Derivatives: The $600 Trillion Time Bomb That's Set to Explode

[SparrowHawk]

From one of my European Colleagues at the Global Macro Economic Roundtable.

Derivatives: The $600 Trillion Time Bomb That's Set to Explode

But haven't we heard that before?

Although American banks have limited their exposure to Greece, they have loaned hundreds of billions of dollars to European banks and European governments that may not be capable of paying them back.

According to the Bank of International Settlements, U.S. banks have loaned only $60.5 billion to banks in Greece, Ireland, Portugal, Spain and Italy - the countries most at risk of default. But they've lent $275.8 billion to French and German banks.

And undoubtedly bet trillions on the same debt.

There are three key takeaways here:

There is not enough capital on hand to cover the possible losses associated with the default of a single counterparty - JPMorgan Chase & Co. (NYSE: JPM), BNP Paribas SA (PINK: BNPQY) or the National Bank of Greece (NYSE ADR: NBG) for example - let alone multiple failures.
That means banks with large derivatives exposure have to risk even more money to generate the incremental returns needed to cover the bets they've already made.
And the fact that Wall Street believes it has the risks under control practically guarantees that it doesn't.

Seems to me that the world's central bankers and politicians should be less concerned about stimulating "demand" and more concerned about fixing derivatives before this $600 trillion time bomb goes off.

There is a more in depth article HERE.

Still think the Tea Party, Occupy Wall Street & Ron Paul are all wet? Think again. 4 banks hold 95.6% of the derivative debt/risk. Becoming a little clearer why the notion of auditing the Fed is so frightening to Romney, Obama, Gingrich and Santorum?

 

[delldude]

From one of my European Colleagues at the Global Macro Economic Roundtable.



There is a more in depth article HERE.

Still think the Tea Party, Occupy Wall Street & Ron Paul are all wet? Think again. 4 banks hold 95.6% of the derivative debt/risk. Becoming a little clearer why the notion of auditing the Fed is so frightening to Romney, Obama, Gingrich and Santorum?

There was a series of articles in Rolling Stone that went over these type issues and in the end it is very scary.

But it will never happen here.......what you smoking?

 

[SparrowHawk]

There was a series of articles in Rolling Stone that went over these type issues and in the end it is very scary.

But it will never happen here.......what you smoking?

OHHH, US Banks hold 95.6% of the derivatives and as Ludmilla said

And the fact that Wall Street believes it has the risks under control practically guarantees that it doesn't.

Bother Way her title is, Researcher at Geopolitical and Geostrategic Research
Partner, Business Development at Buss & Roth Investment Management What that means to you is that she is more or less an Insider.

 

[delldude]

OHHH, US Banks hold 95.6% of the derivatives and as Ludmilla said



Bother Way her title is, Researcher at Geopolitical and Geostrategic Research
Partner, Business Development at Buss & Roth Investment Management What that means to you is that she is more or less an Insider.

That's why I keep harping about Europe...................seems to mostly go on deaf ears.

Everyone thinks its only Euro debt...yeah, with loads of US dollars.

 

[townpete]

I recall seeing this being discussed on ZH a few days ago. Gave me a bit of a chill.

 

[777 fixer]

What's the solution?

 

[Ms Tree]

Ron Paul?

 

[SparrowHawk]

Ron Paul?

He has an answer and I was going to post it here but it's over 26 minutes of highly technical stuff and frankly even I got bored. Also its not really Ron Paul it's Austrian School Economics versus Keynesian School Economics, Hard Currency versus fiat currency. The answer is essentially to liquidate debt and start with a clean slate which is something almost no politician is willing to do for obvious reasons. Seriously who is going to tell the electorate, "Vote for me and I'll throw this country into chaos for 2 years and then we'll grow our economy like wildfire?"

That's why even Dr Paul is a bit timid in only cutting a Trillion from his first year budget so as not to throw the country into turmoil The real problem is Central Banks and fiat currencies around the world and the debt bubble they've created and will continue to create.

We literally "paper" over our problems with money printed out of thin air and now here we are.

 

[delldude]

From the Telegraph: "The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets.Eurozone finance ministers meet on Monday to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government puts the country's finances in order. But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them." Funny - it is as if Schauble almost knows that any self-respecting country would tell Germany to go to hell. Then again, this is Greece, whose puppet government is one which only answers to banker demands. And we hardly have to remind readers that of every dollar in bailout cash, Greece only sees 19 cents of it. Then again this is Greece, which is full of sound and fury for a day or two, then is happy to pick up the bar of vaseline for the next 6 months until the cycle repeats anew.

More

 

[SparrowHawk]

This video is a somewhat humorous. However it does explain the differences.

 

[777 fixer]

The answer is essentially to liquidate debt and start with a clean slate which is something almost no politician is willing to do for obvious reasons. Seriously who is going to tell the electorate, "Vote for me and I'll throw this country into chaos for 2 years and then we'll grow our economy like wildfire?"

No politician is going to say it because saying it would just tell everyone the he or she is an ignorant fool. It's really easy to say that that all we have to do is "liquidate debt". What does that really mean? If people think it means stiffing the Chinese they forget that most debt is held by us. So who are we really screwing? Good luck trying to sell securities.

If you want an idea of what might happen just look at the Greece situation. A lot of the turmoil in the stock markets is tied to the fear that Greece might default. Greece, acountry with a fraction of our population and economy is chump change compared to ours.

This country can balance the budget, it's been done before. Default is akin to killing the patient to cure the disease.

 

[SparrowHawk]

No politician is going to say it because saying it would just tell everyone the he or she is an ignorant fool. It's really easy to say that that all we have to do is "liquidate debt". What does that really mean? If people think it means stiffing the Chinese they forget that most debt is held by us. So who are we really screwing? Good luck trying to sell securities.

If you want an idea of what might happen just look at the Greece situation. A lot of the turmoil in the stock markets is tied to the fear that Greece might default. Greece, acountry with a fraction of our population and economy is chump change compared to ours.

This country can balance the budget, it's been done before. Default is akin to killing the patient to cure the disease.

The last line is true only if you have a fiat currency instead of real money. Problem in this country is that most people when they hear "fiat" think bad Italian cars, which while true is not what we're talking about. One of the debts that should have been liquidated is the whole Fannie Mae, Freddie Mac debacle. They should have been declared bankrupt and sold off. Same for the "To big to fail banks" who now as it turns out have 95% of the exposure to the Derivative bubble. ALL bubbles in a fiat currency based economy eventually burst, the question is when not if.

This is why we need to at minimum audit the Federal Reserve. We as citizens have a right to see the sausage being made as Bernanke called what the Fed does. You do know that most of Greece's and the other pending haircuts staring Italy, Ireland, Portufal and others will be bailed out in large part by the Fed without so much as a vote by any elected official or citizen? Is that what we fought World Wars for? I think not.

 

[777 fixer]

The last line is true only if you have a fiat currency instead of real money.

Oh yes, becasue when we had the gold standard eveything was just peachy. No recessions, no depressions, no debt, full employment etc. Of course we all know that's not true.

 

[SparrowHawk]

Oh yes, becasue when we had the gold standard eveything was just peachy. No recessions, no depressions, no debt, full employment etc. Of course we all know that's not true.

We still had a Central Bank. Read some of the Austrian School of Economics books that are out there. This is why I joined the Global Economic Roundtable. To educate myself on the Austrian School as it is much of the basis for Ron Paul's efforts. A recent look at history suggests that in many areas the Austrian approach, while out of current favor has accurately predicted much of the current dilemma we are in now.

When I mentioned a return to a Gold or market basket of Commodities as the basis for our currency I was surprised that a great many of the European bankers thought I might actually have a point. The board gets pretty lively sometimes and being the least educated member it's hard sometimes for me to keep up. But I am learning a lot and it keeps me reading more than I'd like.

I am now convinced that three things have to happen in order for us to completely turn this thing around.

1. Eliminate the debt, meaning a balanced budget in short order
2. Auditing of and possible elimination of the Federal Reserve Bank.
3. Return to a currency with intrinsic value

We get those three things done and we've got an excellent chance to regain our economic advantage and raise the standard of living back to or even above where we were at our peak.

 

[777 fixer]

We still had a Central Bank. Read some of the Austrian School of Economics books that are out there. This is why I joined the Global Economic Roundtable. To educate myself on the Austrian School as it is much of the basis for Ron Paul's efforts. A recent look at history suggests that in many areas the Austrian approach, while out of current favor has accurately predicted much of the current dilemma we are in now.

When I mentioned a return to a Gold or market basket of Commodities as the basis for our currency I was surprised that a great many of the European bankers thought I might actually have a point. The board gets pretty lively sometimes and being the least educated member it's hard sometimes for me to keep up. But I am learning a lot and it keeps me reading more than I'd like.

I am now convinced that three things have to happen in order for us to completely turn this thing around.

1. Eliminate the debt, meaning a balanced budget in short order
2. Auditing of and possible elimination of the Federal Reserve Bank.
3. Return to a currency with intrinsic value

We get those three things done and we've got an excellent chance to regain our economic advantage and raise the standard of living back to or even above where we were at our peak.

Congratulations, you can regurgitate. As I said before history has shown that the gold standard is not going a mean to an end to the roller coaster ride that is the economy. You are still going to have recessions, depressions and debt. And when you get rid of the Fed then what? Not that it would happen since no president has the power to do such a thing. Something all the constitutional scholar Ron Paul supporters seem to be ignorant of.