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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. 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.
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 to nearly 50% of
US GDP.
5) 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.
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
(back in 2009). Today it’s over $4.5 trillion.
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.
The situation is clear: the 2008 Crisis was the warm up. The next Crisis
will be THE REAL Crisis. The Crisis in which Central Banking itself will
fail.
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