[Daniel_Plainview]

I'd like to know what percentage of that $1.28 quadrillion will become a "problem" in the future.

If it's more than a few percent, we're f__ked.

[bencole]

While we were all getting glazed eyes talking about billions, along came trillions. Trying to wrap your mind around that is bad enough, see What a trillion dollars looks like.
Now today I find a site talking quadrillions!?!?!?!?
Is anybody pulling their hair out yet? If this is true, we are only just now beginning to realize how f--ked we are! Its way worse that I thought!

Yeah, pretty soon they will have to start talking about bailouts using scientific notation:
quadrillion = 1x10^15

[bencole]

That has got to be “one of the scariest phenomena in economic history,” he says.

In case you are wondering, 95 percent margin means that for every dollar speculators have spent betting on derivatives, approximately 95 cents of that money was borrowed. For $5,000, a hedge fund speculator can control $100,000 worth of credit derivatives.

All this leverage is great if you are on the winning side of the bet—but if you are not, your principal can be quickly destroyed. Borrowed money works both ways.

And I guess this scheme works perfectly as long as there is continued positive growth in the overall economy, fueled by cheap abundant energy. As soon as the economy slows and starts to shrink however this practice cannot be maintained.

[gnm]

And I guess this scheme works perfectly as long as there is continued positive growth in the overall economy, fueled by cheap abundant energy.

Fortunately my sarcasm detector has gone off.... You do know what site you are on yes?

We're DOOMED....

-G

[bencole]

Fortunately my sarcasm detector has gone off.... You do know what site you are on yes?

Yep, I guess I should have placed rolling eyes or something after sorry , but I do honestly think that the connection between economics and energy can't be overstated enough, some posts on other threads are debating whether a connection exists at all.

We're DOOMED....

I guess you could argue that the current economic system and theory is doomed eventually, being based on fossil fuel energy which is finite. The jury is still out on whether humanity itself is doomed, however. So I'm guessing you are just refering to the economic domain, correct?

[Daniel_Plainview]

I'd like to know what percentage of that $1.28 quadrillion will become a "problem" in the future.

If it's more than a few percent, we're f__ked.

Read the article, it is not that long, here is a scary quote.

According to DeMeritt, the majority of the $1.28 quadrillion in derivatives is “owned” on somewhere near 95 percent margin!

That has got to be “one of the scariest phenomena in economic history,” he says.

In case you are wondering, 95 percent margin means that for every dollar speculators have spent betting on derivatives, approximately 95 cents of that money was borrowed. For $5,000, a hedge fund speculator can control $100,000 worth of credit derivatives.

All this leverage is great if you are on the winning side of the bet—but if you are not, your principal can be quickly destroyed. Borrowed money works both ways.

OK, but what percentage of the $1.28 quadrillion derivative market is based on "the losing side of the bet?" (i.e., what percentage is destined to default?).

This could definitely spell D O O M ... but honestly I don't see any data to answer my question.

[Jotapay]

Yes, quadrillions.

[ReverseEngineer]

The economy resembles a financial tower of Babel!

See my thread from Oct 2008 Collapse of an Economic Tower of Babel

The number of contracts written is unknown, but its a multiple several times over of the actual worth of the companies. Every contract that trips is essentially a losing bet for whoever wrote the policy and collected premiums over the years, in this case AIG is being hit first and hardest, but others wrote these contracts also. If even only say 1/4 of the largest companies go belly up in this collapse (and its sure to be more), then the value of the contracts to be paid out would be quadruple or more their value, so essentially there isn't enough total value to pay off the contracts. New money would have to be created, which means creating a debt somewhere to pay out money to the contract holder. The Fed is creating said debt, which is of course irredeemable debt. If continued, eventually you will end up with lots of money but no productive capacity. There is nothing really to spend the money ON.

Anyhow, this is the reason this bailout business will continue on here as long as these contracts are honored. The Fed will have to keep creating new debt money to pay off on the contracts as the companies fail. You would be better off to print the money in advance, funnel it to the companies to keep them from going belly up, and thus prevent the CDS contracts from tripping. Then you only are on the hook for the actual debt of said companies, in the short term anyhow. Problem being that because of the Peak Oil problem, these companies mostly can never be profitable anymore, so they will fail at a later date, how much later is an open question though.

Anybody who thinks the economic collapse isn't a direct consequence of the Peak Oil problem and decreasing amounts of available energy relative to the population who reads this site regularly clearly has mush for brains. The whole reason for the escalation of debt over the last 10 years in all these markets, along with the balloons created in investment is a direct consequence of decreasing EROEI since the 1970s, when Nixon and Milton Friedman took the dollar off the Gold standard. In practice many of the financial derivatives are complex and hard to understand, but in principle this is an easy and obvious problem to see. Relative profitability has been decreasing steadily while population has been increasing steadily, along with increasing drain of an aging population receiving pension and medicaire benefits, along with a cradle to grave social program in some of the social democracies. To continue on with it, debt has been constantly ballooning worldwide, though it gets shifted around some over the time period. China for instance Got Rich by Living Poor so to speak.

Anyhow, yes the contractual obligations are in the Quadrillions, which is why the term "Black Hole" is used, along with the WMD metaphor dropped on by Warren Buffett. Actually, the big hit to Berkshire Hathaway and the reason he got such a haircut here this year is because BH is heavily into Insurance, just like AIG. Warren was playing with fire even though he knew it was a phenomenal risk. He's eating a lot of it now, hard to say whether BH is really solvent either.

When will the Jig be Up here? Hard to say, they have plenty of ink there at the Fed, and Helicopter Ben knows how to use it. He's not stupid really, he's doing what is the only thing he can see to keep TPTB happy and in power. If he doesn't do this, the system crashes IMMEDIATELY. It will crash anyhow, but he is buying time.

Reverse Engineer

[bencole]

Good post, you seem to understand this cds stuff better than most economists on tv.

Anybody who thinks the economic collapse isn't a direct consequence of the Peak Oil problem and decreasing amounts of available energy relative to the population who reads this site regularly clearly has mush for brains.

Its been suggested quite a few times on this site recently that there is no connection between the current economic situation and energy, I think its gaining popularity. Politicians kinda acknowledge it though, if one listens carefully.

China for instance Got Rich by Living Poor so to speak.

Yep, the Chinese government got rich by keeping their own people as poor as possible.

When will the Jig be Up here? Hard to say, they have plenty of ink there at the Fed, and Helicopter Ben knows how to use it. He's not stupid really, he's doing what is the only thing he can see to keep TPTB happy and in power. If he doesn't do this, the system crashes IMMEDIATELY. It will crash anyhow, but he is buying time.

I often wonder what they are buying time for exactly, if the system is going to crash anyways what real gain is there by waiting?. Since the wealth is going to be wiped out one way or the other,
why not let it fail and try to pick up the pieces with resources that currently still exist?, prolonging the inevitable would seem to put TPTB in a weaker position to retain power by some measures.

[ReverseEngineer]

Good post, you seem to understand this cds stuff better than most economists on tv.

Oh, I really don't have much problem with understanding it, I was/am a mathematician. I quit practicing the art a number of years ago, but back in the day I was way out there on the curve as a blackboard artist of differential equations. The trick is of course to put it into language people can understand, and I think first off many of the TV pundits don't understand it really, and of those that do I think they are purposefuly obfuscating the issues. In principle, its just not as complex as it is made out to be. It wasn;t hard at all really to predict who the counterparties were for AIG and where the money was going, I didn;t need a disclosure to figure that one out. However, much of it is still hidden, and without knowing all the specifics of all the payouts, you'll never really get Justice here. Getting that transparency though will require a wholesale revolution, which may be a while in coming.

I often wonder what they are buying time for exactly, if the system is going to crash anyways what real gain is there by waiting?. Since the wealth is going to be wiped out one way or the other,
why not let it fail and try to pick up the pieces with resources that currently still exist?, prolonging the inevitable would seem to put TPTB in a weaker position to retain power by some measures.

The gain is you stay in Power another day. A complete crash will result in near total social anarchy. The banking system simply won't function, no ATMs, a Bank Holiday will be declared, nobody will be able to get ANY money out, no Retirement checks will go out, no work paychecks will be good, nada. What they are doing is propping up a massive debit/credit resolution system that is all interconnected by computers worldwide. They have to keep the whole system stable, which basically means it all has to zero out. It can't zero out as long as you keep having CDS contracts trip. Every time one goes, money that doesn't exist has to be paid out. The only way to do that is to create new fictitious money, that is what the Fed is doing.

The only way to put any brakes on this is to abrogate the CDS contracts, but that has its own downside, the solvency of the banking institutions running the system fails if you do that. Still, I think it could be done if you nationalized the debit system and defaulted all debt. Then you have a world war though.

Reverse Engineer

[seldom_seen]

I think first off many of the TV pundits don't understand it

Nor do the politicians. Some of them are so high they don't even know who Ben Bernanke is:

Bernanke testimony with Congresswoman Kaptur:

KAPTUR: Number three, seeing as how you were the former CEO of Goldman Sachs, what percentage level -- oh, investment -- were you not...

BERNANKE: No, you're confusing me with the Treasury Secretary.

KAPTUR: I got the wrong firm?

BERNANKE: Yes.

KAPTUR: Paulson. Oh, OK. Where were you, sir?

BERNANKE: I was a CEO of the Princeton Economics Department.

KAPTUR: Oh, Princeton. Oh, all right. Sorry. Sorry.

(LAUGHTER)

I got you confused with the other one. I'm sorry. Well, I'm glad you clarified that for the record.

http://www.salon.com/tech/htww/2008/01/ ... kes_again/

Interesting posts RE.

[shady28]

While we were all getting glazed eyes talking about billions, along came trillions. Trying to wrap your mind around that is bad enough, see What a trillion dollars looks like.
Now today I find a site talking quadrillions!?!?!?!?
Is anybody pulling their hair out yet? If this is true, we are only just now beginning to realize how f--ked we are! Its way worse that I thought!

Love that picture of a trillion dollars.

It's interesting to note, that for every dollar in existence there is over 40 dollars in debt.

[RonMN]

I'm trying to wrap my head around this number.
1.28 Quadrillion = 1,280 Trillion.
10% of that would be 128 Trillion.
1% of that would be 12.8 Trillion (which is about the GDP of the United States).

So what we're talking about here is 100 years worth of current GDP

[Revi]

We are going to have to move on to the next number pretty soon. Billions are so 20th century, time for trillions and quadrillions now.

When is this death star going to take down all fiat currencies anyway? Is it just a slow motion thing, like the end of the Roman Empire, or is there going to be some big moment when we all lose faith in paper and electronic currency?

The average guy will start to garden and trade things with their neighbor if the regular money system doesn't work any more. It will be like roubles in the FSU. Dollars will buy things, but just things you don't really need any more like SUV's, Mc Mansions and old game systems.

[jupiters_release]

Anyhow, yes the contractual obligations are in the Quadrillions, which is why the term "Black Hole" is used, along with the WMD metaphor dropped on by Warren Buffett.

Reverse Engineer

The term is used to warp the public's perception, and successfully so obviously. Black HoleTM connotes derivatives to be an impersonal set of contracts btwn earthly beings and unassailable anti-matter executed by universal laws of physics. WMDTM implies there isn't even anti-matter on the other side, the money simply gets destroyed. In reality derivatives are only contracts btwn people and other people executed by the fraudulent system of business and finance by choice. Newspeak language affects your perception in a subconscious way, without you even knowing it - subordinating reality with an imaginative film.

[jupiters_release]

The only way to put any brakes on this is to abrogate the CDS contracts, but that has its own downside, the solvency of the banking institutions running the system fails if you do that.
Reverse Engineer

If you haven't noticed the CDS is the very thing responsible for bankrupting the very same institutions you refer to! Strange how reality can be the exact opposite of perception(we even built an entire civilization based on it)! How powerful the media has become.