by Gregory Mannarino, TradersChoice.net
When you think of a monster, what comes to mind? Frankenstein? Godzilla? The Creature from the Black Lagoon?
The truth is there is a real monster among us now, one with the potential to wipe out a large portion of the global population… literally!
That monster is the Super Bubble that now exists in the debt market. This monster is gaining power every day and will at one point unleash its terrible wrath on the world.
We are living in an illusion – an illusion that appears real as global debt continues to balloon and central banks inflate. The glue, so to speak, holding this entire charade together is mass debt issuance being fueled by world central banks, none more so than the Federal Reserve.
Just to maintain the illusion of the current environment, the Federal Reserve must increase their debt every second.
Today, the debt is higher than it was last week, but has the environment improved? Has the economy gotten better?
Next week, there will be even more debt, and the economy will still not have improved.
No amount of debt issuance nor any amount of asset purchases by a central bank can improve the economy. All they are doing is maintaining a false reality… that will get very real at some point in time.
America’s economy is in a freefall collapse with no end in sight, yet, again, the stock market continues to hit record highs. This phenomenon is something I predicted years ago. The faster the economy collapses and the worse the economic news gets, the higher the stock market will go as long as the central banks continue to issue more debt.
How high will the stock market will go? Just look at the Federal Reserve’s balance sheet, which nearly doubled in 2020.
Keep Your Eyes on the 10-year Bond Yield
The 10-year yield is the benchmark; it is also the key to understanding where cash is going. If the 10-year yield falls, it means cash is making its way into debt market-seeking safety. If the 10-year yield rises, cash is making its way out of the debt market, and it is seeking places to go.
For over a decade, the Federal Reserve has been involved in a scheme to inflate the stock market by suppressing rates. They do this by creating massive sums of cash out of thin air and buying the debt. This mechanism is also known as Quantitative Easing. QE has worked perfectly in that it has successfully propped up the economy… but it has created a huge stock market bubble on the back of inflating the debt market Super Bubble.
A Moment of Reckoning is Approaching
There will come a time when an uncontrolled sell-off in the bond market will occur. I believe this occurrence will be no accident.
An uncontrolled sell-off in the debt market will cause the 10-year yield to spike rapidly, and this will put enormous pressure on the stock market. Once this happens, equity markets will plummet worldwide, and everyone will be looking to sell at the same time. A pan-equity sell-off will mean a global stock market crash on an epic scale being fueled by rapidly rising bond yields. This mechanism will also put enormous pressure on real estate.
What I am outlining here will be a global crisis beyond anything ever seen before, and, make no mistake, none of this is by accident.
Problem, Solution, Reaction (PSR)
Every engineered crisis follows the same PSR pattern, and this one will be no different. What we need to do is raise awareness that this is the scenario that will unfold. The only question is when.
As the debt super bubble implodes, the flow of credit will stop. Transactions will stop. Resources will become scarce, and basic survival needs will become hard to get. Therein lies the potential for pandemonium to break out on the streets – what will be a grim situation, indeed.
The debt market super bubble is, without doubt, one of the greatest dangers facing us today.
