ok, at the risk of my amateur appraisal being shot down in flames by someone far more qualified....

...think of a big huge V. The top left end of the V is 1981 and the bottom apex is now (i.e. the right hand stem is all future).

Since 1981, interest rates have basically been falling. When big pension funds and the like invest money, they usually invest a good whack into government bonds which are considered one of the safest investments in the world since the guv can always tax people if it runs out of cash. (It can also print new money but it needs to 'back' that money with new debt in the form of more bonds).

So consider buying fixed interest rate bonds in 1981 when the interest rate was sky high up in the 18% region. You'd be on a winner if it was a 30 year bond because your money would be earning interest at a rate well above inflation for the whole period since prevailing interest rates have been declining since then along with inflation.

Now consider buying even a 5 year bond now - at almost zero interest rate. We are at the bottom of the V. Governments have been printing money like there's now tomorrow. According to that AEP article there are signs of inflation on the horizon. What that means is three very BAD things for your 5 year bond you just purchased:

[1] - you're going to be underwater for the foreseeable future because you're bond won't even earn you the inflation rate

[2] - the PRICE of your bond will fall (bond prices work in reverse to their yield, that's because if nobody wants to buy it, the lender has to offer more of a return until they find a buyer)

[3] - if inflation is on the rise then interest rates will also to keep it under control, so new bonds will be issued with a much better rate than yours, further encouraging people to dump at a loss and buy the new ones with higher yield

So what will you do ? Why, dump it of course. Which is exactly what everyone's doing and why the Germans just had to bump their bond yields up to 1%.

This is Max Keiser's "Bond Apocalypse" he keeps talking about.

There are other problems: big investors are hedged against this scenario using derivatives such as interest rate swaps. What that means is that when the yield on their investment goes below a certain floor, they are allowed to swap it for another investment who's yield is still high.

Guess who happens to be one of the biggest - if not the biggest - writers of these kind of swaps in the world ? Deutche Bank. Which is why the spotlight is on them in adverse financial conditions such as this. It's one thing to write out pieces of paper willy nilly saying you'll bail everybody out in the event of a fire, it's probably quite another to actually find the liquidity to do it when the s.h.t.f.


These are different grades of money supply. M1 is basically "narrow money" as it's called which means cash - i.e. it's very liquid. M3 is stuff that you can't readily liquidate - money market money and that type of stuff.

Lets say we had two types of money in this thread - Dash and the promise of Dash. i.e. some people were floating around actually doing InstantX wallet transfers and others were floating around exchanging bits of paper saying "promise to pay the bearer on demand X amount of Dash". In the event of a financial crisis, the people holding actual Dash in their wallets are fairly safe. The people trading the IOU's need to first liquify their paper - i.e. go back to the issuer and cash in their IOUs for real Dash so they're one step away in terms of liquidity.

In that scenario, the 'real Dash' would be narrow money (M0 or M1) and the paper would be 'broad money (M3).

The problem that many people are anticipating in the financial system is exactly this scramble for liquidity. Thats what has the potential to collapse the derivative markets because in the Fiat system there are umpteen layers of these liquidity cascades.

Hope I've not told too many lies there !