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Thursday, July 7, 2022

Giant credit bubble about to burst!

The scam is embedded in the balance sheet expansion

The world is in a structural depression and will remain so. All the money injected has not ended the financial crisis, although it has not hurt the economy as such, it has only affected asset and property prices.

No credit-based money system has ever survived an entire credit cycle, and this one will be no exception. The bubble created by this generation’s unprecedented spending spree could not be sustained because the people who were first encouraged to spend are now saving. Worse still, they are no longer borrowing for major purchases; the very action that most affected spending. Like all bubbles, this one must burst!

The Cabal party is over and done with!

The world’s three major central banks – the US, Europe and Japan – have embarked on a huge financial experiment. They have created a gigantic amount of money out of thin air and used it to buy staggering amounts of government debt. The US central bank holds a stack of bonds equal to 20% of US gross domestic product (GDP). The Japanese central bank’s debt is 40% of GDP. Europe’s central bank holds bonds worth nearly $4 trillion, or more than 25% of its GDP.

Total world debt including derivatives is more than 1 quadrillion (1015)! What is certain is that there is no way out of this debt mess. When the financial system collapses, nothing will change in the real world. No property, land, factories or human being will disappear, just because trillions of debt slavery instruments called US Dollars, Euros, Yen, etc. are erased from bank computers. There will be forces to restart the system based on a people-controlled substitute called QFS, owned by and for the people and not by banks.

The public understanding of fraud has not even awakened yet

The public has not even begun to understand the immense fraud it embodies. In round figures, this official counterfeiting amounts to $5.5 trillion – the difference between the Fed’s balance sheet of about $900 billion when its “extraordinary policies” were launched at the time of the Lehman crisis in 2008 and its $4.4 trillion balances today. That is a lot of something for nothing.

It is a grotesque amount of fraud. The scam in this monumental balance sheet expansion is nothing compared to the hidden indirect way in which central banks provided new reserves to the banking system that affected the private lending process.

As now is evident, new credits issued by the Central Banks can result in the expansion of private credit to the extent that the fractional reserve money multiplier of 10 is operating or simply generate excess reserves which cycle back to the Central Banks – as in the present instance is not the case. The party is over. Stock, bond, and real estate prices go back to 1950 levels where they came from.

The Fed has already signalled that it will not sell its roughly $4.5 trillion bond portfolio, or even let it expire by natural causes. In the normal course of events, these bonds would mature and then – as we all will – disappear. But the Fed will reinvest maturing funds in new issues.” In other words, it will continue to suck up new bonds in order to keep interest rates low.

An economy based on debt needs more and more debt-money

An economy dependent on debt needs more and more of it to keep running. A lot of credit may help at first, but later it hurts an economy. As debt grows, it becomes harder for the economy to grow, because the resources needed in the future have already been used up in the past.

Currently, there are about USD 250 billions of 10- to 15-year bonds in circulation in the US, of which the US central bank owns more than half. Similarly, the Fed owns almost half of all Treasury bonds with maturities of 20 years and longer.

By lowering the yield on long-term bonds, the Fed has artificially lowered the cost of capital by an incredible amount. And by making borrowing much cheaper, the Fed has enabled virtually all borrowers to access the bond markets. This is evidenced by record high issuance and record low nominal yields in the high-yield – “junk” bond markets. At the beginning of this year, companies added $30 billion of debt to their balance sheets – a record. But with interest rates rising, the show is over, it is a matter of months, if not weeks, before the collapse becomes a reality, followed by the introduction of the QFS money system, owned by the people. The cabal must destroy itself first, to be sure their party is over.

Financial bubble grown exponentially

A giant bubble has formed in emerging market debt. “A brilliant New York hedge fund manager pointed out that between 2009 and 2012, nearly $400 billion flowed into emerging market credit markets – about four times the average interest rate in the previous decade. And this bubble has not shrunk, but grown exponentially!

Three simple questions

  • How can we have capitalism when the cost of capital is essentially zero?
  • How can we have capitalism if there is no bankruptcy?
  • How can capitalism work if there are no risks or downsides?

Of course capitalism does not work. There is a huge misallocation of capital and a huge increase in unhealthy speculation. That greater credit creates bubbles which can’t last forever…

Economists who claim to know how all this will end are lying. Nobody knows how or when it will end. Not even former Fed chairman Alan Greenspan. What he said was frightening:

“He said that central banks have no idea what they are doing and that they will not be able to control the inflation that will inevitably result from this huge experiment.”

The world has entered the final round of a huge global bubble. The banks have kept it all afloat with the printing press. But it cannot go on like this forever. Credit structures are in place all over the world that can only function as long as central banks continue to buy up debt.

Central banks have proven themselves adept at maintaining these ridiculous credit structures. But there is a price. Sooner or later, something will break… because capitalism doesn’t work if there is no cost of capital.

With the ‘unintended’ (?) consequence of a huge decrease in liquidity worldwide. Sooner or later, this is going to be a big problem for countries like Turkey and Brazil, which have foreign debt in dollars. Turkey owes foreign investors $386 billion – roughly half of its GDP. About $160 billions of these debts must be repaid in the coming months. And unlike the US, Japan or Europe, Turkey cannot simply push these obligations under the carpet. This trap is probably intentional, as the cabal is now able to confiscate Turkish commodities, as regular readers may recall.

Russia bought gold

Once central banks promised price stability, and were prepared to raise interest rates to 5, 6, 7, and even 8 per cent to keep prices stable. Now they say stable prices are dangerous! This makes the world the best place ever for gold.

More than that, the days the US-dollar is the world’s reserve currency are numbered. When the dollar is no longer accepted as a reserve currency, which is slowly happening, now, as Russia and the BRICS move away from US dollars and into currencies backed by gold. – Eventually everything will be gold backed!

Russia’s gold purchases in 2014 were 59% of central bank purchases in the third quarter of 2014. Russia and China have now converted their foreign exchange dollars into gold. In contrast to western economies, Russia has accumulated only a small national debt over the years, implying that this will not be a drag on future growth, as is likely to be the case in the US, EU and Japan. Russia also has an advantageous tax system, with maximum income tax of up to 13%.

Now, Putin has decided to back his currency with gold, this has become painful for the US dollar, as now the USD faces competition from a credible gold-backed currency; it is likely that other central banks are diversifying their dollar reserves into interest-bearing, gold-backed roubles.

Countries that import oil and gas from Russia should have an additional incentive to follow suit in order to pay for Russian oil/gas imports in roubles and avoid sanctions.

The indirect upward pressure on interest rates in the US is small at the moment, but the current rise in interest rates in the US means future problems for the American economy that relies on low interest rates.

Growth will slow down. The Fed may try to compensate by re-introducing QE but that will add fuel to the fire, resulting in aggressive selling of US dollars on foreign exchange markets. In an extreme but hardly impossible scenario, the US dollar could lose its reserve status, something that would be devastating for the US economy.

Gold is the ideal way for countries to settle their trade imbalances in a world where there is no confidence in the stability of currencies, and gold obviates the need for a reserve currency.

Building up reserves that can be immediately devalued by trading partners in a currency war is not a rational policy. Yet something must act as a reserve currency if trade is to take place at all. Gold is that “something”, if the quantity is kept stable, a currency cannot be devalued arbitrarily. 
And it is the QFS money system that fulfils all these requirements.

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