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For six years, the world has operated under a complete delusion that
Central Banks somehow fixed the 2008 Crisis.
All of the arguments claiming this defied common sense. A 5th grader
would tell you that you cannot solve a debt problem by issuing more debt.
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.
However, there is an AWFUL lot of money at stake in believing these lies.
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 tot nearly 50% of
US GDP.
5) The Central Banks are now all leveraged at levels greater
than or equal to 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.
Today it’s over $4.5 trillion.
Today, Central Bankers are now actively punishing depositors and bond
holders with negative interest rates. Globally, over $5 trillion in debt
currently have negative yields in nominal terms,
meaning the bond literally has a negative yield when it trades. In the
simplest of terms this means that investors are PAYING to own these bonds.
Bonds are not unique in this regard. Switzerland, Denmark and other
countries are now charging deposits at their banks. In France and Italy, you
are not allowed to make cash transactions above €1,000. So if get fed up with
the banks and want to pull your money out, you cannot.
The lies will continue until something breaks. When it does break, there
will be no warning and it will be too late to get your money out.
Consider the timeline for the Cyprus “bail-in”
First off, the Cyprus bank “bail-in” or March 2013 did not come out of
nowhere. The country first asked for a bail-OUT in JUNE
2012. Here’s the timeline.
· 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).
During the period of late June 2012 until November 2012, Cyprus’s problems
were allegedly being assessed and nothing more. Throughout this period, NO
ONE in a position of significant political or financial power suggested to
Cypriots or anyone else who had money in the Cyprus banks that their money
would be STOLEN.
Instead, numerous bureaucrats came out to assure the public
that this situation was under control and that the risks to the Cyprus banks
would be carefully assessed. All fo them were lying.
Then, in the span of a single week, a bank holiday was declared, bank
accounts were frozen, and deposits were stolen.
Here’s the specific sequence of events:
· 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).
So… everyone who knew anything about the situation was either completely
incompetent or lying. Regardless, those whose money was at stake (depositors)
were the ones who got screwed.
All of the above tell us that another Crisis is brewing. You do
not start confiscating deposits at banks until the government itself is
bankrupt and cannot foot the bill for a bailout.
We’ve now reached that point for several countries in Europe. But this
issue will be spreading throughout the world and even to the US in the coming
months.
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