Quadrillions in Derivatives – June 10, 2008

This is approaching insanity. In the paper I wrote last fall “The Crash of 2007” I said that globally the value of derivatives (funny money) was $516 Trillion as reported by the BIS (Bank of International Settlements.) Compare this to the entire total global economy (GDP) of about $50 Trillion and you’ll see that derivatives outnumber all the money earned in a year by a factor of 10.

     Since most of these derivatives are worthless, it means you and I and everyone in the world would have to work for the next ten years and turn our paychecks over to the government AND continue to spend at our current rates in order to keep the economy going. I don’t have ten year’s salary saved, do you? Not gonna happen!!

    Well, people wiser than I have warned us that the Fed and other Central Bank bail-outs of insolvent financial institutions have created a “Moral Hazard” i.e. there no reason for the financial institutions to mend their ways because “the government will always bail them out.” Yes, indeed. And, so they continue creating derivatives like there’s no tomorrow (no pun intended.)

    Below, Jim Sinclair of JSMineset.com reports that the total amount of derivatives is now more than $1 QUADRILLION – that’s $1,000 Trillion. Guess what, boys and girls? Now we gotta work for twenty years earning nothing and keep spending like we always have. Not gonna happen!! 

    Here’s Jim’s article

 “The notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION.

This appears to be Bank of International Settlement Spin to announce the largest gain in derivatives outstanding since they started to report. As of the last report it appeared that both listed and OTC derivatives was under $600 trillion. Now listed credit derivatives alone stood at $548 Trillion. The OTC derivatives are shown as $596 trillion notional value, as of December 2007. One can only imagine what number they are at now.

Well we hit a QUADRILLION. We have more than $1000 trillion dollars in all derivatives outstanding. That is simply NUTS because notional value becomes real value when either counterparty to the OTC derivative goes bankrupt. $548 trillion plus $596 trillion means $1.144 quadrillion.

It would be an interesting piece of research to see what the breakdown is of listed derivatives according to exchange to see if it adds up to the reported number. Spin is now everywhere.

This means that no OTC derivative house can be allowed to go broke. This means that whatever funds are required to rescue failing international investment banks, banks and financial entities will be provided.

Keep this economic law in mind. Monetary inflation proceeds price inflation and is its primary cause in economic history from Rome to present.

Nothing can stop the juggernaut of price inflation heading towards every nation like a runaway freight train down a mountain.”
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Disclaimer: I’m not an investment advisor and these articles are for commentary only. For specific advice you should consult your own investment professional.

Your comments are WELCOME! Lengthy comments may time-out before you’re finished so consider doing them in a word doc first then copy and paste to “Leave a Reply” below.

About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
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