Panic In The Bond Markets…The Bankers’ Last Arena

June 17, 2015

In September 2012, in my article Gold versus Bonds, I wrote: In the end game, the bond market will be capitalism’s final resting place …when capital markets expand, the action is in the equity markets; when capital markets contract, bond markets are where the action is.

On June 7, 2015, The Financial Times’ John Authers observed: This has been a very dramatic week…. The real action was in the bond markets…the cost of borrowing, the cost of money within Germany over the long term more than doubled in the space of four trading days.

On the same day, CNNMoney warned: Pay Attention To The Chaos In The Bond Market - Bond Market Selloff Continues

That hissing sound you just heard is more air coming out of the bubble in the global bond market. From Germany to the US, fixed income prices tanked last week, sending yields way up…Investors are yanking cash out of the fixed income market. Government bonds experienced a sixth-straight week of outflows, according to Bank of America Merrill Lynch. Emerging market debt, a big beneficiary of extremely low U.S. interest rates, suffered the biggest outflow in nearly five months.

The same week, Michael Snyder in Investors Start To Panic As A Global Bond Market Crash Begins, asked:

 Is the financial collapse that so many are expecting in the second half of 2015 already starting?

Many have believed that we would see bonds crash before the stock market crashes, and that is precisely what is happening right now. Since mid-April, the yield on 10 year German bonds has shot up from 0.05 percent to 0.89 percent. That much of that jump has come this week. Just a couple of days ago, the yield on 10 year German bonds was sitting at just 0.54 percent. And it isn’t just German – bond yields are going crazy all over Europe. So far, it is being estimated that global investors have lost more than half a trillion dollars, and there is much more room for these bonds to fall. In the end, the overall losses could be well into the trillions…

And on June 11th, FXStreet wrote: …government bond prices across the globe continue to tank, sending yields higher, leading to a cumulative loss of [$1.2 trillion] in last three months…The bond route is spearheaded by the German bunds..A similar move is seen in French, Italian and Spanish yields…In Asia, the picture is similar to the one seen in the Eurozone. Yields have jumped in South Mexico..and in Australia…

Under the topic, THE END GAME AND THE COMING PANIC IN THE BOND MARKET, in Gold versus Bonds (September 2012) I wrote:

 The bond matadors’ 30-year run of luck is running out. Interest rates have fallen for 30 years making previously-issued bonds more valuable. But, today, with US Treasury debt close to 0 %, interest rates can’t go lower and bond valuations can’t continue to rise.

We are moving into the end game, the grand denouement of credit and debt-based markets, the grand finale of the debt super-cycle, the crack-up boom, the blow-off Ludwig von Mises predicted would happen as a result of constantly expanding credit.

David Stockman [Reagan’s former budget director] and outstanding observer of America’s problems in the end game..was asked [May 2012]: ‘What catalyst could bring the end game to a final resolution?’

David Stockman: I think the likely catalyst is a breakdown of the U.S. government bond market. It is the heart of the fixed income market and, therefore, the world's financial market.

Because of Fed management and interest-rate pegging, the market is artificially medicated. All of the rates and spreads are unreal. The yield curve is not market driven. Supply and demand for savings and investment, future inflation risk discounts by investors—none of these free market forces matter. The price of money is dictated by the Fed, and Wall Street merely attempts to front-run its next move.

As long as the hedge fund traders and fast-money boys believe the Fed can keep everything pegged, we may limp along. The minute they lose confidence, they will unwind their trades.

On the margin, nobody owns the Treasury bond; you rent it. Trillions of treasury paper is funded on repo: You buy $100 million (M) in Treasuries and immediately put them up as collateral for overnight borrowings of $98M. Traders can capture the spread as long as the price of the bond is stable or rising, as it has been for the last year or two. If the bond drops 2%, the spread has been wiped out.

If that happens, the massive repo structures—that is, debt owned by still more debt—will start to unwind and create a panic in the Treasury market.



When paradigms shift, what was once believed true is no longer believed, new questions take the place of old answers and institutional failure becomes commonplace when traditional solutions no longer provide the requisite answers.

We are now in the final stage of the end game. I described this process in September 2008 in my article Gold & The Collapse of Paper Money. In that article, I referred to Professor David Hackett Fischer’s The Great Wave, Price Revolutions and the Rhythm of History (Oxford University Press 1996), a seminal work that places today’s economic crisis in a far greater and far more significant context:

According to Professor Fischer, waves of rising prices have interrupted long periods of stability throughout history. These great waves are often accompanied by unexpected disasters, extreme social upheaval and always end in economic collapse.

Such great waves last from 80 to 160 years and their appearance spells the end of epochs and eras. Great waves marked the end of the feudal era, as it did the end of the renaissance and the enlightenment; and soon, the current great wave that began in 1896 will end the era of “Victorian equilibrium”, an era that began with the reign of England’s Queen Victoria.

During each great wave throughout history: …Food and fuel led the upward movement. Manufactured goods and services lagged behind. These patterns indicated that the prime mover was excess aggregate demand, generated by an acceleration of population growth, or by rising living standards, or both.

Prices went higher, and became increasingly unstable. They began to surge and decline in movements of increasing volatility. Severe price-shocks were felt in commodity movements. The money supply was alternately expanded and contracted.

Financial markets became unstable. Government spending grew faster than revenue, and public debt increased at a rapid rate…Wages, which had at first kept up with prices, now lagged behind. Returns to labor declined while returns to land and capital increased. The rich grew richer. Inequalities of wealth and income increased. So did hunger, homelessness, crime, violence, drink, drugs, and family disruption.

…This was a time of lost faith in institutions. It was also a period of desperate search for spiritual values…Young people, uncertain of both the future and the past, gave way to alienation and cultural anomie…Finally, the great wave crested and broke with shattering force in a cultural crisis that included demographic contraction, economic collapse, political revolution, international war and social violence.

Today, another great wave is cresting and, once again, is about to break, resulting in a cataclysmic crisis of demographic contraction, economic collapse, political revolution, international war and social violence that will end the current paradigm, clearing the way for the new and better paradigm to come.

About these cataclysmic and transformative crises, Professor Fischer writes: Each crisis improved the condition of ordinary people. It has also enlarged ideas of human dignity, freedom, and the role of law. This tendency has become more powerful in each successive wave.

The world’s oldest book, China’s I Ching (The Book of Changes) offers a perspective on today’s crisis that supports Professor Fischers’ ultimately positive outlook:

The Flood, hexagram 59: Being swept by a flood is blessed…What seems like a disaster proves to be a blessing. The protagonist is inundated by a rush of water, an irresistible and apparently destructive force. But this destructive force proves beneficial, sweeping him up to a height he could not have reached on his own.

Rediscovering the I Ching, Greg Whincup, Doubleday & Co. 1986

We asked for signs

Signs were sent

But then we wondered

What they meant


The Big Reset: War on Gold and the Financial Endgame (2014) by Willem Middlekoop tells the history of gold in a remarkably clear and insightful manner. But Middlekoop’s proferred conclusion is but the central bankers’ currently hoped-for wet dream in an end game they don’t control.

Middlekoop’s powerfully conclusive writing implies the success of the bankers’ ‘big reset’, i.e.  a new global reference currency, is virtually assured, a fait accompli, needing nothing more than its implementation to make the next version of the bankers’ bogus banknotes a viable reality.

Such a monetary reset, if successful, would give new life to the bankers’ now dying paradigm of credit and debt thereby allowing bankers to continue living like parasites off the indebting and productivity of others.

The idea that humanity controls its destiny, however, is hubris, a modern superstition, a bastard byproduct of the now fading industrial age. That we are responsible for our destiny—the inexorable result of our free will—does not mean we control what that destiny will be.

Power is no more control than credit is money

This is as true for bankers as it is for humanity. It is a truth, however, that bankers do not yet understand; for if they did, they would not behave as they do.

In The Great Wave, Price Revolutions and the Rhythm of History, David Hackett Fischer writes: In the United States problems of economic understanding have been compounded by the effect of economic prosperity. The Japanese in WWII spoke ruefully of ‘shoribyo’ or ‘victory disease’. The Greeks called it ‘hubris, and thought it always ended in the intervention of the goddess Nemesis. That lady makes her appearance when wave-riders begin to believe that they are wave-makers, at the moment when the great wave breaks and begins to gather its energy again.


In May 2007, sixteen months before the 2008 financial crisis, I wrote in Subprime America infects Asia and Europe:

It’s spring 2007 and the sun is shining in the US, backyard BBQs are being cleaned in anticipation of summer’s use. A severe financial crisis, however, is in the offing; a crisis as unexpected as the Golden State Warriors’ last minute streak to the NBA playoffs.

An unexpected financial crisis, however, will be much more consequential than Don Nelson’s magical resurrection of the Warriors’ NBA hopes. There, at least, the Warriors will have a fighting chance. But because most people don’t know a financial crisis is in progress, they will have little chance of survival. This summer, America’s subprime CDOs are coming home to roost, and not just to the US.

[Note: Six weeks after I wrote those words, on June 23, 2007, The New York Times reported: Bear Stearns pledged up to $3.2 billion in loans yesterday to bail out one of its hedge funds that was collapsing because of bad bets on subprime mortgages.]

The unexpected financial crisis I predicted in 2007 isn’t over.  Today, in synch with David Hackett Fischer’s great wave, it, too, is about to crest and crash bringing to an end all that credit created.

The underlying crisis, however, isn’t about bond markets, excessive levels of credit and aggregate debt or the inability of central bankers to revive economic growth. Today’s crisis is part of a far larger paradigm shift—a universal reset that is about to transform humanity and life on Earth

In 1981, in Buckminster Fuller wrote:

Humanity is moving ever deeper into a crisis which has no precedent. It is a crisis brought about by evolution being intent on completely integrating differently colored, differently cultured, and intercommunicating humanity, and by evolution being intent on making integrated humanity able to live sustainedly at a higher standard of living for all than has ever been experienced by any.

This unprecedented crisis now in motion includes cataclysmic earth changes, e.g. record heat, record cold, record rains, floods, drought, eruptions and earthquakes. The universal reset, needed and timely as it is, will not be easy nor will survival be assured.

The outcome, however, is preordained. A better world is coming.

Today’s accelerating earth changes are noted daily on my news blog at  My current Dollars & Sense video is titled, US Politics: The Illusion & The Truth, i.e. Politics for Dummies & the Dispossessed, see  .  

Buy gold, buy silver, have faith.


Darryl Robert Schoon

Darryl Robert Schoon writes and lectures on the causes and significance of the economic collapse. His book, Time of the Vulture: How to Survive the Crisis and Prosper in the Process predicted the collapse and the following severe downturn. He graduated from UC Davis (1966) in political science with a focus on East Asia. His immersion in the 1960’s subculture in the Haight-Ashbury radically altered his outlook contributing to the unique point-of-view through which he views the collapse of the present economic system. He has lectured in Europe, Australia and the US and has written five books. Visit his website

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