Brexit could trigger a $500 trillion derivatives meltdown, by forcing the EU to allow insolvent member governments and banks to write down debt. Italy is in financial crisis and is already petitioning for that concession. How to avoid collapse of the massive derivatives house of cards? Alternatives are considered.
Sovereign debt – the debt of national governments – has ballooned from $80 trillion to $100 trillion just since 2008. Squeezed governments have been driven to radical austerity measures, privatizing public assets, slashing public services, and downsizing work forces in a futile attempt to balance national budgets. But the debt overhang just continues to grow.
[G]lobal leverage has exploded to record highs, with the sovereign bond bubble now a staggering $100 trillion in size. To top it off, over $10 trillion of this is sporting yields in nominal terms. . . .
But Brexit changes everything, says Summers. Until now, the EU has been able to reject debt forgiveness as an alternative, using the threat of financial Armageddon if the debtor country left the EU. But Britain has left, and Armageddon hasn’t hit. Other Eurozone nations can now threaten to do the same if they don’t get debt forgiveness or a restructuring.
A $500 trillion derivatives time bomb poised atop a $100 trillion mountain of debt is not a stable situation. It’s time to push the reset button, but how? Bailouts and bail-ins have been tried and proved wanting. But a debt “jubilee” – simply canceling the debt – would devastate creditors and collapse the massive derivatives bubble.
A government oppressed by “sovereign” debt is not really sovereign. A sovereign government has the power to issue money and need not go into debt at all. But EU member governments have lost that sovereign power. They are unable to issue their own money or borrow money issued by their own central banks. If they leave the EU, they can get that power back for future expenditures; but their existing debt is in euros, and only the ECB has the power to convert bonds into euros.
The defeat of the "remains" on June 23 was one of the great days in my life. Yet I am an American. Why should I care?
Answer: because I have been opposed to the New World Order for over half a century. I have watched these clever people pull off the final phase of the most self-conscious bait-and-switch operation of the twentieth century. It has now begun to disintegrate. Brexit was the first stage of this disintegration.
BAIT AND SWITCH
What was the bait and switch? This. Lure intellectuals and then politicians into a lobster trap of one-world government by means of the promise of greater wealth through free trade. Create free trade alliances that are in fact not free trade but rather trade managed by international bureaucrats. This is a combination of low tariffs and detailed regulations of production and distribution. Economic regulation favors large multinational firms that can afford lots of expensive lawyers. This regulatory system creates economic barriers against newer, more innovative, but under-capitalized competitors. In short, use the bait of greater national wealth to persuade national leaders into agreeing to a treaty-based international government that requires member nations to surrender much of national sovereignty.
The final stage is the creation on centralized regional governments that absorb national governments into an immense international bureaucratic system that regulates most areas of life.
Partly in the aim of creating a United States of Europe, two further communities were proposed, again by the French. A European Defence Community (EDC) and a European Political Community (EPC). While the treaty for the latter was being drawn up by the Common Assembly, the ECSC parliamentary chamber, the EDC was rejected by the French Parliament. President Jean Monnet, a leading figure behind the communities, resigned from the High Authority in protest and began work on alternative communities, based on economic integration rather than political integration.
Next came the treaty of Rome in 1957: The European Economic Community.
Step by step, decade by decade, European nations moved into the lobster trap.
Its expressions range from Brexit to the Trump phenomena and includes neo-nationalist and unconventional insurgent movement around the world. It shares no single leader, party or ideology. Its very incoherence, combined with the blindness of its elite opposition, has made it hard for the established parties across what’s left of the democratic world to contain it.
What holds the rebels together is a single idea: the rejection of the neo-liberal crony capitalist order that has arisen since the fall of the Soviet Union. For two decades, this new ruling class could boast of great successes: rising living standards, limited warfare, rapid technological change and an optimism about the future spread of liberal democracy. Now, that’s all fading or failing.
Living standards are stagnating, vicious wars raging, poverty-stricken migrants pouring across borders and class chasms growing. Amidst this, the crony capitalists and their bureaucratic allies have only grown more arrogant and demanding. But the failures of those who occupy what Lenin called “the commanding heights” are obvious to most of the citizens on whose behalf they claim to speak and act.
The Great Rebellion draws on five disparate and sometimes contradictory causes that find common ground in frustration with the steady bureaucratic erosion of democratic self-governance: class resentment, racial concerns, geographic disparities, nationalism, cultural identity. Each of these strains appeals to different constituencies, but together they are creating a political Molotov cocktail.
Donald Trump has always framed his candidacy as providing the average American with an opportunity to vote for an outsider, someone not already part of the traditional political machine. Immediately following Brexit, we asked whether or not this was Trump's opportunity to seize the momentum and use the referendum result as an example of what can be done if the people stand up against the global elites.
It turned out that Trump wasted no time in making sure that the people of America understood that what had been done in the UK can be done in the United States.