debt crisis

The Great Debt Crisis of Our Lifetimes is Coming!

Over the last week, we’ve warned investors that the Fed’s actions are unleashing another round of inflation in the U.S. financial system.

By quick way of review.

  1. The only part of the inflation data that is declining year over year is Energy prices. Every other segment of the Consumer Price Index (CPI) continues to rise.
  2. Financial conditions are as loose today as they were when the Fed first started raising interest rates in March 2022. And yet, the Fed is preparing to cut rates instead of raising them.
  3. The Fed is still providing hundreds of billions of dollars in liquidity to the financial system via credit facilities.
  4. The Fed’s own research indicates that food inflation is the best predictor of future inflation. And agricultural commodities are skyrocketing to new highs.

Unfortunately for Americans, the Fed isn’t the only entity that is engaged in inflationary policies. The Biden administration is currently engaged in truly extraordinary levels of money printing.

The Biden administration has added $6 trillion to the national debt since taking office.  Bear in mind, this is happening at a time when the U.S. is collecting a record amount in taxes. So, the Biden administration is not only spending all of the tax dollars collected, it’s spending so much money that the U.S. is having to issue record amounts of debt!

The below chart needs no explanation. This is simply not sustainable.

Indeed, the pace of debt issuance is speeding up not slowing. The Biden admin issued $3 trillion in new debt in between 2021 and 2023. It added another $4 trillion in new debt in 2023 alone. At this pace. the U.S. will hit $40 trillion in debt some time in mid-2025.

Indeed, the pace of debt issuance is speeding up not slowing. The Biden admin issued $3 trillion in new debt in between 2021 and 2023. It added another $4 trillion in new debt in 2023 alone. At this pace. the U.S. will hit $40 trillion in debt some time in mid-2025.

The good news is that those investors who are properly positioned for this stand to generate truly EXTRAORDINARY returns in the coming months.

On that note, we recently published a Special Investment Report detailing three investments that will profit from this rampant government spending. Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.

To pick up your copy, go to:

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Graham Summers

Chief Market Strategist

Phoenix Capital Research, MBA

Posted by Phoenix Capital Research in Central Bank Insanity, Inflation
Bail-Ins and Frozen Accounts Are Coming to a Country Near You!

Bail-Ins and Frozen Accounts Are Coming to a Country Near You!

In the last 24 months, Canada, Cyprus, New Zealand, the US, the UK, and now Germany have all implemented legislation that would allow them to first FREEZE and then SEIZE bank assets during the next crisis.

These moves will be sold as “for the public’s good,” when they happen. But the reality is that it’s all about stopping people from moving their capital into actual physical cash.

The whole template for this was set out in Cyprus in 2013. The quick timeline for what happened in Cyprus is as follows:

  • June 25, 2012: Cyprus formally requests a bailout from the EU.
  • November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).
  • February 25, 2013: Democratic Rally candidate Nicos Anastasiades wins Cypriot election defeating his opponent, an anti-austerity Communist.
  • March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.
  • March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.
  • March 18 2013: Bank holiday extended until March 21 2013.
  • March 19 2013: Cyprus parliament rejects bail-in bill.
  • March 20 2013: Bank holiday extended until March 26 2013.
  • March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.
  • March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).

The most important thing I want you to focus on is how lies and propaganda were spread for months leading up to the collapse. Then in the space of a single weekend, the whole mess came unhinged and accounts were frozen.

One weekend. The process was not gradual. It was sudden and it was total: once it began in earnest, the banks were closed and you couldn’t get your money out (more on this in a moment).

There were no warnings that this was coming because everyone at the top of the financial food chain are highly incentivized to keep quiet about this. Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.

For that reason, you will never and I repeat NEVER see a Central banker, Bank CEO, or politician admit openly what is happening in the financial system. Even middle managers and lower level employees won’t talk about it because A) they don’t know the truth concerning their institutions or B) they could be fired for warning others.

Please take a few minutes to digest what I’m telling you here. You will not be warned of the risks to your wealth by anyone in a position of power in the political financial hierarchy (with the exception of folks like Ron Paul who are usually marginalized by the media).

Moreover, when the Crisis DOES hit, it will be much, much harder to get your money out.

Consider the recent regulations implemented by SEC to stop withdrawals from happening should another crisis occur.

The regulation is called Rules Provide Structural and Operational Reform to Address Run Risks in Money Market Funds. It sounds relatively innocuous until you get to the below quote:

Redemption Gates – Under the rules, if a money market fund’s level of weekly liquid assets falls below 30 percent, a money market fund’s board could in its discretion temporarily suspend redemptions (gate). To impose a gate, the board of directors would find that imposing a gate is in the money market fund’s best interests. A money market fund that imposes a gate would be required to lift that gate within 10 business days, although the board of directors could determine to lift the gate earlier. Money market funds would not be able to impose a gate for more than 10 business days in any 90-day period…

Also see…

Government Money Market Funds – Government money market funds would not be subject to the new fees and gates provisions.  However, under the proposed rules, these funds could voluntarily opt into them, if previously disclosed to investors.

http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347

In simple terms, if the system is ever under duress again, Money market funds can lock in capital (meaning you can’t get your money out) for up to 10 days. If the financial system was healthy and stable, there is no reason the regulators would be implementing this kind of reform.

This is just the start of a much larger strategy of declaring War on Cash.

Indeed, we’ve uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.

We detail this paper and outline three investment strategies you can implement

right now to protect your capital from the Fed’s sinister plan in our Special Report

Survive the Fed’s War on Cash.

We are making 1,000 copies available for FREE the general public.

To pick up yours, swing by….

http://www.phoenixcapitalmarketing.com/cash.html

Best Regards

Phoenix Capital Research

 

Posted by Phoenix Capital Research in It's a Bull Market

Will China’s Meltdown Trigger a Crash?

Let’s talk briefly about China.

China is thought to be the great growth story of the post-2008 era. China’s economy not only bottomed before the developed world, but by most accounts, China was thought to be the engine that pulled the world out of recession, thanks to its near-clocklike hitting of 7%+ in GDP growth per year.

Today, China remains central to the notion that the world is in recovery. As Japan’s Abenomics gamble sputters out economically while Europe continues to deteriorate and seems at risk of even breaking apart, it is China and the US that are held up to be the last remaining sources of economic growth for global economy.

Of the two, China is the only one thought to be growing at a significant pace. The US’s “recovery” (if it can be called that) is effectively flat lining, producing data points that are normally associated with a recession.

China, on the other hand, is believed to be growing at 7%: not as rapid as the 9% growth we’re used to seeing, but still dramatically higher than any of large country.

Only the whole thing is bogus.

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Firstly, China’s economic data points are fraught with accounting gimmicks. Indeed, they are so far removed from reality that back in 2007, current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”

Put another way, if you want to get an ACCURATE picture of the true state of China’s economy, you have to ignore GDP and most other metrics, and electricity consumption, railroad cargo, and bank lending.

Of the three, rail freight volumes is the most significant as it is the hardest to fake. And according to China’s rail freight volumes, China’s economy is collapsing to levels on par with those last seen during the Asia Financial Crisis (H/T Ben Woodward)

CRt1n3mUwAEIFp5.jpg

Moreover, China’s banking system is imploding thanks to the bursting of its real estate, credit, and stock market bubbles. The Central Bank just cut interest rates again (the sixth time in a year) but you cannot put a bubble back together once it has burst.

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China is only the latest country to grow desperate. Globally the economy is once again contracting. Interest rates cuts and QE will be launched… but they won’t start a new bull market.

The great crisis has begun. And smart investors are preparing NOW before the Crash hits.

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Phoenix Capital Research

Posted by Phoenix Capital Research in It's a Bull Market
Fed Experts Call for NIRP… is a Physical Cash Ban Next?

Fed Experts Call for NIRP… is a Physical Cash Ban Next?

More and more “experts” are calling for Negative Interest Rate Policy or NIRP.

The US Federal Reserve is obsessed with market reactions to its policies. Because of this, anytime the Fed plans to announce a major change in policy, it preps the markets via numerous leaks and hints… oftentimes for months in advance.

An excellent example of this concerns the Fed’s decision to taper QE back in 2013.

At that time, the Fed had been engaging in two open ended-QE programs… programs that had been running for over six months.

Rather than simply beginning to taper the programs, then-Fed Chairman Ben Bernanke, hinted that the Fed was contemplating a taper in June.

The markets reacted sharply with bond yields rising.

The Fed then spent six months allowing the market to get used to the idea of a taper, before the actual taper finally began in December 2013.

Put another way, the Fed gave the markets a full six months to adjust to a change in policy, before actually implementing said change. This only highlights just how focused the Fed is on market reactions to its policies.

In the simplest of terms: the Fed will NEVER surprise the market. This is particularly true now that the Fed is in the political cross hairs due to ample evidence showing its policies have increased wealth inequality.

If the Fed is planning on something new, particularly something that might have political repercussions, we’ll see numerous hints and suggestions well before the actual policy is unveiled.

With that in mind, we need to consider the number of Fed officials who have recently been hinting at Negative Interest Rate Policy or NIRP.

  1. First we find that a Fed official hinted at NIRP during the Fed’s September 2015 meeting.
  2. Then, on October 9th, Fed President Bill Dudley stating that negative rates were “an option” though not a “relevant conversation” right now.
  3. This statement was followed up by Minneapolis Fed President Narayana Kocherlakota stating point blank that the Fed should “consider negative rates.”

The Fed has never once hinted at or discussed NIRP during its policy meetings. Then, in the span of three weeks, we’ve not only had an anonymous Fed official state that he or she believes NIRP is coming to the US, but two highly visible Presidents have called to NIRP consideration.

This is simply part of the Fed’s larger War on Cash.

For six years straight, the Fed has been trying to “trash” cash.

First it cut interest rates to zero… making it so that savings deposits produced almost nothing in the way of interest income. Consider that at current rates, a retiree with $1 million in savings earns a measly $2,500 per year in interest income.

The Fed’s hope was that by making it painful for savers to sit in cash, said savers would move into risk assets such as bonds and stocks. This has worked in that stocks are now in one of, if not THE biggest bubbles in history… while bonds are trading at yields never before seen outside of wartime.

However, the Fed overlooked two outlets for investors who didn’t want to be forced into risk. They are: Gold bullion and physical cash.

The Fed has been dealing with bullion via clear manipulation of prices for years (that’s an article for another time). And now it is moving to make physical cash obsolete.

This is just the beginning. Indeed… we’ve uncovered a secret document outlining how the US Federal Reserve plans to incinerate savings in the coming months through NIRP, and possibly even by outlawing physical cash.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

 

Posted by Phoenix Capital Research in It's a Bull Market
It’s Official: Central Banks Are Losing Control

It’s Official: Central Banks Are Losing Control

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.

The Elite Have a Vested Interest in Maintaining the Illusion

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:

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

Lies, Fraud, and Deceit: the Building Blocks of the Financial System

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.

Switzerland, China… Who’s Next?

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.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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

 

 

Posted by Phoenix Capital Research in It's a Bull Market
One by One Central Banks Are Losing Control

One by One Central Banks Are Losing Control

Since 2008, the Keynesians running global Central Banks had always suggested that there was no problem too great for them to handle. They’d promised to do “whatever it takes,” to maintain the financial system and print the world back to growth.

Thus far, we’d seen some pretty aggressive moves. The most aggressive was committed by the Bank of Japan, which announced a single QE program equal to 24% of Japanese GDP in April 2013.

However, the SNB was the first Central Bank to actually reach the point at which it had to decide between printing a truly insane amount of money relative to GDP (50%+) or simply giving up.

It chose to give up.

In many ways, the SNB was cornered by the ECB into this situation. I think this is why the SNB decided to make its announcement on a Thursday as opposed to over the weekend (when Central Banks usually announce bad news to minimize the market impact). The SNB wanted to cause mayhem, likely because it was frustrated by the ECB’s upcoming QE program of which the SNB was undoubtedly aware in advance.

This situation has since progressed with an even larger, more important Central Bank buckling to market forces.

That Central Bank is China.

As we’ve noted before, China’s economy is in tatters. At best it is growing around 3.5%. At worst it isn’t growing at all. And with its currency closely linked with the US Dollar (which is in a bull market) Chinese exporters were getting destroyed.

So what did China do? It chose to devalue the Yuan.

In short, a new player is in the global currency war. And it represents the second largest economy in the world. Having said that, we want you to take note of a few lessons from this situation:

  • There are in fact problems that are too big for Central Banks to manage.
  • Central Banks are in fact individual entities. True, they try to coordinate their moves, but when push comes to shove, it will be each Central Bank for itself. This trend will be increasing going forward.
  • Central Banks have no problem lying about the significance of a situation right up until they shock the market (both the SNB and the PBOC’s moves were suddenly announced).

Of these, #1 is the most important. Since the mid-‘80s, the general consensus has been that there is no problem too great that Central Banks cannot fix it. This has been the case because most crisis that have occurred during that period were either isolated to a particular market (Asian Crisis, Latin American Crisis, Russian Ruble Crisis, etc.) or a particular asset class (Tech Bubble, Housing Bubble, etc.).

This situation has resulted in less and less volatility in the financial system, combined with increased risk taking on the part of investors. As a result, the necessary deleveraging has never been permitted to occur and the financial system has become increasing leveraged (meaning more and more debt).

You can see this in the below chart revealing total credit market instruments in the US (this only includes investment grade bonds, junk bonds, and commercial paper). The deleveraging of the 2008 crisis which nearly took down the entire financial system was a mere blip in a mountain of debt (and this doesn’t even include US sovereign debt, emerging market debt, derivatives, etc.).

Today, when you include global debt issuance, we are facing a debt super crisis, the likes of which has never existed before: $100 trillion in global bonds, with an additional $555 trillion in derivatives.

Central Banks, by printing money, began a war of competitive devaluation in 2008. This worked fine when they were coordinating their moves to prop the system up from 2009-2011. We even had some coordinated efforts by the Fed and the ECB to push the markets higher in 2012 in order to benefit President Obama’s re-election campaign.

However, 2012 marked the high water mark for Central Bank intervention without political repercussions. From that point onward, all Central Bank began to lose their political capital rapidly.

  1. In Japan, the Bank of Japan’s policies are demolishing the Middle Class. The number of Japanese living on welfare just hit a record and real earnings and household spending have been in a free fall since the middle of 2014.
  1. In Europe, the ECB’s President Mario Draghi has admitted in parliament that he was concerned about a “deflationary death spiral” and admitted that QE was the last tool left. Half of the ECB’s Board is against his direction.
  1. In the US, the Fed is now being targeted by Congress. Legislation has been introduced to audit the Fed AND force it to abide by the Taylor Rule.
  1. In China, deflation is spiraling out of control with a stock market crash, housing bubble bursting, and economic downturn that is more serve than most realize.

The significance of these developments cannot be overstated. Central Banks will be increasingly acting against one another going forward. There will more surprises and more volatility across the board. Eventually it will culminate in a Crash that will make 2008 look like a picnic.

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.

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Best Regards

Phoenix Capital Research

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Posted by Phoenix Capital Research in It's a Bull Market
The Real Reason the Fed Won’t Raise Interest Rates

The Real Reason the Fed Won’t Raise Interest Rates

Another Fed FOMC meetings has come and gone and interest rates remain at zero.

The investing world is obsessed with guessing when the Fed will raise rates and by how much. The Fed has been dangling the “rate hike” over the markets since the beginning of the year.

First we were lead to believe a rate hike was coming in April, then it was June, then September, and now it might possibly be well into 2016.

The fact of the matter is that no one knows when the Fed will raise rates nor by how much. However, one thing is clear: the Fed cannot and will not allow rates to normalize (meaning the 10-year Treasury yields 5% or more).

The reason for this is that it would implode the bond bubble.

As you know, I’ve been calling for a bond market crisis for months now. That crisis has officially begun in Greece, a situation that we addressed at length other articles.

This crisis 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 $100 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).

With that in mind, the bond bubble has already begun to burst. The fuse was lit by Greece, but it is already spreading. The Federal Reserve is well aware of this situation, which is why it continues to hem and haw about raising rates, despite the fact that we are now six years into the “recovery.”

True, the Fed could raise rates this year, but the fact that it is so concerned about how the markes will react to a measly 0.1% rate hike after SIX YEARS of ZIRP only confirms the scope of the bond bubble.

Moreover, any rate hike that the Fed initiates would likely be largely symbolic as the US is already teetering on the verge of recession (if not already in one). The Fed could raise rates to 0.35% this year, but doing so would only accelerate the US’s economic contraction and trigger a flight of capital into quality sovereign bonds (pushing yields even lower).

In this regard the Fed is truly cornered. If it fails to hike rates it will have no ammo for when the next crisis hits the US. But it if hikes rates now while the economy is so weak (more on this in a moment), it’s likely to kick off or deepen a recession.

A second, larger than 2008, Crisis is approaching. Smart investors are preparing in advance.

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 10 left.

To pick up yours…

Click Here Now!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

Posted by Phoenix Capital Research in It's a Bull Market

Why What’s About to Begin Will Dwarf 2008

Earlier this week I outlined how the next Crash will play out.

Today we’ll assess why this Crisis will be worse than the 2008 Crisis.

By way of explanation, let’s consider how the current monetary system works…

The current global monetary system is based on debt. Governments issue sovereign bonds, which a select group of large banks and financial institutions (e.g. Primary Dealers in the US) buy/sell/ and control via auctions.

These financial institutions list the bonds on their balance sheets as “assets,” indeed, the senior-most assets that the banks own.

The banks then issue their own debt-based money via inter-bank loans, mortgages, credit cards, auto loans, and the like into the system. Thus, “money” enters the economy through loans or debt. In this sense, money is not actually capital but legal debt contracts.

Because of this, the system is inherently leveraged (uses borrowed money).

The Structure of the Financial System

Consider the following:

  • Total currency (actual cash in the form of bills and coins) in the US financial system is little over $1.2 trillion.
  • If you want to include money sitting in short-term accounts and long-term accounts the amount of “Money” in the system is about $10 trillion.
  • In contrast, the US bond market is well over $38 trillion.
  • If you include derivatives based on these bonds, the financial system is north of $191 trillion.

Bear in mind, this is just for the US.

Again, debt is money. And at the top of the debt pyramid are sovereign bonds: US Treasuries, German Bunds, Japanese Government Bonds, etc. These are the senior most assets used as collateral for interbank loans and derivative trades. THEY ARE THE CRÈME DE LA CRÈME of our current financial system.

So, this time around, when the bubble bursts, it won’t simply affect a particular sector or asset class or country… it will affect the entire system.

The Bond Bubble is Exponentially Larger Than Stocks

So…. the process will take considerable time. Remember from the earlier pages, it took three years for the Tech Bubble to finally clear itself through the system. This time it will likely take as long if not longer because:

  • The bubble is not confined to one country (globally, the bond bubble is over $100 trillion in size).
  • The bubble is not confined to one asset class (all “risk” assets are priced based on the perceived “risk free” valuation of sovereign bonds… so every asset class will have to adjust when bonds finally implode).
  • The Central Banks will do everything they can to stop this from happening (think of what the ECB has been doing in Europe for the last three years)
  • When the bubble bursts, there will very serious political consequences for both the political elites and voters as the system is rearranged.

First of all, this bubble is larger than anything the world has ever seen. All told, there are $100 trillion in bonds in existence.

A little over a third of this is in the US. About half comes from developed nations outside of the US. And finally, emerging markets make up the remaining 14%.

The size of the bond bubble alone should be enough to give pause.

However, when you consider that these bonds are pledged as collateral for other securities (usually over-the-counter derivatives) the full impact of the bond bubble explodes higher to $555 TRILLION.

To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).

Moreover, you have to consider the political significance of this bubble.

For 30+ years, Western countries have been papering over the decline in living standards by issuing debt. In its simplest rendering, sovereign nations spent more than they could collect in taxes, so they issued debt (borrowed money) to fund their various welfare schemes.

This was usually sold as a “temporary” issue. But as politicians have shown us time and again, overspending is never a temporary issue. This is compounded by the fact that the political process largely consists of promising various social spending programs/ entitlements to incentivize voters.

In the US today, a whopping 47% of American households receive some kind of Government benefit. This type of social spending is not temporary… this is endemic.

Most Western Nations Are Bankrupt

The US is not alone… Most major Western nations are completely bankrupt due to excessive social spending. And ALL of this spending has been fueled by bonds.

This is why Central Banks have done everything they can to stop any and all defaults from occurring in the sovereign bonds space. Indeed, when you consider the bond bubble everything Central Banks have done begins to make sense.

  • Central banks cut interest rates to make these gargantuan debts more serviceable.
  • Central banks want/target inflation because it makes the debts more serviceable and puts off the inevitable debt restructuring.
  • Central banks are terrified of debt deflation (Fed Chair Janet Yellen herself admitted that oil’s recent deflation was economically positive) because it would burst the bond bubble and bankrupt sovereign nations.

So how will all of this play out?

The bond markets have already begun a revolt in the Emerging Market space. There we are on the verge of taking out the bull market trendline dating back to 2009.

GPC 9-16-15When this hits, capital will fly to high quality bonds particularly US treasuries. However as the bond market crisis accelerates eventually it will envelope even safe haven bonds (including Treasuries).

At that point the bad debts in the financial system will finally clear and we can begin to see real sustainable growth.

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 10 left.

To pick up yours…

Click Here Now!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

Posted by Phoenix Capital Research in It's a Bull Market
Is the Treasury Preparing For a Systemic Event?

Is the Treasury Preparing For a Systemic Event?

Behind the veneer of “all is well” being promoted by both world Governments and the Mainstream Media, the political elite have begun implementing legislation that will permit them to freeze accounts and use your savings to prop up insolvent banks.

This is not conspiracy theory or some kind of doom and gloom. It’s basic fact.

In the last 24 months, Canada, Cyprus, New Zealand, the US, the UK, and now Germany have all implemented legislation that would allow them to first FREEZE and then SEIZE bank assets during the next crisis.

With that in mind, I want to devote some time to what has come out concerning the Cyprus “bail-in” and its implications. The reason for this is that this tiny country has provided the world with a template of what is eventually going to be a global phenomenon.

The quick timeline for Cyprus is as follows:

  • June 25, 2012: Cyprus formally requests a bailout from the EU.
  • November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).
  • February 25, 2013: Democratic Rally candidate Nicos Anastasiades wins Cypriot election defeating his opponent, an anti-austerity Communist.
  • March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.
  • March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.
  • March 18 2013: Bank holiday extended until March 21 2013.
  • March 19 2013: Cyprus parliament rejects bail-in bill.
  • March 20 2013: Bank holiday extended until March 26 2013.
  • March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.
  • March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).

The most important thing I want you to focus on is the speed of these events.

Cypriot banks formally requested a bailout back in June 2012. The bailout talks took months to perform. And then the entire system came unhinged in one weekend.

One weekend. The process was not gradual. It was sudden and it was total: once it began in earnest, the banks were closed and you couldn’t get your money out (more on this in a moment).

There were no warnings that this was coming because everyone at the top of the financial food chain are highly incentivized to keep quiet about this. Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.

For that reason, you will never and I repeat NEVER see a Central banker, Bank CEO, or politician admit openly what is happening in the financial system. Even middle managers and lower level employees won’t talk about it because A) they don’t know the truth concerning their institutions or B) they could be fired for warning others.

Please take a few minutes to digest what I’m telling you here. You will not be warned of the risks to your wealth by anyone in a position of power in the political financial hierarchy (with the exception of folks like Ron Paul who are usually marginalized by the media).

With that in mind, now is a good time to prepare for systemic risk. I cannot forecast precisely when things will get as ugly as they did in Cyprus for the financial system as a whole (no one can).

However, the clear signals are clear that the Feds are preparing for something big. The Treasury Department has ordered survival kits for the Big Banks’ employees… and the NY Fed is expanding its satellite office in Chicago in case something major happens that forces the market to collapse.

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 10 left.

To pick up yours…

Click Here Now!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

 

 

 

Posted by Phoenix Capital Research in It's a Bull Market