Was It Only the Carry Trade Behind Market Meltdown?

Aug. 9—The various explanations offered by the media for last Monday’s (Aug. 5) collapse of global stock markets—a bad U.S. jobs report, nervousness about the AI bubble, concern over Fed interest policy, etc.—don’t really explain the massive financial flows and turbulence involved. An article on Aug. 7 in Financial Times comes closer to the truth by pointing to a sharp unwinding of the multi-trillion-dollar yen carry trade, triggered by an unexpected rise in Japanese interest rates. FT admits that no one really knows the size of the yen carry trade, but that it’s huge, possibly running into the trillions of dollars, and that the problem isn’t over.

The article in question is headlined “Unwinding of Yen ‘Carry Trade’ Still Threatens Markets, Say Analysts. Resurgent Japanese currency forces speculators to shut down years’ worth of bets that could run into trillions of dollars.” It reports that “the global unwinding of the world’s biggest ‘carry trade’ has the potential to destabilize markets further,” explaining that the carry trade refers to “borrowing in a low-interest-rate country to fund investment in assets elsewhere that offer higher returns…. The cheap fundraising in yen [has been] pouring into everything from emerging market currencies such as the Mexican Peso to Taiwanese equities, real estate and U.S. tech stocks.” Hedge funds are among the biggest speculators in the carry trade.

Although FT doesn’t bother to mention it, when there is a vast reversal of carry trade funds, developing sector countries and other recipients suffer a hemorrhaging of funds that can destroy their economies. A wave of bankruptcies becomes a very real possibility.

But while what the FT writes about, as had most of the financial press by now, this "insider" explanation is also a coverup for what really happened. The events of Friday, through the week and into the Monday meltdown, as well as the "exit" from the crisis over the last few days, is part what some sources have called a deliberate controlled disintegration of parts of the financial bubble, of which the carry trade is part. The entire operation was triggered and coordinated through central bank intervention, through trading on with their bloated asset portfolios that first sold into the various market indexes and certain tech stocks, including the so-called Magnificent 7, that led to wiping out of trillions of dollars globally in over-speculated, and unsupportable financial values; the central banks, including the Fed, then bought into stocks in these same indices to push the market up, and prevent what might have become a contagious panic throughout the system.

"The central banks did this," said a source, "in an effort to prevent a total crack-up. But, at this point, such actions can merely delay a total crack-up, and likely not for very long. At least some among this crowd of financiers and central bankers would like to push the collapse beyond the Nov. 5 U.S. Presidential election. If it occurs before then, it wipes out the Democrat ticket and that nasty, incompetent bitch Kamala Harris. But the betting now is, that even if the central banks try some more of this value wipeout in the next two months, the pressure that has built up for a total crack up of the $2.4 quadrillion debt overhang is too great to get it past Election Day." 

Back to the FT article, which claims that the turbulence began when “last week, the Bank of Japan hit the market with a surprise interest rate increase and a strong hint that there would be more tightening to come,” FT reported. A lot of bets were forced to unwind, and Benjamin Shatil, a currency strategist at JPMorgan in Tokyo, told FT that this “still has some way to go.” Osamu Takashima, a currency analyst at Citi, said that “the current adjustment is only the beginning of the end.” Nicholas Smith, chief Japan strategist at CLSA Securities, said that “estimates for the size of the yen carry trade vary, but most suggest several trillion U.S. dollars.” 

"This is not 2008, which was after all a sector (housing) driven crisis," said the source. "This is a systemic problem, the product of the creation of a massive financial casino, that is completely untethered from the real economy, yet whose draw of funds and credit into the casino, kills the real economy, where most people must try to live. We are not talking about a few bad days or months, or that dreaded 'r" word, recession, but something akin to what happened in the 1929-32 period, but worse. That is why they are going after governments, weakening them, and the U.S. Presidency in general. They don't what the power of the people, asserted through their government and a strong President, like an FDR, getting in the way of how the bankers want to reorganize their system. Keep you eyes on what nis at stake and don't believe explanations that come from financial experts that make their money from serving this corrupt, global financial system. These are times with a a true revolutionary potential, which the bankers fear,"