The Coming Greater Crash

For the last three years, the entire western world has been reeling in the after-effects of the crash of 2008.  Millions of words have been written about it, the causes analyzed and regulations have even been attempted.  It is widely recognized that CDOs - Collateralized Debt Obligations - and other derivatives, with the insane amounts of leverage generated were the cause.  Less frequently cited is the role of governments; largely the US government, but not exclusively.  Investopedia, a generally non-political source, has done a good investigatory piece on the crash, here, and conclude the real cause was largely government.

Unfortunately, the real problems were not addressed by the new regulations, such as the pointless Dodd-Frank law.  Nothing was done about these derivatives, and the problem is not only still there, it is getting bigger.  Much bigger.  How big?  The great financial blog Seeking Alpha says,

If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion.

The notional value of the derivative market is roughly $1.4 QUADRILLION.

I realize that number sounds like something out of Looney tunes, so I’ll try to put it into perspective.  $1.4 Quadrillion is roughly:

•  40 TIMES THE WORLD’S STOCK MARKET.
•  10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET
•  23 TIMES WORLD GDP.

It's hard to wrap your head around how big a number $1.4 quadrillion, or $1400 trillion, is.  You may have seen things going around that said if you had counted out a dollar per second since Christ was born you would not have reached a trillion dollars; it's not even close because at $1/sec, it would take 31,546 years to count out a trillion dollars.  At the same rate, 1400 trillion takes you back 31.5 million years.  Half the time since the last dinosaurs.

The Economic Collapse Blog picks up the story in the cheerily titled, "The Coming Derivatives Crisis That Could Destroy The Entire Global Financial System" and reports of scary things going on, if not in secrecy, then just not being reported.  (source within a source)

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential. 

Who are these guys?  Where are they from?  Only the "too big to fail" banks that our taxes bailed out before:  JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.  As The American Dream reports, these groups are already trying to buy the 2012 election.  

3 of the top 7 donors to Obama's campaign were big Wall Street banks (Goldman Sachs, JPMorgan Chase and Citigroup).  Now Wall Street is doing it again.  The big Wall Street banks are already trying to buy the 2012 election. 

To my surprise, each bank has contributed the most to .. Mitt Romney!  (For the record, I'm one of the people who thinks Romney would be no big improvement for us and might even be worse)  While it's true I think the need for money in politics is not as great as most people think, clearly they don't agree with me, and furthermore, they have the record that if a candidate gets far and away more money than their competitor, the one with the biggest treasury ordinarily wins.  So long, Herman Cain!

The problem with these schemes, and our whole fiat, "debt = money" system, is that it can't keep expanding.  It will collapse some time, quite possibly some time very soon. Going back to quoting Economic Collapse:

It is inevitable that the same thing is going to happen again.  Except next time it may be on a much grander scale.

When "the house" goes "bust", everybody loses.  The governments of the world could step in and try to bail everyone out, but the reality is that when the derivatives market comes totally crashing down there won't be any government on earth with enough money to put it back together again.

A horrible derivatives crisis is coming.

It is only a matter of time.

Stay alert for any mention of the word "derivatives" or the term "derivatives crisis" in the news.  When the derivatives crisis arrives, things will start falling apart very rapidly.

(source)