This page has been archived and commenting is disabled.

The Next Derivatives Implosion Just Started in Europe

Phoenix Capital Research's picture




 

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.

 

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

 

And so the global bond bubble was created.

 

As far back as 2009, most Western nations were completely bankrupt when you consider unfunded liabilities from their social policies. But Central Banks did everything they could to paper of this fact by soaking up as much bond issuance as possible while simultaneously maintaining zero interest rates.

 

 

Throughout history, Central Banks have tried to inflate away debts for as long as possible. They do this right up until:

 

1) The debt loads are impossible to manage, or…

2) It becomes politically unsavory to print more money… or

3) The System implodes.

 

Greece has passed #2 and is on its way #3.

 

As the above chart shows, Greece has always been the worst offender as far as excessive social programs spending relative to tax revenue. And so it was not surprising that Greece was the first nation to enter a sovereign debt crisis back in 2009/2010.

 

Since that time Greece has experienced multiple bailouts/ interventions from the ECB and IMF. The only reason it did this rather than default or engaging in a formal debt restructuring was because Greece’s political elites were able to cobble together enough political capital/votes to force it through.

 

Not anymore.

 

Greece has just defaulted on its debts to the IMF. It’s now asking for a debt haircut. The IMF is open to this, but the EU is terrified because, as the above chart shows, there are other much larger EU countries with massive debt problems waiting in the wings.

 

Greece is not the real issue for Europe. The entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.

 

Spain has over $1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.

 

And this is just the beginning.

 

Globally the bond bubble is over $100 trillion in size. The derivatives based on this bubble exceed $555 trillion. So when sovereign debt restructurings begins the real crisis (the one to which 2008 was just the warm up) will begin.

 

Greece will be first, followed by the rest of the PIIGS in Europe. Japan is also on the block as will be the UK and ultimately the US.

 

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

 

 

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 07/06/2015 - 17:02 | 6277799 novictim
novictim's picture

"As far back as 2009, most Western nations were completely bankrupt when you consider unfunded liabilities"

 

Not so fast with this logic, k?  If most people had to pay off the mortgage on their home tomorrow then most would fail. 

 

If most businesses needed to pay off their long term capital allocations tomorrow then most businesses would fail.

 

That is the problem with the logic in this story.  Most home owners will pay off their homes no problem.  Most businesses will cover their long term capital investments, no problem.

 

Take social security.  Yes, it can only pay out 70 or 80% of its liabilities in 20 years.  Yet the solution is that the cap on SS contributions is eliminated and then the SS fund is solvent fo-eh-vah.

Mon, 07/06/2015 - 18:10 | 6277954 Touch_It
Touch_It's picture

No thanks. I already through enough of my money into the black hole that is the US Govt. 

Mon, 07/06/2015 - 17:00 | 6277791 Colonel Klink
Colonel Klink's picture

What are you talking about, they'll just declare no default too place when it applies to derivatives.

Fixed!  It's ALL rigged!!

Mon, 07/06/2015 - 16:47 | 6277760 shankster
shankster's picture

The scariest bar on that graph chart is the US bar.

Mon, 07/06/2015 - 17:45 | 6277905 Sudden Debt
Sudden Debt's picture

No, that would be France by a long shot.

1. They’re political on the brink of stepping out of the debt roulette game

2. They have a inflation history to solve deficits

3. America can print money and france can’t.

The difference between france and the us is that France will step out and because they’re very nationalistic about their market, they’ll survive because they’re self sustaining. America totally isn’t.

America has a shitload of greeces in it’s states that will rot America to the bone and drive most of the country to 3rd world status. Maybe even a breakup once European countries also break up as a example for them. 

I was in Georgia last week for 2 days for a factory visit and my god.... that was a depressing state. And there’s plenty like it.

Mon, 07/06/2015 - 16:37 | 6277723 Caleb Abell
Caleb Abell's picture

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

 

There's plenty of money for social programs in the US, but the government chose to spend about a trillion dollars a year on the MIC and nuclear weapons budgets (i.e., the Wehrmacht) and a second trillion dollars a year on Homeland Security (i.e., the Schutzstaffel).

Mon, 07/06/2015 - 16:33 | 6277714 Orwell was right
Orwell was right's picture

Why does Phoenix persist in thinking that only "social policies" are the problem.    What about BILLIONS spent on the NSA,  defense boondoggles,  and useless wars.     And don't forget the bazillions funneled back to the TBTF and corporate thieves.    

The problem is that the government spends too much money period.

Mon, 07/06/2015 - 16:34 | 6277701 Lea
Lea's picture

"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."

No. The Europe sovereign nations and welfare states have been doing that since the end of WW2, and it worked perfectly well until you rotten bankers started buying politicians and sucking in the taxpayer's money, 30 years ago.

So you know what? FUCK YOU, "Phoenix Capital Research".

Mon, 07/06/2015 - 16:30 | 6277699 BarnacleBill
BarnacleBill's picture

Time to re-post this short commentary. The title says it all: "How some banks stay alive". It's many years since I managed the Cayman Islands Chamber of Commerce, but this is as relevant now as it was then.

http://barlowscayman.blogspot.com/2013/05/unsafe-custody-how-some-banks-...

Mon, 07/06/2015 - 16:16 | 6277654 Salzburg1756
Salzburg1756's picture

Derivatives = Banksters instruments of financial war against people who work for a living.

Mon, 07/06/2015 - 16:22 | 6277678 J Jason Djfmam
J Jason Djfmam's picture

Not putting your money in a bank = People who work for a living's instrument of financial war against banksters.

Mon, 07/06/2015 - 16:12 | 6277596 Paveway IV
Paveway IV's picture

.

Mon, 07/06/2015 - 16:31 | 6277688 El Oregonian
El Oregonian's picture

Fiat, just like a roll of Charmin, feels good until you reach the end of the roll. Then it feels real... and then the stink becomes very personal.

Mon, 07/06/2015 - 17:28 | 6277849 whotookmyalias
whotookmyalias's picture

I would be curious to see what Sweden, Canada, Mexico, Japan, South Korea, China, Singapore, India, etc look like.

Do NOT follow this link or you will be banned from the site!