Tag Archives: OTC derivatives

Fed Reverse Repos Reveal Big Cracks In The Financial System

Since the Fed’s QE program largely tapered at the end of 2014 (note:  the Fed still used interest on its mortgage holdings to buy more mortgages), the size and volatility of the Federal Reserves reverse repo operations with banks – especially foreign banks – has been continuously increasing:

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The most likely explanation for this is growing liquidity problems in the western banking system connected to increasing instability in OTC derivatives. While all fingers point to Deutche Bank, DB is just one player in large game in which every player is inextricably connected.  But the eventual derivatives financial nuclear melt-down will probably be triggered by DB, and the fact that the ECB enabled Deutsche Bank to cheat on the BIS-mandated bank stress tests reinforces this view:  ECB Allow DB To Cheat.

The scale and severity of this problem is going to explode now that the U.S./western housing and auto loan bubbles are beginning to pop.

In today’s Shadow of Truth episode, we discuss some possible meanings embedded in the two graphs above plus a couple other topics not covered by the mainstream financial media propaganda:

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Does The Attack On Gold Signal An Imminent Bank Collapse

Since August, the gold price managers – aka “the gold cartel” – have been regularly dumping a lot of paper gold onto the Comex when the Comex floor opens at 8:20 a.m. EST. It’s been their standard operating procedure for the better part of the last 15 years.  The fact that the world’s largest gold buyer – China – is closed all week for a holiday observance takes away the biggest physical market bid for five trading days, making it easier to smash down the price of gold using fraudulent fiat paper gold.

It’s hard to ignore that the events in the financial and economic system unfolding now are not unlike the events that occurred prior to the 2008 “great financial collapse,” which was a de facto western banking system collapse.  The U.S. and European economies are contracting, the housing market is beginning to crumble (see this – link – for instance), the auto market is headed south as auto loan defaults are headed north and it would appear that the middle class consumer is out of disposable income.  There are plenty of other factors that make this time around much worse than 2008, but we’ll save discussion of those for another day.

It’s also hard to ignore “quacking” coming from Deutsche Bank.  It would appear that DB is on the ropes financially.  The incessantly repetitive denials of any problems coming from Central Bankers and the DB upper brass  make the “quacking” even harder to ignore.  If it looks, sounds and operates like a collapsing bank…well, it’s probably a collapsing bank.

There’s no doubt that the recent take-down of gold and silver  – especially today’s – is inextricably connected to some sort of financial system disaster brewing.  In today’s Shadow of Truth, we discuss the massive hit put on gold and reasons why it’s likely an operation implemented to prevent gold from alerting the public that a potentially catastrophic financial hurricane is swirling around “offshore.”  After all, it is hurricane season:

This email from one of Dave’s Mining Stock Journal subscribers is yet another indication that something ugly is unfolding with Deutsche Bank:

I have a very good friend who has been a financial market professional for almost 40 years. He’s very knowledgeable about the monetary system and the general state of the world economy. Last week, he was in Europe on business. His trip ended in Brussels, so he flew home from there on Saturday (this past weekend). He has zillions of frequent flyer miles, so he always travels in First Class. As he flew home this past Saturday, he noticed that there were a bunch of people in his section, and they were travelling as a group. Based on conversations he could overhear, it seemed that they were heading to the US for some sort of an emergency meeting about Deutsche Bank. One woman connected with the group approached my friend (under the mistaken impression that he was part of the group). She started to thank him for being able to get free on such short notice to attend the meeting. She didn’t say where the meeting was going to be held, but she did briefly mention the name of the group with which she mistakenly thought my friend was travelling. Unfortunately, he can’t recall the name, but it sounded like it had something to do with the EU. My friend let her rattle on for about 45 seconds before he politely informed her that he was not part of the group. The lady turned beet-red and clammed up immediately!

Gold & Silver Slammed At Comex Open: Something Bad Is Coming

This is starting to smell a lot like 2008.  By nearly all private sector reported economic data series, the economy is starting to tank hard.  Just today the employment component index of the NY ISM manufacturing report plunged at its fastest pace in history and hit a 7-yr low.  A bevy of private sector reports yesterday showed similar trends.  Most notably construction spending fell in August – vs. a .7% gain expected.  It was the second month in row construction spending declined after a big downward revision pushed July into a decline vs. June.  Construction spending is now contracting for the first time in 5 years.

But there’s an even bigger problem to throw in the mix.  It’s called “Deutshce Bank.” Despite inexorable pleas to the market by CEO, John Cryan, DB is exhibiting ALL of the characteristics displayed by Lehman in the months leading up to Lehman’s collapse.  If DB were forced to undergo an independent – and by independent I mean non-Central Bank, impartial outside third party – audit and a bona fide mark to market of its off-balance sheet “assets,” the bank would be catastrophically insolvent.  As it is now, the stock market values DB stock at just 26% of DB’s stated “book value.”  It’s true book value is likely negative by at least few $100 billion.

Just for the record, I did “back-of-the-envelope” mark to market analysis on the balance sheets of Lehman, JP Morgan, Washington Mutual and Wells Fargo at the beginning of 2008.  This was before I had a blog but I had shared my work with Bill “Midas” Murphy’s Le Metropole Cafe.  My work showed that each one of those banks were hopelessly insolvent if accurate mark-to-market accounting would have been enforced on those banks by the regulators.  Wash Mutual and Lehman collapsed that year.  JP Morgan and Wells Fargo also would have collapsed if the Government had not ripped over $800 billion away from taxpayers and gave it to the big Wall Street banks plus Warren Buffet’s bank.

Deutsche Bank is at least as underwater as each of those banks – and probably more underwater than Lehman and Wash Mutual combined.   If the western Central Banks can’t find all of the hidden skeletons in DB’s derivatives closet and clandestinely monetize them, DB will collapse.

Gold is being taken down just like it was in 2008 ahead of some type of systemic disaster coming at us.  Gold hit $1020 in March 2008 just as Bear Stearns was collapsing.  It was taken down even more during the summer, ahead of Lehman’s collapse.  These events should have pushed gold over $2000 back then.  Gold eventually almost did hit $2000 by late 2011.  The same price management effort is being implemented now and the elitists will do their best to keep gold from broadcasting a loud warning signal to the markets that something is wrong.

Unfortunately, if the masses were allowed to see gold’s “canary” die in the “coal mine” behind the elitists’ “curtain,” it would enable the ones paying attention to get their money out of banks and other monetary custodians before their money is vaporized by whatever financial hurricane is brewing.

Today gold was smashed right when the Comex floor opened.  This is standard operating procedure:

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In the first 30 minutes of Comex floor trading, 3.2 million ounces of paper gold “bombs” were dropped on the Comex. Currently the Comex is showing that 2.5 million ozs of gold have been made available in Comex custodial vaults for delivery. Naked short-selling of futures contracts this extreme only occurs in the gold and silver markets. If selling of this magnitude relative the amount of underlying available for delivery occurred in any other commodity, the CFTC would immediately investigate. Not so in gold because the CFTC is part of the elitist team that is charged with price management of gold.

The common “muscle” reaction to a day when gold, silver and the mining stocks are down as much they are now is to sell and run.  But this is the wrong reaction.  If you want to do something to try and protect what’s your’s, days like today are when money should be removed from banks – especially Deutsche Bank – and moved into the precious metals sector.  This may not be the bottom – but it’s close enough for Government work.  If you liked mining stocks in early August when the HUI index hit 284 , you should love them now with the HUI at its 200 dma.   The HUI has nearly completed a 200 day moving average correction.  It might go lower from here but you’ll never pick the bottom.

I use Goldmoney (Bitgold) to accumulate gold on days like today – because I can buy fractionals of an ounce at price that’s close to spot.  I moved a fair amount of cash from my checking account into my Goldmoney account today:  GOLDMONEY/Bitgold.

Short All Bounces In Deutsche Bank Stock – It’s Still Insolvent

Deutsche Bank has never had as safe a balance sheet in the past two decades and there is no basis for media speculations on clients leaving.  –  DB CEO, John Cryan in Bloomberg

So John, are you willing to make those statements under oath?  The funniest  report I saw today was that Deutsche Bank gave Tesla a $300 million credit line to fund Tesla’s vehicle leasing program (LINK).   No wonder DB is insolvent.  It’s willing to lend against collateral that spontaneously combusts.  Not to mention the fact that Tesla back-end loads the terminal value of its vehicles on its leases in order the minimize monthly lease payments.  Whoever approved that deal at DB is smoking strong weed.

Rumors about Justice Department multi-billion dollar fine settlements do not fix big bank insolvency. DB was insolvent before the Justice Department mortgage securities fine was conceived. Any legal fines levied by any Government will end up in line with the rest of Deutsche Bank’s creditors. Unless, of course, Grandma Merkel and her band of merry thieves agree to bailout the technically bankrupt bank. But that won’t occur until DB stock is well below $10.

We saw this same trading with Enron, Bear Stearns and Lehman when those stocks approached $10. I was short and made a lot of money on Enron and Bear – and I held my shorts through rumor-driven bounces in the stock like the one propelling DB’s stock today.

This trading activity with the stock is designed to trigger aggressive short-cover buying which enables position-dumping by the big boys who are still heavily long DB stock. The rumor that drove DB stock over $13 was tweet from a French press agency which “confirmed” that the DB was near a settlement with the Justice Department for $5.4 billion instead of the original $14 billion levied. A short-while later the French press agency back-pedaled on the assertion.

The more relevant information to consider is the signal being flashed in the market for DB’s credit default swaps.   The cost of insure DB’s junior bonds for one year surged to 625 basis points today.   This inverted the “curve” for the cost to insure DB’s bonds, as the cost to insure the bonds for five years was 505 basis points.   The same is true for one yr. vs. five yr. swaps on DB’s senior debt, which were trading at 270 basis points vs 241 basis points respectively:   DB Stress Signal Reemerges – Bloomberg

A credit default swap the costs over 600 basis points to purchase is analogous to a triple-C rated U.S. corporate bond.  Company’s with the “triple-hook” credit rating in the current insane financial system are semi-dead corpses with electric stimulation paddles being applied in an attempt restart the heart.  These are bonds that have a greater than 70% chance of eventually defaulting.   In other words, investors who are willing to pay over 600 basis points for one year of default protection on their DB junior bond position believe that the risk of DB defaulting in the next 12 months is exceptionally high.

If the German Government was not lurking in the background, these credit default swaps would be priced at well over 1000 basis points over the equivalent Treasury yield.  On the other hand, DB CEO, John Cryan, stated on Friday that DB’s balance sheet is safer than at any point in the past two decades.  That at least the third time DB liquidity rumors have been denied and we know what that means…

I don’t know if this reminds more of Jim Cramer pounding the table on Bear Stearns stock at $62 shortly before it plunged to $2 or Lehman CEO, Richard Fuld, proclaiming that Lehman had billions on highly liquid assets about 5 weeks of ahead of the stock plunging to near-zero (graphic from Zerohedge):

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Bye Bye Deutsche Bank

It smells like death.

No way to know for sure when the Bundesbank, Fed and ECB lose control of Deutsche Bank’s balance sheet.  But its stock price just hit an all-time low since its NYSE-listing in October 2001.

Anyone who owns the Deutsche Bank “Tier 1” bonds should sell them now. They are currently yielding about 8%, which puts on the same “tier” as U.S. triple-C (CCC/Caa) rated credits.

I’ve been wondering for quite some time if DB’s demise would be the 2016 “Lehman” event, but I don’t think it will be.  Why?  Because Germany has a fabled history in which it has demonstrated a willingness to print trillions to keep its system from collapsing.

Did The Fed Signal The Inevitability Of The Next Banking System Collapse?

Like a Mafia Don protecting his “family,” the Fed is implementing another layer of “protection” from collapse for the Too Big To Fail Banks. This latest deal will prevent bank counter-parties from pulling collateral from a collapsing bank.  The installation of this law is a warning signal that the global banking system is  barreling toward another devastating financial collapse.

The cover story for this scheme is that it will prevent another “Lehman” event from taking down the entire financial system.  But it wasn’t Lehman, per se, that caused the 2008 collapse.  Bear Stearns lit the fuse, Lehman was selectively thrown into the explosives mix and AIG/Goldman sprayed napalm into the explosion.

My source for this information of this is this article from Bloomberg:  More Fed Protection For Big Banks.  I had to read the article carefully a few times to fill-in between the lines, as Bloomberg kept referencing the new rule as a “proposal” and either white-washed or misrepresented the facts.

The new rule will prevent the TBTF bank counter-parties from taking their collateral away from the bank when the bank is collapsing.  When a fund enters into a derivatives trade mushroomcloud1with a bank the fund is required to put up collateral, generally in the form of Treasuries.  The bank is then free to hypothecate that collateral, or make use of it for its own purpose.  But if the bank collapses and the fund is in a “winning” position on its derivatives trade with the bank, it’s in the fund’s best interest to withdraw its collateral.  The new Fed rule will prevent this.  The rule extends beyond derivatives, to securities lending agreements and repo transactions. But the truth is that this Fed rule is aimed squarely at derivatives.

The implementation of this new regulation, at best, extends the bail-in concept to TBTF “big boy” counter-parties, like hedge funds, insurance companies and pensions.  The ROFLMAOwellspring for this new banking rule is the Financial Standards Board, a key policy arm of the BIS.  The FSB is the entity that drafted the bail-in regulation, which has been largely implemented in Europe.  Bail-in regulations are now methodically being installed in the U.S. banking system.

In its essence, this “collateral freeze” regulation will eventually morph into a de facto bail-in mechanism and serves the purpose of transferring wealth from the banks’ counter-parties to the banks.  At the very least, this collateral freeze regulation adds yet another layer of moral hazard into the banking system, as banks are incentivized to underwrite even riskier derivatives transactions with knowledge that the risk of collapse is further minimized.

Interestingly, this new law is “asymmetrical.” If the bank fails, it gets to keep all counter-party collateral locked-up.   But if the bank’s counter-party fails, that counter-party has no ability to freeze the collateral it put up with the bank. The bank has possession of that collateral.  This is what happened in the MF Global collapse, where JP Morgan seized all of MF Global’s collateral, at the detriment of MF Global’s customers.  At the time JPM’s move was illegal but the judicial system looked the other way.

While the funds doing derivatives business with these banks will suffer irreconcilable damage from the new rule, at the end of the day, it will be the investors who have their money with hedge funds, insurance companies and pension funds that will bear the greatest expense of this de facto bail-in law.  That would be you, the public.  Once again the public gets screwed by the financial system in a way that is being enabled by the Government.

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The only way to protect yourself from this is to remove as much of your wealth from financial custodians as possible.  Not only is the new regulation a clear warning bell of another financial collapse coming, the Fed and the Government are making it even easier to trap your wealth.   The financial system is one giant roach motel – you can check-in but eventually your money will never check-out.

Is The Fed Preparing For The Next Financial Earthquake To Hit?

The Fed announced a series of three “expedited procedure, closed” meetings Monday thru Wednesday this week:  FRB Board Meetings.  The Monday meeting was allegedly “a review and determination by the Board of Governors” of the advance and discount rates charged by the Fed.   This is somewhat an absurd waste of time as both of those bank funding mechanisms have become antiquated and rarely used.  The discount window collects dust until a specific bank’s credit profile has collapsed to an extent that prevents it from accessing the interbank-lending market.  It’s seen as an act of desperation.  It’s doubtful that the meeting was convened to discuss the discount rate.

The announced subject matter of the two subsequent meetings are perhaps of more interest:  “bank supervisory matter” (Tuesday) and “periodic briefing and discussion on financial markets, institutions, and infrastructure” (Wednesday).

I find the latter two topics in the context of the fact that it appears that the European banking system – to which the U.S. Too Big To Fail Banks are inextricably tied – appears to be melting down.

For me the “tell tale” for the western financial system is Deutsche Bank.  Deutsche Bank has emerged as a “rogue” bank of sorts that had taken on a catastrophic amount of Untitled1 (2)reckless credit market risks.  Nothwithstanding its literal financial nuclear portfolio of derivatives, DB thrust its balance sheet into every sector of the global economic system that has been melting down over the past 12-24 months including energy, commodities, “Club Med” European banks and junk bonds.  It also began to choke to death on bank debt loans to companies like Glencore and Volkswagen.

The trading action in DB’s stock price has been unable to mask the underlying melt-down going on at the Company:

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As you can see, DB’s stock price has been significantly underperforming the BKX bank financial index since mid-July. Coincidentally, or perhaps not coincidentally, the S&P 500 suffered an 11% drop in mid-August.

Bloomberg News released a report about three weeks that surprisingly received little to no commentary in the alternative media world. It was reported that Goldman and JP Morgan were in discussions to buy $1.1 gross “notional” amount of DB’s distressed credit default swaps (LINK). That in and of itself was not necessarily interesting, but the article reported that DB had already sold off two-thirds of its distressed CDS swap book to since October 2015 to Citicorp. The CDS securities were “single-name” direct (not cleared thru DTC) OTC derivatives, meaning they are of the riskiest, most unregulated and most toxic variety.

If you notice on the graph above, around the time that DB was engaged in selling some of its toxic waste to Citi in October, the stock began take a dive and it began to diverge negatively from the rest of the big bank stocks.

I would suggest, and have been suggesting, that there’s been a series of mini-melt downs that have been occurring in the western financial system since late last summer.  I also have written analysis which has connected these melt-downs to Deutsche Bank and has connected the “stick saves” in the markets to the Fed.

I’m suggesting here that the Fed is behind the Citi, Goldman and JP Morgan CDS transactions with Deutsche Bank as means of preventing DB’s collapse.  After all, the TBTF fail banks in the U.S. are catastrophically tied to Deutsche Bank – and  the entire European financial system – via derivatives.

Last week Deutsche Bank’s stock began to sell-off hard again.  On Monday and Tuesday DB’s stock dropped 6.6% and was down as much as 9%, significantly underperforming its peers.

It’s my view that the Fed has been conducting an ongoing de facto bailout of Deutsche Bank since mid-summer, using the balance sheets of Citi, Goldman and JP Morgan as its proxies.  In the context of the behavior of DB’s stock recently, and in the contex of what is now blatant market intervention in the stock market by the Fed, and in the context of the news of the bank bail-in Austria plus the collapsing Italian banks,  I would suggest that “expedited rule, closed door” meetings held by the Fed this were convened in order to discuss the a western financial system which is obviously beginning collapse again.

I would also suggest that the Fed is inching closer to implementing more drastic monetary easing policy measures, which could include taking short rates negative and will likely include more money printing – either overt or cleverly disguised.

This is why gold and the mining stocks have been somewhat “melting up” despite the recent flood of anti-gold propaganda pouring from Wall Street and the mainstream media. It is likely that the “melt-up” in the precious metals space has a lot more “melting up” to do…

I’m finishing up my work on the mining stock that will be presented in the next issue of the Mining Stock Journal (released Thursday).  This is an undiscovered Company that trades under 50 cents and it worth several times it’s current market cap just on its royalty properties.  Oh by the way, it’s in the midst of drilling what appears to be a massive copper/gold porphyry in an area that has been previously ignored.  Click here to access the Mining Stock Journal.

Gold: Something Is Melting Down In The Global Financial System

Deutsche Bank is the financial system’s “Hurt Locker”  – Investment Research Dynamics/Kranzler Research

It’s been well documented that the $/yen has been the “lever” by which the Federal Reserve and the U.S. Treasury ( via its Working Group on Financial Markets) has been manipulating the stock market higher and keeping a cap on the price of gold.  Craig Hemke of TFMetalsReport.com has done a brilliant job documenting and commenting on this dynamic:  It’s All About The Yen.  I would recommend looking at his archives to see the historical context of his work.

The yen has been depreciating vs the dollar at a rapid rate since October 2012.  NotUntitled coincidentally the SPX embarked on a nearly uninterrupted upward move that took it from 1099 in early October to its all time high of 2130 in May 2015.  The Untitleddirectional correlation between the USD/YEN and the SPX was highly conspicuous, if not an outright signal of official market market intervention.

Starting in early August, however, the $/yen began to break down technically, as the yen began to appreciate vs. the dollar – primarily in big “waterfall” chunks.  Not coincidentally, the SPX began to “tip over” at about the same time.  Yesterday the $/yen plunged briefly below the key 110 level, closing at 109.78.

Untitled1Today (Wed, April 7th) the dollar crashed another 1.4% the yen.  For clarification, a 1% move in a currency is considered to be a huge move.  As you can see from the 1yr $/yen graph to the left, the $USD has depreciated in value quite rapidly vs. the yen.   There has not been any event-Untitledspecific news that would be causing the rapid depreciation of the dollar vs. the yen.  In fact, the current narrative from the Fed, White House and media is that the U.S economy is doing well and the Fed intends to hike interest rates at twice in 2016.  Conversely, Japan’s economy is contracting and Bank of Japan continues to flood the system with liquidity.  If anything, the dollar should be rapidly appreciating vs. the yen.

The only conclusion we can draw from this is that something has blown up in the global financial system which caused unpredictable instability in – and loss of control over – the Fed’s manipulation mechanisms.

I believe the likely culprit is Deutsche Bank.   As I have commented on several times previously, Deutsche Bank’s balance sheet is a ticking financial nuclear time bomb.  It’s theUntitled financial system’s “Hurt Locker.”  Since March 11,  Deutsche Bank stock is down 25% despite the inexorable move higher by the S&P 500.  DB is down 9% in four trading days this week.  Despite the Fed’s attempts to monetize DB’s derivatives (I will document in another blog post), DB’s stock is telling us that DB’s financial condition is melting down.

This is likely the reason that gold has been a stellar performer for the past three weeks despite the general expectation that the bullion banks were in a position to smash the precious metals once again.  But every attempted downward manipulative hit has been met with aggressive buying.   What makes the trading action in gold all the more remarkable is the fact that India’s gold importing activities have ground to halt since the country’s jewelers went on strike March 1st.

This is an unmistakable message from the market that something potentially devastating has occurred behind the western Central Banking “curtain.”

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World’s Largest Silver Producer Calls On The LBMA To Explain Last Week’s Fraudulent Silver Fix

The London gold/silver fix was established in 1919 principally by the House of Rothschild to enable the Rothschilds  to control  international money markets through the manipulation of the price of gold.  The daily gold/silver fix was conducted in the offices of N.M. Rothschild and Company.  Fast-forward to 2016 and very little about the London fix has changed, other than some of the names involved with setting the “fix.”

As most of you know by know, the London price fix committee “fixed” the price of silver 84 cents below the market price as represented by silver futures trading.  In the context of the daily interventions in the precious metals market in London and NYC, this act of manipulation was a particularly brazen display of contemptuous disregard for anti-collusion laws.

The parties who were harmed by this are the entities that had posted offerings in physical silver prior to the fix.  They are the ones who need to initiate legal action so we can find out what happened.  Certainly mining companies who posted their silver for sale had their face ripped off by this event.  The more interesting side of the “fix” would be know the identities of the beneficiaries.   My bet is that the bullion banks, some of whom are involved in the price fix process, were the biggest beneficiaries of the fraudulent price fixing.

As it turns out, the world’s largest silver producer, Poland-based KGHM, has called on the LBMA to provide an explanation:

KGHM, one of the largest producers of copper and the single largest producer of silver in the world, called the difference between the prices “very alarming” and called on the London Bullion Market Association (LBMA) to provide an explanation.  LINK

Unfortunately, KGHM’s half-hearted plea will fall on deaf ears.   The criminal manipulation of the London gold and silver market has been going on for over 100 years.  Nothing will change that until the west collapses and the global system of fiat currencies is reset.

Having said that, not only does the LBMA price set the price for clearing physical gold and silver trades twice a day, it also is used to benchmark OTC derivatives.  My best educated guess is that a couple of the most influential bullion banks involved in the fix – JP Morgan and HSBC, each of whom respectively operates the SLV and GLD trusts – used the fraudulent silver price on Friday in order to address an immediate need – either a large physical silver deficiency or a derivatives problem.

A friend of Bill “Midas” Muphy’s sent a note into Midas relating what happened with CDS in “The Big Short” with the silver market:

I can’t get the comparison to silver out of my mind as it truly is the mirror image of Credit Default Swaps. That is the CDS were never allowed to rise in value as the underlying mortgage bonds defaulted yet Goldman was constantly trying to buy them back from the holders at very low prices…..it wasn’t until Goldman had been able to purchase enough CDS back that the price skyrocketed.

I think what we saw on the LBMA last week with the silver fix is exactly that.

Unfortunately we’ll never know the truth about what happened.  But the act itself reflects the desperation that is creeping into the bullion banking establishment.  Desperation that is being fueled by what I believe is the early stages of an extremely powerful resumption of the bull market in gold/silver.

Is The U.S./West About To Collapse?

Well, in truth, we had a de facto collapse in 2008 which was addressed with $4 trillion in QE and, ultimately, a few trillion in Taxpayer subsidies. The proverbial can was kicked down the road in order to enable the insider elitists to continue looting as much wealth as possible from the system. A fractional reserve banking system will always eventually collapse. The fraction of reserves is allowed to become smaller over time and the amount of unpayable debt balloons to the point of explosion.

I would suggest that the massive debt implosion about to happen in the energy sector will be the trigger point for a collapse that can’t be prevented this time.

With that in mind, Zerohedge reposted a Reuters article which is reporting that the Italian banking system is collapsing – LINK.   What’s that got to do with the U.S. financial system, you might ask?  Derivatives.  Every single big bank in the world is interconnected through the insidiously toxic international web of OTC derivatives.

Someone will lose big on Italian credit default swaps and not be able to pay their counterparty.  The counterparty may have offloaded some of that risk and  fail to stand as a counterparty on the risk it laid off.  And so on down the line.  The banks themselves do not know the extent of true counterparty risk exposure.  Internally employees lie to risk managers.  Risk managers knowingly and unknowingly lie to the board.  The CEO then knowingly and unknowingly lies to the Fed and other Central Banks about that bank’s specific derivatives exposure.   I witnessed this first-hand in the 1990s’ when derivatives were just beginning to blossom as a wealth-extracting device for Wall Street.

I bring all this up because one of Bill Murphy’s readers sent him a letter that should, at the very least, raise the hair on the back of your neck.  I emailed Bill, with whom I communicate several times per day every day and asked him about the credibility of the person who submitted this letter:  “Well written, little drama, just input. I couldn’t make up a story like that. This is just a regular guy ho believes our story and follows you too. No reason for him to send this except to point it out. If I thought a bit bogus, I would never have run it. No reason for the girl to make that up and, of all people, one of the Koch brothers.”

So with that, here’s the letter published by LeMetropole Cafe/Bill Murphy’s Midas report:

This email from a fellow Café member will catch your attention. It is edited to keep the identity of the sender private, but the essence of what was presented is striking…

Bill,
I have been working in a chemical plant and have been there for 39 years. We have about 400 people working at the site. I can’t talk to anyone about what is going on with the financial system because nobody wants to hear any of this, they either don’t believe it or their eyes glaze over and they change the subject. I gave up trying to tell people what is coming years ago.

There is one man at the plant that knows what is going on with the worldwide financial system. He is the production superintendent for the plant, reports to only the plant manager, I have two supervisors between him and myself. Last night he called me about 8pm, which was very unusual because we normally stay in touch through email or sometimes, very seldom though, he comes to the unit I work in and we discuss what is going on at that time. His daughter works for Koch Industries in Wichita in marketing. She called him yesterday and told him they had a meeting with one of the Koch brothers giving the meeting. He came out and told his employees that we were about to go into unprecedented times. He said that their company was cash rich and they would be able to ride out the coming storm. One of her coworkers asked if we were going to have a recession or a depression. Mr. Koch answered that no we were going to have an economic collapse with a 40% devaluation of the dollar. I know you know who these Koch brothers are, with the money and inside connections they have wouldn’t you presume they have inside information.

My superintendent’s daughter told her father that Mr. Koch sounded just like him with the speech he gave, because her father has been telling his 2 daughters for years to get ready for the collapse and they have. My job allows me to read probably 11 hours a night when I work days and on weekend days. I started researching our financial system in 2008 because of what went down back then. It is totally amazing to me now that we have a system that is totally manipulated by TPTB constantly and people don’t have a clue about what is really going on. We really do live in the Matrix.
R

Time will tell if this information proves to be prophetic.  Someone asked me today if I thought a collapse was right around the corner.  I answered that, with the enormous effort being exerted by the Fed and other western Central Banks to keep the system from collapsing, there’s no way to know with any reasonable degree of accuracy.  But I said that I would be surprised if the system makes through 2016 intact.