The Beginning of the End of the $100 TRILLION Bond Bubble

The Beginning of the End of the $100 TRILLION Bond Bubble 

Phoenix Capital Research's picture

The big story in the world is the bond bubble.

For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.

The ridiculousness of this should not be lost on anyone. Politicians, in order to be elected, promise to allocate taxpayer funds on social programs that will benefit said taxpayers down the road (we’re simply talking about social spending, not infrastructure or other costs.

The concept that taxpayers might simply just keep the money to begin with never enters the equation. And because everyone believes that they are somehow spending someone else’s money, they play along.

When you believe that you are spending someone else’s money, it’s very easy to write a blank check, which is precisely what Western nations have been doing for years, promising everyone a safe and secure retirement without ever bothering to see where the money would come from.

When actual bills came due to fund this stuff, Governments quickly discovered that current tax revenues couldn’t cover it… so they issued sovereign debt to make up the difference.

And so the bond bubble was created.

The large banks, that have a monopoly on managing sovereign debt auctions, were only too happy to play along with this. The reasons are as follows:

  1. They can use these alleged “risk-free” assets as collateral to backstop tens of trillions worth of derivatives trades. A $1 million investment in your typical US Treasury can backstop over $15 million worth of derivatives if not more. The profits from the derivatives markets remains a primary source of revenue for the banks.
  1. Sovereign Governments are only too happy to bail out the big banks if the stuff ever hits the fan on the trades that are backstopped by the sovereign debt (see 2006 onwards). Since the banks are the ones holding the sovereign debt, they can always threaten to dump bonds, which would render the whole social welfare Ponzi bankrupt (see what happened in Europe when sovereign bonds collapsed in 2011-2012).
  1. In a debt-based financial system such as the current one, sovereign bonds are the senior most assets in the system. Those who own these in bulk are at the top of the financial food chain in terms of financial, economic, and political clout.

Since it was rarely if ever a problem to issue sovereign debt, Governments kept promising future payments that they didn’t have until we reach today: the point at which most Western nations are sporting Debt to GDP ratios well north of 300% when you consider unfunded liabilities (the social spending programs mentioned earlier).

Now, cutting social spending is usually considered political suicide (after all, the voters put you in office in the first place based on you promising to pay them welfare payments down the road). So rather than default on the social contract made with voters, the political class will simply push to issue MORE debt to finance old debt that is coming due.

The US did precisely this in the fourth quarter of 2014, issuing over $1 trillion in new debt simply to pay back old debt that was coming due.

This is how the bond market becomes a bubble. Between 2000 and today, the global bond market has nearly TRIPLED in size. Today, it’s north of $100 trillion in size. And it’s backstopping over $555 trillion in derivatives trades.

There is literally no easy fix to any of this. The pain will be severe. And so everyone in charge of the important decisions (the political elite, the big banks, and the Central Banks) will push this as far as it can possibly go before taking the inevitable hit.

The fact that Central banks are now openly cutting interest rates to NEGATIVE should tell you how far along we are in terms of funding problems (at these rates, bond holders are PAYING the Government for the right to own bonds). From a baseball analogy we’re in the late 8th, possibly early 9th inning.  When the game ends, the entire mess will collapse. And it will make 2008 look like a joke.

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Tue, 01/20/2015 – 13:55 | 5684803lasvegaspersona
lasvegaspersona's picture

Lloyd Christmas explains the Social Security Trust Fund…..

Tue, 01/20/2015 – 13:53 | 5684786lasvegaspersona
lasvegaspersona's picture

Hyperinflation, 2008 and a squid walk into a bar….that kinda joke?

Tue, 01/20/2015 – 10:02 | 5683614Irishcyclist
Irishcyclist's picture

Phoenix Capital Research tell it like it is. However unpalatable that truth may be.

Tue, 01/20/2015 – 09:38 | 5683520dscott8186
dscott8186's picture

There was no easy fix until Volker and Greenspan were out of the picture, then the real Keynesians took over in 2008.  Virtually everything the article says is true, except the part of the easy fix.

Up until 2008, no Fed chairman would choose QE as a solution to out of control deficit spending by the US Congress due to memories of Post WWI Germany.  Once forced by circumstances to use QE to float the world economy past a bad spot and no end of the world inflation occurred a regime change in thinking occurred. Maybe some of you missed the article that the Fed electronically sent some $13 trillion in loans to domestic and foreign banks to shore up their balance sheets in 2008?  Where did the Fed get $13 Trillion?  From nowhere…  How did the Fed clean up it’s balance sheet?  At the repayment of the loans when the banks used zero interest money to make a profit at everyone’s expense. Now you understand why the world economy has gone nowhere for 6 years.

The Keynesian Wet Dream has seemingly come true, they can inflate the money supply without consequence.  For 6 years there has been no hyperinflation.  Why?  Because the Fed substituted everyone’s losses with their electronic money. Apparently, we are now so sophisticated we don’t need to physically print money anymore.  So the answer to the fix that NO ONE wants to let pass from their lips is the Fed will issue electronic ones and zeros to pay for any bonds issued by the US Treasury (especially any sold by Russia, China and Japan) and then at some point clean up their own balance sheet just as magically by figuratively crashing the server.

Why is it that the Fed dare not publicly speak the truth? We all intuitively understand what the implications are IF what I just wrote has been done.

You are all slaves of the liberal utopia and now you understand how Obamanomics will make a janitor have the same pay as a doctor.  Why would a doctor spend 10 or more years of their life training to become a doctor when all they make is the same as the janitor?  Do you understand now what Hope and Change means?  Power flows from the barrel of a gun (Mao) and it will be against your head IF you don’t comply.  You are slaves, churlish ones, but slaves none the less.

Tue, 01/20/2015 – 00:53 | 5682799bardot63
bardot63's picture

DIDN’T TAKE LONG.   ANOTHER DEAD BANKER.  Forex trader who worked for HSBC and Royal Bank of Scotland and most recently, head of Forex Trading for National Australian Bank,   walks into the mountains on the day Swiss dump the Euro, found dead four days later.

Tue, 01/20/2015 – 16:03 | 5685383mt paul
mt paul's picture


them mountains are dangerous places…



Mon, 01/19/2015 – 20:11 | 5681908Rusty Trombone
Rusty Trombone's picture

You cocksuckers at Phoenix Capital better stay away from any home improvement projects…


Bullish nailguns…

Mon, 01/19/2015 – 19:58 | 5681870petkovplamen
petkovplamen's picture

yet another “entitlements are evil” article by “libertarians” when the reality is that the biggest recipients of welfare are the richest 1%.  and how about mentioning all the trillions spent on the military-industrial complex?


**********crickets chirping*******************


yeah, I thought so…

Tue, 01/20/2015 – 11:38 | 5683560rwe2late
rwe2late's picture


The article ignores the historical and financial context.

Social Security has been funded by a REGRESSIVE tax until now.

[As well as have many state and local governments misspent taxes and borrowed mostly for programs to police and control the populace, or to subsidize and enrich the auto industry and real estate developers.

(And so, in effect, have many “private” pension plans worked mostly to reward the financial industry and stock market “investors”.)

Until now, SS taxation has collected MORE than paid out in benefits. The excess collected has gone to help fund profits for MIC and TBTF finance.

Now that the positive flow of SS taxes is ending, and trillion$ have been ladled out to reward TBTFs and themselves, OF COURSE TPTB have been making moves to cut pensions for the middle and lower classes.

Medicare has also been REGRESSIVELY taxed to fund what OBAMAcare aims to continue, profits for SickCare Insurance industry and Big Pharma … not an efficient and effective healthcare system.



Mon, 01/19/2015 – 21:10 | 5682129The Most Intere…
The Most Interesting Frog in the World's picture

Fuck you dumbass.

Mon, 01/19/2015 – 21:04 | 5682098red1chief
red1chief's picture

Exactly. Seems like Social Security is “someone else’s money”, while the over $1 trillion per year spent on the empire is not. We should take care of the elderly, not our rulers’ egos.

Mon, 01/19/2015 – 22:43 | 5682546Oldwood
Oldwood's picture

Seeing how my contributions are such a small insignificant amount compared to wars and shit, I will just take a check or money order for my total contributions. You don’t even need to kick in interest. I think at last statement it was somewhere around $200k. I’ll just cash out and you can let me die in a ditch when I get sick and older…I’m OK with that.

Mon, 01/19/2015 – 20:35 | 5681981Dickweed Wang
Dickweed Wang's picture

Right on Brother!!!

Mon, 01/19/2015 – 19:38 | 5681773Dickweed Wang
Dickweed Wang's picture

For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.

One thing that really pisses me off is when a hack like this starts off an article on our economic woes by mentioning “social payments” as the root of the problem without one mention what-so-ever of the TRILLIONS OF DOLLARS spent (ahem, wasted) on the endless wars, militarization and the security/military/industrial complex in the west, particularly in the USA.  If this guy took a few minutes to do some research he would realize that just in the Afghanistan/Iraq fiasco the USA “spent” upwards of 5 TRILLION dollars that we did not have.  Then to blame “social spending” as the cause of our problems makes me want to puke.

Also, last time I checked social security was a pay-in type system whereby you pay in during your work years and collect the money contributed at retirement – or if you become disabled.  I’ve paid a hell of a lot of money into that system in my lifetime so to say that SS is welfare is complete bullshit.

Tue, 01/20/2015 – 13:38 | 5684686marathonman
marathonman's picture

Well hold on just a minute!  Forcing the Saudis and Middle Eastern oil-fueled Kleptocrats to take our infinite supply of debt-fueled currency is the trick required to fund Medicare, social security, and the like.  That is what the MIC is doing for you.  Lets not lose sight of that.

Tue, 01/20/2015 – 05:44 | 5683007dreadnaught
dreadnaught's picture

“Trillions wasted by the MIC”? More like many QUADRILLIONS! The black and off book budgets are the bottom of the iceberg-what is fed to the sheeple/liberal media is the tip of the iceberg!

Mon, 01/19/2015 – 22:58 | 5682586lynnybee
lynnybee's picture

it sure ain’t “social payments” that got us here.

Mon, 01/19/2015 – 21:11 | 5682140The Most Intere…
The Most Interesting Frog in the World's picture

You are so stupid it must be painful.  Fuck you and go die dummy.

Tue, 01/20/2015 – 07:52 | 5683166Dickweed Wang
Dickweed Wang's picture

Very intelligent comments.  Now go back to watching FOX News.

Mon, 01/19/2015 – 19:53 | 5681854Singelguy
Singelguy's picture

Actually, it isn’t bullshit. When social security was first introduced, average life expectancy was 68, so the average recipient collected SS payments for 3 years. The system was designed on that basis. However, since its introduction, with advances in medical technologoy and lifestyle changes, average life expectancy has increased to 77. The money you paid into the system, is paid out to you over the first 4 years. If you live beyond 69, the rest is, yes you guessed it, welfare.

Although I agree that trillions were wasted on unnecessary wars, it is still peanuts compared to the unfunded liabilities, i.e. the social security, medicaid, and medicare payments that the government has promised to make to an aging population. That number is well north of $105 trillion.

Tue, 01/20/2015 – 15:55 | 5685353Minder For Priapus
Minder For Priapus's picture

And if the average age would have been 60 and the pension age 65 you can guarantee our dumb western pleb citizens would have still bought it hook line and sinker!

Mon, 01/19/2015 – 21:33 | 5682265allgoodmen
allgoodmen's picture

If you live beyond 69, the rest is, yes you guessed it, welfare.


I was just wondering what happens to the lifetime SS contributions for those who die before reaching 62. I suppose the estate gets a refund?


Mon, 01/19/2015 – 20:53 | 5682021Dickweed Wang
Dickweed Wang's picture

When social security was first introduced, average life expectancy was 68, so the average recipient collected SS payments for 3 years.

Your argument here is specious, to say the least.  The funding of the system has been changed numerous times to account for things like the growing age of retirees, cost of living, etc. The system itself was (and still should be) solvent until the crooks in DC started raiding the trust fund to pay for all of their other shenanigans.

Again, I go back to the issue of the amount of money that most of the working stiffs like me in the US have paid into the system over our working careers.  To say that by receiving that money back from .gov is some form of welfare is way off base – to put it mildly. And by reviewing my account at I can tell you flat out that it would take a hell of a lot longer than 4 years for the ledger to balance out pertaining to what I have paid in versus what I am supposed to receive in “benefits” based on what social security says I am “entitled” to on a monthly basis.



Tue, 01/20/2015 – 02:18 | 5682883Augustus
Augustus's picture

The original plan was a 1% tax on employer and on employee.  In a year or two it went to 1.5% each.  Max income subject to tax was $3,000 and the plan was sold as having an individual account with benefits paid based upon contributions.  The real idea was to keep the widow from starving to death.  There was some small cost involved in providing a benefit for children of someone with the early death.  The plan collected taxes for two years before any benefits were paid to create the Trust Fund, invested in govt bonds.  That disproves the idea that it has always been established as a pay-as-you-go system, meaning that current workers would have to have all contributions immediately paid out.

During the 1960’s the system ran a large surplus in receipts above payouts, as it should have.  The pols could not stand to see reserves allowed to accumulate.  They revised the system to skew the payout / contribution structure and just voted to increase payouts for low contribution workers, plundering returns for higher earning contributors.  It hapenned again and again.  It is still going on that way today.

Now the rate is 6.25 on both employer and employee with much higher cutoff limits.  The max benefit related to that taxable income is greatly reduced as the payout curve has been altered to benefit low income contributors.  Further the payouts are based upon the Trust Fund earning 5% on investment in those govt bonds.  Not possible for the last 10 years.

The system has been expected to have negative cash flow for a long time.  Of course a properly funded annuity plan is designed for that, just as you would set up your IRA account to deplete as you live off of the past investments.  The problem is that when SS cash goes negative it requires the govt to redeem those bonds in some way.  Current method is to just add the shortfall to other US Yreasury bond sales.  Money is already spent and gone.  Sell an IOU, plus accrued interest to pay benefits promised.  However, those promises are not contractual guarantees of benefits as under a private annuity plan.  Benefits are simply what the pols want to pay out and on what ever schedule they like.  Means tests and reduced benefits certain.  also note that there was no original income tax deduction for contribution made.

It did not absolutely have to become a Ponzi scheme.  However, it was eazy to predict that the pols would make it into one.


Tue, 01/20/2015 – 08:04 | 5683182Dickweed Wang
Dickweed Wang's picture

Great info . . . thanks!

Mon, 01/19/2015 – 21:09 | 5682132red1chief
red1chief's picture

Right on again, Mr. D. Weed. Just looking at a higher  life expectancy when talking about Socoal Security is meaningless, given that infant and childhood mortality was much higher when life expectancies were much lower in the past. Talk about lies and statistics…

Mon, 01/19/2015 – 20:03 | 5681880petkovplamen
petkovplamen's picture

where did you get that 105 trillion from, outta your @ss? just in 10 years USA has spent 4 trillion on fake “wars of terror”. care to add how much money USA has spent since the end of WWII on the military-industrail complex?  At least the welfare money flow right back into the economy while the money spent on weapons benefits just a few.

Mon, 01/19/2015 – 21:18 | 5682195The Most Intere…
The Most Interesting Frog in the World's picture

Oh ok douschbag.  Sorry if I spelled your name incorrectly, but the fact that the government blew a wad on needless military spending does not equate to the fact that the ss and medicare ponzi should continue.  You are one of those dumbass leftists who thinks that if we only had the right combination of government officials everything would be better.  I used to think that when I was 5 years old also.  Now why dont you grow the fuck up and pull your head out of your ass.

Tue, 01/20/2015 – 05:26 | 5683019dreadnaught
dreadnaught's picture

LOL a total DOUCHEBAG who cant even spell it!!!!  THAT TAKES THE CAKE-you and your ‘logic’ are DOUCHEBAG LOGIC, ah the sweet irony

Tue, 01/20/2015 – 08:05 | 5683188Dickweed Wang
Dickweed Wang's picture



Don’t encourage him . . . .

Mon, 01/19/2015 – 20:37 | 5681991Dickweed Wang
Dickweed Wang's picture

Couldn’t have said it better myself . . . .

Mon, 01/19/2015 – 21:22 | 5682211The Most Intere…
The Most Interesting Frog in the World's picture

And thats cause you might be the only person on ZH more stupid than him.

Mon, 01/19/2015 – 19:01 | 5681672lynnybee
lynnybee's picture

i distinctly remember my parents & myself paying into this mess …. where did the money go to ?   the money forceably deducted from my paycheck for 30 years ?   could it be that it was looted ?   had i just saved that money myself instead of handing it over to a corrupt government, i could have purchased gold coins or saved it in cash in my mattress.   i paid into the system for 30+ years.   so sad.  for me & the rest of us oldsters.   too old to get out in the streets & riot.

Mon, 01/19/2015 – 21:24 | 5682229The Most Intere…
The Most Interesting Frog in the World's picture

Its the young people that should be rioting.  The may before its all over.

Mon, 01/19/2015 – 20:31 | 5681972Its_the_economy…
Its_the_economy_stupid's picture

never too old.

don’t be lame.

what you mean is too afraid.

don’t be afraid!

Mon, 01/19/2015 – 17:20 | 5681338Al Tinfoil
Al Tinfoil's picture

The ultimate wet dream of any conman has got to be the Federal Reserve system where a private group gets to create a country’s currency and charge the country for the use of that currency.  The deluded country willingly takes on debt slavery and defends the system for the conmen.


Mon, 01/19/2015 – 16:28 | 5681108Setarcos
Setarcos's picture

So the bond bubble/sovereign debt and all the rest of the financial mess is solely due to welfare entitlements/benefits which people paid for in good faith. but which disappeared into general revenue.


Nary a mention of fighting wars to infinitey on borrowed money.  No mention of bloated ‘defence’ contracts and other procurements.  No mention of bailing out TBTF banks and other corporations … and so on and so on.


Nope it’s all much simpler than that … blame the poor.

Mon, 01/19/2015 – 21:55 | 5682385MrTouchdown
MrTouchdown's picture

Here are your choices:


Vote Republican to have your paycheck raided to pay to go kill brown people.

Vote Democrat to have your paycheck raided to pay for some highly medicated asshat that isn’t even fit to be used as fertilizer to continue living.


Either way, your paycheck is getting raided. Nowadays it’s not even used to pay for this crap – it’s collateral for a loan to pay for this crap. The point of the article was that even that pitiful amount of collateral isn’t going to be enough to get the loan anymore – regardless what the reason for the loan is.

Mon, 01/19/2015 – 22:34 | 5682517Oldwood
Oldwood's picture

How about we vote for republicans who actually shrink government and reduce spending, and vote for democrats who actually support entitlement programs that can actually be paid for. A little honesty and transparency would go a long way to making both ideologies real.

Tue, 01/20/2015 – 04:04 | 5682953joethegorilla
joethegorilla's picture

Name one Republican who votes to shrink the government. Even Ron Paul was the best at pork. Good grief.

Tue, 01/20/2015 – 05:34 | 5683025dreadnaught
dreadnaught's picture

The Republican will vote to cut Socail Security, then vote to fund the Military with $1000 roofing hammers, or $70 each roofing nails or $20 BILLION to build 50 Helicopters that have to be scrapped cuz they dont work////

They will vote endless funds for war, but cut the budget for the Veterans and their Hospitals

Tue, 01/20/2015 – 06:51 | 5683082Oldwood
Oldwood's picture

I never said they existed. I mean if we are talking ideals, honesty in banking and such, why not?

Mon, 01/19/2015 – 21:46 | 5682352The Most Intere…
The Most Interesting Frog in the World's picture

I dont think that anyone on this site would disagree that there has been wasteful military spending.  But the scale of welfare spending and future obligations is so far above and beyond anything else there is just no comparison.

Tue, 01/20/2015 – 05:54 | 5683034dreadnaught
dreadnaught's picture

what a douchebag (lol) dont you realize that all ‘welfare’ money ends up in the hands of the banks and the elite eventually? God, get a GED or an IQ above 75 and THEN come post here FFS or go RENT a clue;

IF you dont yet know (or are clueless) that the Republicans have voted the make the taxpayer the sole guarantor of $500 Trillion in Wall Street junk derivatives, then you dont even have the right to an opinion here.

i swear some people are so gawddamn dumb that they should not even be allowed to exist

Mon, 01/19/2015 – 15:33 | 5680856Carpenter1
Carpenter1's picture

Reading these comments, people sure have a ton of faith in governments, printing presses, and C.B.’s.

Isn’t that what every failed society in history got wrong too? Where are they now with their “fail proof” system?

Mon, 01/19/2015 – 15:04 | 5680715krage_man
krage_man's picture

this will never happen. The likely outcome is long term deflation, lower prices, debt value increase in real terms. The growth will be in emerging markets with no debt

Mon, 01/19/2015 – 14:34 | 5680592Just Another Truther
Just Another Truther's picture


LOL a default on their watch is about the last thing that will we see happening in this charade. The house is burning down around us, but hey – as long as they got a finger on that treasury bid it’s all in good hands!!


The nominal price of the bonds will never collapse. Our masters of the universe have alredy demonstrated that keeping the global sovereign debt market ahead of the credit deleveraging undertow is priority #1. Deafult and G8 soverign bond do not go in the same sentenct together. Now the currency used to buy them…

Tue, 01/20/2015 – 05:38 | 5683031dreadnaught
dreadnaught's picture

fucking sick bastards that run things love to meet the group who ‘suicided’ them and waterboard them to death

Mon, 01/19/2015 – 20:06 | 5681894Teknopagan
Teknopagan's picture

No depth on the deaths on Mpls news