When This Debt Bubble Bursts, Central Banks Will Turn to Money Printing… Again
Let’s face the facts.
The only reason the financial system has held together so well since 2008 is because Central Banks have created a bubble in bonds via massive QE programs and seven years of ZIRP/NIRP.
As a result of this, the entire world has gone on a debt binge issuing debt by the trillions of dollars. Today, if you looked at the world economy, you’d find it sporting a Debt to GDP ratio of over 327%.
Well guess what? The REAL situation is even worse than this. The Bank of International Settlements (the Central Banks’ Central Bank) just published a report revealing that globally the financial system has $13 trillion MORE debt hidden via junk derivatives contracts.
Global debt may be under-reported by around $13 trillion because traditional accounting practices exclude foreign exchange derivatives used to hedge international trade and foreign currency bonds, the BIS said on Sunday.
Source: Yahoo! Finance.
As has been the case for every single crisis since the mid’90s, the problem is derivatives.
Consider that as early as 1998, soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, approached Alan Greenspan, Bob Rubin, and Larry Summers (the three heads of economic policy) about derivatives.
Born said she thought derivatives should be reined in and regulated because they were getting too out of control. The response from Greenspan and company was that if she pushed for regulation that the market would “implode.”
Fast-forward to 2007, and once again unregulated derivatives trigger a massive crisis, this time regarding the Housing Bubble
And today, we find out that once again, derivatives are at the root of the current bubble (debt). And once again, the Central Banks will be cranking up the printing presses to paper over this mess when the stuff hits the fan.
Already, Central Banks are printing nearly $180 billion per month in QE. When the next crisis hits, it’s going to be well north of $250 billion if not $500 billion per month.
This is going to send inflation trades, particularly Gold, through the roof.
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Chief Market Strategist
Phoenix Capital Research