John Rubino: The Global Economic System Is Set To Go Up In Flames

With interest rates at this level, at any other time in American history, we would have had a raging homebuying mania right now…We’re [the Government] doing what we can
to increase speculation out there and that would never be a good thing.  – John Rubino, Shadow of Truth

As Hemingway famously remarked in reference to how one goes bankrupt:  “Two ways, gradually and suddenly” (“The Sun Also Rises”).   The U.S. Government, absent the power of an unfettered money printing press, is technically insolvent.   Based on the latest TIC (Treasury International Capital) report, foreigners dumped $55 billion in U.S. Treasury holdings in January (there’s a two-month lag in the data).  It was the second largest monthly outflow of foreign capital from Treasuries since late 2008.

Yet, what is fueling the parabolic rise in the U.S. dollar and what does it mean?  It mostly is our only visible indicator that there has been some kind of derivatives blow-up that we can’t see or feel but is coming at us through the system, just like in 2008.   One obvious indicator of this was the report that a German bank blew up last week due to its exposure to the failure of Austria’s Hypo Alpe Adria bank, which blew up on Greek debt.  It illustrates the point that OTC derivatives are lurking in the shadows and the global exposure to these financial weapons of mass destruction is worse than it was in 2008.

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Rory and I engaged John Rubino ( in a discussion about the factors that will ignite the global financial and economic system into flames:

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The Fed is going to be in easing mode a year from now. They might try to raise interest rates one time, which I think would be like playing with fire.  If they do try to raise rates one at this next meeting or the one that follows, I think they’ll have to reverse it out by the end of the year because the economy really does seem to be slowing down.  You can’t tolerate a slow-down when you reach a certain point of death.

A lot of analysts and investors are ignoring the hidden damage that has occurred because of the collapse in the price of oil.  But there is no question that it has lit the fuse on trillions in energy-related OTC derivatives.   I know from my contacts on Wall Street that the energy sector has created a catastrophe in the junk bond market.   It is getting worse by the day.  In fact, the lack of liquidity in the entire bond market will be the next black swan that will likely trigger a global financial nuclear melt-down.



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