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Why the Next Round of the Crisis Will Be Exponentially Worse Than 2008
As you know, we’ve been calling for a bond market crisis for months now. That crisis has officially begun in Greece, and will be spreading in the coming months. Currently it’s focused in countries that cannot print their own currencies (the PIIGS in Europe, particularly Greece).
However, China and Japan are also showing signs of trouble and ultimately the bond crisis will be coming to the US’s shores.
However, it’s critical to note that crises do not unfold all at once. The Tech Bubble, for instance, which was both obvious and isolated to a single asset class, took over two years to unfold.
As terrible as the bust was, that crisis was relatively small as far as the damage. At its peak, the market capitalization of the Tech Bubble was less than $15 trillion. Moreover, it was largely isolated to stocks and no other asset classes.
By way of contrast, the bond bubble is now well over $199 trillion in size. And if we were to include credit instruments that trade based on bonds, we’re well north of $600 trillion.
Not only is this exponentially larger than global GDP (~$80 trillion), but because of the structure of the banking system the implications of this bubble are truly systemic in nature.
Modern financial theory dictates that sovereign bonds are the most “risk free” assets in the financial system (equity, municipal bond, corporate bonds, and the like are all below sovereign bonds in terms of risk profile).
The reason for this is because it is far more likely for a company to go belly up than a country.
Because of this, the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset on bank balance sheets.
Because banking today operates under a fractional system, banks control the amount of currency in circulation by lending money into the economy and financial system.
These loans can be simple such as mortgages or car loans… or they can be much more complicated such as deriviative hedges (technically these would not be classified as “loans” but because they represent leverage in the system, I’m categorizing them as such).
Bonds, specifically sovereign bonds, are the assets backing all of this.
And because of the changes to leverage requierments implemented in 2004, (thanks to Wall Street lobbying the SEC), every $1 million in sovereign bonds in the system is likely backstopping well over $20 (and possibly even $50) million in derivatives or off balance sheet structured investment vehicles.
Globally, the sovereign bond market is $58 trillion in size.
The investment grade sovereign bond market (meaning sovereign bonds for countries with credit ratings above BBB) is around $53 trillion. And if you’re talking about countries with credit ratings of A or higher, it’s only $43 trillion.
This is the ultimate backstop for over $700 trillion in derivatives. And a whopping $555 trillion of that trades based on interest rates (bond yields).
The significance of these developments cannot be overstated. The financial system today is even more leveraged than it was in 2008. The US alone has 30% more debt in the financial system… and even less bonds backstopping it because of the Fed’s QE programs.
A new crisis is approaching. Smart investors are preparing now, BEFORE it hits.
If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.
We made 1,000 copies available for FREE the general public.
As we write this, there are less than 15 left.
To pick up yours, swing by….
http://www.phoenixcapitalmarketing.com/roundtwo.html
Best Regards
Phoenix Capital Research
Our FREE e-letter: www.gainspainscapital.com
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While the facts are correctly presented, the deeper reasons for how and why those are the facts are not analyzed in the deeper ways which would be necessary to go beyond attempting to "prepare" for situations which have never had anything remotely similar ever happen before in known human history!
BECAUSE money is measurement backed by murder, and the sovereign states are the primary providers of the murder that backs up the money. Of course, the international banksters were the best organized gangsters, that were able to apply the methods of organized crime through the political processes, in order to achieve their goals, as stated by Carroll Quigley:
"powers of financial capitalism
had another far-reaching goal,
nothing less than to create a
world system of financial
control in private hands
able to dominate the
political system of
each country and
the economy of
the world as
a whole ..."
That system was "to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements. ...The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. ... It must not be felt that the heads of the world's chief central banks were themselves substantive powers in world finance. They were not. Rather they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up, and who were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks."
Central bankers work like organized crime works.
Globalized electronic frauds, backed by atomic bombs,
serving pyramid systems through ENFORCING FRAUD.
"The absolute best controlled opposition is
one that doesn't know they are controlled."
-- Cognitive Dissonance
The biggest bullies' bullshit social stories morphed to become the banksters' bullshit, which has so dominated the political economy for so long that almost everyone takes that for granted:
It's Not The Economy Stupid: It's The FedWe mostly deliberately ignore and misunderstand in absurdly backward ways how the economy really works, due to it actually being based upon integrated systems of legalized lies, backed by legalized violence, as ENFORCED FRAUDS, whose social successfulness has enabled those to become overwhelmingly dominate, in ways which are INTENSELY PARADOXICAL.
Civilization necessarily operates according to the principles and methods of organized crime, while the CONSISTENT PARADOXICAL CONTRADICTIONS with respect to that are the biggest forms and best organized gangs of criminals are most able to get away with promoting their bullshit that they are not doing that, which requires that the vast majority of people become profoundly miseducated and misinformed about the basic laws of nature.
THE EXISTING POLITICAL ECONOMY IS
BASED UPON GOVERNMENTS ENFORCING
FRAUD BY PRIVATELY CONTROLLED BANKS.
The bond holders are the pyramidion people inside of the social pyramid systems, wherein all private property is based upon backing up claims with coercions, with the most abstract form of those ways that private property does not exist outside of some system of public violence being that money is measurement backed by murder.
The history of successful warfare, based on backing up deceits with destruction, created the War Kings, that made the sovereign states, which have the power to rob (tax) and the power to kill to back up that power to rob (rule of law.) Those gradually morphed to become more and more effectively privatized, by the banks, and the corporations that grew up around those banks, as the Fraud Kings, being able to get into vicious spirals of applying the methods of organized crime (bribery, intimidation, & assassination) through the political processes, in order that almost all the successful politicians became the banksters' puppets, who were voted for by enough of the masses of muppets, to keep those systems of ENFORCED FRAUDS going ...
"Money" made out of nothing as debts was used to "pay" for strip-mining the planet's natural resources. All of the obvious long-term consequences of doing that were deliberately ignored, because in each short-term increment, civilization continued to be controlled by backing up lies with violence. Those systems became more sophisticated systems of legalized lies, backed by legalized violence, or ENFORCED FRAUDS ... However, nothing else changed the basic shape of the social pyramid systems, with the bond holders as the pyramidion people inside of those social systems.
"The entire Western financial system has sovereign bonds as the senior most asset on bank balance sheets," BECAUSE the sovereign states provide the force to back up the banksters' frauds. The "bond bubble" was blown by the prolonged triumphs of those greatest of all systems based upon ENFORCING FRAUDS. The "bond bubble" suffers from the basic flaw in that system, that being able to enforce frauds never stops those frauds from still being false.
While our political economy came to be based upon ENFORCED FRAUDS, it also came to be based upon deliberately ignoring, and misunderstanding in the most absurdly backward ways, the basic laws of nature, in the context of the environment within which human beings were actually living. Since the established systems are actually based upon triumphant organized crime, the excessive successfulness of those systems manifests as runaway criminal insanities: "... the bond bubble is now well over $199 trillion in size. And if we were to include credit instruments that trade based on bonds, we’re well north of $600 trillion. Not only is this exponentially larger than global GDP (~$80 trillion), but because of the structure of the banking system the implications of this bubble are truly systemic in nature."
Of course, for almost everyone, including Phoenix Capital, and its potential clients, the apparently useful "actionable intelligence" is to endeavour to adapt in ways which "prepare" for life that continues to exist inside of the established social systems, based upon backing up lies with violence, that continue to mostly be able to get away with doing that ... DESPITE THAT BECOMING GLOBALIZED ELECTRONIC FRAUDS, BACKED BY THE FORCE OF ATOMIC BOMBS.
On the contrary, the Fringe Cubed position that I promote is based upon series of intellectual scientific revolutions, such as would enable profound paradigm shifts in the ways that we perceive the political problems with respect to money being measurement backed by murder. Of course, at the present time, the banksters' excessively successful systems, based upon ENFORCED FRAUDS, have simultaneously been excessively successful in brainwashing almost everyone to think about the "economy" is such profoundly stupid ways, such as were necessary to adapt to and accept living inside of entrenched systems of ENFORCED FRAUDS, while taking those for granted, in ways which required thinking about everything with respect to that kind of economy in the most deliberately ignorant and absurdly backward ways possible.
The essential problem continues to be prodigious progress in physical science, without that being surpassed by any progress in political science. In that context, the series of articles by Phoenix Capital correctly point out the degree to which the established systems of debt slavery have driven the development of numbers which have become debt insanities. However, other than for some vague deference to the possibilities that those may provoke death insanities, there is otherwise nothing remotely close to the kinds of profound paradigm shifts which would be necessary to develop better death control systems, which would be the only realistic solutions to the real problems.
So far, we have collectively been able to defer the debts onto the future, while that simultaneously also deferred the deaths into the future. As the established systems of ENFORCED FRAUDS enabled the strip-mining of the planet's natural resources to reach some limits of diminishing returns from being able to continue to do that, the debt engine treadmills (the bond market) became "exponentially larger than global GDP ..."
INTENSELY PARADOXICAL, YET CONSISTENT, CONTRADICTIONS ARISE FROM THE WAYS THAT CIVILIZATION NECESSARILY OPERATES AS ENTROPIC PUMPS OF ENERGY FLOWS, WHICH DELIBERATELY MISREPRESENT THEMSELVES IN THE MOST ABSURDLY BACKWARD WAYS POSSIBLE, IN THE FORM OF GOVERNMENTS ENFORCING FRAUDS BY PRIVATELY CONTROLLED BANKS.
Theoretically speaking, the history of paradigm shifts in physical science needs to be be recapitulated in political science. It is NOT possible to stop money from being measurement backed by murder. However, it would be possible for better understanding of that to enable doing that better. Of course, at the present time, the banksters, as well as the layers of their controlled opposition groups, do not want that better understood. Moreover, those in the controlled opposition continue to also be just as attached to deliberately misunderstanding that as those in the core organized crime groups.
We continue to rush towards the runaway debt insanities provoking death insanities, without any publicly significant ways that better understandings of that could play any adequate roles in those events spinning out of control, for a wide variety of reasons, mostly due to having built the entire economy on the basis of ENFORCING FRAUDS, which required attitudes of evil deliberate ignorance be generally maximized in order to enable that to happen.
I surely agree with Phoenix Capital's insistence upon the overall significance of the "bond bubble." However, as outlined above, the degrees to which the next round of crises will be exponentially worse than in 2008 are based upon the continuing exponential progress in physical science, without anything like that being allowed to happen in political science. Civilization continues to be controlled by systems of backing up lies with violence, as ENFORCED FRAUDS, which have been pumped up and UP by many orders of magnitude due to advancing technologies, while the basic attitudes maintained towards those sociopolitical systems continue to be based on the maximum possible deliberate ignorance, which willful blindness does not want to consider the deeper reasons for how and why we have ended up living in Wonderland Matrix Bizarro Worlds, that misrepresent and misunderstand the laws of nature in the most absurdly backward ways possible, due to the triumphs of systems based upon ENFORCING FRAUDS, which were the mechanisms that enabled the "bond bubble" to be blown up and UP!
"Why the Next Round of the Crisis Will Be Exponentially Worse Than 2008"
It probably will not. The difference will be QE and much more gov't manipulation to avoid a 2008 type meltdown. Its likey it will be bad when it happens, but not "exponentially" worse. Recall that the gov't let Bear-Sterns and Lehman fail settting off a chain reaction. in Early 2008 up until the fall of Lehman in Sept 2008, Bernanke kept on stating "no bailouts". I am reasonably sure that there will be more bailouts when the crisis begins to unfold. As long as failed business and muni-debt is "bailed out" its very likely to prevent a derviatives meltdown.
However, I do think we will see much higher unemployment. I beleive the credit will become harder for non-financial businesses (ie manufacturing, construction, energy, etc) that will bring an end to stock buybacks, and industrial development. There will be fewer jobs as business switch over to automation or move operations overseas, and increased gov't regulation makes it more difficult to operate a business. Probably the one bright spot in the US economy was energy, but it was in a bubble. with Oil down in the $40/bbl range that bubble has popped, taking with it the energy credit bubble that fueled expansion.
The real problem with this Country? The size of the federal government is crushing us under it's weight, cost, and regulations.
There are over 500 federal agencies. The complete list is here. Review it, it is absurd. Send this to your local politicians.
Under the constitution, there should only be 2 handfuls of federal agencies.
List is here
http://nukeprofessional.blogspot.com/2015/08/over-500-federal-agencies-b...
LET IT BE KNOWN as of December 1, 2014, under the court decision of August 25, 2014 that convicted the United States Corporation and their officers of fraud, extortion, human trafficking, involuntary servitude, murder, high treason, and crimes against humanity, all corporate governmental, judicial and enforcement powers and authority are revoked and nullified and all such personnel are hereby ordered to immediately STAND DOWN.
Any further corporate governmental intervention into any matter regarding any activity in any of the several states related to the Respublica of Earth, United States of America is now considered a Breach of the Peace.
LET IT BE FURTHER KNOWN that anyone disregarding this ORDER is considered personally liable for acts leading criminality against the People and faces immediate arrest and detainment by the Court of Ages, Earth District Natural Law Peace Officers deputized by the Court which includes all militia and National Guard.
http://www.courtofages.com/usa-orders.html
http://www.courtofages.com/intl-orders.html
http://www.courtofages.com/documents.html
Central Banks have been expanding the money supply and had their foot to the floor yet economies across the world are not even close to escape velocity. Lessons from the "Financial World" are being doled out rather rapidly these days and it is best to pay close attention. A financial meltdown meaner than what we saw in 2008 may be looming.
The many new tools added to the central banks' tool boxes have masked and distorted the economic landscape. This can be seen in the explosion of derivatives, more debt leveraging, and in the growing carry trade. It is a fact that unproven tools can produce damaging results when not prudently applied still efforts to "extend and pretend" seem almost unlimited.
Many people thought Modern Monetary Theory (MMT) was to be our salvation and a tool to even out economic cycles but instead it has morphed into a massive dept machine. While those in charge appear undaunted by what is occurring the fact is by a series of off-book and backdoor transactions they have already transferred losses from the banks onto the shoulders of the people. The article below explores the lessons to be learned from this experiment.
http://brucewilds.blogspot.com/2015/08/lessons-from-financial-world.html
What about the death and dismemberment policies that have been taken out on the bankers themselves? Will those bets pay off?
It it the real world that is stuck in ruts, going around and around, wearing the bottom of those ruts out ... While it may be nice to day dream about getting out of those ruts, actually, they just keep on getting deeper and deeper, as Grand Canyon Chasms open up wider and wider.
Personally, I suspect that I may well prefer these relatively "boring" days compared to what would suddenly happen when the bottom of the ruts we are stuck going around in finally rupture.
P.S.
I rather like this little video metaphor:
http://www.youtube.com/watch?v=wvcGM6maGGk
Exploding iceberg in Antarctica!
The thing that totally pisses me off about Zero Hedge is that I'm compelled to read all the comments before I can hit Spankwire.com.
Damn you, damn you all to hell!
OK I'm going to ask a totally naive, dumb-azz question.
Derivatives are basically bets, right? So if there's $500 gazillion of derivatives floating around out there, for everyone who takes a $1 million bet one way, there's someone else who took the $1 million bet the other way, isn't there? So when the crisis hits, the derivatives zero out.
Somebody please lead me out of my ignorance toward the light.
"or everyone who takes a $1 million bet one way, there's someone else who took the $1 million bet the other way, isn't there? "
Derivatives can be leveraged. For instance a bet of $100K can net $10 Million payout. The other issue is that most of business offering derivatives don't have the capital to pay them if they are triggered. This is what happened to AIG when Credit defaults triggered payouts.
Some derivatives are used to back risky bonds. In the case of Greece bonds, The bond investors bought default insurance derivatives. The money to buy the junk bonds originated from OPM (other people money), mostly retirement and pension funds chasing yeild. Pensions plans have been the big gamblers. The bet and lost on the housing bubble, then doubled down on junk bonds, hoping to make up for the losses incurred on the housing bubble. I suspect that most fund managers investing in risky investments fully know that the derivatives they purchased to insure their risky bests are worth the paper their written on, but they don't care. They make their money on the short term "paper" profits (during the time before the high yield bonds go into default). They don't have to give back their income when the bonds end up in default. Most of these guys invest their income in ultra-low risk investments (ie cash, or short term gov't debt).
In the end, The Taxpayers will end up bailing out all these ridiculous bets when the gov't bails them out. But will see more job losses and higher price inflation and gov't around the world devalue there currencies to fund the bailouts.
No disagreement with the explaination from other posters responding to you, but they are missing the most important point. The Banksters own Congress and Congress sold your ass and and the future of your children, and their children, in order to cover the bad debts WHEN (not if) they go bad.
http://www.forbes.com/sites/robertlenzner/2014/12/13/wall-street-reverse...
U are fucked, unless 1) there is a tax revolt and a large percentage of protesters stop paying, 2) People pull a large percentate of their wealth from the banks and markets, 3) The US government in washington is removed from power and the US Constitution is reinstated under a new legal government.
the derivatives zero out ..............
On paper they might well do (of course they don't, it's all lies and promises) but that isn't really the problem
All these crazy bets folks are making, they want to hedge the risk a lot, by paying a little. The folks that take these hedges, insurances etc have no intention of honoring their obligations. They have just taken the money (and even bet againts the outcome).
If you remember AIG last time round, they were insuring everyone for everything, especially Goldman Squits. GS realised they were going to collapse, and realised AIG couldn't pay up to cover them. So they bet against AIG, and relied on Hank Paulson and Tim Geithner to bail out AIG.
So, to answer your question, the only way any of it is a zero sum game, is if you factor in the taxpayer (and his grandchildren), who will pay ALL the bills due.
The grandkids will be fine. It is us who will pay the bill when the currency is ruined. Just wait and watch.
A lot are leveraged, maybe all i don't know. A lot of junk is leveraged from 20 to 1 up to 50 to 1 depending on regulations in certain countires. That million dollar bet they may only put up $50k and it might not be an even money "bet". Start piling up loses with over a quadrillion worth of derivatives floating around and it won't take much to hit the tilt button. Banks don't have anywhere near the money to pay off if they go bad and i have no idea why they are allowed to do this. Big banks don't care, they either win their bet or get bailed out....win/win.
A neat factoid.... did you know derivatives are now FDIC insured and are ahead of you in payouts at the banks. Neat how they snuck that in. And you don't actually own the money you put in banks as of last fall....you are now an unsecured creditor. Nice. We now have bail ins too, wooo hoooooo.
All counterparties are linked in various bets, not just one bet. Their ability to pay may or may not be there when TSHTF.
Only 15 left!
I love, rather I actually really fuckign hate that sales tactic.