The Process Through Which the First Major Central Bank Goes Bust Has Begun

In the aftermath of the Great Financial Crisis, Central Banks began cornering the sovereign bond market via Zero or even Negative interest rates and Quantitative Easing (QE) programs.

The goal here was to reflate the financial system by pushing the “risk free rate” to extraordinary lows. By doing this, Central Bankers were hoping to:

1)   Backstop the financial system (sovereign bonds are the bedrock for all risk).

2)   Induce capital to flee cash (ZIRP and NIRP punish those sitting on cash) and move into risk assets, thereby reflating asset bubbles.

In this regard, these policies worked: the crisis was halted and the financial markets began reflating. 

However, Central Banks have now set the stage for a crisis many times worse than 2008. 

Let me explain…

The 2008 crisis was triggered by large financial firms going bust as the assets they owned (bonds based on mortgages) turned out to be worth much less (if not worthless), than the financial firms had been asserting.

This induced a panic, as a crisis of confidence rippled throughout the global private banking system.

During the next crisis, this same development will unfold (a crisis in confidence induced by the underlying assets being worth much less than anyone believes), only this time it will be CENTRAL banks (not private banks) facing this issue.

The consensus view is that a Central Bank can never go bust because it can always print money to remain solvent.

However, this is misguided.

Central Banks are currently sitting atop over $10 TRILLION in bonds, courtesy of nine years of QE programs.

These bonds trade based on inflation.

If inflation rises, these bonds will drop in value as their yields rise to accommodate the move in inflation.

When a Central Bank is sitting atop trillion of dollars in bonds, an inflationary spike inducing those bonds to drop could very quickly wipe out $100 billion or more in capital.

Now, you might argue that the same Central Bank could simply print more money to prop up the bond markets… but doing so would only increase inflation … which in turn would force bonds prices lower… inducing greater losses.

You get the point.

Policies like QE and ZIRP only work as long as the financial system maintains confidence in the currency a Central Bank is printing. The minute that currency begins to devalue rapidly due to inflation, the whole game is over.

This process has already started. The explosion of Bitcoin and other cryptocurrencies is just one way in which the system is losing confidence in primary currencies.

The recent spike in bond yields is another. Across the globe, the $100+ trillion bond market is begin to lurch towards an inflationary future. Below you can see these moves in Germany’s 10-Year Government bonds, Japan’s 10-Year Government bonds, and the US’s 10-Year Treasuries.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research


JibjeResearch Mon, 12/11/2017 - 11:21 Permalink

Get Cryptos, Property (housing and land to produce food), and fundamentally sound stock that is cheap.Lots of lead.. you will need this....Keep cash for daily used for 6 to 12 months.Enjoy the rollercoaster

jeff montanye Dame Ednas Possum Mon, 12/11/2017 - 17:24 Permalink

well, the first four and the next fourteen comments on zerohedge about an article touting the imminence of serious inflation, the rising of interest rates, and the impotence of central banks to counter this do not mention gold or precious metals generally.i believe this is the bell ringing to buy them and their miners.  christmas 2017, mark it on your calendar.

In reply to by Dame Ednas Possum

Global Douche jeff montanye Mon, 12/11/2017 - 20:30 Permalink

December is traditionally the best month to buy. My few PM stocks have been badly monkey-hammered and the temptation to cash out some of my Bitcoins and back the truck up to mop up the street blood paper mess is really reading strong. The one thing keeping me away is the strength of the ongoing Ponzi in the bonds, although I'm seeing serious cracks in that massive egg.

In reply to by jeff montanye

Not Too Important Dame Ednas Possum Mon, 12/11/2017 - 13:00 Permalink

Charlemagne was responsible for that, and it's been all downhill since.

Now there's not much left to stripmine. The parasite has killed the host, and the Russians and Chinese aren't willing to be the next victims, offering protection/vaccination, but not without severe side-effects.

The final battle before the civilian nuke plants all disintegrate and take the planet with them. It's called the 'Wigner Effect', but it doesn't really matter, there's no stopping what's coming. The world's nuclear power plants are slowly dissolving into dust.

Hug your loved ones, make peace with your Creator. The beginning of the end is well underway.

In reply to by Dame Ednas Possum

Gatto JibjeResearch Mon, 12/11/2017 - 15:16 Permalink

Housing and land will be a draining liability once property taxes begin to explode in a feeble attempt to fund federal, state and local pensions!   Downsize your house and have as little real estate as possible!   Housing will also collapse with rising interest rates, which are coming, as the rates rise, people will no longer be able to afford increasing monthly payments, this will cause real estate to tumble!

In reply to by JibjeResearch

Honest Sam Mon, 12/11/2017 - 11:27 Permalink

Yay you!  Your guys are right now feverishly putting together the stratagery for saving the Bitcoiners bacon.  A more noble pursuit can hardly be imagined. How much is that newsletter again?  I'm seriously thinking of cashing in my 12% gain in the last two weeks in ETH and LTC, amassing over $120.00 in profit that is burning a hole in my head, and buying a Phoenix Capital expert's advice.   

MusicIsYou Mon, 12/11/2017 - 11:43 Permalink

People have a lot of expensive low quality shit. That's why if you own a home you should be sitting on your equity and not getting home equity loans. They give you shitty cash that has no actual value and you have given them the equity in your home that does have actual value. And then like the idiots people are they pay the banks interest for the shit paper they traded you for the real value in your home. So in essence the bank took the equity and is holding the equity in your house and your dumbass is paying them interest to hold your equity.

Snaffew MusicIsYou Mon, 12/11/2017 - 11:56 Permalink

a home is only worth what someone else is willing to pay for it...those $600k bungalows selling in california can be built for around 25k...most homes are wildly more expensive than their true intrinsic value, but everyone thinks their home is worth a fortune these the system resets, school and property taxes on these homes will spike due to inflationary pressures while the housing market once again crashes and home values drop precipitously---a double whammmy to homeowners.

In reply to by MusicIsYou

jmack Snaffew Mon, 12/11/2017 - 12:44 Permalink

They could be built for 25k in a normal state, like nevada, or utah, but not in california with thier regulatory regime.  Thus it prices out poorer people, strains the middle class to the breaking point, and increases the wealth divide, between the rich and/or early adapters(people who owned properties since before the regulagtory regime was installed, and the rest.

In reply to by Snaffew

jmack Snaffew Mon, 12/11/2017 - 12:44 Permalink

They could be built for 25k in a normal state, like nevada, or utah, but not in california with thier regulatory regime.  Thus it prices out poorer people, strains the middle class to the breaking point, and increases the wealth divide, between the rich and/or early adapters(people who owned properties since before the regulagtory regime was installed, and the rest.

In reply to by Snaffew

slice Snaffew Mon, 12/11/2017 - 19:59 Permalink

Your property may be worth what someone else tells you it is, but my home and property is worth what I say it is...and its not for sale.When cities try to jack up property tax that no one can pay, what are they going to do? Foreclose on half the town and assume that liability that cannot be liquidated becuase no one is buying? Maybe, but I don't think so. I think they will just put a lien on it and wait for me and then for my wife to die.I hear what you are saying, I just don't think that scenario will play the way it has in the past.

In reply to by Snaffew

doctor10 MusicIsYou Tue, 12/12/2017 - 05:08 Permalink

Traditional currencies really aren't worth all that much in a surveillance society -which essentially all big governments are today. All opportunity for arbitrage is stolen by the sociopsyopaths pre-occupied with going through everybodies bank accounts, real estate holdings, telephone and email records, tax returns and health records seeking "opportunity". Not much business can be done profitably. At the end of the day its why interest rates -at least in 100% traceable accountable taxable regulatable and ultimately takable currencies are basically 0% give or take a few fractions of a percent-worldwide. FWIW if you want to borrow BTC -at BitBond today  interest rates can be 22%!! "value" is anonymity and privacy in conduct, thought and action-one of the consequences of which is enhanced ability to keep the fruits of your own labor. It also is the ONLY means through which individual productivity can increase-and thus increase productivity across an entire nation. Electronic/digital currencies actually fulfilling those needs will be the most valuable-there is yet to emerge one that clearly does so. Ask East Germany and the Soviet Union exactly how well a surveillance society worked out during the 20th century. The 21st is no different in that regard-except that surveillance is cheaper and more intrusive and consequently more deleterious to society.  It is a cancer

In reply to by MusicIsYou

MusicIsYou Mon, 12/11/2017 - 11:54 Permalink

Smarter people sit on the equity in their home especially in questionable times. I could always trade my equity for something else if I really had to and it's also a buffer just in case there's another housing value crash.

slice MusicIsYou Mon, 12/11/2017 - 20:10 Permalink

"I could always trade my equity for something else if I really had to and it's also a buffer just in case there's another housing value crash."That makes no sense to me. If the value of your house crashes, your equity crashes. Bye-bye "buffer".It would make more sense to me to sell while "value" is high, sit and wait then snap up property when the "value" tanks, assuming your Magic 8 Ball is properly calibrated.

In reply to by MusicIsYou

Money_for_Nothing Mon, 12/11/2017 - 13:04 Permalink

Bit coin is being used to rescue capital from bankrupt socialist regimes. Anyone that thinks bit coin can survive without being co-opted by governments is kidding themselves. The question is when and in what way.

hibou-Owl Money_for_Nothing Mon, 12/11/2017 - 13:26 Permalink

A previous ZH article stated 80% of the bitcoin market is Chinese, my guess as a result of tighter restrictions of many countries on forgein real estate ownership. The Chinese government have also stated their dislike of bitcoin..Due to the ability of CB's to continue even short term the QE, this won't be a trigger to a sell off. I'd be looking at the debt ponzi schemes of China and fraud in valuations. This will have a bigger effect on currency

In reply to by Money_for_Nothing

AGuy Mon, 12/11/2017 - 13:04 Permalink

"Now, you might argue that the same Central Bank could simply print more money to prop up the bond markets… but doing so would only increase inflation … which in turn would force bonds prices lower… inducing greater losses."

As far as bonds, CBs can just sit on them, even while raising rates. Hell, they can continue to buy them up while raising rates. If Bernanke had a clue, he should have started raising rates while buying up bonds via QE. It would have been much easier since QE would be providing liquidity while raising rates. We probably have nearly normalized rates by now.

Inflation isn't going to occur since everyone is buried in debt, there is no wage growth, and there is the demographics cliff. Credit growth is what is fueling the economy. Sooner or later higher rates and increase cost of servicing debt is going to but heads again and cause another inflation. But since rates are still near zero, its going to be much harder or much slower to recover since people will have more debt than the did back in 2008. and dropping rates from about 7% to 2% isnt going to have the same impact dropping rates from 3% to 2%.

That said the issue may be loss in confidence in currencies, but raise rates probably isn't going to fix that in any case. Restoring confidence is a usually a political matter (ie nixing the gov't deficit spending, cutting gov't spending a lowering regulation & taxes for the working class)

everything1 Mon, 12/11/2017 - 13:23 Permalink

Prepare how, I just keep plenty of money and au/ag in the SDB.  I keep the AU and fiat right in front so it's easy to grab, I figure the AG is worthless at this point in time.  Just the fact that AG coin/bar investment ballooned like it did is telling of what folks may suspect going forward, and then demand for it has fallen off the cliff, but not AU.  Gold is not hard to see that the world cannot get enough of it anymore, especially the asian, they are no stranger to inflation -- or survival.  Japan has a current issue with Kodokushi, the parent of single minded focus surrounding rapid economic grwoth making family ties no longer of any value.  I live in a country where even my family wants my money, could care less if I live or die.

Albertarocks Mon, 12/11/2017 - 17:14 Permalink

Oh I get it now, the bankers have no way out.  Maybe I should buy up a bunch of gold and silver and a bunch of solid companies who mine it?  But wait, I'm already loaded up on those.  In fact that's all I own, 40 mining stocks and an old car.  And some silver, lots of silver.  And a little bit of BTC.  And I need a new pair of shoes but I'll be god damned if I'm gonna buy a pair... I want moar silver first, lol.

LotUnsold Mon, 12/11/2017 - 18:04 Permalink

Jesus, does Phoenix capital know anything?  It only took to the second sentence to get to the first glaring mistake - and I don't remember being convinced by the first sentence either.  This sort of understanding might do as an explanation to someone on work experience doing a day at a bond desk but it show ZeroInsight.  The goal  was to ill the holes in the balance sheets right across the sector, get free working capital from the government, pull of the biggest theft in finacial history and hand nearly every mortgage in the United States to the Federal reserve as collateral for the $2 Trillion that China was getting a little antsy about.  In terms of what you think it was a catastophic Keynesian failure.  In terms of what the bankers wanted it was a runaway success.Start from there and work the rest out for yourself.  You might want to look at the Fed balance sheet for the year leading up to 09/2008 to see what the real causes were.

Global Douche LotUnsold Mon, 12/11/2017 - 19:11 Permalink

They're correct in regard to the bonds being the Achilles Heel. If they fail, the shit finally hits the fan after all this time. Derivative exposure cracking due to higher interest rates will follow soon after. Frankly, I'm surprised the author left THAT out and the ramifications are even worse. The bonds being the lit fuse and the derivatives being the explosive stored in that orb.

In reply to by LotUnsold

LotUnsold Global Douche Tue, 12/12/2017 - 00:08 Permalink

So what do you think happens when a liability (a deposit) on the balance sheet of a Central bank gets written down to zero, but the asset (the money lent against it, and which has to be repaid) remains?No one is going to worry about whether interest rates are going to ravage the value of pledges.  These things will get held to redemption anyway.  Everyone knows that.  That's why they are at the Central bank rather than being marked to unicorns in the originating banks.If you don't understand how a balance sheet works then you shouldn't be voicing an opinion.  There was a time when people  ZH knew what they were talking about.  Now it's just someonewho has made some money in BTC but never been near a bond desk.

In reply to by Global Douche

Aireannpure LotUnsold Mon, 12/11/2017 - 21:29 Permalink

Thank you for clearly stating the monetary and fiscal obvious. You are not selling anything and have a "realistic" view. Stupid no's know limit's and governments are fully loaded. The civil war rages, real incomes and wages are the "real"  CONTINUING cause. Not facing the housing/lending fiasco has made the whole house of cards much, much larger. Helicopter money NOW, it's Christmas for Christ's sake.

In reply to by LotUnsold

LotUnsold Aireannpure Tue, 12/12/2017 - 00:16 Permalink

OK fuckface, what was obvious in my post?  It's in complete conradiction to what is being said inthe article, so how come it's so obvious yet passed them by?  Please list the obvious things that you knew already.The rest of your post is irrelevant to the topic, so I don't know why you included it.  Are you are student?  3 years before you discover you have no value to anyone else?

In reply to by Aireannpure

messystateofaffairs Mon, 12/11/2017 - 19:35 Permalink

Central Banks backstop moral hazard with potential unlimited fiat money. Moral hazard destroys real economies that are the only thing that produce real wealth.Central Banks try to patch up the mess with printed money. In this case the money only goes into wealthy club member hands where it inflates their assets not ours, as yet.At some point the inflation will break loose, then the fiat money will become worthless. Then what had a central bank got?Question is does the real economy move over to real specie money or does it let the central bank criminal con artists keep the assets they stole with the printed fiat (when it had value) and reset their fiat con game with another fiat replacement.If I were a central banker I would blame the old fiat crash on the profligacy of my disposable government lackeys, clean up the profligacy with newly purposed gov lackeys, introduce a new fiat, and live happily ever after. If that don't work theres always a major war I could start. Goyim are gullible, G-d made them that way to serve us.

Karl Marxist Mon, 12/11/2017 - 21:44 Permalink

All I know is a lot of people are gonna be really upset ... or dead. Like, starved and into an actual 6+ million, the handy figure the Jews have thrown about in the NYT's 150 or so times between 1913 and 1938 to extrapolate sympathy, free money, protection and massive power. These are a people who don't actually produce anything. Why should they? They've rigged the world so they don't have to yet gain all the rewards. Bitcoin has sent them a message but none will heed its warning. Why should they? Their own prints up all the free money they could ever dream up and rigged the system to a problem so terrible no one will ever solve it short up blowing up the planet.  Their behaviors predictable: 1) attack 2) flee, 3) avoid, 4) neglect, 5) succumb -- the latter succumb with all of humanity in it so that their massive crimes including rape and murder of millions of children for sexual "gratification" as a reward for their compliance, are buried forevermore on charcoal Earth. But the eternal spirit that is God and Man will never forget no matter the next few Earth's mankind will come to inhabit.

MPJones Mon, 12/11/2017 - 23:52 Permalink

Fiat currencies are unsuitable as wealth preservation vehicles. Central banks create no wealth to back their funny-money fraud, just worthless tokens. These can be used for exchange purposes but have no or limited intrinsic value. You could say that the value of government bonds is based on the perceived ability of governments to extort taxes from their populations in the future.Central banks are an abomination that should not exist. They are the bane of sound money and fundamentally nothing but institutionalised fraud.

farmboy Tue, 12/12/2017 - 02:19 Permalink

Unfortunately a link is assumed in this article between inflation and bonds. Because politicians are behind this proces , inflation is also an artificial number controlled by the official = political institutions so in theory inflation can be zero even if for real people it is very high. I argue that bonds can even rise from here because in a collapse you get at least your money back. The point of no return heading to a catastrofic outcome has been passed long ago.

AnarchistRex Mon, 12/18/2017 - 01:48 Permalink

Who is writing this article and what do they have to gain? It's quite manipulative.Central Banks can print all they want.  Sure the value of the bonds they hold will go down in value as they say ... but ...    Ask yourself: "why do the central bankers care?"     Answer: "they don't".  They bought those bonds with fake money and hence their value is not relevant. Central Banks are raising rates now to 'check' the housing markets, which, around the globe, are in mega-bubble territory - territory the Central Banks CREATED themselves by lowering interest rates to unnatural levels. Of course banks in general are also to blame as they utililze fractional reserve practices that allow them to lend out many times (bank credit) of what they hold in reserves. The housing markets are the biggest, longest running ponzi scheme in ALL of human history.IMO, get out of it all. swap over to commodities and forms of money that have REAL long term value. That inflation hurricane is meandering, but it shall evenutally arrive - and we're talking Cat 5+ here.