Bill Holter: Thursday’s Market Crash Was “Only a Test”

Friday, December 11, 2015
By Paul Martin

SilverDoctors.com
December 11, 2015

So what exactly happened last Thursday? The markets (including the dollar) crashed …and this was not supposed to happen?
It’s actually quite easy to understand if you see what they did was “only a test”…

Submitted by Bill Holter, JSMineset:

Do you understand what I mean when I say a “test”? I will explain shortly but first, the Fed came out with piggybacked governors talking about a rate hike. Hilarious on the face of it if you just look at the U.S. economic implosion going on. But let’s assume this is reality, the Fed really wants to hike rates (they do not “want to”, they HAVE to). For the sake of saving face and retaining any credibility they absolutely MUST raise interest rates after seven years …how do they do this? Please read this piece by E.D. Skyrm, http://www.zerohedge.com/news/2015-12-03/its-just-025-rate-hike-whats-big-deal-here-stunning-answer, just a .25% rate raise in rates will require the equivalent of up to $800 billion of collateral necessitated to being pulled. Did you get that? $800 billion??? A huge number and enough to tank the whole system …unless someone is willing to replace it.

For starters you must understand if the Fed does tighten and collateral is withdrawn from the system, because everything is now so levered …”collateral” from somewhere else must be added. That “somewhere” was supposed to be Europe. Mario Draghi tried to push the EU governing council into further QE, in essence the German hawks refused and instead want to let some air out of the current bubbles. Europe was supposed to carry the baton of QE, they instead dropped it.http://www.zerohedge.com/news/2015-12-05/inside-story-why-ecb-decided-markets-needed-be-disappointed-and-how-it-all-fell-apar

Mario Draghi tried to fix it on Friday with his “whatever it takes” statement. I see a problem with this and it has to do with collateral, or the lack of. You see, Europe is experiencing the same limits the Fed ran into during its last round of QE, not enough unencumbered collateral left to purchase. Another way to say this would be …”there is just not enough debt outstanding”. I know it sounds crazy because the underlying financial and economic problems have arisen BECAUSE there is too much debt …but, there is not enough to accommodate the needs for more QE.

What happened on Thursday was a “test of wills” between the Fed and the Bundesbank, the Fed clearly lost even though Friday was a giant reversal from Thursday. I say this because Mario Draghi can say whatever he likes, his mouth will not create the collateral necessary to substitute for any tightening by the Fed. He can say what he pleases but the governing council of the EU (run by hawkish Germans) will not reach for the QE baton. Mr. Draghi can now only jawbone and try to mold appearances.

The Rest…HERE

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