BEHIND YOUR BACK: How the 2009 central bank bailout bonanza deferred trillions in default debt



This post is not an exclusive, it is a fact. A huge amount of financial firm default was picked up by the US Fed after the last fiasco, and deferred until the next one. This year so far, such defaults in the US have doubled.

Did you know that the 2008/9 Crash was unique in the entire history of financial markets? Here’s why.

When Bull(sh*t) turns to Bear(trap), lots of people unable to hear or see trucks coming down the road default.  This syndrome produces a percentage each time, unsurprisingly called the Default Rate. In 1991 for example, it was 11%, and in 2001 it was 8.7%. But that was in the period shortly before political normality was hijacked by the Goforits – those people who hate the considered Toothsuckers, and ever since 2003 have insisted that the Toothsuckers shall pay for the uncontrolled frontal lobe actions of the Gorforits. So it was that, in 2009, the defaulters were bailed out behind your back.

In 2003, the banking lobby set out for Washington with very bad news: the 2001 default volume had been ten times any previous occurence….and obviously the fat cats were not tabby cats in that they couldn’t be expected to pick up the tab in the enormously unlikely event of dead cat bounces happening again, perish the very thought.

In fact, the total cost of cockpit madness in 2001 had been half a trillion bucks. That’s the sort of bill, if we’re being realistic here, only public money can afford to pick up. Because obviously, the public purse so hated by the Goforits ought to have at least some kind of raison d’etre; and equally obviously, that must surely be to support the Masters of the Universe in their 24/7 hours of need.

Here’s what happened six years later. The default rate zoomed to 10%, and this time it involved several trillion dollars. The pump that Hank Paulson and his co-lobbyists had primed duly gushed public money….so what’s been estimated at some four out of five trillion dollars of debt clearance was deferred by the Fed – which, in the best traditions of fractional reserve banking, hoovered it up, and put the noughts-riddled sum in that part of the balance sheet marked ‘future profit potential’.

But accounting jiggery-pokery or not, it’s still sitting there as sovereign debt. So the debt-clearing cycle kicked down the can-strewn road in 2009 will make the next one close to incalculable. And we are entering it in this, the Year of Our Masters of the Universe, 2015. As Wolf Richter points out,

‘So far this year, nearly 300 U.S. corporations have seen their bonds downgraded. That’s the most downgrades per year since the financial crisis of 2008-2009. The year isn’t over yet. Neither are the downgrades. More worrisome, the 12-month default rate on high-yield corporate debt has doubled this year. This suggests we are well into the next major debt-default cycle. And it will almost surely be a “super” cycle – meaning it will last longer and cause far more losses than most people expect.’

You think this just more noise from the periphery? OK, read this Goldman Sachs chart:

debtlevels121115This is what Zirp-cheap money eventually produces. Since 1981, the US Fed has dropped the federal funds rate from 19% to zilch….itself creating a gigantic rise in US federal government debt.

It is a reality-altering process designed purely to fuel the insistence of the political class and their neoliberal paymasters that everything is alright really. It couldn’t be more wrong – and that wrong-headedness is going to require money-printing onthe sort of scale likely to make the 1920s German Mark seem stable by comparison.

The wages of greed are hyper-inflating currencies across the globe.

Yesterday at The Slog: Five questions that will stop the über-optimists in their tracks