It's Worse Than You Think
EJHill ·
Nov 17, 2011 at 7:46pm
In this morning's syndicated column, George Will quotes Thomas Sowell: “The first lesson of economics is scarcity. There is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”
With a presidential election year looming and the OWS crowd talking of escalating their militancy by burning down Macy's and blocking avenues of transportation, Addison Wiggin of Forbes.com offers up these tidbits for your consideration:
- There are $600 trillion worth of derivatives held by banks, investment houses and governments worldwide. That's 10 times the world's annual GDP.
- Before the '08 crash the Fed owed $800 billion, almost all of it in Treasuries. Today, they owe twice that in mortgage derivatives alone but have less assets than before.
- The Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet. That's a leverage ratio of more than 51-to-1. Points out Euro Pacific Capital's Michael Pento, "If the value of their portfolio were to fall by just 2%, the Fed itself would be wiped out."
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Comments :
Dec '10
Re: It's Worse Than You Think
Kind of argues for sweeping changes...
Jul '10
Re: It's Worse Than You Think
We can spend Our way out of it.
Aug '10
Re: It's Worse Than You Think
Looks like my brother, who has been predicting the collapse of the US economy every year for the past 30 years, may finally be right!
Mar '11
Re: It's Worse Than You Think
Hmm, worse than I think? How about adding in all the municipalities that are effectively insolvent and the trillions in unfunded state pension liabilities, then you're getting into my territory. My reading this weekend will consist of Leverage: How Cheap Money Will Destroy the World.
You're too much of a cockeyed optimist EJHill.
Edited on Nov 17, 2011 at 11:45amMar '11
Re: It's Worse Than You Think
Also for those of us who enjoy a good the "end of the world is nigh" an upbeat missive from Barnhardt Capital Management:
Edited on Nov 17, 2011 at 11:59amAug '10
Re: It's Worse Than You Think
Do you think I can get my cruise in next February before the whole thing collapses?
Some people say to hunker down for the bad times. I say enjoy life now because there won't be anything fun to do in the bad times!
Apr '11
Re: It's Worse Than You Think
Clearly, America has become a little lazy. We're not paying our fair share. Time to eat our peas. Buy another Volt to replace the one that burned up.
Oh well. I look forward to the coming super-inflation when my mortgage payment is less than my grocery bill. All will be right with the world then.
Sep '10
Re: It's Worse Than You Think
I heard this on Rush today:
"U.N. Secretary-General Ban Ki-moon urged world leaders Monday to finalize the financing for a multibillion-dollar fund to fight the effects of climate change."
Dec '10
Re: It's Worse Than You Think
I should have bought the trailer house on 2.5 acres because then at least I could grow my own potatoes.
Jan '11
Re: It's Worse Than You Think
That's racist...
Aug '11
Re: It's Worse Than You Think
Perhaps all the obvious cronyism and payoffs to the politically connected are just a sign that our leaders are getting more careless with their cover-ups as they rush to accumulate as much cash as they can before it all comes crashing down.
Aug '11
Re: It's Worse Than You Think
Double-post!
Edited on Nov 17, 2011 at 8:03pmOct '10
Re: It's Worse Than You Think
Amusing in a way, ony if one could muster some uplifting thoughts.
Sep '10
Re: It's Worse Than You Think
well that's an unpleasant thought.
perhaps putting my dollars in "investments" such as M193, M855, & 7.62x54R wasn't as stupid as i sometimes think. :(
we are doomed.
Nov '10
Re: It's Worse Than You Think
I should include 30-06, .45, and 308.
Mar '11
Re: It's Worse Than You Think
Frozen Chosen:
Some people say to hunker down for the bad times. I say enjoy life now because there won't be anything fun to do in the bad times!
Well, yes -- it is all gonna collapse, or we are all gonna die -- neither prospect is rosy.
Sep '10
Re: It's Worse Than You Think
agreed. except those old Russian rifles cost ~$100 and a spam can of 420 is currently $94 at cheaper than dirt. much more affordable than stockpiling that Springfield round...so i'm nowhere near a k of the 30-06. and as a bonus, if i buy many more of those M/N's i'll be able to reenact scenes from Dr. Zhivago...that 8-foot long bayonet is something else...
Oct '10
Re: It's Worse Than You Think
Once heard happiness is a belt fed weapon.
Jan '11
Re: It's Worse Than You Think
EJHill: I
In my opinion, this isn't even a legitimate worry. If everything in the world were liquidated, 600 with a "T" wouldn't/couldn't be approached. Whoever holds those kind of derivatives will not have their contracts fulfilled should the crap hit the fan. The net effect would cause a complete reset, a switch to a different money, and accounting back-and-forth that yields nothing all the productive. It would be disruptive, true, but markets would iron themselves out relatively quickly while the legal system would turn away cases where a contract wasn't honored.
Oct '10
Re: It's Worse Than You Think
Not to disagree with the thrust of your argument, but that $600 trillion figure and others like it is probably not very accurate. I'm no financial expert but from what I could find by those who are, there's a difference between the nominal (or notional) value of a derivative and it's actual value. The best explanation I heard is that to buy an option to purchase $10,000 in oil is not the same thing as buying $10,000 in oil. So, the figure represents the notional value, or the amount that the options refer to, but not what's actually tied up in the derivative. I've also read that a lot of it gets cancelled out by the opposing bets on any particular movement in the price of a stock or commodity, so that even the notional value is overstated.
I haven't come across much discussion on the issue so if anyone can enlighten me I would appreciate it.