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Alasdair Macleod: Unwinding the financial system
By Alasdair Macleod
Head of Research, GoldMoney, Toronto
via Schiff Gold, White Plains, New York
Thursday, October 5, 2023
This article looks at the collateral side of financial transactions and some significant problems that are already emerging.
At a time when there is a veritable tsunami of dollar credit in foreign hands overhanging markets, it is obvious that continually falling bond prices will ensure bear markets in all financial asset values leading to dollar liquidation. This unwinding corrects an accumulation of foreign-owned dollars and dollar denominated assets since the Second World War both in and outside the U.S. financial system.
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Furthermore, collapsing collateral values, which are increasingly required backing for changing values in over $400 trillion nominal in interest rate swaps, are a new driver for the crisis, forcing bond liquidation, driving prices down, and yields higher. We are in a doom loop.
What action can the authorities take to ensure that counterparty risk from widespread failures won't take out inadequately capitalised regulated exchanges?
It seems that they acted some time ago by giving central security depositories (the Depository Trust and Clearing Corp., Euroclear, and Clearstream) the right to pool securities on their registers and lend them out as collateral. Your investments, which you think you own, can be absorbed into the failing financial system without your knowledge.
This seems particularly relevant, given the appointment of JPMorgan Chase as custodian of the large gold exchange-traded fund, SPDR Trust (GLD). In a test case in the New York courts concerning Lehman's failure, JPMC was given legal protection should it seize its customers' assets.
This important erosion of property rights is poorly understood. But as the financial distortions are unwound, leading to unintended consequences such as bank failures and ultimately the collapse of the dollar-based fiat currency regime, the implication is that holders of physical gold ETFs will be left owning an empty shell at a time when they might have expected some protection from the collapse of the value of credit. ...
... For the remainder of the analysis:
https://schiffgold.com/commentaries/unwinding-the-financial-system/
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