This $500 TRILLION Time Bomb Threatens To BURY The Global Economy

We are sitting on a $500 trillion dollar time bomb that could explode the higher interest rates go. As the Federal Reserve continues to fight inflation, big hedge funds and banks are betting big against the bond market. However, they are using derivatives and leverage. This could backfire and might just be the black swan event that sparks a global financial crisis.

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✅ Timestamps & Chapters:
0:00 The $500 Trillion Disaster
2:38 Rate Hikes Nightmare
5:32 The Fed Triggering The Unthinkable
8:39 Huge Hedge Fund Risk!
11:20 A Global Default

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we are sitting on a $500 trillion time bomb and this is a powder C just waiting to explode in fact this makes the US national debt of $ 33 trillion look like Charles play and guess who might be the trigger man for This Global meltdown is none other than our favorite Central Banker in the world Jerome Powell and let’s really quantify this problem because every day ticking gets louder and louder we really had two events that the ripples of a bigger tsunami that’s coming for the GL global economy so what is this time bomb we talking about is interest rate derivatives is the off balance sheet liabilities they are prime to explode the longer we stay in this High interest rate environment and just in 2022 we are sitting on $52 trillion worth of interest rates derivatives in fact that is almost 80% of all derivatives in the world and guess which currency all this stuff are denominated in the majority is in US Dollars of course the global Reserve currency is on track to destroy the world economy again so what are interest rate derivatives now these are simply financial instruments the big Banks hedge funds and big corporations used to play around with interest rates and this includes your interest rate swaps options and forward agreements is a very opaque Market that no one really knows the true exposure $500 trillion is just an estimate from the bank of international settlements the B it could be magnitude small and we truly don’t know how bad the situation can get we only see the true damage once interest rates hit a certain point and guess what guys things are beginning to look really really bad for the Federal Reserves inflation five the rate hikes un over and half a quadrillion dollar Time Bomb is getting pushed to the edge of Oblivion we have Bowman from the Federal Reserve telling us that multiple rate hikes are necessary to curb inflation and here’s the funny part she admits that higher energy prices are hurting price growth progress yes OPC plus is winning against the Federal Reserve interest rate hikes but we shouldn’t be too happy about it because this is about to push the global economy off a cliff Bowman is calling for an independent third party review of this year’s bank failures and you have to ask yourself why maybe it’s because of how much exposure all these big banks have to interest rates no one on planet Earth knows how much derivatives are tied to interest rates on their balance sheet it is so so opaque that I bet even the banks themselves can’t fully quantify their full exposure and How Deep The Rabbit Hole truly goes and let’s take a deep breath let’s sit back and recall the 08 crisis we know it was tight to real estate but the real cause that Topo the global economy was the use of derivatives now let me Define what they are it’s simply a financial contract whose value is tied to an underlying asset for example back in ‘ 08 Banks had a stroke of Genius and they decided to bundle up all the mortgages together they took all the nasty loans threw them into a port and conjured something up called a mortgage back security or MBS and as you can see here these MBS derivatives are tied to the mortgage Market as long as homeowners could pay their monthly mortgage payments these MBS be fine but we all know what happened back in ‘ 08 don’t we all those stupid no income and no job loans started to default and this caused all the MBS to suddenly go underwater they became toxic and turned out to be rather worthless and we are now facing the same danger today $500 trillion worth of interest rate derivatives hang in the balance as the Federal Reserve continues to hike rates the underlying value of the bonds start to drop like a rock and before you fold your arms and think I’m peddling a fairy tale it has happened just a year back let me clear your fuzzy memory back in 2022 the United Kingdom the UK had their guilt crisis which was basically a bond market collapse interest rates in the UK started to fly up and crash the value of the British bonds and it came to the point where even Pension funds had huge margin calls and let’s take a guess what made this happen derivatives of course because interest rates were so low a few years ago Pension funds decided to load up the truck full of LD and LD stand for liability driven investment is basically a bunch of government bonds bundled together and then you inject in a crazy amount of Leverage to boost the returns Pension funds bought them because they needed to generate enough cash for pensioners we can see that 10year British Bonds were yielding less than 0.5% and that is a joke of an interest rate and in order to produce income for their pensioners they bought a ton of LD which were essentially leverage Bonds in fact the average leverage was around four times so if Bond values fell by 10% due to high interest rates the value of the LD will fall by 40% a magnitude of four times and because of that huge loss money managers began to sell their LD and their bonds to raise cash and this in perpetuated a cycle that caused Bond values to crash even further literally destroying the value of all these derivatives and this is why Warren Buffett calls this staff financial instruments of mass destruction the origin of today’s time bomb exploding could literally start from the US bond market and the big track we have again is higher interest rates there’s a common understanding that US Treasury bonds are the safest instruments around right people call it risk-free because at the end of the day if push comes to show the Federal Reserve they’ll just step in and they’ll monetize the debt they’ll simply print money to pay back the bond holders we all know that you’ll get back your money the nominal amount will be there if you hold them to maturity but your buying power is isn’t guaranteed however there’s something even the FED isn’t prepared for and that is the time bomb that will go tick tick tick and boom where interest rates hit a certain level we are now at 5.5% fed funds but this number could go much higher for much longer if you look at us CPI inflation is starting to rebound since June this year he has gone from a low of 3% up to 3.7% in August the reading for September is probably going to print a higher number and why is that because oil prices are heading up OPEC plus is ramping up the inflation pain bran crud has flown up to almost $95 yes retraced back down to $90 $91 but the heat is still on and this is putting Jerome power in a very difficult spot he has no choice but to hike further and keep rates higher for much longer there’s even one official in the Federal Reserve forecasting a 6.25% interest rate in 20 24 and let that sink in a little as interest rates go up Bond values go down and that is going to put pressure on all the banks especially their interest rate derivatives position and if we look at the gross market value of interest rate derivatives we can see it is around $ 11.8 trillion now that doesn’t sound like much but pay attention to the underlying value this 11.8 trillion of derivatives are actually controlling $52 trillion worth of underlying assets that is an insane leverage of at least 40 times to one so if a contract is tied to the value of the bond if the price goes down by 1% at a leverage of just 10 times the derivative suffers a 10% draw down at a 40 times leverage that’s a 40% crash and obviously we don’t know the amount of derivatives they betting on bond values to go up but it might be enough to implode the entire system if interest rates go higher and let’s have a refresher according to Fidelity a 1% rise in interest rates equates to a 9% drop in long-term Bond values a 3% rise would mean Bond values could crash another 27% and that is just the losses on the underlying asset if you slap on Leverage it could be magnitudes worse the Damage Done could be multiple times more and every time Bond values crash it puts a greater strain on the system especially when Leverage is applied to derivatives and we don’t know if the entire system will collapse from this but we have to be mentally prepared things can simply fall apart like a house of cards all right all right I can hear the protest coming already oh Sean it will never happen Wall Street they finally learned their lesson and there won’t be another repeat of this to happen and if you believe that oh boy do I have a bridge to sell you the problem with the financial system today is that the world is massively gaming the US Treasury Market the big Banks and hedge funds have huge Shadow bets they are filled by derivatives and here’s the funny thing it really doesn’t matter whether the bets are long or short the real risk is counterparty risk in a shocking report by the financial times the bis is warning that hedge fund bets could spark turmoil in Us treasuries in fact shop positions in two-year treasury Futures reach record highs in August Traders are betting massively big against us treasuries basically they are betting that the Federal Reserve will keep hiking interest rates up according to the bis the current buildout of Leverage shop positions in US Treasury Futures is a financial vulnerability worth monitoring because of the margin spirals it could potentially trigger and just how much Leverage is in the system I think we better sit up straight for this one because it will blow your mind and astounding leverage of 50 to 70 times is present in the US Bond Futures Market so just imagine that if the trade turns against you by 1% in the actual bond market your paper positions could be losing at least 50 times the magnitude and this is a recipe for disaster we have a fat chair who doesn’t know what he’s doing and Wall Street is Ping On Crazy bets on the bond market something can go wrong in an instant Wall Street is betting for the Federal Reserve to hike rates further they are betting that Bond values will continue to crash however what if an economic crisis strikes and the Federal Reserve is forced to cut rates there are 101 reasons why the Federal Reserve could suddenly do a cut and that will push Bond values up and all these hedge funds and Banks could be underwater so there’s risk on either side whether interest rates go up or down now if rates go up further the banks could collapse as well remember that the US Bank started to collapse at 4.5% interest rates so what happens if rates hit 6% or even more what if power pushes things higher either the banks could implode by themselves or the long paper beds could just explode on the contrary if Jerome power starts to cut rates this could destroy the crowded short positions of all the hedge funds and this could trigger a global Margin Call that will wreck the entire Financial system and that is the nightmare scenario we suddenly have a global Margin Call that leaves all these hedge funds and Banks two choices either they book a loss and let their entire positions collapse or they Scramble for US dollars to save their positions sending the strength of the US dollar soaring and this is a liquidity squeeze that could literally collapse the US economy and the entire world and the big RIS is counterparty collapse during the 2008 crisis many banks they were trading mortgage back Securities MBS with each other so I owe you this much and you owe me that much and when the time comes if I want to liquidate for any reason I expect you to pay me back but what if my bank or the fund goes bankrupt from all these leverage bets now I can’t pay my obligations to other counterparties and this will cause them to default on their own liabilities as well and we are back to the great financial crisis except this time it’ll be magnitudes bigger and this will make the collapse of Silicon Valley Bank svb and appetizer to the main CA the ECB also found that during a crisis like the o08 collapse other issue of derivatives might not be able to honor their obligations for example if a bank collapses and you bought credit default swaps on it which is a form of insurance you might not get paid if the seller of those contracts goes bankrupt first so understand how big this risk is we are sitting on a $500 trillion time bomb and this could literally be the Black Swan event that takes down the global economy once again and the bigco corporates could be a combination of the Federal Reserve and Wall Street again but let me know what you think in the comments below will this Bond bubble explode and is this the Black Swan event to take down the system let me know in the comments below stay safe be sure to smash the like button and subscribe as we navigate through these crazy times