Gaping black hole opens up in debt and derivatives bubble

The Cash Ban Breakthrough

My recommendation is that it is a good time to stock up on your essentials (food, water, petrol, medications, pet food, toilet paper and cotton buds).

The actions of the Australian government and central bank, and US Federal Reserve, betray real desperation about the state of the Australian and global financial system. There are signs that the global debt and derivatives bubble, which the world’s governments and banks have manically propped up for a decade since the 2008 global financial crisis, is suddenly imploding into a financial black hole.

(This sudden crisis is the subject of the 27 September CEC Report. Click here to watch: “All signs point to financial meltdown under way”.)

Last week the US Fed was again forced to escalate its response to the repo market crisis that started on the afternoon of 16 September, when the interest rate on overnight lending between US banks suddenly jumped from a bit over 2 per cent, to almost 10 per cent. (Repo is jargon for “repurchase agreement”, the mechanism by which banks borrow overnight against collateral that they agree to repurchase the next day.) This rise indicated that one or more institutions—still unidentified—unexpectedly needed to borrow a lot of money fast, which the other banks were either unable or unwilling to lend. For the first time since the 2008 financial crisis the Fed was forced to intervene in the repo market; it injected US$53 billion immediately, and promised another US$75 billion the next day if it was needed.

The situation is now out of control. Not only was the next US$75 billion needed, the Fed had to keep doing it, eventually injecting almost US$300 billion by the end of the first week, and then pledging to inject US$75 billion per day into the overnight repo market until 10 October, and US$30 billion three times into the 14-day repo market. Even that hasn’t worked. Now the Fed has upped its intervention to offer US$100 billion per day into the overnight market, and US$60 billion into the 14-day market.

The big question everyone is asking is why have the giant Wall Street banks, with their massive deposits, stopped lending into the repo market? Their unwillingness to lend indicates they know something big has happened, which might mean they wouldn’t be paid back. This is how the collapse of Lehman Brothers triggered the credit crunch in 2008, which raises a more important question: does the mysterious black hole in the repo market mean another meltdown has started in the global derivatives bubble?

Panic in Australia

On 1 October the Reserve Bank of Australia cut its official cash interest rate to 0.75 per cent, another all-time record low. While these rate cuts are becoming the new normal, they are actually extraordinary and extreme. The RBA has previously indicated it is prepared to go to zero and negative interest rates.

This is driving another desperate move, the Morrison government’s push for legislation banning cash transactions over $10,000. The cash ban is intended not to reduce the so-called “black economy” as claimed, but to lock Australians into the banking system so they can’t escape extreme measures to prop it up, such as negative interest rates and “bail-in” of deposits.

Australia’s banks are on the edge. The Big Four banks have the highest exposure to housing debt of any banks in the world. Their loans are well over 100 per cent of their deposits, some close to 130 per cent, compared with a healthy loan-to-deposit ratio (LDR) of more like 90 per cent. A high LDR is an indicator banks may not have enough liquidity to cover emergencies—another reason for the cash ban to lock deposits in banks. With its rate cuts, the RBA is desperate to resuscitate the housing bubble cancer that has gripped the Australian economy for almost two decades. The deflation of the bubble in the past 18 months has threatened the banks with serious losses.

Even more concerning is the banks’ massive and unprecedented increase in exposure to off-balance sheet derivatives. According to RBA figures, derivatives trading has skyrocketed by more than $10 trillion in just six months, from $38.2 trillion to $48.7 trillion. The banks claim that their derivatives trading is mostly hedging, or off-setting risks from other investments; however, this burst of growth in derivatives does not correspond to any equivalent activity in the financial system and economy. It is an alarming indicator of something amiss in Australia’s banking system.

Derivatives fraud

The history of derivatives shows they can be instruments of fraud. They can be used to create artificial liquidity, and cover up losses, including losses caused by gambling in other derivatives. An infamous example of derivatives being used in this way is given in former Morgan Stanley derivatives salesman Frank Partnoy’s 1997 book F.I.A.S.C.O.: Blood in the Water on Wall Street. Partnoy explains how the 1995 collapse of British bank Barings in a massive derivatives meltdown caused heavy losses in Japanese banks, so Wall Street banks made a killing by selling derivatives to the Japanese banks that were designed to hide the losses, and in fact make the losses appear to be profits.

The CEC Report includes a clip of Frank Partnoy, now a law professor, demonstrating that the practice of banks holding their derivatives off-balance-sheet means their balance sheets are fictional. The giant Wall Street bank Citigroup had a very healthy balance sheet all through 2006, 2007, 2008 and 2009, but in that time its market capitalisation collapsed to almost zero, it went from making tens of billions of dollars to losing tens of billions of dollars, and it required the single biggest bailout of any bank—over US$300 billion. The 2008 crisis proved that off-balance sheet accounting, and the practice of banks reporting only their net derivatives exposure, rather than their much larger notional principal (as done by Australia’s Big Four banks except Westpac), is another f-word: fraud.

The 2008 derivatives meltdown was temporarily stopped by massive government bailouts and trillions in central bank quantitative easing (QE) money-printing. This only put off the inevitable implosion, however, which may be starting now. Whenever it may be, it is imperative that we stop policies like the cash ban, bail-in, negative interest rates, QE and helicopter money, and force governments to take back control of the banking system from central banks and implement comprehensive reforms. These must include a full Glass-Steagall separation of deposit-taking banks from all forms of speculation, and a national bank so that public credit can be directed into productive infrastructure and industries.

Keep fighting the cash ban!

The immediate fight against the cash ban is crucial. Click here to go to the new page on the CEC’s website dedicated to the campaign to stop the cash ban law, with instructions on how to:

make a submission to the Senate inquiry;
join a delegation with other people in your electorate to visit your local MP;
sign and share the petition.

Banning cash so you pay the bank to hold your money is what the IMF wants


As the Federal Government moves to ban cash transactions above $10,000, there’s a theory gaining traction that the real motive for the cash ban isn’t the so-called “black economy”, but rather, to give authorities greater control over your behaviour during recessions.

Paying more than $10,000 in cash could make you a criminal under proposed law
This theory, put forward by economists such as John Adams — and picked up by some federal politicians — has not been plucked out of thin air.

It is based on repeated public papers and statements by the international body in charge of financial stability — the Washington-based International Monetary Fund (IMF).

A recent IMF blog entitled “Cashing In: How to Make Negative Interest Rates Work”, explains its motive in wanting negative interest rates — a situation where instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank.

As the blog notes, during the global financial crisis central banks reduced interest rates.

Ten years later, interest rates remain low in most countries, and “while the global economy has been recovering, future downturns are inevitable”.

“Severe recessions have historically required 3 to 6 percentage points cut in policy rates,” the IMF blog observed.

“If another crisis happens, few countries would have that kind of room for monetary policy to respond.”

The article then goes on to explain that to “get around this problem”, a recent IMF staff study looked at how it could bring in a system that would make deeply negative interest rates “a feasible option”.

The answer, it said, is to phase out cash.

When cash is available, cutting interest rates into negative territory becomes impossible as cash acts as an ‘interest rate floor’.

The RBA says cash will become a niche payment sooner than we think, as the Government considers imposing tougher penalties on cash economy activity.

Cash acts as “an interest rate floor” as people hold cash when bank deposit interest rates are at zero.

The thought of paying the major banks to hold your money isn’t one that most consumers would jump at.

The alternative — as risky as it may be — is hoarding cash, or making investments in tangible commodities like gold.

So, the end game, the article explains, is the IMF’s ideal world — one without cash.

“Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive,” it said.

This, would “jolt lending, boost demand, and stimulate the economy”.

In other words, the central banks get greater control to influence your behaviour and economic outcomes.

For those who have faith in monetary policy and central banks, this is no problem.

But one year on from the banking royal commission, faith in our financial institutions — and the regulators who failed to police the banks’ bad behaviour — isn’t exactly at an all-time high.

Negative interest rates could affect Australia
This weird world where savers are penalised — and borrowers get paid — is no longer just a problem for central banks in Europe and Japan.

With the cash rate down to a fresh low of 1 per cent, Australia has entered what’s been dubbed the “era of irrationality, impotence and inequality”.

The Reserve Bank’s consecutive interest rate cuts in June and July have taken the cash rate to an historical low at just 1 per cent.

Put this together with Governor Philip Lowe’s comment on August 9 at a parliamentary hearing.

He was asked by Labor’s Andrew Leigh what work the Reserve Bank has done on what “unconventional monetary policy” might look like as Australia heads towards the zero lower bound of interest rates.

Dr Lowe answered: “I think it’s unlikely, but it is possible. We are prepared to do unconventional things if the circumstances warranted it.”

In answering some other questions Dr Leigh threw his way, Dr Lowe also noted that “monetary policy is less effective than it used to be”.

“Once upon a time, when we lowered interest rates people were very quick to run off to the bank to borrow more to spend,” he said.

“In today’s environment people don’t run off to the bank to borrow more when interest rates fall; they are more likely to pay back their mortgage more quickly.”

Dr Lowe also noted international political tensions are weakening the global outlook, “and it’s very hard for central banks to completely offset that”.

Retire at 55 and live to 80; work till you’re 65 and die at 67. Startling new data shows how work pounds older bodies.

Retirement Day

Here’s a very sobering piece from financial planner Alec Riddle, who looks at the relationship between how long you work and how long you’re likely to enjoy your retirement. Citing some interesting research, Alec argues that those who continue to work right up to the maximum retirement age tend to have shorter retirements than their peers who retire younger. This article will certainly make you think about your own retirement plans and strategy, especially if you’re like me and hoping to work until you’re 95.

Banking establishment lashes out at ‘effective’ opposition to cash ban

Australia’s corrupt banking establishment have used their cheap home-brand toilet paper, the Australian Financial Review, to attack the public opposition to the Morrison government’s $10,000 cash ban.

The sewer journalism by reliable bank shill Aaron Patrick, “Cash ban brings out the conspiracy theorists”, published on 13 September, was a panicked response to one thing, as AFR conceded: that the explosive public opposition to the cash ban has been “effective”.

Now’s the time to step up the fight. Members of Parliament who also oppose the cash ban, including one unnamed government MP reported by John Adams and Martin North on their Interests Of The People YouTube channel, are calling on Australians to redouble their efforts in calling MPs to object to this totalitarian policy.

Click here to watch “EXCLUSIVE: Government MP Will Oppose The Cash Ban!”

‘Conspiracy theories’

In his dishonest and lazy attack, Aaron Patrick tried desperately to belittle the opposition to the cash ban as based on conspiracy theories—specifically the link between cash restrictions and negative interest rates—and associate the opponents and media that have reported on it with “anti-Semitism” due to the leading role of the Citizens Electoral Council, which he smeared as believers in a “global Jewish banking conspiracy”. To fabricate his slur, Patrick refused to talk to the CEC, and in his written communication with CEC Research Director Robert Barwick he dishonestly did not ask about a “global Jewish banking conspiracy”, just a “global banking conspiracy”, and he deliberately did not print Barwick’s reply, which read:

“The major banks in Australia and around the world operate as a private cartel. The regulators and central banks in almost every country, including the BIS, are captured by the private banking cartel, and as the royal commission showed they ignore and cover for the banks’ crimes, allow their reckless speculation, and prop them up when they fail, at the expense of taxpayers and their customers. The global system is broken. Do you deny it?”

Patrick’s attack is not aimed at convincing the general public, who don’t read the AFR anyway. It’s aimed at intimidating people, whether other opponents of the cash ban, other journalists who report on it, or politicians who oppose it, whose views on the matter might overlap those of the CEC.

Questions for Aaron Patrick

Ironically, if Aaron Patrick thinks the tactic of guilt by association (let alone fabricating slurs) is legitimate, it raises much bigger questions for him:

Does Aaron Patrick stand by the AFR’s track record of deliberately covering up atrocious bank crimes by attacking the innocent victims whose lives have been destroyed by the banks, attacking other media outlets that have exposed bank crimes, and attacking the politicians who tried to inquire into bank criminality and who fought for the banking royal commission?

Did Aaron Patrick support AFR’s opposition to the banking royal commission?

Was Aaron Patrick surprised by the evidence of banking criminality that emerged from the royal commission? If so, why? Wasn’t it his job as a senior finance journalist to investigate and expose such criminality? If not, why did he and AFR cover up banking crimes by not reporting them?

These questions show Aaron Patrick is either an incompetent, lazy reporter, or a shameless propagandist for the criminal and predatory banks.

AFR certainly is the latter. After failing to stop the royal commission from being called, AFR’s 12 February 2018 editorial made this statement: “The financial sector royal commission … is fundamentally a political response to the core problem of dysfunctional politics, rather than of fundamental problems in Australia’s banks. … [T]here is no evidence of systemic corruption, criminality or even widespread unethical behaviour in Australia’s big banks.” (Emphasis added.)

Even in May 2018, by which time the revelations from the royal commission had proven AFR’s editors to have been complicit liars for the banks, Aaron Patrick attacked the hundreds of BankWest customers who had had the rug completely pulled out from under their lives when CBA mass-foreclosed on their business loans following its takeover of BankWest in the middle of the global financial crisis in 2008. Perhaps reflecting a rushed analysis due to its too-short inquiry period, the royal commission wrongly found that CBA had no case to answer, but Patrick seized on this one case to slander bank victims by using terms such as “lie” and “conspiracy theory”. Retired Sydney University political economist and veteran bank victims’ advocate Evan Jones, in a 19 June 2018 article for Independent Australia, described Patrick’s attack as “an exemplar of gutter press journalism”.

The real lie: the ‘black economy’

Clearly the main reason for the AFR’s hysterical attack on the CEC and other opponents of the cash ban is that the crooks at KPMG and the banks who want this ban hoped to avoid scrutiny, but now they can’t. And the problem they have is that under scrutiny, their claims are quickly proven to be bogus.

First, the claim that the cash ban is necessary to crack down on the black economy is a farce. The most authoritative study of black economies, by Medina and Schneider, shows that 1) Australia doesn’t have a serious black economy problem, being the 10th smallest of 158 countries; 2) the size of Australia’s black economy almost halved in 1991-2015, without any cash bans; and 3) near-cashless economies in Scandinavia, by comparison, have larger black economies than Australia does, and their black economies expanded after they went increasingly cashless. Click here for charts that prove this:

Second, the ulterior motive of restricting cash to trap people in banks so they can’t escape negative interest rates is hardly a conspiracy theory, as it comes directly from the International Monetary Fund, which was cited by the 2017 Black Economy Taskforce report that recommended the $10,000 cash ban.

Now’s the time to escalate the fight against this totalitarian policy:

Keep calling your MP and Senators, especially in the major parties to object to the law. Click here for contact details all Labor and cross-bench MPs and Senators; click here for contact details for all government MPs and Senators
Sign and share the petition: Stop Scott Morrison from banning cash to trap Australians in banks!