The next global financial crisis is already brewing, and absolutely no one is talking about it. This crisis won’t be a great currency shock, a devaluation, a surprise stock market crash, a sovereign debt default, or corporate bankruptcy.

Instead, a rogue group will undermine – and I believe, destroy – one of the largest and most important financial markets in history. One that connects every country, company, and individual investor on the planet with you. More on that in a second.

For the next three days, I’ll be meeting with Japanese citizens and plugged-in contacts to get a first-hand understanding of this threat. Then, on Tuesday, March 22, at 7:30 p.m. ET, I’m broadcasting a live video session from Tokyo to tell you all about this danger. I’ll also give you an investment action plan. It’s free to watch and ask questions, but you need to RSVP.

I’ll tell you more about that danger in today’s essay, but if you want to reserve your free spot now, you can register here.

Financial Doomsday Detonation

Recently, I was with one of the most plugged-in men in the government securities market. I’ve known him for 30 years and call him “Mr. Bond” to keep his identity private.

I asked him: “What keeps you up at night?”

His answer? An event we’re calling a “financial doomsday detonation.”

You need to know about it beforehand. Here’s just a preview of what we’re expecting…

We’re investigating a rogue but powerful group that we suspect is planning to make a huge announcement about the state of the Japanese economy and its government debt. This group is troubled by the Japanese government’s awful fiscal and monetary policies. The country has experienced a technical recession, more debt issuance, more deficits, and negative interest rates since it was downgraded in December 2014.

Now, this announcement alone normally would be an earthquake. But in these market conditions, it will likely be catastrophic. Soon after it’s made, Japanese debt will go from "super safe" to "slightly risky" in one move.

That’s not just semantics – the switch will have a technical but important impact on how the global financial system operates. Since large banks cannot be rated more highly than the country that regulates them, the credit rating of banks will have to be moved down to the same level or lower as Japanese debt.

At that point, the banks will no longer be acceptable as counterparties to other large international banks on swap agreements. Those swap agreements will have to be unwound.

Also, the commercial paper of those banks will no longer be an acceptable investment for U.S. money market funds. That liquidity will not be rolled over. Suddenly, Japanese banks will face difficulties funding themselves and managing their risks via commercial paper and swaps.

This is where I see the potential for the financial avalanche beginning, as Japanese banks suffer “runs” and have to liquidate assets. They’ll call in loans to Japanese companies which will lead to defaults.

If that continues, the entire facade of Japanese corporate finance begins to crumble.

Now, you might be thinking, “I’m safe because I don’t have any exposure to Japan.” And you may not… but you are still at risk.

That’s because Japanese banks will desperately sell U.S. and European stocks and bonds to raise cash. That’s when the contagion will start spreading and markets around the world will begin to collapse. All because of Japanese selling.

At that point, you need to start worrying about the derivatives market. Warren Buffett referred to derivatives as "time bombs" and financial "weapons of mass destruction."

Derivatives are bets between two parties that are made today with a payoff in the future, based on the value of some stock, bond, or index. One party will profit if the reference security or index goes up in value, and the other party will profit if it goes down.

These bets usually settle up every three months, based on the value at that time. Then a new calculation period begins.

There are many variations on this basic pattern, but almost all derivatives involve some form of a bet in which gains and losses are calculated and settled up periodically.

Risk Is Growing Exponentially

Financial transactions involve multiple risks. Even a simple loan can have interest rate risk, credit risk, and foreign exchange risk. The original idea behind derivatives was that these risks could be repackaged into separate financial instruments.

In the simple loan example, one party could absorb the interest rate risk, another could absorb the credit risk, and still another could absorb the foreign exchange risk. Since each party specialized in a certain type of risk, it could offer the best prices so that the entire package would be cheaper to the customer than having a single bank absorb all of the risk on its books.

The problem with this simple view is that most derivatives do not derive value from an original loan or investment. They are created exclusively to make new bets. Instead of moving risk into strong hands, derivatives actually create risk out of thin air.

Risk is not being reduced by derivatives, it is growing exponentially.

We saw some of these bets go bad in 2008. Since then, those risks have gotten even bigger. And I believe that when the series of events I’ve previewed starts to unfold in Japan… a crisis on the scale of 2008 could happen all over again in the U.S. and most other major economies. Except it will be bigger and more catastrophic.

The trigger will be a small banking technicality that few people know about. One that could allow an independent group to bring the global financial system down by surprise.

I need to do more research on the ground here in Japan before I say anymore. So I urge you watch my live video broadcast from here on the streets of Tokyo to get the full story.


Jim Rickards
Editor, Intelligence Triggers

P.S. This situation could trigger the financial avalanche I’ve been forecasting. That’s why I’m in Tokyo, Japan, right now. This may be the site of the financial A-bomb that could destroy every American retiree’s investment portfolio… and finally validate my warning of an international monetary collapse.

But on Tuesday, March 22, at 7:30 p.m. ET, I’m hosting a live warning broadcast from Tokyo to help you prepare for what’s coming. It’s free to watch, so reserve your spot now.