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The $100 Trillion Bond Bubble Just Burst

Phoenix Capital Research's picture




 

The big story in the world is the bond bubble.

 

For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.

 

The ridiculousness of this should not be lost on anyone. Politicians, in order to be elected, promise to allocate taxpayer funds on social programs that will benefit said taxpayers down the road (we’re simply talking about social spending, not infrastructure or other costs.

 

The concept that taxpayers might simply just keep the money to begin with never enters the equation. And because everyone believes that they are somehow spending someone else’s money, they play along.

 

When you believe that you are spending someone else’s money, it’s very easy to write a blank check, which is precisely what Western nations have been doing for years, promising everyone a safe and secure retirement without ever bothering to see where the money would come from.

 

When actual bills came due to fund this stuff, Governments quickly discovered that current tax revenues couldn’t cover it… so they issued sovereign debt to make up the difference.

 

And so the bond bubble was created.

 

The large banks, that have a monopoly on managing sovereign debt auctions, were only too happy to play along with this. The reasons are as follows:

 

1)   They can use these alleged “risk-free” assets as collateral to backstop tens of trillions worth of derivatives trades. A $1 million investment in your typical US Treasury can backstop over $15 million worth of derivatives if not more. The profits from the derivatives markets remains a primary source of revenue for the banks.

 

2)   Sovereign Governments are only too happy to bail out the big banks if the stuff ever hits the fan on the trades that are backstopped by the sovereign debt (see 2006 onwards). Since the banks are the ones holding the sovereign debt, they can always threaten to dump bonds, which would render the whole social welfare Ponzi bankrupt (see what happened in Europe when sovereign bonds collapsed in 2011-2012).

 

3)   In a debt-based financial system such as the current one, sovereign bonds are the senior most assets in the system. Those who own these in bulk are at the top of the financial food chain in terms of financial, economic, and political clout.

 

Since it was rarely if ever a problem to issue sovereign debt, Governments kept promising future payments that they didn’t have until we reach today: the point at which most Western nations are sporting Debt to GDP ratios well north of 300% when you consider unfunded liabilities (the social spending programs mentioned earlier).

 

Now, cutting social spending is usually considered political suicide (after all, the voters put you in office in the first place based on you promising to pay them welfare payments down the road). So rather than default on the social contract made with voters, the political class will simply push to issue MORE debt to finance old debt that is coming due.

 

The US did precisely this in the fourth quarter of 2014, issuing over $1 trillion in new debt simply to pay back old debt that was coming due.

 

This is how the bond market becomes a bubble. Between 2000 and today, the global bond market has nearly TRIPLED in size. Today, it’s north of $100 trillion in size. And it’s backstopping over $555 trillion in derivatives trades.

 

There is literally no easy fix to any of this. The pain will be severe. And so everyone in charge of the important decisions (the political elite, the big banks, and the Central Banks) will push this as far as it can possibly go before taking the inevitable hit.

 

Greece just took a hit… and once again it’s depositors that will take it on the chin. But this process is only just begun. Similar Crises will be spreading throughout the globe in  the coming months.

 

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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Sat, 07/04/2015 - 16:25 | 6268854 RMolineaux
RMolineaux's picture

This item is inaccurate by ommision.  Not mentioned is the bloated pentagon budget requiring the issuance of billions in new debt each year by the US Treasury.  Also not mentioned is the practice of corporate managers to buy back their own stock, such buybacks being financed by bond issuance.  The purpose of course is to maximize per-share non-gaap earnings beyond those provided by operations and thereby inflate managers' bonuses.  The author's comments on welfare spending are more applicable to Europe than the US, since Europe has, in a very comfortable way, allowed the US to provide for their military defense.  As a percentage of the total budget, welfare payments in the US are much lower than most European countries.  The food-stamp program is as much a subsidy to agriculture as it is a transfer payment, and is promoted actively by agricultural interests.  Retirement benefits of the Social Security system are provided from the Social Security Trust Fund.  Any "reform" to the social security system needs to include greater autonomy for this fund and its removal from the "unified budget."

Sat, 07/04/2015 - 11:16 | 6268850 p00k1e
p00k1e's picture

Three-card Monte. President Roosevelt is long gone.  

Just like the Bundy Ranch standoff.  A bunch of lackeys facing other lackeys while the puppeteer, Harry Reid, was getting laid in Washington.   

When this thing pops, visit the social security office location nearest you.   Teach ‘em a lesson.  

And Boehner supporters….
 

Sat, 07/04/2015 - 09:06 | 6268619 Contrariologist
Contrariologist's picture

Amazing that the writer of this article concludes that ALL of this bond money went for "vote-buying social programs," which is utter nonsense. The lion's share ol all social programs are self-funded by direct taxation, i.e., Social Security tax. The vast majority of ridiculously wasteful, bond-funded spending is on MILITARY programs. Want a balanced budget? Want to reign in all the debt? Stop spending a trillion dollars a year on military worldwide adventurism.

At least social programs try to help people instead of slaughter them.

Sat, 07/04/2015 - 09:54 | 6268686 hendrik1730
hendrik1730's picture

Maybe so in the US, nut in Europe the writer is right. Considering the vast amount of unfunded liabilities the US faces ( pensions, medicare, medicaid ) I wouldn't be too shure about your own situation; what's happened in Detroit is not their monopoly - other cities/counties/departments/states may soon follow suit.

Sat, 07/04/2015 - 12:58 | 6269138 disabledvet
disabledvet's picture

"Appears" the USA is running the entire Continents of Europe and Russia with only a ten thousand man Army in Ukraine.

Certainly no shortages of goods pouring out of that "region" right now.

If Athens falls "say Hello to the free port of Thsolonikki."

What does Southeastern Europe produce you ask?
More like "what DOESNT Southeastern Europe produce...

Again...everyone is just defaulting to the dollar...for the time being.

At some point this ridiculously over valued asset will reset...until then "say hello to Bitcoin."

Sat, 07/04/2015 - 07:37 | 6268495 Comte d'herblay
Comte d'herblay's picture

This piece may have been true at one time. But it ignores completely the destruction of formerly vibrant industries, businesses, and career opportunites as well as tens of millions of good paying jobs with the chance for advancement into higher levels of responsibiity.

If you don't know this irrefutable fact, the significance of its paramount importance in the lives of billions, then you need a few years on the street.

Add to that the many trillions if not quadrillions that have been printed or taken from the people and given to the Jewish Mafia in New York, Fleet Street, and Orchard Street in Singapore for abject failure, who should themselves be on the unemployment lines. and you have an answer as to why the socialist dribs and drabs are not only necessary but the only avenue for survival.

The first world countries will all look more or less like Britain which has a lifetime dole that let's all who are born at least a grey, nowhere existence.

Unless there is a massive global rise in good job opportunities in the billions going forward  governments have no choice but to continue to move left and at least pay people for doing nothing productive. 

 

Sat, 07/04/2015 - 08:07 | 6268528 NoPension
NoPension's picture

I've given this a lot of thought. I fancy myself a problem solver. And the most important part of solving a problem, is diagnosing the root cause of the problem.
And is is what my pea brain has come up with, to wit;

Technology has enabled production on a massive scale. With the introduction of fossil fuels, that production does not require the manpower it once needed.
In the quest to refine production,lower costs and increase profits, labor and physical operations where shifted to the lowest cost and least regulated locales.
Transportation efficiencies allowed this.
So there is more stuff than ever before. And more people alive, than ever before. But there are not enough usefull endeavors for all of the people alive, from which they can participate in the economy, and keep the circle closed.
There are now just too many people. And the people that reproduce the most, are exactly the most unlikely to participate. The poorest. The dumbest. The weakest. The least organized. Smart, organized people do not breed en masse.
So, to put it bluntly, too many dumb, useless eaters in the world.
Now, It will be up to society as a whole to find a solution. Or nature.
But I dont see people organizing where a few produce and support vast numbers of dumbed down breeders. And that is where we find ourselves.

I see a big war or plague or something that thins the herd. I may me first to go, who knows. I want to be clear, I do not want to make the list, who would. But it's a comin'. Little bits at first. Hints here and there. And then whoosh! Bam!!! Fucking Armageddon. And not in the Biblical sense.

Sat, 07/04/2015 - 10:04 | 6268699 hendrik1730
hendrik1730's picture

I couldn't agree more and posted even this morning the same analysis in a European magazine. It's the dumbest part of the population that keeps breeding like hell and all this because they get "breeding money" from an idiotic government which encourages dumb breeding : their offspring will be as dumb as their parents ( statistically speaking, as a group ) and become very numerous : exactly the idiots the socialist politicians need for getting re-elected. The socialists NEED dumb assholes dependent on social welfare for their own survival ..... That's also the hidden agenda after the mass-immigration aided by our marine from Lybia to Europe : the muslims are interbreeding with their cousins and nieces for a thousand years already - just look at them, I don't need an IQ test to see they are just plain morons. If the people no longer vote for you, just replace the people.

Sat, 07/04/2015 - 11:32 | 6268555 ThrowAwayYourTV
ThrowAwayYourTV's picture

BINGO! Hit the nail right on the head NoPension

http://news.nationalgeographic.com/news/2014/09/140920-population-11bill...

They (the elite rulers) don't want you to have children (embrace the gay) or a job. Mo children mean mo mouths to feed. More jobs mean more consumption of resources and more pollution and less food.

The plan is to jst have most of the population go to their mailbox and pick up a check for just enough to live on. Thus, slowing down the population and consumption and saving the world.

The crash of o8 was purposely orchestrated as the start up for the slow down. They pricked the bubble on purpose. You remember how it was in the 00's? World consumption and growth was on fire. If we continued, a two room house today would cost $500k and your car $100k and everyone woman would be squeezing out more little consumers one after another.

You hit the nail on the head my friend. First the slowdown of consumption and pollution, then the thinning of the herd.

Scientist believes Earth is in the early stages of another mass extinction

The study notes that extinction is occurring at a higher rate than previous periods in history. The reason? It cites humanity as the big problem here (surprise, surprise) and our urban sprawl, which has redesigned our planet and shifted or eliminated space previously used by our animal pals. Not to mention things like pollution, etc.

http://www.blastr.com/2015-6-21/uh-oh-scientist-believes-earth-early-sta...

Sat, 07/04/2015 - 05:15 | 6268414 heavenlykapua
heavenlykapua's picture

@Perimetr +100

As a small business owner, I too have paid 7.65% into s.s./medicare and then matched it AND all of my employees s.s./medicare payments for 44 years.  I love how they call s.s./medicare an entitlement.  If I'm not entitled to 15.3% of my lifetime earnings, I don't know who is.  

Sat, 07/04/2015 - 06:04 | 6268445 Czar of Defenes...
Czar of Defenestration's picture

.

.

It is a TAX...NOT a SAVINGS ACCOUNT.

It was "sold" and initiated as the latter but,

around the LBJohnson Administration time,

they started to take all funds and SPEND THEM EVERY YEAR.

 

There ain't nuttin' there Jack.

If you're SUCH A CHUMP that you think you're "owed",

I don't know how you can run a business.

Sat, 07/04/2015 - 07:51 | 6268508 Fukushima Fricassee
Fukushima Fricassee's picture

True it's gone but he is not a criminal to think he is owed what he paid in, he is a victim . Polititians/Bankers are the criminals.

Sat, 07/04/2015 - 07:41 | 6268499 Comte d'herblay
Comte d'herblay's picture

U don't know that while there is---'nuttin' there Jack---millions a retiring each year and getting paid their social security and medicare???

Certainly there is a there, there, and if need be the FED and Treasury will print and continue to keep their promise to pay, the I O Us that are in that lock box.

They have to. No choice.

He can run a business, but you can't think.

Fri, 07/03/2015 - 22:10 | 6267892 foxmuldar
foxmuldar's picture

Anyone here remember the powdered eggs they used to serve in the Mess hall. I remember the cook pouring a griddle of the powdered eggs onto a hot stove and then another griddle of greace on the eggs and stirring it all up. By the way, does anyone here remember the care packages the government used to give to the poor? If you were living off a care package you had an incentive to go find work. I remember it contained a can of Powered eggs, a big jar of Peanut butter and not much more. Today you can take your food stamps and buy lobster and other items that some of the working class can't afford. 

Sat, 07/04/2015 - 01:44 | 6268253 Perimetr
Perimetr's picture

I don't know about the guy who wrote this story, but for the last 40 years

 

I have been paying in on Social Security.  It came out of my paycheck that I earned.

 

The Federal Government has probably spent it all . . . but that doesn't mean I didn't earn it.

Sat, 07/04/2015 - 09:46 | 6268665 Prisoners_dilemna
Prisoners_dilemna's picture

...

Sat, 07/04/2015 - 00:51 | 6268184 dreadnaught
dreadnaught's picture

there used to be loads of USDA surplus cheese, also

Fri, 07/03/2015 - 23:40 | 6268060 stacking12321
stacking12321's picture

"Anyone here remember the powdered eggs they used to serve in the Mess hall."

sure, i remember that - oh, what, no i don't...that's because I NEVER SUPPORTED A MONSTROUS ATROCITY CALLED THE US FEDERAL GOVERNMENT AND ITS IMPERIALIST, MILITARISTIC AGENDA TO MURDER PEOPLE IN OTHER COUNTRIES FOR NO GOOD REASON!

fucking douche.

 

 

Sat, 07/04/2015 - 01:31 | 6268244 Ace006
Ace006's picture

I guess we're not on board with military service of any kind, are we? At least that's the vibe I'm sensing.

Sat, 07/04/2015 - 00:35 | 6268156 daveO
daveO's picture

Dad didn't have a choice. Neither did my uncle. Nor my granddad. My granddad's uncle, on the other hand, lived in the woods during WW1 to avoid it.  

http://en.wikipedia.org/wiki/Conscription_in_the_United_States

Fri, 07/03/2015 - 22:06 | 6267879 foxmuldar
foxmuldar's picture

Soon time to send for my six month supply of freeze dried food.  I bet it taste better then the C rations I had back in the old days when serving in the US Army. I did like the big cookie they gave out. 

Fri, 07/03/2015 - 23:24 | 6268035 Paveway IV
Paveway IV's picture

The best food I ever tased - bar none - was C-rats... after a couple of days of going without any food in the field. I'm sure I would have said the same about MREs.

Sat, 07/04/2015 - 10:09 | 6268705 GOSPLAN HERO
GOSPLAN HERO's picture

C-rations were not bad ...  each meal carried around 3000 calories.  I liked the tiny bottle of Tabasco sause.

 

... don't forget the Winstons or Camel cigarettes and toiletpaper.

 

I always carried a P-38 on my dog tags. 

Sat, 07/04/2015 - 10:16 | 6268726 overmedicatedun...
overmedicatedundersexed's picture

always traded the cigs for peaches and jelly..overall I hated the c-rats..but the alternatives were that or nuthing..sometimes I was too tired to even eat so I chose nuthing.

Sat, 07/04/2015 - 01:34 | 6268247 Ace006
Ace006's picture

I liked Cs and MREs just fine. Cook them Cs over some burning C4 and you got you a meal.

Sat, 07/04/2015 - 09:33 | 6268647 rachaelsdaad
rachaelsdaad's picture

Mortar propellant worked best.

Fri, 07/03/2015 - 23:47 | 6268075 tarabel
tarabel's picture

 

 

Context is everything.

And you may well get your chance to sample some MREs soon.

Sat, 07/04/2015 - 00:58 | 6268194 Paveway IV
Paveway IV's picture

Not before I sample the neighbor's dog. When the SHTF, that nastly little pig is going right on the spit with a slathering of A-1 sauce. I will mount it's skull on the top of my walking stick and attach a thin wire to it's jaw so I can make it look like it's talking. 

Sat, 07/04/2015 - 07:45 | 6268501 theliberalliberal
theliberalliberal's picture

I know how u feel.

Fri, 07/03/2015 - 23:46 | 6268073 johansen
johansen's picture

never had C-rats but MREs are known for causing consitpation.

but they do taste fine in my opinion.

as for the constapation issue, every swears up and down that its from the mre. my experience is no.. its from the body's psycological panic attack that occurs whenever high strenuous physical activity is performed combined with unfamiliar territory and lack of sleep, lack of water, etc. i had the same problems on week long back packing trips back in boyscouts, eating good food.

Sat, 07/04/2015 - 00:00 | 6268096 miro1a
miro1a's picture

My theory on this is that if the body is in a stressfull situation it might be a dangerous situation so it's not safe to sit and squat since that makes you vulnerable to attack.

Sat, 07/04/2015 - 05:25 | 6268419 DFCtomm
DFCtomm's picture

Don't use the port-a-potty if there are warrants flying anywhere nearby. They love to torque the rotors over those things and try to blow them over.

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