by Michael Snyder
"We all knew that this would be coming eventually. For years, governments around the world have been engaging in the greatest debt binge in human history. Now they are absolutely drowning in debt and investors are no longer willing to lend them gigantic mountains of money at ultra-low interest rates. Bond yields are skyrocketing, and that means that bond prices are crashing. That is really bad news for U.S. banks, because they are holding approximately $4.81 trillion in combined Treasury and agency securities. Banks in Japan and Europe are also holding gobs and gobs of bonds. The nightmarish state of bank balance sheets is going to become a major story in the coming days, and many financial institutions will fail. Meanwhile, consumers will be facing much higher rates for mortgages and other forms of borrowing. This will likely slow down economic activity substantially during the months ahead.
On Wednesday, the yield on 10 year U.S. Treasuries and the yield on 30 year U.S. Treasuries both hit the highest level that we have seen in 24 years… The benchmark 10-year Treasury was up more than 3 basis points at 5.307%. It had earlier hit its highest level since 2002. The 30-year Treasury bond rose more than 4 basis points to 5.684% and had also reached a 24-year high earlier.
The last time we witnessed anything like this was during the aftermath of the collapse of the Dotcom bubble. The good news is that after spiking dramatically earlier in the day U.S. bond yields are being forced back down. I am entirely convinced that this is due to government intervention. Our officials have been buying Treasury bonds with billions of dollars that they have created out of thin air in a desperate attempt to keep bond yields under control.
In Europe, individual nations do not have that option. That is one of the reasons why I am concerned that France could be teetering on the brink of financial ruin. Of course it isn’t just France that is facing a desperate situation. As Bull Theory has aptly pointed out, we are literally watching a global bond market implosion in real time…
Decades ago, France was one of the most financially stable countries in Europe.
But now we are being told that there is a very real risk of “a full-blown public debt crisis in the EU’s second-largest economy”…France’s borrowing costs are surging as investors around the world wake up to the risk of a full-blown public debt crisis in the EU’s second-largest economy. Stress in financial markets has now started to spread beyond its borders, raising fears that political dysfunction in France could cause a broader, regional problem.
Memories of the sovereign debt crisis that threatened the single currency’s survival 15 years ago are starting to stir. But is it really going to get that bad again? The French thought that they could just keep borrowing and borrowing and that there would never be any consequences. They were wrong.
During an interview with CNBC on Wednesday, the head of the International Monetary Fund delivered a very blunt message to the French government: “get your house in order”. She explained that the current crisis in France is “the consequence of borrowing shock after shock after shock” and that the French are on a “staircase that does not lead to heaven”…
Political instability in France has put pressure on the country’s government bonds, known as OATs. Investors now demand a higher yield than they do for bonds issued by the Italian government, with French 10-year bond yields rising by more than 100 basis points since the start of the year.
“What we see in France is a complication of, on one side, the consequence of borrowing shock after shock after shock, climbing on this staircase that does not lead to heaven, and on the other side, a political dynamic scene in France that creates more difficulties for the finance ministry to put a clear path for tightening,” IMF Managing Director Kristalina Georgieva told CNBC’s Lisa Kim on the sidelines of an event in Singapore.
She is right. France is a financial mess, and that threatens the financial stability of the entire European Union. Meanwhile, the French government has admitted that the level of of street violence has reached the highest level ever recorded… The French Ministry of the Interior states that street violence has reached record levels fuelled in part by the violent student uprisings seen in multicultural hubs across the country in recent weeks. Following another day of mass mobilization of students in concert with far-left political parties and radical trade unions apparently intent on sparking more chaos, the Ministry of the Interior released statistics showing an unprecedented level of violence in public spaces. According to government data, public violence incidents outside the home hit a record high of 20,000 per month in September, or nearly 700 per day, Le Figaro reported.
There is no end in sight. Initially, we were told that “students” were protesting because they wanted smaller classrooms and better textbooks. We can all see that is simply not true at this point. Criminals dressed in black are rioting, looting and committing acts of violence in major cities all over the country…
French revolutionaries have been burning down schools and setting public buses and fire trucks ablaze. They have looted shops and stalked and preyed on women walking alone. They have attacked strangers with fireworks, mortars, and hydrochloric acid. They have beaten numerous teachers, doused some in gasoline, and set a few on fire. They have injured hundreds of law enforcement officers and firefighters, as well as students who want nothing to do with the mayhem. One witness to the destruction described the scene as “total anarchy” and “total war.”
Yes, a lot of teenagers are involved in the mayhem. But in many cases the “protesters” are men in their twenties, thirties and forties. These grown men have been proudly waving Palestinian, Algerian and Moroccan flags as they call for violence in the name of their god… Paris and other cities are now awash with foreign flags as throngs of unassimilated youths scream their hatred for France itself. “In the name of Allah, we can kill them all,” barked one masked thug, to the mob’s demented glee.
We are witnessing something extraordinary: an intifada in the heart of Europe. It is easy to mock the French for what is happening, because it is the result of decades of bad immigration policies. Of course the exact same thing could easily happen in the United States.
Recent polling has shown that 43 percent of U.S. voters under the age of 25 now have a positive view of Sharia law… The polling, from Our Republic and Rasmussen, showed “a quarter of 18-35 voters polled would support a community implementing Sharia law as the legal code for the entire town, city, or state if the majority of residents living there desired its adoption.” The polling said, “Overall, 21% of likely voters said they have a mostly or somewhat positive opinion of Sharia, compared with 57% who have a negative opinion. Positive views were much higher among younger Americans, including 43% of voters ages 18–24 and 39% of those ages 25–29.” The polling cited a “generational divide” over Sharia, as seniors had a much higher level of opposition.
Reading that should chill you to the core. We are on the same path that France has been on. But only a very small segment of the U.S. population seems alarmed by this. I think that France is cooked. So is Spain, and so is Germany. The EU is headed for financial collapse. Of course the same thing could be said for Japan and the United States too. It will take some time for the global bond crisis to fully play out, but without a doubt an enormous amount of pain is in our future."
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