mortalpawn wrote:
So yes, I'm worried about the global debt bomb, but only because it could kick off the "big one" in derivatives.
You mean another "big one" since the subprime crisis involved unregulated, OTC derivatives. These boom-bust cycles seem to be a normal part of human behavior and aren't going away anytime soon. After the subprime crisis, OTC derivatives were forced onto regulated exchanges by the Dodd-Frank reforms.
Derivatives were exempted from the automatic stay in bankruptcy because the intention was to reduce systemic risk after the LTCM fiasco. That's more of a concern with unregulated, OTC derivatives which is traded at the wholesale level, not regulated retail derivatives backed by clearinghouses. I don't know what the current percentage makeup of each is.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
mortalpawn wrote:
The debt bomb is a big problem, but it pales in size to the derivatives market. Global debt is about 200 trillion against a world GDP of around 60 trillion. So yes it global debt is unsustainable and will never be paid back. Ultimately it will be printed or defaulted away at some point.
However global debt is nothing compared to the global derivatives market which is estimated at between 600 and 700 trillion dollars (conservatively). If the global debt bomb is a serious problem, derivatives are the financial nuclear weapons that could lead to global collapse. The US derivatives share is owned by the 5 largest wall street banks (a paltry 250 trillion or so), and these banks are truly "to big to fail".
These derivatives are essentially inter-bank bets about interest rates, currency exchange rates, debt, mortgages, commodities, etc...backed by your money. Wild swings in any of these markets could kick off a cascading derivatives failure that could literally wipe out many trillions in a single day.
Also due to a 2005 change in the US bankruptcy law, derivatives are paid off first, before other lien holders, in the event of a bank failure. So if the derivative bomb ever explodes it means millions of account holders could be left with nothing. While FDIC bank holders might get their insurance money on checking and saving accounts freshly printed from the Fed, it is not likely the private investment insurance would be solvent enough to cover investment account holders, and who knows what a dollar might be worth in the face of a global derivative failure.
So yes, I'm worried about the global debt bomb, but only because it could kick off the "big one" in derivatives.
And of course even having gold won't protect you against such a catastrophe because the Fed could print gold and make it worthless!
Libertarian666 wrote:
No, I was just being silly. Even the Fed can't print gold, although they could coin it (if they had any).
The Fed doesn't have that authority, the Mint does. And the Mint is a bureau of the Treasury. Hence that stupid nonsense about the Treasury issuing a $1 billion platinum coin to pay off the debt or something like that.
Last edited by MachineGhost on Fri Apr 08, 2016 1:21 am, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
In 1917, Congress imposed a debt ceiling on the federal government of about $215 billion (adjusted for inflation). At present, the national debt exceeds $19 trillion. Is the Debt Limit Statute, lately the object of a bruising political fight each time it is raised or suspended, constitutional? D.C. Circuit: Plaintiff, who owns some of the debt and is concerned such fights threaten to devalue his investments, lacks standing to find out.
Last edited by MachineGhost on Fri Apr 29, 2016 7:16 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
