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Sovereign Debt Monetization Parade - The Debt Heaven Fallacy

Interest-Rates / Global Debt Crisis 2015 Feb 19, 2015 - 06:53 PM GMT

By: Jim_Willie_CB


Today marks the Chinese New Year, the day promised for unleashing forces from the East which complete the Global Paradigm Shift. Let it rain; let it pour. For a full generation, the Western central bankers have relied upon debt to solve debt saturation problems as well as economic slowdowns founded within the credit cycle. In the last four years, they have added reliance upon free cost printed money to solve debt saturation and insolvency problems. The USTreasury Bond market has vanished for all practical legitimate purposes, a harbinger of the USDollar death event. With no surprise to the Jackass, the entire Western financial and economic system is not just decaying, but failing.

Witness a systemic failure in progress. For over a year, my drums have been beaten in detailing how the QE bond purchase program kills capital by leading to a rise in the entire cost structure. The endless wars in defense of the USDollar have added to strains. The sanctions have all backfired. While the US leaders pound their chests like Third World demagogues, they preside over ruin with maggots crawling at their boots. The debt picture is abysmal, and grows worse by the month. This article is but a brief survey of the wrecked fields of debt crops. Review some of its many rancid decayed farms. It is not pretty. Remember the bankers in charge call their policy a stimulus. To be sure, it stimulates ruin and fosters systemic failure. Mission Accomplished!


Over 100% of newly issued sovereign debt is being monetized, in a stunning development. Global net sovereign debt issuance will be negative this year, over and above what central banks purchase. The New Normal is to monetize all debt and avoid poor outcomes in bond auctions. Observe the death of money. Then again, the United States has no concept of money anymore, or of capital, surely not savings.

Morgan Stanley produced and promulgated a chart which shows the net issuance of government debt in 2015 in a remarkable reflection of a bizarre reality. It will not only be the lowest in history, but in fact for the first time in history be negative. The perversion of money is acute and out of control. For the first time ever, the industrial so-called developed world through their central banks are currently monetizing over 100% of global sovereign debt issuance. The major central banks are purchasing all the newly issued debt plus some rolled over debt, thus forcing bond yields lower. Focus is given to the top four nations. The claim of normalized monetary policy is a grand lie, a charade, and travesty. It is a feeble public propaganda joke. In fact, another indicator serves as perversion. Fully $3.6 trillion in global debt is trading at negative yields. The monetary mavens are firmly fixed in the Twilight Zone. Fiat money is fast approaching death's door, as fiat money stewards have lost control. Interest bearing securities bear no interest, while having turned toxic. The Western banking system is a toxic storage silo, the high priests but mere wizards wearing pointy hats preaching false dogma, with millions of blind admiring followers heading into the abyss. Zero Hedge does an utterly outstanding job on covering the real financial and economic news. A very big hat tip to them, which is a primary research tool.


The USDollar is exploding before our eyes, but the great majority cannot see it. The QE monetary policy assured it death. The fast money supply growth coupled with fast debt rise indicate an implosion as certainty, which even the trained Harvard University and the University of Chicago economist monkeys can notice as an extreme warning, if not death knell. Their silence is deafening and noticed.

Fiat paper money is a doomed concept with finite life span. Debt poses as money, while the supply must grow vertically when nearing the morgue entrance. Additionally, one can no longer look at one central bank or their balance sheet in isolation. They must be viewed together, since policy is coordinated with swap lines and obscure derivative. They are all integrated through complex methods. Notice the vertical trajectory in effective money supply measured in $trillions. In order to maintain a Ponzi Scheme at its final stage, vertical growth must take place in supply for investment purposes, just to keep the system stable. It is not feasible or possible. A stack of one million $1 bills reaches as high as New York's Empire State Building. A stack of one billion $1 bills reaches into the earth's stratosphere. A stack of one trillion $1 bills reaches a quarter the distance to the moon. People have no concept of money, nor any awareness of the death of fiat money in progress. Thanks to Rob Kirby for the basis of a fine graph.


Since the subprime bond explosion and Lehman failure, global debt has grown by $57 trillion, a huge rise since 2007. The implemented non-solutions to debt saturation and default have been more debt in a Twilight Zone moment that continues from expedience. The Taper Talk trial balloon was very telling, as in how they cannot stop. They just lie better. Japan, Spain, Portugal, and France are the worst anticipated future offenders in added debt. The government and corporate sectors are egregious offenders also.

McKinsey is the largest strategic management consulting company in the world. It has begun to join the contrarian perspective. Their analysis and guidance cannot be ignored or overlooked. "Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or de-leveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points. That poses new risks to financial stability and may undermine global economic growth. Given current primary fiscal balances, interest rates, inflation, and projected real GDP growth rates over the next five years, we calculate that the ratio of government debt to GDP will continue to grow in many advanced economies, including Japan, the United States, the United Kingdom, and a range of European countries. Central banks in general are hell-bent on forcing more debt into the system. Given that debt (and the ability to pay it back) is precisely the problem, attempts to force more debt into the system is 100% guaranteed to blow up at some point. Asset bubbles are building and the Fed (central bankers) do not see them. Instead, they focus on consumer price deflation which actually should be a welcome thing."

The study focuses on stability and growth, when it should address systemic failure risk instead. The decline in consumer prices often comes on the back of business liquidation, another blind spot in the study. Instead of capital formation in the Western nations, the emphasis has been on debt patches, failed firm rescues, extended job insurance, and handouts. Notice the rise in outstanding macro debt in the last seven years, during which no solution has been pursued. Only bank welfare has been practiced, with banker elite in charge of official policy.

The central bankers have gone totally amok. Their focus is errant on deflation data. Their focus remains fixated upon QE and bond monetization support, which lifts the bond sector but kills the capital within economies. Their focus is on distorted viewpoints, false dogma, and dedication to the big banks. They are wrecking the entire global financial and economic system. The true solution is their scourge, a return to the Gold Standard, a return to sound money, a return to honest trade settlement, and a return to hard asset bank reserves (not debt). See Global Economic Analysis (HERE).


The new dust bowl has shown itself, as USTreasury liquidity dries up. The USFed dominates the Treasury and Mortgage Bond market purchases, driving out almost all others. Risk has risen, as normal players have departed. Small amounts can move the USTBond market, a recent danger signal. Expect volatility and derivative stress, possibly higher borrowing costs. The USGovt will ride the USDollar over the cliff, as it breaks all global pacts on the Reset. The nation will earn unspeakable global isolation for its financial fraud, its forfeited industry, its corrupted legislative process, its war devices to defend the USDollar, and its sanctions backfire.

In an unlikely exposure, Bloomberg has given attention to the dried up USTreasury Bond market. The USFed with its QE policy, adopted across the world, has killed the market by dominating its purchases, driving out legitimate investors. For decades, the $12.5 trillion market for USGovt debt was renowned for its depth of liquidity. Wall Street would boast the depth enabled large trades without big moves in prices. Its erstwhile resilience has essentially vanished, the new cause of widespread worry. In normal textbook manner, less depth used to mean greater volatility. Nowadays it means more stress on the hidden QE devices such as Interest Rate Swaps and foreign channel usage of swap facilities to obscure central bank purchases. Expect the USTreasury market to lose its time honored safe haven status, during times of turmoil. It will be prone to more disruptions, especially if the vague empty threats by the USFed to hike rates is followed through.

Worse still, and a very real additional threat, if investors begin to doubt whether they will still be able to buy and sell on a moment’s notice, as in a fully liquid market, two effects could be realized. The volatility swings might begin to show, indicating a damaged weak market. In addition, the risk could arrive that elevates the USGovt cost to borrow. The great risk is for the IRSwap derivative machinery to break in public view (grand spectacle). The data is alarming. The bond market has lost significant liquidity. One year ago, it was said that a player could trade about $280 million in USTreasurys without causing prices to move, according to JPMorgan Chase. Nowadays, the same firm estimates a mere $80 million can swing the bond yields more than a few blips.

The Federal Reserve gobbling up a significant share of Treasuries and Agency MBS is a big contributor, the main player seen in the graphic. The USFed has been over the last seven years gobbling up supply of sovereign debt and agency debt, lifting its toxic balance sheet to rarified levels marked recently at $4.5 trillion. The balance sheet will go higher, since the available ready bond investors have retreated. Since 2008, the rise in public debt goes hand-in-hand with USFed purchases of Treasurys and Agency MBS bonds. Since 2009, USTreasury debt has increased by 87.5% while the USFed purchases have increased by 417%. It is a travesty. They are taking in current deficits converted to bond securities, as well as rolled over bonds at maturity. The USFed is the bond market. Other bond participants in the private sector have actually been decreasing since 2013. However, USTreasury trading liquidity for primary dealers remains fairly constant, under obligation in effect. They are force fed bonds, often against their will, usually with a horrendous risk-benefit situation. See Confounded Interest (HERE).


Credit Suisse Bank, Barclays Bank, Lloyds Bank, and RBS Bank all fell into shame, having become BBB rated banks (garbage can lids). They are near junk, rated without any hint of prestige. More crisis cometh. The next singular crisis event will send the British banks into African junk status. What is happening to the British banks would happen to the US banks also, except the debt rating agencies take marching orders and decision directives from their Wall Street mafia masters.

The rotten condition of Western banks has become a reality, reflecting insolvency and near ruin beyond the potential. No major media has mentioned their fallen condition, since doing so would cause further panic across Europe. The leaders have fallen from grace. Credit Suisse Bank, Barclays Bank, Lloyds Bank, and RBS Bank have become BBB rated banks since early February, each rated similar to India, Brazil, Spain, South Africa, Mexico, Thailand, even Kazakhstan and the Philippines. These nations are all rated at BBB. Some of the biggest formerly prestigious banks in the world are currently rated equivalent to many mid-level countries around the world. Their governments lack the funds or tax receipts from a vibrant economy in order to support their banks. They lack industry. No crisis can be withstood, not anymore. The ongoing crisis cannot be managed. With pressure by Greece to exit the common Euro currency union building, with the oil price plummeting, with the EUR &GBP & AUD & CAD exchange rates declining over 20% in the past year, all these Western pillar banks are just one level away from junk status. The source for debt ratings is Standard & Poors.


Old ratings       

New ratings




Credit Suisse      






HSBC Holdings/ USA



Royal Bank of Scotland    



Standard Chartered        



The descent to ignominy has been steady and relentless since 2007 and 2008. At that time, the Western banking system went bust, without the trumpets or funeral pyre. The torch was put to their balance sheets, while no viable solution was officially sought. Their respective ratings have declined in downward ratchet steps since 2007 when the global financial crisis began. All these once stalwart banks were rated AA until 2007, then dropped to A in 2008, then dropped further to A- in 2013. Finally they have dropped to BBB rating, one level above junk status. The next crisis blow with harmful impact will place the big banks in junk territory for certain. Another crisis blow is a firm guarantee.


New alarm bells ring over household debt. Canada faces significant slowdown, especially in the energy sector. The Canadian Economy has shown a new distress signal. Its household debt burden has outpaced most developed countries. In fact, Canada had the second biggest jump in household debt-to-income ratios of any country other than Greece between 2007 and the second quarter of 2014, according to a new McKinsey study. The nations of Canada and Australia along with a few in Northern Europe "now have larger household debt burdens than existed in the United States or the United Kingdom at the peak of the credit bubble." The report was based on data to the second quarter of last year. The doorstep to the Third World is in view, as the Jackass has forecasted for over seven years. The McKinsey Global Institute examined 47 countries and identified several with potential vulnerabilities in household debt that could lead to financial instability and adverse economic consequences. They are the Netherlands, South Korea, Sweden, Australia, Malaysia, Thailand, and Canada.

The land of the great white north, known as Canada, which comprises 12% of Hat Trick Letter subscribers, is witnessing a chronic recession in eastern provinces, and new shock from energy price decline in western provinces.  The national GDP saw decline in November. Last year’s job growth has been revised lower, which was already subject to fantasy. The prospect of business development has been restrained in the nation, where oil has been a driving force. Since 2Q2014, certain factors make the picture in Canada more gloomy. Household debt-to-income ratio has risen further, to a record 162.6% in Q3. House prices continued to climb, though the pace is slowing. A housing market crash is overdue in Vancouver and Alberta. The Bank of Canada cut interest rates in January, with another reduction possible in March. Expect even more debt to be loaded on. See The Globe & Mail (HERE).


Today is the Chinese New Year, a significant event. People have had adequate warning to prepare themselves for conclusion events, certain to occur with fireworks. The USDollar is soon to fade into oblivion. Its rise signals its demise. The hidden dismantle of the Petro-Dollar mechanism has been full of intrigue. The Gold Standard will return, but through the trade window. The solution to the untreated Global Financial Crisis is the gold route. The Eurasian Trade Zone will be built upon the gold route, and see a revival of the Silk Road with accompanying Maritime Routes. The nascent trade zone will soon include Germany and whatever nation follows its prudent lead. The movement cannot be stopped, not even by war. In fact, the Ukraine War will eventually catalyze the Eurasian Trade Zone, with European entries harboring disgust. The safe haven is not the USDollar, but rather Gold & Silver, otherwise defined as money. Banks find refuge in bullion bars, while individuals find refuge in bars & coins.

The crisis is better described as the Global Monetary War. The entire world will soon be at war with the United States, since the majority of nations wish to establish trade and monetary system upon gold. The rogue will be the United States, in the final boomerang whiplash. The United States will succeed in isolating 85% to 90% of the community of nations, and thus win isolation for itself. The US faces deep risk of falling into the Third World, as those characteristics appear on every corner and every wall. See the crumbling interstate highway system for a recent example, or official monetization of debt as a better example. As the Jackass forecasted, 2015 has begun with a sequence of rocky events, as unstable factors show their face one by one. The USDollar will die a horrible death, and Gold will return to its rightful throne. The return of Gold to its primacy is long overdue.


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by Jim Willie CB
Editor of the “HAT TRICK LETTER”
Home: Golden Jackass website
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Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at, which includes a Squirrel Mail public email facility.

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