The Financial System Is Breaking Down At An Unimaginable Pace

Tyler Durden's picture

Submitted by Simon Black via,

Now it’s $13 trillion.

That’s the total amount of government bonds in the world that have negative yields, according to calculations published last week by Bank of America Merrill Lynch.

Given that there were almost zero negative-yielding bonds just two years ago, the rise to $13 trillion is incredible.

In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion.

A year later in February 2016 it had nearly doubled to $7 trillion.

Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago.

Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.

Just like subprime mortgage bonds from ten years ago, these bonds are also toxic securities, since many of are issued by bankrupt governments (like Japan).

Instead of paying subprime home buyers to borrow money, investors are now paying subprime governments.

And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm.

We’ll probably see $15 trillion, then $20 trillion, worth of negative-yielding subprime government debt within the next few months.

So this trend will continue to grow for now, until, just like in 2008, the bubble bursts in cataclysmic fashion.

It took several years for the first subprime bubble to pop. This one may take even longer. But even still, we can already see the consequences today.

A few months ago I told you about the remarkable $3.4 trillion funding gap in the US pension system.

Remember, we’re not talking about Social Security– that has its own $40+ trillion shortfall.

I’m talking about private companies’ retirement pensions, or public service worker pensions at the city and state level.

(By the way, this is NOT strictly a US phenomenon. Europe suffers its own $2 trillion pension shortfall.)

There’s zero mathematical probability that these pensions will be able to meet their obligations.

They’re already underfunded. And the problem is getting worse, thanks in part to this plague of low and negative interest rates.

You see, most pension funds must achieve a low-risk investment return of roughly 8% in order to stay solvent and pay their beneficiaries.

And making an 8% return used to be a reasonable assumption.

25-years ago, government bonds often yielded more than 8%.

So unsurprisingly, the average return for pension funds over the last 25-years has been around 8% according to the National Association of State Retirement Administrators.

But that’s no longer the case.

With such a huge portion of the bond market now with negative yields, it’s virtually impossible for pension funds to keep their promises.

Even Warren Buffett has written that “[pension] funding is woefully inadequate,” and, “In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep.”

Bottom line: anyone who is ever considering retirement must heavily discount the future promises of unfunded pensions and Social Security.

The younger you are, the less likely you are to receive benefits they’ve promised.

But this also gives you time to prepare and take matters into your own hands...

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Jason T's picture

inflation is not certain Mr. Buffet.  Just death and taxes.

Troy Ounce's picture



Death, taxes and Keynesian nonsense we apparently all desperately want


MalteseFalcon's picture

Actually Buffet has also beaten death and taxes.

The central planners's picture

I hope Warren buffet retires young enough to get some of his retirement.

wisehiney's picture

Time for a whiskey run.

barndoor's picture

Unimaginable pace? WTF?

I agree that it is breaking down, but it has been doing so since at least 2008.  I'm amazed by how slowly it is breaking down. 

Dr. Richard Head's picture

Astonished they have papered this together for so long, but as long as the serfs contintue to pay their taxes, borrow to the hilt, and central banks contonue to print away, the levy keeps in the water.  I have to say I am actually impressed they have been able to keep the shell game going.  

barndoor's picture

In past years, I would throw on a small options position (long gold, short financials) when things seemed to be really heating up.  I got lucky on a few, but lost money overall.  

I still believe it is going to crash, but when is just a guess.  When it come to investing, being early is the same as being wrong.  One needs investments of a more permanent nature whose value matures over a longer time frame...  

Dame Ednas Possum's picture

'When it come to investing, being early is the same as being wrong'

What utter bullshit.

JohnG's picture


Selling early is being wrong.  Get right and sit tight.

Works for gold.

Omen IV's picture

Larry Tisch in 97-98' put on a huge short position because he didnt believe the valuations for major Fortune 500 cos.- He was a financial legend - owned one of the major causualty companies - he stayed the course and then threw in the towel for a major portion of the position just before it turned in March 2000

Things that go bump's picture

That's because we're turning and turning in the widening gyre and approaching the place where things fall apart and the center cannot hold.

Things that go bump's picture

Good old Yeats. He was something of a prophet.

"And what rough beast, its hour come round at last,

 Slouches towards Bethlehem to be born?"


Crash Overide's picture

I am not that old and I remember being a kid thinking 1 million dollars was a HUGE amount, now we throw around numbers in the trillions like it's nothing.

What a fucking joke this has all become...

WTFUD's picture

Yeah a $million is the yearly fuel bill flying between engagements for the publicly subsidised and bailed-out banking overlords at Goldman Sachs & Deutsche Bank.

The Navigator's picture

Quadrillion is right around the corner

but I don't know what comes after that or if there is an " after that"

Kprime's picture

we've hit a slight bump with the niggerdrillion borrowing; hand out he says, "could u do me a solid bro?"  comes the reply, "hell no dawg, ebt aint till thursday".

Salzburg1756's picture

but I don't know what comes after that


juggalo1's picture

You guys are way off.  A country cannot be bankrupt if it is paying negative interest rates.  How much debt could they sustainably service?  Infinite.

conraddobler's picture

Yeah it's going parabolic because they are buying everything people just haven't figured out that it's a roach motel yet but they will when it's too late.


Kprime's picture

except for that slight problem with =,  damn if there isn't always somethin on the other side.

Gern Blanston's picture


Help me out here; I don't have a financial background but I'm trying to wrap my head around this. Negative-yield govt bonds would turn interest expense into a revenue stream, which would take pressure off ever-increasing govt spending, but not enough to matter. It would still be dwarfed by other increases in spending. How could it change the curves that are currently unsustainable?




JohnG's picture


It can't.  Negative rates break everything.  Collapse is just around the corner I give it two years. 

Less if we have the war these sick fucks have beein trying thier best to gin upp for 5 years running.

tricorn teacup's picture

Sure, until investors stop lending you money at a loss.

More Ammo's picture

Is that parabolic or exponential?

At this point, What difference does it make...

SimpleJackBlack's picture
SimpleJackBlack (not verified) Jul 19, 2016 12:49 PM

Better cut welfare before retirement funds.

I don't think our government is gonna have the balls to tell the citizens that your retirement isn't possible but welfare is all good.

Anarchy would immediately go off like a nuke.

looseal's picture

Is that what happened in Detroit? 

2ndamendment's picture

"There’s zero mathematical probability that these pensions will be able to meet their obligations."


You're assuming the gov't won't bail them out. I think they will be bailed out same as California, Illinois, Michigan and various other states careening towards bankruptcy. I don't like it either, but they will be bailed out. 

More Ammo's picture

When sinking in endless money you can bail all you want...

dmger14's picture

I wouldn't be surprised if they were, and what a mighty moral hazard that would be.  You have to believe this will lead to PRICE inflation and loss of confidence in our currency but watch us have deflation and increasing dollar anyway.

1stepcloser's picture

Rolling up all these bad debts will ultimately to be placed on the Fed's balance sheet.  And the Market will rally on the news.... 

Not My Real Name's picture

"I don't like it either, but they will be bailed out."

When the currency is finally worth nothing, then whether they bail out the pensions or not becomes moot, doesn't it? 

Antifaschistische's picture

"Bottom line: anyone who is ever considering retirement must heavily discount the future promises of unfunded pensions and Social Security."

And the Top Line, is that anyone who has "guaranteed" future earnings in US dollars should be heavily investing now in their currency collapse hedge investment of choice.....which is NOT another countries FIAT.

WTFUD's picture

Who was it that sang that song ' Land of Make Believe ', again?

Scandinavian quartet i think, mama mia here we go again . . .

looseal's picture

Don't know but George Carlin said, "it's called the American dream, because you have to be asleep to believe it."

dmger14's picture

Will the whole thing come down already?  Damn!  I am the financially literate guy in the family who cashed out pf stocks into PMs since 2006 or so, mostly since 2011 and am underwater, while my ignorant family members are sitting high on the hog with stock winnings and zero PMs.  I don't begrudge them but would like to have solace in doing the "right thing" albeit way early.

More Ammo's picture

Funny, that ammo is worth a lot more than I paid for it in 2006...

PRO.223's picture

Gold closed 2006 at $635 an oz, you wouldn't be underwater if you believed in real money.

slammin_dude's picture

How are you underwater?

gold high in 2006 was $714, which means you're at a 86%return

silvers high was 13.21 ish which meants you're at 51% return if you bought at the high....


Not My Real Name's picture

He said he bought most of his PM in 2011 -- that's near the top.

Powerslaved's picture

I've been doing the "right thing" since '08. It really pisses me off and I feel like an idiot.

Aubiekong's picture

As the old farts steal the money out of their working grandchildren's checks each week to fund their "earned" Social Security ponzi scheme...

RabbitOne's picture

Take a closer look at who is stealing. Obama just stole 10 trillion...more than 6.8 trillion was used to pay for welfare. Imagine if they had used that money instead to create ANY jobs what better shape this country would be in. I could have created 400-600 billion dollar manufacturing facilities with that 10 trillion. So Obama stealing 10 trillion was a grand theft and yet you want to blame seniors. Fuck you... 

N0TaREALmerican's picture
N0TaREALmerican (not verified) RabbitOne Jul 19, 2016 1:34 PM

Come on,  the "seniors" set-up this theft-based system.   It was the OldFarts who KNEW we were fucking the next generation, and we LOVED doing it too.   None of us was going to pass-up the McMansion and Corvette.

And, lets not forget (as the OldFarts always do) that SS was always a generational wealth transfer system.   The younger people pay for the older people.  

Re:  Obama just stole 10 trillion

When you get as bent our of shape over the Weapons of Mass Delusion wars and welfare, let me know.    Lots of OldFarts did pretty well leaching off of Big-MIC, Big-Ag, Big-FIN, Big-Ed, Big-Road, Big-Water,  Big-Airport, Big-Energy, Big-PoliceState, Big-Health, Big-OldFart because our generation loved all these Big-Gov scam:  we benefited from them.