"Our GDP for 2013 will be somewhere between 15 and 16 trillion dollars, but many of our big banks have exposure to derivatives that absolutely dwarfs our GDP (JPMorgan Chase 1.8 trillion dollars in assets, 69 trillion in derivatives exposure; Bank of America 1.4 trillion in assets, 44 trillion in derivatives exposure; Goldman Sachs 114 billion in assets, 41 trillion in derivatives exposure!!!). The biggest chunk of those derivatives contracts is made up of interest rate derivatives. Just imagine what would happen if a life insurance company wrote millions upon millions of life insurance contracts and then everyone suddenly died. What would happen to that life insurance company? It would go completely broke of course. Well, that is what our major banks are facing today. They have written trillions upon trillions of dollars worth of interest rate derivatives contracts, and they are betting that interest rates will not go up rapidly. But what if they do? The truth is that interest rates have a whole lot of room to go up. If we return to "normal" levels, our financial system will implode. There is no way that our debt-addicted system would be able to handle it. So watch the yield on 10 year U.S. Treasuries very carefully. It is the most important number in the entire U.S. economy. If that number gets too high, the game is over."
Posted on: Fri, 02 Aug 2013 03:13:22 +0000
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