You Can Print Money, But You Can’t Print Trust
Commercial Banks Hold Over $500B in Unrealized Losses...And It's Getting Worse
This week, long-dated bonds in Japan and the UK experienced yet another sudden surge in yield—and plunge in price. Government bonds across the world quickly joined in. This isn’t a transient spike in rates we’re witnessing. It's evidence of an increasingly dysfunctional debt market. The debt supercycle is over. Forty years of falling rates—propped up by offshoring, disinflation, debt-fueled consumption, and central banks patching every leak with ever-larger rolls of duct tape—is coming to its inevitable, chaotic end.
And here’s the part mainstream financial analysts refuse to touch: the system will not survive a bear market in sovereign debt. This is not corporate debt we’re talking about—it’s literally the life-support machine for the entire system. Governments around the world absolutely must keep rolling over debt in order to pay the interest on the last round of currency creation, and for that, you need willing buyers.
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History tells us when a nation can no longer refinance its debt, it's not long before the wheels well and truly come off. The first signs of this are when once-stable bond yields, especially longer-dated bonds, begin to rise precipitously. This is what happened to German long bonds going into their infamous currency collapse during the Weimar hyperinflation. A catastrophe given the spike in yields only speeds up a currencies demise, by greatly increasing the cost of rolling over existing debt.
It soon filters through the system by collapsing the value of existing bonds—especially long-term debt that is supposed to be immune from such convulsions—which, in turn, can quickly render large parts of the financial system insolvent. That’s the stage we’re now in across most major Western economies. But the show is only just getting started. The FDIC recently said as much in their quarterly report, admitting that commercial banks now had $413,200,000,000 of unrealized losses on their balance sheet. A number that has likely now since been eclipsed.
So who holds all this collapsing debt?