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Old 09-14-2018, 08:18 AM   #1
Baron Samedi
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On the 10th Anniversary of Lehman Bros

Well, Saturday is the 10th anniversary of the Lehman Brothers collapse, the first in a domino effect chain of collapses, until our ruling class decided to take out a Trillion dollar loan in the taxpayer's name to bail out Wall Street. It;s the American way.....privatize profits and socialize losses. Neither capitalist, nor socialist.

Given that the American economy has a crash roughly every 9 years, we are due...and probably overdue.

As the Fed raises interest rates, the dollar will strengthen, but the government will slip at an accelerating pace into bankruptcy as it owes more and more money to Wall Street just to finance it's debt.

As The Fed Raises Rates, The Ghost of Lehman Bros Lingers

In just two days – September 15 – it will be the 10-year anniversary of Lehman Brothers collapse. The date they filed bankruptcy.

With nearly $620 billion in debts, it was the largest bankruptcy in history.

Now, a decade late – it appears the mainstream’s learned nothing. And many have forgotten the crisis that was 2008. . .

The banks are bigger and the damage of them crashing will be even greater this time around.

The elites – led by the Federal Reserve – have since 2008 told banks to continue lending and for consumers to continue borrowing. They did this by cranking interest rates down to zero (technically 0.25%). This allowed funds and ‘shadow banks’ to borrow huge amounts on margin.

It also kept commercial banks continually lending out loans. And at the end of the day if they lent out too much and didn’t have enough legal ‘reserves’ (deposits) to close, they’d simply ring up another bank (or the Fed) and borrow the amount needed.

“Hey BofA, we need $26 million.”
“Okay Citi, sounds good.”

Borrowing at near zero and lending out at higher rates was very lucrative. And basically, free money.

Banks can ultimately borrow from the Fed for 0.25% and lend out to the U.S. government for a solid 2-3% nominal return. Or even better, they’ll lend out to consumers who want a new house at a higher interest rate. Students that need debt for college. Auto loans. Or Emerging economies that need funding.

There’s more to it – and I’ll highlight it more in-depth in later articles. But aslong as interest rates are low, the game continues.

But the problem is – and just like before 2008 kicked off – short term interest rates are now rising.

All these banks that borrowed trillions from one-another and the Fed now have increasing debt servicing costs. Meanwhile the long end of the yield curves lowering, and many loans they’ve already lent out are locked in at a fixed rate. That $500,000 30-year mortgage that mom and dad refinanced will stay at 4.5%.

So as short term rates are rising, and long term rates are falling – that’s squeezing bank and other lending institutions margins. . .

It won’t be long until the yield curve inverts. Don’t know what I’m talking about? You can read more about that here – and why it’s preceded the last nine straight recessions.

Not too long ago I also wrote about how subprime auto loan delinquencies are at a 22-year high. And how credit card delinquencies are also surging.

All because of rising short term interest costs.

Putting it plainly, the higher short-term interest rates go up – the more fragile the entire system becomes.

History shows us that every time the Fed raises rates – there’s eventually a crisis.

Look for yourself.

This time won’t be any different – in fact, it will be far worse. . .

One huge reason is that the U.S. government’s borrowing at amounts that it hasn’t since the 2008 recession.

Now, during a recession, it’s permissible (thanks to John Maynard Keyne’s economic theories) for the government to pile on tons of debt.

But once the recession’s over, budget deficits need to contract again.

And that’s the farthest thing from what’s happening 10 years after 2008.

For instance, the fiscal year isn’t even finished yet (one more month to go) and the U.S. budget deficit is just shy of $900 billion.

That’s a 40% increase since last year. . .

President Trump’s tax cut plan and increased spending is causing deficits to swell.

And because of this, the Congressional Budget Office (CBO) has significantly raised their deficit projections over the 2018 – 2025 period. And the scary part is that they don’t even expect a single recession or slow down between now and then. These projections are assuming steady growth and a healthy economy.

They’re clearly not accounting for any margin of error here. . .

But just imagine how much the debt will be after another recession – when the U.S. will need to pile on even more debt. . .

While the government’s spending is out of control – especially at a time when the economy’s supposedly ‘healthy’ – the bigger problem is the cost of servicing all this debt.

Ignoring private consumer debt (which will be greatly affected by rising rates), the U.S. National Debt recently hit $21.3 trillion – with no signs of slowing down – and the interest payments due on all this debt is at a record high.

You can see that since the Federal Reserve began raising rates in December 2015, the cost of interest payments on the national debt has soared.

It just hit an all-time high of $538 billion per year. . .

Remember, the U.S. is taking in less tax revenue because of Trump’s tax cuts. So the Treasury will have to borrow new debt just to pay off maturing old debt and interest.

This is what Hyman Minsky – one of my favorite economists – called a ‘Ponzi’ scenario – when you need new debt to pay off old debt.

And if interest costs are this enormous from the Fed raising rates to just 2%, imagine how much it will cost if it goes to 3% or higher.

Short term interest costs will continue to rise over the near-term because of three reasons: higher inflation, Fed tightening, and the increased amount of debt needed by the Treasury.

Like I wrote above, the higher short-term rates go – the worse lenders will do. And if the lenders, like banks, can’t make profits – they’ll collapse under all that debt.

For the anniversary of Lehman Bros, I warn you – never forget the toll of too much debt and rising interest rates.

This has been the economic recipe for many problems throughout history – whether it’s corporations, governments or people. Borrowing huge amounts when rates are low and not being able to pay it all back as rates rise is fatal.

Because of all this, the financial system will continue becoming fragile – and sooner than later something will break.


We need to raise interest rates to stabilize and strengthen our economy, but the problem is, our economy is largely driven by easy money and speculation, rather than savings and investment, and productivity.

So...I hope the Fed continues to raise interest rates, but it is inevitable and unavoidable that this will cause a crash, and many bankruptsies, and possibly even government bankruptcy to some extent.


Bankruptcy isn't the disease, it's the cure! Our economy is like a drug addict, addicted to cheap money at cheap rates and massive debt. Denying it the cheap money and cheap rates will cause withdrawal symptoms, and some businesses and enterprises will go into bankruptcy and liquidate.
No More bailouts. That's just giving drugs to the addict to relieve the withdrawal symptoms. Overly leveraged enterprises should fail. Assets and funds need to be redistributed to newer, more efficient, and wiser enterprises.

Weaning to off of cheap money and leveraged investments is necessary, but it will be painful.

When will it happen? I can't say, nobody can....but sooner rather than later. The banking cycle runs about 9 years on average...and we are 10 years since the last crash.

And yes, it's a banking cycle, not a business cycle. That's why it all comes crashing down at once. It's not because all of a sudden, millions of businesspeople start making bad decisions all at the same time...it is the inevitable consequence of a fiat currency that encourages an unstable money supply, and the ability to inflate the money supply and hand out cheap money to banks, who benefit from very low interest rates, and this lend out to very risky investments at profit rates only fractions above what they borrowed the money at.

Then....when one falls, they all fall down...because they are all so entangled with one another that they are not independantly sound....they are always on the brink of bankruptcy, totally dependant on the ability to borrow overnight from one another, and to call in overnight loans from one another. When one falls down, they all fall down.

10 years ago tomorrow, Lehman Brothers, Bear Stearns, MF Global, Fannie Mae, Freddie Mac, AIG, etcetera, etcetera.

Our government is already paying over $500 Billion a year just to cover finance charges on existing debt....how much more debt can the government take on to bail out Wall Street this time?
Originally Posted by Jaric View Post
Originally Posted by benhamean View Post
Who is this self-important instigating douche-bag, anyway?
Dude, Baron has been a valued member of this forum for quite some time.
Peace, Prosperity, Liberty, Human Rights, Natural Rights, Civil Rights, Property Rights, Sound Money, Free Markets, Sovereignty, the Constitution, the Republic.

Shameless plug for my blog; https://puntyventures.com/
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