Monday, February 15, 2016

The Method in Their Madness

In a word: derivatives. 

Even though the top 5 U.S. Bailout Queens have been reducing their interest rate derivative exposure (from about 224 trillion in 2008 to less than 175 trillion today), there are still hundreds of trillions in interest rate swaps, futures, forwards and options globally, protecting our debt-based system with various layers of senior or subordinate claims.

Fed interest rate policy has absolutely nothing to do with some "response to a U.S. economic recovery". Fed interest rate policy is merely a byproduct of it's primary dealer interest rate derivative positions, in collusion with the UST and ESF.

If those positions lean toward a gradual rate increase of "X" over a period of "Y" (in order to protect the existing system) then the FED will increase rates by X over Y regardless of any real world economic expectation. These calculations were made years ago, and the movements will be extremely conservative - just enough to maintain control.

In a real sense, the so called economy itself is merely a derivative of the "real economy" just as are all the levers and gears that project it's "image" and "expectations" upon the people.

Of all the conspiracy theories regarding the price of oil, one obvious explanation seems to be overlooked - we are experiencing a global debt deleveraging that makes the former "Great Depression" look like a pre-shool exercise. If not for today's social safety nets and the record numbers who avail them, this would be quite obvious. There is no demand for the great stockpiles of unused oil in the world and "old oil" knows this. Supply and demand have reared their ugly heads from above the derivative cloud of propaganda and expectation.

When we look at the Baltic Dry Index and related industrial output data, we must conclude that the vast empty cities in China and elsewhere are never going to be filled with thriving economic activity under the present system. Caterpillar's epic downturn and other industrial output indicators like true oil demand are screaming "record red" - a lagging symptom of the epic misallocations affecting physical economic activity through the injection of massive, exponentiating easing into the global dollar-debt system over many years.

The CB's objective is to collectively buy time to transition from the existing dollar system, as slowly and non-disruptively as possible, or to "cool the dollar gradually". See the change in central bank balance sheets. The families today talk of the Fed absorbing international dollar debt as dollar denominated debt begins to gradually fall out of favor.

Their biggest worry is loss of confidence in the derivatives: financial paper, bonds, currencies, what their entire financial system is composed of. They talk in whispers as though Bundy will be the next Lehman (knowing that such talk is more than enough to make it so). Any "rogue bank" can be sacrificed for the good of the whole, but they worry if confidence can be restored in the next cycle.

Wealth holds gold for this reason. Their central banks hold gold for this reason - the only non-paper, non-debt monetary asset on the balance sheet of the planet. When the current debt system defaults, gold will re-capitalize the new system - a system which reprices the debt of the old and stabilizes the equity of the new.

This new U.S. President will be a useful tool.


  1. Thank you. Your last two posts help to better understand the bigger picture, and it helps also to maintain a stable frame of mind amidst all the ups and downs in the market and the so called POG in dollars.

    1. PDW.
      Happy to oblige. The long position on gold is a decades old position for many. For generational wealth it is measured in centuries. The only thing certain about the future is that change is inevitable.
      Cheers -

  2. gold can now be made into sheet form, we are in interesting times