Preview of the Coming Collapse

The 2 Billion Dollar Loss reported by JP Morgan

Is Just a Preview of the Coming Collapse Of the Derivatives Market

Today, stock markets are the biggest casino's in the entire world. 

When news broke of a 2 billion dollar trading loss by JP Morgan, much of the financial world was absolutely stunned.  But the truth is that this is just the beginning.  This is just a very small preview of what is going to happen when we see the collapse of the worldwide derivatives market. I've been cautioning  for a while now,to all who would listen of the eventual decline of Fiat Currencies globally.
Naturally, I bristle at people ignoring me except to say hurtful things, like, “Wai! So Gross! Eat with your mouth closed lah!” and who then turn right around and say, “Guna,Shut up already about buying gold and silver!”
But how do I not eat and talk? 


(Man, it has been said, cannot live on bread alone! Unless, of course, it is made into a nice, big sandwich with all the accompaniments, maybe with a tall, cool beverage and a fresh bag of potato chips, you’re bent over the plate like some kind of starving Neanderthal, noisily shoveling it in your mouth with both hands, perhaps while you are watching TV, necessitating changing channels by hitting the remote control with your elbow).In polite deference to the easily offended, I swallow the last of a sandwich, whereupon I take up my one-sided conversation to say that buying gold and silver is the smartest thing you can do when the Federal Reserve is creating So Freaking Much Money, as it creates horrific inflation in prices, with the historical evidence strongly indicating that the long-term percentage increase in prices matches the percentage increase in the money supply, which, if true, means that We’re Freaking Doomed :(

What i see most people forget is that when the "too big to fail" banks make good bets in these stock markets, they can make a lot of money.  When they make bad bets, they can lose a lot of money, and that is exactly what just happened to JP Morgan. 

Their Chief Investment Officer made a series of trades which turned out horribly, and it resulted in a loss of over 2 billion dollars over the past 40 days.  But 2 billion dollars is small potatoes compared to the vast size of the global derivatives market. 

It has been estimated that the notional value of all the derivatives in the world is somewhere between 600 trillion dollars and 1.5 quadrillion dollars. 

You can keep kicking the debt further down the road, as the west has been doing since 2008, but interest still accumulates. Then you devalue your currency by debasing it (printing more money), but interest and bond charges still accumulates. Somewhere down the road you must pay. 

 

Problem is, interest payments itself in running into the billions per month now days on the loans circulating out there backed by worthless assets.

Deflated value due to inflated currency, remember?

Nobody really knows the real amount, but when this derivatives bubble finally bursts there is not going to be nearly enough money on the entire planet to fix things.  Sadly, a lot of mainstream news reports are not even using the word "derivatives" when they discuss what just happened at JP Morgan.

Again sadly, the average Malaysian does not even know what derivatives are.

Most Malaysians have no idea that we are rapidly approaching a horrific derivatives crisis that is going to make 2008 look like a Sunday picnic.

Any damage to the dollar or euro would deliver a significant blow to the world economy, leading to less trade, higher unemployment and a possible recession, financial experts say.

The situation in Europe & America would create a tsunami that would reach our shores very, very quickly.

We would be collateral damage and this collateral damage would be very, very significant.

With some European countries seemingly unable to control their spiraling debt crises, because they cannot pay back the promised interest on the money owed to them, and with uncertainty over the type of financial relief the European Central Bank may contribute, there are fears the end of the dollar’s dominance in international trade is near.

In Europe, if the euro dissolved as a currency, a number of countries with their debt denominated in euros would immediately have to default since they would adapt their own domestic currencies and those would be devalued from anywhere between 50 to 70 per cent.

As the marketplace establishes the exchange rates, you would see a "fire sale" on the countries exchange rates (hence affecting monetary value) because investors would have very little confidence in these new currencies.

Back to the derivatives crisis in the states, according to their Comptroller of the Currency, the "too big to fail" banks have exposure to derivatives that is absolutely mind blowing. 

Just check out this official U.S. government report....

JPMorgan Chase - $70.1 Trillion

Citibank - $52.1 Trillion

Bank of America - $50.1 Trillion

Goldman Sachs - $44.2 Trillion

So a 2 billion dollar loss for JP Morgan is nothing compared to their total exposure of over 70 trillion dollars.

Overall, the 9 largest U.S. banks have a total of more than 200 trillion dollars of exposure to derivatives.  


That is approximately 3 times the size of the entire global economy.

It is hard for the average person on the street to begin to comprehend how immense this derivatives bubble is.  So let's not make too much out of this 2 billion dollar loss by JP Morgan.

This is just chicken feed. This is just a preview of coming attractions. Soon enough the real problems with derivatives will begin, and when that happens it will shake the entire global financial system to the core.

Any possible Euro collapse would mean developing countries would become more protectionists, which would have a major effect on a country like Malaysia that relies on exports.

While Malaysia’s direct share of global trade with America & Europe (23.5%) is relatively small, it would be indirectly affected by those countries, in particular the United States, which are heavily exposed to the European market and which Malaysia trades with.

But the crisis would take a little while for it to work its way through to us here in Malaysia.

People won't get fired immediately tomorrow, but it will work its way through.

The doomsday scenario everyone should be aware of is that, credit flows stop, meaning economic activity and trade stop or get severely curtailed.


The next thing is if trade stops, who are you going to sell to?

People who make things, they eventually have nothing to do, and they'll be out of a job. It may not happen next week, but could happen next year.

While Malaysian banks don't have much direct exposure to Europe, they would be affected by the calamity raging in the credit marketplace, meaning they would have to stop lending to manufacturers due to low buying demand.

But currently Malaysia, with its relatively healthier banks and deficit containment, is in a better position than most other countries to deal with the crisis.


Information is King.   To those ready to capitalize on the probable Fire Sales that would eventually be realized worldwide, this would be the buying opportunity of a life time.