Coming Derivatives Crisis Can Collapse Global Economy
The Economic Collapse Blog
October 22, 2011
Most people have no idea that Wall Street has become a gigantic financial casino. The big Wall Street banks are making tens of billions of dollars a year in the derivatives market, and nobody in the financial community wants the party to end.
The word “derivatives” sounds complicated and technical, but understanding them is really not that hard. A derivative is essentially a fancy way of saying that a bet has been made.
Originally, these bets were designed to hedge risk, but today the derivatives market has mushroomed into a mountain of speculation unlike anything the world has ever seen before. Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion.
Keep in mind that the GDP of the entire world is only somewhere in the neighborhood of $65 trillion. The danger to the global financial system posed by derivatives is so great that Warren Buffet once called them “financial weapons of mass destruction”.
For now, the financial powers that be are trying to keep the casino rolling, but it is inevitable that at some point this entire mess is going to come crashing down.
When it does, we are going to be facing a derivatives crisis that really could destroy the entire global financial system.
Most people don’t talk much about derivatives because they simply do not understand them.
Perhaps a couple of definitions would be helpful.
The following is how a recent Bloomberg article defined derivatives….
Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.
The key word there is “speculation”. Today the folks down on Wall Street are speculating on just about anything that you can imagine.
The following is how Investopedia defines derivatives….
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
A derivative has no underlying value of its own. A derivative is essentially a side bet. Usually these side bets are highly leveraged.
At this point, making side bets has totally gotten out of control in the financial world. Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it. This system is almost entirely unregulated and it is totally dominated by the big international banks.
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Whistler Blowers, Insiders
The time has come for people of the world to retake their countries from their manipulated and corrupt leaders. While doing so please remember this: “There’s nothing to lose by doing a lot, but there’s a lot to lose by doing nothing.”
The us needs to set up a new taxing system similar to Canada and in Europe also then what you would find out is that your debt could be easily sustained!! add 30 trillion more to shore up the banks in the us and the world trade is set to grow at an average rate of 6.1% every year between 2010 and 2030 and world trade is set to grow at an average rate of 6.1% every year between 2010 and 2030, and exports is set to jump from $37 trillion in 2010 to $287 trillion in 2050 ..look 30 trillion more to the us banks would work!!
US debt is a vapor. The best thing the US could do is seal the boarders, recall its troops and live off the agriculture, energy and manufacturing capabilities it has within its borders. The US CAN survive without the rest of the world. There would be initial calamity but in the long run, of its own recourse, we could allow global collapse and not miss a beat. That is the great secret. We do not need you to survive, you need us.
@ Anonymous “The us needs to set up a new taxing system similar to Canada and in Europe”
.
NO! Don’t be duped… The debt that we have been burdened with is ILLEGAL and UNPAYABLE. WHO do we owe this money too? It is a sham, a fable, a farce, a lie, a fairy tale.
Here is a simple breakdown of what I mean.
After the repealing of the Glass Steagall act, the banking cartel combined investment and savings banking. This act was put in place after the last great depression to prevent future melt downs. Think of the economy as a submarine. What happens when you get hit with a torpedo? You close a bulk head door and seal of a section; sorry some sailors may be trapped, but you save the ship and limp to the next port for repairs.
http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act
Now our submarine doesn’t have any compartments. The bankers and financial institutions BET—(YES BET, that is all a derivative really is) for or against increases and decreases in all kinds of ‘things’. It’s like a global Las Vegas off track betting on speedballs. Investors were betting on everything imaginable with other investment institutions throughout the world. The SEC which regulates trading didn’t have a care in the world about any of this.
http://en.wikipedia.org/wiki/Derivative_(finance)
At the same time ALL OVER THE WORLD, loans are given to families with adjustable rate mortgages and low base interest to get them hooked into loans to fuel the money supply to these institutions. These loans are then bundled and sold as SIV’s or special investment vehicles. Then countries buy in to these bundled assets and trade them for profit. Again, no oversight.
http://en.wikipedia.org/wiki/Structured_investment_vehicle
In 2008 the torpedo hit, the SHTF and it all blew up as the never ending free ride derailed –the inflated bubble blew. Investors in the derivatives markets that made ‘bad bets’ were cooked and unable to re-pay to those institutions with which they bet with. This would have taken down our economy because then these private blood sucking demon institutions started hoarding cash, and liquidity in a panic. Cash was being frozen and not lent to companies that needed cash to make payroll, expansions etc… It would have been a painful time for the first world countries. Many of our major institutions would have collapsed, and no doubt it would have been fugly.
So, what did our faithful spineless leaders do in order to stay in power? In fear they allowed ‘the fed’ to create the TARP and other fraudulent bailouts and paid out FUTURE TAXPAYER MONEY to our country’s lending institution AND OTHER countries. They knew that the American people would want blood if the people realized how negligent the government had been to stop this fraud. Since the Federal Reserve, a FOR PROFIT PRIVATE corporate bank which IS NOT accountable to oversight did not have that kind of money, they created ways to get the money out of thin air. The catch is now that instead of letting the hangover happen, they injected more of this money, or booze into drunk to prolonge the inevitable. They expanded the money supply.
http://www.shadowstats.com/alternate_data/inflation-charts
NOW what is happening is that we have spent literally ALL of our money bailing out the ‘too big to fail’, we cannot properly pay our debts and run our country (pay entitlements, obligations, troops, SS, etc.) We have to raise our own countries debt in addition to paying off the 40-70 est. trillions in derivatives that the FED and FDIC have absorbed. Meanwhile, states that gave pension money of their employees etc. to these Wall Street crooks are going bankrupt, and municipalities are going broke too.
Are you getting to the scope of the problem? Do you really think that we are off the hook because we raise taxes and pay off this debt? In retrospect do you think that we should have given the American people the work programs etc trillions to create jobs, alternative energy, subsidies, educational grants, and the like?
NOW we are screwed. We have no options other than print our way out of this crisis which is undoubtedly going to create a ‘stagflationary depression’ where the economy is stagnant, the cost of living skyrockets because of inflation, and a deep unavoidable depression hits. Some people want to raise the taxes, and burden the tax on the 1%. Great idea. After that little heroin jolt of money is spent—then what? IF we tax any more, we stifle our incentive for growth and we suicide ourselves and give more money to the very governance that is defrauding our society.
Wake up—we need accountability (people in jail, failed companies dismantled and politicians on trial) in government, Wall Street, and corporate America. We need to restore the country to a Republic, we need to charter corporations, close our borders, bring the troops home, focus on true alternative energy and re-educate the
75 trillion dollars of derivatives one Bank…and one more Bail out is needed in the Us and Goldman is right 30 trillion is needed to fix this mess and if the US get there banks down to 25 ..and then it would work!! and set those banks up like Canada and set up them like Insurance Companies and cauterize them in that way on what those banks are allowed to lend in a corperate controlled government round table on making sure its working and the Fed creating more money to support banks ,then it would work, and all 25 banks then with 30 trillion would be a power house goldman would have to be allowed to be run like the Royal Bank in Canada and JP like CIBC/BMO…and then the Fed creating more money to support banks would work. and 30 trillion $ would do it over 5 yrs!!
Derivatives are just a way to bet on the price of something you or the counter party does not own with the change in price being paid in fiat paper.
if anyone wants to have a bet on the price of a new BMW with me for delivery in 2014 then we can make a bet without owning the car or even wanting to own the car.
it’s the same with silver/gold and looking on eBay you can see the disconnection between the paper price and the price of the physical.
Needless to say i’m sticking with the physical because the paper certificates will reach zero and your goverment who works for the banksters wants you to swallow all the debt and this is why the BoA has moved $40-50tr of debt so bank deposits will be wiped out.
I can only hope the bubble bursts!! Its ludicrous to have an economy based on bets.. but wait, wait…thats what we have had for three hundred years!
What would happen if we, as the human creators of this mess, simply zeroed all accounts worldwide??
I explain deratives as akin to the futures market… where paper is sold on the bet that the product wil perfom as X investment …… today just as in the futures market you do not have to take physical delivery of the “product” anymore … you just bet on the up or downside of the market ….
Massive arrests to start next month, according to this :
“… Mass arrests of people linked to the old system are supposed to begin by November 15…”
http://benjaminfulford.typepad.com/benjaminfulford/
Governments paying interest on money it prints is a scam!
Why are we paying billions to a parasitic private banking mafia???