WARNING: The Bedrock of the Financial System is Cracking

By Graham Summers, MBA

Do you feel that?

I’m sure on some level you do…

Something isn’t right about this rally in stocks. Something doesn’t add up. In fact, something very bad is brewing in the financial system.

Stocks have erupted higher over the last week, rising 9%.

However, beneath the surface, something truly incredible is happening. In fact, it’s horrifying.

I’m talking about the bond market.

The media likes to focus on the stock market because stocks are “sexy” and grab the public’s attention. However, the reality is that the stock market is one of the smallest asset classes out there. Globally the stock market is about $89 trillion.

By way of comparison, globally the debt markets are over $281 trillion. When you include derivatives that trade based on bond yields (debt interest payments) the amount balloons up over $750 trillion.

Which is why, the complete carnage occurring in bonds should terrify everyone. Across the board, bond prices are collapsing while bond yields skyrocket.

The yield on the 5- Year U.S., Treasury is up 100 basis points this month. 100 basis points. It rose over 20 basis points last week alone.

The yield on the all-important 10-Year U.S. Treasury (the most important bond in the world) is also exploding higher. It’s up almost 75 basis points this month, roaring higher by 13 basis points last week alone.

I realize most of you likely don’t follow the bond market…  but you have to remember that  our current financial system is debt-based.

The $USD is not backed by anything finite, and U.S. Treasuries are the senior most asset class owned by the large financial institutions. They are literally the bedrock of our current financial system.

And the bedrock is cracking in a big way.

Imagine the impact it would have on a skyscraper if the bedrock, which supports its foundation began to crack… that’s where we are with the financial system today.