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Sunday, April 1, 2012


This stuff is worth understanding because it's scary as hell. There's a ton of sovereign and municipal debt that will start defaulting.  $615 trillion in outstanding OTC derivatives is 9 times the GDP of the entire planet.  A bubble?  The mother of all financial bubbles?
This crisis for cities, states and nations, like so many other financial crises, has its root in the free flow of credit that existed during the preceding economic boom years....This process was driven more by the financial services industry than the real economy. As of March 5, 2012, the Federal Reserve Bank of New York reported more than $5,000,000,000,000 ($5 trillion) in overnight securities financing – that’s money that makes money but nothing else – that’s more than 20% of US GDP sitting around, not creating jobs, not building infrastructure, just sitting. Since the investment of securities financing is virtually all done electronically, it creates very few jobs. What it does produce is a boost in revenues for bankers – which they can translate into often lavish bonuses. The financial sector also adds to its profits from issuance fees, trading fees, underwriting fees, etc...There are more cities, counties, states and nations in financial trouble According to the Bank for International Settlements, there were $615 trillion in Over-The-Counter (OTC) derivatives contracts outstanding worldwide at the end of 2009. That's about 9 times global GDP. In other words, the entire world would have to work for 9 year just to produce enough to pay off the derivatives – before we had a dime left over to pay off the original debts.
Read the rest here