I read an article penned by Michael Snyder and posted on Zero Hedge last week and could only shake my head. In fact, the more I thought about it the more I started laughing. Yes, I laughed until tears came to my eyes. This is really not normal for me to break up laughing so hard at anything and certainly when it’s not even close to a laughing matter. Why did I laugh? Because it struck me as so funny that the “side bets” are so much larger than the system itself yet people expect the system to survive?
Snyder dug into the OCC’s latest quarterly report to find that the U.S. now has a 5th bank with derivatives held surpassing the $40 trillion mark, yes, TRILLION! JP Morgan of course has the largest U.S. position with $68 trillion while DeutschBank leads globally with $75 trillion. If you recall, some 4 years back the BIS changed the “way they count” derivatives and what “was” globally $1.4 quadrillion (with a “Q”) was magically recounted and restated at $700 trillion. Maybe they figured any number starting with a “Q” was just too scary to allow out to the public? I personally believe the “Q” number but for this exercise let’s assume the $700 trillion figure is correct
How much is $700 trillion? We can make a comparison and get some perspective by looking at a few other benchmarks. If we add up total global public debt we get a number of $54 trillion. If we include ALL global debt it is about $230 trillion. Looking at global stock market capitalization we get a number a little over $60 trillion. So, adding the values of ALL debt and ALL stocks on the planet together we come up short of $300 trillion. In case you were wondering, global GDP for 2012 was just shy of $72 trillion and the value of all gold ever mined we get a number of a puny $6 trillion.
If you take “only” the derivative holding of just the five biggest banks in the U.S., it dwarfs everything else. How is this really possible? How is it that the “bets” made and “insurance” purchased can be bigger than the system itself? I think the best way to look at this is the house has become far too large for the foundation. The house has grown far outside of the footings and grown multiple stories high. The “growth” of this financial house has been caused by the overuse of debt and the ease of financial derivatives. They were “good” once upon a time and did serve a purpose of hedging and protection. This all changed as they became used to “force” pricing, negate unwanted market moves and to paint whatever picture was desired. The problem is this, these derivatives are already in place and have already been used (spent) to paint “pretty prices,” it will take exponentially more derivatives to keep the picture painted correctly. The “bullets” have already been spent so to speak. This is a problem, there is not enough equity (collateral) left to create more derivatives from but they are needed to keep the game going… a serious problem.
Why did I make these comparisons? I wanted to show you just how BIG the derivatives market really is. The derivatives market is so big (even after the BIS lowered their total estimate by half) it is truly a “tail that wags the dog itself!” Just the top 5 U.S. banks control $280 trillion worth of derivatives notional value, this is about equal to all debt and all stock values combined …for the entire planet! When this manmade chain of financial instruments breaks, there is no entity on the planet big enough who can ride in on a white horse to save the situation. The Fed has blown their balance sheet up fivefold to get to where they are now. This was in response to the last crack up. They cannot go another fivefold from here, even if they could it would still not be enough to stop the pyramid from crumbling.
I wrote yesterday about how the public has become “comfortably numb,” a break in derivatives will change ALL of this. The banks have bet their assets at least 30 times and their capital 100’s of times over …and with it “your” savings. The pyramid will come down and when it does you have to ask yourself “what will have value?” The answer of course is and always has been “money.” Gold and silver have been real “money” for thousands of years, paper monies which have been “legislated” into having value will be broken as badly as the derivatives, the banks and most all markets.
Do not try to time this event because being even 1 second too late will affect you for your entire lifetime. You must also take into consideration where and how you store your “money.” As I have said many times before, having at least a portion of your “savings” out of the country and stored in a non-bank vault is a wise idea. Miles Franklin offers storage at the Brink’s facility in Montreal and can offer storage solutions in Zurich, Singapore and also Hong Kong. I cannot stress how important it is now to have capital out of the way of the oncoming financial freight train barreling down the tracks. Mathematically the derivatives monster will derail as it is manmade and run on manmade “assumptions.” No one knows the timing but as I said earlier, being just one second late will last and ruin many a lifetimes.
P.S. On a completely side note, my amigo Principe’ is “forecasting” a hard winter here in South Texas. He started growing “pelito’s” (little hairs) about 3 weeks ago which is very early and much earlier than last year which was the hardest winter I can ever remember.
Bill, I have been contemplating moving some of my PM’s to off shore storage facility for some time. I was thinking more in terms of the East though. I know you & team MF hold metal in Canada. What are your thoughts on the civil unrest in Hong Kong right now? With the continued isolation of USA do you think that could affect American citizens holding PM’s in a place like HK? Like the Chinese gov forbidding it when things get dicey? I guess I’m kinda stuck on the if you don’t hold it you don’t own it. But in today’s world of financial fraud & government insanity mitigating risk is the name of the game. Where do you feel personally most comfortable in the locations that you guys offer? Thanks
I think Brink’s Montreal is a good choice. If you want to go East, Singapore would be my choice …and Jim Sinclair’s also as he is part of the new exchange there. Call us to discuss if you wish.
Interesting about your laugh/cry reaction to the derivatives article. I’ve caught myself with similar reactions of late to a few topics – the action in the PM markets in general, the new rumblings/call for boots on the ground to fight Isil,Is,Isis (whatever name you want to call it), which is basically a creation of western intel agencies from the beginning, and the ‘vote’ in Scotland. I tell you we live in a world gone crazy. People don’t remember last week let alone a few years ago. This leads me to believe a lot of suffering is ahead – I mean A LOT and you are right that if you are a moment late the pain to follow will last and maybe never go away, if it can be avoided at all. It’s about protection now and not investing, which is echoed from a couple other people I follow such as Jim Sinclair and Dave Kranzler for economics, etc. The thing is if you look at and study other topics such war and popular revolt, the weather around the plant, earth changes such as volcanoes and cosmic influences such as meteors and fireballs there has been a very noticeable ramp up in them as well over the last few years. The website Sott.net does a good job of tracking these other topics. Ill times ahead it seems, so best to batten down the hatches to ride out the storm.
it’s one gigantic delusion!
This about sums it up:
“When a well-packaged web of lies has been sold gradually to the masses over generations, the truth will seem utterly preposterous and its speaker a raving lunatic.” – Dresden James.
There use to be a woman on The Cumberland Plateau that predicted winter weather every year. I haven’t heard anything about her for several years so don’t know if she is still around. She predicted it buy observing wooly worms, spider webs and other such things. Maybe your friend knows what he is talking about!
If the coming economic catastrophe is gong to be as bad as some predict and be a world wide happening, what good will it be to have funds stored in a foreign country?
Is the movie “Wag The Dog” still available?
my “friend” is my horse Principe’, he didn’t even start growing his coat until about Oct. 1st last year. Having “wealth” overseas will help avoid any wealth confiscation and can be used should you choose to leave and once the system resets and begins anew again. Yes, Wag the Dog can still be found.
I used friend instead of amigo.
10-4 Red, didn’t know if you were familiar with Principe’ or not.
My thought is that involving yet another government into our lives is probably not the best of ideas. IMHO, confiscation will become a universal theme when (not if) the financial system of the entire world collapses of its own bloated weight of debt, massive currency printing, and derivatives.
Because of this, I believe in making regular deposits to The Bank of Mother Earth or TBoME for short. If they can’t find it, they can’t steal it and anything they can find WILL be stolen. That’s just how these banksters are wired. There is not enough wealth in all the world to pay off their suicidally stupid fiat money / debt obligations, so their first task will be to absorb ALL wealth from everyone else to ensure that it is they who come out of this mess as whole as possible while the rest of us are condemned to utter destitution. Having some well-hidden gold and silver, however, will change the nature of this game. Having a few aces and a .38 up our sleeves usually does. 😉
I understand, but what if you desire to or need to leave the country with capital controls in place? Brink’s is a “non bank” vault, this distinction is very important.
You almost have to live a double life these days. In one world you smile and maintain the status quo like everyone else. In the other world you pay attention to places like the Miles Franklin blog and communicate with like-minded people. Trying to mix the two worlds together doesn’t works so well, even with immediate family.
no it doesn’t because they think you are nuts.
What are rational, normal thoughts and actions in a world gone crazy? Crazy, it’s insane. I greet you all from and in the twilight zone.
“Crazy, it’s insane”
Its a Bizarro World – And we have the Neocons & Obama/Holder’s Too Big Too Jail to thank for all of this.
And until these people are imprisoned with their buddy Bernie Madoff for 150 years, there will not be a solution to the Economic Collapse. Because they are still in charge behind the scenes.
…or until the system “gets changed” for them.
I agree with you Matt. Scott S.
Matt, that’s an excellent comment. This is a very surreal existence right now. You see the world just keeping on, while you see the finance things going on. I almost think I’m nuts half the time now lol. Very very very weird “place” in history we may be at now.
Here is something else that is no laughing matter. It fits in perfectly with your gold-backed yuan thesis.
China Aims For Official Gold Reserves At 8500t
They may already have this much Mark. I plan to write about this for Thursday.
Great, I look forward to it. I was just reading this piece on Jesse’s Cafe Americain – http://jessescrossroadscafe.blogspot.com/2014/09/why-china-is-golden-dragon-in-room.html
I liked this sentence:”There is some seriously weird shit going on in the silver market.”
Here is the music to accompany the sentiment:
Bill, excellent work. Keep them coming Sir. Your articles are priceless.
thanks Ezra, am working on one for Thursday you will surely not want to miss. It will take more time than usual to read but VERY important! Stay tuned.
Appreciate your comment on the following. Yesterday I visited USGS side, looking for silver stats. Surprisingly, I found strange discrepancies between 2014 and 2013 . Now ETFs are not in the table. It used to be 19000 tonn.
And Treasury Department now holds 498 tonn, it used to be 220.
Thanks a lot,
don’t know what to make of it as I thought the U.S. mint has been buying silver just to make Eagles and they had no inventory to speak of. They are claiming to have 16 million ounces on hand? Also curious the ETF’s are not accounted for, maybe you should contact USGS and ask them what happened?
Yes, when this ridiculously monstrous tower of debt comes crashing down around everyones’ ears the world as we know it will change for the worse.
Do not bother going to a bank to get ‘your’ $$ out because you won’t be able to anyway.
It ain’t yours anyway because when u shove $$ in a bank, you’re an “unsecured creditor” to that bank, just like the person or entity that gave you those $$ in the first place.
It’s not like that merry-go-round in Central Park where you get off the ride when the music stops.
Get off while the music is still playing , jump while you still can.
A better idea is to catapult off.
I leave in Down Under (Australia)I wonder if you can advise me what will happen to the Australian currency in your opinion when US Dollars will come crushing down like what everyone is predicting.
The Aussie dollar will collapse just like every other fiat currency …replace your dollars with gold and silver.
Judge Andrew Napolitano was asked how he is preparing for the chaos coming our way
nationally and globally. His response: Guns and Gold.
he forgot the other 2G’s, God and grub.
I look forward to Thursday’s article, Bill. Here’s something weird: El Hefe once told me that over time all “Dinosaurs will die”. The story told back then matches 99% with current events. Some forecast, allright! I only need to see, change X to Z and understand the Y of why all dinosaurs eventually die. This is psychic stuff! See you on Thursday.