I Bet You Didn’t Even Notice It?…”Without a fully functioning credit market, distribution will break down, real estate markets will cease to exist except for cash purchases or barters. Companies will cease to exist because their access to money to run their companies will be nonexistent.”
By Bill Holter
GoldSeek.com
Tuesday, 12 May 2015
All hell broke out in the credit markets during the overnight hours last Thursday morning, I’ll bet you didn’t even notice it. Before getting into the meat of this piece, it is important to understand “what’s important”. The press constantly harps on the “Dow Jones this or the S+P that”. People come home from work and turn on their TV’s to see what “the market” did. Others have their smart phones or computers at work set to display the stock markets to keep themselves informed.
I am going to tell you, the stock market(s) are merely a side show to the grand Big Top circus of the credit markets. This is true in the U.S., all of Europe and Asia, it is true everywhere. This is the case because the credit (bond) markets are so much larger than the equity markets. The world revolves around credit. Everything revolves around credit. Our daily lives will be turned upside down when the credit markets seize up, and yes, I said “when”, not “if”.
Without a fully functioning credit market, distribution will break down, real estate markets will cease to exist except for cash purchases or barters. Companies will cease to exist because their access to money to run their companies will be nonexistent. Amongst many other “effects”, cash or currencies themselves will also be affected. All currencies everywhere on the planet are a function of, backed or supported by, and actually exist solely as a result of functioning credit markets. The saying goes, “money makes the world go ’round”, this is not true today. Today, “credit makes the world go ’round”!
With the above as an understanding, what happened last Wednesday night/Thursday morning in the wee hours was terrifying. Globally the credit markets began to melt down! This was a global event and almost ALL credits were being sold. To put this in perspective, German bond yields went from .59% to over .76%, this was nearly a 30% rise in yields …within hours. Remember, Germany is considered THE safest credit in Europe. The 10 year bund was yielding under .05% just two weeks ago, the yield had risen more than 15 fold!
Within hours of the U.S. market opening, the central banks of the world had stepped in and brought yields back to mostly unchanged. Can you imagine how much capital had to be deployed? Of course, much of this was done via derivatives but what was the end result? More derivatives outstanding and the central banks have again levered their balance sheets further to save the day. The intraday losses on both credit and their derivatives must have been staggering, had yields not returned to unchanged, this could have torpedoed the entire system.
The Rest…HERE
