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Category Archives: Bonds

Monetary Madness Part II—Perpetual Bonds


The Cure of Economic Calamity: Looney Tune Economics [courtesy Google Images]

The Cure for Economic Calamity:
Looney Tune Economics
[courtesy Google Images]

As seen in the previous article, the total value of negative-interest rate bonds has jumped from nothing to $13 trillion in just two years.

Although governments issuing negative interest rates bonds don’t have to pay interest on those bonds, they still have to repay most of the principal.

What a bummer. Wouldn’t it be great if someone invented a government bond that not only didn’t have to pay interest (as with negative interest rate bonds) but also didn’t even have to repay the principal?

Well, folks, they appear to have done just that. They’re called “perpetual bonds”. They’re hot off the press, and the concept seems straight out of Looney Tunes.

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Last month, Gold-Eagle.com published an article entitled “Gold and the Perpetual Bonds Era”. The subject was “perpetual bonds”–a concept I’d heard of for the first time only about a week earlier.

Judging from what I’d already heard and the Gold-Eagle article, it’s apparent that “perpetual bonds” are—like “consumerism,” debt-based currency, sub-prime loans, fractional reserve banking, deficit financing, negative interest rates, market manipulation, and “helicopter money”—just another manifestation of the madness that’s inherent in the concept of fiat, debt-based currency—and of government’s desperation to do something, try anything, that might work to avoid or postpone a coming economic collapse.

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Monetary Madness Part I—Negative Interest Rates


Negative Interest Rates-- Heading for Hell? [courtesy Google Images]

Negative Interest Rates–
Taking us towards Hell?
[courtesy Google Images]

The fundamental premise underlying negative-interest rate bonds is that lenders pay government borrowers for the “privilege” of lending to government. Based on this premise, governments receive loans at less than the face value of the bond. For example, if you loaned $100,000 to the government on a negative-interest loan, you might only receive, say, $98,000 when you redeemed that bond. You’d lose $2,000 for the privilege of lending to the government.

In all of world history, I doubt that there’s ever before been a time when lenders paid borrowers for the privilege of lending money.

The world is embracing negative-interest rate bonds for the first time. That fact is not evidence of economic creativity and financial innovation so much as evidence of desperation and the financial madness that lies at the heart of debt-based monetary and economic systems.

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A few facts about negative-yield bonds:

According to Bank of America Merrill Lynch, the global amount of government bonds having negative yields is now $13 trillion,.

Just two years ago, there were virtually zero negative-interest rate bonds. The subsequent, two-year rise to $13 trillion is unprecedented.

In February A.D. 2015, the total amount of negative-interest debt was $3.6 trillion.

By February A.D. 2016 that negative-interest debt had nearly doubled to $7 trillion.

In the five months since February, A.D. 2016, the amount of negative-yielding bonds nearly doubled again to $13 trillion.

The spread of negative-yielding bonds is unprecedented, fantastic and accelerating.

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The Big Short


The “Great Recession” of A.D. 2008 was triggered by the systemic failure of Collateralized Debt Obligations (CDOs).  These CDOs failed because they were supposed to composed of AAA-rated mortgages, but were, in fact, full of “sub-prime” adjustable-rate mortgages.  Many of these sub-prime, adjustable-rate mortgage were virtually guaranteed to default when their “adjustable rates” were adjusted upward in A.D. 2007.

And that’s just what happened.  The adjustable mortgage rates rose in A.D. 2007.  Sub-prime mortgagors began to default on their mortgages and the CDOs began to collapse.  Result?  The U.S. and global economies nearly collapsed into an depression.

As many of you may know, The Big Short is a motion-picture that describes the causes and chaos that engulfed Wall Street when the CDO’s failed.  I don’t think the movie is for everyone, but it should be.  It provides a very realistic insight into how big-time, wheeler-dealer business (especially on Wall Street) is actually conducted.

Even though most people won’t watch the whole movie, the film strikes me as brilliant.

I could draw a number of lessons from the film, but one that crosses my mind is something about the dangers of salesmen.  Salesmen know how to sell.  That knowledge of how to sell is often unsullied by any need to understand the nature of whatever product is being sold or the ethical consequences to others if the sale is completed.  From the salesman’s perspective, the objective is make the sale by any means necessary.  There’s no question of ethics or morality.  Make the sale, get the money and head for a topless bar.

I don’t suggest that every salesman is unethical.  I do suggest that most “big-time” salesmen of the sort your find on Wall Street and in Congress are immoral.

As I view it, The Big Short shows what happens when major banks, corporations and governmental institutions are ultimately run by salesmen rather than by managers (who actually have some understanding of their products and perhaps even the moral consequences of selling those products).  The amoral salesmen pushing the CDOs in the early 2000s were getting fabulously rich but had no clue to the contents of the CDOs they were selling.  In the end, the sale of CDOs was much like the Dutch “Tulip Mania” of A.D. 1637 when investors went wild buying nothing more than some lousy flowers.  Even though the CDOs were intrinsically worthless, virtually no one knew or bothered to inspect them.

The Big Short a great film.  It’s an A.D. 2015 release, so might be quickly pulled off the internet for copyright violations.  If you want to see it, you should watch it as soon as possible.

video      02:44:00

 
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Posted by on July 11, 2016 in Banking, Bonds, Video

 

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Michael Pento on Bonds


Another brilliant interview by Greg Hunter of Michael Pento.  Great insight.  You can learn a lot.

Video      00:22:52

 

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The “Pop” Heard ‘Round the World


Will Somebody Please Turn Off the Bubble Machine? [courtesy Google Images]

Will Somebody Please Turn Off the Bubble Machine?
[courtesy Google Images]

I have no doubt that the cornerstone of the New World Order (N.W.O.) is a debt-based monetary system.  I have no doubt that, if today’s debt-based monetary system were to fail, The Powers That Be would work feverishly to install a second, debt-based monetary system.  If the today’s debt-based monetary system (built on fiat- and/or petro-dollars) failed, the N.W.O. would seek to impose a “new-and-improved” debt-based system that might be built on Special Drawing Rights (SDRs).  These SDRs are nothing more than new debt-instruments issued by the IMF rather than the old debt-instruments currently issued by the Federal Reserve and other central banks.

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The Fed Can Run, But It Can’t Hide


Heavyweight Champ Joe Louis "You Can Run, But You Can't Hide" [courtesy Google Images]

Heavyweight Champ Joe Louis
“You Can Run, But You Can’t Hide”
[courtesy Google Images]

Before declaring bankruptcy in 2008, Lehman Brothers was the fourth-largest investment bank in the US.  It’s bankruptcy nearly toppled the US and global economies and helped precipitate the “Great Recession”. 

When Lehman Brothers filed bankruptcy, its assets were only 3% greater than its liabilities.

Today, the Federal Reserve is the single largest central bank in the world.  It’s assets reportedly exceed its liabilities by only 1.3%—less than half of what Lehman Brother had when if filed for bankruptcy in A.D. 2008.  The Fed has much greater significance than Lehman Brothers and is operating with a much smaller “margin for error”. 

The Fed’s potential for causing trouble for the US and global economies is enormous.

 

SovereignMan.com recently published an article with the peculiar title of “The global financial system is now resting on a margin of 1.3%.”

The article explained that,

 

“In 2008, the Federal Reserve’s entire balance sheet was just $924 billion.  And the total of its reserves and capital amounted to $40 billion, roughly 4.3% of its total assets.  Today the Fed’s balance sheet has ballooned to $4.5 trillion, nearly 5x as large.  Yet its total capital has collapsed to just 1.3% of total assets.

“The Fed’s total capital corresponds to the Federal Reserve’s ‘net worth’.  The value of the Fed’s assets needs to exceed their liabilities.”

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