Sunday, June 05, 2016

The Coming Crisis Is 8x Bigger
Than The Subprime Financial Crisis
"Bad things tend to happen when you pay people to borrow money, especially when they’re not particularly creditworthy. Thank goodness no one in finance engages in such risky behavior anymore! Or do they? Today, subprime is back. There’s been a lot of talk lately about a growing bubble in the subprime auto loan market, and even student loans. But the biggest subprime bubble of all is the negative interest loans being made to sovereign governments. All over the world now there are governments that are issuing sovereign bonds with negative yields… and many of these governments are totally bankrupt. ‘Negative yield’ means that an investor who loans money to government will get back less money than s/he invested once the bond matures. In other words, the government is getting paid to borrow money. So it’s not much different than when banks paid subprime homeowners to borrow money ten years ago based on a misguided premise that home prices always go up. Now they’re just paying subprime governments to borrow based on a misguided premise that governments will ALWAYS pay. (Just like Greece!) The key difference is size. At the peak of the housing bubble ten years ago, there was about $1.3 trillion worth of subprime mortgages in the financial system. That $1.3 trillion bubble was enough to bring down several major banks and cause cascading damage across the global financial system. Today’s bubble is EIGHT TIMES the size of the last one, with more than $10.4 trillion worth of government bonds that yield negative interest. And what’s even more concerning is how quickly it’s growing."
- Sovereign Man
LINK HERE to the essay

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