Best of the Week
Most Popular
1.North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - Nadeem_Walayat
2.Researchers Find $10 Billion Hidden Treasure In A Dead Volcano - OilPrice_Com
3.Gold and Silver : The Battle for Control - Rambus_Chartology
4.Asda Sales Collapse and Profits Crash! UK Retailer Sector Crisis 2017 - Nadeem_Walayat
5.Deep State Conspiracy or Chaos - James_Quinn
6.The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - Plunger
7.Gold Stocks Coiled Spring - Zeal_LLC
8.Neil Howe: The Amazon-Walmart Rivalry Will Determine the Future of Retail - John_Mauldin
9.Crude Oil Price Precious Metals Link in August - Nadia_Simmons
10.Gold and Silver Precious Metals Nearing Breakout - Jordan_Roy_Byrne
Last 7 days
The Stock Market No Longer Cares About Trump - 21st Aug 17
The Coming Boom Of Productivity Will Get Our Economy Back On Track - 21st Aug 17
Buffett Sees Stock Market Crash Coming? His Cash Speaks Louder Than Words - 21st Aug 17
This Could Be The Biggest Gold Discovery In History - 21st Aug 17
Stock Market Correction in Full Swing - 21st Aug 17
Seeking Confirmations – US Stock Market - 21st Aug 17
The changing demographic of online gamblers - 21st Aug 17
Gold is a coiled spring… the breakout is here, fundamentals are in place, technicals are compelling - 20th Aug 17
A Midsummer Night's Dream: Buy Gold and Silver - 20th Aug 17
Gold Mining Stocks 2017 Fundamentals - 20th Aug 17
EIA Weekly Report and Crude Oil - 19th Aug 17
4 Insights for Adjusting Your Portfolio in a Rate-hike Environment - 19th Aug 17
Gold Direction Indicator - 19th Aug 17
Historical Inevitability and Gold and Silver Ownership - 19th Aug 17
You Are Being Lied To About “Low” Gold Demand - 19th Aug 17
This is Why Cocoa's Crash Was a Perfect Setup - 19th Aug 17
Gold, Silver Consolidate On Last Weeks Gains, Palladium Surges 36% YTD To 16 Year High - 19th Aug 17
North Korea Is Far From Being Irrational… It Has A Plan - 18th Aug 17
US Civil War - FUNCTIONAL ILLITERATES TRYING TO ERASE HISTORY - 18th Aug 17
Bitcoin Hits New All-Time High Over $4,400 As It Catches Paypal In Total Market Cap - 17th Aug 17
3 Psychological Ingredients behind Great Web Content - 17th Aug 17
The War on Cash - Rogoff, Orwell and Kafka - 17th Aug 17
The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - 16th Aug 17
Stocks, Bonds, Interest Rates, and Serbia, Camp Kotok 2017 - 16th Aug 17
U.S. Stock Market: Sunrise ... Sunset - 16th Aug 17
The Next Tech Crash Could Delay Your Retirement by a Decade - 15th Aug 17
Gold and Silver Precious Metals Nearing Breakout - 15th Aug 17
North Korea Showdown: Pivotal Market Turning Point - 15th Aug 17
Tech Stocks DOT COM Bubble Do-Over? - 14th Aug 17
Deep State Conspiracy or Chaos - 14th Aug 17
From the Trans-Atlantic Axis and the Trans-Asian Axis - 14th Aug 17
Stock Market Intermediate Correction Underway - 14th Aug 17
The Islamic State Jihadi Pivot to Asia - 13th Aug 17
Potential Pivots Upcoming for Stocks and Gold - 13th Aug 17
North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - 12th Aug 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

The Derivatives Monster That's 9X Bigger than the Global Economy

Stock-Markets / Derivatives Dec 26, 2010 - 05:35 AM GMT

By: Richard_Daughty

Stock-Markets

I assume that you, as an intelligent person who understands that the treacherous, greedy, vampire banks creating so much excess money means We’re Freaking Doomed (WFD), are Up To Your Freaking Ears (UTYFE) in gold, silver and oil, and you have had it UTYFE with your family always complaining about how you spend all the family’s income on gold, silver and oil instead of luxuries, family vacations, adequate food, clothing, medical care, dental care, blah blah blah, the list goes on and on.


But what you really, really want to know is: How did we get into this mess?

In that case, I present the Buttonwood column of The Economist magazine.

Some guy who read an economics book a long time ago, but hasn’t learned a thing nice, laughably wrote, “It is an economic truism that savings must equal investment.” Hahaha!

See? I told you it was laughable, as I handily proved by laughing! Hahaha!

You’d think that the editors of The Economist would have heard me laughing about it and ask, “What is so funny?” and yanked it! Hahaha!

To be fair, it USED to be an economic truism, prior to 1971, that savings must equal investment. And it was a truism because with a gold standard, the money supply was obviously a relative constant, and so if you wanted to get your hands on some money to invest, you had to borrow it from someone who already had some money.

Enter, stage left, the savers. Their money was being saved in the banks, and with the banks acting as an intermediary to judiciously loan it out as an investment, at an interest rate that cleared the market, paying the depositors a small fee from the proceeds, and keeping the rest for themselves. Classic stuff.

All that changed in 1971 when President Richard Nixon declared that the dollar was no longer backed by gold, and so all those foreign nations who were growing distrustful of the dollar because we were creating so many of them, and were literally exchanging their dollars for gold, were told, “Screw you, you worthless foreign bastards! You got paper dollars and you’ll keep paper dollars! And if you don’t like it, too bad! Hahaha!”

The result was the gradual debasement of the dollar by the Federal Reserve ever since, as it continually created more and more credit and fiat money, which continually inflated the money supply, which made prices continually creep up and up.

As if inflation was not bad enough, a lot of that money (about $14 trillion) went towards loaning money to buy government bonds so that foul, corrupt, fiscally irresponsible Congresses could spend money they did not have! Gaaahhh! The worst of both worlds!

Even worse, a lot of the Fed’s new money also went into bubbles in stocks, bubbles in bonds, bubbles in houses, bubbles in derivatives, and a huge, suffocating bubble in the size and cost of local, state and federal governments.

And let’s not forget the derivatives market, which is so gigantic that it staggers the imagination! How large? Thought you’d never ask!

The Financial Times, as part of a story about the changes coming as a result of the Dodd-Frank financial reform bill, refers to “the $583,000bn privately-traded derivatives markets, as mandated by the Dodd-Frank financial reform.”

Now, in case you are not immediately familiar with computing “billions of billions,” the number “$583,000 billion,” which doesn’t sound too bad, is actually the terrifying sum $583 trillion, which is significant in that the total GDP of the world – and I am talking about the total annual output of goods and services by everyone in the Whole Freaking World (WFW) – is only about $65 trillion!

This means that the derivatives market, alone, is 900% bigger than global GDP! Gaahhh!

And as unbelievable as it is to say, that monstrosity is just one of many, many weird, weird, bankrupting, bankrupting things that happened, happened because the world’s central banks created so, so much, much money for so, so long long.

And all of that is exactly why buying gold, silver and oil is such an easy decision to make, and so deliciously guaranteed of capital gain, that you happily exclaim, “Whee! This investing stuff is easy!”

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning, and other fine publications.

Copyright © 2010 Daily Reckoning

© 2010 Copyright The Daily Reckoning - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife