeternam is that you start getting all these unhealthy distortions, because people are frantically chasing yields by any means possible. That's why it won't last. Something very distorted will implode and there's no way to predict when that will happen and what that something will be - oil prices plunging, a conflict, an important sovereign default, the British queen breaking her neck over a piece of soap in her bathroom - but implode it will.
Of course it will implode - but I suspect that it may take a long time. And when it happens you do not want to be around it or live in the ConUS. In the meantime those that have invested in Economy v2.0 are getting a lot wealthier. I have begun to put more credibility in the thinking that a lot of money has simply been stolen or pilfered out of different legacy systems and public institutions - in order to have something to put to work in new technology of different kinds. The idea that that all these systems created after the WWII would actually be allowed to work for any longer period of time is plain - wrong.
Take a look at biotech. Up 300 % or more in 5 yrs. 2013 a healthy 60 % and this year to date approx. 55%. And yes - it will correct at some time but we are not even in the beginning of phase III. General investors haven´t even begun to discover this bubble in the making. And you can´t have an internet-like bubble without them.
Decade of Zero....how appropriate