Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14
Sheffield Roma Crisis School Place Application's Fraud Perfect Storm - 17th Oct 14
Stock Markets, Commodities and Indicators - 17th Oct 14
“Save Our Swiss Gold ” - Game Changer For Gold? - 17th Oct 14
How to Trade the Ebola Stock Market Sell-Off - 17th Oct 14
When... Not if... Crude Oil Price Drops Below $70 - 17th Oct 14
Either You're The Butcher or You're The Cattle - 17th Oct 14
Gold Benefits from Market Uncertainty - 17th Oct 14
Stock Market Pullback Underway, Euro downside, Commodities - 17th Oct 14
Stock Market Seven Year Cycle and A Correction Ahead? - 17th Oct 14
Three Ways to Play Uranium: Top Stock Picks - 17th Oct 14
America Flirts With Deflation - 17th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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.


© 2005-2014 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

Free Report - Financial Markets 2014