Writing is such sweet sorrow. It’s sweet because there is not any absence of things to scribble about. Sorrow because the monetary authorities have made such a mess of things that there’s no shortage of things to write about, grand mess ups to reveal continuously till we get it. The economy has been on adrenaline for just about 100 years and increasingly deadly doses for the previous forty. The crash will be grand and we have to understand what is occurring. If nothing else so that generations yet to come can learn from the mistakes.
Back from the large picture to the issues of the instant. When will it end? We all know kind of how, so we must look daily for the time to approach. Is it on the horizon? Your guess is as good as ours so we are going to consider what we all know. Just when you presumed it was clear sailing ahead for bonds and sticks, another wrench is thrown into the works. We’ve been targeting here at The Mint on the impending fireworks in the Bond Markets. Not that we know precisely how or when the market will collapse, we only know that its collapse, in some form, shape, or form, is approaching. 2 of a plethora of reasons came into focus for us today which we intend to now try to pass along.
The 1st and apparent problem comes in the shape of collateral backing the bonds that are at present being issued. The second and more vital problem is that most bonds today lack a practicable repayment agreement to pay down the bonds. We outline a “reasonable” repayment agreement here at The Mint as one where the borrower pays back what’s due with the future fruit of their works, generally called revenue. The difficulty is that in up to date bond issues, these 2 active ingredients, some would even go as far as to call them irreplaceable as a condition for offering loans, have been an in short supply.
Take the issue of collateral. There might be assets that were worth a specific amount in 2006, or perhaps 2008, you can take as your own if you do not get repaid on a bond. The issue is that we are approaching the end of 2010. Regardless of how you look at it, collateral values just are not what they were. Banks are demanding money as security. Why? The straightforward answer is there’s no powerful requirement for the collateral currently. In several cases, the world is working thru a surplus of finished products and finding that there’s a dearth of first products (commodities). Most collateral is in the shape of finished products. This is a long trend that might take ten to twenty years to fix.
Then move on to repayment. Repayment schedules today sometimes involve either refinancing the debt when it matures or selling the asset to satisfy the debt. The second bears the issue of collateral explained above. The previous is dependent on similar or better conditions in future Bond market conditions. And now a 3rd way of repaying a debt has been hot for the previous 2 years. Print money to pay for it!
Sound ludicrous? The repayment agreement for the US Government, historically the most responsible borrower in the debt markets, is to print cash to pay the liabilities. Brilliant. The pop in this Bond bubble will blow a torpedo in the side of the present currency regime, which is reliant on debt. There is not any question the currency regime will stop at zilch to save the Bond markets, an insurmountable task. So we’re just about to witness a classic event. The breakdown of the Bond market and currency regime will be equivalent to a monetary supernova.
No collateral, no repayment schedule, why write a Bond now? It would seem a downtrend has begun afresh in US thirty yr notes and we also read that bond fund inflows have reputedly topped. To finish it off, today we read a reminder from Richard Russell of the DJX Idea Letters sees a “hard rain coming” in the equity markets and is replenishing his call to desert ship. What does the stock exchange see? It sees an economy that was built on an unsustainable currency system dependent on ever-expanding debt quickly approaching collapse. Hollywood can’t do justice to the events the collapse of the most complicated and complicated world economy to date will cause. The disconnects between demand and supply will be amazing.
Gold is first to see these things on the horizon but stocks are catching on. Once the executives and central banking organizations credit is shot by all this money printing, the Bond Market will suck money in from stocks like Mega House maid sucking the air from planet Druidia in the flick Spaceballs. Hang on to your gold, silver, and anything real cause it will be a thrilling ride!
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