Quadrillions In Derivatives Is Ready To Blow Up A Magnitude Bigger Than What Happened To AIG. They Are Rate Sensitive. Every Tick Up Brings Us Closer To A Massive Event!

Basel III is going to happen, and the Fed will vote for it, and if they do, then congress will sign off without a peep. The Fed was the one pushing to get it voted on!!!

For those of you that have been paying attention to my posts on the coming economic collapse. A MAJOR indicator is about to happen. The Fed is going to vote on Basel III Implementation in the USA on July 2, 2013. Increased capital requirements and decreased leverage requirements can only lead to a slow down in availability of credit.

Buckle up, because here we go…

The Federal Reserve plans to vote July 2 on whether to adopt a year-old proposal to implement a global agreement on bank capital buffers, known as Basel III, a critical step to ensure that large financial institutions are sufficiently cushioned against future financial shocks. Based on the proposal, which implements the international accord agreed to in September 2010, banks will be required to hold the strictest form of common-equity capital at 7% of their risk-based assets, up from 2% currently. U.S. bank regulators may seek to adopt a tougher new leverage limit rule for banks, as a separate proposal. The Fed approved the introduction of the Basel III proposal by a vote of 7 to 0.


If and when Bond Yields go parabolic, banks and hedge funds will begin cashing in interest rate hedges…all in the middle of a liquidity crisis, how’s that going to work out…

The 441 TRILLION Dollar Interest Rate Derivatives Time Bomb

….And yes, if the average rate of interest on U.S. government debt rose to just 6 percent (and it has actually been much higher in the past), the federal government would be paying out about a trillion dollars a year just in interest on the national debt.  But that isn’t it.  Nor does the primary reason have to do with the fact that rapidly rising interest rates would impose massive losses on bond investors.  At this point, it is being projected that if U.S. bond yields rise by an average of 3 percentage points, it will cause investors to lose a trillion dollars.  Yes, that is a 1 with 12 zeroes after it ($1,000,000,000,000).  But that is not the number one danger posed by rapidly rising interest rates either.  Rather, the number one reason why rapidly rising interest rates could cause the entire global financial system to crash is because there are more than 441 TRILLION dollars worth of interest rate derivatives sitting out there.  This number comes directly from the Bank for International Settlements – the central bank of central banks.  In other words, more than $441,000,000,000,000 has been bet on the movement of interest rates.  Normally these bets do not cause a major problem because rates tend to move very slowly and the system stays balanced.  But now rates are starting to skyrocket, and the sophisticated financial models used by derivatives traders do not account for this kind of movement.


Banks sell record sums of US debt


Investors pull $23.3 billion out of funds — in week

Article Continues Below


Fed Governor Stein Says Decision on Asset Purchases “Looms”


U.S. muni bond funds report $4.53 bln outflows, largest on record


Treasury Auction Bids Drop to Least Since 2009 as Yields Up



Moody’s reveals a mind-blowing new fact about state pension plans

The states are short by some $980 billion…

… Moody’s Investors Service, dissatisfied with the way states measure what they owe their retirees, released its own numbers on Thursday, showing that the 50 states have, in aggregate, just 48 cents for every dollar of pensions they have promised.

That is much less than the 74 cents on the dollar that the states now report, suggesting the states are short by some $980 billion, with many local governments, like school districts, on the hook for…


This could be the frightening real reason the Fed is talking about the “end of QE”

Everything else is smoke and mirrors…

Yesterday the Fed released its latest balance sheet data: at $3,478,672,000,000, the Fed’s assets reached a new all time high, up $8 billion from the prior week and up $615 billion from last year…

After all with almost four years in a row of debt monetization or maturity transformation, either the total holdings or the 10-year equivalency of “Bernanke’s hedge fund” rise to new record highs week after week.

But that’s not the bad news…

The bad news, at least for Bernanke, and why the Fed has no choice but to taper, is monetizations…

[S]ince the Treasury is about to print less paper (recall: lower budget deficit, if only briefly), and the Fed is monetizing the same relative amount of paper, the Treasurys in the private circulation book [become fewer and fewer], as more high-quality collateral is withdrawn by the Fed.

This is precisely what the Treasury Borrowing Advisory Committee warned against in May.

This is also precisely why the Fed’s “data-dependent” taper announcement is pure and total hogwash: the Fed knows it can’t delay the delay (pardon the pun) of Treasury monetization…

Doing so only risks even further bond market volatility as less Treasury collateral remains in marketable circulation, and as liquidity evaporates with every incremental dollar purchased by the Fed instead of by the private sector.

So just how bad is the situation? Quite bad. As as of last night…


Nouriel Roubini: A new period of “uncertainty and volatility” has begun

“The global economy’s chickens may be coming home to roost…”



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