Tuesday, April 14, 2015

Fed Official: A Panic Could Hit the Treasury Bond Market

Top bank officials are now admitting that the current financial structure is very unstable.

An event that should occur only once every 1.6 billion years. according to mathematical models used by the Federal Reserve and top banks, occurred on October 15, 2014.

On that day, FT reports, Treasuries see-sawed dramatically, seemingly on little news. The yield on the benchmark 10-year US government bond,  slid as much as 33 basis points to 1.86 per cent before rising to settle at 2.13 per cent.

Simon Potter, executive vice-president of the Federal Reserve Bank of New York, warned in a speech on Monday that the unintended consequences of regulatory and market changes could mean that “that sharp intraday price moves" are no longer 1.6 billion year events but could become more common in the future.

This wasn't the first warning by a top bank official. As I reported last week, Jamie Dimon, the head of JPMorgan, highlighted the October 15 “flash crash” in his annual letter to his shareholders, and said that it constituted a “warning shot across the bow”, attributing the sharpness of the moves to regulatory changes that encourage the hoarding of Treasuries and discourage banks from helping to cushion sharp moves in bond markets.

In the EPJ Daily Alert,  I am advising subscribers to maintain very high cash levels, because of such potential dramatic future events and I am also advising that long term bonds be completely avoided.

A careful reading of Federal Reserve released minutes indicates that the Fed itself has no clue as to how things will develop in the markets. We are in extremely dangerous and uncharted waters.

This is not going to end pretty.



  1. As much as I know it would be horrible... I hope sooner than later the Fed crashes.
    Not pretty, sure, to Americans, but if you are the recipient to the military industrial complex of the usa, the end of the warfare/welfare state can't come soon enough.
    And the Fed is the cash cow of the U.S. military excursions. US military murderers more like.

    1. I concur. This will get very ugly though. And as a taxpayer for the warfare/welfare state (I am an anarchist myself), I also say it couldn't come soon enough.

  2. Central bankers gather privately in Washington this Friday to discuss gold

    It's a breakfast meeting to be held Friday in Washington for "a select group of central banks and other official-sector institutions," sponsored by the Official Monetary and Financial Institutions Forum and the World Gold Council, to discuss "gold, the renminbi, and the multicurrency system," convened in conjunction with the spring meeting of the International Monetary Fund and World Bank Group, a United Nations agency:
    attendance at Friday's meeting will be by invitation only. So for the record GATA has requested one.

    But if you don't get an invitation, you can fairly assume that the valuation of all capital, labor, goods, and services in the world is none of your business. This is after all the central bankers' world. The rest of us are lucky that they let us even pass through it from time to time, though the impertinent among us might wonder why central bankers should need to talk in secret about something supposedly as irrelevant and retrograde as gold.

    Good thing for them that mainstream financial journalists have neither curiosity nor backbone.


  3. The Fed governors couldn't even survive as bank tellers...