Horribly Undercapitalized: A Ponzi Finance Deathknell ~ The Risk Averse Alert

Monday, June 17, 2013

Horribly Undercapitalized: A Ponzi Finance Deathknell

Friday's Credit Bubble Bulletin, "The King of EM" assures us quite real is risk of capital controls being imposed by foreign nationals. This likelihood was raised here last week following the 6% throttling of Japan's Nikkei.

Yet the bigger story is exposed early in Doug Noland's missive when he reports:
"[Rest of World] gross holdings of U.S. assets declined $70bn during Q1 to $20.091 TN. But with U.S. ROW liabilities (foreign borrowing in U.S. markets) down $267bn, net asset holdings jumped nominal $197bn during the quarter to a record $10.034 TN."
This is the face of U.S. dollar support, and exposes physical reality likely to precipitate capital controls. More telling, though, is the fact financial aggregates are contracting in the face of a liquidity deluge facilitated by global central banks. This represents a critical inflection point where the collapse of the global physical economy is likely to accelerate in tandem with contracting financial aggregates.

Thus are central banks beyond hopelessly trapped and well on the road to being widely recognized technically insolvent. Thus, too, is talk of Fed QE tapering quite possibly much more than merely idle chatter. Imminent could be the order precipitating a massive migration of capital to the core of today's bankrupt imperial monetarist system anchored by a moribund U.S. dollar, which in fact is at increasing risk of collapsing. Furthermore, any hint of QE tapering is likely to have detrimental effect on a euro-zone whose premier banks were exposed last week by FDIC Vice Chairman Thomas Hoenig as "horribly undercapitalized." A calamity of historic dimensions fast could be moving front and center.

Word on the Street
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