The mechanism is simple: The global Everything Bubble is kept alive by low interest rates, cheap money which allows highly leveraged derivative investments. In order to survive, the bubble needs an ever-growing liquidity available. As soon as somewhere in the global system, money becomes more expensive, a liquidity crisis occurs, threatening a collapse of the system.
That is what occurred on Oct. 31, when rates in the interbanking “repo” market surged, prompting the U.S. Federal Reserve and the Treasury into an emergency injection of liquidity. The liquidity crisis has not been solved, as indicated by the sellout on the stock markets. In order to meet margin calls, hedge funds are liquidating stocks, bitcoins, family jewels, etc.
In the background, the crisis of sovereign debt can unleash another shock to the system, through the inevitable stress on liquidity given by a rising cost of debt refinancing. The United States debt is a candidate for unleashing the shock, as 19% of U.S. tax revenues already go to pay interest rates, tendency growing.
