FacebookTwitterGoogle+RedditEmail

United States Treasury Swap Spreads

In October 2008, something happened that had never happened before. The United States (US) Treasury 30 year bond interest rate swap spread went negative, below the interest rates being paid on US Treasury 30 year bonds.

The wall street “algos” (computer algorithms) hadn’t been programmed for that because it was considered to be like a law of nature that US Treasury bond interest rate swap spreads could never be lower than the actual interest rates being paid by US Treasury bonds.

Unless. The US government would soon be either bankrupt or no longer in existence.

Beginning in the Fall of 2008, the consensus of bankers and hedge fund vultures came to be that the US government will be bankrupt before 2039 or no longer in existence sometime before the year 2039. An interest rate swap spread is the difference in swapping floating rate (variable rate) interest to a fixed rate of interest. Interest swap spreads are similar to credit default swap spreads, which are easier for many people to understand first before understanding interest swaps.

A credit default swap (CDS) is one type of financial derivative, like an insurance policy, that if a bond defaults then the buyer of the credit default swap will be paid for the value of that bond by the seller of the credit default swap (e.g. Goldman Sachs or JP Morgan). This Fall 2015, for example, Glencore swap spreads have gone as high as 7.57%, on Glencore bonds. On a particular $1,000 Glencore bond paying 12% interest, for example, anyone can pay a 7.57% premium (i.e. a $75.70 credit default swap premium payment on that $1,000 Glencore bond) to insure that if Glencore defaults on that $1,000 bond that the CDS purchaser will then be paid $1,000 in money for the $1,000 bond that Glencore defaults on.

As if derivatives aren’t complex enough, a credit default swap buyer does not have to actually have a $1,000 Glencore bond to pay a $75.70 credit default swap premium on that $1,000 Glencore bond; that $75.70 credit default swap premium payment is essentially a $75.70 bet that Glencore will default and that the person who bet $75.70 on a Glencore bond credit default swap will then win $1,000 in money when Glencore defaults.

There can be hundreds of credit default swaps sold on the same $1,000 Glencore bond leading to potential liabilities in the hundreds of thousands of dollars for each $1,000 Glencore bond. There is a limitless number of credit default swap bets that can be placed on the same $1,000 corporate bond just as there is a limitless number of credit default swap bets that can be placed on the same $10,000 US Treasury bond.

There are $630 trillion in outstanding derivatives globally according to the Bank of International Settlements (BIS) in Switzerland. That is, about $630 trillion in bets placed on about $100 trillion in stocks and bonds. An analogy, to the large amount of bets placed on a smaller amount of stocks and bonds, is the St. Louis Fed data that $60 trillion in claims exist for US dollars against $12 trillion in actual US dollars in circulation globally.

Fractional banking, for example, where $5 is lent for every $1 in actual money assumes that there will never be more than 20% of the people asking for their money back at once. When more than 20% of the people do demand their money back, like a quick bank run or a slower silent run, there is a financial collapse.

Glencore, with $100 billion in debt and over $5 trillion in outstanding derivatives, is currently on the short list of corporations most likely to be the AIG this financial collapse around in the USA. American Insurance Group (AIG) derivatives gone bad in 2008 and Lehman Brothers derivatives gone bad in 2008 were the sparks that sparked the 2008 financial collapse in the USA.

JP Morgan Stanley also looks at US Treasury bond swap spreads from a perspective of LIBOR rate minus the US Treasury bond yield. LIBOR is London InterBank Offered Rate, a central interest rate from which other interest rates are set. A financially stable government hence has a positive interest rate swap spread number indicating it is more stable than, for example, LIBOR derived interest rates set for junk bond corporations (e.g. Glencore) or junk bond rated countries (e.g. Greece, Ukraine) indicate. A positive US Treasury bond interest rate swap spread number indicates investors consider the US Treasury will be solvent indefinitely, a “safe bet”. A negative US Treasury bond interest rate swap spread indicates investors think the US Treasury will no longer be solvent in the future, not a safe bet anymore. Negative numbers for US Treasury bond interest swap spreads are flashing red lights indicating a soon to be bankrupt (or non-existent) US government.

In late September 2015, the US Treasury 10 year bond swap spread went negative, becoming lower than the actual yield of the US Treasury 10 year bond. The consensus of bankers and hedge fund vultures is now that the US government will be either bankrupt (unable to pay it’s bills and unable to borrow any more money) by 2025 or the US government will no longer be in existence by the year 2025.

The 5 year US Treasury bond interest rate swap spread is still hovering just above 0 as are interest rates for the 5 year US Treasury bond. Extrapolating the lines downward of both the 5 year US Treasury bond swap spread and the 10 year US Treasury bond swap spread yields a date more precise than ‘by the year 2025’.

2023.

According to current US Treasury bond interest swap spreads data, the US government will either be A) bankrupt by the end of 2023 or B) the US government will no longer be in existence by the end of 2023. The government in the USA has too much debt, $46 trillion, a whooping 312% US government debt to GDP ratio, making a sovereign debt collapse an imminent event in the USA. Greece suffered a sovereign debt collapse when it’s government debt to GDP reached 125%. The US government will become bankrupt (or no longer in existence) because US government officials borrowed too much money.

Inherent in the figures and timeline are probable events in the immediate future in the USA such as short-term deflation and more “quantitative easing” (i.e. the US Treasury printing trillions of more dollars out of thin air) followed by hyper-inflation and a worthless US dollar.

Many readers cannot differentiate between news reports about interest rates and news reports about interest rate swap spreads. There has been much news these past few months that the Fed Funds interest rate, which has been 0% since December 2008, will soon rise. Fed Funds interest rates rising or declining are independent of US Treasury bond interest rate swap spreads. US Treasury bond interest rate swap spreads have been traded since the 1980’s. There were several times when the market anticipated rising interest rates (e.g. 1986-1989, 1992-1995, 1998-2000, 2003-2006), yet the US Treasury bond interest rate swap spread figures were positive, indicating that the market anticipating rising interest rates is independent of US Treasury bond interest rate swap spread figures.

The first time that US 10 year Treasury bond interest rate swap spreads went negative were in 2010, during a US Congressional debt ceiling showdown. US government debt ceiling showdowns are reminders of how overly indebted the US government is and that the day is soon coming when the US government will be maxed out and unable to borrow any more money. Debt ceiling showdowns also remind the market that many Congresspeople do not want the government to borrow trillions of dollars more plus interest; aware of the possible ramifications of that (e.g. austerity, default, massive government spending cuts, higher unemployment, more money printing, hyper-inflation, tax increases, debt jubilee, etc.) leads the market to further doubt the continued solvency (or existence) of the US government in the near future.

Many wall street people routinely talk about US Treasury bond interest swap spreads having gone below actual US Treasury bond yields, what that means and what they plan to do (e.g. evacuate, take their Gulfstream jets with their second passports to their villas and penthouses in other countries); but the corporate media in the USA (i.e. the 6 corporations who own 90% of the media in the USA and the other large corporations who own another 9% of the media in the USA) has been silent about US Treasury swap spreads going below actual US Treasury bond yields (“going negative”) and what that means.

Any journalist and most anybody anywhere with internet access can verify previous US Treasury interest swap spreads and can monitor data on US Treasury swap spreads going forward. News media sites all over the world need to be monitoring US Treasury interest swap spreads more closely and need to be telling their readers what are US Treasury swap spreads and what is the significance of the data about US Treasury swap spreads (e.g. you can easily figure out the year when the debt-laden US government will finally collapse from this data).

If I read in 1983, about how the Soviet Union’s government would be either insolvent or no longer in existence by New Year’s Eve 1991, I would have been amazed at what I was reading. I would be amazed that some reporter foresaw what billions of other people didn’t see coming and if there were any facts and figures to back that up, I would look into those facts and figures.

I looked into US Treasury Bond interest rate swap spread facts and figures which indicate the United States government will be either insolvent or no longer in existence by New Year’s Eve 2023. The US Treasury Bond interest rate swap spread facts and figures are compelling.

More importantly, world leaders and other important decision makers need to plan for a probable contingency that by New Year’s Eve 2023, there will be a bankrupt US government. Or no more US government. The weapons stockpile (e.g. nuclear, chemical and biological) that exists in the USA makes good planning for this probable contingency a compelling imperative for the human race.

More articles by:

William Edstrom graduated from Columbia University in 2003. He has worked as a scientist for ten years, has co-authored publications in scientific journals such as Nature and the Journal of Biological Chemistry, and co-authored Agents of Bioterrorism: Pathogens and Their Weaponization, a Life Sciences textbook (Columbia University Press, 2005). William is a member of the Educational Writers Association.

Weekend Edition
December 14, 2018
Friday - Sunday
Andrew Levine
A Tale of Two Cities
Peter Linebaugh
The Significance of The Common Wind
Bruce E. Levine
The Ketamine Chorus: NYT Trumpets New Anti-Suicide Drug
Jeffrey St. Clair
Roaming Charges: Fathers and Sons, Bushes and Bin Ladens
Kathy Deacon
Coffee, Social Stratification and the Retail Sector in a Small Maritime Village
Nick Pemberton
Praise For America’s Second Leading Intellectual
Robert Hunziker
The Yellow Vest Insurgency – What’s Next?
Patrick Cockburn
The Yemeni Dead: Six Times Higher Than Previously Reported
Nick Alexandrov
George H. W. Bush: Another Eulogy
Brian Cloughley
Principles and Morality Versus Cash and Profit? No Contest
Michael F. Duggan
Climate Change and the Limits of Reason
Victor Grossman
Sighs of Relief in Germany
Ron Jacobs
A Propagandist of Privatization
Robert Fantina
What Does Beto Have Against the Palestinians?
Richard Falk – Daniel Falcone
Sartre, Said, Chomsky and the Meaning of the Public Intellectual
Andrew Glikson
Crimes Against the Earth
Robert Fisk
The Parasitic Relationship Between Power and the American Media
Stephen Cooper
When Will Journalism Grapple With the Ethics of Interviewing Mentally Ill Arrestees?
Jill Richardson
A War on Science, Morals and Law
Ron Jacobs
A Propagandist of Privatization
Evaggelos Vallianatos
It’s Not Easy Being Greek
Nomi Prins 
The Inequality Gap on a Planet Growing More Extreme
John W. Whitehead
Know Your Rights or You Will Lose Them
David Swanson
The Abolition of War Requires New Thoughts, Words, and Actions
J.P. Linstroth
Primates Are Us
Bill Willers
The War Against Cash
Jonah Raskin
Doris Lessing: What’s There to Celebrate?
Ralph Nader
Are the New Congressional Progressives Real? Use These Yardsticks to Find Out
Binoy Kampmark
William Blum: Anti-Imperial Advocate
Medea Benjamin – Alice Slater
Green New Deal Advocates Should Address Militarism
John Feffer
Review: Season 2 of Trump Presidency
Rich Whitney
General Motors’ Factories Should Not Be Closed. They Should Be Turned Over to the Workers
Christopher Brauchli
Deported for Christmas
Kerri Kennedy
This Holiday Season, I’m Standing With Migrants
Mel Gurtov
Weaponizing Humanitarian Aid
Thomas Knapp
Lame Duck Shutdown Theater Time: Pride Goeth Before a Wall?
George Wuerthner
The Thrill Bike Threat to the Elkhorn Mountains
Nyla Ali Khan
A Woman’s Selfhood and Her Ability to Act in the Public Domain: Resilience of Nadia Murad
Kollibri terre Sonnenblume
On the Killing of an Ash Tree
Graham Peebles
Britain’s Homeless Crisis
Louis Proyect
America: a Breeding Ground for Maladjustment
Steve Carlson
A Hell of a Time
Dan Corjescu
America and The Last Ship
Jeffrey St. Clair
Booked Up: the 25 Best Books of 2018
David Yearsley
Bikini by Rita, Voice by Anita
FacebookTwitterGoogle+RedditEmail