The man who managed more than $1.2 trillion during his tenure at PIMCO, shocked investors when he said it would only take a spark to start a “run on the shadow banks.”

These “shadow banks” include mutual funds, hedge funds, exchange traded funds, and money market accounts that aren’t required to maintain reserves or emergency levels of cash like a traditional bank. 

And according to Mr. Gross, a “run on the shadow banks,” sparked by “a central bank mistake, a geopolitical problem or developments in Greece or China” could trigger a run that central banks and governments can’t control like they did the during the last crisis.

Mr. Gross when on to warn that these “shadow banks” are the market. And any rush to get money out would see prices falling like a rock.

Worse yet, he stated, that the “markets have not been tested during a stretch of time when prices go down and policymakers’ hands are tied to perform their historical function of buyer of last resort.” 

The bottom line is that we are in uncharted waters. With the market teetering on the brink of disaster right now. America is about to experience a “cash flow trap” that will make it nearly impossible for investors to get their money to safety.

This is a story is about the companies that provide “insurance” for bonds and derivatives.  Firms in Puerto Rico have assumed potential liabilities that dwarf their ability to cover them.  The author believes Puerto Rico’s financial demise could trigger the dreaded financial nuclear daisy chain of counterparty defaults.

…read it all HERE

Though it might yet drag on for weeks, months or even years, Greece’s drama can end in one of only two ways: Continued austerity which consigns its most vulnerable 50% to an endless “capital D” Depression, or some form of temporary dictatorship complete with capital controls and wealth confiscation — and a then “capital D” Depression. Either way, some of today’s Greek kids might grow up without ever holding a job in a legitimate business. For more details, see Greece’s hideous choice: More austerity or collapse.

But Greece was never the main story. At best (worst?) it’s an illustration writ small of what’s really coming, as the eurozone’s bigger weak economies travel the same road. Italy, Spain, and Portugal will soon need (more accurately demand) a Greek-style bailout, though with a twist: There isn’t enough money available anywhere to bail out economies of that size sufficiently to allow them to remain in the common currency union NOR to manage the debt writedowns that would instantly hit the major European banks if those countries withdraw from the euro. So whatever Greece does, the real crisis is on its way. Here’s a good Zero Hedge analysis of what comes next. 

To understand this convergence of inevitable and imminent, put yourself in the shoes of an Italian with a local bank account. You’re seeing the footage of Greeks queuing up around the block only to be greeted with “No Money” signs when they finally reach the ATM. And you’re drawing the right conclusion: Get your money out of the local bank and under your mattress, into a tin can buried in the back yard, or into a Swiss franc account even at the cost of a negative interest rate. Later, when Italy has left the eurozone and returned to a much-devalued lira, those euros/francs will be worth twice as much as they are today. 

Or buy gold just in case Italy gets bailed out with a trillion newly-created euros, causing that currency’s value to plunge. Just don’t leave it in the local bank to be confiscated by the government. 

All it will take is a few tens of thousands of like-minded Italians, Spaniards and Portuguese to crash their local banking systems. But why would it be only that many? Why would anyone with money in those banks, even if they’re far more optimistic than our hypothetical Italian, not empty their accounts just to avoid the turmoil caused by the pessimists? 

Make no mistake; the European Central Bank (ECB) has decisively been the game changer for how events are unfolding in Greece. The decision by the ECB to limit the emergency liquidity assistance provided to Greek financial institutions prompted the bank closures which if they remain will have devastating and escalating effects on their economy. This is forcing the Greek government to reveal their hand, and their lack of experience in negotiations with the Troika is showing that they are as much concerned with remaining in power as they are with getting a bailout agreement. For a crisis that has been five years in the making, the introduction of capital controls has taken events to the new level.

Since Prime Minister Alex Tsipras blindsided his creditors last Friday in announcing a referendum on the terms of the proposed bailout, he has looked to avoid the vote he called for on multiple occasions. This is because a “yes” vote would ultimately cost him his job. In pre-empting that Greece would miss the 1.55 billion euro repayment to the IMF, the Greek Prime Minister in disregard to 5 months of discussions proposed terms for a brand new two year bail out agreement. This was quickly discarded by EU members.

Following being the first western nation to miss a payment to the IMF in their 70 year history, Tsipras conceded his demands to the creditors with only slight concessions for a discounted Value Added Tax for the Greek islands (a popular tourist destination) and less stringent pension reforms. Again the creditors didn’t blink. And it’s the leadership of Germany’s Angela Merkel, whether too stubborn or not, that has not shifted from the standpoint that they will await the result of the referendum as quite simply, the deadline was missed and the offer is now off the table. 

The Greeks have backed themselves into a corner, and the results will range from financial hardship to devastating. Hardship as the result of continued recession in accepting the creditors demands for reforms to stay in the euro, and the potential devastation of a Greek exit, reintroduction of a new currency, and depreciation and rampant inflation. It currently remains unclear whether there is a third option and where a no vote prompts a new round of bargaining, and what will be the result.

By missing a payment to the IMF, they have technically not “defaulted.” Rating agency Standard and Poor’s justified this by saying the IMF is not a private creditor, thus the missed payment was not a credit altering event. Investors took another view, however, as the market for Two Year Greek Bonds over the past week have seen their yields surge to over 37 per cent. This then leading us to where we are today as the European Central Bank as well conceded they are lending money in what has become too risky of a scenario and limiting the liquidity assistance to Greek banks.

Capital Controls are very rarely removed as quickly as they are implemented. Iceland, hit by the financial crisis in 2008 is finally beginning plans to remove the imposed barriers 7 years later. In very simple terms, by imposing these limits to Greek account holders to withdraw only 60 euros a day, and not permitting transfers to financial institutions outside of Greece, it is an admission by policy makers that there is no longer confidence in their financial system.

There are a number of themes to draw on with the crisis in Greece, but the most astonishing is simply that a westernized economy now joins the ranks of Somalia and Zimbabwe in purposely missing a payment to the International Monetary Fund. Not only does this redraw the potential framework for the international lender of last resort should other economies face financial hardship, but demonstrates the course followed by populism and brinkmanship and the resulting fallout from bad to ugly.

Robert Levy

Border Gold Corp | www.bordergold.com

15234 North Bluff Road, White Rock, BC V4B 3E6

(Tel) 1-604-535-3287

(TF) 1-888-312-2288

(Fax) 1-604-535-3259

“Interest rates are not going to significantly rise in the near term to any meaningful degree. In fact, it is very likely that interest rates on Government issued Treasuries will remain range bound between 1% and 4% for the next 20 years.”

Now, you can go back to what you were doing, OR you can read my reasoning as to why I believe this to be the case in the paragraphs below.

…..click HERE or the image to continue reading