Financial Contagion Spreads from Britain to U.S. and Switzerland
Despite the backtracking by the British government, yields on the gilt remain high, compared to pre-crisis levels (cf. above). Meanwhile, the crisis hitting them has expanded to U.S. corporate and government bonds. Indeed, to answer the margin calls, UK funds have sold those bonds, so much so that Biden’s Treasury Secretary Janet Yellen warned of a dangerous liquidity crisis on the U.S. bond market.
Another crisis broke out in Switzerland, where the Swiss National Bank had to double the dollar swap it had reached with the Federal Reserve, in order to meet a massive request for dollar loans by Swiss banks. While on Oct. 5, the SNB first requested $3.1 billion, one week later it had doubled to $6.27 billion. The number of Swiss banks requesting dollars went from 9 to 15. “The doubling of the auctioned total is historic. Domestic institutions had long not borrowed so much money,” wrote the Swiss financial site In$ide Paradeplatz.
Such dollar swaps have been common since 2008, but now it is different. Whereas last year such loans cost 0.33%, they now cost 3.33% for a 7-day maturity.
Central banks are trying to apply the accelerator and put on the brakes at the same time. It will not work. The system is doomed and cannot be saved. The transatlantic establishment is blind to reality, as is shown by the fact that the Nobel Prize in Economics 2022 was awarded to former Fed chairman Ben Bernanke, who is the person most responsible for the current hyperinflationary wave. A bit like giving it to Ptolemy for discovering that the Sun revolves around the Earth.
This insanity must stop. The system must be put through a bankruptcy-like reorganization, with the adoption of a Glass-Steagall reform to destroy the speculative sector, and the implementation of a credit system to finance a physical economic recovery.