-- Published: Thursday, 20 August 2015 | Print | Disqus
By Graham Summers
Many investors believe that the 2008 Crisis was THE Crisis of their lifetimes.
They are mistaken.
The 2008 Crisis was a stock and investment bank crisis. But it was not THE Crisis. It was just Round One.
Round Two, or THE Crisis, concerns the biggest bubble in financial history: the epic Bond bubble… which, as it stands, is north of $100 trillion.
To put this into perspective, the Tech Bubble was about $15 trillion in size. The Housing Bubble, which triggered the 2008 Crisis, was about $30 trillion in size.
The bond bubble today is over $100 trillion. And if you include derivatives that trade based on the prices of bonds, it’s $555 trillion.
So we are talking about a problem that is exponentially larger than anything you or I have seen before.
How is this possible?
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. the 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 a 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 US financial system is north of $191 trillion.
Bear in mind, this is just for the US.
Indeed, globally there roughly $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 (Germany, Japan, etc.). 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).
So we are dealing with a problem that is exponentially larger than what triggered the 2008 meltdown...
To continue reading... and find simple four strategies we outline to protect your wealth from the Second Round of the Financial Crisis (nobody expected #1)... swing by:
Chief Market Strategist
Phoenix Capital Research
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-- Published: Thursday, 20 August 2015 | E-Mail | Print | Source: GoldSeek.com