The Fed Is Sitting On a $191 TRILLION Time Bomb

Phoenix Capital Research's picture

Stocks are bouncing today because the Fed will wrap up its monthly FOMC meeting and make a public statement this afternoon. Stocks have been rallying into FOMC meetings for the last three years, so traders are now conditioned to buy stocks in anticipation of this.


The prime focus for the markets is whether the Fed continues to state that it will raise rates after “a considerable time.” The reality is that the Fed cannot and will not raise rates anywhere near normal levels at any point because doing so would blow up the financial system.


Let’s walk through this together.


Currently, the US has over $17 trillion in debt. The US can never pay this off. That is not some idle statement… we issued over $1 trillion in NEW debt in the last eight weeks simply because we don’t have the money to pay off the debt that is coming due from the past.


Since we don’t have that kind of money, the US is now simply issuing NEW debt to raise the money to pay back the OLD debt.


This is why the Fed NEEDS interest rates to be as low as possible… any slight jump in rates means that the US will rapidly spiral towards bankruptcy. Indeed, every 1% increase in interest rates means between $150-$175 billion more in interest payments on US debt per year.


So the Fed wants interest rates low because it makes the US’s debt load much more serviceable. This is why the Fed keeps screwing around with language like “after a considerable time” despite the fact that rates should already be markedly higher based on the Taylor Rule as well as the state of the US economy: it’s all a ruse to pretend the Fed has a real choice in the matter.


However, there’s an even bigger story here.


Currently US banks are sitting on over $236 trillion in derivatives trades.


Of this, 81% ($191 TRILLION) are based on interest rates.


Put another way, currently US banks have bet an amount equal to over 1,100% of the US GDP on interest rates.


Guess which banks did this?


The BIG FIVE: JP Morgan, CitiGroup, Goldman Sachs, and Bank of America.


In other words… the Too Big To Fails… the very banks that the Fed has bailed out, and done everything it can to prop up.


What are the odds that the Fed is going to raise rates significantly and risk blowing up these firms? Next to ZERO.


Forget about the Fed’s language and its FOMC meeting. The real story is the $100 trillion bond bubble (more like the $200 trillion interest rate bubble based on bonds). When it breaks, it doesn’t matter what the Fed says or does.


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:


Best Regards

Phoenix Capital Research





Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Digmen1's picture

It seems that the Fed is running the biggest ponzi scheme the world has ever seen.




robnume's picture

"Time Bomb". Classic tune.

Squid-puppets a-go-go's picture

hey, look, lets not be cute about this.

derivative bets can go both ways. maybe theres $100 trillion that will blow up if rates rise. Maybe theres $100 trillion that will blow up if the Fed KEEPS rates low

the FED may be in a situation where it has to subject itself anf the US taxpayer to bankruptcy in order to save the TBTFs

it would be nice to know the breakdown / positioning of this $191 Trillion

AdvancingTime's picture

Anyway you look at it I have a problem lending my hard earned money out for a long period of time based on predictions of future government deficits. These forecast are often formed and made on assumptions based on rosy scenarios. Like many investors I think the bond market is a bubble ready to pop and won't touch bonds with a ten foot pole. Knowing what we know about the effect that interest rates have on the value of bonds one might deduce that the 30 year bull run on bonds will have to come to an end the moment rates are expected to go up.

To give you a sense of what this may mean to U.S. Treasury Bond investors a 10 year treasury bond issued at a 2.82% interest rate could see a 42% loss in value from a mere 3% rise in interest rates. This means if you’d held $100,000 in these bonds prior to the rise in rates, you would only be able to sell those bonds for $58,000 in the secondary market after the 3% rise. Not only would bond holders be stripped of wealth if rates rise or even worse soar, but a blowup in bonds will magnify the nations debt service and rapidly impact our deficit in a negative way. The article below delves into just how big a problem it could cause.

Some Bloke's picture

Tomorrow's Phoenix headline: "Forget the Fed's 191Trillion, xxxxxx has a $256 Trillion ticking timebomb."

Phoenix Capital has longer fuses than a Bugs Bunny cartoon, been alight 7 years now....

dexter_morgan's picture

we timebombed some folks

pashley1411's picture

To steal from Ross Perot, that big sucking sound is the government sucking in every single asset and item of value, on this planet, in this universe, and in any other universes the IRS can issue a levy on.

The direction of interest rates is down.   Because government debt is an asset, and the government wantz it.

Goldbugger's picture

Here's what's coming according to Jim Willie

- FED Resere is covering the selling of Treasuries and not reporting it.

- Launch of a new dolllar, called "The Treasury Note Dollar" complete with a 30% devaluation

- Causing a 40 % increase in imports

- Gold/silver will double in price

- Diverting agricultural and industrial output

- Shortages will start affecting everyone, gas, food, cash, . Expect violence and some martial law in areas.

Southside Stacker's picture

So did Jim mention Satan in this diatribe?  Did the "Voice" make an appearance?  He is entertaining until he lapses into that type of nonsense.  Still, I find some of his ideas interesting and somewhat credible such as precious metals doubling in price--I think that is for starters, imports costing much more and shortages.  We do live in interesting times.

JRobby's picture

That should go smoothly................

Shekels's picture

Winston at the end of "1984" loves Big Brother. It's propanda for the sheep: It's futile to resist!

Bemused Observer's picture

I just want to live long enough to witness the pale cheesy faces of our fearless leaders when the moment of realization hits them...the whole fucker is going DOWN and there's not a damned thing they can DO about it. And they're gonna be blamed...

I want to see the desperation as they all scramble to throw each other under the bus and save their own asses.

inbbyn's picture

The $150-170 billion interest payment increase is a stupid argument. If rates go up only the new debt that is issued will have to pay higher interest. This is fraction of the 17 trillion, as the existing debt matures. 

In terms of banks having 191 trillion in interest rate bets, interesting. Which way are they betting? C'mon, this is key information. It is possible that the banks are long and short between each other to be net flat? I see a bit of misinformation here. 

In general it seems that your conclusion is the starting point: US is wrong, Putin i right! You logic and facts adjust to match the conclusion. 


divingengineer's picture

You are correct, not all bets are losers.  Keep in mind that when a big event like this happens the real risk would be counter party default.  Smaller institutions would quickly become overwhelmed if their derivatives trades, margin calls, depositor withdrawals and commercial paper notes started going sour on them. Wild swings up and down from volitility could cause both short and long positions to trigger, I guess.  Smaller firms would default first followed by larger and larger firms in the rush to collect underlying assets pledged as collateral. Upon learning that every asset class has been rehypothecated 5 - 30 times, contaigion will set in and panic will ensue.  People react to panic by selling, running to cash and gold and trying to lay their hands on any real asset.  Credit markets quit lending when they cannot price the risk and you have a 2008 scenario.  

I think you are right about Govt debt though, existing debt would not be affected as far as the govt is concerned, the holders of lower rate govt bonds would be screwed with a capital S though. Who woulld want lower rate bonds when you could buy higher rate bonds for the same money?

elephant's picture

The BIG FIVE: JP Morgan, CitiGroup, Goldman Sachs, and Bank of America.

Maybe someone has brought this up already, but I count four banks.  Am I missing something?

JRobby's picture

The Sack sucker Squid is 5th in the US

Wells is #4

the asset numbers are fiction anyway


lasvegaspersona's picture

Morgan Stanley....I believe they were #1 recently

teslaberry's picture

every empire is built upon a time bomb, the bomb is called human social obligations. voluntary(the obligee takes the obligors stuff)  and compulsory (the police  military or criminals take your freedom or your life)


money (debt) represents obligation structures. the fed , as money master, is the organization most in control of the voluntary obligation structure, sitting atop a massive pyramid with the power to create money rain and money drought conditions. 

although keynsian propoganda that the 'debt is irrelevant' is obviously designed to reinforce the obediance of the 'public' and 'everyman' to the notion and action of subservience to those who control the money (debt)-----------------the deeper point of keynsianism is that fiat money(debt) is the primary tool for controlling the obligation structure of society and is thus irrelevant to argue to the notion that the money masters are doing their jobs badly creating to much obligations. the money masters are doing what is good for keeping the system as stable as they can with respect to their ability to CONTROL THE SYSTEM from a voluntary basis. 


it is possible the money masters could implode the system with a plan to rebuild it ( ILLUMINATI CONSPIRACY THEORIES) ----HOWEVER-----the keynsian realists are probably right in so far as they are preaching the most likely reality; the money masters want to maintain a modicum of stability as LONG AS POSSIBLE  in order to prolong their control of the system as long as possible. this means that while the money masters might be ok with some amount of suffering, even a massive amount of suffering, they are not ok with the type of social zombie style implosion that many on zh predict. 


the money masters don't want 17% volatility in the u.s. currency or euro currency as you are seeing russia. this would lead to more people simply buying land , gold, and food ; and corporates shutting down production; that is hyperinflation. and you are seeing it now in russia. the flood of savings into real goods precisely when more and more people are producing and selling less in commerce and the wealthy are absconding to foreign safer shores. that is to say extreme monetary (debt) volatility brings into play major political risks to the empire--to the time bomb. extreme voluntary debt volatility brings into play extreme involuntary action volatility ( police state action, petty crime increase upon average pedestrian, martial law, etc...)


it has been apparent for many many years, ---EVEN BEFORE THE 2008 CRISIS WHICH I CUT MY TEETH ON-----that the debt of the u.s. , nay the west in totem----has been out of control and corrupt because of massive self dealing. 



the british pound has 'survived' through numerous destructions. the british people are the cattle herd managed by the money masters, who have had an unbroken control of the british empire for a good 150 years or more now. 


the u.s. is in almost no danger of a true collapse. it already is undergound CONTROLLED ECONOMIC COLLAPSE. 

the heartland is emptying. the urban metropolitan areas are being slowly flooded with more residents who must rent or buy. payroll taxes (obamacare) increase. the police state is growing exponentially in finesse , size, and their ability to generally roll over and stomp on any small firest of human organized resistance. the fremium internet economic model is used to lure in the vast majority of people to use 'free services' online in return for willingly providing a FULL communications/location/information record of hundreds of millions of people. while compressing the margins of millions of small businesses that used to provide services now all but guaranteed to wind up in the grasp of the coroprate deep state monopolies running whats left of the economic-internet. 

the dying epilectic middle class and unemployed youth are being diluted with impoverished mexicans and immigrants. 

the rich are being inured to their class compression. the ultra rich totally insulated as usual. the government worker and apartchik class simply are granted their secure incomes as always, even as inflation eats those incomes and the fixed incomes of savers away. 

the truly poor and mentally ill -----about 20% of society------are left to powerlessly fend for themselves as they always have in history. however, as with the middle class, they are now able to obtain free limitless entertainment, and communications access,  by way of the internet. 


things are going JUST AS PLANNED. 

The Wizard's picture

Solution, do what the Keynesians have been doing for years, just roll it over to a new bond. Or, take the Austrian school approach, terminate the current system and start over with a more substantive system. Would be a lot of hurtin' in the short run, but would be much better for future generations.

JRobby's picture

Why postpone the inevitable?

Solio's picture

Repidiate odious debt! Free the invisible People!

Solio's picture

Endless from thin air, go back to thin air, ok?

Do that keystroke boogie!

the grateful unemployed's picture

this happened in Japan during the lost decade, the BOJ was parking money in MM, and periodically they would sweep the money back, the US fed reserve kabuki theatre is in every way following their lead. Bernanke bought MMs through reverse REPOs? there was that episode of South Park where Stan Marsh opens his first bank account, and almost immediately the bankers tells him, and poof its gone. its all funny money now

nofluer's picture

RE US Default - IF the US defaults on it's debt, it wouldn't be the first time. All through school I kept hearing that old chestnut that "the US has never defaulted on its debt."

I commend to your study the words, "US Continental dollar" and "Not Worth a Continental".

The ONLY reason that the US didn't COMPLETELY default was that too many members of Congress (at the time) had gone around buying up the bonus script (paid to the army/militia) for pennies on the dollar (as it was otherwise worthless.) So IIRC the Congress paid like 10 cents on the dollar for the script, and many of the pols got rich while the former troops got screwed. And you ended up with a default that wasn't a default, but only because of the greed of the crooks in Congress. (Gee... things haven't changed much since then... have they.)

Had the pols not been buying the script, and thus had a vested interest in paying something for it, the govt would have completely defaulted.

the grateful unemployed's picture


El Arian said the Fed should remove the word considerable, but if you read this piece on Fischer, you see why they would not be able to raise rates, until they downsize the monetary base and not reinvest the paper that rolls over, (plug in visual analogy here, dont sqeeze the charmin) the Fed can remove the word considerable and still not raise rates by 2015, they call that jawboning, does the Fed want to jawbone gold lower, jawbone the stock market higher?? gee i don't know

Notice that there are essentially two ways by which a normalization of short-term yields toward say, 4% could be achieved in the years ahead. The conventional approach would involve reducing the Fed’s balance sheet to 8 cents of monetary base per dollar of nominal GDP (see the liquidity preference curve above). This could be done either by reducing the monetary base by two-thirds, or theoretically through a tripling of nominal GDP


For all of these reasons, the FOMC is well-served by Richard Fisher’s proposal to consider terminating the current policy of reinvesting proceeds from Fed balance sheet holdings as those securities mature. Again, that shift implies no rush to raise the federal funds rate or otherwise normalize policy rates.

to jawbone or not to jawbone. if gold does get hammered again BTFD!!

when the hedges unload they'll drive gold much lowers than otherwise


Shekels's picture

If the Koch brothers couldn't corner the silver (Ag) market why couldn't Russia or China?

bluskyes's picture

Don't you mean the Hunt Bros?

jmcadg's picture

Freudian slip. If they'd just kept to the physical rather than adding leveraged silver, it may have ended differently!

divingengineer's picture

Maybe, but the COMEX wont just keep delivering silver until they implode.  When you execute a contract you have to agree to terms, one of them is cash settlement. 

They can cancel trades or settle in cash instead of phyzz at their discretion. I don't think you have any recourse either.  

dexter_morgan's picture

LOL - it's all just boogiemen, details unimportant

nofluer's picture

IIRC, the Koch bros weren't TRYING to corner the silver market.

nofluer's picture

If you're talking about the 200 T in Mortgage Backed Securities, you're FOS (as usual). The banks transfered those securities (and most of the mortgages that make them up) to the FED in exchange for credits to their accounts at the FED. Since then, the FED has been happily collecting the mortgage payments... at WELL OVER current interest rates.

The main fly in the ointment regarding those MBSs is that any of them that were handled by MERS are legally uncollectable, and the people who know about it have just stopped making payments because they cannot be foreclosed on. (Which was what the Robosigning scams were trying to get around.)

Since the FED is collecting the payments and the interest on a lot of these, tell me why the FED wouldn't want to raise interest rates on any of them that are still active and have ARMs that can be hiked?

The BIG debt that is keeping the FED from raising rates isn't the MBSs. It's the US Gov debt that is growing exponentially due to Obummer's hard work on the Cloward-Piven strategy..

But that's just my understanding of it... To research in depth start with Landmark National Bank vs Kessler in the Kansas Supreme Court (and look up the "Cloward-Piven Srategy.")

If you're NOT talking about he MBSs, then please tell us what 200 T you ARE talking about.

Shekels's picture

Sell Alaska bck to Russia for it's fiat  US dollars and/or physical gold.

boattrash's picture

Shekels, fuck that, keep AK, trade them Cali, Detroit, New York, and DC...

Comte d'herblay's picture

Contemplating anything------ if it were miles to the moon instead of FRNs-----of even one Trillion is beyond Hawking's and Einstien's combined I.Q. and therefore moot.

IF the combined assets (not net of Liabilities)of the Big Banks is Too Big Too Fail, then any entity with Liabilities over that, is also Too Big Too Fail.

The Deficit and National Debt do not matter.

"I see Debt, people."



dontgoforit's picture

I see 'debt' people, too - because I am one.

wstrub's picture

I think they will cancel the dbt to put the US in the strongest financial position in the world.

0b1knob's picture

Don't worry the new cromibus bill shifts all the losses to the FDIC.   No bankers will be hurt in the meltdown.

boattrash's picture

"Don't worry the new cromibus bill shifts all the losses to the FDIC.   No bankers will be hurt in the meltdown."

Well, maybe not financially, but there's always hope for them being hurt physically...

MansaMusa's picture

The Fed WILL raise rates next year and purposely get this long awaited SHTF show going

divingengineer's picture

Why would the FED blow up its own banks/currency?

No, they will strip mine the entire country trying to keep their heads above water. 

the grateful unemployed's picture

the fed hasnt the power to surreptiously raise rates, they can push the market in that direction, by restricting credit for instance, they have to get China off the snide because it might take a decade to get manufacturing back in this country, but inflation with shortages is not something they want to see, they want painless monetary inflation. they want wages to rise, they want prices to go up while the stores are full.

divingengineer's picture

They still appear to have the power to wreck the whole world economy when they have a temper tantrum.  

JRobby's picture

I don't believe so

Big fun number fraud show this fall is for the elections and holiday shopping.

Watch for "deteriorating conditions" blowing out of the FED HOLE this spring.

What a stench!


littlewoodenboy's picture

I'd like to know where they are getting the figures on derivatives.

JRobby's picture

1. Apply latex glove (or not)

2. Apply KY (or not)

3. Reach up into anus with 2 fingers

4. Pinch around auntil you get ahold of something

5. Pull it out and call it true