Nobody understands that this crisis has started. But believe me, it has. This was the way the 2008 financial crisis started. It didn’t just happen when Lehman Brothers went bankrupt.”

By the time Lehman went under, everybody knew there was a crisis. But it was obvious long before that.

That’s the reason it went under. It didn’t just go out of business out of the dark. It wasn’t just happenstance. The reason that Lehman Brothers, and Bear Sterns, and Fanny and Freddy, and AIG, and all these companies went under was their exposure to the mortgage market. That exposure was obvious to me for years, but particularly in 2007 when the subprime market blew up. That was the point where even the village idiot should have been able to figure out what was coming. The problem was most people on Wall Street weren’t even smart enough to qualify as the village idiot, so they still couldn’t figure it out.”

They needed the proverbial anvil to fall on their head. That finally happened in 2008. But even in the summer of ’08, a lot of people were oblivious.

So, if you’re wondering, ‘Peter, how can we be so close to this massive crisis, in fact, how could this crisis have already started if nobody is talking about it?’ Well, just go back to the summer of 2008. Nobody was talking about it.”

Peter emphasized that this crisis is much bigger because the problems driving it are much bigger.

They’re the same problems. They just dwarf the size of the problems we had before. Because instead of actually dealing with the problems, we kicked the can down the road and made the problems bigger. Now we have to deal with the consequences of that.”

Fed officials keep saying that the banking system is “sound.” But Peter said all of the big banks are insolvent.

Now, as long as they pretend that all their underwater assets, they’re going to hold them to maturity, well, they can pretend that they don’t have a problem. But eventually, they have to stop pretending because circumstances intervene, and they actually need to sell the securities that they had intended to hold to maturity.”

Newsweek recently published an article titled “America Is Heading for an Interest Payment Crisis.” Peter noted that at least they’re writing about that, but they still miss the root of the problem. It’s not just the interest. It’s also the principal.

A lot of people claim the principal doesn’t matter. As long as the US can make interest payments, everything is fine. But as Peter pointed out, the national debt wasn’t a gift. It’s debt. But it’s nature it has to be paid back.

So, when they would say, ‘We don’t have to repay the debt,’ I would say, ‘Well, did you run that by the Chinese? Did you run it by the Japanese? Do they know that that’s the deal? Do they know that they’re loaning us money but they’re never going to get it back?’ Because that’s not a loan. That is a gift.”

Of course, the response is always, “We can just borrow from somebody else to pay it back.”

In other words, it’s a Ponzi scheme. So, Bernie Madoff never had to worry about paying back money because he would get it from the next sucker who didn’t realize it was a Ponzi scheme. But what happens when people realize it’s a Ponzi scheme? They don’t want to participate. And that’s what’s going on. Our creditors don’t want to loan us more money to pay back other creditors. That is what is happening. That is why bond yields are going up because the people who own the bonds want their money back as they mature and we can’t find new buyers.”

Rising interest rates impede the solvency of the United States. As rates rise, the Treasury has to borrow even more to keep up with the interest payments. As debt goes up, the US becomes a bigger credit risk. It also becomes more likely that the government and central bank will have to create more inflation to service the debt.

So, higher interest rates don’t actually make Treasuries more attractive. They make them less attractive. That is a problem. This is a bottomless pit. This is a self-perpetuating collapse that we are witnessing that is going to gather momentum.”

During an interview, new House Speaker Mike Johnson claimed that during the Trump years, the US had the greatest economy ever. Peter called that “a lie.”

We didn’t have the greatest economy in the history of the world. It wasn’t even close. We didn’t even have the greatest economy in the history of America. We didn’t have the greatest economy in the 21st century. We had a bubble under Trump. Trump didn’t create the bubble. He inherited the bubble, and he made it bigger. That bubble is now popped.”

You can trace the origins of the bubble all the way back to the Bill Clinton era and the monetary policy initiated by Alan Greenspan. That bubble popped the first time under Bush 2, was reinflated, popped again in 2008, and then they managed to blow it back up again.

The idea that people think everything was great just a few years ago and it’s all gone to hell — that’s wrong because it assumes that we could just fix it, really simple. We just have to go back to the Trump policies and we’re going to be great again. No! This problem is much bigger than just the bad things that Biden has done.”

Peter explained how the Clinton administration started the trend of using shorter-term financing to lower interest payments. They could do that because rates were so low. Of course, that created more risk because rising rates can quickly make those payments skyrocket. That’s where we are today. Interest rates are soaring and all of that short-term debt is maturing. That means the Treasury has to borrow at a much higher rate to replace that debt.

It’s going to escalate into this complete sovereign debt and currency crisis, which is already started, but it’s a long way from ending.”

In this podcast, Peter also explains why the future of the US looks more like Argentina than Japan.

According to the SEC chairman, the lack of diversity in AI technologies used by multiple institutions could one day pose a significant threat to U.S. financial stability. He predicted during an interview with the Financial Times that this AI-fueled crisis could occur in the late 2020s or early 2030s.

“I do think we will, in the future, have a financial crisis,” the SEC head warned. “Maybe it’s in the mortgage market, maybe it’s in some sector of the equity market. And in the after-action reports, people will say ‘Aha, there was either one data aggregator or one model we’ve relied on.'”

While Gensler acknowledged the necessity of regulating AI, he nevertheless admitted that doing so is a “hard challenge.” He continued: “It’s a hard financial stability issue to address because most of our regulation is about individual institutions, individual banks, individual money market funds, individual brokers. It’s just in the nature of what we do.

Gensler urges regulators to “tame AI”

Several areas identified by the SEC chair where AI could potentially destabilize the financial system are as follows:

• Algorithmic trading: While AI-driven trading can optimize returns and reduce costs, it can also lead to flash crashes and market manipulations if not properly regulated.
• Credit assessments: AI’s role in determining an individual’s creditworthiness can sometimes be opaque. Without clear guidelines, there’s a risk of unfair or biased decisions that could have far-reaching consequences for consumers. (Related: Conservative chatbot creator says OpenAI tried to censor content forcing them to abandon platform.)
• Data privacy: With AI systems relying heavily on data, there’s an increased risk of data breaches and misuse. Protecting consumer data should be of paramount importance. (Related: Italian data privacy watchdog accuses ChatGPT of scraping people’s data.)

Gensler has urged regulators to take proactive measures to mitigate the potential threats AI poses to financial stability and rein its use.

Seeking to rein in the use of AI, the SEC proposed new rules that would require broker-dealers and investment advisers to:

• Evaluate whether using certain AI technologies (i.e., predictive analytics and similar technologies) in investor interactions involves a conflict of interest in a way that puts the firms’ interests above those of investors.
• Address “conflicts of interest” issues arising from their individual use of predictive analytics by employing tools believed to address these risks that are specific to the particular AI technology they use.
• Eliminate or neutralize the effect of any such conflicts.
• Have written policies and procedures to achieve compliance with the proposed rules.
• Keep books and records related to these requirements.

However, Gensler told the Financial Times that the proposed rule does not solve the “horizontal issue.”

While various open-source AI technologies exist, most entities currently rely on a small number of tools and base their decisions on the same underlying base models or underlying data aggregator models developed by a group of players, such as Open AI’s ChatGPT, which could “lead to herd mentality and undermine financial stability.”

Visit FutureTech.news for more stories about the dangers of AI. Watch this video about SEC Chairman Gary Gensler’s warning about AI being responsible for the next financial crisis.

This video is from the Daily Videos channel on Brighteon.com. More related stories:

• Creatives push back against generative AI’s theft of their work and call on Big Tech to fairly compensate them.
• ChatGPT AI taught to single out “hateful content” by silencing whites, Republicans and MEN: Research.
• Italy bans ChatGPT over privacy concerns.
• AI spy program launched to monitor global bank transactions for “money laundering,” but people know it’s just an EXCUSE to surveil their private accounts.
• Google Cloud launches AI-powered anti-money laundering tool for banks, paving the way for Orwellian financial surveillance.

Sources include:

• TheEpochTimes.com
• TheHill.com
• Medium.com
• SEC.gov
• Brighteon.com

The extent of the “cheap credit” bubble that the Fed, the ECB and Bank of Japan have engineered with buying up of bonds and maintaining unprecedented near-zero or even negative interest rates for now 14 years, is beyond imagination. Financial media cover it over with daily nonsense reporting , while the world economy is being readied, not for so-called “stagflation” or recession. What is coming now in the coming months, barring a dramatic policy reversal, is the worst economic depression in history to date. Thank you, globalization and Davos.

Globalization

The political pressures behind globalization and the creation of the World Trade Organization out of the Bretton Woods GATT trade rules with the 1994 Marrakesh Agreement, ensured that the advanced industrial manufacturing of the West, most especially the USA, could flee offshore, “outsource” to create production in extreme low wage countries. No country offered more benefit in the late 1990s than China. China joined WHO in 2001 and from then on the capital flows into China manufacture from the West have been staggering. So too has been the buildup of China dollar debt. Now that global world financial structure based on record debt is all beginning to come apart.

When Washington deliberately allowed the September 2008 Lehman Bros financial collapse, the Chinese leadership responded with panic and commissioned unprecedented credit to local governments to build infrastructure. Some of it was partly useful, such as a network of high-speed railways. Some of it was plainly wasteful, such as construction of empty “ghost cities.” For the rest of the world, the unprecedented China demand for construction steel, coal, oil, copper and such was welcome, as fears of a global depression receded. But the actions by the US Fed and ECB after 2008, and of their respective governments, did nothing to address the systemic financial abuse of the world’s major private banks on Wall Street and Europe , as well as Hong Kong.

The August 1971 Nixon decision to decouple the US dollar, the world reserve currency, from gold, opened the floodgates to global money flows. Ever more permissive laws favoring uncontrolled financial speculation in the US and abroad were imposed at every turn, from Clinton’s repeal of Glass-Steagall at the behest of Wall Street in November 1999. That allowed creation of mega-banks so large that the government declared them “too big to fail.” That was a hoax, but the population believed it and bailed them out with hundreds of billions in taxpayer money.

Since the crisis of 2008 the Fed and other major global central banks have created unprecedented credit, so-called “helicopter money,” to bailout the major financial institutions. The health of the real economy was not a goal. In the case of the Fed, Bank of Japan, ECB and Bank of England, a combined $25 trillion was injected into the banking system via “quantitative easing” purchase of bonds, as well as dodgy assets like mortgage-backed securities over the past 14 years.

Quantitative madness

Here is where it began to go really bad. The largest Wall Street banks such as JP MorganChase, Wells Fargo, Citigroup or in London HSBC or Barclays, lent billions to their major corporate clients. The borrowers in turn used the liquidity, not to invest in new manufacturing or mining technology, but rather to inflate the value of their company stocks, so-called stock buy-backs, termed “maximizing shareholder value.”

BlackRock, Fidelity, banks and other investors loved the free ride. From the onset of Fed easing in 2008 to July 2020, some $5 trillions had been invested in such stock buybacks, creating the greatest stock market rally in history. Everything became financialized in the process. Corporations paid out $3.8 trillion in dividends in the period from 2010 to 2019. Companies like Tesla which had never earned a profit, became more valuable than Ford and GM combined. Cryptocurrencies such as Bitcoin reached market cap valuation over $1 trillion by late 2021. With Fed money flowing freely, banks and investment funds invested in high-risk, high profit areas like junk bonds or emerging market debt in places like Turkey, Indonesia or, yes, China.

The post-2008 era of Quantitative Easing and zero Fed interest rates led to absurd US Government debt expansion. Since January 2020 the Fed, Bank of England, European Central Bank and Bank of Japan have injected a combined $9 trillion in near zero rate credit into the world banking system. Since a Fed policy change in September 2019, it enabled Washington to increase public debt by a staggering $10 trillion in less than 3 years. Then the Fed again covertly bailed out Wall Street by buying $120 billion per month of US Treasury bonds and Mortgage-Backed Securities creating a huge bond bubble.

A reckless Biden Administration began doling out trillions in so-called stimulus money to combat needless lockdowns of the economy. US Federal debt went from a manageable 35% of GDP in 1980 to more than 129% of GDP today. Only the Fed Quantitative Easing, buying of trillions of US government and mortgage debt and the near zero rates made that possible. Now the Fed has begun to unwind that and withdraw liquidity from the economy with QT or tightening, plus rate hikes. This is deliberate. It is not about a stumbling Fed mis-judging inflation.

Energy drives the collapse

Sadly, the Fed and other central bankers lie. Raising interest rates is not to cure inflation. It is to force a global reset in control over the world’s assets, it’s wealth, whether real estate, farmland, commodity production, industry, even water. The Fed knows very well that Inflation is only beginning to rip across the global economy. What is unique is that now Green Energy mandates across the industrial world are driving this inflation crisis for the first time, something deliberately ignored by Washington or Brussels or Berlin.

The global shortages of fertilizers, soaring prices of natural gas, and grain supply losses from global draught or exploding costs of fertilizers and fuel or the war in Ukraine, guarantee that, at latest this September-October harvest time, we will undergo a global additional food and energy price explosion. Those shortages all are a result of deliberate policies.

Moreover, far worse inflation is certain, due to the pathological insistence of the world’s leading industrial economies led by the Biden Administration’s anti-hydrocarbon agenda. That agenda is typified by the astonishing nonsense of the US Energy Secretary stating, “buy E-autos instead” as the answer to exploding gasoline prices.

Similarly, the European Union has decided to phase out Russian oil and gas with no viable substitute as its leading economy, Germany, moves to shut its last nuclear reactor and close more coal plants. Germany and other EU economies as a result will see power blackouts this winter and natural gas prices will continue to soar. In the second week of June in Germany gas prices rose another 60% alone. Both the Green-controlled German government and the Green Agenda “Fit for 55” by the EU Commission continue to push unreliable and costly wind and solar at the expense of far cheaper and reliable hydrocarbons, insuring an unprecedented energy-led inflation.

Fed has pulled the plug

With the 0.75% Fed rate hike, largest in almost 30 years, and promise of more to come, the US central bank has now guaranteed a collapse of not merely the US debt bubble, but also much of the post-2008 global debt of $303 trillion. Rising interest rates after almost 15 years mean collapsing bond values. Bonds, not stocks, are the heart of the global financial system.

US mortgage rates have now doubled in just 5 months to above 6%, and home sales were already plunging before the latest rate hike. US corporations took on record debt owing to the years of ultra-low rates. Some 70% of that debt is rated just above “junk” status. That corporate non-financial debt totaled $9 trillion in 2006. Today it exceeds $18 trillion. Now a large number of those marginal companies will not be able to rollover the old debt with new, and bankruptcies will follow in coming months. The cosmetics giant Revlon just declared bankruptcy.

The highly-speculative, unregulated Crypto market, led by Bitcoin, is collapsing as investors realize there is no bailout there. Last November the Crypto world had a $3 trillion valuation. Today it is less than half, and with more collapse underway. Even before the latest Fed rate hike the stock value of the US megabanks had lost some $300 billion. Now with stock market further panic selling guaranteed as a global economic collapse grows, those banks are pre-programmed for a new severe bank crisis over the coming months.

As US economist Doug Noland recently noted, “Today, there’s a massive “periphery” loaded with “subprime” junk bonds, leveraged loans, buy-now-pay-later, auto, credit card, housing, and solar securitizations, franchise loans, private Credit, crypto Credit, DeFi, and on and on. A massive infrastructure has evolved over this long cycle to spur consumption for tens of millions, while financing thousands of uneconomic enterprises. The “periphery” has become systemic like never before. And things have started to Break.”

The Federal Government will now find its interest cost of carrying a record $30 trillion in Federal debt far more costly. Unlike the 1930s Great Depression when Federal debt was near nothing, today the Government, especially since the Biden budget measures, is at the limits. The US is becoming a Third World economy. If the Fed no longer buys trillions of US debt, who will? China? Japan? Not likely.

Deleveraging the bubble

With the Fed now imposing a Quantitative Tightening, withdrawing tens of billions in bonds and other assets monthly, as well as raising key interest rates, financial markets have begun a deleveraging. It will likely be jerky, as key players like BlackRock and Fidelity seek to control the meltdown for their purposes. But the direction is clear.

By late last year investors had borrowed almost $1 trillion in margin debt to buy stocks. That was in a rising market. Now the opposite holds, and margin borrowers are forced to give more collateral or sell their stocks to avoid default. That feeds the coming meltdown. With collapse of both stocks and bonds in coming months, go the private retirement savings of tens of millions of Americans in programs like 401-k. Credit card auto loans and other consumer debt in the USA has ballooned in the past decade to a record $4.3 trillion at end of 2021. Now interest rates on that debt, especially credit card, will jump from an already high 16%. Defaults on those credit loans will skyrocket.

Outside the US what we will see now, as the Swiss National Bank, Bank of England and even ECB are forced to follow the Fed raising rates, is the global snowballing of defaults, bankruptcies, amid a soaring inflation which the central bank interest rates have no power to control. About 27% of global nonfinancial corporate debt is held by Chinese companies, estimated at $23 trillion. Another $32 trillion corporate debt is held by US and EU companies. Now China is in the midst of its worst economic crisis since 30 years and little sign of recovery. With the USA, China’s largest customer, going into an economic depression, China’s crisis can only worsen. That will not be good for the world economy.

Italy, with a national debt of $3.2 trillion, has a debt-to-GDP of 150%. Only ECB negative interest rates have kept that from exploding in a new banking crisis. Now that explosion is pre-programmed despite soothing words from Lagarde of the ECB. Japan, with a 260% debt level is the worst of all industrial nations, and is in a trap of zero rates with more than $7.5 trillion public debt. The yen is now falling seriously, and destabilizing all of Asia.

The heart of the world financial system, contrary to popular belief, is not stock markets. It is bond markets—government, corporate and agency bonds. This bond market has been losing value as inflation has soared and interest rates have risen since 2021 in the USA and EU. Globally this comprises some $250 trillion in asset value a sum that, with every fed interest rise , loses more value. The last time we had such a major reverse in bond values was forty years ago in the Paul Volcker era with 20% interest rates to “squeeze out inflation.”

As bond prices fall, the value of bank capital falls. The most exposed to such a loss of value are major French banks along with Deutsche Bank in the EU, along with the largest Japanese banks. US banks like JP MorganChase are believed to be only slightly less exposed to a major bond crash. Much of their risk is hidden in off-balance sheet derivatives and such. However, unlike in 2008, today central banks can’t rerun another decade of zero interest rates and QE. This time, as insiders like ex-Bank of England head Mark Carney noted three years ago, the crisis will be used to force the world to accept a new Central Bank Digital Currency, a world where all money will be centrally issued and controlled. This is also what Davos WEF people mean by their Great Reset. It will not be good. A Global Planned Financial Tsunami Has Just Begun.

About the Author

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics.

He is a Research Associate of the Centre for Research on Globalization (CRG).

Image via Shutterstock. Article cross-posted from Global Research.