Is The Global Financial System On The Brink Of Collapse?

A reverse repurchase agreement, also called a “reverse repo” or “RRP,” is an open market operation in which the Desk sells a security to an eligible RRP counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future.  LINKIMF tells regulators to brace for global ‘liquidity shock’ LINK.

The financial news spin-doctors are attributing today’s abrupt sell-off to a report of a Bloomberg terminal outage and to a report that China has expanded its list of stocks available for shorting.   This explanation for the plunge in stocks globally is so absurd it almost leaves me speechless.

I have been postulating since mid-December that the strange volatility we’ve been experiencing in the markets – combined with the most intensive effort I’ve ever seen by the Plunge Protection Team (the Fed + the Treasury’s Working Group on Financial Markets) to prop up the stock market and keep a manipulative cap on gold – is occurring because there’s is a massive derivatives melt-down going on behind the scenes.  The volatility reflects the turmoil and the market intervention in stocks and precious metals reflects the effort to keep the problem covered up.

But a good friend and colleague showed me graph this morning that shows my thinking about a derivatives collapse may be correct – click to enlarge:


That graph shows the Fed’s Reverse Repurchase Agreement operations with foreign Central Banks and big foreign banks.   A reverse repo is an operation which generally is thought of as being used as a tool to remove short term liquidity from the banking system.  However, as you can see from the timing of the first massive spike up, which occurred in early September 2008, it is an absurd notion to think the Fed would have removed liquidity from the system. (Note:  the second spike up in 2011 coincided with the Fed’s “Operation Twist” which was essentially a huge QE extension disguised with a “twist” – but nonetheless was done to keep the system from collapsing).

No, instead the massive operation was conducted to INJECT Treasury collateral into the global banking system.  Treasuries are used as collateral against derivatives positions.  It’s in a sense margin collateral for the big boys.   When an entity (typically a bank or hedge fund) takes on a derivatives bet, it needs to post collateral to protect the counterparty from a decline in the value of the bet.  Treasuries are the de rigeur collateral, although the ECB now allows everything for collateral except loans to lemonade stands.

When the value of the derivatives bet declines because the value of the underlying asset declines (think:  Greek debt, oil debt), more collateral has to posted.  Eventually, the market runs out of collateral and there’s a collateral short squeeze.  The use of hypothecation exacerbates the situation by several multiples.  Please note that Zerohedge intermittently reports big spikes up in Treasury settlement fails.  This reflects the extreme shortage of collateral.  When collateral has been posted but not hypothecated, it can be called and used for settlement.  When that Treasury has been hypothecated by the custodian of the collateral, it becomes harder to call, especially when it’s been hypothecated several times.  Big spikes up in settlement fails occur.

Circling back to my postulation that a massive, ongoing derivatives melt-down has started, as the derivatives lose value, more Treasury collateral has to be posted.  When the situation becomes extreme, collateral isn’t posted and counterparties begin to fail, especially if the counterparty can’t come up with the cash needed to remedy a derivatives bet gone bad.   My bet is that the Greece situation ignited the problem and the collapse in the price of oil threw millions of gallons of napalm on the situation.

The reason I believe this explanation is correct, is from the graph above.   We know that in 2008 we were told that a big derivatives accident started in Europe and spread to the U.S.  Lehman filed for Chap 11 on Sept 11, 2008.    We also know that AIG and Goldman experienced a massive counterparty default collapse in September 2008 that was remedied thanks to rather explicit lies circulated by Ben Bernanke and Henry Paulson about systemic collapse if TARP wasn’t approved.

A reverse repo can be looked at as tool to remove liquidity from the system OR as a tool to inject Treasury collateral into the system.  We know the Fed has been “testing” a new Reverse Repo system since mid-2013 that take Treasuries from its “SOMA” holdings (SOMA = the Treasuries the Fed purchased with QE) and use them for reverse repos, including reverse repos with MONEY MARKET FUNDS and foreign central banks/ Too Big To Fail banks.  Nothing happens by accident and that spike above shows us why the Fed was “testing” a new reverse repo system.

The only reason the Fed would need to inject massive amounts of Treasuries into the global banking system is because there’s an extreme shortage.  A massive derivatives accident requiring massive amounts of collateral to be posted has developed.  If Treasuries are not available to post as collateral, while at the same time a massive amount of hypothecated (Treasuries out on loan, several times over) collateral fails are occurring, it will cause the banking system to seize up.  The giant spike up shown in the graph above is occurring because the Fed is engaging in an enormous reverse repo operation in order to prevent the global financial system from collapsing.

Remember I suggested some time ago that the elitists like give us a warning before something bad is about to happen.   As my colleague John Titus states:  “the true elite aristocracy are polite criminals – they consider it gauche to flush the toilet while we’re in the shower without giving us a heads up.”

This is why the IMF issued this warning yesterday for the financial media to publish:

The so-called ‘flash crash’ on US bond markets last October and the collapse of the Swiss currency floor in January showed how quickly liquidity can vanish, acting as “a powerful amplifier of financial stability risks.”   LINK:   IMF tells regulators to brace for global ‘liquidity shock’

THIS is why stock markets globally are selling off hard today.   The S&P 500 is now down over 1%.  Typically the Plunge Protection Team has been able to prop it up by noon EST when it falls at the open.  So far today the sell-off has accelerated.

I guarantee that the reason for this  is unequivocally NOT because the Chinese Government is letting the public short a few more stock issues OR because Bloomberg experienced a widespread terminal outage.   But it does go a long way to explaining THIS:  LINK

34 thoughts on “Is The Global Financial System On The Brink Of Collapse?

  1. And it’s unbelievable how they can still control the price of gold in today’s market. I’m impressed by those central bankers. They know what they are doing. But payback time is coming. This time will be blood in the streets.

  2. maniacal cap on the only 2 forms of real money the entire month…
    its so obvious…
    they have to be scared shitless to so desperately hold Silver below the ridiculous $17 mark and Gold in the narrow range right at $1200…
    fucking Moneychangers…aint goin out without a fight to the death…
    Cheers Dave…
    and thanks for all ur hard work…
    forgive me for swearing…just fed up with it all…

      1. one of he traders in a “moo, moo” jacket that Melissa Francis on Fox just interviewed just said in the open that today “we havent had the Plunge Protection Team coming in to save the markets like we’re used to….”

        i bullshit u not…

  3. Great investigative work Dave! It looks like a true nightmare of all nightmare derivative
    crash coming. Coincide that with all the Jade Helm bull shit and then top it off with a false flag cyber attack to blame the Ruskies for and Obama will be President for a lot longer than most thought.

  4. Thanks for the excellent piece of detective work regarding a possible derivative implosion behind the scenes. So, do you believe that this is what has been pumping the $ up for the last few months also? Again, great work Dave.

    1. Thanks for the feedback! Yes I think the parabolic dollar is another sign that something is melting down behind the scenes.

  5. Keep up the good work, Dave. And when people like Jamie Dimon start giving a warning, it’s time to pay attention.

    As someone who grew up/still works in the Washington D.C. area, I can tell you that federal workers don’t have a clue!

  6. Thanks for all the hard work. It is reassuring to know that there are still a few decent journalists – the world cannot do without them. One day, you WILL get your rewards. DB

  7. I blog often and I seriously appreciate your content. This great article has really peaked my
    interest. I’m going to book mark your website and
    keep checking for new information about once per week. I subscribed to
    your RSS feed as well.

  8. Dave, you are basically saying that there may be a decent chance that the fun starts soon? Great dude, let it roll!!! I am waiting for all the lies finally to be exposed. This evil game has been going on now for so long.

  9. How would a massive derivatives meltdown affect the price of gold? Parallels to Sept/08 have been cited. I don’t think gold price rose then. I’m new to this site, having been steered here by tfmetalsreport.

    1. Gold is going higher no matter what, eventually. Unfortunately, I believe that the event that triggers the parabolic rise in gold and breaks the gold cartel’s ability to cap gold will also be an event that makes life very uncomfortable for all Americans, gold or not gold

    2. Gold will go up. The event that triggers a derivatives meltdown will also break the western Central Banks’ ability to cap the price of gold. Unfortunately, the event that triggers the price of gold to go parabolic will make life very uncomfortable for all Americans, gold or no gold.

      1. But it should also be understood that the whole of this has been planned. QE, under a specious economic justification, is designed to place the debt of the people with governments, so substantive private ownership is vanquished and the government will own production, distribution and exchange (ie. communism by the back door).

        They will let the dollar/Western Financial system collapse;

        “Under the Federal Reserve Act, panics are scientifically created. The present panic is the first scientific one, worked out as we figure a mathematical equation.”

        Congressman Charles A. Lindbergh, The Economic Pinch, 1921.

        and allow gold to skyrocket in tandem with the introduction of a BRICS gold backed currency arrangement. This will drain residual capital from the West and destroy the West economically, raise the East and also put gold and silver price beyond the reach of the average citizen.

        Then they can have WW3 after a short period to leave the West foundering in calamity and civil war. The East will conquer and then with the threat of opposition of the Western peoples nullified, they can introduce their One World Government…………….and their new religion (2 Thessalonians, chapter 2)!

  10. Dave, I recently read a quote from you that was roughly as follows: ” You need to think like a criminal to understand what is driving the financial markets right now”. Point is: I think our mothers (in my case a good aunt of mine as my mother died when I was 1.5 years old) always told us to be honest and good guys. That is my problem: I probably can’t imagine in my worst dreams how corrupt people in goverments, central banks….media have become as I have not been trained during my life to deal with and to anticipate what probably the worst scumbags on this planet are planning with us ordinary people. Although I am 50 years old right now I need to notice nearly on a daily basis that I am still kind of naive. But I give my best to learn. Thanks for helping me doing so.

    1. Stay the way you are. I spent 15 years on Wall Street and that’s where I learned to put myself in a criminals shoes. The higher up the food chain someone is on Wall St, the more like a criminal they behave. It’s stunning to see up close what the ability to make more and more money will do someone’s character. To give you and example, my boss on the junk bond trading desk would have sold his mother for a nickel. The person to whom he reported had already sold his soul to the devil. He was completely devoid of any sense of ethics or morality.

        1. I was on the evil side of the fence until 2000, then I left Wall St./NYC and moved back to Denver. You don’t realize just how evil and corrupt it is until you step away from it and observe it from the other side. Looking back, it was bad when I was there but I didn’t care as long as I got my bonuses. Money brainwashes. It’s 100x worse now than when I was there

  11. Outstanding effort Dave, Your tireless efforts to get the word out are greatly appreciated. Been enjoying the podcasts too. Thought the James Turk effort was one of the best. Saw this link to Brother John’s website and his podcast. About 2 minutes in he starts talking about the credit contraction we are now in and showed a chart on credit/loan refusals it was an eye opener IMO especially given the parallels with 2008. He is complimenting your work in that its one more sign TPTB are setting up another big correction/collapse. Would be interested to see if you concur with his work.

    1. Thanks for the feedback KC – appreciate it – I also thought Turk was at his best when we interviewed him. His insight and analysis is superb.

  12. I agree, for now it’s fascinating (sometimes frustrating) to marvel at the lunacy of this market, but when it breaks, the collapse will probably be so swift and violent that nobody will be laughing anymore.

    I’m just holding physical silver, cash in different bank and brokerage accounts, and some out of the money QQQ puts until this turkey blows up.

  13. Dave, agree with your fact based assumption of a global derivative crisis. Consider also that all those shale oil junk bonds are now part of the global derivative portfolio. Along with all those oil futures that speculators bought on margin last Autumn, hoping to repeat their profits from the last oil price fall, with their floating storage that has become almost worthless. Liquidity search to pay margin calls?

    Also, consider that in 1950 one ounce of gold would purchase 19.4 barrels of oil.
    Today , that same ounce of gold will purchase 21.6 barrels of oil.

    What this tells me, is that once the gold price resets higher, so will the price of most everything else including that of oil. Considering that the price of oil and that of gold have had an historic relationship, always returning to a mean average. Is the western economies ready for the price of a barrel of oil at $122.63 USD? I think not.

  14. T.F. at TFmetalsreport, in the comments section about your article here, has posted a piece by Bill Holter where he discusses your assessment of the situation and adds insight of his own, concluding, “The system is in and has been fraudently meeting a systemic margin call…” Does his chart using narrower data add any clarification to what’s going on, in your opinion? Thanks.

  15. I’ve done a little sleuthing, and maybe have found another angle. I certainly agree that Greece may be a part of this, as well as bad energy loans. But I found myself asking, what happened on December 17, 2014 when the big spike in repos started? Looking at a different part of the FRED website, we find that on that unique date, both treasury notes with maturities less than 15 days, the usual sort, were placed out for collateral, but a more unusual class, not generally shown on this chart, of notes with maturities longer than 15 days and shorter than 90 days were also put into play. The chart is here, that was an unusual day:,RREP1690,

    Further web searches on financial news of note on t hat day in December led me to a website that chronicles financial news related to the debt and derivative world, and there I found this:
    also here:

    • Western Banks Curtail Flow of Cash to Russian Entities (WSJ)

    “Global banks are curtailing the flow of cash to Russian entities, a response to the ruble’s sharpest selloff since the 1998 financial crisis. Such banks as Goldman Sachs Group Inc. this week started rejecting requests from institutional clients to engage in certain ruble-denominated repurchase agreements and other transactions designed to raise cash, according to people familiar with the matter. Bankers and traders say the moves to restrict some ruble transactions have become increasingly widespread among major Western financial institutions this week, even as the same institutions continue to try to profit from the ruble’s wild swings. The moves, which the banks are deploying to protect themselves against further swings in the currency, have the potential to add to the strain on Russia’s financial system. Goldman in recent days largely stopped doing longer-term ruble-denominated repurchase agreements, or repos, in which securities or other assets are swapped in exchange for cash, said a person familiar with the matter. ”

    “The Wall Street bank is still doing short-duration ruble repos, those that mature in less than a year, this person said. Online foreign-exchange broker FXCM said Tuesday that, due to the ruble’s volatility, it will stop trading services for the ruble against the dollar as of Wednesday. In a statement, FXCM said it was halting the services in part because “most Western banks have stopped pricing USD/RUB.”

    So I’m wondering if the big spike in repos has something to do with a financial strike against the Russian economy? Basically economic warfare, from which we are taking some blow back, or collateral damage?

    Mark Lytle

    1. I would say it’s a possibility but this particular spike is even bigger than the spike in 2008, which tells me that the Fed was putting a band-aid on a bigger derivatives problem in Dec 2014 than occurred in 2008. Treasuries as collateral have been rehypothecated many times over and whatever melted down in December caused a huge run in collateral that required massive RRPs in order to flood the ECB with collateral

      1. Much bigger for sure, no disagreement there. Just the qualatative difference as well as quantitative difference caught my eye. A one day spike in the older maturing repos, not reported as even present at all along the rest of the 12 year X-axis of the chart, points to a specific unusual event. I may not have isolated it, but due to the magnitude of what followed, it seems to me that some news feed somewhere should have a piece of economic news related to that, on or near that day in December..

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