EU charges 13 banks, ISDA, Markit with breaching EU antitrust rules

Bank of America Merrill Lynch, Barclays and Morgan Stanley also among banks charged

Banks and other companies involved could be fined up to 10% of their global turnover if found guilty of infringing EU rules. Photo: Karen Bleier/AFP

Brussels: Financial data company Markit, the International Swaps and Derivatives Association (ISDA) and 13 banks were charged with blocking two exchanges from entering the credit derivatives market in the last decade in breach of European Union (EU) antitrust rules.

The European Commission said the group, which included Goldman Sachs and UBS, shut out Deutsche Boerse and the Chicago Mercantile Exchange from the Credit default swaps (CDS) business between 2006 and 2009.

CDS are over-the-counter contracts that allow an investor to bet on whether a company or country will default on its bonds within a fixed period of time. Lack of transparency on such derivatives is a key target of regulators following the 2007-2009 crisis.

The case is one of several opened by the EU antitrust regulator into the financial services since the crisis. Banks and other companies involved could be fined up to 10% of their global turnover if found guilty of infringing EU rules.

The European Commission said on Monday it had sent a statement of objections, or charge sheet, which sets out suspected anti-competitive activities, to the companies.

“It would be unacceptable if banks collectively blocked exchanges to protect their revenues from over-the-counter trading of credit derivatives,” EU competition commissioner Joaquin Almunia said.

“Over-the-counter trading is not only more expensive for investors than exchange trading, it is also prone to systemic risks.”

The charges followed a two-year investigation. The other banks charged are Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas, Morgan Stanley, Credit Suisse, Deutsche Bank, HSBC, JP Morgan and RBS.

UBS, Deutsche Bank, JP Morgan, HSBC and Barclays declined to comment, while the other banks and ISDA were not immediately available for comment. Markit had no immediate comment.

Almunia said some of the banks in the CDS case were also involved in separate investigations into suspected rigging of lending benchmarks Euribor and Libor, but he did not identify them.

“We are trying to follow the Article 9 route. We hope we are ready to adopt a decision towards the end of the year,” EU competition commissioner Joaquin

Almunia told a news briefing, referring to a procedure where companies can get a 10% cut in fines in return for admitting wrongdoing. Reuters

We’re Going Into the Greatest Depression: “They Will Not Be Able To Pull Off the Stimulus Game Again”

SHTF Plan – by Mac Slavo
Look around and you can’t miss it.
The world is on the brink… politically, economically, financially, monetarily, and militarily.
Events are accelerating. Over the last decade trend forecaster Gerald Celente has been blaring the alarms.  
If you’ve been paying attention, then you’ve heard them. You know we’re going under.
And this time they’re not going to be able to stop it.

It will be worse than the panic of ’08.  It will be deeper.  It will be more painful and there’s a reason why… because they will not be able to pull off the stimulus game again.
Everybody got hip to it and it didn’t work. You read even the Financial times, the major media, CNBC, Bloomberg… everyone will now admit that the stimulus only bought borrowed time. So the stimulus game doesn’t work anymore, and the governments are so in debt they can’t have the fiscal policy. So you have no monetary policy and you have no fiscal policy to stimulate the economy.
We’re going into the Greatest Depression.
But they will try to boost it some way. And that’s when I believe gold and silver prices will again skyrocket. They can stay low, I believe, for another several months… even a year. But I don’t see them staying down forever.
I don’t give financial advice. I’m a long term buyer and a long term holder of gold.
Why would I want this digital paper not worth the paper it’s not printed on?
And number two on this whole area of gold and the economy… I believe they’re going to take us to war just like they did during the Great Depression. When all else fails they take you to war and we’re hearing the war drums beating louder and louder throughout the middle east as the middle east is collapsing.
…Hey, great job that Noble Peace Prize winner Obama did…

Full Interview with Gerald Celente and Greg Hunter via USA Watchdog:

(Sourced via Before It’s News)
The end result of this economic destruction for many Americans, as Celente noted in a previous interview, will be a one way ticket aboard the Auschwitz Express and global war.
Forget about stock markets, bond prices and economic statistics being released by the government. Those don’t matter unless you’re actively trading or have your money in retirement accounts (in which case you might consider making an exit).
What matters now is insulating yourself as best as possible from the coming destruction to Americans’ wealth and day-to-day lives. As Celente suggests, gold is an asset you want to be in possession of. Likewise, when our system of commerce comes to a standstill as a result of the collapse of the world’s reserve currency you need to own barterable physical assets and have them easily accessible.
We will soon see what it truly means to live (and survive) in a depression.
With nearly 50 million Americans on food stamps, 100 million on welfare, and no economic progress in sight, it won’t be long before the world as we have come to know it changes drastically.
Expect riots, starvation and bloodshed. You can be 100% sure that the government is planning for exactly this scenario.
The signs, as they were before the crash of 2008, are everywhere. It’s happening right now.
Buckle up, folks.

Guest Post: 36 Tough Questions About The U.S. Economy That Everyone Should Be Asking

Source: The Economic Collapse blog
If the economy is improving, then why aren't things getting better for most average Americans?  They tell us that the unemployment rate is going down, but the percentage of Americans that are actually working is exactly the same it was three years ago.  They tell us that American families are in better financial shape now, but real disposable income is falling rapidly.  They tell us that inflation is low, but every time we go shopping at the grocery store the prices just seem to keep going up.  They tell us that the economic crisis is over, and yet poverty and government dependence continue to explode to unprecedented heights.  There seems to be a disconnect between what the government and the media are telling us and what is actually true.
With each passing day the debt of the federal government grows larger, the financial world become even more unstable and more American families fall out of the middle class.  The same long-term economic trends that have been eating away at our economy like cancer for decades continue to ruthlessly attack the foundations of our economic system.
We are rapidly speeding toward an economic cataclysm, and yet the government and most of the media make it sound like happy days are here again.  The American people deserve better than this.  The American people deserve the truth.  The following are 36 hard questions about the U.S. economy that the mainstream media should be asking...
#1 If the percentage of working age Americans that have a job is exactly the same as it was three years ago, then why is the government telling us that the "unemployment rate" has gone down significantly during that time?
#2 Why are some U.S. companies allowed to exploit disabled workers by paying them as little as 22 cents an hour?
#3 Why are some private prisons allowed to pay their prisoners just a dollar a day to do jobs that other Americans could be doing?
#4 Why is real disposable income in the United States falling at the fastest rate that we have seen since 2008?
#5 Why do 53 percent of all American workers make less than $30,000 a year?
#6 Why are wages as a percentage of GDP at an all-time low?
#7 Why are 76 percent of all Americans living paycheck to paycheck?
#8 Why are so many large corporations issuing negative earnings guidance for this quarter?  Does this indicate that the economy is about to experience a significant downturn?
#9 Why is job growth at small businesses at about half the level it was at when the year started?
#10 Why are central banks selling off record amounts of U.S. debt right now?
#11 Why did U.S. mortgage bonds just suffer their biggest quarterly decline in nearly 20 years?
#12 Why did we just witness the largest weekly increase in mortgage rates in 26 years?
#13 Why has the number of mortgage applications fallen by 29 percent over the last eight weeks?
#14 Why has the number of mortgage applications fallen to the lowest level in 19 months?
#15 If the U.S. economy is recovering, why is the mortgage delinquency rate in the United States still nearly 10 percent?
#16 Why did the student loan delinquency rate in the United States just hit a brand new all-time high?
#17 Why is the sale of hundreds of millions of dollars of municipal bonds being postponed?
#18 What are the central banks of the world going to do when the 441 trillion dollar interest rate derivatives bubble starts to burst?
#19 Why is Barack Obama secretly negotiating a new international free trade agreement that will impose very strict Internet copyright rules on all of us, ban all "Buy American" laws, give Wall Street banks much more freedom to trade risky derivatives and force even more domestic manufacturing offshore?
#20 Why don't our politicians seem to care that the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975?
#21 Why doesn't the mainstream media talk about how rapidly the U.S. economy is declining relative to the rest of the planet?  According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001.  That number dropped to 21.6 percent in 2011.
#22 Why is the percentage of self-employed Americans at a record low?
#23 What are we going to do if dust bowl conditions continue to return to the western half of the United States?  If the drought continues to get even worse, what will that do to our agriculture?
#24 Why is the IRS spending thousands of taxpayer dollars on kazoos, stove top hats, bathtub toy boats and plush animals?
#25 Why did the NIH spend $253,800 "to study ways to educate Boston’s male prostitutes on safe-sex practices"?
#26 Why do some of the largest charities in America spend less than 5 percent of the money that they bring in on actual charitable work?
#27 Now that EU finance ministers have approved a plan that will allow Cyprus-style wealth confiscation as part of all future bank bailouts in Europe, is it only a matter of time before we see something similar in the United States?
#28 Why does approximately one out of every three children in the United States live in a home without a father?
#29 Why are more than a million public school students in the United States homeless?
#30 Why are so many cities all over the United States passing laws that make it illegal to feed the homeless?
#31 Why is government dependence in the U.S. at an all-time high if the economy is getting better?  Back in 1960, the ratio of social welfare benefits to salaries and wages was approximately 10 percent.  In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent.  Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.
#32 Why does the number of Americans on food stamps exceed the entire population of the nation of Spain?
#33 The number of Americans on food stamps has grown from 32 million to 47 million while Barack Obama has been occupying the White House.  So why is Obama paying recruiters to go out and get even more Americans to join the program?
#34 Today, there are 56 million Americans collecting Social Security benefits.  In 2035, there will be 91 million Americans collecting Social Security benefits.  Where in the world will we get the money for that?
#35 Why has the value of the U.S. dollar fallen by over 95 percent since the Federal Reserve was created back in 1913?
#36 Why has the size of the U.S. national debt gotten more than 5000 times larger since the Federal Reserve was created back in 1913?

Wall Street Banks Extract Enormous Fees From The Paychecks Of Millions Of American Workers

Michael Snyder
Activist Post

Would you be angry if you had to pay a big Wall Street bank a fee before you could get the money that you worked so hard to earn?  Unfortunately, that is exactly the situation that millions of American workers find themselves in today.

An increasing number of U.S. companies are paying their workers using payroll cards that are issued by large financial institutions.  Wal-Mart, Home Depot, Walgreens and Taco Bell are just some of the well known employers that are doing this.

Today, there are 4.6 million active payroll cards in the United States, and some of the largest banks in the country are issuing them.  The list includes JPMorgan Chase, Bank of America, Wells Fargo and Citigroup.  The big problem with these cards is that there is often a fee for just about everything that you do with them.  Do you want to use an ATM machine?  You must pay a fee.  Do you want to check your balance?  You must pay a fee.  Do you want a paper statement?  You must pay a fee.  Did you lose your card?  You must pay a big fee.  Has your card been inactive for a while?  You must pay a huge fee.  The big Wall Street banks are systematically extracting enormous fees from the working poor, and someone needs to do something to stop this.

The truth is that most American families need every penny that they earn.  In America today, 53 percent of all workers make less than $30,000 a year.

It is hard to do everything that you need to do on less than $2,500 a month.  If you doubt this, you should try it some time.

That is one reason why the fees that the big Wall Street banks hit payroll card users with are so insidious.  The following is a short excerpt from a recent CNBC article about this phenomenon...

But in the overwhelming majority of cases, using the card involves a fee. And those fees can quickly add up: one provider, for example, charges $1.75 to make a withdrawal from most A.T.M.'s, $2.95 for a paper statement and $6 to replace a card. Some users even have to pay $7 inactivity fees for not using their cards.

These fees can take such a big bite out of paychecks that some employees end up making less than the minimum wage once the charges are taken into account, according to interviews with consumer lawyers, employees, and state and federal regulators.
Devonte Yates, 21, who earns $7.25 an hour working a drive-through station at a McDonald's in Milwaukee, says he spends $40 to $50 a month on fees associated with his JPMorgan Chase payroll car.

If you are just barely scraping by every month, can you really afford to be paying $50 a month in fees to the fatcats at JPMorgan Chase?

Of course not.

But JPMorgan Chase is far from alone.  Just check out all of the fees that another large financial institution is hitting users with...

On some of its payroll cards, NetSpend charges $2.25 for out-of-network A.T.M. withdrawals, 50 cents for balance inquiries via a representative, 50 cents for a purchase using the card, $5 for statement reprints, $10 to close an account, $25 for a balance-protection program and $7.50 after 60 days of inactivity, according to an April presentation by the company reviewed by The Times.

They are taking advantage of extremely vulnerable people and they know it.

And we see this kind of thing happening with other types of cards as well.  For example, in some states unemployment benefits are now deposited on prepaid debit cards, and the banks that issue these cards are more than happy to extract huge fees from unemployed people...

Shawana Busby does not seem like the sort of customer who would be at the center of a major bank's business plan. Out of work for much of the last three years, she depends upon a $264-a-week unemployment check from the state of South Carolina. But the state has contracted with Bank of America to administer its unemployment benefits, and Busby has frequently found herself incurring bank fees to get her money.

To withdraw her benefits, Busby, 33, uses a Bank of America prepaid debit card on which the state deposits her funds. She could visit a Bank of America ATM free of charge. But this small community in the state's rural center, her hometown, does not have a Bank of America branch. Neither do the surrounding towns where she drops off her kids at school and attends church.

She could drive north to Columbia, the state capital, and use a Bank of America ATM there. But that entails a 50 mile drive, cutting into her gas budget. So Busby visits the ATMs in her area and begrudgingly accepts the fees, which reach as high as five dollars per transaction. She estimates that she has paid at least $350 in fees to tap her unemployment benefits.

There is something that is so greedy about all of this.

When the financial crisis hit back in 2008, the big banks had no problem begging the entire nation for mercy.

But when it comes time to show mercy to the poor, they tell us that it is "just business".

In America today, there are tens of millions of families that are just barely surviving from month to month.  The big banks should not be preying on them like this.

With each passing year, the ranks of the working poor in this country continue to get larger.  The following statistics are from one of my previous articles entitled "35 Statistics About The Working Poor In America That Will Blow Your Mind"...

#1 According to the U.S. Census Bureau, more than 146 million Americans are either "poor" or "low income".

#2 According to the U.S. Census Bureau, 57 percent of all American children live in a home that is either "poor" or "low income".

#3 Back in 2007, about 28 percent of all working families were considered to be among "the working poor".  Today, that number is up to 32 percent even though our politicians tell us that the economy is supposedly recovering.

#4 Back in 2007, 21 million U.S. children lived in "working poor" homes.  Today, that number is up to 23.5 million.

#5 In Arkansas, Mississippi and New Mexico, more than 40 percent all of working families are considered to be "low income".

#6 Families that have a head of household under the age of 30 have a poverty rate of 37 percent.

#7 Half of all American workers earn $505 or less per week.

#8 At this point, one out of every four American workers has a job that pays $10 an hour or less.

#9 Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.

#10 Median household income in the United States has fallen for four consecutive years.

#11 Median household income for families with children dropped by a whopping $6,300 between 2001 and 2011.

#12 The U.S. economy continues to trade good paying jobs for low paying jobs.  60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.

#13 Back in 1980, less than 30% of all jobs in the United States were low income jobs.  Today, more than 40% of all jobs in the United States are low income jobs.

#14 According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.

#15 There are now 20.2 million Americans that spend more than half of their incomes on housing.  That represents a 46 percent increase from 2001.

#16 Low income families spend about 8.6 percent of their incomes on gasoline.  Other families spend about 2.1 percent.

#17 In 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  Today, only 55.1 percent are covered by employment-based health insurance.

#18 According to one survey, 77 percent of all Americans are now living paycheck to paycheck at least part of the time.

#19 Millions of working poor families in America end up taking on debt in a desperate attempt to stay afloat, but before too long they find themselves in a debt trap that they can never escape.  According to a recent article in the New York Times, the average debt burden for U.S. households that earn $20,000 a year or less "more than doubled to $26,000 between 2001 and 2010".

#20 In 1989, the debt to income ratio of the average American family was about 58 percent.  Today it is up to 154 percent.

You can find the rest of the list right here.

The working poor simply cannot afford to be paying hundreds of dollars in fees to the big banks each year just to use the money that they worked so very hard to earn.

Unfortunately, we seem to be living during a time when the big financial institutions will squeeze every nickel that they possibly can out of average Americans no matter how high the human cost is.

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

Europe’s Creeping Bank Run: Bail-in fears grow for big depositors in euro periphery

Source: FT
Preventing capital flight from banks in crisis-hit countries has been a priority for eurozone policy makers. But have they just shot themselves in the foot?
At the height of the region’s debt problems, the amounts held by foreigners in banks in Spain, Italy and other eurozone “periphery” countries shrunk worryingly.
Recent months have seen signs of improvement – thanks to a pledge by the European Central Bank to prevent a eurozone break-up, as well as government efforts to boost confidence in the banking system.

However, analysts warn the latest initiative to build a resilient eurozone “banking union” – which will put deposits by large corporations at risk of being “bailed-in” to rescue trouble-hit banks – may have the opposite effect and spark renewed capital movement away from the continent’s troubled southern economies while benefiting banks in the north.

“There’s already been a reassessment of risk between periphery and core over the past two years which has led to foreign deposits being moved away from the periphery,” says Huw van Steenis, banking analyst at Morgan Stanley. “The bail-in directive could potentially accentuate this reallocation.”
The change in the eurozone bank landscape is illustrated by the decline in foreign deposits since the collapse of Lehman Brothers investment bank in late 2008. Before then, the amounts held by foreigners in banks of the eurozone countries had been rising steadily. By the first quarter of this year – the latest period for which comparable ECB data are available – the total had dropped back to levels last seen in mid-2005.
Worst hit were the periphery countries. Unlike domestic depositors, large foreign depositors usually have easy alternative homes for their money. When fears of a eurozone break up were at their most acute, bankers say international companies were routinely sweeping accounts daily to remove funds from potentially vulnerable countries, with knock-on effects for economic growth.
“It raises the cost of credit for [periphery] banks and so they’re less able to provide credit to the economy,” says Myles Bradshaw, a portfolio manager at Pimco, the world’s largest bond fund manager.

Plans for a “banking union” were launched against that background. In March agreement was reached on a ‘single supervisory mechanism’ whereby the Frankfurt-based ECB will supervise the eurozone’s biggest banks. EU authorities are also working on a continent wide deposit guarantee scheme that would insure deposits to a certain amount to stop depositors moving their cash abroad if local banks run into trouble.

Progress on a banking union has been slow – and fallen short of initial expectations. But while the pledge a year ago by Mario Draghi, ECB president, to do “whatever it takes” to preserve the euro’s integrity has had a far greater effect, eurozone politicians’ actions have arguably also helped restore confidence in the region’s banking system. Recent ECB data on total bank deposits have suggested, for instance, that March’s banking crisis in Cyprus had relatively few lasting effects beyond the Mediterranean island.

Cyprus’s international rescue ended up imposing a “haircut” or levy on bank deposits over €100,000; at one point smaller depositors would also have been hit. Last week’s bail-in” proposals were part of plans for dealing in the future with failing banks without taxpayers having to pick up the bill. EU leaders agreed that ordinary savers’ deposits, as well as those for small and medium-sized companies, would receive special protection in the event of a bank default. However, large corporations’ deposits were excluded from the protected list – placing them squarely in the chopping line for losses and forcing them to reassess where they keep their money.

For companies with deposits in Greece, Portugal and Spain that is likely to provoke fresh nervousness.
“The bail-in agenda makes a lot of sense, but like all policies there are unintended consequences,” says Mr Bradshaw. “After these proposals I expect the trend would be for companies to hold their cash in large, systemic financial institutions in core countries such as France or Germany.”

The push for “depositor preference” threatens other, knock-on consequences. One could be to shunt senior unsecured bank lenders further down the credit hierarchy, leading them to demand more compensation for the greater risks they are shouldering. In turn, that will increase banks’ financing costs.

“If there’s a greater onus on bondholders taking a loss so where’s the quid pro quo?” asks Steve Hussey, head of financial institutions credit research at AllianceBernstein. “If we’re going to be treated like shareholders, we will want a greater say in how the bank is run . . . there needs to be a pay-off.”
The effect could be to encourage even more fragmentation across the eurozone banking system, bankers warn.
“Investors who want to stay in liquid credit will have to continue to buy financial institution debt,” says Alexandra MacMahon, head of financial institutions debt capital markets at Citigroup. “However, we do expect to see increased differentiation between different banks’ pricing levels, not least as investors reward banks with higher capital cushions which can absorb losses before senior bonds become at risk.”

Russia and China building their gold reserves

Source: RI
Western economic commentary on China and Russia is usually colored by monetarist assumptions not necessarily shared in Moscow and Beijing. For this reason, Russian and Chinese fiscal and monetary policies are misunderstood in financial markets, as well as the reasons their governments buy gold.
China has been notably relaxed about her own people acquiring gold, and the government itself appears to be absorbing all of China’s mine output. Russia is also building her official reserves from her own mine supply. The result over time has been the transfer of aboveground gold stocks toward these countries and their allies. The geo-political implications are highly important, but have been ignored by western governments.
China and Russia see themselves as having much in common: They are coordinating security, infrastructure projects and cross-border trade through the Shanghai Cooperation Organisation. Furthermore, those at the top have personal experience of the catastrophic failings of socialism, which have not yet been experienced in Western Europe and North America. Consequently neither government subscribes to the economic and monetary concepts prevalent in the West without serious reservations.
We saw evidence of this from Russia recently, with Putin’s appointment of his own personal economic adviser, Elvira Nabiullina, as the new head of Russia’s central bank. Ms Nabiullina is on record admiring, among others, the writings of Robert Higgs – a leading U.S. economist of the Austrian School. She is therefore likely to take a strong line against the expansion of bank credit, which is confirmed by Russian commentators who believe she will prioritize reforms to strengthen bank balance sheets.
She is not alone. The People’s Bank of China recently let overnight money-market rates soar to over 20%. The message is clear for those prepared to look for it: They are not going to fuel an extended credit bubble. The two countries have learned how damaging a bank-credit-fuelled business cycle can be, and are determined to restrict bank lending. Western commentators find this hard to understand because it does not conform to the way western monetary policy works.
It seems that the leaders of both Russia and China are also painfully aware of the importance of currency stability in a way the West is not. The comparison with the West’s reckless monetary policies is stark. It follows that Russia and China are increasingly concerned about the major currencies, given both countries have substantial trade surpluses. Their exposure to this currency risk explains their keenness for gold. Furthermore, they know that if the renminbi and the rouble are to survive a western currency crisis, they must have the sound-money credibility provided by a combination of monetary restraint and gold backing. And the reason China is happy to let her citizens plough increasing amounts of their savings into gold is consistent with ensuring her people buy into sound money as well.
While the Chinese and Russian governments are authoritarian mercantilists, there are elements of the Austrian School’s economics in their approach. The tragedy for the West and Japan is they have embarked on the opposite weak-money course that can only end in the ultimate destruction of their currencies, leaving Russia and China as the dominant economic powers.

‘Rockstar bankers with clay feet will lead us to problems’

RussiaToday, Published on Jul 1, 2013
In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the failure to understand English as savior of the Japanese banking system. While price signals, the language of the market, are so manipulated as to be indecipherable by even those who speak the language. In the second half, Max talks to legendary investor, Jim Rogers, about gold, bonds and China.

Has the US lost control on debt market growth? Unbridled debt expansion at the nucleus of rising debt inequality in the United States. US total credit market debt now over 3 times larger than annual GDP.

There is one charge that can never be leveled against Americans and that would be that we somehow have an aversion to debt.  To the contrary, our love with debt has blossomed into a full blow addiction.  People confuse access to debt with actual real wealth.  However as the foreclosure crisis has taught millions, you really don’t own something fully until the debt is paid off.  The problem with this addiction is that we are now going deeper and deeper into a debt filled spiral.  The Federal Reserve has positioned us into a market where debt is necessary, but this debt has to come at an artificially low rate.  Any hint that rates will rise causes the market to quiver like a teenager at prom.  This is troubling because it is a sign of addiction and probably, a belief that there is no longer an out clause.  Anyone that has seen the show Intervention realizes how difficult it is to combat a serious addiction.  First, there needs to be an acknowledgment of a problem.  We are still steps away from recognizing this as an issue.

Has the US lost control of the debt market?
Historically, we are in some deep uncharted waters:

Starting in the 1970s, the total credit market debt owed and US GDP went hand and hand.  This was fairly common.  After this point, there has been a major divergence between the two as the above chart highlights.  All of this has accelerated in the 80s, 90s, and even the 2000s.  So today, we are in a position where total debts owed are three times more than annual GDP.  Keep in mind that these are payments that need to be made at some point in time.
Total public debt itself is now larger than annual GDP:

Source:  US Treasury
Total public debt now stands at $16.73 trillion.  What is fascinating is the psychology behind this.  People do realize that this will never be paid back right?  Who is going to pay this back?  Americans are back to record low savings rates.  Are we going to digitally print our way into economic prosperity?  The Federal Reserve seems to think so.
Yet multiple decades of this attitude has led us to this:

For the first time in a generation total public debt is larger than our annual GDP.  We are spending more than we earn.  Keep in mind the last time we were in a similar position was during a time when the large part of the globe was at full-fledged war in the 1940s.  Building a solid credit reputation takes time.  Yet how long can we remain in a position where we continually spend more than we earn and simply fuel future spending on additional debt?
Consumption via debt
Study after study shows that many Americans simply do not save enough money.  Half of the country is literally living paycheck to paycheck.  Yet somehow, we are massively a consumption based economy:

Consumption is still over 70 percent of our GDP.  Most of this is coming via access to debt.  Debt to purchase homes, student loans to pay for college, and easy access to debt for banks to speculate in global markets.  Yet in the middle of all this consuming and spending Americans are actually falling behind when it comes to building true wealth.
Punishing savers and growing inequality
The Fed is fully aware that there is no turning back on this uncontrollable debt train.  Interest payments on our debt are growing at a hefty pace.  This is why the Fed has enlarged their balance sheet to $3.3 trillion merely to keep interest rates low on a variety of items (primarily loans to banks and mortgages that by the way, are issued by banks and linked into government backed MBS).  For savers, this has turned out to be a tough deal:

This is a negative interest rate environment.  With inflation tracking at 2.5 to 3 percent annually you are losing money simply by saving it.  So the underlying incentive is to spend what you have today or risk losing value as inflation erodes your purchasing power.
What this uncontrollable growth in debt has done has created the highest inequality in our nation since the Gilded Age:

This is how you can have 47+ million Americans on food stamps and a record high in the stock market at the same point in history.  This is how you can have 1 out of 3 Americans with no savings but the typical CEO makes 273 times what the average worker makes.  So why has this been the case?  Why is this massive expansion in debt causing so much more inequality?
First, you need to realize that most of the large amounts of debt are going to big banks.  Many of these banks have wealthy clients like hedge funds.  Many of these funds, are now funneling money back into the market by chasing rental properties for example.  Yet this low rate environment comes at a cost (depressed purchasing power, crowding out regular Americans, future debts to be paid, etc).  This easy access to money is also allowing Wall Street to leverage funding in speculating in global stock markets which don’t necessarily help Americans.  It clearly hasn’t helped when it comes to inequality or rising wages for the typical worker.  It also protects only a small portion of our population.  While inflation adjusted wages are back to 1995 levels, as the CEO wage highlights, a tiny segment is doing exceptionally well in this uncontrollable debt growth market.
As we initially said, access to debt in a debt based economy is similar to access to a large bank account.  If you can live in a multi-million dollar home courtesy of easy bank loans, you basically are living this lifestyle even if you are in deep debt.  You might not have enough for a European luxury car, but you can lease it.  This really is what the system is favoring.  Look at the T-Bill rate and tell me who is going to want to save especially when inflation is going to give you a negative rate?  So those with little to no savings (many Americans) are left in a paycheck to paycheck cycle losing purchasing power.  Those with access to the more sophisticated programs chained to debt, their leverage is increasing on the backs of the many.  If growing an economy was as simple as digitally printing money I think central banks would have been on that years ago.  Instead, it has become unfortunately a zero sum game where access to debt is used as a pawn to reshuffle real assets in the real economy to a smaller group of people (i.e., foreclose on homeowners, buy at fire sale prices, put it into a hedge fund, sell to Wall Street as a future income stream, rent it back to working Americans etc).  It is very likely that we have lost control of the debt markets and those suffering are the people with the least access to it.

EU Antitrust Authorities Sue 13 MegaBanks Over Credit Default Swaps Collusion to Stymie Exchanges

Source: Naked Capitalism

Ooh, here we thought bank reform was dead, and an unexpected front opens up.
As readers may recall, Gary Gensler of the CFTC has been fighting to implement Dodd Frank rules on derivatives, and not only is Obama pushing him out on an accelerated schedule, but European regulators are throwing hissy fits via Jack Lew over Gensler’s continuing insistence on enforcing regulations they haven’t managed to stymie intransigence.
Just as not every regulator in the US has given up on doing his job, so too seems to be the case overseas. Recall that the Treasury and the FSA in the UK pushed hard for a Glass-Steagall type split between retail banking and other operations. Concerted opposition by Treasury resulted in that being watered down to mere ring-fencing.
And now, in an amusing coincidence of timing, while one cohort of European regulators is trying (with not much success) to get Gensler leashed and collared, another has launched a major attack on a big derivatives profits engine, credit default swaps. From the Financial Times:

Investment banks’ 20-year grip over credit insurance markets has come under regulatory assault as Brussels served charges against 13 banks for allegedly conspiring to block exchanges from challenging their business model.
The formal European Commission charge-sheet, running to almost 400 pages, alleges collusion to ensure the insurance-like contracts remained an “over-the-counter” (OTC) product – preserving the banks’ lucrative role as middlemen.
Investigators claim the banks from 2006-2009 protected their indispensable position in the $25tn global market through “control” of a trade body and information provider, which vetted whether new exchanges should be licensed…
Brussels alleges that the harm from blocking exchanges, such as Deutsche Börse and CME Group of the US, went beyond trapping investors in the relatively more costly OTC market.
Joaquín Almunia, the EU’s competition chief, said keeping CDS in the opaque OTC market weakened the financial system, increasing counterparty risks that were brutally exposed after the collapse of Lehman Brothers.

The Wall Street Journal (hat tip skippy) provides additional tidbits:

EU authorities said Markit and ISDA—which are providers of data and licensing in the market—were at the center of the banks’ plans to prevent exchanges from getting a piece of CDS trading. The banks, the commission said, instructed ISDA and Markit to sell licenses for their data and index benchmarks only for over-the-counter trading.
EU authorities also suspect that the banks may have routed trades to one clearing house that they felt was unlikely to develop an exchange-traded CDS contract that could take business away from the banks. Clearing houses are entities that absorb losses if one of the parties to a derivative contract defaults.

This case is potentially very significant. First, the EU antitrust authorities have been bloody-minded in the past. Microsoft was fined a record $689 million for tying its media player to its browser in the early 2000s. It was then fined an additional $1.4 billion (which was reduced slightly due to an error in calculating the fine) for failure to comply with the earlier antitrust decision.
Second, as we’ve written at length (both on this blog and at greater length in ECONNED), curbing CDS is critical to reducing systemic risk. CDS are tantamount to unregulated insurance and would not be viable as a product if banks had to put up adequate margin to allow for “jump to default” risk. They are also a major source of “tight coupling” or overconnectedness among firms (in layperson speak, if one fails, the others are at risk because they have so many counterparty exposures). CDS also have no real societal value (the argument that they are a way to short bonds is spurious; CDS have a ton of basis risk on the credit front alone and are a lousy hedge of only one attribute of the risks represented by a fixed income instrument. Moroever, if you don’t like a bond, sell it. No one was howling about the absence of a way to short bonds prior to the introduction of CDS. Its raison d’etre has long been for banks to game risk-based capital requirements).
The banks have wanted to keep derivatives over the counter, particularly CDS, since those prices can’t be derived readily from published indexes or actively traded markets (which is in contrast to a lot of interest rate and foreign exchange swaps). That allows the banks to mark up the price considerably over inter-dealer levels.
And from a regulatory standpoint, CDS are one of the most important products to shrink or eliminate. As long as banks can keep writing them without having to put up adequate capital or margin, they have economic incentives to pile up more risky exposures than they can handle. The fear of setting off cascading failures was the big reason Bear, an otherwise not systemically important player, was rescued (Bear was one of the three biggest prime brokers and hence writing a lot of CDS to hedge funds). And remember CDS are almost certainly booked in depositaries (recall the controversy over Bank of America moving its Merrill Lynch exposures into the deposit book of the bank). Mind you, I’d rather see the market slowly strangled out of existence (banning it outright would be very disruptive), but moving CDS onto exchanges would reduce their profit potential to bank and lead to higher margin being charged, both of which should reduce the size of the market (higher margins would make them more costly to users, and lower profits to banks means they’d devote fewer resources to selling them).
After the protracted fight with Microsoft, the European antitrust authority said it would rely more on changes in behavior (prohibitions, in other words) rather than fines. That’s like not out of a view that the initial fines were too small but that Microsoft kept a 2004 decision in legal play for another 8 years. But the fines the EU can levy represent a sword of Damocles over these banks’ heads: up to 10% of turnover, which presumably would be the notional amount of CDS sold in the relevant time frame (2006 to 2009). Given that the market’s value was $62 trillion at its peak, the EU would seem to be able to force compliance if its charges are well documented (and although I have to confess to not having read the 400 page case yet, I suspect they are).
On a mundane level, this filing is an unexpected boon for Gensler, and should make the Administration look like the bank stooges that they are for trying to stymie him.
Most of the antitrust fight will take place behind closed doors, but I’m hoping we’ll have some fun in the form of squeals of bank consternation as they are seeing their profits shorn. It’s a long overdue spectacle.

'Nail in the coffin for free banking': Debit and credit card users could face increased charges under EU plans

• Expected to limit or cut fees which retailers pay banks for card transactions
• Banks could reportedly lose up to 34p for each transaction
• It is feared banks will rebalance losses by increasing card charges

Debit and credit card users could face increased charges under EU plans expected to be outlined later this month

Debit and credit card users could face increased charges under EU plans expected to be outlined later this month, it has today been claimed.
It is feared the move could signal the end of free banking.
It comes as it has been reported customers could also be charged for using cash machines and their account as banks try to claw back a £2.4billion loss.
The plans, due to be announced by the European Commission this month, are expected to either limit or cut completely the fees which retailers have to pay banks for each card transaction.
The Express reports banks could lose up to 34p a time.
Richard Wagner, chief executive of Advanced Payment Solutions told the paper there was 'no doubt' the losses will be passed on the customer.
It is feared consumers could have to pay a minimum of £25 a year to use a credit card and £11 a year for a debit card, according to a report from Europe Economics with Mastercard.
The report warned that customers 'lost out' when similar changes to interchange fees were introduced in Australia in 2003 and Spain in 2005.
The retailers did not pass their savings on.
As a result banks and card issuers rebalanced losses by increasing credit and debit card charges, it has been reported.

 

Mr Wagner warned banks were likely to use similar 'creative' means to claw back losses, including through charging higher fees for using cards.

The plans, due to be outlined by the European Commission this month, are expected to either limit or cut completely the fees which retailers have to pay banks for each card transaction. It is feared banks will then pass this cost onto consumers

He warned that free banking 'is under threat'.
He added: 'The current system is relatively fair. If that changes it be the nail in the coffin of free banking.'
Europe Economics spokesman Dr Andrew Lilico told the paper that he believed a White Paper later this month would outline plans to scrap or cap interchange fees.
He added: 'It is also plausible that in the UK it could lead to charges being brought in for bank accounts which are currently free.'
Damon Gibbons, director of the Centre for Responsible Credit, said British consumers used their cards more than anywhere else in Europe and so were 'particularly vulnerable.'

'Bank of England policy is transferring wealth from savers to fund the banks': How cheap money continues to erode savings rates

Savings struggle: Rates continue to plummet - and show no signs of slowing

Savers are losing more than £17billion a year as inflation continues to wipe out the low interest earned by their savings and current accounts, according to research.
A combination of paltry rates and inflation of 2.7 per cent in May means savers' pots are swiftly declining in value, according to UHY Hacker Young.
The accountancy group says £114billion is currently deposited in accounts yielding no interest at all – and higher interest savings accounts now offer rates far lower than inflation.
A typical tax-free cash Isa rate, for example, sits at just 1.7 per cent. Any money deposited into accounts offering interest rates below inflation will decline in value on a monthly basis.
Savers have now had to deal with over four years of tumbling rates – and the situation seems unlikely to improve in the near future.
Just yesterday Britain’s biggest building society, Nationwide, cut rates on a range of its savings products.
A major factor in the last 12 months for plunging rates is the Government’s Funding for Lending scheme, which is eroding the value of savings.

 

Banks are being offered cheap money by the Government under the scheme, so there is less incentive to offer high interest rates to attract deposits. And it has recently committed to continue the scheme.

UHY Hacker Young says before the Funding for Lending scheme was introduced, banks kept interest rates attractive to reel in savers.
But now the major high street banks no longer need to attract such deposits, and most of the banks have fallen out of the This is Money best buy savings tables altogether.
Mark Giddens, head of private client services at UHY Hacker Young, says: ‘Inflation is above target and the Bank of England is predicting further rises this year, and since interest rates remain very low, savers are suffering. You could be forgiven for summing up Bank of England policy as transferring wealth from savers in order to fund the banks.

‘The Government’s extension of Funding for Lending is bad news for savers because it could keep interest rates for bank accounts low.
'It is especially bad news for those savers such as the elderly, who need to draw on their savings in the short-term and so cannot afford to lock their money away in longer-term or higher risk investment products. They have no alternative but to sit and watch their savings melt away.'
UHY Hacker Young adds that the Bank of England’s Quantitative Easing programme has also played a significant part in the erosion of the value of savings, as it has ensured that the rate at which banks pay interest in order to attract deposits has remained exceptionally low. 

 WHAT NEXT?

- What next for interest rates?
- What next for savings rates?

...AND BANK DEPUTY GOVERNOR WARNS OF RISKS OF ANOTHER ECONOMY-BOOSTING SCHEME

The Bank of England’s deputy governor today warned about the dangerous risks of another government scheme to kick start the economy – Help to Buy.

The scheme could cause another financial crisis if used as more than just a short-term measure, Paul Tucker warned.

The scheme will guarantee home loans from January – shifting the risk of borrower default from lenders on to the state.
Loans up to the value of 15 per cent of the purchase price of any property will be guaranteed, up to the value of £600,000.
It is designed to get the property market moving again by helping people without huge deposits to get on to the property ladder.

But Paul Tucker told MPs a medium or long-term mortgage guarantee could inflate another property bubble.
‘This country has had an active housing market without a government subsidy. I'm absolutely sure that that structure helped brew the bubble that blew up the world in 2007 and 2008. This is not a market that needs a permanent subsidy.’

Middle-class rage sparks protest movements in Turkey, Brazil, Bulgaria and beyond

By Anthony Faiola and Paula Moura,June 28, 2013

View Photo Gallery - : Protest movements around the world: From Turkey to Brazil to Bosnia,…

As protests raged in Turkey and were set to explode in distant Brazil, Asen Genov sat in his office in Bulgaria’s capital on the cloudy morning of June 14, about to strike the computer key that would spark a Bulgarian Spring.
Only months earlier, public outrage over high electricity bills in the country had brought down a previous government, but Genov saw more reason for anger when the new administration tapped a shadowy media mogul to head the national security service. Furious, Genov posted a Facebook event calling for a protest in Sofia, the nation’s capital, though he was dubious about turnout for a demonstration focused not on pocketbooks but on corruption and cronyism in government.
“We made bets on how many would come. I thought maybe 500,” said Genov, a 44-year-old who helps run a fact-checking Web site.

But as he arrived in Sofia’s Independence Square, people were streaming in by the thousands, as they have every day since, with the snowballing protests aiming to topple the government.

“We are all linked together, Bulgaria, Turkey, Brazil. We are tweeting in English so we can understand each other, and supporting each other on other social media,” said Iveta Cherneva, a 29-year-old author in Sofia, who was one of the many people protesting for the first time. “We are fighting for different reasons, but we all want our governments to finally work for us. We are inspiring each other.”
Around the globe, this is the summer of middle-class discontent, particularly in the developing world. From Istanbul to Rio de Janeiro, from Bulgaria to Bosnia, the pent-up frustrations of an engaged citizenry are being triggered by a series of seemingly disparate events.
Government development of a park in Turkey has erupted into broad unrest over freedom of expression in a society that, under a devout and increasingly authoritarian leader, is witnessing the encroaching power of Islam. A hike in bus fares in Brazil, meanwhile, has touched off an uproar over official waste, corruption and police brutality. But what do they have in common? One small incident has ignited the fuse in societies that, linked by social media and years of improved living standards across the developing world, are now demanding more from their democracies and governments.
In the Bosnian capital of Sarajevo, thousands of furious residents across ethnic lines united on the streets this month, at one point blockading lawmakers inside parliament for 14 hours to protest government ineptitude in clearing a massive backlog of unregistered newborns. Public anger erupted after a Facebook posting — about a 3-month-old baby whose trip to Germany for a lifesaving transplant had been delayed by the backlog — went viral.
Thousands of protesters, including an outpouring of middle-class citizens, are expected Sunday in Cairo’s Tahrir Square. They return to the touchstone plaza of the Arab Spring in a nation that exchanged a dictator for what many Egyptians now see as a new government unwilling or unable to fix a corrupt bureaucracy and inefficient economy.

Indeed, on the heels of the Arab Spring, Spain’s “indignados” and the U.S. Occupy movement, some observers see a new class of protest emerging among the global citizenry. If the 1960s were about breaking cultural norms and protesting foreign wars, and the 1990s about railing against globalization, then the 2010s are about a clamor for responsive government, as well as social and economic freedom.
“These are a group of people who are better educated and more connected through technology,” said Robin Niblett, director of Chatham House, the London-based think tank. “In parts of the developing world, this is a new middle class, where the definition of success is not survival. It’s about quality of life, about future opportunity and freedom of expression.”
Solidarity in Brazil
Cecilia Siqueira de Oliveira, a 33-year-old design student living in the teeming Brazilian metropolis of Sao Paulo, had never seen herself as a street protester. Yet she found herself gripped by news this month of the uprising in Turkey. She was especially touched by a photo she’d seen from faraway Istanbul, of a man calmly playing the piano amid a huge throng of agitated demonstrators.
Posting the photo on her Facebook page, she wrote, “Wouldn’t it be good if Brazilians did that?”
A few days later, Brazil was on its feet.
A series of protests were playing out on Paulista Avenue, one block from her two-bedroom apartment. What was originally a movement against high bus fares was morphing into mass demonstrations against ingrained corruption, shoddy public services, high taxes and rising inflation.

Continued

1

2 Next

More Evidence That US Middle Class is Sliding Toward the Third World

by Paul Buchheit

A recent article by Les Leopold informed us that our nation is near the bottom of the developed world in median wealth, probably the best gauge for the economic strength of the middle class. The source of the information, the Global Wealth Databook, provides additional evidence of our decline from our once-lofty position as an egalitarian country with opportunities for nearly everyone.

The data is summarized below. Column 4 reveals that the U.S. is near the top of the developed world in average wealth, in good part because of its many millionaires (Col 8). Median wealth per adult, in Column 5, is much lower. As a sign of the distance between America's middle class and its national wealth, Column 6 shows that the ratio of median to mean in the U.S. is lower than in any country except Russia.

The impact of all this is shown in Column 7. Median-level adults in the U.S. get a smaller percentage of their nation's wealth than in any other country except China and India.

To view Column 7 in another way, a middle-class adult in Finland owns $122 for every billion dollars of his or her nation's wealth. In Canada it's $13. In the U.S. it's 60 cents. Only China (40 cents) and India (30 cents) give their middle-class adults less.

America's middle class is sliding out of the developed world and toward third-world status. Column 9 makes it clear. Among all the nations of the world with at least a quarter-million adults, only Russia, Ukraine, and Lebanon are more unequal in their wealth distribution. Most of the third world countries are, sad to say and hard to believe, fairer to their middle classes than we are.

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

The Federal Reserve Is Paying Banks NOT To Lend 1.8 Trillion Dollars To The American People

Source: Economic Collapse


Did you know that U.S. banks have more than 1.8 trillion dollars parked at the Federal Reserve and that the Fed is actually paying them not to lend that money to us?  We were always told that the goal of quantitative easing was to “help the economy”, but the truth is that the vast majority of the money that the Fed has created through quantitative easing has not even gotten into the system.  Instead, most of it is sitting at the Fed slowly earning interest for the bankers.  Back in October 2008, just as the last financial crisis was starting, Federal Reserve Chairman Ben Bernanke announced that the Federal Reserve would start paying interest on the reserves that banks keep at the Fed.  This caused an absolute explosion in the size of these reserves.  Back in 2008, U.S. banks had less than 2 billion dollars of excess reserves parked at the Fed.  Today, they have more than 1.8 trillion.  In less than five years, the pile of excess reserves has gottennearly 1,000 times larger.  This is utter insanity, and it will have very serious consequences down the road.
Posted below is a chart that shows the explosive growth of these excess reserves in recent years…

This explains why all of the crazy money printing that the Fed has been doing has not caused tremendous inflation yet.  Most of the money has not even gotten into the economy.  The Fed has been paying banks not to lend it out.
But now that big pile of money is sitting out there, and at some point it is going to come pouring in to the U.S. economy.  When that happens, we could very well see an absolutely massive tsunami of inflation.
Posted below is a chart that shows the growth of the M2 money supply over the past several decades.  It has been fairly steady, but imagine what would happen if you took the hockey stick from the chart above and suddenly added it to the top of this one…

The longer that the Federal Reserve continues to engage in quantitative easing and continues to pay banks not to lend that money out to the rest of us, the larger that inflationary time bomb is going to become.
In a recent article for the Huffington Post, Professor Robert Auerbach of the University of Texas explained the nightmarish situation that we are facing…

One reason that the excess reserves grew to an extraordinary level is that in October 2008, one month after the financial crisis when Lehman Brothers went bankrupt, the Bernanke Fed began paying interest on bank reserves. Although it has been 1/4 of 1 percent interest, this risk free rate was not low compared to the Fed’s policy of keeping short-term market rates near zero. The interest banks received was and is an incentive to hold the excess reserves rather than lend to consumers and businesses in the risky environment of the major recession and the slow recovery.
The Bernanke Fed is now facing a $1.863 trillion time bomb, they helped to create, of excess reserves in the private banking system. If rates of interest on income earning assets (including bank loans to consumers and businesses) rise, the Fed will have to pay the banks more interest to hold their excess reserves.

If interest rates move up dramatically (and they are already starting to rise significantly), banks will have an incentive to take that money out of the Fed and start lending it out.  Professor Auerbach suggests that this could cause an “avalanche” of money pouring into the economy…

Eighty five billion a month will seem tiny compared to the avalanche of the $1.863 trillion excess reserves exploding rapidly into the economy. That would devalue the currency, cause more rapid inflation and worry investors about a coming collapse.

So the Fed has kind of painted itself into a corner.  If the Fed keeps printing money, they continue to grossly distort our financial system even more and the excess reserves time bomb just keeps getting bigger and bigger.
But even the suggestion that the Fed would begin to start “tapering” quantitative easing caused the financial markets to throw an epic temper tantrum in recent weeks.  Interest rates immediately began to skyrocket and Fed officials did their best to try to settle everyone down.
So where do we go from here?
Unfortunately, as Jim Rogers recently explained, this massive experiment in financial manipulation is ultimately going to end in disaster…

I’m afraid that in the end, we’re all going to suffer perhaps, worse than we ever have, with inflation, currency turmoil, and higher interest rates.

The Fed and other global central banks have created the largest bond bubble in the history of the planet.  If the Fed ends quantitative easing, the bond market is going to try to revert to normal.
That would be disastrous for the global financial system.  The following is what Jim Willie told Greg Hunter of USAWatchdog.com…

Everything is dependent on Fed support. They know if they take it away, they’re going to create a black hole. The Treasury bond is the greatest asset bubble in history. It’s at least twice as large as the housing and mortgage bubble, maybe three or four times as large.

But even if the central banks keep printing money, they may not be able to maintain control over the bond market.  In fact, there are already signs that they are starting to lose control.  The following is what billionaire Eric Sprott told King World News the other day…

It’s total orchestration. And it’s orchestration because they might have lost control of the bond market. I find it such a juxtaposition that central banks on a daily basis buy more bonds today than they ever purchased, and interest rates are going up, which is almost perverted. I mean how can that happen?
They’ve lost control of the market in my mind, and that’s why they are so desperately trying to get us all to forget the word ‘taper.’ In fact, we probably won’t even hear the word ‘taper’ anymore because it has such a sickening reaction to people in the bond market, and perhaps even people in the stock market. They will probably do away with the word. But the system is totally out of control. And then we’ve got this quadrillion dollars of derivatives. It just blows blows my mind to think about what could really be going on behind the scenes.

Sprott made a really good point about derivatives.
The quadrillion dollar derivatives bubble could bring down the global financial system at any time.
And remember, interest rate derivatives make up the biggest chunk of that.  Today, there are 441 trillion dollars of interest rate derivatives sitting out there.  If interest rates begin skyrocketing at some point, that is going to create some absolutely massive losses in the system.  We could potentially be talking about an event that would make the failure of Lehman Brothers look like a Sunday picnic.
We are moving into a time of great financial instability.  People are going to be absolutely shocked by what happens.
Our financial system is a house of cards built on a foundation of risk, leverage and debt.  When it all comes tumbling down, it should not be a surprise to any of us.