An Unavoidable Global Debt Implosion

“[Whatever] the repo failure involved, it is likely to prove a watershed moment, causing US bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. a new banking crisis is not only in the making, for which the repo problem serves as an early warning, but it could escalate quite rapidly.” Alasdair Macleod, “The Ghost of Failed Bank Returns”

The delinquency and default rate on consumer and corporate debt is rising. This creates funding gaps and cash flow shortfalls at banks. In a fractional banking system, banks only have to put up $1 of reserve for every $9 of money loaned. When the value of the loans declines because of non-performance, it requires capital – cash liquidity – to make up the shortfall in debt service payments received by the banks. In simple terms, the banks are staring at a systemic “margin call.”

To be sure, the current repo funding shortfall may subside. But it will not fix the underlying causes (Deutsche Bank, CLO Trusts, subprime debt, consumer debt, derivatives), which are likely leading up to another round of what happened in 2008 – only worse this time.

Chris Marcus of  Arcadia Economics  invited me to discuss my thoughts on the meaning behind the sudden need for the Fed to inject $10’s of billions into the overnight bank lending system:

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5 thoughts on “An Unavoidable Global Debt Implosion

  1. Americans look forward to the stock market
    crash because they think that they’ll be able to
    buy homes cheaply.

    Americans don’t realize that when the US Ponzi
    collapses, ATM cards won’t work, banks will
    close, companies
    will shut, cash will be worthless, the water and electricity won’t work,
    there will be no
    government workers to transfer
    titles, there will be roving mobs
    of starving people, and there will
    be no police to protect property.

    1. No,no,no bad scenario.
      You forgot about China and Russia, They can’t kill all of us , who is going to fight for them to beat China and others ?
      I think They had best last 10 years for stealing , preparation and screwing us. It’s been very , very comfortable time for them and they still enjoying it proping anything they can. Still waiting for something solid , it’s getting hotter ,anything possible.

    2. “Americans don’t realize that when the US Ponzi
      collapses, ATM cards won’t work, banks will
      close, companies
      will shut, cash will be worthless,……”

      Hold on a minute. There will be some medium of exchange. It will be cash until the zenith of hyperinflation [if it comes to that]

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