The Crisis in Which Central Banks Lose Control Has Already Begun

Phoenix Capital Research's picture

For six years, the world has operated based on faith and hope that Central Banks somehow fixed the issues that caused the 2008 Crisis.

 

All of the arguments supporting this defied common sense. A 5th grader knows that you cannot solve a debt problem by issuing more debt. If the below chart was a problem BEFORE 2008… there is no way that things are better now. After all, we’ve just added another $10 trillion in debt to the US system.

 

 

Similarly, anyone with a functioning brain could tell you that a bunch of academics with no real-world experience, none of whom have ever started a business or created a single job can’t “save” the economy. Indeed, few if any of the Fed Presidents have even run a bank before. And yet they’re in charge of the banking system.

 

However, there is an AWFUL lot of money at stake in maintaining the illusion of Central Banking omniscience. So the media and the banks and the politicians were happy to promote them. Indeed, one could very easily argue that nearly all of the wealth and power held by those at the top of the economy stem from this fiction.

 

So it’s little surprise that no one would admit the facts: that the Fed and other Central Banks not only don’t have a clue how to fix the problem, but that they actually have almost no incentive to do so.

 

So here are the facts:

 

1)   The REAL problem for the financial system is the bond bubble. In 2008 when the crisis hit it was $80 trillion. It has since grown to over $100 trillion.

 

2)The derivatives market that uses this bond bubble as collateral is over $555 trillion in size.

 

3)Many of the large multinational corporations, sovereign governments, and even municipalities have used derivatives to fake earnings and hide debt. NO ONE knows to what degree this has been the case, but given that 20% of corporate CFOs have admitted to faking earnings in the past, it’s likely a significant amount.

 

4)   Corporations today are more leveraged than they were in 2007. As Stanley Druckenmiller noted recently, in 2007 corporate bonds were $3.5 trillion… today they are $7 trillion: an amount equal to nearly 50% of US GDP.

 

5)   The Central Banks are now all leveraged at levels greater than or equal to where Lehman Brothers was when it imploded. The Fed is leveraged at 78 to 1. The ECB is leveraged at over 26 to 1. Lehman Brothers was leveraged at 30 to 1.

 

6)   The Central Banks have no idea how to exit their strategies. Fed minutes released from 2009 show Janet Yellen was worried about how to exit when the Fed’s balance sheet was $1.3 trillion (back in 2009). Today it’s over $4.5 trillion.

 

We are heading for a crisis that will be exponentially worse than 2008. The global Central Banks have literally bet the financial system that their theories will work.  They haven’t. All they’ve done is set the stage for an even worse crisis in which entire countries will go bankrupt.

 

This process has already begun abroad.

 

In January 2015, the Swiss National Bank (SNB), backed into a corner by the ECB’s QE program, had a choice: print an obscene amount of money to defend the Franc’s peg or break the peg.

 

The SNB chose to break the peg. In a single day, the bank lost an amount of money equal to somewhere between 10% and 15% of Swiss GDP. More than that, it let the Franc appreciate… in a country in which 54% of the GDP is based on exports.

 

The next bank to lose its grip is the Central Bank of China.

 

With an economy in free-fall (GDP is growing by 3% at best), a dual house and stock bubbles bursting simultaneously, China’s regulators went on the offensive: freezing the markets, banning short-selling, arresting short-sellers, and pumping tens of billions of Dollars into the market per day.

 

Despite this, Chinese stocks continue to crater. And the economy hasn’t budged.

 

The fact of the matter is that despite public opinion, there are problems that are so big that the Central Banks cannot fix them. We’ve seen this in Switzerland and China. It will be spreading to other countries in the near future.

 

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 are making only 100 copies available for FREE the general public.

 

To pick up yours, swing by….

 

Click Here Now!!!

 

Best Regards

 

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

Our FREE daily e-letter: www.gainspainscapital.com

 

 

 

 

 

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Lordflin's picture

How many besides myself are tired of reading analysis on what the central banks intended, hoped for, thought might happen but didn't? This rigged game has worked exactly as intended. The few have plundered the many.

A thing I am intimately familiar with... public education. Supposedly no one knows how to fix the problems... or they just don't get it... they are sincere, but malinformed...

Nonsense!

All of these systems are working as designed. It doesn't take a great deal of imagination... just a great deal of money and influence. In the case of public education the system is primarily intended to turn out drones, with little ambition and a great feeling of dependence... and does it work! I watched it in action for years before I got out... and before I hear the inevitable from some of you... I tried for years to improve the system from the inside. Got tired of being the proverbial Dutch Boy with his finger in the dyke (avoiding rude comments if possible...). Didn't stop me from making a difference... although I dare say that if I said or did some of the same things now I would end up out on the street... or worse... which is why I talked my oldest into research rather than teaching...

But I digress. I vote that anyone who wants to explain the sincere, misguided intentions of central bankers to the rest of us be found, strung up, and skinned...

HEY YOU's picture

Who was the first person to say " What can't continue,won't continue."

Md4's picture

I'm not going to quarrel with most of Phoenix's analysis, and usually don't. My issue continues to be in their prescription (to gather PM's as a hedge against collapse). This is not a good strategy for most anyone, and I haven't followed it.

Nonetheless, we ALL know it's bad, and likely much worse than we can imagine. How can it be otherwise?

What we don't know is just how determined the players in this mess are to keep it going, even if that means much more damage to be done.

I suspect that collapse is so worrisome in these troubled skulls on the Street, and within the facilitating banks (including the IMF and the World Bank) that they'll do ANYTHING necessary. They seem to have the apathetic blessing of the masses who prize their insane shack and 401k values above all or anyone else. THAT'S the thing they feed off of, and that which keeps it all going...

Increasingly, it seems to me that this thing is going to have to be "pushed" over the edge before it ever goes over it on its own. As long as it continues, unchallenged, it will. Of course, no one wants to be the one who does that...so, here we sit.

Question is: what will it take to bring THAT about, and how much longer (and worse) it'll be if it isn't brought about?

m

PrimalScream's picture

Yes, China is at the epicenter of collapsing bubles in their stock markets and real estate.  There is a serious concern that the mess in China is bigger than anyone knows - or admits.  And I'm quite sure that many Chinese billionaires are now doing everything possible to get their own investments OUT of Chinese properties and Chinese stocks. 

American monetrary policies are run by Keynesian economists. These people do NOT have anything in their theories that explains the difference between "good investments" (real productive investments), and "bad investments" (i.e. money that produces no useful change in future goods and services).  Therefore, they always assume that ALL money that is injected into the US economy must be helpful.  This is complete and utter nonsense.  Alan Greenspan was famous for saying ... "The Fed lacks the right tools" (or words to that effect).  Well, if you don't have the right tools to do the job, then stop screwing up the system with the wrong policies!!

The global financial system has huge amounts of debt, and many players who are over-leveraged.  According to the rules of safe banking and investment - MANY of these people shouldn't even be trading at all. YET they are running institutions with "established reputations".  WHAT a fiasco.

tarabel's picture

 

 

Send me a bag of them and I'll pay you as soon as I get my $7000 check for working at home on the computer like my sister's mother-in-law.

KnuckleDragger-X's picture

Slapping bubblegum, bailing wire and duct tape on it is not a fix.......

ozzzzo's picture

Great article! The fear-mongering blather was so incredibly awesome that I'm now willing to pay you to tell me what to do!