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Variable Rate World, Part 1: Staring Into the Abyss

Interest rates soared again last week. This weekend a lot of people are running a lot of numbers and getting some terrifying results.

It seems that the past few years of falling interest rates have lulled a big part of the global economy into financing with variable-rate debt. So when interest rates go up, there’s a world-wide reset in interest costs that, best case, amounts to a tax increase on individuals and businesses and, worst-case, threatens to blow up the whole system.

The most familiar but least worrisome part of this story is the adjustable rate mortgage, or ARM, which is basically a teaser-rate home loan that rises over time towards the prevailing 30-year fixed rate. This rate jumped from 3.5% to 4.5% in just the past month, which means ARM resets are now aiming at a higher target. For ARM holders, the resulting higher monthly mortgage payment is exactly like a pay cut or tax increase, leaving less around at the end of the month for new cars, vacations, etc. So discretionary spending drops and, other things being equal, the economy slows down. This is serious for a system that, when evaluated using real numbers (see Shadowstats.com) is already in recession.

Another victim is the long-term bond. Retail investors poured about $1 trillion into bond funds between 2009 and 2012, in part because bonds had been going up pretty much forever, and in part because investors were scared and bonds were sold by credulous financial planners as safe.

For a while it worked. Bond prices soared as long-term rates kept falling, which helped both individuals and pension funds rebuild capital lost during 2009’s debacle. But since the beginning of this year US bond funds have seen $60 billion depart, while bonds themselves have fallen hard (though, okay, not nearly as hard as gold). The following chart shows the price of US 20-year Treasuries, which are down by almost 15% since April.

TLT July 2013

In other words, the “safe” part of individual and institutional portfolios is tanking. Here again, this is like a big pay cut which makes the holders of these funds less rich and therefore less likely to spend money.

But the real systemic risk enters with sovereign debt. One of the many ways the US, Japanese and European governments hide the effects of their mounting debt is by doing most of their borrowing for short periods of time, a few months to one year, where rates are close to zero and money is effectively free. In some cases short-term rates have fallen faster than borrowing has risen, producing lower interest costs even while debt has been piling up. Now, with long-term rates rising, governments have a choice: either roll their maturing long-term debt into very short-term paper, which would keep interest costs down but make it necessary to roll over even more debt each year, or keep the maturity of their debt constant and see their interest costs rise dramatically. Or have their central banks buy even more debt and write off the interest, which might prolong the lie for a while, but at the risk of a tidal wave of newly-created currency wreaking various kinds of havoc.

Now for the big one: Hedge funds and money center banks have created hundreds of trillions of dollars of interest rate swaps, in which holders of a security that pays a fixed rate of interest exchange this income stream for a variable stream based on some benchmark interest rate. The players on the variable-rate side of the bet lose big if rates keep rising. And most money center banks and many, many hedge funds are in this position. All it will take is a few of them to be overwhelmed by these bets going sour to pull down the whole show — exactly as happened with credit default swaps in 2009.

The interesting (if that’s not too neutral a word) thing about all this is that the events mentioned here will happen simultaneously if rates keep rising. ARM and bond fund holders will have less money to spend, slowing economic growth; governments will see their interest costs spike, making borrowing more expensive and risking a flight from their now clearly-mismanaged currencies; and derivatives markets will see growing instability in interest rate swaps, which might threaten rest of the rat’s nest that is the global banking community.

All because interest rates return to historically normal levels.

37 thoughts on "Variable Rate World, Part 1: Staring Into the Abyss"

  1. Pingback: The Küle Library
  2. I retired seven years ago. My fixed pension has greatly eroded from even
    low inflation. I had planned on receiving some return on my savings.
    Instead I get near zero. The bankers and insiders on the other hand are
    telegraphed government policy plans and position themselves to profit. I
    suppose I could take a minimum wage job but my SS payments will be cut;
    i.e. I’ll really make 25% below minimum wage. It pays to be suspicious
    of what these criminals now have planned. I suspect QE was really about
    propping up the banks. The new Basel accords set higher capital
    requirements. Once the banks are safe and the super rich are alerted,
    they’ll let the bond and equity markets slide. The result will be failed
    pension funds and massive transfer payment cuts. You can see it coming.

  3. First of all, just for the record, rising interest rates will NOT greatly affect the debt servicing costs of most sovereigns, or most issuers of bonds in general. Once a bond is issued its terms are fixed until that bond matures. If one buys, say, a 10-year Treasury bond at, say, 2.5% then the holder of that bond will receive $25 per year for the ten year life of the bond. Alternatively, the debt servicing cost to the US Treasury for that same bond is just $25 per year until the bond matures, REGARDLESS of prevailing interest rates. It is only the cost of new bond issuances that would increase as prevailing rates increase, and the Fed is now buying about 80% of them which are effectively interest-free loans to the Treasury. Might point is that even if interest rates continue to rise the debt servicing costs on the existing debts, not only for the Treasury but all other sovereign governments – and even state-level and private issuers – remain fixed.

    This is not to say debt servicing costs won’t rise at all, and they certainly would for short-term bonds having to be “rolled over” when they mature, but the Fed’s long-term buying program (I.e., QE) has effectively increased the duration of the Treasury’s overall “bond portfolio” and, conveniently, at the same or less cost to the Treasury.

    Some of the confusion arises from the fact that even though debt servicing costs on outstanding debts remain relatively fixed, and therefore the incomes received by the bond holders remain the same, the “spot” price, or immediate UNREALIZED capital gain of those bonds, drops significantly. That becomes a problem for the bond holders, however, not the issuers like the US Treasury.

    That said, rising interest rates will still be a political problem in part because most people don’t understand the above, including most of the financial reporters, so when the “debt ceiling” (if it’s still called that) comes up again in the Fall then all those against more government debt will have a lot to holler about. Also, all existing bond holders will be upset because they will be suffering capital losses (at least on paper). However, the continued suspension of “mark to market” accounting should help keep things going.

    On a different note, many people suspect that an effort to create a one-world government is real and that will probably require a global financial crisis that only the new government can fix. A lot of readers on sites like this one may not be fooled by such manipulation efforts but as the behavior of the financial markets for the last few years has shown that could easily happen.

    Another possibility would be to suspend the enforcement of all derivative contracts.

    1. Won’t the value of all those long term bonds accumulated from “operation twist” drop significantly in value in a rising rate environment, and if so, won’t this do damage to the Fed’s balance sheet and consequently to the U.S. Treasury? Are they both completely immune to economic laws?

      1. Not at all. Yes, the prices or values of those bonds would fall and, therefore, so would the “assets” of the Fed but remember the central banks don’t really care about that directly. After all, they create money/dollars to begin with. What matters to them is what other people (like you) think about the Fed “losing” money and their reactions to it. Furthermore, the drop in Treasury values doesn’t affect the US Treasury at all, at least directly. The outstanding debt remains exactly the same (i.e., what is owed is still the par value.) Also remember, the Fed (and all other central banks) are not a part of the government. It/they are separate private entities (cartels) that are unique and not subject to any of the rules for corporations or partnerships. They have literally usurped monetary powers (by governments granting them special status that the Constitution prohibits and the Founder’s warned against.) and exist as parasites interested in the economic well-being of the US/countries only to the extent that it benefits them. They don’t care about money per se, they care about power, and their power lies in that which outside entities and citizens grant them. It’s a let’s keep the “hosts” alive kind of game. Their biggest fear is to lose credibility and support by the masses. As entrenched as the system is and as complicated the subject is it could all crumble tomorrow if sentiment changes. I doubt that will happen en masse consciously, but it could happen serendipitously if people/investors “misunderstand” in a certain way that initiates an unstoppable collapse. Stick around, stranger things have happened.

        1. Bruce,

          I find your comments to be very interesting, but I’m struggling a bit to follow them. Could you possibly give us an idea of what type of “misunderstanding” could result in an unstoppable collapse. And if such a misunderstanding was serendipitous, does that mean that you think it would be good in some way?

          1. First of all, yes, “serendipitous” implies a positive outcome, though I need to explain exactly what I mean by that in this context.

            Serendipity is a word (originally associated with research) meant to describe the surprising or unexpected discovery of something while actually focusing-on/researching something seemingly unrelated. It’s now used more generally and metaphorically to mean an unexpected and/or unintended (and usually positive) result of some activity or intention.

            For example, in the context of what I said, I think most people/investors today are very confused and so despite their efforts to act rationally in what they believe are their own best interests, they may interpret “Fed speak” and certain economic signals contrary to what the Fed intends, and that could actually result in an economic collapse that would ULTIMATELY be in their best interests (though I understand how dicey and precarious that sounds).

            For example, JR’s last post (that I missed) opened the question of rising interest rates to interpretation: Is it a positive response to an improving economy, or a negative response to the Fed’s intended tapering of QE and thus the deflation of a global bond bubble, or a foreboding indication of investor unrest with unserviceable debts? In any case the “rational” investor response is to sell bonds, but by doing so will potentially collapse the financial system (because even if the economy is improving the derivative effects could swamp it.)

            Why would that be positive, you may ask? Because it will reveal the falseness and ineptitude of the current centrally controlled, central banking cabal and, importantly, severally reduce the support that it needs. Personally I think a collapse at this time is sooner than the “elites” would want. Unless it happens soon they will not be in a credible position to claim their ability or moral authority to “solve” the crisis, and that is crucial to enabling the rest of us to escape entrapment by a global elite.

            I understand that that doesn’t sound very festive, and it may even sound downright crazy, but too many people have been too ignorant for (hopefully, only almost) too long of a completely separate paradigm of political and monetary matters. I think that most people are somewhat aware and suspect some piece of the total puzzle, and so a more integrated understanding could come quickly as events and information unfolds. I have to admit though, I seriously think something “supernatural” is going to have to occur for humanity to get through what I think is coming.

          2. Bruce,

            To the extent that I understand what you’re saying, I agree with you completely. (The only part I’m not clear about are your comments about timing. Why would a somewhat sooner or later collapse impact the ability of the elites to claim the ability or authority to “solve” the crisis?)

            I find your insights to be very astute, and it is clear that you have a very sophisticated and comprehensive worldview — unusually so. That being true, I would be very interested in finding out a little bit about you and how you arrived at your conclusions. I am surmising that you are an older person since the wisdom you exhibit is not often found in the young. What profession did you practice? What sources of information informed your conclusions?

          3. I don’t know you and you don’t know me, and for those reasons I’d rather not answer your personal questions. However, if I can presume that you simply want evidence to authenticate what I’m saying then I can provide innumerable sources of information, namely the articles listed at this website, but there are other sources too.

            Your question about timing is astute. The short answer to your question is that if the Fed/central banks can quell this “unexpected” and unwelcomed financial reality of rising interest rates then the underlying plan of world domination can continue unnoticed. However, if the markets continue to rebel then everything becomes highlighted and surreptitious activities must cease. You can’t execute a coup if things are half-baked – it’s too risky.

            If you can think globally about what is happening, there is an effort – a battle really – to create a way for a globalist take over. There are many “elites” in the world and understandably and believably they don’t all share the same agenda. Nevertheless, they can be considered as two groups; the “imperialists” who are trying to govern the whole world, and all the rest.

            Understand that the divisions are not national but ideological. Understand also that the imperialists are self-righteous, and I believe to be fanatical and even “Satanic” (again, I know that sounds crazy). In any case, and for many reasons, there is a “window” – for lack of a better term – for a global coup to occur. But the US is still very important. As long as the US is perceived to be stable and strong – really just the strong-est – then things can be held in check. But if that lynch pin is pulled, no matter the reason, all bets are off.

          4. I think the U.S. is crumbling like a two-dollar suitcase in every possible way that crumbling can take place. And I agree with you that the spirit behind the push for one-world government is Satanic.

            You needn’t be so defensive about my questions. I wasn’t asking for your name, address and social security number. I was merely curious about what sort of education and / or life experiences led to your conclusions.

            Personally, I am a lawyer — a bit of information which doesn’t exactly pinpoint my identity, does it? I was merely asking whether you had a background in engineering, in finance, as an entrepreneur. Has anybody ever told you that you come across as a tad argumentative, even with people who agree with you?

          5. I’m sorry if I seem argumentative. I don’t mean to be but I want to understand things clearly and I’m not afraid of asking questions or being wrong about things and I assume others feel the same way, but I guess that can seem aggressive.

            Anyway, I just happen to have a background in all three areas that you mentioned along with my own studies and having had some personal experiences with government and the “occult.”

            Again, I’m sorry if I seemed “a tad argumentative” and I thank you for your interest and perseverance to have a dialog.

          6. Well, a lucky guess on my part, I suppose. (Not really. You have an engineering style of communicating, the confidence of an entrepreneur and enough technical economic knowledge to indicate a background in finance.)

            If you wouldn’t mind indicating what sort of experience you’ve had with the government, I’d be interested. Naturally, if it was with the CIA or something, I wouldn’t expect you to indicate that, or at least not openly. On the other hand, if it was in aeronautics or some such, I think that would be interesting to know without causing you to be endangered.

            Finally (and obviously I don’t expect details here), it would be interesting to know — in the most general possible way — what sort of experience you’ve had with the occult. Did it involve UFO research, for example?

            I am interested in you because you offer some insights which are a bit out of the ordinary and yet dovetail with my own. We are both professionals who have reached similar conclusions about the general nature of impending global events, so naturally I am curious about how you arrived at such.

          7. My direct personal experiences with government have been what I considered very ordinary (an IRS audit, dealing with various bureaucracies, etc.) and it was obvious to me that one wouldn’t want to have to deal with them any more than necessary and that their powers should be limited.

            A good friend of mine was successfully framed by a business competitor that involved the Fish and Wildlife Association (they sound harmless, right?). They raided his manufacturing facility at gun point (literally) but couldn’t find any incriminating evidence, but having spent so much money on the raid (there were about 35 officers) that he/they were charged anyway. Two years and $250,000 later the court threw out the case, but the damage/intimidation took its toll. It was a terrible abuse of power and that kind of thing – or the threat of – is getting worse. That’s why I’m so incredulous by so many others (voters in general in particular) who trust government and thinks it’s benign or even helpful. How could they think such a thing just from their own ordinary dealings?

            My “occult” experiences range from – yes – UFO research and sightings, my sister’s fiance supposedly had a few alien visitation experiences (I know that sounds crazy, but what else can I say), hypnosis, experiences with using the OUIJA board, psychic precognitions, out of body experiences, dream work, etc.

          8. There is no question that not only is government not benign — it is evil and growing more so every day. The people who think it’s benign (or even helpful) probably have experiences limited to receiving entitlement checks.

            Now, onto a more serious matter. I realize that this discussion site is perhaps an odd place for me to be giving spiritual advice. However, it is the only means that I have. While I understand that you have a very independent mind and are not necessarily inclined to taking advice from strangers on the internet, what I need to tell you is of such great importance that I hope you will at least give it due consideration.

            There is absolutely no doubt whatsoever that “aliens” are simply demons. There are only four types of beings in the universe. There is God — who revealed His name as Yahweh — and whose son is Yeshuah or Jesus. Then, there is the Third Person of the Godhead, the Holy Spirit. Together, these three Beings comprise the only true God there is; they are the first type of Beings

            Second are angels. There are the angels who chose to serve God. And there are the angels who chose to rebel and now serve the chief fallen angel, Satan.

            Third are humans — a type with which you are familiar. Then, there is the animal kingdom — taking in everything from the smallest-celled creature to the largest.

            But demons masquerade as all sorts of other pretend beings. Their goal is to prevent people from establishing a relationship with God. Eventually, there will be more and more contact between demons posing as “aliens” and people. They will have all sorts of messages of hope and instructions for humankind to live together peaceably. What they definitely WON’T say is that Yahweh (together with the Son and Holy Spirit) is the one true God.

            Ghosts too are simply demons in another disguise, as are the supposed spirits of departed humans. When you use a OUIJA board, you are inviting the demons to communicate with you. They will be delighted to do so.

            Hypnosis is the conscious relinquishment of control of your mind, which allows demons to come in and take over. This is why people who cannot sing at all when they’re not under hypnosis can sometimes sing like Frank Sinatra when hypnotized. Demons have extraordinary powers, but only within the parameters set by God.

            I hope that you will search the Bible for answers. It presents the reality about God, about human existence . . . about all the great mysteries. The beings who are in touch with you through lucid dreaming and such seek only your destruction.

            I doubt if what I have said will go over very well with you, and that’s okay. I don’t care what you think of me personally. But I do encourage you to seek God while He may be found. Ask Him to reveal His truth to you.

          9. I understand what you’re saying, and I’ve heard it and read it from others before. But not only that I’ve come to at a least a compatible position as yours through personal experiences and seeing how things have worked out over time. I’ve gotten away from those things. I only mentioned them because you asked for some background.

            Now, you might find it interesting that supposedly (and this is only something I’ve heard) the imperialistic “elites” that I mentioned are members of a group(s) that practice “Satanic rituals” and have attracted “evil” influences (demons ?) and have themselves fallen under their influence believing that they are being helped to execute their globalist agenda. There are a lot of men in powerful positions today all over the world who are members of the same secret societies, and they are the ones who seem so morally insane. Literal sociopaths could be in positions of power all over the world which could be why things seem so crazy. I know that sounds pretty out there, I’m just say’in.

          10. Bruce,

            You are exactly right. There is no doubt whatsoever that it is Satan who is animating the globalists. The Bible is clear that Satan will be the power behind the anti-Christ who will head the world government in the last days — which is the era that we’re living in now.

            You have observed that things seem very crazy . . . and they will become crazier still. Satan is gearing up for his climactic assault on the kingdom of God. Ultimately, of course, as a created being, Satan cannot defeat the eternal, omnipotent God. But Satan is channeling his raging hatred of God toward destroying as many people as possible since people are God’s highest and most valued creation.

            There are only two kingdoms in the universe — the kingdom of God and the kingdom of Satan. Unless a person makes a conscious decision to join the kingdom of God, he is by default part of the kingdom of Satan. In the end, of course, Satan’s kingdom will be utterly destroyed. But there are many difficult times ahead before that eventuality comes to pass.

          11. Anonymous ‘January 24′,

            I agree with all that you have said, brother — except that we are “in the last days”.

            If you had qualified that by saying that we MAY be in the last days, fine; but as your statement stands, it refutes Christ’s teaching — no one knows the time of the end, except the Father.

            The Old Dark goes back as far as ancient Egypt and Sumeria; evil ones have always, and will always, exist on the earth until Christ returns to redeem it. Evil people do not overcome good; they lose in the temporal realm (cannot sleep well, cannot feel peace or joy) and of course they lose in the end, forever.

            There have been horrific times on the earth — and of course, in America — before. I believe that we may very well be witnessing the frenzied *end* of the evil ones’ feeding frenzy for this era; potentially the best period in American history to date.

            I make this assertion at the beginning of my 2010 book ‘This Bloodless Liberty’, and then support the assertion throughout the book.

            This will require widespread repentance, of course — at least by a remnant. But keeping in mind God’s promise to save Sodom for the sake of just ten righteous, and the fact that there are about 9,500 towns and cities in this republic — He would spare us for even 100,000 righteous or thereabouts.

            (We know there are “none good except the Father”, Christ said. But God certainly knew what He was saying when He agreed to “ten righteous”.)

            Christianity has never grown faster than it is doing today, worldwide. Centuries-old evil is being exposed, in many cases for the first time. Do not assume that you know the time of the end is coming; it may yet be 5,000 years away. We have work to do!

    2. This article has little to do with the debt servicing costs of soverigns. It has to do with “Hedge funds and money center banks have created hundreds of trillions of dollars of interest rate swaps”, which it explicitly stated was more important. Also, the average maturity of federal debt is less than 5 years.

      Further, changes do not happen in an environment where everyone is ignorant of their consequences. Do you really thing China will hold on to Treasuries at 1% when their current rate changes to 5%? No, they’ll dump them – lowering the cost and hence raising the rate.

      1. I only wanted to explain a common and persistent misunderstanding about the effects of rising interest rates on US Treasury debt.

        As far as interest rate swaps are concerned, I’ll be surprised if we actually see them “blow up”. The last few years have shown that central banks and governments will do just about anything to avoid problems including changing laws or simply not following or enforcing them.

        I do think China (who hold only about 8% of outstanding Treasury debt) will hold them because they don’t want any more dollars and they don’t want to contribute to a bond sell-off which would create capital losses for themselves and spike interest rates worldwide. They are not yet ready to take on the US monetarily. It’s a precarious no-win situation for everyone and that is why it is unstable and unsustainable. And I’m afraid that there is not a means nor the will to try to deflate things controllably, which means it’s all going to blow up spontaneously and uncontrollably at some point.

  4. I think I’m just going to go to the mountains next year weather or not its mad max yet because i dont want to get stuck in the city with no way out when the shtf. ill quit my job and everything. im so tired of trying to predict everything exactly.

  5. Well done John! Just another example, albeit a big one, of how market manipulation is not only evil but economically devastating.

  6. These scenarios are predicated on something that’s far from certain: that interest rates will indeed be allowed to rise. Perhaps more likely is that the pain becomes too great and the Fed recommits to buying for an even longer period of time or at a greater rate than $85 billion a year, or both. In those cases, interest rates would almost certainly abate for some period of time.

    But obviously that amounts to kicking the can rather than a solution.

    1. Another way to kick the can might be to smash stock markets, in hopes of setting off a knee-jerk rotation from stocks into bonds. As long as the insiders are given the signal that it’s time to switch to the short side in this massive, multi-year equities pump and dump, then only the relatively small fry will get decimated. I’m not sure this would work if bonds are allowed to get too far out of control, though… they would need to act on this while “bonds” still equal “safe havens” in most people’s minds. Any of the major banks could likely set off a crash if they wanted to, given that algos run these markets. Or they could make a shock announcement of some sort at Jackson Hole; the “tapering” reaction shows that the Fed could arrange a stocks crash whenever they like.

      1. No doubt the Fed could crash equities by cutting back on QE, raising short term rates, etc., but not sure how that would help the Fed given that it has been pretty explicit all along that seeing equities go up is part of the grand plan to make average Americans feel richer and in so doing stimulate aggregate demand and the pretend ‘recovery’. Crashing equities and sending investors to perceived safe havens like short term bonds would undo everything the Fed has ‘achieved’ thus far, so it’s doubtful it would intentionally do that, and anyway that wouldn’t do much to alleviate the suffering of holders of long term paper. The Fed has painted itself into a corner with no way out that doesn’t involve a great deal of pain. These next few years are going to be interesting.

        1. Well, to play with this idea a little further:

          Surely the bond markets are far more important to the Fed than stock markets, regardless of the “wealth effect” for those with equities.

          And it’s looking like even the pretend “recovery” is on shaky ground due to plunging disposable incomes & plunging money velocity. The “recovery” may be failing anyway.

          I’m not sure a stocks crash wouldn’t help long-term bonds at least a little. Retail investors would likely buy some longer-term bonds through mixed maturity bond funds and out of ignorance.

          And it would help stabilize longer maturity interest rates if a stocks collapse gave the Fed cover for increasing QE dramatically.

          However, you’re probably right that it’s not feasible for the Fed to do something overtly that would cause them to take the blame for an equities crash. Still, if they get desperate and want to try it, one or more of the primary dealers would be willing to do it in exchange for the money they’d make on the short side.

          These are not my predictions, just thinking out loud here. “They’ll just crash stocks to save bonds” was something I used to hear more often, but I rarely hear it now, I guess because the Fed has been so very, very devoted to ramping stocks.

    2. 85 BILLION PER MONTH not year. On top of all the other printing and credit expansion and bailouts and trillions of new balance sheet “money.” The Fed is powerful and has a lot of tools, but they have used most of them and hardly managed to keep the nation out of depression. All they really have done is fueled an epic, historic wealth gap that will lead to something far worse than a fictional nominal interest rate, it will lead to revolution, get out the torches and pitchforks.

      1. Sorry – yes, $85B/month.

        We already have a depression. If a household’s sole wage earner lost his job but continued to fund the same lifestyle he had before the job loss through debt, that’d be depression on a personal level and everyone would understand that the former lifestyle can’t continue forever. We’re doing the same thing on a macro level.

  7. The biz news is totally missing the interest rate swap time bomb, as they did the CDS time bomb vicinity 2008. Congrats to you for highlighting the issue.

    If ever there were a time when the Fed wasn’t going to engineer a soft landing, which they have never manged BTW, this is the time.

    This obviously isn’t a story which is going to have a happy ending.

  8. so returning to historically normal interest rates, was the worst thing that could happen?…Governments won’t be able to service their debt, or afford to roll it over thus leaviung them with the choice of default or print…..and 2 big 2 fail banks will collapse, etc….. all this because they were risking all on a bet against normal, that is, betting the house that you could always borrow 10yr money under 2%, forever. leveraged 30:1 here, 40:1 in Europe and Japan.

    I love the numbers on what every percentage point of interest rise does to Japan’s debt,
    a few points north and ALL their gov’t taxes go to service debt, with no money left for anything else, like, say fixing Fukushima. paying govt pensions.

    Default or print

    1. You forgot one last wild card Bill…. As of Dec 2012 both UK and USA passed the bill to legalize “Bail-ins”. Summer of 2012 it was Euro & Canada. They’re not going down just yet…. YOU will bail them out next, and when they’ve absorbed ALL capital in the world and the rich are poor, the poor are poor, the middle class decimated, then the few uber-rich will run everything.

      1. Wealth wont be completely destroyed in the scenarios presented. The currently despised PMs will become a true store of value as there is no counterparty risk in times of crisis.
        Understandably, there is a lot of malice directed towards the”financial elite” on forum like this.However much of this malice translates into “theyll be crushed when the crisis comes”. This is improbable as they are networked and informed. They will be taking steps to at least protect wealth and thats why its interesting to see that JPM have gone from short to long in the PMs as interest rates rise. Normally rising interest rates would be an invitation to short as PM prices fall . The key here is to watch JPMs PM position in tandem with interest rates. Both continuing to rise is a form of crash warning,IMO. Ignore PM price signals except in finding buying opportunities as the market doesnt represent true supply and demand dynamics.

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