The worst case scenario is that government bonds all over the world — the supposed foundation of the global financial system -- are not only NOT risk free, they may in fact be a ticking time bomb.
The only thing that should make us all sick is that we are part of the generation that let it happen. Our grandchildren will never forgive us. When the big ouch comes, it isn't going to matter whether you are Republican or Democrat, what race you are, whether you are rich or poor, gender, etc.
Hi Bart, Don't feel too guilty of being part of the generation that let the collapse happen. Perhaps the wheels were set in motion by good ol' Woodie Wilson when he gave life to the Federal Reserve. Then, after WWII when the US was top of the world, Mom, our leaders decided to get involved in the Vietnam War - young men of the Baby Boomer generation were called to fight in a useless war started by the previous generation. The excessive government spending for the war eventually forced Nixon to take us off the gold standard and a slow motion collapse was inevitable.
You are spot on about Woodie Wilson. Don't forget he also gave us the personal income tax and World War I. He gets my "Worst President of them all" award, though Biden, Carter and Obama run just inches behind him.
An error on my part. Drug addiction was treated as a medical problem not a crime. I think Woodie ran laps around any candidate for worse president of all time.
Yep, and as a cherry on top, he re-segregated the military and federal bureaucracy. And they like to tell us we conservatives and Republicans are the racists.
Beautiful comment and very ugly at the same time. It's been 40 years of kicking the can. I've been wrong about stocks for sooooo damn long. I've so many times questioned my reasoning over the 40 years. Did I miss something important? Well yes the game was the short term play. I certainly didn't understand the game. But now for the umpteenth time I'm totally convinced THE obvious bankruptcy of all these countries is at the front door, wringing the alarm, getting me out of bed. How persistent and pervasive must the indicators and signs be? How much confidence can anyone have when every single indicator and sign say this can't go on much longer? When every single main stream media doesn't mention any problem, only that it time to buy the dip.
Well for me,.. I think my 40% plus position in gold is foolishly, drastically too small.
I'm not a big fan of bitcoin. Love the idea of no Fed but that goes against the gov wanting and legislating full control of "their" currency. I already lost 5K of Ethereum that I can't get out of limbo because i offered too little in commissions to process a trade. It isn't worth two or 3 days of reading fine print to find out how to get my Ethereum out of limbo. Color me skeptical of all the corruption in crypto markets.
The only crypto worth holding is bitcoin. All the other alt-coins are just a fantasy. Or you could try the Digital Yuan. The World is moving to bi-polar (at least) and the current war is a financial war for supremacy. EU is toast for numerous reasons and the U.S. - other than having the Aaa-rated "world reserve currency" can't get out of its own way. Can't cut spending, can't re-focus its military-industrial-complex and is following the same path as the Weimar Republic. Everyone is saying this is going to take a decade or 2 - I think they are smokin' it. With today's technology - it is coming like a lightning bolt.
Well butter my buns and call me Keynesian, Mr Bonner hit the nail on the head with this one!
Japan just lit a bonfire in its bond market, and the whole world’s warming their hands on the flames of denial. The 40-year Japanese government bond’s now yielding more than your average North Korean missile threat, 3.14% and rising, while the Prime Minister casually compares the nation’s finances to Greece, as if invoking economic collapse were some kind of quirky icebreaker at Davos. Meanwhile, the ghost of Abenomics floats past the sushi counter, whispering, “Deficits don’t matter,” while the Bank of Japan tries to mop up thirty years of zero-rate Kool-Aid with a single napkin labeled “quantitative tightening.”
But don’t worry folks, while Japan’s debt-to-GDP ratio makes the U.S. look like a frugal Amish family, Washington’s playing the same roulette wheel, just with dumber costumes and louder sound effects. Mr. Bonner’s masterpiece is firing on all cylinders, Inflate or die, cut or collapse, those are your menu choices in this global diner of debt, where the chef’s wearing a Hazmat suit and the daily special is radioactive ramen. And as bond yields surge like teenage TikTok trends, the scaffold gets built right beside Wall Street, Tel Aviv, Pyongyang, and wherever Putin’s currently shirtless and riding a geopolitical bear.
Across the board, nations are juggling nukes, tariffs, and “free money” like clownish Cold War revivalists, forgetting that even circus acts need gravity. Global economies now resemble a casino where the chips are IOUs, the dealers are central banks, and the pit bosses have nukes. The moral of the story? Listen to Mr. Bonner! If you lend a broke country money at 1% for 40 years, you don’t get paid, you get drafted into their next fiscal funeral.
The world is in financial and economic chaos; this is part of the progressive agenda to reset the world financial markets. The world economic forum at Davos has come up with a reset which would bring back the serfdom society. I believe that going back to the gold standard would cure much of the ills. If all money is backed by gold, money printing would be absolete. Maybe the answer is a crypto currency backed by gold.
I think we all believe that BUT it, gold backing, ain't gonna happen until there is absolutely no other choice and that is likely will happen. It will probably be 20% backing in some incomprehensible fashion, as usual, seeing what society will suck for.
Brian Wilson and Mike Love covered all this in 1964 with the release of the Beach Boys' "Fun, Fun, Fun": "and she'll have fun, fun, fun, until Daddy takes the T-Bird away." Now, the one thing that Fun, Fun, Fun had then that we don't with the coming Bond Collapse is a near-perfect imitation by Carl Wilson (18 at the time!) of a classic Chuck Berry guitar riff for an intro... check it out. We didn't know how good we had it. Best always. PM
In fact, Japans model, borrowing from the own electorate and almost nil from outsiders has worked for a long time. A decade ago (at least) warnings were issued that the aging population will soon turn from being lenders to becoming consumers of there assets, therefore withdrawals would increase and put that model at dire risk.
Seems the time has come.
To understand the specifics of BOJ´s policies there is no better lecturer than Professor Richard Werner, a german who worked inside the BOJ in the 1990´s and developed a model which would have worked; BOJ later adopted it. His Book "Princes of the Yen" is the one to go to for real insights on the matter.
Petra, and so the lessons have not been learned as central banks still do the same. With or without political interference. That is what government will do to any economy. To bad for the citizens of this world.
I went down the rabbit hole of how banks create money. Not only the CB.
Gemini AI.
Yes, commercial banks like the Commonwealth Bank of Australia (CBA) do create money when they issue loans. This is a fundamental concept in modern banking, and it's often counter-intuitive to how people initially think about money.
Here's a breakdown of why and how, addressing your specific example:
How Banks Create Money (The "Money Creation" Process):
* Not just lending out existing deposits: A common misconception is that banks simply take in deposits from savers and then lend those exact funds out to borrowers. While banks do use deposits as a source of funding, the core mechanism of money creation is different.
* Loans create deposits: When CBA approves a loan (e.g., for a mortgage or business loan), they don't transfer physical cash or existing deposits to the borrower. Instead, they credit the borrower's deposit account with the loan amount. This newly created deposit appears as a liability on the bank's balance sheet (what the bank owes to its customers) and an asset for the borrower.
* New money in the system: This new deposit, created through the act of lending, is new money in the economy. The borrower can then use this newly created money to make purchases, which will then likely end up in another bank account somewhere in the banking system.
* The banking system, not a single bank: While an individual bank can create money by issuing a loan, the overall process of money creation is a function of the entire banking system. When a loan is made, the new deposit might quickly be transferred to another bank as the borrower spends it. This highlights that banks are interconnected, and the system as a whole facilitates this money creation.
* Constraints on money creation: While banks can create money, their ability to do so isn't limitless. It's constrained by:
* Demand for loans: Banks can only lend if there are creditworthy borrowers willing to take out loans.
* Capital requirements: Regulators (like APRA in Australia) impose capital requirements, which means banks must hold a certain amount of their own capital relative to their risk-weighted assets (including loans). This acts as a limit on how much they can lend.
* Liquidity requirements: Banks need to manage their liquidity to meet withdrawals and other obligations.
* Monetary policy: The Reserve Bank of Australia (RBA) influences interest rates and overall economic conditions, which impacts the demand for loans and the banks' willingness to lend.
* Loan repayments: Just as money is created when loans are issued, it's "destroyed" or extinguished when loans are repaid.
Your Example: CBA's Reserves vs. Loan Book
Your observation that CBA's loan book (say, $352 billion) is significantly larger than its reserves (say, $75 billion) points directly to this money creation process.
* Reserves: These are funds a bank holds at the central bank (RBA in Australia) or as vault cash. They are primarily used for interbank settlements and meeting liquidity needs. They are not a direct "pot" from which loans are drawn.
* Loan Book: The $352 billion loan book represents the value of all the loans CBA has extended to its customers. A substantial portion of these loans were created through the process described above – by crediting customer deposit accounts, effectively bringing new money into existence.
Does this mean $277 billion was "created"?
It's not quite as simple as saying the difference ($352 billion - $75 billion = $277 billion) was "created" by CBA alone in a single, isolated transaction. The figures represent the current state of their balance sheet. However, the fact that the loan book is much larger than the reserves demonstrates that CBA, as part of the broader banking system, has been a significant participant in the process of money creation through lending.
The $352 billion in loans outstanding would have corresponded to the creation of $352 billion in new deposits (or an increase in existing deposits) at the time those loans were initially granted. As loans are repaid, those deposits are extinguished.
In essence, the large loan book relative to reserves highlights that the vast majority of money in circulation in a modern economy like Australia is in the form of bank deposits, which are primarily created through the process of bank lending, not solely from the RBA printing physical currency or from existing deposits being re-lent.
My awakening began in 2009 in the aftermath of the GFC. Came across the former Chief Economist of Deutsche Bank, who turned from Saulus into Paulus, being very critical about his former bread giver. And had a real hard time to grasp this monstrous scam scheme.
A question for all the Trump supporters - did any of you get an invite to Trump's private meme coin dinner last night? Did any of you buy his coins? And finally, why is an old billionaire wasting time on pumping crypto coins while there are so many problems to deal with in the US?
Stablecoin issuers are emerging as a significant and growing buyer of US Treasury securities, especially T-bills. In a debtor nation everyone's a bond salesman, not just the Treasury Secretary :-)
The theories and propositions of economic wizards from academic prof ‘who saids’ through to street wise ‘Worn out’ dumpster diggers, would fill a 20 to 30 volume ‘Econocyclopedia, n’est pas?
Rule 1- Do some work to make a $1, and you have a $1 to spend.
Rule 1.1- Spend $1 that is not yours to spend = GO BROKE or become a thief.
It’s not rocket science or something new, is it Mr Caveman or Mr Einstein ?
You've recommended in the past short-term t-bills (4-week) as a good place to stash our cash and avoid the "Big Loss". Do you think these t-bills are no longer safe? Do you think the US government would actually default and not pay on maturity?
"Maybe" there is an answer but is it plausable!!! First, we have to commit to having balanced budgets. Then, since we have now opened the western federal lands for natural resource development, we designate a percentage of all future presious metals mined to pay off our debt on a schedule repayment plan. Since the total estimated value of the precious metals is in excess of $150 trillion, 30% of what's mined should do the trick. This may be a rediculous idea from an old man but it's a suggestion. I know you youngsters can come up with far better solutions. Let's here them.
That's an interesting idea. I have a general question.. Is there a enough gold or the planet to back every currency? If so, would the eventual Inflation based price be $300000 a gram perhaps? That seems as farsical as a paper currency based on a promise....
The only thing that should make us all sick is that we are part of the generation that let it happen. Our grandchildren will never forgive us. When the big ouch comes, it isn't going to matter whether you are Republican or Democrat, what race you are, whether you are rich or poor, gender, etc.
Hi Bart, Don't feel too guilty of being part of the generation that let the collapse happen. Perhaps the wheels were set in motion by good ol' Woodie Wilson when he gave life to the Federal Reserve. Then, after WWII when the US was top of the world, Mom, our leaders decided to get involved in the Vietnam War - young men of the Baby Boomer generation were called to fight in a useless war started by the previous generation. The excessive government spending for the war eventually forced Nixon to take us off the gold standard and a slow motion collapse was inevitable.
You are spot on about Woodie Wilson. Don't forget he also gave us the personal income tax and World War I. He gets my "Worst President of them all" award, though Biden, Carter and Obama run just inches behind him.
True that, the dominoes fell… But it was Woody that pushed the first one.
The fed and income tax? Let’s exhume that guy and throw him into a cesspool.
Was he not also the first Presdent to junket outside U. S. borders saying
that the world needed his personal greatness?
Boy do I agree with you
And don't forget the Harrison Act that eventually engendered the failed War on Drugs. Before that drug addiction was treated a
An error on my part. Drug addiction was treated as a medical problem not a crime. I think Woodie ran laps around any candidate for worse president of all time.
Yep, and as a cherry on top, he re-segregated the military and federal bureaucracy. And they like to tell us we conservatives and Republicans are the racists.
Also the war on poverty.
One simple way to address our problem is for our Federal government to progressively reduce its spending to match its tax revenue
Beautiful comment and very ugly at the same time. It's been 40 years of kicking the can. I've been wrong about stocks for sooooo damn long. I've so many times questioned my reasoning over the 40 years. Did I miss something important? Well yes the game was the short term play. I certainly didn't understand the game. But now for the umpteenth time I'm totally convinced THE obvious bankruptcy of all these countries is at the front door, wringing the alarm, getting me out of bed. How persistent and pervasive must the indicators and signs be? How much confidence can anyone have when every single indicator and sign say this can't go on much longer? When every single main stream media doesn't mention any problem, only that it time to buy the dip.
Well for me,.. I think my 40% plus position in gold is foolishly, drastically too small.
And hopefully have another 40% in Bitcoin 🚀🚀
I'm not a big fan of bitcoin. Love the idea of no Fed but that goes against the gov wanting and legislating full control of "their" currency. I already lost 5K of Ethereum that I can't get out of limbo because i offered too little in commissions to process a trade. It isn't worth two or 3 days of reading fine print to find out how to get my Ethereum out of limbo. Color me skeptical of all the corruption in crypto markets.
The only crypto worth holding is bitcoin. All the other alt-coins are just a fantasy. Or you could try the Digital Yuan. The World is moving to bi-polar (at least) and the current war is a financial war for supremacy. EU is toast for numerous reasons and the U.S. - other than having the Aaa-rated "world reserve currency" can't get out of its own way. Can't cut spending, can't re-focus its military-industrial-complex and is following the same path as the Weimar Republic. Everyone is saying this is going to take a decade or 2 - I think they are smokin' it. With today's technology - it is coming like a lightning bolt.
I get it brother, to each their own! For years I’ve been talking crypto here, and hopefully a few are enjoying their new wealth 🙏
Well, I sure could be, but I'm letting it run. There's still LOTS of $$ to be made.
Thanks, Brother Steve!!
Agreed.
Well butter my buns and call me Keynesian, Mr Bonner hit the nail on the head with this one!
Japan just lit a bonfire in its bond market, and the whole world’s warming their hands on the flames of denial. The 40-year Japanese government bond’s now yielding more than your average North Korean missile threat, 3.14% and rising, while the Prime Minister casually compares the nation’s finances to Greece, as if invoking economic collapse were some kind of quirky icebreaker at Davos. Meanwhile, the ghost of Abenomics floats past the sushi counter, whispering, “Deficits don’t matter,” while the Bank of Japan tries to mop up thirty years of zero-rate Kool-Aid with a single napkin labeled “quantitative tightening.”
But don’t worry folks, while Japan’s debt-to-GDP ratio makes the U.S. look like a frugal Amish family, Washington’s playing the same roulette wheel, just with dumber costumes and louder sound effects. Mr. Bonner’s masterpiece is firing on all cylinders, Inflate or die, cut or collapse, those are your menu choices in this global diner of debt, where the chef’s wearing a Hazmat suit and the daily special is radioactive ramen. And as bond yields surge like teenage TikTok trends, the scaffold gets built right beside Wall Street, Tel Aviv, Pyongyang, and wherever Putin’s currently shirtless and riding a geopolitical bear.
Across the board, nations are juggling nukes, tariffs, and “free money” like clownish Cold War revivalists, forgetting that even circus acts need gravity. Global economies now resemble a casino where the chips are IOUs, the dealers are central banks, and the pit bosses have nukes. The moral of the story? Listen to Mr. Bonner! If you lend a broke country money at 1% for 40 years, you don’t get paid, you get drafted into their next fiscal funeral.
The world is in financial and economic chaos; this is part of the progressive agenda to reset the world financial markets. The world economic forum at Davos has come up with a reset which would bring back the serfdom society. I believe that going back to the gold standard would cure much of the ills. If all money is backed by gold, money printing would be absolete. Maybe the answer is a crypto currency backed by gold.
I think we all believe that BUT it, gold backing, ain't gonna happen until there is absolutely no other choice and that is likely will happen. It will probably be 20% backing in some incomprehensible fashion, as usual, seeing what society will suck for.
Yeah, but here’s the thing Abe… They don’t want to fix it.
Agreed
"I might look like hell, but you should see the 𝘰𝘵𝘩𝘦𝘳 guy." :)
Have a great weekend everybody.....
I'm sure you look better from the port side
Brian Wilson and Mike Love covered all this in 1964 with the release of the Beach Boys' "Fun, Fun, Fun": "and she'll have fun, fun, fun, until Daddy takes the T-Bird away." Now, the one thing that Fun, Fun, Fun had then that we don't with the coming Bond Collapse is a near-perfect imitation by Carl Wilson (18 at the time!) of a classic Chuck Berry guitar riff for an intro... check it out. We didn't know how good we had it. Best always. PM
https://www.youtube.com/watch?v=g_qJmz6FLC8
Those wonderful times of real music.
Yes it really was real music, and real cars.
PM: Ah, memories!
In fact, Japans model, borrowing from the own electorate and almost nil from outsiders has worked for a long time. A decade ago (at least) warnings were issued that the aging population will soon turn from being lenders to becoming consumers of there assets, therefore withdrawals would increase and put that model at dire risk.
Seems the time has come.
To understand the specifics of BOJ´s policies there is no better lecturer than Professor Richard Werner, a german who worked inside the BOJ in the 1990´s and developed a model which would have worked; BOJ later adopted it. His Book "Princes of the Yen" is the one to go to for real insights on the matter.
Truly a Memorial Weekend Special today, sticking to business without one mention of DJT…now that makes me think about sharing with others🤔
Here´s a good summary:
https://thegeopolity.com/2024/03/27/book-review-princes-of-the-yen/
Petra, and so the lessons have not been learned as central banks still do the same. With or without political interference. That is what government will do to any economy. To bad for the citizens of this world.
My best guess is, the CB´s cover the asses of the current governments and much more of the TBTF´s.
My thinking is that You definitely are on to a reason.
I went down the rabbit hole of how banks create money. Not only the CB.
Gemini AI.
Yes, commercial banks like the Commonwealth Bank of Australia (CBA) do create money when they issue loans. This is a fundamental concept in modern banking, and it's often counter-intuitive to how people initially think about money.
Here's a breakdown of why and how, addressing your specific example:
How Banks Create Money (The "Money Creation" Process):
* Not just lending out existing deposits: A common misconception is that banks simply take in deposits from savers and then lend those exact funds out to borrowers. While banks do use deposits as a source of funding, the core mechanism of money creation is different.
* Loans create deposits: When CBA approves a loan (e.g., for a mortgage or business loan), they don't transfer physical cash or existing deposits to the borrower. Instead, they credit the borrower's deposit account with the loan amount. This newly created deposit appears as a liability on the bank's balance sheet (what the bank owes to its customers) and an asset for the borrower.
* New money in the system: This new deposit, created through the act of lending, is new money in the economy. The borrower can then use this newly created money to make purchases, which will then likely end up in another bank account somewhere in the banking system.
* The banking system, not a single bank: While an individual bank can create money by issuing a loan, the overall process of money creation is a function of the entire banking system. When a loan is made, the new deposit might quickly be transferred to another bank as the borrower spends it. This highlights that banks are interconnected, and the system as a whole facilitates this money creation.
* Constraints on money creation: While banks can create money, their ability to do so isn't limitless. It's constrained by:
* Demand for loans: Banks can only lend if there are creditworthy borrowers willing to take out loans.
* Capital requirements: Regulators (like APRA in Australia) impose capital requirements, which means banks must hold a certain amount of their own capital relative to their risk-weighted assets (including loans). This acts as a limit on how much they can lend.
* Liquidity requirements: Banks need to manage their liquidity to meet withdrawals and other obligations.
* Monetary policy: The Reserve Bank of Australia (RBA) influences interest rates and overall economic conditions, which impacts the demand for loans and the banks' willingness to lend.
* Loan repayments: Just as money is created when loans are issued, it's "destroyed" or extinguished when loans are repaid.
Your Example: CBA's Reserves vs. Loan Book
Your observation that CBA's loan book (say, $352 billion) is significantly larger than its reserves (say, $75 billion) points directly to this money creation process.
* Reserves: These are funds a bank holds at the central bank (RBA in Australia) or as vault cash. They are primarily used for interbank settlements and meeting liquidity needs. They are not a direct "pot" from which loans are drawn.
* Loan Book: The $352 billion loan book represents the value of all the loans CBA has extended to its customers. A substantial portion of these loans were created through the process described above – by crediting customer deposit accounts, effectively bringing new money into existence.
Does this mean $277 billion was "created"?
It's not quite as simple as saying the difference ($352 billion - $75 billion = $277 billion) was "created" by CBA alone in a single, isolated transaction. The figures represent the current state of their balance sheet. However, the fact that the loan book is much larger than the reserves demonstrates that CBA, as part of the broader banking system, has been a significant participant in the process of money creation through lending.
The $352 billion in loans outstanding would have corresponded to the creation of $352 billion in new deposits (or an increase in existing deposits) at the time those loans were initially granted. As loans are repaid, those deposits are extinguished.
In essence, the large loan book relative to reserves highlights that the vast majority of money in circulation in a modern economy like Australia is in the form of bank deposits, which are primarily created through the process of bank lending, not solely from the RBA printing physical currency or from existing deposits being re-lent.
Re-reading this, it really does seem like a huge ponzi scheme...
Hi Clem,
Wholeheartedly agree.
My awakening began in 2009 in the aftermath of the GFC. Came across the former Chief Economist of Deutsche Bank, who turned from Saulus into Paulus, being very critical about his former bread giver. And had a real hard time to grasp this monstrous scam scheme.
Cheers Clem
Excellent explanation
I agree;-)
“The world’s coming to an end, I don’t even care!”…Cheech & Chong’s ‘Alice Bowie’ 😂
A question for all the Trump supporters - did any of you get an invite to Trump's private meme coin dinner last night? Did any of you buy his coins? And finally, why is an old billionaire wasting time on pumping crypto coins while there are so many problems to deal with in the US?
Stablecoin issuers are emerging as a significant and growing buyer of US Treasury securities, especially T-bills. In a debtor nation everyone's a bond salesman, not just the Treasury Secretary :-)
CA: He likes to stay rich regardless of the economy.
Perceived relevance with the younger voters.
The theories and propositions of economic wizards from academic prof ‘who saids’ through to street wise ‘Worn out’ dumpster diggers, would fill a 20 to 30 volume ‘Econocyclopedia, n’est pas?
Rule 1- Do some work to make a $1, and you have a $1 to spend.
Rule 1.1- Spend $1 that is not yours to spend = GO BROKE or become a thief.
It’s not rocket science or something new, is it Mr Caveman or Mr Einstein ?
Tom:
You've recommended in the past short-term t-bills (4-week) as a good place to stash our cash and avoid the "Big Loss". Do you think these t-bills are no longer safe? Do you think the US government would actually default and not pay on maturity?
"Maybe" there is an answer but is it plausable!!! First, we have to commit to having balanced budgets. Then, since we have now opened the western federal lands for natural resource development, we designate a percentage of all future presious metals mined to pay off our debt on a schedule repayment plan. Since the total estimated value of the precious metals is in excess of $150 trillion, 30% of what's mined should do the trick. This may be a rediculous idea from an old man but it's a suggestion. I know you youngsters can come up with far better solutions. Let's here them.
Yes Sir, it’s MOSTLY fake capital. Or, worse than that, fake “borrowed” capital.
Only solution?
Ultimate solution?
Just don’t pay it.
Here’s the reason why you can’t pay it.
YOU DON’t have any money!
That's an interesting idea. I have a general question.. Is there a enough gold or the planet to back every currency? If so, would the eventual Inflation based price be $300000 a gram perhaps? That seems as farsical as a paper currency based on a promise....
Just raise the price of gold to accommodate. Do not really need more gold , just the price and an inventory in Your safe.