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Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

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Nuclear War - Public DomainAfter all these years, the most famous investor in the world still believes that derivatives are financial weapons of mass destruction.  And you know what?  He is exactly right.  The next great global financial collapse that so many are warning about is nearly upon us, and when it arrives derivatives are going to play a starring role.  When many people hear the word “derivatives”, they tend to tune out because it is a word that sounds very complicated.  And without a doubt, derivatives can be enormously complex.  But what I try to do is to take complex subjects and break them down into simple terms.  At their core, derivatives represent nothing more than a legalized form of gambling.  A derivative is essentially a bet that something either will or will not happen in the future.  Ultimately, someone will win money and someone will lose money.  There are hundreds of trillions of dollars worth of these bets floating around out there, and one of these days this gigantic time bomb is going to go off and absolutely cripple the entire global financial system.

Back in 2002, legendary investor Warren Buffett shared the following thoughts about derivatives with shareholders of Berkshire Hathaway

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so
far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Those words turned out to be quite prophetic.  Derivatives have definitely multiplied in variety and number since that time, and it has become abundantly clear how toxic they are.  Derivatives played a substantial role in the financial meltdown of 2008, but we still haven’t learned our lessons.  Today, the derivatives bubble is even larger than it was just before the last financial crisis, and it could absolutely devastate the global financial system at any time.

During one recent interview, Buffett was asked if he is still convinced that derivatives are “weapons of mass destruction”.  He told the interviewer that he believes that they are, and that “at some point they are likely to cause big trouble”

Thirteen years after describing derivatives as “weapons of mass destruction” Warren Buffett has reaffirmed his view that they pose a threat to the global economy and financial markets.

In an interview with Chanticleer this week, Buffett said that “at some point they are likely to cause big trouble“.

“Derivatives, lend themselves to huge amounts of speculation,” he said.

Most of the time, the big banks that do most of the trading in these derivatives do very well.  They use extremely sophisticated computer algorithms that help them come out on the winning end of these bets most of the time.

But when there is some sort of unforeseen event that suddenly causes a massive shift in the marketplace, that can cause tremendous problems.  This is something that Buffett discussed during his recent interview

“The problem arises when there is a discontinuity in the market for some reason or another.

“When the markets closed like it was for a few days after 9/11 or in World War I the market was closed for four or five months – anything that disrupts the continuity of the market when you have trillions of dollars of nominal amounts outstanding and no ability to settle up and who knows what happens when the market reopens,” he said.

So if the markets behave fairly calmly and predictably, the derivatives bubble probably will not burst.

But no balancing act of this nature ever lasts forever.  Just remember what happened in 2008.  Lehman Brothers collapsed and then the financial system virtually froze up.  According to Forbes, at that time almost everyone was afraid to deal with the big banks because nobody was quite sure how much exposure they had to these risky derivatives…

Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?

The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.

After the crisis, we were promised that something would be done about the “too big to fail” problem.

But instead, the problem of “too big to fail” is now larger than ever.

Since the last financial crisis, the four largest banks in the country have gotten approximately 40 percent larger.  Today, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system.  Without those banks, we would not have much of an economy left at all.

Meanwhile, smaller banks have been going out of business or have been swallowed up by the big banks at a staggering rate.  Incredibly, there are 1,400 fewer small banks in operation today than there were when the last financial crisis erupted.

So we cannot afford for these “too big to fail” banks to actually fail.  Even the failure of a single one would cause a national financial nightmare.  The “too big to fail” banks that I am talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo.  When you total up the exposure to derivatives that all of them currently have, it comes to a grand total of more than 278 trillion dollars.  But when you total up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars.  In other words, the “too big to fail” banks have exposure to derivatives that is more than 28 times the size of their total assets.

I have shared the following numbers with my readers before, but it is absolutely crucial that we all understand how exceedingly vulnerable our financial system really is.  These numbers come directly from the OCC’s most recent quarterly report (see Table 2), and they reveal a recklessness that is almost beyond words…

JPMorgan Chase

Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)

Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)

Citibank

Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)

Goldman Sachs

Total Assets: $856,301,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)

Bank Of America

Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $801,382,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)

Wells Fargo

Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)

Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)

Since the United States was first established, the U.S. government has run up a total debt of a bit more than 18 trillion dollars.  It is the biggest mountain of debt in the history of the planet, and it has grown so large that it is literally impossible for us to pay it off at this point.

But the top five banks in the list above each have exposure to derivatives that is more than twice the size of the national debt, and several of them have exposure to derivatives that is more than three times the size of the national debt.

That is why I keep saying that there will not be enough money in the entire world to bail everyone out when this derivatives bubble finally implodes.

Warren Buffett is entirely correct about derivatives – they truly are weapons of mass destruction that could destroy the entire global financial system at any time.

So as we move into the second half of this year and beyond, you will want to watch for terms like “derivatives crisis” or “derivatives crash” in news reports.  When derivatives start making front page news, that will be a really, really bad sign.

Our financial system has been transformed into the largest casino in the history of the planet.  For the moment, the roulette wheels are still spinning and everyone is happy.  But sooner or later, a “black swan event” will happen that nobody expected, and then all hell will break loose.

  • K

    Those are the kind of numbers, any sane person would understand, could not be paid off. But it would seem sanity and common sense, has pretty much gone out of style. The inmates are running the asylum, and it only gets worse from now on.

    • Priszilla

      You can write off trillions with a pen in minutes.

      • alan

        Best way to off set trillions in paper is create trillions in more paper. Its insane to think how it got to this point without a collapse, so why not project this out another twenty years to quadrillions of dollars, its just paper. I am starting to get a feel for the game. As long as there is something to print its all good. I guess we could sell the moon, or maybe near by stars.

        • df NJ

          Here’s why it’s gone on for so long. The price of a large pizza has gone from $8 to $12 in five years in my town. The printing of money is a hidden tax through inflation. At some point people will just not take it anymore. I think the Baltimore riots were more about people sick of living in poverty than it was about police brutality. More riots coming. This country and the World is a powder keg. Need more police then just print more money.

          • Rukander

            Printing and world will pay.

        • Priszilla

          It’s funny how paper will increase in value when you print more zeros on it, but coins will lose value when you change the metal content.

      • It’s easier than pen-writing:

        select account = NNNN ….
        show balance
        System>: current balance: $0
        NNNN ….> spawn $1000000000000
        System: $1000000000000 added
        show balance
        System>: current balance: $1000000000000

        That’s whats happening at the top.

  • SunnyFlaSnotress

    I think most of us already got this message.

  • GetReal4U2

    But what I try to do is to take complex subjects and break them down into simple terms. ..
    I really do appreciate your financial knowledge and how you break them down quite effectively…it makes it very clear…and very scary at the same time…I wonder how long it will be before a few wealthy friends call Michael (like alex jones the other day) and ask him if he’s leaving before September…

    • SunnyFlaSnotress

      I do hear Canada is a lovely country and not only is mike close to the border, but his wife is Canadian and he has no kids. It would be very convenient. God Speed.

      • Papillon

        It will make no difference. When the financial bomb explodes those that are used to living in third world standards will be the survivors. The “developed” world will collapse and eat itself no matter where you are.

        Get out of the cities. Time is short. GodSpeed to you, as well.

        • AngelPea

          Yep! You are so right about the developed world and their meltdown when SHTF. Too many citizens in the industrialized nations are used to being pampered: their latte’s, their facials, their NetFlix and YellowTail Wine, their Hipster fashions and fangirl mags online. So many of my old friends in the city will not make it, they are the type that need to figure out which clothes to wear for Armageddon (as if it really matters!) and would ask opposing forces to wait while they figured it out! A bit of an exaggeration, but not much. Anyone in the US that does not put much stock into material things, doesn’t expect the government to take care of them, and can be independent in a crisis will have a decent chance of making it. Most Americans won’t, I’m afriad. It’s just the plain truth of how US Society has devolved into an entitlement culture that expects everyone else to take care of them. Sad, sad, sad…

          • Papillon

            Thank you! Sounds like you are one of the few women that have your head on straight about what’s coming. Not many around like you. I’m wishing I had one like you on my middle-of-nowhere acreage. It’s 15 miles to the nearest town with a single grocery store & 35 to a Wallyworld. I’m wondering how we might chat more. :-)

          • AngelPea

            That’s sweet, Papillon. I married a Mountain Man from Colorado a few years ago. He says pretty much the same thing you do, women without pretense are rare indeed in this nation. Used to be that way, however, I realized that isn’t what life is all about and had my priorities really messed up. Saw the light, that sort of epiphany. lol! I wish I knew more women that embrace this philosophy, but alas, I do not. All the women I knew/know are just the high maintenance, give me everything, I’ll take it from you in the end sort of female. I think this is the reason many American men no longer want to marry American woman, they look outside of this nation. Can’t blame American males, if I were a man I’d probably do the same. Take care on your property, it sounds lovely…

        • CharlesH

          You’re absolutely correct. Today’s ‘third world’ countries will fair moderately well – or absorb less pain. The “developed” countries will pay one hell of a price when this bs game hits the proverbial fan. Be safe!

        • Exactly.

      • Nemnor

        And keep in mind that the banking system in Canada was one of the least affected by the deepened financial crisis of 2007-2008.

        This was so because Canada, though it is very much a part of the decadent world-wide Capitalist economic system, has just 5 major banks that are all truly regulated/controlled by the Bank of Canada and the Canadian Government.

        This makes Canada a form of “muzzled” Capitalism in which (excess) greed and/or corruption does not get as much “breathing space” like we have in the USA.

        However, with Canada SEEMING to be a “better” (more survivable) model of Capitalism than in the USA, many might be deceived into thinking that “Canadian Capitalism” (what ever that is) is sustainable, and that all the USA needs recover economically is “the rule of law” and “getting back to the Constitution”.

        However, similar to the USA, the Canadian economy is NOT sustainable. In Canada (and just like in the USA), the rich is getting richer and the poor getting poorer (i.e. increasing wealth gap), low-wage jobs are on the increase, unemployment and underemployment remain high and the cost of living is going up and up. So NO one can honestly look at Canada and still sustainability.

        Though Canada is in a much better economic condition than many other countries in the World, Canada is ultimately not sustainable. As as part of the decadent world-wide Capitalist system, Canada is also sinking towards total economic collapse/chaos, but it might be one of the last countries to reach total collapse/chaos.

  • Stocks, Bonds, Greece, Europe, China, Japan, Derivatives, Credit Default Swaps, USA Debt, State Debt, unemployment, bird flu, Swine disease, Banana crop failure, Orange crop greening disease, Jade Helm, and the beat goes on. Hell on Earth is Coming.

    • DW

      What about Russia? :)

    • Forgiveness!!!

      That’s great, it starts with an earthquake, birds and snakes,
      an aeroplane – Lenny Bruce is not afraid.
      Eye of a hurricane, listen to yourself churn,
      world serves its own needs, dummy serve your own needs.
      Feed it off an aux speak,, grunt, no, strength,
      The ladder starts to clatter with fear fight down height.
      Wire in a fire, representing seven games, a government for hire and a combat site.
      Left of west and coming in a hurry with the furies breathing down your neck.
      Team by team reporters baffled, trumped, tethered cropped.
      Look at that low playing!
      Fine, then.
      Uh oh, overflow, population, common food, but it’ll do.
      Save yourself, serve yourself. World serves its own needs, listen to your heart bleed dummy with the rapture and the revered and the right – right.
      You vitriolic, patriotic, slam, fight, bright light, feeling pretty psyched.

      It’s the end of the world as we know it.
      It’s the end of the world as we know it.
      It’s the end of the world as we know it and I feel fine

    • I welcome the hell.

  • Erik Benkow

    This financial casino could only come into being after national currencies were disconnected from objects of intrinsic value. I reckon, it started by Nixon by the closure of gold window?

    • df NJ

      Casino is not the right metaphor. All casinos are extremely well self-regulated organizations with most of the cameras pointed at the money changers in order to prevent any corruption.

  • Quest Hazel

    Hello Michael, thank you for once again explaining all the strange stuff in a way that most of us can understand more easily. You were the very first person to open my eyes, and thanks to you I have been preparing. You are great.

  • WK

    You are still not convincing me of the mortal threat. If it was mortal, we would have been killed in 2009-2010 right after the Great Recession was underway.

    • Ted

      Agree agree agree agree.

    • df NJ

      At some point, all the printing of money will be an issue. It’s simple math. If the interest on the nation debt is greater than the tax revenues no amount of printing of additional money will spur the economy back to life. CEOs refuse to raise workers wages. There’s only one result. The world debt is suffocating. Every country has massive debt. Government backed derivative debt is astronomical. It all comes down to trust. How can you trust the currency and a private Federal Reserve corporation when the math doesn’t support the required trust. Our Federal Reserve private government corporation is quickly becoming illegitimate. All corporations want to maximize their power at the expense of their customers. I don’t know anyone who trusts the banks to serve their customers. I think everyone knows the system is designed to steal EVERYTHING from their customers. The trust is gone. Once the lack of trust reaches critical mass there will be bank runs and a flight to gold. You could argue the trust if fine because gold is so low. But if gold were too high it would be too late to get it. Each of us has to choose. Do we trust the private bankers or do we assume they are going to do exactly what they did in 2008 but at a much bigger scale. This collapse will be engineered to replace the dollar by a one-world-currency. We will probably see a false flag nuclear attack, the markets will crash, we will see hyperinflation, and our NWO communists elites will come in and save the day with a new one-world-currency. That is the plan. The communist elites have all the power. A fellowship of federated partners at a round table is NOT the intention. Monarchy rules!

  • WK

    The system is vulnerable, OK, so what. The financial system is always vulnerable, including many financial panics in the 19th and early 20th centuries.

    • Anme

      Exactly. Agree. If this was going to collapse it would have.
      Tptb have the fraud all figured out. This September all the blogs will be saying 3-6 months. Within the next 1-2 years. The blogs are written to keep you coming back for the drama. Michale means very well but he don’t realize how smartly fraudulent tptb are.
      Let’s see what the blogs write about in November when the shemitiah and the other deadline pass.
      Thanks

      • jox

        You normally don’t see people that don’t agree with the line of a blog returning again and again. What is the purpose? So I wanted to check your profile, to see other comments from you. But your profile is not public. So… I think you are paid to write in this blog against the points of the author. Am I wrong?

        • Anme

          yes wrong. not paid. just posted as guest for 1st time. i read but dont post. i wish for reset so i guess i just frustrated. i read less and less because its been coming next year for 10 years and thats all…but thanks and not paid honestly

          • df NJ

            I’m not paid either. I’m just angry.

    • TraditionalNaturopath

      Our financial situation now is not even close to the financial panics of the 19th and 20th centuries. At that time we did not create trillions of dollars of financial instruments out of thin air that is backed up with nothing. The market is estimated to be worth many more times the world’s total financial assets. Derivatives in 2008 estimated to be around $200 trillion and they are what caused the crash. They are now much higher. Some estimate around $1 quadrillion.

  • Rufus T Firefly

    Buffett also thinks buying and holding gold is stupid

    • df NJ

      He was right about trains being used to haul oil.

    • Lugnut Capp

      Warren needs to buy the pit of hell

    • Nemnor

      They are not exactly stupid (as there is something about this decadent Capitalist economic system that is “compeling” Investors to often behave irrationally). However, I do believe that those who “buy and hold gold” (or even gold bullion) are very much misguided.

      In a true economic collapse, the Government will (usually) confiscate all “gold assets” they know of. In such a situation, gold would be useful to you ONLY if you have it in the form of “spendable” coins (pieces) to buy the stuff you need, and you and the Seller are able to HIDE the gold from the Government.

    • jsmith

      I take that lightly Rufus. If Buffett came out for gold, there would be a rush to buy $3000.00 gold. I’m sure he likes to buy it cheap. The elite hold gold, but they tell us not to buy it. It’s barbaric after all!

  • chilller

    ALL of banking operations are a casino…ALL Wall Street operation are a casino…and we’re all the patsies…
    Why does government allow this kind of corrupt activity to happen?
    They are given the gains from above activities to by off and deflect any litigation against them….they’re corrupt too…
    And by the people not doing anything about it makes us complicit in their corruption. In the end it’s our fault and there’s no excuse anyone can use to say otherwise.

    • df NJ

      It’s not our fault. The lobbyists force the politicians to pass laws creating cartels and monopolies in exchange for campaign financing. Now after Citizen’s United decision the power of the cartels and monopolies is beyond our touch. Marx warned us that laissez faire capitalism is always followed by communism. This is because unfettered greed will result in the government’s currency collapse. Once the currency collapses people in the breadlines will demand MORE government not less. See you in the breadlines comrades! Right now we have the greatest degree of wealth inequality ever measured in this country. Our currency is teetering on the edge of the abyss. Henry Ford doubled his workers salaries to spur demand for his products. The only thing that will prevent communism from coming to this country and a total currency collapse is a massive increase in worker’s salaries. But the math illiterates are too busy thinking about their Skull and Bone initiation rituals to appreciate the coming collapse is possible.

      • jox

        I agree 100% with you. Here in Spain, after a corrupt capitalist-friend government, people are asking for more and more government. Is possible that the next government will be neo-communist. People with poor jobs and small salaries is desperated and angry. They vote whatever that gives them a bit of hope.

        • df NJ

          Most hard working educated people know free market capitalism is probably the best solution for prosperity. The problem we have is we have no true free-markets to wring out the bureaucratic inefficiencies in our global cartels and monopoly corporations. The net result is lower wages, price controls, never ending debt, and poverty. This will result in the rise or continuation of the dreaded communistic state.

      • grumpyhillbilly

        I agree with almost all. Lobbyists haven’t forced the politicians to do anything they haven’t wanted to do.

    • df NJ

      Casino is not the right metaphor. All casinos are extremely well self-regulated organizations with most of the cameras pointed at the money changers in order to prevent any corruption.

  • df NJ

    Hegelian Dialectic. Controlled demolition. Agenda approved.

    • df NJ

      “In a time of universal deceit – telling the truth is a revolutionary act.” George Orwell

  • Antonio Ossa

    THE DEATH OF THE DOLLAR IS RIGHT AROUND THE CORNER!

  • LIZ THE SHIZ

    don’t worry Bernie Sanders and Elizabeth Warren will save us [not]

  • Lugnut Capp

    Warren Buffett you need to go down into hell and meet the mean nap animal monster

    • SunnyFlaSnotress

      That wasn’t very Christian

  • TraditionalNaturopath

    Good article. Great book explaining derivatives that I coincidentally just finished reading is “The Looting of America: How Wall Street’s Game of Fantasy Destroyed Our Jobs, Pensions, and Prosperity” We are in a much worse position now than we were before the 2008 financial collapse.

    • AngelPea

      Thank you for your comment. I’m going to order the book you mentioned, “The Looting of America” as it sounds like an eye-opening read.

  • A Friend

    Unfortunately the average American just doesn’t know what a derivative is or how it affects him/her. I can just barely understand it and I’ve been following this blog and I have a business degree. Until it directly affects in a painful way (ie the wallet) Americans won’t pay attention to this news until after it implodes. Equally disconcerting news of the day is that the trade bill seems to be progressing through Congress. Meanwhile I’ve been hearing more than I want to know about SC’s flag issue. Glad to know we’re busy talking about a flag when meanwhile our politicians are signing off on a frightening trade bill. Our country as we know it is being chipped away. For those of us that believe, let us pray for our country and for our innocent children whose birthright is almost annihilated.

    • Gay Veteran

      the media has us fighting over the f-ing confederate flag while the senate betrays the middle class and working class yet AGAIN

      • AngelPea

        Classic “look over here, while we screw you over there” syndrome! Republican Senate did screw the Middle Class (and I’m a Republican!), I can only hope the Congress will vote it down but something tells me they won’t. Dems and Repubs are the same party, there is no difference when it comes right down to it.

        • Gay Veteran

          anybody who votes for this ‘free trade” agreement is a TRAITOR to this country

    • Nemnor

      A Friend, there will be more of that “frightening trade bill” to come.

      However, as the situation in the USA (and the World) get worse month by month or year by year, there are those in this blog who would attempt to deceive you by trying to make out that the (basic) economic system in the USA is not Capitalism.

      They may even use statements from outdated (long dead) Writers to say that the current economic system in the USA is “communist” (or that it is becoming “communist’). They are WRONG and are trying to confuse and deceive you.

      When you see such deception and dishonesty, please keep focus on a basic/simple definition of Capitalism, which is – A Capitalist economy is one in which the means of production and distribution of goods and services are privately and/or corporately owned. AND, in the case of the US economy, the means of production and distribution are MOSTLY privately/corporately owned. (right?)

      So, regardless to Government or Central Banks policy (which may or may not affect what some imagine to be “free market” Capitalism), the current US economy is still BASICALLY a Capitalist dominated economy. (right?)

      • A Friend

        Yes I hear you. What I failed to portray in my earlier comment & in which I will attempt to do so now….is that the trade bill is scary in that it is a secretive thing. In my experience, if it’s done in secret, it’s immediately suspect. They’re looking at it in locked rooms, supposedly can’t take notes or bring in any professional consultants/advisors with them. What is in this proposal?

      • It’s like saying after years of tech upgrades, nukes still leave radiation when exploding. Yes, they do. It does not mean it’s a good thing. The capitalism was an unsustainable failure by design.

  • df NJ

    google “The Bull Market Will Continue: Emanuel”

    Emanuel claims all bull markets end with a recession. With low interest rates and cheap oil he claims no recession is in site even with a rate hike. And on average bull markets continue for 2 years and 30% higher even after the first hike on average.

    Consumer sentiment is still pretty good. And the widening of the yield curve indicates a bull market. The PMI continues to remain above 50. The unemployment rate is also pretty low. Some of these may be lagging indicators but right now the economy seems pretty good.

    But it’s also hard to ignore Michael’s articles and the data he emphasizes.

  • greanfinisher .

    Any or all of these calamities can be traced right back to Washington D.C.

    • df NJ

      The privately owned Federal Reserve.

      • greanfinisher .

        In the sense that it’s pulling virtually all of the strings in Washington D.C., yes.

  • Robert

    Clearly the personal thing to do is work for Amtrak and claim overtime e.g. 40 hours a day. A government this inept deserves to collapse. I do not think it will but anyone who believes the govt will lead them to the promised land is deluded. No doubt the govt will come up with emergency responses which will not work but will look good much like the New Deal. What an incredible mess!

  • GSOB

    Love your spouse.

    • df NJ

      You only criticize in other people what you do not like about your own character.

  • GSOB

    We are living in an age that has very little respect not only for the sanctity of life but also for the sanctity of marriage.
    The modern culture is on a collision course.

    Satan seeks to destroy.

    • df NJ

      It’s really strange after 2000 the starts on the Republican party logo were turned upside down. A five point pentagram is a sign of Satan.

  • GSOB

    We receive the righteousness of Christ to cover our nakedness before God.

    • df NJ

      You lack of faith in God’s omnipotence is stunning. God knows exactly who you are with or without Christ.

  • GSOB

    Adam knew his wife. And she conceived. Abraham knew his wife, and she conceived.

    • df NJ

      Pretending to speak for God is the height of human hubris and possibly man’s greatest possible sin. No one knows the mind of God. To know the mind of God would mean you ARE God. Is it up to God and God alone to judge each of us.

  • Vess

    Uh-huh. I remember in 2001 I read an article about the “JP Morgan derivative monster” that was about to blow up any day now. They had about 9 trillion of exposure to derivatives back then. Now it is 63 and still hasn’t exploded.

    Wanna bet that, 10 years from now, the derivatives will be inflated to an even more mind-boggling number and people like the author of this article will still be writing about how the derivative bubble will blow up any day now?

  • Tony Armstrong

    I’m watching from New Zealand and wonder how commodity trades esp food is going to work if there is a break in the financial system

  • majorx

    If there is one possible blessing with the pending derivative nuclear explosion is that it will destroy the World Globalization movement. Its lucky these people are not as smart as they think they are.

  • +RUSS

    Hi!, Patrons Of The Economic Collapse Et. Al.:
    Historically speaking, by comparing the present US inflation rate to say the inflation of the Hungarian Pengo which reached 41.6 quadrillion %, US inflation may be in the very early stages of its’ multi decade developments with sieges of temporary deflation along the way or not dear readers? As inflationary episodes continued in Germany until 1923, gold reached 100 trillion Marks per troy oz., because Germany suspended gold redemption of the German Mark, in order to paper over its’ enormously expanding debts. Should the US government and the FED. continue their unbridled, like-kind behavior, what’s going to stop the price of gold in US $’s from surging even higher dear reader? All governments who build their own inflationary/deflationary straight jackets always end up looking after themselves and NEVER their citizens and the US government will prove itself to be NO different dear reader!! We each need therefore to take as much charge of OUR personal destinies as we can without so called government help of any kind or stripe!! Whenever any government prints paper money in order to cover its’ own debts, that government is not looking out for the good of its’ citizens but its’ own welfare but based upon the losses of buying power by their public citizens!! Sense we the members of the public are not legally allowed to own and operate OUR own printing press as the government does, we are stuck paying ever increasing prices including higher property taxes etc. on OUR ever increasing assessed valuations etc., etc., etc. arising from OUR governments’ inflation the government uses to cover its’ internal and external debts. Is this a rigged game or not dear reader?
    RUSS SMITH, CA. (One Of Our Woeful, Broke, Fiat Money Corrupt States)
    resmith1942@gmail.com

  • Brian

    So, how do we profit off the collapse? What reverse investments do you recommend?

  • Guest

    Derivatives are just insurance.

    The easiest to understand are commodity derivatives. For example, say you are a ship builder and you agreed to build a ship for a certain price but it will take several years. Your bid takes into account a 15% increase in steel prices over that time, but if the price goes above 15% you will LOSE money delivering on your contract and maybe go out of business. So you buy a derivative for 3% of the cost of your steel which guarantees that if it goes above 12% the current price the person selling the derivative will pay the extra cost.

    If steel remains constant you paid an extra 3% over the current price. If something drives up the cost of steel to high levels, the seller of the derivative pays the extra cost over the agreed upon price. They lose money and you stay in business.

    The more volatile and longer the contract, the more expensive the derivative costs. Like insurance most contract don’t get paid off and the derivative seller makes lots of money. But like insurance if there is a natural disaster the derivative seller might have to pay a whole lot of derivatives at once with cash that he does not have.

    Think of it like homeowners insurance. Every year a few people’s houses are destroyed but most aren’t, while millions pay insurance premiums. If a city were hit with a tidal wave, or a hurricane, or a nuclear bomb then millions of people (or their heirs) would demand payment that the insurance company probably doesn’t have.

    Now here comes the tricky part.

    Derivatives can be taken out on ANYTHING which can make it more like a leveraged bet, or buying stocks on margin, or just plain gambling. You can buy a derivative on mortgage backed securities. If too many people default on their loans the derivative will pay the difference in price. The system THEORETICALLY works as long as:

    1. The people selling the derivative understand and ACCURATELY gauge the risk in the transaction.
    2. Nothing catastrophic or unexpected happens.
    3. The derivative seller has enough liquidity to pay for #2

    The problems arise when the risk is not truly known. For instance a lot of those (sub-prime) MBSs had AAA ratings when they were really Junk Bond quality. So MBS derivatives that should have been charging 20% to make a (safe) profit were only charging like 3%. A lot of these rating agencies were just a different branch of the SAME company selling the derivative, and yet nobody went to jail for such blatant fraud. I’m not sure if there was even any legislation to fix this obvious conflict of interest. It doesn’t really matter because no sane person will ever trust these ‘rating’ agencies ever again.

    Then the housing bubble and the ’08 recession hit which was like a natural disaster, at least for people with mortgages. A lot of people defaulted as you would expect from ‘junk’ rated MBSs. And finally, the derivative sellers didn’t bother to have enough cash on hand to cover these ridiculously risky derivatives and they all went out of business.

    Oh wait, they didn’t go out of business. The US government bailed them all out at the expense of the US taxpayer.

    The problem today is that derivatives can be so complicated and esoteric that it can be almost impossible to set a ‘safe’ price whereby profits will at least cover losses. Some derivatives are derivatives OF derivatives OF derivatives. Good luck figuring out the risk on that. And it’s not just the big financial firms exposed to this insanity. Many of the securities and ‘financial instruments’ you can invest in (like for your retirement) are based on derivatives. So if the derivative market explodes your ‘derivative fund’ (or whatever it’s called this month) goes to ZERO.

    After you lose your life’s savings consider yourself lucky. AT LEAST you won’t owe a derivative buyer millions of times more than you invested like the dummy who sold the derivative.

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