The Financial System Broke Last Week

Phoenix Capital Research's picture

Global Central banks’ reputations are on borrowed time.


ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.


The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.


However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.


However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.


In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.


This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until late 2014 that things truly became completely and utterly broken.


We are, of course, referring to the Bank of Japan’s decision to increase its already far too big QE program, not because doing so would benefit the country, but because it would bring economists’ forecast inline with governor Kuroda’s intended inflation numbers.


This was the “Rubicon” moment: the instant at which Central Banks gave up pretending that their actions or policies were aimed at anything resembling public good or stability. It was now about forcing reality to match Central Bankers’ theories and forecasts. If reality didn’t react as intended, it wasn’t because the theories were misguided… it was because Central Bankers simply hadn’t left the paperweight on the “print” button long enough.


At this point the current financial system was irrevocably broken. We simply had yet to feel it.


That is, until, last week, when the Swiss National Bank lost control, breaking a promise, and a currency peg, losing an amount of money equal to somewhere between 10% and 15% of Swiss GDP in a single day, and showing, once and for all, that there are problems so big that even the ability to print money can’t fix them.


Please let this sink in: a Central bank lost control last week. This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.


The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.


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


Graham Summers


Phoenix Capital Research




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Mac Avelli's picture

SNB did the right thing, why defend a currency peg to a currency that is being printed like mad. Clearly it was causing problems, and as mentioned elsewhere, if there is about to be a massive Euro QE then thank goodness somebody somewhere is willing to not play along.

Whatever the troubles caused by this, it will let the Swiss come out ahead of the game sooner and better, than if they had delayed and papered over the problem. 

We should all have more responsible bankers.

Spungo's picture

Shock the monkey!

Heavy's picture

That's don't happen to know anyone who could run around this party naked yodeling while pissing on everything do you?

...there's a time for everything

prefan4200's picture

"...a Central bank lost control last week."  Really?..... I disagree.  I think a central bank gained control last week.  It was about time one central bank showed some responsibility and intelligence and showed they'd had enough of this stupid shit.

Everybody may be piling on the Swiss right now, but let's wait a while and see how this shakes out.  I admire the Swiss for taking strong unilateral action that they had to know would result in ridicule and likely recrimination, as well as short-term financial pain.  Long-term?  We'll see.

Stuck on Zero's picture

The SNB lunacy was in attempting to purchase bad currency with good currency.  If they had been smart they would have purchased gold.  That would have put more Swiss Francs in circulation and netted then a huge profit.

zipit's picture

It was the SNB Moment is what it was.  The SNB rang the mother of all bells at the top.

holgerdanske's picture

Get gold, and sleep well at night.

Perimetr's picture

World War III

the final QE . . . we are "all in" for that one, too

Bangalore Torpedo's picture
Bangalore Torpedo (not verified) crazytechnician Jan 17, 2015 8:15 PM

One of the fundamental measuring sticks of true money is its ability to act as a store of wealth.  All paper fiat currencies fail at that measure.  Bitcoin, on the other hand doesn't just fail, it fails miserably.  Bitcoin is fiat on steriods.

crazytechnician's picture

Bangalore I don't agree with that. Over the last 5 years gold is down and bitcoin is up. Over a 5 year period bitcoin has been a suprememe store of wealth compared to gold. In fact supreme compared to property , oil , copper , aluminium , you name it. It will be interesting to see what that looks like in 10 years.

Lore's picture

The S&P is up too, but that doesn't change fundamentals.

Lore's picture

There are lots of digital currencies. The fact that there are substitutes rules them out as money, but they present obvious merit as a means for carrying out transactions with greater comparative security. As such, expect more versions to be released with improvements and applied in different ways over time. But they shouldn't be mistaken for money.

Vigilante's picture

BITCOIN makes fiat money seem like super-hard assets.

In a TEOTWAKI senario, good luck in trying to retrieve your bitcoins from a broken Internet.

..and even more luck in trying to use them.

crazytechnician's picture

In that scenario gold won't be worth dick either. What is your point , or are you waiting for armageddon ? BTW bitcoin has only been around for 5 years and in that time it has outperformed every other asset class on the planet. Lets see where it is at after 10 years shall we ?

Bossman1967's picture

Look yall i went today and got band aiddes antibioyic ointment tape cause toilet paper tampons water and on and onn i have plenty of PM but if they come in my house someone gets hurt and gonna be indoors atleast a month before can even think about coming out. So my food water protection imperitive. Keep the bitcoins will there be electricity to use them nope ask snowden about what they have planned for the world. When it gets crazy gonna be crazy

KnuckleDragger-X's picture

Tsk, they are gonna go full retard.....

Kokulakai's picture

It's what's for salvation.

MalteseFalcon's picture

Pump don't work 'cause the vandals took the handle.

Stuck on Zero's picture

Yep. It's not Keynesian Economics ...  it's simple looting of the public treasury.


cpnscarlet's picture

Well, I wouldn't go that far.

But if it was good enough to cover the Ark of the Covenant, it's good enough for me.

Bangalore Torpedo's picture
Bangalore Torpedo (not verified) cpnscarlet Jan 17, 2015 8:17 PM

Name one place in the Bible where fiat paper (papyrus) currency was mentioned.  Then compare that to the mentions of gold and silver.  Gold-->invented by God to keep man from succumbing to his greediest of desires.  So methinks "salvation" may not be too big a stretch!

crazytechnician's picture

"Gold-->invented by God to keep man from succumbing to his greediest of desires."

It's religeous nut jobs like you that start all the wars and other problems on this planet.