Finance & Economics

Rising rates = Financial Implosion

The US

The North American region is in a more fortunate position than Europe. It has enough energy, raw materials and food to reduce its reliance on imports. It is mainly in manufacturing that the US has fallen way behind. In 1980, manufacturing was nearly 75-80% of the economy; and in 2023, it has been reduced to nearly 10-15%. This is not sustainable.

The problems plaguing the EU in 2022 will rear its ugly head in the US in 2023. The major issue revolves around money.

When the world began losing confidence in the US dollar and money began fleeing Wall Street, the US Fed began to raise interest rates, in order to maintain confidence in the dollar. This has led to other central banks raising their rates, in a race to the bottom. Interest rates went up from 0.5 % to nearly 5% within a year.  As the world begins to de-dollarize by using their own currencies in trade, these “unwanted dollars” are returning to the US. Since the US imports nearly 80-85 % of what it consumes, it becomes clear that the increase in dollar supply chasing fewer goods ensures that inflation will not stop. As the FED increases rates, it is guaranteeing the destruction of its internal economy,   in order to protect the “international confidence” in the dollar.

With the open alliance of Russia and China, the peace deals breaking out in the Middle East, with African leaders meeting in Moscow, there is a tectonic shift in perceptions. This is igniting a furious de-dollarisation as of today. Gold is rising in prices, and so are general commodities. This is causing its own problems. As the investing world witnesses the carnage moving from Wall Street onto Main Street, many companies are reducing staff, reducing their size, and, in many cases, going bankrupt. Making things worse, the financial system, mainly banks, are experiencing turbulence due to rising rates and loan defaults.

Many of the readers of this site will know that the financial system is beyond broke. We have been saying this since the early 2000s. The 2008 Wall Street crash was evidence of this. The 2019 Repo Crisis on Wall Street led to the Rockefeller family initiating the global economic lockdown in March 2000, which came to be known as the Covid Saga. This mad scheme was meant to save the banks and the financial system, at the expense of the global economy and its citizens. These 2 families have always followed the policy of: – “What’s mine is mine- what’s yours is negotiable “.

The Fed would continue to raise interest rates, and probably with larger increases than the markets had expected. As the process of de-dollarization is gathering steam – due to the lost trust in the dollar system, hundreds of billions of unwanted dollars are returning to the US. These “surplus “dollars are chasing fewer goods, which pushes up inflation. The Fed has no choice but to keep raising rates to “maintain “confidence in the dollar. It is not going to work! Inflation is sky-rocketing, and, with the Fed’s desperate moves, there is no end in sight.

This is the consequences of policies from the Rockefeller Empire, starting in 1965. The family refused to devalue the dollar against its major trading partners, with the result that the internal American inflation was “exported”. The result was that within the US, prices were artificially “suppressed”, while the rest of the globe ended up with inflation.  Now, 57 years later, the tide is turning. Inflation rates are increasing within the US, while in the rest of the world, the rate of increase is slowing, and soon, inflation will decrease; this depends on the velocity of de-dollarisation. The American people have to now pay the “true cost” of goods, now that the dollar is out of fashion. This trend will accelerate.  The Dow Jones plunged in response. The dollar soared on Forex markets, indicating serious capital flight out of other countries, especially the developing sector. And the ECB, the Swiss and other central banks indicated they would be following suit. The impact that these tightening moves will have on the grossly over-extended international speculative bubble of $2 quadrillion will be dramatic—with whole chunks of the “everything bubble” likely to go belly-up. One leading candidate is the global commodity market, which has reportedly been subjected to growing margin calls as interest rates have inched up.

Derivative-Induced Bank Collapses

Silvergate Capital Corp. in San Diego, a small bank with about $14 billion in assets, failed on March 8, and is being liquidated. Silvergate had become a cryptocurrency-dominated bank, as to its deposits and loans.

Silicon Valley Bank in Santa Clara, California was shut down on March 10.  This bank had $212 billion in assets, was among the top 20 U.S.-based banks.Silicon Valley Bank is one where most depositors are tech startups which deposit their venture capital loans there; and because of the current “tech swoon” of mass layoffs and cutbacks, these startups are not getting any more venture capital and are spending through what they have; i.e., pulling deposits out of Silicon Valley Bank.

And now a third bank, Signature Bank of New York, with $110 billion in assets at the end of 2022, is suffering a collapse in its stock value, and also in the value of its bonds, to less than 60 cents on the dollar. This is another bank with a lot of cryptocurrency deposits.

 “Creditors” are defined to include depositors, but deposits under $250,000 are protected by FDIC insurance. However, the FDIC fund is sufficient to cover only about 2% of the $9.6 trillion in U.S. insured deposits. To avoid a nationwide crisis triggering bank runs across the country, which  would wipe out the fund, causing all banks to shut down, Washington guaranteed all deposits. It sounds insane, but it is not. There is evil in this design, and it will better explained 2 articles from now, titled “They Are Coming For Your Money!”.

As of the third quarter of 2022,  a total of 1,211 insured U.S. national and state commercial banks and savings associations held derivatives, but 88.6% of these were concentrated in only four large banks: J.P. Morgan Chase ($54.3 trillion), Goldman Sachs ($51 trillion), Citibank ($46 trillion), Bank of America ($21.6 trillion), followed by Wells Fargo ($12.2 trillion). Unlike in 2008-09, when the big derivative concerns were mortgage-backed securities and credit default swaps, today the largest and riskiest category is interest rate products.

The original purpose of derivatives was to help farmers and other producers manage the risks of dramatic changes in the markets for raw materials. But in recent times they have exploded into powerful vehicles for leveraged speculation (borrowing to gamble). In their basic form, derivatives are just bets – a giant casino in which players hedge against a variety of changes in market conditions (interest rates, exchange rates, defaults, etc.). They are sold as insurance against risk, which is passed off to the counterparty to the bet. But the risk is still there, and if the counterparty can’t pay, both parties lose. In “systemically important” situations, the government winds up footing the bill.

Like at a race track, players can bet although they have no interest in the underlying asset (the horse). This has allowed derivative bets to grow to many times global GDP and has added another element of risk: if you don’t own the barn on which you are betting, the temptation is there to burn down the barn to get the insurance. The financial entities taking these bets typically hedge by betting both ways, and they are highly interconnected. If counterparties don’t get paid, they can’t pay their own counterparties, and the whole system can go down very quickly, a systemic risk called “the domino effect.”

Derivatives were at the heart of that crisis. Lehman Brothers was one of the derivative entities with bets across the system. So was insurance company AIG, which managed to survive due to a whopping $182 billion bailout from the U.S. Treasury

Risks Hidden in the Shadows

Derivatives are largely a creation of the “shadow banking” system, a group of financial intermediaries that facilitates the creation of credit globally but whose members are not subject to regulatory oversight.

 “This banking system (the “shadow” or “parallel” banking system) – repo based on securitization – is a genuine banking system, as large as the traditional, regulated banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend and credit, which is essential for job creation, will not be created.” In the normal daily operations, to cover temporary shortfalls, banks still need liquidity ; and for that they largely rely on the repo market, which has a daily turnover just in the U.S. of over $1 trillion. Since 2008, the derivatives market was built on cheap repo credit. But interest rates have shot up and credit is no longer cheap, even for financial institutions.

 At the end of this month- March 2023, $80 trillion in foreign exchange derivatives that are off-balance-sheet are about to reset (roll over at higher interest rates). The dilemma of our current banking system is that lenders won’t advance the short-term liquidity needed to fund repo loans without an ironclad guarantee; but the guarantee that makes the lender’s money safe makes the system itself very risky. When a debtor appears to be on shaky ground, there will be a predictable stampede by favored creditors to grab the collateral, in a rush for the exits that can propel an otherwise-viable debtor into bankruptcy; and that is what happened to Lehman Brothers. Derivatives were granted “safe harbor” because allowing them to fail was also considered a systemic risk. It could trigger the “domino effect,” taking the whole system down. But the problem with repealing it now is that we will get the domino effect, in the collapse of both the quadrillion dollar derivatives market and the more than trillion dollars traded daily in the repo market. Compounding matters, there is the issue of the “shadow banks”. These are unregulated, and weakly capitalized. Many are expecting “unexpected disasters” emanating from this sector.

Finally, with rising interest rates, a global dollar shortage has hit. This has forced many holders of US Treasury bills to be dumped for cash. But, it seems that this has not solved the issue. So now the global central banks are lining up to borrow dollars from the FED. The cost is around 4% to borrow these dollars. We will explain the consequences of these in our next article.

The Interest Rate Shock

Interest rate derivatives are particularly vulnerable in today’s high interest rate environment. From March 2022 to February 2023, the prime rate shot up from 3.5% to 7.75%, a radical jump-  an “interest rate shock.” It won’t really hit the market until variable-rate contracts reset, but $1 trillion in U.S. corporate contracts are due to reset this year, another trillion next year, and another trillion the year after that. A few bank bankruptcies are manageable, but an interest rate shock to the massive derivatives market could take down the whole economy.

Rising interest rates could burst the derivatives bubble and cause massive bankruptcies around the globe. Of course there are a whole lot of people out there that would be quite glad to see the “too big to fail” banks go bankrupt, but the truth is that if they go down, our entire economy will go down with them. … Our entire economic system is based on credit, and just like we saw back in 2008, if the big banks start failing, credit freezes up and suddenly nobody can get any money for anything.

Alternative Solutions

The price of gold would be a yardstick for valuing national currencies, and physical gold could be used as a settlement medium to clear trade balances. The current financial system is fragile, volatile and vulnerable to systemic shocks. It is due for a reset, but we need to ensure that the system is changed in a way that works for the people whose labor and credit support it. Our hard-earned deposits are now the banks’ only source of cheap liquidity. We can leverage that power by collaborating in a way that serves the public interest.

Rising interest rates cause bond prices to fall.  Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets against depositors.

Any bank has a problem of keeping its asset prices up with its deposit liabilities. When there is a crash in bond prices, the bank’s asset structure weakens. That is the corner into which the Fed has painted the economy.

Recognition of this problem led the Fed to avoid it for as long as it could.  And it has turned into a war against the banking system as well. It has reached a point, today, the 25th of March 2023, that the US Fed and the Rockefeller family are waging a titanic battle with the entire structure of European banking and finance- which is under Rothschild control. More on this situation in the near future.

All banks had seen the market price of their financial securities decline as the Fed ups rates. And now, their deposits were being withdrawn, forcing them to sell securities at a loss. Reuters reported on March 10 that bank reserves at the Fed were plunging. That hardly is surprising, as banks are paying about 0.2% on deposits, while depositors can withdraw their money to buy two-year U.S. Treasury notes yielding 3.8% or almost 4%. No wonder well-to-do investors are running from the banks. And, worse for the FED, investors are jumping into gold, as witnessed by the current upward trajectory of gold and silver prices.

This is the quandary in which banks – and behind them, the Fed – find themselves. And with it came a source of turmoil that has reached vast magnitudes beyond what caused the 2008 crash of AIG and other speculators: derivatives. JP Morgan Chase and other New York banks have tens of trillions of dollars’ worth of derivatives – that is, casino bets on which way interest rates, bond prices, stock prices, and other measures will change. For every winning guess, there is a loser. When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity.

Financial Collapse? It’s the Derivatives, Stupid!

Feverish emergency meetings of financial authorities are underway on both sides of the Atlantic this weekend, as the owners of the thoroughly bankrupt trans-Atlantic financial system scramble to prevent their entire system from blowing out. The reason can be summed up in a single word: derivatives.

The imminent collapse of Credit Suisse, one of Switzerland’s most venerable banking institutions, founded 167 years ago in 1856, is causing at least as much panic across the entire trans-Atlantic financial sector as the March 10 bankruptcy of Silicon Valley Bank, and the imminent blowout of First Republic Bank, both of California. That’s because the collapse of Credit Suisse threatens to blow out the entire trans-Atlantic financial derivatives bubble.

First, look at the big picture with derivatives. The top four American banks with derivatives exposure (as of the end of 2022) are:

  • JPMorgan Chase, with $54.3 trillion in derivatives, against $3.3 trillion in assets—a 16:1 ratio.
  • Goldman Sachs, with $51.0 trillion in derivatives, against $0.5 trillion in assets—a 99:1 ratio.
  • Citibank, with $46.0 trillion in derivatives, against $1.7 trillion in assets—a 27:1 ratio.
  • And Bank of America, with $21.6 trillion in derivatives, against $2.4 trillion in assets—a 9:1 ratio.

The top four U.S. banks hold a combined $173 trillion in derivatives exposure (89% of the total of all American banks), which stands in a 22:1 ratio to their combined assets of $7.9 trillion. (By contrast, China’s four largest banks have combined assets of $19 trillion, but their derivatives are estimated to be only some $7 trillion—a ratio of less than 0.4:1.)

This Western derivatives frenzy is why, when bank failures and debt defaults begin, the spreading bankruptcy effect is not like that of simple dominoes in a row, one knocking over the other. It is like a thermonuclear chain-reaction, but in finance.  In other words, the various forms of debt are simply the fuse; but it is the derivatives that are the bomb, whose explosive charge is more than an order of magnitude greater than the debt alone.

Now consider Credit Suisse (CS). The bank’s assets have fallen from $912 billion to $574 billion between the end of 2020 and the end of 2022 (a 38% plunge), but the bigger problem is CS’s derivatives exposure of about $16.1 trillion at the end of 2022. That may not sound like a prize-winning level, compared to JPMorgan’s $54.3 trillion, but CS’s ratio of derivatives exposure to assets is about 28:1—even greater than the average of 22 of the U.S.’s four top bank derivatives holders. And as with the entire $2 quadrillion world financial bubble, each part of the derivatives speculative bubble is inextricably intertwined with every other part.

The massive planned banking collapse – already announced as a doomsday scenario in the aftermath of the 2008 / 2010 banking crisis and on several subsequent occasions — may already have begun. The Rockefeller Empire  who also command the WEF, are running ahead of schedule, execution of Agenda 2030, because people are gradually but increasingly waking up to the WEF-planned world disaster.

In addition, they are all deeply “over-engaged” in the derivatives market. While nobody knows exactly what the total of this casino money amounts to, estimates range from US$ 500 trillion to over 2 quadrillion dollar. Compare this with the world’s projected GDP of US$ 112.6 trillion (2023 estimate).

According to the Economic Times, a derivative is a contract between two parties (mostly banks and other financial institutions) which derives its value / price from an underlying asset. The most common types of derivatives are futures, options, forwards and swaps. In other words, they may include short-term speculations, for example, on exchange rate fluctuations, often in fractions of a second.

Derivatives are not real money, but under certain circumstances, they are allowed to be part of a bank’s asset base, thereby risking blowing the total volume of assets out of proportion. Derivatives are the loose card in a house of cards. You pull it, and the house collapses. You pull a card in two or three houses and the domino effect may wipe out the entire city of cards – the entire banking system may go down the drain. Since derivatives are interconnected worldwide, the entire international banking cartel may suffer. If one or two heavily derivative-exposed banks claim their derivative holdings from their partner bank or banks, it becomes a “derivative-run” on the banks, and the system may collapse – possibly on a worldwide basis, or at least in the western dollar-based banking system.

Derivative speculations should long be either forbidden or at least regulated. They are not, thanks to massive lobbying of Big Finance.  The derivative market is internationally highly interconnected. The collapse of a Casino Bank in the US may trigger banking failures in Indonesia. It is like a financial “butterfly effect”.

All that serves global dominance, to create a well-controlled and regulated One World Order, run on Central Bank Digital Currency – CBDC – with any parallel currency, crypto or else, strictly forbidden.  As we know there are no coincidences. So far it is just a plan – a diabolical plan, but it is something that can be stopped with the establishment of a multipolar world.

As the financial crisis ricochets back and forth across the Atlantic, the lords of the City of London and Wall Street have once again determined to bail themselves out to the tune of hundreds of billions of dollars taken from government budgets. These are funds that could—and should—be used for economic reconstruction and industrialization, to lifting hundreds of millions out of poverty as China has done, to doubling food production to feed a hungry planet, to investing in science to reach the stars. Instead, the wellbeing of millions is being gambled away and fed to the derivatives golem. And war has been launched against any whom—like China, Russia, and the emerging Global Majority—would get off this sinking Titanic and create a new international economic system based on physical-economic development.

Rockefeller Empire Options

Facing unprecedented opposition from both allies and vassals, what options does the family have. Basically, it boils down to 4 options;-

  1. Negotiate a cease-fire and initiate peace talk (arrogance won’t let them)
  2. Surrender (which is doubtful as their pride won’t let them);
  3. Initiate the ICE NINE Project (a great possibility) , and will be explained in an article coming out soon;
  4. Or launch a nuclear attack on Russia, China, Iran and North Korea (very possible).

Forget the Rothschilds. Although they are super wealthy and powerful, they lack what the Rockefeller family has: -control of the US military.

The core of classic geopolitics – and US foreign policy to a large degree remains, to this day, shaped by geopolitical ideas about controlling the core of Eurasia to dominate the world. Washington’s rivalry with Russia, for instance, is partly framed by the Rockefeller Empire in geopolitical terms:  it is part of a struggle for the Heartland, as Mackinder calls it. According to the British geographer, whoever controls Eastern Europe controls the Heartland – and whoever controls the Heartland, controls the world island. These ideas have shaped US policy since World War II at least.

 In these terms, being the world’s sole superpower is the US role and its very raison d’être – and thus any threat to American unipolarity is perceived as an existential threat in itself, Although both China and Russia are normally described as “land powers” in the parlance of traditional geopolitics (while the US and UK in turn would be good examples of “sea powers”), it would seem that, in today’s world, both Beijing and Moscow are increasingly  looking closer to the ocean. One can in fact wonder how much theoretical value the concepts of “sea power” and “land power” may still hold in the 21st century.

The main issue can be stated thusly: can an overburdened and overextended America maintain its sea hegemony while engaging in land wars?  However, the US is today financially constrained by debt, and burdened by recent military conflicts – for the most part, land-based actions in places such as Iraq and Afghanistan. The US can no longer afford to be both a land power and a sea power. Planning on pivoting to the Pacific while committing to Ukraine, Washington seems to want it both ways.

The Global South or Zone B is moving along just fine. A similitude is that of a passing caravan (Zone B), while the dogs (the 2 families) keep on barking.

The period from now to end June is critical. The West will not be able to sustain their Empire of Lies- be it Covid, Ukraine, Climate Change, disappearing economic hope, etc. The people have lost trust in their leadership and political class. What is going to be fascinating to watch is the blowback from the citizens, against their leadership.

In our next article, titled THE GAME OVER FOR THE WEST, we will describe the formation of the multipolar world, and the meltdown in the unipolar world.

2 thoughts on “Rising rates = Financial Implosion

  1. Hi Sam,

    Thx a million for this recent series of articles explaining what’s going on behind the scene of the financial system and the banking crisis. While people can get some idea of what’s happening by reading articles off the web, it’s your essays that put everything together in a detailed yet accessible manner and form a coherent and comprehensive picture of what’s going on. That’s what’s truly priceless!!!

    Btw, in your article on the dollar’s last tango, you mentioned this about the interbank payment system:

    “The weakest part of the system lies in the interbank payment system (details of this will be explained in another issue) that, in turn, depends upon the extent of losses incurred by the major players in the market.”

    Looks like some of that interbank system has been explained here, in the section “Risks Hidden in the Shadows”. Still, if possible, could you write an essay explaining more about the mechanics of the interbank/repo market, including the details of the Sep 2019 crisis, and why the sudden surge in repo trading at that time indicates systemic collapse? This knowledge is invaluable, and will help us get a more comprehensive understanding of how the system is imploding. We can educate our peers better with that knowledge too.

    Right now, there’re pieces here and there on these topics, but they’re often fragmented/incomplete, and your genius lies in the fact that you can tie all these scattered pieces into a total package that gives us a clear picture of what’s happening. That makes a huge difference.

    Keep up the great work!!

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