The Quadrillion Dollar Derivative Debt and the “Bail-in”: When you Deposit Funds in a Bank, it Becomes “Their Money” – Global ResearchGlobal Research – Centre for Research on Globalization
I wanted to point out the above “promises” as a basis to speak about trust or confidence. The financial world turns on the axis of “trust”. This trust was nearly broken in 2008 and is the reason the Federal Reserve needed to secretly lend $16 trillion all over the world. If the Fed had not come up with these funds, failures would have spread and trust would have been broken amongst the banks/other financial institutions and even between the central banks themselves! The Fed’s largesse worked and trust was maintained.
Now, I believe we are set for another “test” of trust. We have gone five+ years with QE this and QE that, the reality being outright monetization. In fact, central banks today are buying more sovereign bonds than are even being issued. The public and even the professional funds have backed away from the debt markets, you can’t blame them because the interest received does not even cover inflation not to mention a risk premium. Globally the pace of trade and business activity is slowing or even declining which will bring to a head the difficulties in meeting debt service and other “promises”.
Weapons of Mass Financial Destruction (WMFD)
I ask, what will happen when inevitably “trust” begins to wane? Or even fully break? It is at this point the system goes into “The Great Call”. Margin call? Of course, because nearly everything financial has leverage behind it but there is more to it than this. The “call” I am speaking of is for contracts of all sorts to “perform”. In particular I am thinking “derivatives” contracts will be called on to perform their contractual duties.
All in all, there are over $1 quadrillion worth of derivatives outstanding. The problem with this is the “tail” is bigger than the dog. In other words, the amount of derivatives outstanding dwarfs the total amount of money outstanding and thus the ability to “pay” and make good on the contracts. The other side of this coin are contracts promising to deliver something. Here I am thinking both gold and silver. There are far more (100-1 or more) obligations outstanding than there are ounces or kilos available to deliver. This is a default just waiting to happen.