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Empire of lies

by | Sep 22, 2021 | Politics | 8 comments

There has been a theory kicking around for the past year or so that the entire Scamdemic was, essentially, invented to prevent a truly Biblical meltdown in the world’s financial markets. The roots of this theory sit with the massive spike in repo market rates from back in September 2019. I remember watching and hearing the news about that spike at the time and being legitimately concerned – because, unlike a lot of commentators on the subject, I actually have experience dealing with repo trades. Based on what I have seen ever since, this so-called “conspiracy theory” appears to have been a real spoiler alert – and, indeed, that appears to be the case with most such “kooky” theories these days.

The Basics of the Repo Market

Repo Market Troubles Spur Economic Recession Concerns ...

If you’re wondering what the fuss is all about, then take a look at this basic description of what a repurchase agreement (repo) is, and why it’s important:

Repos are a common secured money market transaction. In a repo transaction, the Desk purchases securities from a counterparty subject to an agreement to resell the securities at a later date. Each repo transaction is economically similar to a loan collateralized [sic] by securities, and temporarily increases the supply of reserve balances in the banking system.

Conversely, in a reverse repo transaction, the Desk sells securities to a counterparty subject to an agreement to repurchase the securities at a later date. Reverse repo transactions temporarily reduce the supply of reserve balances in the banking system.

— New York Federal Reserve, 2021

Repos come in two flavours – overnight and term. Overnight means exactly what it says – Bank A buys securities (typically Treasury bills, Agency bonds, or mortgage-backed securities) for one night and sells them back the next night. Term repos are longer-dated trades that span up to one month. It is rare for a repo agreement to go beyond a month – I’ve never seen it happen in roughly a decade spent working in and around capital markets.

Repos are a cheap, convenient, fast, and straightforward way for banks to fund their operations on a daily basis. In a well-functioning repo market, rates are reasonably stable and predictable. The benchmark rate for repos tends to average around 2% or thereabouts, with some ups and downs over time.

The repo market can also be correctly understood as an indicator of economic inefficiency and counterparty risk among financial institutions. When repo markets spike up beyond historical norms (e.g. the rolling average of the past 3 months or thereabouts), then that indicates a significant amount of uncertainty about the creditworthiness of various counterparties in the repo system.

Stress Fractures

In simple English, that means that Bank A doesn’t know whether Bank B, C, and D are actually good for the loans that they want from Bank A. When this happens, repo rates shoot up very quickly to levels that make overnight funding of derivative positions prohibitively expensive.

So if you happen to see a major spike in either the broader repo market, or the benchmark rate known as the Secured Overnight Funding Rate, which is essentially a proxy for overnight repo rate, then you know that something very fishy, and potentially absolutely catastrophic, is going on.

Since I like graphs (and coding in R), here’s some “charty goodness”, as our friend Aaron Clarey might say, to digest on this very subject:

Here’s the source data straight from the New York Fed, you can verify it for yourself.

Now, see that massive spike in rates in mid-September? That, right there, is SCARY shit. Repo rates shot up to above 6% for the first time in history. It essentially tells us that the biggest banks in the USA were rapidly losing confidence in each other’s ability to repay their obligations – on OVERNIGHT SECURED LOANS OF HIGH-QUALITY SECURITIES.

That is a very scary situation if you are the Chief Risk Officer of a big bank. It is an even scarier one for the CEO of that same bank. And it is downright pants-wetting for a central banker. It means that the most important counterparties in the entire financial system, the ones who are most vital to the rapid and seamless flow of funds between companies and customers, don’t trust each other. They aren’t sure of each other’s credit quality and balance sheet strength.

By the way, it is rather difficult to look back in time to 2008 to find a similar phenomenon in the same markets. We don’t have data for the Secured Overnight Funding Rate (SOFR) index, or for the Tri-Party General Collateral Rate (TGCR) index going back that far – the time series only go back to about April 2018.

But we did see similar stress fractures appearing in the housing markets amid soaring delinquency rates among the least creditworthy borrowers. And at the time, that caused a select few people who know something about those markets to jump up and down and start screaming bloody murder, because they could see that things were going horribly wrong very fast.

Now we are seeing a similar signal emerging among the biggest banks, lending to each other – not merely to jobless Mexican illegals, but to other big banks.

Think about that for a moment, and think upon its implications. That is a very, very frightening situation.

And, note, I haven’t even begun to talk about what will happen to the repo market now that rates have been pushed so far down below historical norms. If you encourage huge amounts of borrowing with artificially low rates – even if those loans are collateralised with high-quality securities – then you have effectively lit the fuse on a GIGATON-LEVEL financial bomb. That is what we are looking at right now.

The Timeline of Events

Now put things together on a timeline, as this chap did. What you will find is a series of alarm bells sounding off across the entire global economy, with central bankers across the world’s biggest, and least solvent, developed nations all hitting the panic button at about the same time.

Now the question becomes:

How do you stop a global economic collapse in its tracks, when fiscal policy no longer works (because developed nations have stretched their national balance sheets to and beyond the breaking point), monetary policy no longer seems effective (because much of the massive excess liquidity pumped into the economy seems to have been absorbed into capital markets to make money out of money, rather than going into producing actual things), and governments are rapidly losing credibility?

There are no good answers to that question. But – and this is key – if you have the ability to leverage a disease into something terrifying enough to halt all economic activity, while giving central banks the excuse and the ability to pump mind-boggling amounts of money into the system, then you MIGHT be able to avert the final collapse.

Or, at least, you can kick the can down the road far enough down the road to buy some breathing room today.

Making Sense of the Coof

A few years ago, I would have said that the idea of governments around the world amping up the threat of a deadly virus to the point of locking everyone down for the sake of protecting the banksters (h/t LRFotS and good friend Veritas for that link) would be absurd beyond the realms of speculative fiction.

Today, I’m not laughing. I take that idea seriously, because that is the simplest and most plausible explanation for the reason why governments keep doing such blatantly stupid things.

Consider: we know that the Lung Pao Sicken – whatever its origins, vector, and mutability – has an infection fatality rate of way below 1%. The primary threat is not the young and productive – it is the elderly, the obese, the slovenly, and (frankly and very offensively) the stupid. So, freezing the entire economy in order to “save the population” is not a legitimate excuse. It doesn’t make any sense.

Indeed, nothing about the current spate of government responses makes any sense whatsoever, if you look merely at the surface level. Why, exactly, would governments attempt to create two-tiered societies, in which the unvaxxed have fewer rights than the vaxxed? What good does it do a government to have a society in which “no jab, no job” is the law of the land?

Change of Perspective

Are you a modern day pharisee? 7 ways to know if you are.

The only way to figure out this rather knotty and bizarre situation is to look at things from the perspective of the Pharisatanists who very clearly run governments around the world. By this, I do not necessarily mean the “elected” leaders of the West – though many of them, such as the American Fake President, are clearly part of that group. I am writing here of the entrenched interests of the Deep State swamp that controls the central banks, the administrative classes, and – last but not least – the international banks.

What benefits do freezing the global economy and creating a two-tiered society bring them?

Once you look at this question along two axes, from their perspective, then their actions make sense, in a very twisted and evil way.

The Economic Aspect

The first action is easy enough to understand from this perspective. It buys the global Deep State enough time to find another increasingly desperate fix to an increasingly perilous financial and fiscal situation. Let’s be clear about this: there is ABSOLUTELY NO WAY to solve the problem of international sovereign debt default. It is inevitable. The cold, cruel mathematics of compound interest make it completely inevitable.

Virtually every Western government of any consequence is bankrupt. Their future liabilities far outstrip their current and future asset base. There is no way out of this trap, except for inflating away the value of those liabilities.

But here we have a problem that is as old as money itself. If you print money like there is no tomorrow, simply because THERE IS NO TOMORROW, then pretty quickly you will find inflation hitting the economy hard on every front. Inflation is, always and everywhere, a monetary phenomenon. It comes from too much money chasing too few goods. That is the end of the story and no attempt by the over-credentialed charlatans who call themselves “economists” will change this fact.

If, however, you freeze the production of goods and services while pumping huge amounts of money directly into the least solvent sectors of the economy, then you might be able to avert both catastrophic debt-default and even more catastrophic inflation. You can do so by breaking the transmission mechanism of money into the broader economy.

That is precisely what happens during a lockdown, of course.

The Political Aspect

But how does creating a two-tiered society play into this? The answer has to do with identifying those who will comply with the Pharisatanic attempts to save a failing system, and those who will not.

The vaccine mandates are essentially a sorting mechanism, though not a very good one. Those who get the not-vaxx, can generally be counted upon to behave like good little sheeple. (There are strong exceptions to this rule – some of them read this site.) Those who do not, can be readily identified as refuseniks who will not comply with the most obnoxiously stupid dictates of a corrupt and broken government.

Consider: if you have a failing economy, up to its eyeballs in debt, incapable of staying fiscally solvent, and you have a failing banking system that looks more rickety by the day, then you need a way to keep people in line long enough for the conflagration to be brought under some semblance of control.

If you control people’s livelihoods and security, and you control their families, then you control them. It’s just that simple.

The Way the World Ends

The question that we have to ask ourselves is also straightforward, if extremely uncomfortable:

Has this extraordinary intervention actually worked?

Even the blind can see that it plainly has not. Inflation is taking off around the world, because in their haste to save the financial system from itself, the Pharisatanists forgot that other sectors of the economy that need to produce real things for real consumption cannot be neglected for long. The same Pharisatanists forgot that, just as financial markets depend on endless supplies of funny-money, the real economy depends on cheap abundant real energy. The Pharisatanists provided impossibly absurd amounts of funny-money – while doing everything possible to shut down meaningful energy production.

More than that, the same cast of idiots failed to foresee that not everyone would acquiesce and get the shot. Not everyone wants to be controlled. The Pharisatanists appeared to think that the number of holdouts would be quite small, and that the Lung Pao Sicken was an order of magnitude more dangerous than it actually is.

Conclusion – Look Out Below

These failures have led to critical breakdowns in world political and economic infrastructure. We are seeing the cracks widening right now. The failures in the financial system are becoming more obvious by the day. Tight supply lines and astonishing levels of government stupidity are leading to serious energy and consumer goods shortages in the UK and elsewhere. Australia – the world’s largest open-air prison – went from being a supposed “world leader” in terms of its response to the Coof, to a global laughingstock.

Meanwhile, the Pharisatanists have failed utterly to corral and contain the powers that resist them. In Russia, there is no vaccine mandate and people live and breathe free air. In China, the likely collapse of their largest property developer may or may not turn into a catastrophic situation, but the Chinese government does not appear overly worried. (Though, of course, they wouldn’t, since “face” matters more to them than competence.)

Around the world, we observe that religious folks have resisted the not-vaxx mandates far better and more sturdily than non-religious ones. In Israel, one of the most heavily-not-vaxxed countries on Earth, the Ultra-Orthodox members of the Small Hat Tribe continue to hold out against the jab – and they appear to be doing better than the overall population as a result. Religious Christians, and even and especially Muslims, continue to resist the efforts of the Pharisatanists to get jabbed and conform to their broken financial system.

This Empire of Lies is shaking itself to pieces before our eyes. There is a great deal of ruin yet left in it, but its destruction is assured. Beyond that, all we can say for sure is that its downfall will be catastrophic, brutal, and terrible in almost every respect.

What comes after the Empire of Lies collapses? I don’t know. I simply hope that it will be less idiotic, venal, corrupt, malicious, and downright evil than what came before.

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8 Comments

  1. A.D.

    Brilliant

    Reply
  2. Bardelys the Magnificent

    I work in capital markets on the mortgage sell side. Back in March 2020, shit hit the absolute fan. Liquidity vanished overnight. Suddenly, and without warning, investors and Agencies stopped buying loans. Not all of them, but everything but the cream of the crop. There were also problems securing funds for the loans that were set to close. At the same time, rates fell through the floor and we were being eaten alive by renegotiations, which eat up the profit margins. With rates so low, everyone and their mother wanted a refi. Banks of all sizes were turning people away because they didn’t have the capacity to handle the workload, plus the funding problem mentioned above.

    We scrambled and survived, but the Agencies (Fannie and Freddie) have been doing weird shit to massage the market back to normal. For example, why is Blackrock paying cash? Because REIs were being hit with 4-7 points on each loan. Same with second homes. Make of that what you will. That hit has gone away in the last week or so, but 2020 was a record year for mortgages and everyone is wondering when the ride will end. Because it will. I wholeheartedly belive the lockdowns served as a pressure release valve on a massive bubble. We live in interesting times, indeed.

    Reply
    • Bardelys the Magnificent

      Some added color on liquidity. When banks lock loans, they hedge them with securities. Banks and lenders will sell securities to offset the expected gains they make from the loans. So if you’re sitting on 100M in loans, you should have roughly 100M worth of securities to “sell” on the open market. You exercise these one of two ways: you can buy them back when you trade (sell) the 100M, or if you have the clearance with Fannie or Freddie, you can fill those securities with your loans.

      So if you have a 100M pipeline, you have equally 100M in assets and liabilities. If you can’t sell your loans, you have to buy those securities back with money you don’t have. If you can’t originate loans, the agency banks that sell securities cannot float them, and out debt economy grinds to a halt. Which is why it was equally true that the money spigot dried up AND demand went through the roof at the same time. It’s also why the Fed’s biggest concern right now is inflation. Web of lies.

      Reply
      • Robert W

        This is a good color add, thank you

        Reply
      • Didact

        Thanks for the additional explanations, they are very useful.

        Which is why it was equally true that the money spigot dried up AND demand went through the roof at the same time. It’s also why the Fed’s biggest concern right now is inflation. Web of lies.

        Exactly. The financial services part of the economy is at this point essentially a parasitic entity that is killing off the real productive economy. It has entangled itself into the whole system in such a way that the financial sector cannot be excised without killing the host, so to speak. It’s a disaster on all possible fronts.

        Reply
  3. Kapios

    Well, there will be more money printing for ‘climate change’, inequality and whatever type of virtue signalling you can think of.

    If people are angry because of the vaxx mandates just wait how outraged they will be once the European governments start mandating electric cars. Nikola Tesla is rolling in his grave.

    Don’t forget the military and social benefits spending as well.

    With or without coof, they would have found excuses to print their currencies to oblivion.

    I hope these people get a good whiff of Mammon’s feet in hell. Truly despicable people.

    Reply
    • Didact

      If people are angry because of the vaxx mandates just wait how outraged they will be once the European governments start mandating electric cars. Nikola Tesla is rolling in his grave.

      It’s already happened in PommieBastardLande. The feckless cucked-out PM there, Boris the Floppy-Haired Sheepadoodle, has made it a matter of government policy to ensure that no petrol- or diesel-powered cars will be sold after 2030. Only problem is that the Limeys aren’t building anything like the amount of generation capacity that they will need in the future – they are shutting down their nuclear plants, gas turbines, and coal stations, and going all-in on pointless useless eco-weenie wind turbines and solar panels.

      None of that is going to meet the demand surge that they will experience in very short order. The Limeys are already looking at a severe energy crisis this winter as prices for natural gas and other hydrocarbons spike upwards, and there is already quite a bit of panic among the Limeys about whether they will have meat this winter.

      “Green” thinking always leads to the same outcomes as “red” thinking – impoverishment, starvation, and suffering. Always and every time.

      Reply
  4. Jim S

    “What comes after the Empire of Lies collapses? I don’t know. I simply hope that it will be less idiotic, venal, corrupt, malicious, and downright evil than what came before.”

    What comes next will be stunning chaos. It will be brutal, where people won’t believe what is happening is really happening. The best thing I can think of doing is becoming comfortable with the uncomfortable in a collapsing world.

    Great financial analysis by you Didact and the commenters. Learned something new, thank you.

    Reply

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