Sunday , 3 December 2023

Bursting of Global Derivatives Bubble Will Be An Utter Nightmare (+3K Views)

Never before in the history of the United States have we been faced with the threat of such a great financialDerivatives-5 catastrophe but, sadly, most Americans are totally oblivious to all of this.  They continue to have faith that their leaders know what they are doing, and they have been lulled into complacency by the bubble of false stability that we have been enjoying for the last couple of years. Unfortunately for them, however, this bubble of false stability is not going to last much longer and when the financial crisis comes it is going to make 2008 look like a Sunday picnic. Let me explain why I believe the aforementioned to be the case.

The above are edited excerpts from an article* by Michael Snyder ( originally entitled The Size Of The Derivatives Bubble Hanging Over The Global Economy Hits A Record High.

The following article is presented by Lorimer Wilson, editor of (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter sample here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.

Snyder goes on to say in further edited excerpts:

The Global Derivatives Bubble

The global derivatives bubble is now 20 percent bigger than it was just before the last great financial crisis struck in 2008 and when it finally bursts it is going to be a complete and utter nightmare for the financial system of the planet.  Several “too big to fail” banks could fail simultaneously and when that day arrives, we are going to be facing a crisis that is going to make 2008 look like a Sunday picnic because, if they go down, we go down too.

Sex, Drugs & Derivatives

According to the Bank for International Settlements, the total notional value of derivatives contracts around the world has ballooned to an astounding 710 trillion dollars…and if that sounds like a lot of money, that is because it is. The U.S. GDP, for example, is projected to be in the neighborhood of around 17 trillion dollars for 2014 so 710 trillion dollars is an amount of money that is almost incomprehensible.

What Is A Derivative?

(If you do not know what a derivative is, Mayra Rodríguez Valladares, a managing principal at MRV Associates, provided a pretty good definition in a recent article for the New York Times saying:

A derivative, put simply, is a contract between two parties whose value is determined by changes in the value of an underlying asset. Those assets could be bonds, equities, commodities or currencies. The majority of contracts are traded over the counter, where details about pricing, risk measurement and collateral, if any, are not available to the public.

In other words, a derivative does not have any intrinsic value.  It is essentially a side bet.  Most commonly, derivative contracts have to do with the movement of interest rates but there are many, many other kinds of derivatives as well.  People are betting on just about anything and everything that you can imagine, and Wall Street has been transformed into the largest casino in the history of the planet.)

Derivatives: Their Origin, Evolvement and Eventual Corruption (Got Gold!)

Bigger Bubble = Greater Burst

Instead of actually doing something about the insanely reckless behavior of the big banks, our leaders have allowed the derivatives bubble and these banks to get larger than ever.  In fact, the big Wall Street banks are collectively 37 percent larger than they were just prior to the last recession.  In fact, the five largest banks account for 42 percent of all loans in the entire country, and the six largest banks control 67 percent of all banking assets.

In the New York Times article I mentioned above, Goldman Sachs and Citibank were singled out as two players that have experienced tremendous growth in this area in recent years:

Goldman Sachs has been increasing its derivatives volumes since the [2008] crisis as part of its growth strategy. It had a portfolio of about $48 trillion at the end of 2013 and plans to sell more derivatives to clients. Citibank, too, has been increasing its derivatives portfolio, despite the numerous capital and regulatory challenges, In fact, its portfolio has risen by over 65 percent since the crisis — the most of any of the four banks — to $62 trillion.

It is not happening just in the United States.  German banking giant Deutsche Bank has more than 75 trillion dollars of exposure to derivatives – which is more than any single U.S. bank has.

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The derivatives bubble is a “sword of Damocles” that is hanging over the global economy by a thread day after day, month after month, year after year and, at some point, that thread is going to break, the bubble is going to burst, and then all hell is going to break loose. Why? Because virtually none of the underlying problems that caused the last financial crisis have been fixed. Instead, our problems have just gotten even bigger and the financial bubbles have gotten even larger.

If the stock market keeps going up, interest rates stay fairly stable, and the global economy does not experience a major downturn, this bubble will probably not burst for a while BUT, if there is a major shock to the system, this derivatives bubble is going to burst and several “too big to fail” banks could fail simultaneously. When that day arrives, we are going to be facing a crisis that is going to make 2008 look like a Sunday picnic because, if any of the “too big to fail” banks go down, we go down too.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

* (Copyright © 2014 The Economic Collapse)

Related Articles:

1. Sex, Drugs & Derivatives

Only when derivatives are discussed by one of the ‘Real Housewives of Atlanta’ posing nude in bed with one of the cast members of ‘Duck Dynasty’ will derivatives receive the attention they deserve. Read More »

2. Coming Derivatives Crisis Will Cause Panic in Financial Markets With Horrific Consequences – Here’s Why

Wall Street has been transformed into a gigantic casino where people are betting on just about anything that you can imagine. This works fine as long as there are not any wild swings in the economy and risk is managed with strict discipline but, as we have seen, there have been times when derivatives have caused massive problems in recent years – the government bailout because of derivatives at AIG; the failure of MF Global because of bad derivatives trades; and the 6 billion dollar loss that JPMorgan Chase recently suffered because of derivatives – [but the next] derivatives panic that comes will destroy global financial markets, and the economic fallout from the financial crash that will happen as a result will be absolutely horrific. [Let me explain my contention.] Words: 1485 Read More »

3. Derivatives: Their Origin, Evolvement and Eventual Corruption (Got Gold!)

The term “derivative” has become a dirty, if not evil word. So much of what ails our global financial system has been laid-at-the-feet of this misunderstood, mischaracterized term – derivatives. The purpose of this paper is to outline the origin, growth and ultimately the corruption of the derivatives market – and explain how something originally designed to provide economic utility has morphed into a tool of abusive, manipulative economic tyranny. Words: 3355 Read More »

4. Will Rising Interest Rates Ignite the Derivatives Time Bomb?

Of the $200+ trillion in derivatives on US banks’ balance sheets, 85% are based on interest rates and for that reason I cannot take any of the Fed’s mumblings about raising interest rates seriously at all. Remember, most if not all, of the bailout money has gone to US banks in order to help them raise capital. So why would the Fed make a move that could potentially destroy these firms’ equity and essentially undoing all of its previous efforts? That being said I still see derivatives as a trillion dollar ticking time bomb with a short fuse. Words: 506 Read More »

One comment

  1. The big problem in the USA (and many other Countries) is that most if not all Leaders have their own hand in the piggy bank so that they are highly unlikely to call others out for doing the same thing as they are…

    This is why the USA is going to be hit hard by a re-valuation of the US$ and I believe that the Ultra Wealthy will not only know about it (before it occurs) but will profit from it since they are positioned to take advantage of any change in the value of the US$ far better than regular investors are!

    Got PM’s?