-- Published: Thursday, 19 February 2015 | Print | Disqus
By Graham Summers
The End of the Global Debt System Approaches
The 2008 Crisis was not THE Crisis.
The 2008 Crisis was largely a banking crisis focused on securities. The REAL Crisis will hit when the bond bubble collapses.
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).
Consider the following:
1) Total currency (actual cash in the form of bills and coins) in the US financial system is little over $1.2 trillion.
2) 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.
3) In contrast, the US bond market is well over $38 trillion.
4) 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.
Globally the bond bubble is north of $100 trillion. And this $100 trillion has been used as collateral for a derivative market that is well north of $555 TRILLION.
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 coming crisis will not be another 2008. It will be something much much worse. The 2008 Crisis was caused by an implosion of the Credit Default Swap market. At that time, the entire CDS market was roughly $50-60 trillion in size.
The interest rate based derivatives market is TEN TIMES larger in size: north of $555 trillion.
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-- Published: Thursday, 19 February 2015 | E-Mail | Print | Source: GoldSeek.com