During the confirmation hearings of the Treasury secretary nominee Scott Bessent on Thursday, 16 January, this exchange caught my attention (at about 52-min. mark of the video linked above):
Sen. John Cornyn (R-Tex): “As you know, the market for U.S. Treasuries is the largest in the world at $28 trillion, and it's critical for the financial stability of the United States. There's actually a proposal for an entity to clear U.S. treasury futures at the London clearing house which is overseen by the Bank of England. Some argue that the Bank of England would have control over ... a default scenario in this critical market instead of the U.S. Is this of concern to you?” Scott Bessent replied:
You raise a very important question and one that I will investigate further. I was unaware, until the past few days, of this with the new exchange. What I can tell you, as a student and professor of economic history, is that it is important for the U.S. - for the U.S. Treasuries, for us to be able to resolve any stress issues in the markets in the U.S. We saw during the Lehman Brothers bankruptcy, that much of the, many of the problems emanated from the U.K. subsidiary, so this is something that ... my inclination is that the resolution authority must lie here in the U.S., but I will get back to you in writing with an answer on this, if confirmed.
Before declaring his "inclination," Bessent thanked Senator Cornyn for bringing the matter to his attention, and during their exchange, Cornyn made it clear that the two have visited together at his office and discussed the issues. The first, obvious question is, why should American treasuries be cleared in London, through a clearing house under Bank of England's control? Who wanted this to happen, and where did such a proposal originate from?
Not an ordinary business venture
This would be a move without precedent: it has never been done either by the U.S. or any other sovereign nation. Nevertheless, Howard Lutnick, the CEO of Cantor Fitzgerald, one of the 24 U.S. primary dealers authorized to trade US government securities with the New York Fed, embarked on a project to bring the trading of U.S. Treasury futures to FMX, a new futures exchange, in competition with Chicago Mercantile Exchange - the CME Group Ltd. As Bloomberg reported, FMX partnered with LCH Limited in London, which was going to serve as the clearing agent for FMX. To spearhead the plan, Lutnick lined up the support of several major U.S. banks.
The whole arrangement may seem harmless - a mere technicality within a project that's being pursued as a legitimate business venture. However, the potential implications of the arrangement remain obscure. There's a view that if the clearinghouse is not regulated by the U.S. the clearing process would not be under U.S. sovereign control in the event of a crisis. It is interesting that this whole initiative gathered momentum at the same time as the Fed Chairman Jerome Powell decoupled the price of U.S. money from the London Interbank Offer Rate (LIBOR) and set it to U.S. controlled SOFR (Secured Overnight Financing Rate). Or perhaps it was precisely a reaction to the decoupling.
Whatever the case may be, on 21 August 2024, Senator Dick Durbin wrote a letter to Rostin Behnam, chairman of the CFTC, asking him to “consider any potential risk to US regulators not having full authority over a clearing house in a foreign jurisdiction that is clearing US Treasury futures.” Durbin also wanted to know about the potential impact “on the stability of our sovereign debt.”
Three months later, Behnam still had no answers for Durbin. He said that, “we are still working with Treasury on the issues around like, what risks potentially offshore clearing of US Treasury futures plays, but haven’t come to any decisive conclusion. We’ll get back to the Senator.” Like, really? Three months and no answers? It's almost like someone had something to hide.
Is it all a pirate raid on the margin cash?
But the Bloomberg article that conveyed Behnam's statement also revealed a whopper: that new rules are "being worked on," which "would allow futures brokers and derivatives clearinghouses to invest customer margin in foreign sovereign debt of Canada, France, Germany, Japan and the UK." In other words: the margin posted by the investors to trade futures of the world's single largest market, could be invested by the clearinghouse in sovereign debt of a specified group of countries, which includes the host nation, the UK.
That clearinghouse, LCH, is controlled by the Bank of England, which could be sitting on losses as large as £150 billion, or more for all we know. At the same time, the British government, whose fiscal position was described as “catastrophic,” is desperate for foreign investments to fund their profligate budget. And the brokerage involved in the whole deal is none other than BGC, the spinoff of Howard Lutnick's Cantor Fitzgerald.
The bizarre aspect of this story is that Lutnick is regarded as Donald Trump's main ally on Wall Street whom Trump included in his transition team. Let's see how the situation develops, but it does appear that the cunning plan has aroused suspicion among the US lawmakers and will be running into stiff opposition. The unwitting investment cavalry for the British government might not be coming to its rescue after all. All they'll be left with is the Bank of England’s printing press.
Yes, Britain is now collapsing
This further reinforces my 2021 “fall of Britain” investment hypothesis. I revisited that hypothesis and articulated it in two parts, linked below:
Part 1: The coming collapse of Britain
Part 2: The fall of Britain
By now, it seems that the markets are beginning to smell blood:
Britain could be facing an unravelling on the scale of the Weimar Republic in 1921. So far as the degenerated oligarchic imperial establishment goes, good riddance. It has had its tentacles in most places around the world and it still does, working secretly like a giant conveyor belt, transferring the wealth from people who produce it to the occult oligarchy ruling Britain and its satellites. Taking control of market clearinghouses was an important element of that conveyor belt.
The Great Red Dragon
In his book, "The Great Red Dragon," (PDF) American author L. B. Woolfolk explained how, in the second half of the 19th century, many U.S. farmers were ruined after the establishment of centralized clearing houses ("boards of trade") which were under control of British financiers or their agents. The clearing houses were able to manipulate the prices of crops, depressing them as needed to drive farmers out of business and acquire large swathes of fertile agricultural land at fire-sale prices.
Scott Bessent's mention of Lehman Brothers reminded me of another kind of manipulation described by Woolfolk. I condensed his prose in an article I posted last May. In broad strokes, [The Great Red Dragon] documents the takeover of the American economy by British banking interests. Their methods entailed periodically flooding the economy with credit and generating a boom. Then, when the bankers' nets were full and everyone was in debt, the bankers would abruptly withdraw credit. The practice was simply predatory. The triggering event usually involved a high-profile bank failure, which would cause an economy-wide avalanche of bankruptcies.
Large, politically connected banks would then take over the choice companies, farmland and real estate for pennies on the dollar. Within our lifetimes, the Lehman Brothers’ failure in 2008 would have been a typical example of this, but Covid pandemic response in 2020 served the same predatory purpose. During the 19th century, US economy endured three major financial crashes: in 1837, 1857, and in 1873. Each crash triggered major economic depressions with mass-scale culling of smaller banks and small and medium-size enterprises. The collapse enabled the ruling oligarchy to consolidate monopolies over all the key industries.
Relinquishing control over the U.S. Treasuries market to the Bank of England could enable similar manipulations. Incidentally, I do find it curious that the city of London features so many dragon sculptures. Most of them feature the shield of St. George which appear to imply that in this city’s formative narrative, the dragon slays St. George – the opposite to the rest of Christendom. Also, the shield shows an upside-down cross. Interesting:
Hmm… OK, so someone in London is into dragons.
World system of financial control in private hands
In "Tragedy and Hope," Carroll Quigley warned us that, "The powers of financial capitalism had [a] far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. … The growth of financial capitalism made possible a centralization of world economic control and use of this power for the direct benefit of financiers and direct injury of all other economic groups.”
Quigley wrote those words in 1965, suggesting that the conspiracy was discernible many decades ago. Some 18 years later (1983), Lord Jacob Rothschild suggested that, "Two broad types of giant institutions, the worldwide financial service company and the international commercial bank with a global trading competence, may converge to form the ultimate, all-powerful, many-headed financial conglomerate."
Soft disclosure foreshadows the coming battle
The exchange between Senator Cornyn and Mr. Bessent seems to be a part of the 'soft disclosure' of the secretive arrangements and relationships involving Great Britain, which have influenced global events during the past decades. We've seen Elon Musk attack the British government in a series of searing posts on X.
Last week, former British MP Andrew Bridgen gave an interview in which he disclosed some shocking information about the sickening depravity and the utter moral bankruptcy of Britain's political class - at the very least a significant part of it. The relevant 2-minute segment of that interview is at this link.
More than a century ago Lord Acton prophesied that, “the issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the bankers.” It may be that this fight is now upon us. It seems that the “monolithic and ruthless conspiracy” that JFK warned us about is now facing an existential struggle for survival. The signals coming out of the Trump team through these 'soft disclosure' communiques may be foreshadowing what is to come. Apparently Trump has over 100 executive orders already written and he'll be signing them on his first day in office.
Is the UK about to lose its colonies in Africa?
These events are relevant to investors since they'll impact world geopolitics, the "special relationship" between the United States and Britain, as well as Britain's debt, currency and its stock market. Something fascinating that I recently learned is that Britain is still heavily reliant on its former colonies for its GDP and public revenues.
Namely, according to a 2016 report, "New Colonialism: Britain's Scramble for African Energy and Mineral Resources," 101 companies listed on the London Stock Exchange, most of them British, have mining operations in 37 sub-Saharan African countries. They collectively control over $1 trillion worth of Africa's most valuable resources. The UK government has used its power and influence to ensure that British mining companies have access to Africa's raw materials. This was the case during the colonial period and is still the case today. The decolonization movement that has now largely deprived France of its African dependencies could do the same to Britain.
Will FTSE rally, or will it tank?
The reason I bring this up is because in the past I predicted that Britain's gathering financial and economic crisis will cause a strong rally in the British stock markets. But if Britain loses control over resource rich areas of Africa (and the Middle East), then its stock market could collapse. Either way, I believe the most reliable way to trade these events is through trend following, which is why I included the GBP, FTSE and gilts in our daily TrendCompass Key Markets report: if the coming trends are bullish, we'll be long; if they’re bearish, we'll be short. The market itself will tell us.
I originally published the above article in the above linked TrendCompass report. A few hours later I sat down for a chat with CryptoRich and Tom Luongo. We spent the first hours brainstorming about all this and the discussion turned out to produce a fortuitous combination of knowledge, experience and perspective yielding what was hands down my favorite podcast with these two gentlemen. CryptoRich only just posted it today and it looks like I’m not the only one that feels that way:
The discussion starts to build from about 4-min. mark and gets into the big questions at around 20-min. mark - I think it’s well worth the listen. It’s on X, at this link:
https://x.com/CryptoRichYT/status/1880928191751020653
Alex Krainer – @NakedHedgie is the creator of I-System Trend Following and publisher of daily TrendCompass investor reports which cover over 200 financial and commodities markets. One-month test drive is always free of charge, no jumping through hoops to cancel. To start your trial subscription, drop us an email at
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