It's the debt.
From the Philosophical Salon, October 9:
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The first week of September started with the official return of the deadly virus. On Tuesday 5th, pictures of Joe Biden wearing a black facemask were released into the global infosphere. Simultaneously, mask mandates were issued at an elementary school of a wealthy little town in Maryland because of a new Covid outbreak where 3 pupils tested positive. In late August facemasks were mandated at Lionsgate studios (Hollywood), Morris Brown College, Atlanta (with social distancing), and Dillard University, New Orleans, followed by other public places across the Western world. From September 25, each US family can request 4 free at-home Covid tests, as the Biden administration resumes the programme that was ended in June last year. Testing was also scaled up in the UK, where Covid-related flight disruptions brought back vivid memories of the recent past.
The first thing to do when faced by the formidable ideological firepower of the ruling class is to keep calm and not lose sight of the deep causality. The signifier “Covid” does not belong – primarily at least – in the semantic field of epidemiology, but in those of socioeconomics and behavioural psychology. Its intrinsic purpose was always to shepherd us into a “lower energy-density” world where implosive capitalism seeks to prolong its lifespan by turning the screw on entire populations. The flow of interchangeable emergencies, even when purely hypothetical, feeds into the fear paradigm that keeps us subjugated. The manipulation of perception in the digital era dissolves the boundary between true and false, which become irrelevant. This is perhaps nowhere more palpable than in the increasingly frequent nationwide emergency drills via alarms sent to mobile phones, so many punishing reminders that we must live in a constant state of “shock and awe”.
By now, this much should be clear: crisis capitalism operates as a diabolical “poverty management” exercise based on the controlled release of panic, anxiety, and guilt, supplemented by endless distractions and fake binaries. Since 9/11, emergency is a state of mind that must be systematically nourished to keep the plebs in check. In this respect, Virus is only one of today’s symptoms of a collapsing form of life. While humanity possesses the material and intellectual competence to provide for basic rights to food, shelter, and a meaningful shared existence, it spectacularly fails to do so by subordinating those rights to the blind drive for profit-making, whose viciousness grows as we edge closer to full-blown economic meltdown.
1. Rolling out fear to rollover debt
What the media and political class will never tell us is that, since 2008, the system has inflated the largest debt hyper-bubble in history, which in turn has led to an equally monstrous “everything bubble”, from stock markets to real estate, thus setting the stage for a financial breakdown that will eclipse the previous one by several orders of magnitude. No-one will ever inform us that the next lock up (liquidity freeze) of the financial system will be followed by the collapse of the economy and the inevitable lockdown of society. In the dramatic meeting that took place on Thursday 18 September 2008, Ben Bernanke (then chairman of the Federal Reserve) famously said: ‘If we don’t do this tomorrow [pump hundreds of billions of dollars into the system], we won’t have an economy on Monday.’ Today, the consequences of a financial crash are going to be infinitely worse, and there’s no guarantee that another rescue operation to unblock the system via massive cash injections – as already experimented during Covid – will work. Essentially, this is why we’re being conditioned to accept, if not actively desire, “low energy” capitalism.
Many will recall that in September 2019, exactly four years ago, repo (repurchase agreement) rates exploded overnight, shaking the core of a shadow banking system addicted to cheap credit. To avoid a liquidity freeze and its domino effect, the Fed immediately started mouth-to-mouth resuscitation via “Quantitative Easing on steroids”: first weekly, then daily cash injections to the tune of billions of dollars. They reassured us that the technical fault would be resolved in a couple of weeks, and yet they went on flooding the banking sector with inordinate amounts of magic money until April 2020, when the baton was passed to the various pandemic support packages. During those months, the nature of crisis capitalism emerged clearly in all its absurdity: a virus was weaponised to gag the global economy while the financial sector got bailed out. This is how the most efficient economic system we can think of makes its own greed “sustainable”.
In Autumn 2023, pandemic angst might still work better than anything else as the panacea for all excess demand. Concealed by the usual barrage of meaningless “news”, the debt-soaked system is again reaching a point of maximum saturation, in a context that sees us moving ‘[f]rom a capitalist productivist society to a neo-capitalist cybernetic order, aiming this time at absolute control’,[i] as Jean Baudrillard put it back in 1976 – a time when the left was not yet paranoid about being paranoid, having not succumbed to the ubiquitous “conspiracy theory” blackmail.
The predictable return of the facemask is a symptom of economic stress, since in the magical world of perpetual QE, debts and deficits can be rolled over only if a fear campaign is rolled out every other month to cool down any excess of production & consumer demand. As more monetary injections are needed to support the debt bubble that keeps financial markets from cratering, real demand must be compressed to prevent an inflationary spike that could easily get out of hand. As a rule, when monetary injections exceed the actual value created in the real economy, money devaluation is inevitable. The scenario the elites want to avoid (at least for now) is depicted at the end of Alan Pakula’s 1981 film aptly titled Rollover, when, after a financial crash, the world’s currencies become worthless, and riots develop across the globe irrespective of political boundaries (East and West blocs) or economic differences (developing and industrialised countries). The implicit lesson of the film is that for today’s financial charade to continue, the skyrocketing debt stocks must be rolled over, which requires the assistance of an endless sequence of exogenous “accidents” – a strategy now so desperate that it might even culminate in mass murder via war expansion or other means.
On the surface, things are bad enough. The financial system is a speculative black hole that must be fed greater and greater amounts of cash, and yet can never be made whole. For the first time, the US national debt has passed the $33 trillion mark, with 1 trillion added in the last three months alone. As the debt multiplier ticks higher, bond selloffs are increasingly common, which means that bonds (debt securities) lose value while their yields rise. The US 10-year Treasury yield has just topped 4.5%, the highest point since October 2007, which pressurises stock markets as risk increases. Consistently rising bond yields are now a major concern for both Wall Street (with JP Morgan warning of a 2008-like stock market) and Main Street economies no longer able to re-finance their way out of the debt trap. At some point soon, then, an inflationary monetary response (money printing to the moon) will be required. But the intrinsically pathetic effort to save an indebted system by adding more debt to it can only exacerbate the problem further. The above picture is further aggravated by China and other BRICS+ countries dumping US Treasuries, while oil prices (energy costs) are rising. Here, it is interesting to note that many hedge funds are shorting (speculating on the decline of) the energy sector, which makes one wonder what they know that we don’t.
If we look beneath the surface, it gets even worse, as the entire economic structure is crumbling. It’s worth stressing that sovereign debt is the backbone of modern financial systems, which means that demand for government bonds must be constantly stimulated – especially in the unregulated repo markets, where lending is mostly collateralized precisely by government bonds. The key role of repo lenders in keeping the system liquid hinges on their confidence that the value they receive as collateral (typically, Treasury bonds) does not drop sharply. When that happens, it triggers margin calls (requests from the lender to cough up additional funds) and then fire sales (asset sales at very low prices due to impending bankruptcy) – a vicious circle usually leading to a crash, as it almost did in September 2019....
....MUCH MORE
If interested see also a couple of the official explanations of what was going on in 2019:
- "Anatomy of the Repo Rate Spikes in September 2019"
- The Federal Reserve's Explanation Of What Happened In The Money Markets In September 2019
"Economist Michael Hudson Says the Fed 'Broke the Law' with its Repo Loans to Wall Street Trading Houses"
At the time I remember thinking "Oh look, the Fed has a new lending facility" and moving on to something shiny, not realizing it was a very big deal. As the old-timers used to say: "Pay attention or pay the offer."....
A Nomura Document May Shed Light on the Repo Blowup and Fed Bailout of the Gang of Six in 2019
"A Closer Look at the U.S. Bacon Situation"
"The Day When Repo Rates Blew Out: Fed Recounts a Fiasco that Occurred as the FOMC Was Meeting, and How it Reacted"
And some background:
- "The Central Bankers’ Long Covid: An Incurable Condition"
- Money, Money, Money: "A Self-Fulfilling Prophecy: Systemic Collapse and Pandemic Simulation"
....Follow the moneyIn pre-Covid times, the world economy was on the verge of another colossal meltdown. Here is a brief chronicle of how the pressure was building up:June 2019: In its Annual Economic Report, the Swiss-based Bank of International Settlements (BIS), the ‘Central Bank of all central banks’, sets the international alarm bells ringing. The document highlights “overheating […] in the leveraged loan market”, where “credit standards have been deteriorating” and “collateralized loan obligations (CLOs) have surged – reminiscent of the steep rise in collateralized debt obligations [CDOs] that amplified the subprime crisis [in 2008].” Simply stated, the belly of the financial industry is once again full of junk.
"Stock market valuations don’t ‘reflect the damage ahead,’ BlackRock warns"
9 August 2019: The BIS issues a working paper calling for “unconventional monetary policy measures” to “insulate the real economy from further deterioration in financial conditions”. The paper indicates that, by offering “direct credit to the economy” during a crisis, central bank lending “can replace commercial banks in providing loans to firms.”
15 August 2019: Blackrock Inc., the world’s most powerful investment fund (managing around $7 trillion in stock and bond funds), issues a white paper titled Dealing with the next downturn. Essentially, the paper instructs the US Federal Reserve to inject liquidity directly into the financial system to prevent “a dramatic downturn.” Again, the message is unequivocal: “An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough. That response will likely involve ‘going direct’”: “finding ways to get central bank money directly in the hands of public and private sector spenders” while avoiding “hyperinflation. Examples include the Weimar Republic in the 1920s as well as Argentina and Zimbabwe more recently.”
22-24 August 2019: G7 central bankers meet in Jackson Hole, Wyoming, to discuss BlackRock’s paper along with urgent measures to prevent the looming meltdown. In the prescient words of James Bullard, President of the St Louis Federal Reserve: “We just have to stop thinking that next year things are going to be normal.”
15-16 September 2019: The downturn is officially inaugurated by a sudden spike in the repo rates (from 2% to 10.5%). ‘Repo’ is shorthand for ‘repurchase agreement’, a contract where investment funds lend money against collateral assets (normally Treasury securities). At the time of the exchange, financial operators (banks) undertake to buy back the assets at a higher price, typically overnight. In brief, repos are short-term collateralized loans. They are the main source of funding for traders in most markets, especially the derivatives galaxy. A lack of liquidity in the repo market can have a devastating domino effect on all major financial sectors.
17 September 2019: The Fed begins the emergency monetary programme, pumping hundreds of billions of dollars per week into Wall Street, effectively executing BlackRock’s “going direct” plan. (Unsurprisingly, in March 2020 the Fed will hire BlackRock to manage the bailout package in response to the ‘COVID-19 crisis’).
19 September 2019: Donald Trump signs Executive Order 13887, establishing a National Influenza Vaccine Task Force whose aim is to develop a “5-year national plan (Plan) to promote the use of more agile and scalable vaccine manufacturing technologies and to accelerate development of vaccines that protect against many or all influenza viruses.” This is to counteract “an influenza pandemic”, which, “unlike seasonal influenza […] has the potential to spread rapidly around the globe, infect higher numbers of people, and cause high rates of illness and death in populations that lack prior immunity”. As someone guessed, the pandemic was imminent, while in Europe too preparations were underway (see here and here).
In the carefree days of yore I probably wouldn't have taken much notice of this beyond thinking "ah, big money manager has thoughts."But since "Flashback: That Time Just Weeks Before Covid That BlackRock Told The Fed Exactly What It Wanted The Fed To Do (BLK)" which links to ourselves and the 2019 BLK whitepaper where Mr. Fink's peeps gave the Fed its marching orders for the 2020 disaster; well, I'm paying a bit more attention. If interested the Philosophical Salon has more after the jump.....*****....A look at Chairman Powell's calendar for the period February through June 2020, when the market went from total collapse, including an intraday 3000 DJIA-point loss one day in March, actually in the middle of one of the covid press conferences, to one of the most amazing recoveries in the last 90 years:
TradingView, DJIA daily, December 2019 - June 2020
Some highlights from the Fed Chair's calendar:
February 19, Wednesday
3:00 PM – 4:00 PM Meeting with Jamie Dimon, CEO and Jenn Peipszack, CFO, JPMorgan Chase
Location: AnteroomMarch 19, Thursday
4:30 PM – 5:00 PM Phone call with Larry Fink, CEO BlackRock
April 3, Friday
3:30 PM – 3:45 PM Phone call with Larry Fink, CEO, BlackRockApril 9, Thursday
5:15 PM – 5:30 PM Phone call with Larry Fink, CEO, BlackRock
May 13, Wednesday
1:30 PM – 2:00 PM Phone call with Larry Fink, CEO, BlackRock
Of course there is much much more but discerning reader gets the point: Powell forgot to call me!
It appears I may have become a bit obsessed with the events of September 2019 - March 2020.
