July 13th, 2014 By Michael Snyder
Most people have never heard of Jaime Caruana even though he is the head of an immensely powerful organization. He has been serving as the General Manager of the Bank for International Settlements since 2009, and he will continue in that role until 2017. The Bank for International Settlements is a rather boring name, and very few people realize that it is at the very core of our centrally-planned global financial system. So when Jaime Caruana speaks, people should listen. And the fact that he recently warned that the global financial system is currently “more fragile” in many ways than it was just prior to the collapse of Lehman Brothers should set off all sorts of alarm bells. Speaking of the financial markets, Caruana ominously declared that “it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally” and he noted that “markets can stay irrational longer than you can stay solvent”. In other words, he is saying what I have been saying for so long. The behavior of the financial markets has become completely divorced from economic reality, and at some point there is going to be a massive correction.
So why would the head of ‘the central bank of the world’ choose this moment to issue such a chilling warning?
Does he know something that the rest of us do not?
According to a recent article in the Telegraph by Ambrose Evans-Pritchard, Caruana is extremely concerned about rising debt levels and the current level of euphoria in the financial markets…
The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned.
Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield.
“Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” he told The Telegraph.
Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then.
And you know what?
Caruana is certainly correct to be warning us about these things.
As I have written about previously, the total amount of government debt in the world has grown by about 40 percent since the last recession, and the “too big to fail banks” have collectively gotten 37 percent larger since that time.
The U.S. national debt has grown from about 10 trillion dollars to more than 17.5 trillion dollars, and even the Bank for International Settlements admits that the global derivatives bubble has grown to at least 710 trillion dollars.
The massive financial imbalances that we were facing during the last crisis have not been fixed. Instead, they have gotten much, much worse.
But should we trust the Bank for International Settlements?
Of course not.
This is a very secretive organization that very few people know about but that possesses absolutely enormous power. The following is a brief overview of the Bank for International Settlements from one of my previous articles entitled “Who Controls The Money? An Unelected, Unaccountable Central Bank Of The World Secretly Does“…
An immensely powerful international organization that most people have never even heard of secretly controls the money supply of the entire globe. It is called the Bank for International Settlements, and it is the central bank of central banks. It is located in Basel, Switzerland, but it also has branches in Hong Kong and Mexico City. It is essentially an unelected, unaccountable central bank of the world that has complete immunity from taxation and from national laws. Even Wikipedia admits that “it is not accountable to any single national government.” The Bank for International Settlements was used to launder money for the Nazis during World War II, but these days the main purpose of the BIS is to guide and direct the centrally-planned global financial system. Today, 58 global central banks belong to the BIS, and it has far more power over how the U.S. economy (or any other economy for that matter) will perform over the course of the next year than any politician does. Every two months, the central bankers of the world gather in Basel for another “Global Economy Meeting”. During those meetings, decisions are made which affect every man, woman and child on the planet, and yet none of us have any say in what goes on. The Bank for International Settlements is an organization that was founded by the global elite and it operates for the benefit of the global elite, and it is intended to be one of the key cornerstones of the emerging one world economic system.
The role that the Bank for International Settlements is playing today was envisioned by the global elite long ago. In another previous article, I quoted from a book that Georgetown University history professor Carroll Quigley wrote in 1975 entitled “Tragedy & Hope” in which he discussed how the BIS was to one day become “the apex” of the global financial system…
[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.
And it is interesting to note that Professor Quigley was not against the system that the elite were setting up. He was just an academic that was trying to accurately convey what he had learned about how the global system works.
Sadly, the system that Quigley wrote about all the way back in 1975 has fully blossomed today.
Every two months, the central bankers of the world travel to Switzerland for “Global Economy Meetings” in Basel. Most people have never heard of them, but these Global Economy Meetings were actually discussed in the Wall Street Journal…
Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.
The dinner discussions on money and economics are more than academic. At the table are the chiefs of the world’s biggest central banks, representing countries that annually produce more than $51 trillion of gross domestic product, three-quarters of the world’s economic output.
So how do you feel about the fact that the central bankers of the world regularly gather to plot their next moves for the global economy?
Should an unelected group of central bankers that has no accountability to any national government really have so much power?
June 29, 2012
Tel Aviv, Israel
This week may very well go down as ‘connect the dots’ week. Things have been moving so quickly, so let’s step back briefly and review the big picture from the week’s events:
1) After weeks… months… even years of posturing and denial, Spain and Cyprus became the fourth and fifth countries to formally request aid from Europe’s bailout funds on Monday.
In doing so, these governments have officially confessed to their own insolvency and the insolvency of their respective banking systems.
Spain’s 10-year bond yield jumped to over 7% again in response, and many Spanish banks were downgraded to junk status by Moodys.
3) JP Morgan, considered to be among the few ‘good’ banks remaining in the US, conceded that the $2 billion loss they announced several weeks ago might actually be more like $9 billion.
4) The Federal Reserve reported yesterday that foreigners are reducing their holdings of US Treasuries.
5) Countries from Ukraine to Kazakhstan to Turkey announced that they have purchased gold in recent months to bolster their growing reserves.
6) Chile has joined a growing list of countries that has agreed to bypass the US dollar and settle all of its trade with China in renminbi.
7) China has further announced plans to create a special zone in Shenzhen, one of its wealthiest cities, to allow full exchange and convertibility of the renminbi.
So… what we can see from this week’s events is:
- European governments are insolvent
- European banks are insolvent
- US governments are heading in that direction
- Even the best US banks are not as strong as believed
- Foreigners are abandoning the US dollar and seeking alternatives
- Gold is money
These events are all connected, and the trend is becoming so clear that even the most casual observers are starting to wake up.
When you connect the dots, the next steps lead to what may soon be regarded as an obvious conclusion: the system, as it exists right now, is crumbling.
No amount of self-delusion can make this go away.
Rational thinking and measured action, on the other hand, can make the consequences go away… turning people from victims into spectators of the greatest bubble burst in modern times.
- It’s time to connect the dots (sovereignman.com)
- 17 Reasons To Be EXTREMELY Concerned About The Second Half Of 2012 (blacklistednews.com)
For a few years now, the banking industry has shouldered much of the blame for the massive financial crisis that is threatening the health of the global economy, while many others have been quick to point out the glaring lack of financial regulation. But, interestingly, there is now a growing awareness of what is known as the “shadow banking system” and findings have shown that they may have been the ones who caused the crisis after all.
HONG KONG – With world leaders meeting at the end of this week at the G-20 summit in Cannes, France, the next economic minefield that they will face is already coming into view. It is likely to take the form of an opaque global credit glut, turbocharged by the fragile mixture of too-big-to-fail global banking with a huge and largely unwatched and unregulated shadow banking sector.
To be sure, that is not what many see. Federal Reserve Board Chairman Ben Bernanke and others have blamed the financial crisis of 2008 on a global savings glut, which fuelled flows of money from high-savings emerging-market economies – especially in Asia – that run chronic balance-of-payments surpluses. According to this school of thought, excessive savings pushed long-term interest rates down to rock-bottom levels, leading to asset bubbles in the United States and elsewhere.
But Claudio Borio and Piti Disayat, economists at the Bank for International Settlements, have argued convincingly that the savings-glut theory fails to explain the unsustainable credit creation in the run-up to the 2008 crisis. They have shown that the major capital inflows were not from emerging markets, but from Europe, where there was no net balance-of-payments surplus.
The alternative theory – of a global credit glut – gained more ground with the release last week of the Financial Stability Board’s report on shadow banking. The FSB report contains startling revelations about the scale of global shadow banking, which it defines as “credit intermediation involving entities and activities outside the regular banking system.”
The report, which was requested by G-20 leaders at their summit in Seoul last November, found that between 2002 and 2007, the shadow banking system increased by $33 trillion, more than doubling in asset size from $7 trillion to $60 trillion. This is 8.5 times higher than the total US current-account deficit of $3.9 trillion during the same period.
The shadow banking system is estimated at roughly 25-30% of the global financial system ($250 trillion, excluding derivatives) and at half of total global banking assets. This represents a huge regulatory “black hole” at the center of the global financial system, hitherto not closely monitored for monetary and financial stability purposes. Its importance was exposed only by analysis of the key roles played by structured investment vehicles (SIVs) and money-market funds (MMFs) in the 2008 meltdown.
The shadow banking system is complex, because it comprises a mix of institutions and vehicles. Investment funds other than MMFs account for 29% of total, and SIVs make up 9%, but the shadow system also includes public financial institutions (such as the government-backed mortgage lender Fannie Mae in the US). They are some of the largest counterparties with the regular banking system, and their combined credit creation and proprietary trading and hedging may account for much of the global liquidity flows that make monetary and financial stability so difficult to ensure.
The trouble is that, by 2010, the shadow banking system was about the same size as it was just before the 2007 market crash, whereas the regulated global banking system was 18% larger than in 2007. That is why the FSB report pinpoints the shadow banking system, together with the large global banks, as sources of systemic risk. But the global problem is likely to be much larger than the sum of its parts. Specifically, global credit creation by the regular and shadow banking systems is likely to be significantly larger than the sum of the credit creation currently measured by national statistics.
There are several reasons for this. First, credit that can be, and is, created offshore and through off-balance-sheet SIVs is not captured by national balance-of-payments statistics. In other words, while a “savings” glut may contribute to low interest rates and fuel excess credit creation, it is not the main cause.
Second, the volatile “carry trade” is notoriously difficult to measure, because most of it is conducted through derivatives in options, forwards, and swaps, which are treated as off-balance sheet – that is, as net numbers that are below the line in accounting terms. Thus, in gross terms, the leverage effects are larger than currently reported.
Third, the interaction between the shadow banking system and the global banks is highly concentrated, because the global banks act as prime brokers, particularly for derivative trades. Data from the US Comptroller of Currency suggest that the top five US banks account for 96% of the total over-the-counter (OTC) derivative trades in the US.
Indeed, the nightmare scenario haunting the world is the collapse of another shadow banking entity, causing global trade to freeze, as happened in 2008. The Basel III agreement on capital adequacy and other recent reforms still have not ring-fenced trade financing from these potential shocks.
We urgently need to monitor and understand the role of shadow banking and the too-big-to-fail banks in creating the global credit glut. Obtaining a full picture of global monetary and credit numbers and their determinants is a vital first step.
So far, the G-20’s call to “think globally” has turned into “act locally.” We hope that the G-20 leaders will think systemically at Cannes, and act nationally and cooperatively to defuse the global credit glut minefield.
By Andrew Sheng
Copyright: Project-Syndicate, 2011
Andrew Sheng is President of the Fung Global Institute, a new Hong Kong-based think tank that seeks to understand global issues from Asian perspectives. He was Chairman of the Hong Kong Securities and Futures Commission and is an adviser to China’s Banking Regulatory Commission.
- China’s Shadow Banking System: The Next Subprime? (blogs.wsj.com)
- G20: Merkel desperate to solve Greek debt crisis (guardian.co.uk)
- Craig Stephen’s This Week in China: Beijing talks tough on European debt (marketwatch.com)
- Shadow banking tops pre-crisis level (theglobeandmail.com)
- Why 2012 will be a repeat of 2008 (wealthmans.wordpress.com)