Problems

@ACIMquotes: "The world was made that problems could not be escaped." #ACIM #quotes

Financial System

Many commentators consider what the Fed has done to be akin to providing stimulus, morphine, juice to an ailing economy.

We believe Fed’s actions would be more appropriately described as permitted cancerous beliefs to spread throughout the financial system, thereby killing Democratic Capitalism which is the basis of the capital markets.

Today we’re going to explain what the “final outcome” for this process will be. The short version is what happens to a cancer patient who allows the disease to spread unchecked (death).

In the case of the Fed’s actions we will see a similar “death” of Democratic Capitalism and the subsequent death of the capital markets.

We are, of course, talking in metaphors here: the world will not end, and commerce and business will continue, but the form of capital markets and Capitalism we are experiencing today will cease to exist as the Fed’s policies result in the market and economy eventually collapsing in such a fashion that what follows will bear little resemblance to that which we are experiencing now.

The focus of this “death” will not be stocks, but bonds, particularly sovereign bonds: the asset class against which all monetary policy and investment theory has been based for the last 80+ years.

Indeed, basic financial theory has proposed that sovereign bonds are essentially the only true “risk-free” investment in the world. While history shows this theory to be false (sovereign defaults have occurred throughout the 20^th century) this has been the basic tenant for all investment models and indeed the financial system at large going back for 80 some odd years.

The reason for this is that the Treasury (US sovereign bond) market is the basis of the entire monetary system in the US and the Global financial system in general. Indeed, US Treasuries are the senior most assets on the Primary Dealers’ (world’s largest banks) balance sheets. To understand why this is as well as why the Fed’s policies will ultimately destroy this system, you first need to understand the Primary Dealer system that is the basis for the US banking system at large.

If you’re unfamiliar with the Primary Dealers, these are the 18 banks at the top of the US private banking system. They’re in charge of handling US Treasury Debt auctions and as such they have unprecedented access to US debt both in terms of pricing and monetary control.

The Primary Dealers are:

1. Bank of America
2. Barclays Capital Inc.
3. BNP Paribas Securities Corp.
4. Cantor Fitzgerald & Co.
5. Citigroup Global Markets Inc.
6. Credit Suisse Securities (USA) LLC
7. Daiwa Securities America Inc.
8. Deutsche Bank Securities Inc.
9. Goldman, Sachs & Co.
10. HSBC Securities (USA) Inc.
11. J. P. Morgan Securities Inc.
12. Jefferies & Company Inc.
13. Mizuho Securities USA Inc.
14. Morgan Stanley & Co. Incorporated
15. Nomura Securities International Inc.
16. RBC Capital Markets
17. RBS Securities Inc.
18. UBS Securities LLC.

You’re bound to recognize these names by the mere fact that they are the exact banks that the Fed focused on “saving” thereby removing their “risk of failure” during the Financial Crisis.

These banks are also the largest beneficiaries of the Fed’s largest monetary policies: QE 1, QE lite, QE 2, etc. Indeed, we now know that QE 2 was in fact was meant to benefit those Primary Dealers in Europe, not the US housing market. The same goes for QE 3 and QE 4.

The Primary Dealers are the firms that buy US Treasuries during debt auctions. Once the Treasury debt is acquired by the Primary Dealer, it’s parked on their balance sheet as an asset. The Primary Dealer can then leverage up that asset and also fractionally lend on it, i.e. create more debt and issue more loans, mortgages, corporate bonds, or what have you.

Put another way, Treasuries are not only the primary asset on the large banks’ balance sheets, they are in fact the asset against which these banks lend/ extend additional debt into the monetary system,thereby controlling the amount of money in circulation in the economy.

When the Financial Crisis hit in 2007-2008, the Fed responded in several ways, but the most important for the point of today’s discussion is the Fed removing the “risk of failure” for the Primary Dealers by spreading these firms’ toxic debts onto the public’s balance sheet and funneling trillions of dollars into them via various lending windows.

In simple terms, the Fed took what was killing the Primary Dealers (toxic debts) and then spread it onto the US’s balance sheet (which was already sickly due to our excessive debt levels). This again ties in with my “cancer” metaphor, much as cancer spreads by infecting healthy cells.

When the Fed did this it did not save capitalism or the Capital Markets. What it did was allow the “cancer” of excessive leverage, toxic debts, and moral hazard to spread to the very basis of the US, indeed the entire world’s, financial system: the US balance sheet/ Sovereign Bond market.

These actions have already resulted in the US losing its AAA credit rating. But that is just the beginning. Indeed, few if any understand the real risk of what the Fed has done.

The reality is that the Fed has done the following:

1)   Set itself up for a collapse: at $4.4 trillion, the Fed’s balance sheet is now larger that the economies of Brazil, the UK, or France. And with capital of only $63 billion, the Fed is leveraged at over 69 to 1 (Lehman was at 30 to 1 when it failed).

2)   Called the risk profile of US sovereign debt into question: foreign investors, now fully aware that the US’s balance sheet is suspect (the US has lost its AAA credit rating), are dumping Treasuries (see China and Russia).

3)   Put the entire Financial System (not just the private banks) at risk.

The Financial System requires trust to operate. Having changed the risk profile of US sovereign debt, the Fed has undermined the very basis of the US banking system (remember Treasuries are the senior most asset against which all banks lend).

Moreover, the Fed has undermined investor confidence in the capital markets as most now perceive the markets to be a “rigged game” in which certain participants, namely the large banks, are favored, while the rest of us (including even smaller banks) are still subject to the basic tenants of Democratic Capitalism: risk of failure.

This has resulted in retail investors fleeing the markets while institutional investors and those forced to participate in the markets for professional reasons now invest based on either the hope of more intervention from the Fed or simply front-running those Fed policies that have already been announced.

Put another way, the financial system and capital markets are no longer a healthy, thriving system of Democratic Capitalism in which a multitude of participants pursue different strategies. Instead they are an environment fraught with risk in which there is essentially “one trade,” and that trade is based on cancerous policies and beliefs that undermine the very basis of Democratic Capitalism, which in the end, is the foundation of the capital markets.

In simple terms, by damaging trust and permitting Wall Street to dump its toxic debts on the public’s balance sheet, the Fed has taken the Financial System from a status of extremely unhealthy to terminal.

The end result will be a Crisis that makes 2008 look like a joke. It will be a Crisis in which the US Treasury market and sovereign bonds in general implode, taking down much of the US banking system with it (remember, Treasuries are the senior most assets on US bank balance sheets).

We cannot say when this will happen. But itwill happen. It might be next week, next month, or several years from now. But we’ve crossed the point of no return. The Treasury market is almost entirely dependent on the Fed to continue to function. That alone should make it clear that we are heading for a period of systemic risk that is far greater than anything we’ve seen in 80+ years (including 2008).

The Fed is not a “dealer” giving “hits” of monetary morphine to an “addict”… the Fed has permitted cancerous beliefs to spread throughout the financial system. And the end result is going to be the same as that of a patient who ignores cancer and simply acts as though everything is fine.

That patient is now past the point of no return. There can be no return to health. Instead the system will eventually collapse and then be replaced by a new one.a

We sleep

"The dreamer of a dream is not awake, but does not know he sleeps." #ACIM #quotes

What I do

@ACIMquotes: "All your time is spent in dreaming." #ACIM #quotes

My body

@JohnGreerPublis: There is no primary boundary. The world is my body, and what I am looking out of is what I am looking at.  Ken Wilber

What makes the world

@JohnGreerPublis: With our thoughts we make the world. The Buddha

The Problem

@RamanaMaharshi: The solution to your problem is to see who has it. ~ Sri Ramana Maharshi

Beliefs

Nothing
Most people do not see their beliefs. Instead, their beliefs tell them what they see. This is the simple difference between clarity and confusion.

~ Matt Kahn

Yourself

@ACIMquotes: "No one but yourself affects you." #ACIM #quotes

Simply Be

@Gangaji: I invite you to radically and absolutely be still—to put aside, all ideas of where God is, or where truth is. Stop looking. Simply be.

Love is Freedom

@Miraclez: Love is freedom. To look for it by placing yourself in bondage, is to separate yourself from it.
A Course in Miracles

Ocean of Peace

@Gangaji: There is an ocean of peace underneath the obsessive thoughts and plans, under the emotions, both positive and negative.

Remove Me

@advaitaquotes: O Lord...Let my knowing of you not just be in my mind, but fully alive inside my heart...remove 'me'... - Mooji -

Mercy

“God in His mercy wills that I be saved.”

What God wills is what is true. What God wills is what is real. God is Love and Love extends only Love. We are all extensions of Love and only this is what is true. This is what is real. As we were created as Love, we are still perfect and innocent. This is God’s Will.

We are saved because it is God’s will and what is not God’s Will cannot exist. Our remembrance of this brings to our awareness the truth that we are Love immersed in Love. We are safe in Love and this cannot change because only Love is real. Illusions of separation from Love could never be. That is why we are saved.

In truth we were never lost. In illusions of separation we can believe we are lost. But as soon as we are willing to lay these illusions down, we will see that Love could never change and be the opposite of Love. Love is constant. Love is eternal. We are saved because we are Love and God’s Will ensures that this is true.

Let me remember this today. When I stray to thinking that something other than Love has really happened, let me return to remembering that only Love is real. Remembering the truth brings happiness, joy and peace. I will to align my will with God’s Will. I will to remember the truth.

One of the central ideas offered repeatedly in the Course is that thoughts do not and cannot leave their source. If their source is reality, they remain in reality. If their source is illusion, they remain illusions. If their Source is Love, they remain Love. That is why it is God’s Will that I be saved. It is simply another way of saying that I cannot leave my Source.

To be my Self I must remain Love as I was created and Which I am still one with. I cannot leave Love. God is happiness. I cannot truly leave happiness. I can be unaware of happiness if I believe in an illusion of being separate. But happiness still surrounds me and remains what I am.

Belief in illusion can make it appear that there is a force opposing the Will of God. Most religions of the world incorporate this idea of a dark side that opposes God. This dark side is always engaged in battle and God must be constantly defending against it.

One of the essential ingredients for movies to be successful at the box office is that they must in some way incorporate conflict between the light and the dark. Without that conflict, it is not interesting enough to draw an audience. The ego thrives on conflict because conflict appears to make the dark side real. And so it appears in most religions of the world.

I am not aware of any other teaching that says the dark side, the fallen angel, any seeming force opposing God cannot be real. Yet it is the recognition of its unreality that brings us freedom. It releases us from illusions so that we may once again know that God’s Will for us is perfect happiness.

We have never and could never leave our Source. We remain in happiness, in Love, in God, untainted by any illusion of separation or guilt. This is so because thoughts leave not their source and I am grateful that this is so.

© 2003, Pathways of Light. http://pathwaysoflight.org
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• • Lesson Index

Fall in Love

@advaitaquotes: Close your eyes, fall in Love,  stay there ... 💗 Rumi 💟 http://t.co/YtH8NKZt53

Step Back

@ACIMquotes: "All that you need to do is to step back and not to interfere." #ACIM #quotes

Safe

Steady our feet, our Father. Let our doubts be quiet and our holy minds be still, and speak to us. We have no words to give to You. We would but listen to Your Word, and make it ours. Lead our practicing as does a father lead a little child along a way he does not understand. Yet does he follow, sure that he is safe because his father leads the way for him. (A Course in Miracles, W-pI.V.Int.2)

Life

: Life and you are only separated as a thought.

I am your own self.

@Gangaji: "I am your own self. I am perceived as whatever you project onto me. You are not really here for me, you are here for the truth."