The Ice-Nine Scenario

In a 1963 comedy novel, a scientist created a substance called ice-nine. Ice-nine was a poly morph of water, a rearrangement of the molecule H2O. Ice-nine has two properties that distinguish it from regular water. The first was that ice-nine was frozen at room temperature. The second was that when a molecule of ice-nine came in contact with a water molecule, the water molecule instantly turned to ice-nine. When ice-nine water was released into a large body of water, the entire water supply on earth – from rivers, lakes and oceans – would eventually become frozen solid and all life on earth would cease.

Ice-nine is a fine way to describe the power elite response to the next financial crisis. Instead of re-liquefying the world, elites will freeze it. The system will be locked down.

Ice-nine fits with an understanding of financial markets as complex dynamic systems. An ice-nine molecule dies not freeze an entire ocean instantly. It freezes only the adjacent molecules. These new ice-nine molecules freeze others in ever-widening circles. The spread of ice-nine would be geometric, not linear.

Financial panics spread in the same way. It normally starts with a run on a small bank. The panic spreads until it hits Wall Street and starts a stock market crash. Today, panic starts in a computer system, which triggers pre-programmed sell orders that cascade into other computers until the system spins out of control. Risk managers use the word “contagion” to describe the dynamics of financial panic. In a financial panic, printing money is a vaccine. If the vaccine proves ineffective, the only solution is quarantine. This means closing banks, stock and commodity markets, and money market funds, shutting down ATMS, and ordering asset managers not to sell securities. Elites are preparing for a financial ice-nine with no vaccine. They will quarantine your money by locking it inside the financial system until the contagion subsides.

 Ice-nine is hiding in plain sight. Those who are not looking for it cannot see it. Once you know ice-nine is there, you see it everywhere.

The elite ice-nine plan is far more ambitious than any plan before it. Ice-nine goes beyond banks to include insurance companies, industrial companies and asset managers. It went beyond orderly liquidation to include a freeze on transactions. Ice-nine would be global rather than case-by-case. The best known cases of elites freezing customer funds in recent years were the Cyprus banking crisis in 2012 and the Greek debt crisis in 2015. In Cyprus and Greece, matters came to a head and banks blocked depositors from their own money. The Cyprus model was called a “bail-in”. Instead of bailing out depositors, the troika used depositors’ money to recapitalize the failed banks. A bail-in reduced rescue costs to the troika, especially Germany.

Investors around the world shrugged and treated Cyprus as a one-off event.  Depositors in more advanced countries forgot the incident and adopted an attitude that said, “It can’t happen here”. They could not have been more wrong. The 2012 Cyprus bail-in was the new template for global bank crisis.

A G20 summit of world leaders met in Brisbane, Australia in November 2014, shortly after the Cyprus crisis. A new regulator was established by the G20, and was not accountable to the citizens of any member country. This was the Financial Stability Board, or the FSB.

The FSB issued a report that provides the template for future bank crisis. The report says bank losses “should be absorbed by unsecured and secured creditors.” In this context “creditor” means depositor.

The Elite’s New Rules

The Brisbane G20 ice-nine plans were not limited to bank deposits. That was just a beginning. On July 23, 2014, the US SEC approved a new rule that allows money market funds to suspend investor redemptions. Now money market funds could act like hedge funds and refuse to return investor money. In the next financial panic, not only will your bank account be bailed-in, your money market account will be frozen. Ice-nine gets worse.

 The War on Cash & Negative Interest Rates

One solution to ice-nine asset freezes is to hold cash and gold coins. Cash consists of $100 bills, E500 notes, or Swiss Fr1000 notes. These are the highest denominations available in hard currency.  Gold coins consist of various gold coins such as South African Kruger Rands, American Gold Eagles, Canadian Maple Leafs, or other widely available coins. Obtaining cash and coin in this fashion allows people to survive ice-nine account freezes. Global elites understand this, which is why they have started a war on cash. Eliminating cash helps the suppression of alternative markets.

The second reason for eliminating cash is to improve negative interest rates. Central banks are in a losing battle against deflation.  Deflation occurs when the price of goods go down. This is because there is excess production capacity and consumer demand is down. Manufacturers reduce prices to sell goods and reduce wages, so labor costs are down. Overall effect is a reduction in prices. This is deflation – a banker’s worst nightmare. One way to defeat deflation is to promote inflation with negative real interest rates.

A negative real interest rate occurs when the inflation rate is higher than the nominal interest rates on borrowings. If inflation is 4 % and the cost of money is 3%, then the real interest rate is negative 1 % (3-4= -1). Inflation erodes the dollar’s value faster than interest accrues on the loan. The borrower gets to pay back the bank in cheaper dollars. Negative real rates are better than free money because the bank pays the borrower to borrow. Negative real rates are a powerful inducement to borrow, invest and spend which feeds inflationary tendencies and offsets deflation. Negative interest rates are easy to implement inside a digital banking system. The banks program their computers to charge money on your balances, instead of paying you. If you put $100,000 on deposit and the interest rate is negative 1%, then at the end of the year you have $99,000 on deposit. Part of your money disappears.

Savers can fight negative real rates by going to cash. So, negative real interest rates can work only in a world without cash. Savers must be forced into an all-digital system before negative interest rates are imposed. Large depositors have no recourse against negative interest rates unless they invest their cash in stocks and bonds. That’s exactly what the elites want them to do. The elite drumbeat against cash and in favor of negative interest rates is deafening.

In South Africa, like many other parts of the western world, there is a concerted campaign by the banks to induce people to use their cards instead of cash. A variety of incentives are offered to the consumers. These take the form such as “cash back”, or to “gain points “which can be redeemed at various stores, and similar variations. It is costing the banks a pretty penny, but what they lose now, would be gained many-fold when the crunch comes. The war on cash and the rush to negative interest rates are advancing in lockstep, two sides of the same coin.

Before cattle are led to slaughter, they are herded into pens so they can be easily controlled. The same is true for savers. To freeze cash and impose negative interest rates, savers are being herded into digital accounts at a smaller number of megabanks. Today, the 4 largest banks in the US (Citi, JP Morgan Chase, Bank of America, and Wells Fargo) are bigger than they were in 2008, and control a larger percentage of the total assets of the US banking system.  These 4 banks were originally 37 separate banks in 1990, and were still 19 separate banks in 2000. What was too big to fail in 2008 is bigger today.

The ice-nine plan does not stop with savers. Ice-nine also applies to the banks themselves. In November 2014, the FSB issued proposals to require the 20 largest globally systemic important banks to issue debt that could be contractually converted to equity in the event of financial distress.  Such debt is an automatic ice-nine bail-in for bondholders that require no additional action by the regulators.

In that fictional novel, the ice-nine threatened every water molecule on earth. The same is true for financial ice-nine. If regulators apply ice-nine to bank deposits, there will be a run on money market funds. If ice-nine is applied to money market funds, the run will move to bond markets. If any market is left outside the ice-nine net, it will immediately become the object of distress selling when the other markets are frozen. In order for the elite plan to work, it must be applied to everything.

Not only are speculative derivatives now legally enforceable, but under the Bankruptcy Act of 2005, derivative security enjoy special protections. Most creditors are “stayed” from enforcing their rights while a firm is in bankruptcy, but many derivative contracts are exempt from these stays. Similarly derivative claimants have “super-priority” in the bankruptcy of a financial institution. They are privileged to claim collateral immediately without judicial review, before bankruptcy proceedings even begin. Depositors become “unsecured creditors” who can recover their funds only after derivative, repo and other secured claims, assuming there is anything left to recover, which in the event of a major derivative crisis would be unlikely. That’s true not only of the deposits in a bankrupt bank but of stocks, bonds and money market funds held by a broker/dealer that goes bankrupt. The customers who purchased the assets have only a “security entitlement,” a weak contractual claim to a pro rata share of a residual pool of fungible assets all held in the name of Cede & Co., the proxy of the Depository Trust and Clearing Corp. (DTCC).  What we used to think of as a bank bail-in where they take your deposit in order to support a failing bank, that is now spread across the entire financial economy where whatever you have in an account anywhere can just disappear, because they’re going to transfer ownership of it to these big dominant entities out there in the financial system that need those assets in order to keep from blowing up. Yet all this is to allow the big international banks to run the largest derivatives casino that the world has ever seen. The exchanges are supposed to be safer than private over-the-counter trades because the exchange steps in as market maker, accepting the risk for both sides of the trade. But in a general economic depression, the exchanges themselves could go bankrupt.

The ice-nine solution even applies to countries. Nations can freeze investor funds with capital controls. A dollar investor in a non-dollar economy relies on the local central bank for dollars if she wants to withdraw her investment. A central bank can impose capital controls and refuse to allow the dollar investor to reconvert local currency and remit the proceeds.

Then we have the humble ATM. Consumers have been lulled into believing cash is readily available by swiping their bank cards at these cash machines. Is it really? ATMs are programmed to limit withdrawals on a daily basis. If the daily limit is $1000, banks can easily program the machines to drop the limit to $300, enough for some food and petrol. It’s even easier to turn off the machines, as happened in Cyprus in 2012 and Greece in 2015. This overview shows stock exchanges can be closed, ATMs shut down, money market funds frozen, negative interest rates imposed, and cash denied, all within minutes. Your money may be like a jewel in a glass case at Cartier; you can see it but not touch it. Savers do not realize the ice-nine solution is already in place, waiting to be activated with an executive order, a few phone calls, and the tapping of a few computer clicks.

Financial repression is the art of keeping inflation slightly higher than interest rates for an extended period. The old debt burden melts from inflation while new debt is constrained by low rates. Just a 1% difference between inflation and rates, cuts the real value of the debt by 30% in 20 years. By 1965, the US debt-to-GDP ratio was down to 40%. The dollar’s value dropped so slowly that there seemed no cause for public alarm. It was like watching an ice cube melt. It happens, yet slowly.

There were few financial crises between 1945 and 1965. Russia and China were not yet integrated with the global financial system. Africa was barely a blip on the global scale. Emerging Asia had not yet emerged, and India’s stagnant. Latin America was under US domination. As long as oil flowed, only Europe, Japan, and Canada mattered to Washington, and they were locked in to the Bretton Woods system. No ice-nine solution was imposed because it already existed. The US controlled over 50% of the world’s gold, as well as the dollar – the only forms of money that mattered. Beginning in 1965, the Bretton Woods system began to wobble badly. The system suffered combined blows from US inflation, sterling devaluation, the costs of the Vietnam War, and a run on US gold. Washington refused to make structural changes or to revalue gold. Over the next 5 years many countries with surplus dollars began cashing them in for gold. A full-scale run on Fort Knox ensued.

In the most famous example of an ice-nine solution in the 20^th century, President Nixon closed the gold window on August 15, 1971. It was no longer possible for US trading partners to exchange dollar reserves for gold at a fixed price. Nixon put up a “HOUSE CLOSED” sign for the world to see.

A typical reaction to the ice-nine overview is that it seems extreme. History shows the opposite. Closed markets, closed banks, and confiscation have been a regular occurrence. A survey of financial panics in the past 110 years beginning with the Panic of 1907 shows banks and exchange closures with losses by depositors and investors are usual. A typical reaction to the ice-nine overview is that it seems extreme. History shows the opposite. Closed markets, closed banks, and confiscation have been a regular occurrence. A survey of financial panics in the past 110 years beginning with the Panic of 1907 shows banks and exchange closures with losses by depositors and investors are usual.

The Money Riots

The period from 1971 to 1980 in international finance is best described as chaotic. Equilibrium was disturbed. Values wobbled violently. In this brave new world of elastic money and zero gold, ice-nine solutions were no longer needed. If panicked savers wanted their money back, there was no need to close the system – you could print money and give it back to them.

The ice-nine process had been reversed. With floating exchange rates, an ice age ended, and the world was awash in a sea of liquidity. There was no problem that could not be solved with low rates, easy money, and more credit. Easy money did not end financial crisis; far from it. There was a Latin American debt crisis in 1982, a Mexican peso crisis in 1994, an Asian – Russian financial crisis in 1997-98 , and the 2007-2009 global financial crisis. In addition, there were market panics in October 1987, in April-June 2000 and September 2001. What was new was that none of these crisis involved widespread bank defaults or closures. Without a gold standard, money was now elastic. There was no limit to the liquidity central banks could provide through money printing, guarantees, swap lines, and promises of extended ease called forward guidance. Money was free, or nearly free, and available in unlimited quantities.

This new system was not always neat and tidy. Investors suffered losses on their real value of their principal in the 1870s and 1980s. Still, the system itself stayed afloat.  Washington solved the Latin American debt crisis by issuing bonds. The IMF and the FED provided rescue funds in the 1997-98 crises. The crisis began with the Thai currency in July 1997. The IMF gave emergency loans to Korea, Indonesia, and Thailand in the first phase of that global liquidity crunch. The crisis eased off by May 1998, then burst into flames in August. Russia defaulted on its debts and devalued the ruble.  The IMF prepared a financial firewall around Brazil, and then looked as the next domino to fall. The world was shocked to learn the next domino was not a country, but a hedge fund – Long Term Capital Management (LTCM). The IMF had no authority to bail out a hedge fund. The task was left to the Federal Reserve Bank of New York (the FED), which supervised the banks that stood to fail if LTCM defaulted. A month later, in September 1998, the Fed cobbled together a $4 billion bailout to stabilize the fund. Once the bail-out was closed, the FED assisted banks with an interest rate cut, the next day. Bond markets got the message, and normalized. The Dow Jones went up by nearly 5 %.

The new practice of papering over recurrent crisis peaked in October 2008, when Washington guaranteed every bank deposit and money market fund in America. The FED printed trillions of dollars to prop up American banks and arranged tens of trillions of dollars of currency swaps with the ECB. The ECB needed those dollars to prop up the European banks. Unlimited liquidity worked. The storm passed, markets stabilized, economies grew, and asset prices reflated. By 2016, the policy of flooding the world with liquidity was widely praised. Extraordinary policy measures used in 2008 had mostly not been unwound by 2017. Central bank balance sheets were still bloated. Swap lines from the FED to the ECB were still in place. Global leverage had increased. Sovereign debt-to-GDP ratios were higher. Losses loomed in sovereign debt, junk bonds, and emerging markets. Derivatives passed the one quadrillion (one thousand trillion) in notional value – more than 12 times global GDP. 

Global elites gradually realized their monetary ease had simply spawned new bubbles rather than affording a sound footing. The stage was set for another collapse and the elites knew it. Now they doubted their ability to run the same playbook. The FED expanded its balance sheet from $800 billion to $4.3 trillion by 2015 to quench the 2008 crisis. What would it do the next time? A comparable percentage increase would leave the balance sheet at $20 trillion, equal to the GDP of America. Other central banks faced the same dilemma. Their hope had been that economies would resume self-sustained growth at potential output. Then central banks could withdraw policy support and go to the sidelines. That didn’t happen. Instead growth stayed weak. Markets looked to central banks to keep the game going with easy money. Seven years of complacency had lulled markets to sleep regarding risks of leverage. By early 2014, elites began to sound the alarm. The Bank of International Settlements (BIS) is the central bank for the globes many central banks. It is the mother of central banks. And it is a Rothschild entity. The BIS began to issue many warnings. A financial think tank in Geneva offered this shocking synopsis:

“ – – – the global economy is not yet on a deleveraging path. Indeed, the ratio of global total debt over GDP has kept increasing and breaking new highs.” The report referred to the impact of excessive debt on the world economy as “poisonous.”

These warnings emerged in 2014 as it became clear monetary ease would not restore growth. This first wave of warnings was followed by more explicit warnings in annual reports and meetings for subsequent years. Expansion of leverage, asset values, and derivatives volumes continued unabated.

The warnings were not for investors, most of whom are not familiar with the agencies involved and the technical jargon used. These warnings were intended for the small number of elite experts who read them. Elites were not warning everyday citizens; they were warning one another. The BIS, IMF, G20, and other international monetary agencies were issuing warnings to a small group of finance ministers, sovereign wealth funds, banks and private funds such as Blackrock. They were given time to adjust their portfolios and avoid losses that would overtake the small investor. The elites were also laying a foundation so when crisis struck they could credibly say, “I warned you”. This despite the fact that most investors scarcely knew of the warnings when they were sounded. This foundation makes it easier to enforce the ice-nine solution. Because investors ignored clear warnings, they would have no one to blame but themselves.

By late 2016, the stage was set. Systemic risk had grown to alarming levels.  The symptoms were seen in the financial systems of the US, Europe, Japan, and China. The ice-nine apparatus was ready to seize the largest global banks, freeze money market funds, close exchanges, limit cash, and order money managers to suspend redemptions by clients.  THE GLOBAL FINANCIAL SYSTEM WOULD BE LOCKED DOWN! Only one question remained. Would ice-nine work? There was no doubt about government’s capacity to impose ice-nine. Still, would citizens give in as they had previously, or would there be a descent to disorder? If money riots broke out, authorities in the western world were prepared for that too.

The US has been under a state of emergency since September 14, 2001. The state of emergency grants the American president extraordinary powers, including martial law. Similar laws have been passed in Canada, Europe, Australia, New Zealand, Japan, and India. This is not the stuff of conspiracy theorists.

The use of these emergency powers and martial law is a more coercive version of the ice-nine plans to freeze accounts in place. Ice-nine is intended to buy time and restore calm while elites work on plans to allocate losses and reliquify the system. If events spin out of control faster than elites expect, more radical measures may be needed. Such measures may involve property confiscation. If resistance is encountered, martial law backed up by militarized police will carry out the orders of the head of state.

Emergency powers will not be used in a containable financial crisis of the kind we saw in 1998 and 2008. Yet that is not the kind of crisis we are facing. The next financial crisis will be exponentially larger, and impossible to contain without extraordinary measures. As the next crisis begins, and then worsens, measures described here will be rolled out, one by one. First comes asset freezes and exchange closures. Then confiscation backed up by armed force. The question arises – will everyday citizens stand for it?

During the 1997-98 global financial crisis, riots in Indonesia and Korea left many dead. There was blood in the streets.  Since the 2008 financial crisis, there have been violent protests in Greece, Spain and Cyprus that have resulted in many deaths. In the next crisis, as confiscatory solutions are employed, the popular response is likely to involve resistance. Elites are prepared for this also.

Washington has a classified plan for continued operations of the government during attack, financial collapse, or natural disasters. This combination of emergency facilities and powers means that the US government is ready for a catastrophe. The American people are not. And exactly the same sort of emergency facilities and emergency powers have been put into place by all the western governments – and done very quietly.

A global financial crisis, worse than any before is imminent. A liquidity injection of the kind seen in 1998 and 2008 will not suffice because central bank balance sheets are stretched. There will be little time to respond. Ice- nine account freezes will be used to buy time, but investors will grow impatient with ice-nine. They will want their money back. The money riots will begin. Governments would not go down without a fight. The response to money riots will be confiscation and brute force. Governing elites will be safe in their heavily guarded mountain, or island retreats, or heavily fortified gated communities. No doubt about it, a global financial lock down will be followed by blood in the streets.  There is no force on earth that can stop the desperation of a hungry stomach. Are you ready for this? Are you making preparations for this?

The Greater U.S. Threat

There is a real threat of a 2024 “black swan” event that could pop the derivatives bubble. That bubble is now over ten times the GDP of the world and is so interconnected and fragile that an unanticipated crisis could trigger the collapse not just of the bubble but of the economy. To avoid that result, in the event of the bankruptcy of a major financial institution, derivative claimants are put first in line to grab the assets — not just the deposits of customers but their stocks and bonds. This is made possible by the Uniform Commercial Code, under which all assets held by brokers, banks and “central clearing parties” have been “dematerialized” into fungible pools and are held in “street name.” That sort of bomb just detonated in the Chinese stock market, contributing to its fall; and the result could be much worse in the U.S., where the stock market plays a much larger role in the economy.

The Chinese Derivative Crisis

 “Chinese stocks’ brutal start to the year is being at least partly blamed on the impact of a relatively new financial derivative known as a snowball. The products are tied to indexes, and a key feature is that when the gauges fall below built-in levels, brokerages will sell their related futures positions.”

  China’s plunging stock market is leading to losses on billions of dollars’ worth of derivatives linked to the country’s equity indexes, fuelling further selling as retail investors offload their positions…. Snowball products are similar to the index-linked products sold in the 2008 financial crisis, with investors

The Chinese stock market is much younger and smaller than that in the U.S., with a much smaller role in the economy. Thus China’s economy remains relatively protected from disruptive ups and downs in the stock market. Not so in the U.S., where speculating in the derivatives casino brought down international insurer AIG and investment bank Lehman Brothers in 2008, triggering the global financial crisis of 2008-09. AIG had to be bailed out by the taxpayers to prevent collapse of the too-big-to-fail derivative banks, and Lehman Brothers went through a messy bankruptcy that took years to resolve.

 Derivatives were at the heart of the financial crisis of 2007 and 2008, and whenever the next financial crisis happens, derivatives will undoubtedly play a huge role once again…. Today, the world financial system has been turned into a giant casino where bets are made on just about anything you can possibly imagine, and the major Wall Street banks make a ton of money from it; and if the bets go wrong, then the banks lose a ton of money.  The system … is totally dominated by the big international banks.

 Currently, U.S. financial transactions (the financialized economy) are over $7.6 quadrillion, more than 350 times the U.S. national income (the productive economy).

The practice of holding assets in street name has proven very lucrative for the DTCC’s member brokers and banks, as it facilitates short selling and the “re-hypothecation” of collateral. If your broker … were to go bankrupt, the broker’s secured creditors (the people to whom the broker owes money) would be empowered to take the investments that you paid for in order to settle outstanding debts…. At the risk of oversimplifying it, is a warning that a virtually unknown entity called “The Depository Trust & Clearing Corporation” (DTCC) is effectively the “owner” of all the publicly traded companies in the world, and in fact all debt-based assets of any kind:

It is about the taking of collateral (all of it), the end game of the current globally synchronous debt accumulation super cycle. This scheme is being executed by long-planned, intelligent design, the audacity and scope of which is difficult for the mind to encompass. Included are all financial assets and bank deposits, all stocks and bonds; and hence, all underlying property of all public corporations, including all inventories, plant and equipment; land, mineral deposits, inventions and intellectual property. Privately owned personal and real property financed with any amount of debt will likewise be taken, as will the assets of privately owned businesses which have been financed with debt.”

Over the course of a 50-year process by which ownership of shares in public companies, and all debt collateral has been “dematerialized”. In the olden days, you invested in a company – they gave you physical share certificates – and you were now part owner of the company. This is still how many value investors including me think of stock ownership. We don’t own small pieces of these companies, we own claims on those pieces, because – over the course of decades, through the exigencies of ever-increasing trading volumes, combined with the machinations behind the scenes of diabolical manipulators – stock ownership has been supplanted by “security entitlements”.

When the debt super-cycle culminates in its ultimate blow up; the trap will be sprung, and actual ownership over all these companies and assets will be subsumed by the clearing houses. An infinitesimal cadre of elites will effectively own everything, and the masses of the world will be reduced to serfdom.

Which sounds familiar; “you will own nothing, and be happy”-the infamous motto from the Davos crowd.  It’s the mother of all wealth transfers, one that makes the ongoing wealth transfer of inflation and the – or the sharp shock heists that occur during every crisis from the dot-com bust through the GFC to the Covid Panic seem tame.

 We have now reached a turning point, because for the first time the rulers are directly challenged.  In this, the world majority and the majorities in minority countries can find some common ground. And this is where the further transformation of the global space will receive a powerful impetus.

This story continues in Part 3 – The BIS & The rush to digital currencies-herding mankind into an electronic prison camp.