The US$ 1.5 Quadrillion Derivatives Catastrophe

H/t reader squodgy:

“Terrible Grammar & Spelling, but the essence of this reality check article is profound.”

The US$ 1.5 Quadrillion Derivatives Catastrophe:

An article circulating on the internet and entitled, “When will the Bank Bubble Burst”  makes some good points about the lurking catastrophe of world markets.

Egon von Greyerz writes about an recent that took place at Deutsche Bank (DB), where a junior employee “paid $6 billion to a hedge fund which was the gross value of a position, [where] he should have paid the net.”

We’ve reported on Deutsche Bank’s out-of-control culture and gunslinger mentality. For Greyerz, this incident shows just how slipshod oversight is – even for the largest banks. One of the most powerful and sophisticated banks in the world,hadn’t installed enough controls to prevent – in an instant – a US$6 billion mistake.

He writes, “This is a world gone mad. Governments print trillions, banks issue derivatives in the quadrillions and banks transact in hundreds of billions every week. The zeros no longer mean anything and have no value. This is all routine stuff for the people dealing in these sums and no one has a clue about the risk or the real exposure.”

In 1995, the Barings Bank collapse created a loss of £827 million ($1.3B) and nearly caused a chain reaction of ruin that would have toppled the rest of the City’s big banks. Today the situation is catastrophically, immeasurably, worse.

Deutsche Bank’s derivatives position is $75 trillion but perhaps the figure is closer to $100 trillion. That’s the size of the world’s economy but the risk is held by just one bank. The blunt reality: “It is very likely that the total global derivatives exposure of at least $1.5 quadrillion will not just lead to another financial crisis but to The Great Financial Disaster.”

How can one deny this? The “great disasters” are lurking around the corer. And yes, it is true, the central bankers will do anything to preserve the system.

The deal in propaganda and they are already proposing a guaranteed living wage. The idea is that everyone is entitled to some central bank largess. To begin with they only distributed the opportunity to obtain money at minuscule rates to money center banks. Now they are talking about lending to anyone at zero percent without repayment. Essentially free “money.”

If you received a stipend every month chances are you’d back the system, even though you didn’t realize that sooner or later price inflation would eat through all the “free stuff” you were receiving.

Von Greyerz conclusion:

[Increased money printing] will just lead to a bigger bubble and a bigger collapse and to a temporary hyperinflation before a depressionary deflation. Sadly, I consider the likelihood of this scenario being very high. Therefore wealth preservation is critical. Physical gold (and some silver) is the best protection against both hyperinflation and deflation. Remember with a deflationary implosion, no loans will be repaid and the banking system would not survive. Thus gold will be money as it has been for 5,000 years.   

Unfortunately, we agree.

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