Former Central Banker Comes Clean: The Bond Bubble is About to Burst

Phoenix Capital Research's picture

There’s a strange thing about Central Bankers…

When they are working at a Central Bank, they never see financial problems, even if said problems are both MASSIVE and obvious.

As Fed Chair in 1999, Alan Greenspan claimed it was impossible to know if stocks were in a bubble … when stocks were in their single largest bubble in 100 years.

The next year, the market crashed.

As Fed Chair in 2007, Ben Bernanke claimed the subprime mortgage meltdown was “contained” and the effects would not “spillover” into the economy.

The next year the market crashed as the economy imploded.

And this year, Fed Chair Janet Yellen announced that there wouldn’t be another financial crisis in our “lifetime.”

We’ll see what comes next year.

Actually, we KNOW what’s coming, because for whatever reason, as soon as a Central Banker leaves the Fed, he or she suddenly changes their tune and starts telling the truth.

On that note, former Fed Chair Alan Greenspan issued a crystal clear warning on Friday.

Former Federal Reserve Chairman Alan Greenspan issued a bold warning Friday that the bond market is on the cusp of a collapse that also will threaten stock prices.

In a CNBC interview, the longtime central bank chief said the prolonged period of low interest rates is about to end and, with it, a bull market in fixed income that has lasted more than three decades.

"The current level of interest rates is abnormally low and there's only one direction in which they can go, and when they start they will be rather rapid," Greenspan said on "Squawk Box."

Source: CNBC

Greenspan’s had a decent record of honesty in the last few years, noting that excessive debt is the root of the financial system’s and that the reintroducing the Gold Standard would solve many of our current problems.

Again, the former Fed Chair seems to have “got religion” when it comes to finance. And he’s now issuing a major warning that the bond market is in serious trouble.

He’s not wrong either. Globally the Bond Bubble has reached truly astonishing levels. The world has added $68 TRILLION in new bonds to the debt markets since 2007.

As a result of this, today the world’s Debt to GDP ratio is s staggering 327%.

All of this new was issued based on assumptions that interest rates would remain at or near ZERO. So what happens to all this debt when yields start rising, bond payments increase, and borrowers start defaulting?

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Chief Market Strategist

Phoenix Capital Research

 

 

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kenny500c's picture

Who says you can't solve a problem of excess indebteness by more borrowing?

Turns out you can as long as you are willing to accept low/negative interest rates.

Sustainable though? 

LOL.

AGuy's picture

"Uh-oh?"

Its OK, its fine because we "owe it to ourselves!" /sarc

MayIMommaDogFace2theBananaPatch's picture

Fuck!  I accidentally put my Trillion Dollar coin in the turnstile!

ReturnOfDaMac's picture

That rat bastard is very old. Getting closer to the grave.  He can feel the heat and smell the brimstone of where he is going.  That is why he is trying to come clean, in a vain attempt to undo a tiny bit of the damage he did to this world when was fed chair.  There is a room in hell where the dial is turned up just a wee bit higher for you chair satan.  It's waiting for you.

gdpetti's picture

I don't think so. I think he's been allowed to merely state the obvious truth. Why? Because so have others in the establishment marketplace. Uncle Bernie isn't the only one, actually he's joined a chorus of club members putting out the call on the market and prepping to sell it short. The thing I learned is that they do this a little while before the market turns. It was a basic pattern in the 90s, especially in the late 90s... like watching MS double and then split... until it stopped...

Uncle Bernie is just another nail in the coffin, long prepared for our corpse of a market... we have been warned repeatedly by these members of the club, so we can't blame anyone but ourselves when the 'rug gets pulled out'... usually a 'bank holiday' is enacted to 'save the system'... not the market brakes, but actually backroom shutdown... as everything increasingly turns digital, it gets easier and easier to do... total control of the market.... and from an esoteric standpoint of 'free will', this warning is key to their control... the bidding process... part of how they maintain control... they can later point to these early warnings so that the public then feels shame and anger and blames not the market, but themselves... suicidal tendencies kick in, civil protest, perhaps some war meme comes to fruition... the usual stuff engineered for the herd.

daveO's picture

Right. CNBC=state(bank) run media.

ReturnOfDaMac's picture

Great points.  Greensperm is still gonna burn ...

8th Estate's picture

Arch-insider Greenspan gets religion?

Pffft.

He is simply one more useful counterweight, that's all.

The central bankers are trapped - they can't get loose without destroying confidence and their currencies, and they can't get tight without causing a stock and bond collapse.

We all know this.

The Keynesian clown car needs to stay in its very narrow lane, and whenever it looks like swerving off the road someone like Larry Summers, or Kocherlakota, or Greenspan is trotted out to grab the wheel and bring the car back into the middle of the lane.

So Yellen has a rolodex on her desk - Hawks and Doves. After each FOMC meeting she waits for the media response and if the Fed is being portrayed as dovish, she calls one of the guys pretending to be a hawk and asks him to make a public statement.

And so he does, and the clown car stays on the road for another month.

For example...........

"Refuting recent statements from virtually every banks, Bullard remained optimistic and said the upcoming balance-sheet unwind "is going to be very slow and I don’t think there will be a lot of impact on the markets."

Finally, on the hot topic of whether the Fed is seeking to push asset prices lower and tighten financial conditions, he said that “financial conditions indexes are at very easy conditions” right now and when asked about complacency in financial markets, says “I don’t think low volatility or low stress necessarily signals anything.”

Bullard - Dove (this month)

Dragon HAwk's picture

There are certain organizations, where when you leave, you are not really leaving, they still make you carry the membership card and secret decoder ring. and they remind you of that every once in a while and trot you out for a little contrarian cover our asses speech.

8th Estate's picture

Yup exactly.

Keeping the Keynesian clown car away from the cliff edges, that's all.

Rick Cerone's picture

Saudi Arabia is a dead duck.

MojoHoHo's picture

I’m sure Greenspan has a way to know what’s going on in the deep state loop. They can’t seem to start WW3, perhaps they are ready to meltdown this place by raising interest? 

LawsofPhysics's picture

Sure sure...

...and where precisely will all that money go?  If bonds are being sold, then where will that money go?  Do tell, do tell...

 

I think you are full of shit.

hongdo's picture

I thought than when the Fed sells bonds off the balance sheet the money received goes back to where it came from in the ether.  But then again it would take an audit to check.

lasvegaspersona's picture

Bonds are not money, they are a promise to pay money. When bonds crash the money (that was never there) goes to money heaven. RIP

LawsofPhysics's picture

Bonds are still sold for cash dipshit. In addition, when a bond matures, People are paid in cash money.

 

Again, in order for rates to go UP, the number of available bonds must go DOWN so someon is getting cash (bond selling or maturing). Where the fuck is all that cash going to go?

quadraspleen's picture

and the govts and corporations that issued them go to gov and corp heaven with them?

oddjob's picture

Without an audit, the Fed can just claim they sold them, and actually just burn them.

DC Beastie Boy's picture

Exactly, just print whatever numbers they want.  Who's even going to notice?

In the land of free and umlimited money that's printed out of thin air, why not just make up all the other shit?

Doom Porn Star's picture

http://www.marketskeptics.com/2010/05/federal-reserve-has-been-abusing.html

https://www.federalreserve.gov/monetarypolicy/files/FOMC20030625meeting.pdf

"The alternative approaches that would involve changes to how the Desk operates are summarized in exhibit 4. The alternatives that could be adopted while changing only the composition of the balance sheet are listed in the top panel. These include (1) extending the average maturity of the outright holdings in the SOMA, (2) setting explicit ceilings on longer-term Treasury yields, and (3) using derivative instruments. Because only the composition of the balance sheet changes, excess reserves can be kept at low levels and under the Desk' s control, allowing the Desk to continue targeting a positive funds rate. 

 "

Hikikomori's picture

So - when Greenspan was Fed Chairman he was a congenital idiot, but when he left, he miraculously became the Oracle of Delphi?  Sorry, I'm not buying it.

AGuy's picture

"So - when Greenspan was Fed Chairman he was a congenital idiot, but when he left, he miraculously became the Oracle of Delphi? Sorry, I'm not buying it."

Magoo (Greenspan) is trying to preserve his legacy and public image. While as Fed Chairman (nicknamed the Mistro), he craved public approval. As ex-chairman, he still wants to be remembered as the Mistro, incapable of doing harm.

Macavity's picture

Precisely. Just more noise to divert attention away from the few, very ugly, fundamental truths of finance.

Buck Johnson's picture

I know, they never tell the truth when they are in office.

 

silverer's picture

I'm surprised they let these guys out in the wild. They need a good debriefing from the Clintons so they know to keep their mouths shut.

Rick Cerone's picture

NO SHIT, REALLY???

CheapBastard's picture

Is it possible for these CB's to suppress interest rates even when the bubble "bursts?"

 

I mean, they have been manipulating everything so strongly, is there any way for them to hold rates down even as the bond prices tumble? Is that at all possible?

 

I know it sounds like a silly question, but after living thru the last 10 years of silly economics, I'm ready for ANYTHING! For example, they have suuppressed the CPI to zero while food prices and house prices doubled. And so on....

Two Theives and a Liar's picture

Exchange Stabilzation Fund. NO transparency and TRILLIONS to sponge up the bonds. Rob Kirby does a great job exposing this.