Glossary — The Walpurgis Papers

This consolidated glossary gathers the key financial, economic, and social terms that appear from the Prelude through the Epilogue. Explanations within the main text should be kept concise at first mention, with full details provided here.

A. Core Financial Terms

• Primary Dealers (PDs) Large financial institutions authorized to purchase newly issued U.S. Treasury securities directly from the Treasury. The “distributors” in the auction system.

• Primary Market The market where the government sells new securities to PDs. Analogous to a “premiere screening.”

• Secondary Market The market where previously issued securities are traded among all investors. Analogous to a “public theater.”

• Auction Tail The gap between expected yields (when-issued pricing) and the actual auction yield. A large tail signals weak demand and collapsing confidence.

• Bid-to-Cover Ratio (B/C) Total bids received divided by the amount offered. Below 2.0 indicates insufficient demand.

• Repo Market The short-term funding market where Treasuries and other assets are pledged as collateral. When it freezes, the entire financial system seizes up.

• SOFR (Secured Overnight Financing Rate) The key benchmark for U.S. repo funding. A sharp spike indicates acute liquidity stress.

• CCP (Central Counterparty) & Margin Calls Clearinghouses that stand between buyers and sellers. In crises they demand more collateral, draining cash at the worst possible time.

• Liquidity vs. Solvency Liquidity is the ability to obtain cash immediately; solvency is having assets greater than liabilities. Walpurgis begins as a liquidity seizure but evolves into a solvency crisis.

B. Sovereign Finance & Institutions

• Household Budget Fallacy The false belief that governments must manage finances like households. It underpins the Walpurgis dynamic.

• Fiscal Dominance A condition where central banks are forced into directly financing government deficits. Exemplified by China’s “financial winter.”

• Taxes (Drain Function) Not a source of government funding, but a “drain” to withdraw money from circulation and control inflation — a thermostat for economic temperature.

• Eurozone Doom Loop A destructive cycle where banks hold large volumes of domestic sovereign bonds; falling bond prices erode bank capital, governments cannot credibly backstop them, and the loop intensifies.

• TARGET2 The Eurozone’s internal payments system. Rapidly widening balances are a signal of capital flight.

• BRRD (Bank Recovery and Resolution Directive) EU directive mandating “bail-in”: at least 8% of a bank’s liabilities must be written down before public funds can be used.

• TPI (Transmission Protection Instrument) The ECB’s discretionary bond-buying tool to counter disorderly market dynamics. Its use is political and not guaranteed.

C. Global Crisis Concepts

• Walpurgis The codename for the multi-layered global crisis triggered by the failed U.S. Treasury auction on September 30, 2025.

• Dollar Default Crisis (DDC) A systemic breakdown of the Treasury market — functionally a default of the U.S. dollar as the global risk-free asset.

• Contagion Channels The four vectors of DDC spread: (1) direct sovereign reserve losses, (2) currency chaos, (3) global dollar shortage, (4) stock market collapse.

• Emerging Market Default Wave A cascade of sovereign defaults across emerging markets due to dollar famine.

• Resource Shock A large-scale disruption in energy, food, or materials that cascades across societies. Scarcity in one domain multiplies scarcity in others.

• E-MAD (Economic Mutual Assured Destruction) A global equilibrium premised on rational actors avoiding self-destruction. Collapses when coercive nuclear rhetoric undermines trust.

D. China-Specific Terms

• LGFV (Local Government Financing Vehicle) Off-balance-sheet borrowing entities used by Chinese local governments. Total liabilities estimated at \~57 trillion CNY.

• Depeg / One-off Devaluation A forced abandonment of the managed exchange rate, leading to a sharp RMB depreciation.

• Scissor Crisis (Energy) The dual squeeze of falling hard-currency inflows and depleting strategic reserves, leading to energy shortages.

• Industrial Credit Collapse When quality and disclosure failures in flagship sectors (e.g., EVs, machinery) spill over into sovereign credit risk.

E. U.S.-Specific Terms

• Municipal Bond Stack The \~\$4.2 trillion U.S. state and local government debt market. Critically lacks a permanent lender of last resort.

• VRDO (Variable Rate Demand Obligation) A type of municipal bond with resettable rates. Failure to roll these obligations signals imminent liquidity crisis.

• Double Pledge Fraud The illegal reuse of collateral for multiple loans. Exposed in the September 2025 Tricolor bankruptcy.

F. Social & Ethical Dimensions

• Mass Unemployment & Migration Tens of millions of job losses and refugee flows projected in the aftermath of DDC.

• Authoritarian Opportunism The tendency of regimes to use crises to consolidate power and erode civil liberties.

• Ethics of Survival The moral battlefield over who receives scarce essentials such as food, medicine, and energy. Under THP, governed by the principle of condemning universal crimes.

G. Illustrative Analogies (for Readers)

• Wallet vs. Faucet A household wallet is a bucket that empties unless refilled. The government’s wallet is the faucet itself — it issues currency.

• Premiere vs. Theater Primary market = the “premiere screening.” Secondary market = the “public theater.”

• Guardian Angel The Bank of Japan’s unconditional bond backstop — a support absent in the U.S. system.