Global Planned Financial Tsunami Has Just Begun

Global Planned Financial Tsunami Has Just Begun

F. William Engdahl
New Eastern Outlook
Tue, 21 Jun 2022 00:00 UTC

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Since the creation of the US Federal Reserve over a century ago, every major financial market collapse has been deliberately triggered for political motives by the central bank. The situation is no different today, as clearly the US Fed is acting with its interest rate weapon to crash what is the greatest speculative financial bubble in human history, a bubble it created. Global crash events always begin on the periphery, such as with the 1931 Austrian Creditanstalt or the Lehman Bros. failure in September 2008. The June 15 decision by the Fed to impose the largest single rate hike in almost 30 years as financial markets are already in a meltdown, now guarantees a global depression and worse.

The extent of the „cheap credit” bubble that the Fed, the ECB and Bank of Japan have engineered with buying up of bonds and maintaining unprecedented near-zero or even negative interest rates for now 14 years, is beyond imagination. Financial media cover it over with daily nonsense reporting , while the world economy is being readied, not for so-called „stagflation” or recession. What is coming now in the coming months, barring a dramatic policy reversal, is the worst economic depression in history to date.

Thank you, globalization and Davos.

Globalization

The political pressures behind globalization and the creation of the World Trade Organization out of the Bretton Woods GATT trade rules with the 1994 Marrakesh Agreement, ensured that the advanced industrial manufacturing of the West, most especially the USA, could flee offshore, „outsource” to create production in extreme low wage countries. No country offered more benefit in the late 1990s than China. China joined WHO in 2001 and from then on the capital flows into China manufacture from the West have been staggering. So too has been the buildup of China dollar debt. Now that global world financial structure based on record debt is all beginning to come apart.

When Washington deliberately allowed the September 2008 Lehman Bros financial collapse, the Chinese leadership responded with panic and commissioned unprecedented credit to local governments to build infrastructure. Some of it was partly useful, such as a network of high-speed railways. Some of it was plainly wasteful, such as construction of empty „ghost cities.” For the rest of the world, the unprecedented China demand for construction steel, coal, oil, copper and such was welcome, as fears of a global depression receded. But the actions by the US Fed and ECB after 2008, and of their respective governments, did nothing to address the systemic financial abuse of the world’s major private banks on Wall Street and Europe , as well as Hong Kong.

The August 1971 Nixon decision to decouple the US dollar, the world reserve currency, from gold, opened the floodgates to global money flows. Ever more permissive laws favoring uncontrolled financial speculation in the US and abroad were imposed at every turn, from Clinton’s repeal of Glass-Steagall at the behest of Wall Street in November 1999. That allowed creation of mega-banks so large that the government declared them „too big to fail.” That was a hoax, but the population believed it and bailed them out with hundreds of billions in taxpayer money.

Since the crisis of 2008 the Fed and other major global central banks have created unprecedented credit, so-called „helicopter money,” to bailout the major financial institutions. The health of the real economy was not a goal. In the case of the Fed, Bank of Japan, ECB and Bank of England, a combined $25 trillion was injected into the banking system via „quantitative easing” purchase of bonds, as well as dodgy assets like mortgage-backed securities over the past 14 years.

Quantitative madness

Here is where it began to go really bad. The largest Wall Street banks such as JP MorganChase, Wells Fargo, Citigroup or in London HSBC or Barclays, lent billions to their major corporate clients. The borrowers in turn used the liquidity, not to invest in new manufacturing or mining technology, but rather to inflate the value of their company stocks, so-called stock buy-backs, termed „maximizing shareholder value.”

BlackRock, Fidelity, banks and other investors loved the free ride. From the onset of Fed easing in 2008 to July 2020, some $5 trillions had been invested in such stock buybacks, creating the greatest stock market rally in history. Everything became financialized in the process.Corporations paid out $3.8 trillion in dividends in the period from 2010 to 2019. Companies like Tesla which had never earned a profit, became more valuable than Ford and GM combined. Cryptocurrencies such as Bitcoin reached market cap valuation over $1 trillion by late 2021. With Fed money flowing freely, banks and investment funds invested in high-risk, high profit areas like junk bonds or emerging market debt in places like Turkey, Indonesia or, yes, China.

The post-2008 era of Quantitative Easing and zero Fed interest rates led to absurd US Government debt expansion. Since January 2020 the Fed, Bank of England, European Central Bank and Bank of Japan have injected a combined $9 trillion in near zero rate credit into the world banking system. Since a Fed policy change in September 2019, it enabled Washington to increase public debt by a staggering $10 trillion in less than 3 years. Then the Fed again covertly bailed out Wall Street by buying $120 billion per month of US Treasury bonds and Mortgage-Backed Securities creating a huge bond bubble.

A reckless Biden Administration began doling out trillions in so-called stimulus money to combat needless lockdowns of the economy. US Federal debt went from a manageable 35% of GDP in 1980 to more than 129% of GDP today. Only the Fed Quantitative Easing, buying of trillions of US government and mortgage debt and the near zero rates made that possible. Now the Fed has begun to unwind that and withdraw liquidity from the economy with QT or tightening, plus rate hikes. This is deliberate. It is not about a stumbling Fed mis-judging inflation.

Energy drives the collapse

Sadly, the Fed and other central bankers lie. Raising interest rates is not to cure inflation. It is to force a global reset in control over the world’s assets, it’s wealth, whether real estate, farmland, commodity production, industry, even water. The Fed knows very well that Inflation is only beginning to rip across the global economy. What is unique is that now Green Energy mandates across the industrial world are driving this inflation crisis for the first time, something deliberately ignored by Washington or Brussels or Berlin.

The global shortages of fertilizers, soaring prices of natural gas, and grain supply losses from global draught or exploding costs of fertilizers and fuel or the war in Ukraine, guarantee that, at latest this September-October harvest time, we will undergo a global additional food and energy price explosion. Those shortages all are a result of deliberate policies.

Moreover, far worse inflation is certain, due to the pathological insistence of the world’s leading industrial economies led by the Biden Administration’s anti-hydrocarbon agenda. That agenda is typified by the astonishing nonsense of the US Energy Secretary stating, „buy E-autos instead” as the answer to exploding gasoline prices.

Similarly, the European Union has decided to phase out Russian oil and gas with no viable substitute as its leading economy, Germany, moves to shut its last nuclear reactor and close more coal plants. Germany and other EU economies as a result will see power blackouts this winter and natural gas prices will continue to soar. In the second week of June in Germany gas prices rose another 60% alone. Both the Green-controlled German government and the Green Agenda „Fit for 55” by the EU Commission continue to push unreliable and costly wind and solar at the expense of far cheaper and reliable hydrocarbons, insuring an unprecedented energy-led inflation.

Fed has pulled the plug

With the 0.75% Fed rate hike, largest in almost 30 years, and promise of more to come, the US central bank has now guaranteed a collapse of not merely the US debt bubble, but also much of the post-2008 global debt of $303 trillion. Rising interest rates after almost 15 years mean collapsing bond values. Bonds, not stocks, are the heart of the global financial system.

US mortgage rates have now doubled in just 5 months to above 6%, and home sales were already plunging before the latest rate hike. US corporations took on record debt owing to the years of ultra-low rates. Some 70% of that debt is rated just above „junk” status. That corporate non-financial debt totaled $9 trillion in 2006. Today it exceeds $18 trillion. Now a large number of those marginal companies will not be able to rollover the old debt with new, and bankruptcies will follow in coming months. The cosmetics giant Revlon just declared bankruptcy.

The highly-speculative, unregulated Crypto market, led by Bitcoin, is collapsing as investors realize there is no bailout there. Last November the Crypto world had a $3 trillion valuation. Today it is less than half, and with more collapse underway. Even before the latest Fed rate hike the stock value of the US megabanks had lost some $300 billion. Now with stock market further panic selling guaranteed as a global economic collapse grows, those banks are pre-programmed for a new severe bank crisis over the coming months.

As US economist Doug Noland recently noted,

„Today, there’s a massive „periphery” loaded with „subprime” junk bonds, leveraged loans, buy-now-pay-later, auto, credit card, housing, and solar securitizations, franchise loans, private Credit, crypto Credit, DeFi, and on and on. A massive infrastructure has evolved over this long cycle to spur consumption for tens of millions, while financing thousands of uneconomic enterprises. The „periphery” has become systemic like never before. And things have started to Break.”

The Federal Government will now find its interest cost of carrying a record $30 trillion in Federal debt far more costly. Unlike the 1930s Great Depression when Federal debt was near nothing, today the Government, especially since the Biden budget measures, is at the limits. The US is becoming a Third World economy. If the Fed no longer buys trillions of US debt, who will? China? Japan? Not likely.

Deleveraging the bubble

With the Fed now imposing a Quantitative Tightening, withdrawing tens of billions in bonds and other assets monthly, as well as raising key interest rates, financial markets have begun a deleveraging. It will likely be jerky, as key players like BlackRock and Fidelity seek to control the meltdown for their purposes. But the direction is clear.

By late last year investors had borrowed almost $1 trillion in margin debt to buy stocks. That was in a rising market. Now the opposite holds, and margin borrowers are forced to give more collateral or sell their stocks to avoid default. That feeds the coming meltdown. With collapse of both stocks and bonds in coming months, go the private retirement savings of tens of millions of Americans in programs like 401-k. Credit card auto loans and other consumer debt in the USA has ballooned in the past decade to a record $4.3 trillion at end of 2021. Now interest rates on that debt, especially credit card, will jump from an already high 16%. Defaults on those credit loans will skyrocket.

Outside the US what we will see now, as the Swiss National Bank, Bank of England and even ECB are forced to follow the Fed raising rates, is the global snowballing of defaults, bankruptcies, amid a soaring inflation which the central bank interest rates have no power to control. About 27% of global nonfinancial corporate debt is held by Chinese companies, estimated at $23 trillion. Another $32 trillion corporate debt is held by US and EU companies. Now China is in the midst of its worst economic crisis since 30 years and little sign of recovery. With the USA, China’s largest customer, going into an economic depression, China’s crisis can only worsen. That will not be good for the world economy.

Italy, with a national debt of $3.2 trillion, has a debt-to-GDP of 150%. Only ECB negative interest rates have kept that from exploding in a new banking crisis. Now that explosion is pre-programmed despite soothing words from Lagarde of the ECB. Japan, with a 260% debt level is the worst of all industrial nations, and is in a trap of zero rates with more than $7.5 trillion public debt. The yen is now falling seriously, and destabilizing all of Asia.

The heart of the world financial system, contrary to popular belief, is not stock markets. It is bond markets — government, corporate and agency bonds. This bond market has been losing value as inflation has soared and interest rates have risen since 2021 in the USA and EU. Globally this comprises some $250 trillion in asset value a sum that, with every fed interest rise, loses more value. The last time we had such a major reverse in bond values was forty years ago in the Paul Volcker era with 20% interest rates to „squeeze out inflation.”

As bond prices fall, the value of bank capital falls. The most exposed to such a loss of value are major French banks along with Deutsche Bank in the EU, along with the largest Japanese banks. US banks like JP MorganChase are believed to be only slightly less exposed to a major bond crash. Much of their risk is hidden in off-balance sheet derivatives and such. However, unlike in 2008, today central banks can’t rerun another decade of zero interest rates and QE. This time, as insiders like ex-Bank of England head Mark Carney noted three years ago, the crisis will be used to force the world to accept a new Central Bank Digital Currency, a world where all money will be centrally issued and controlled. This is also what Davos WEF people mean by their Great Reset. It will not be good.

A Global Planned Financial Tsunami Has Just Begun.

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine „New Eastern Outlook”.

Will the Federal Reserve Crash Global Financial Markets as a Means to Implementing Their “Great Reset”?

It’s looking increasingly likely that the US Federal Reserve and the globalist powers that be will use the dramatic rising of inflation as their excuse to bring down the US financial markets and with it, crash the greatest financial bubble in history.

The enormous inflation rise since the malicious political lockdowns and the trillions of dollars in emergency spending by both Trump and Biden, coupled with the continuation of the Fed’s unprecedented near-zero interest rate policies and asset purchases of billions in bonds to keep the bubble inflated a bit longer– have set the stage for an imminent market collapse. Unlike what we are told, it is deliberate and managed.

Supply chain disruptions from Asia to normal truck transport across North America are feeding the worst inflation in four decades in the USA. The stage is set for the central banks to bring down the debt-bloated system and prepare their Great Reset of the world financial system. However this is not an issue of inflation as some mysterious or “temporary” process.

The context is key. The decision to crash the financial system is being prepared amid the far-reaching global pandemic measures that have devastated the world economy since early 2020. It is coming as the NATO powers, led by the Biden Administration, are tipping the world into a potential World War by miscalculation. They are pouring arms and advisers into Ukraine provoking a response by Russia.

They are escalating pressures on China over Taiwan, and waging proxy wars against China in Ethiopia and Horn of Africa and countless other locations.

The looming collapse of the dollar system, which will bring down most of the world with it owing to debt ties, will come as the major industrial nations go fully into economic self-destruction via their so-called Green New Deal in the EU, and USA and beyond.

The ludicrous Zero Carbon policies to phase out coal, oil, gas and even nuclear have already brought the EU electric grid to the brink of major power blackouts this winter as dependency on unreliable wind and solar make up a major part of the grid. On December 31, the “green” new German government oversees the forced closing of three nuclear power plants that generate the electricity equivalent of the entire country of Denmark. Wind and solar can in no way fill the gaps. In the USA Biden’s misnamed Build Back Better policies have driven fuel coats to record highs. To raise interest rates in this conjuncture will devastate the entire world, which seems to be precisely the plan.

The Fake US Inflation Data

Ever since the early 1970s when President Nixon asked his pal, Arthur Burns, then head of the Federal Reserve, to find a way to get rid of politically damaging consumer inflation monthly data that reflected soaring oil prices along with grain, the Fed has used what they called “core inflation” which means consumer price rises MINUS energy and food. At the time energy made up a significant 11% of inflation data. Food had a weight of 25%. Presto by 1975 a 400% OPEC rise in oil prices and a 300% global grain price rise owing to harvest failures in the Soviet region, “core inflation” fell significantly. This, despite the fact that American consumers had to pay far more for gasoline and bread. Very few real people can live without energy or food. Core inflation is a scam.

By 1975 the Burns Fed had eliminated major costs of housing and other factors leaving a Consumer Price Index that was a mere 35% of the original basket of commodities measured. By then real everyday inflation was out of control. In the real world, USA gasoline today is 58 percent more expensive than in 2020 and over the last 12 months, food prices have gone up by more than 6 percent on average. Today the US Consumer Price Index does not include the cost buying and financing houses, and also not of property taxes or home maintenance and improvement. These factors have been soaring across America in the past year. Now all that is lacking is a statement by the Fed that inflation is more alarming than they thought and required aggressive rate hikes to “squeeze inflation out of the system,” a common central bank myth made dogma under Paul Volcker in the 1970s.

The Bloated US Stock Market

Wall Street markets, today with stocks at historic bloated highs, aided by near zero Fed rates and $120 billion of monthly purchases by the Fed of bonds as well, are at a point where a policy reverse by the Fed, expected now in early 2022, could begin a panic exit from stocks to “get out while the getting is good.” That in turn will likely trigger panic selling and a snowballing market collapse that will make the recent China Evergrande real estate and stock collapse look like nothing at all.

Since the global financial crisis of September 2008, the Federal Reserve and other major central banks such as the ECB in the EU and Bank of Japan have pursued unprecedented zero interest rates and often “quantitative easing” purchases of bonds to bail out the major financial institutions and Wall Street and EU banks. It had little to do with the health of the real economy. It was about the largest bailout in history of brain dead banks and financial funds. The predictable result of the Fed and other central banks’ unprecedented policies has been the artificial inflation of the greatest speculative bubble in stocks in history.

As President, Donald Trump constantly pointed to new record rises in the S&P 500 stocks as proof of the booming economy, even though as a savvy businessman he knew it was a lie. It was rising because of the Fed zero interest rate policy. Companies were borrowing at low rates not to expand plant and equipment investment so much as to buy back their own stocks from the market. That had the effect of boosting stocks in companies from Microsoft to Dell to Amazon, Pfizer, Tesla and hundreds of others. It was a manipulation that corporate executives, owning millions of their own company shares as options, loved. They made billions in some cases, while creating no real value in the economy or the economy.

How big is today’s US stock market bubble? In October 2008 just after the Lehman crisis, US stocks were listed at a total of $13 trillion capitalization. Today it is over $50 trillion, an increase of almost 400% and more than double the total US GDP. Apple Corp. alone is $3 trillion.

Yet with massive labor shortages, lockdowns across America and huge disruptions to trade supply chains especially from China, the economy is sinking and Biden’s phony “infrastructure” bill will do little to rebuild the vital economic infrastructure of highways, rains, water treatment plants and electric grids. For millions of Americans after the 2008 housing collapse, buying stocks has been their best hope for retirement income. A stock crash in 2022 is being prepared by the Fed, only this time it will be used to usher in a real Great Depression worse than the 1930’s as tens of millions or ordinary Americans see their life savings wiped out.

Stock Buyback Game

Over the past four quarters, S&P 500 companies bought back $742 billion of their own shares. Q4 of 2021 will likely see a record increase in that number as companies rush to pump their shares ahead of a reported Biden tax on corporate stock buybacks. Since the beginning of 2012, the S&P 500 companies have bought back nearly $5.68 trillion of their own shares. This is no small beer. The dynamic is so insane that amid a Microsoft decision last month to buy back ever more shares, Microsoft CEO Satya Nadella dumped over 50% of his Microsoft stock in one day. But the stock barely budged because Microsoft itself was busy buying back shares. That indicates the level of unreality in today’s US market. The insiders know it’s about to crash. Tesla’s Elon Musk just sold $10 billion of his stock, allegedly to pay taxes.

Making the stock market even more vulnerable to a panic selloff once it is clear the Fed will raise interest rates, there is nearly $1 trillion in margin debt as of data from October, debt for those buying stocks on borrowed money from their brokers. Once a major market selloff begins, likely early in 2022, brokers will demand repayment of their margin debt, so-called margin calls. That in turn will accelerate the forced selling to raise the cash calls.

Taper?

There is much discussion about when the Fed will reduce its buying of US Treasury securities as well as government-linked home mortgage bonds. That buying has been huge. Since the start of the covid pandemic hysteria in February 2020, total Federal Reserve holdings of such securities have more than doubled from $3.8 trillion to $8 trillion as of end of October 2021. That has kept home mortgage rates artificially low and fueled panic home buying as citizens realize the low rates are about to end. That the Fed calls “taper”, reducing the monthly buying of bonds to zero at the same time it raises key interest rates, a double whammy. This is huge, and blood will flow from Wall Street beginning 2022 when the Fed taper picks up momentum early in 2022 combined with raising rates.

Already in November the Fed began reducing its monthly market supporting buying. “In light of the substantial further progress the economy has made toward the Committee’s goals of maximum employment and price stability,” the FOMC declared in its recent minutes. It announced that it is decreasing the amount of Treasury and Mortgage backed securities purchases in November and December.

Since the Vietnam War era under President Lyndon Johnson, the US Government has manipulated employment data as well as inflation numbers to give a far better picture than exists. Private economist John Williams of Shadow Government Statistics, estimates that actual USA unemployment far from the reported 4.2% for November, is actually over 24.8%. As Williams further notes, “The Inflation Surge Reflects Extreme Money Supply Creation, Extreme Federal Deficit Spending and Federal Debt Expansion, Pandemic Disruptions and Supply Shortages; It Does Not Reflect an Overheating Economy.” Federal Budget Deficits are running a record $3 trillion a year with no end in sight.

Raising rates at this precarious juncture will bring down the fragile US and global financial system, paving the way for a crisis where citizens might beg for emergency relief in the form of digital money and a Great Reset. It is worth noting that every major US stock market crash since October 1929 including 2007-8, has been a result of deliberate Fed actions, disguised under the claims of “containing inflation.”

This time the damage could be epochal. In September the Washington-based Institute of International Finance estimated that global debt levels, which include government, household and corporate and bank debt, rose $4.8 trillion to $296 trillion at the end of June, $36 trillion above pre-pandemic levels. Fully $92 trillion of that is owed by emerging markets such as Turkey, China, India and Pakistan.

Rising interest rates will trigger default crises across the globe as borrowers are unable to repay. This has been deliberately created by central banks, led by the Fed, since their 2008 crisis by pushing interest rates to zero or even negative.

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics.

He is a Research Associate of the Centre for Research on Globalization (CRG)

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By F. William Engdahl Global Research, December 28, 2021 https://www.globalresearch.ca/will-the-federal-reserve-crash-global-financial-markets-as-a-means-to-implementing-their-great-reset/5764816