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Message: The true amount of outstanding Derivatives is $1 Quadrillion
From:
"China_South America: News and Analysis" <bennett.reiss@gmail.com>
Hernando de Soto, Peruvian Economist shares his thoughts via the Wall Street Journal
Posted: 25 Mar 2009 11:04 PM PDT
The Obama administration has finally come up with a plan to deal with the real cause of the credit crunch: the infamous "toxic assets" on bank balance sheets that have scared off investors and borrowers, clogging credit markets around the world. But if Treasury Secretary Timothy Geithner hopes to prevent a repeat of this global economic crisis, his rescue plan must recognize that the real problem is not the bad loans, but the debasement of the paper they are printed on.
Today's global crisis -- a loss on paper of more than $50 trillion in stocks, real estate, commodities and operational earnings within 15 months -- cannot be explained only by the default on a meager 7% of subprime mortgages (worth probably no more than $1 trillion) that triggered it. The real villain is the lack of trust in the paper on which they -- and all other assets -- are printed. If we don't restore trust in paper, the next default -- on credit cards or student loans -- will trigger another collapse in paper and bring the world economy to its knees.
If you think about it, everything of value we own travels on property paper. At the beginning of the decade there was about $100 trillion worth of property paper representing tangible goods such as land, buildings, and patents world-wide, and some $170 trillion representing ownership over such semiliquid assets as mortgages, stocks and bonds. Since then, however, aggressive financiers have manufactured what the Bank for International Settlements estimates to be $1 quadrillion worth of new derivatives (mortgage-backed securities, collateralized debt obligations, and credit default swaps) that have flooded the market.
Today's global crisis -- a loss on paper of more than $50 trillion in stocks, real estate, commodities and operational earnings within 15 months -- cannot be explained only by the default on a meager 7% of subprime mortgages (worth probably no more than $1 trillion) that triggered it. The real villain is the lack of trust in the paper on which they -- and all other assets -- are printed. If we don't restore trust in paper, the next default -- on credit cards or student loans -- will trigger another collapse in paper and bring the world economy to its knees.
If you think about it, everything of value we own travels on property paper. At the beginning of the decade there was about $100 trillion worth of property paper representing tangible goods such as land, buildings, and patents world-wide, and some $170 trillion representing ownership over such semiliquid assets as mortgages, stocks and bonds. Since then, however, aggressive financiers have manufactured what the Bank for International Settlements estimates to be $1 quadrillion worth of new derivatives (mortgage-backed securities, collateralized debt obligations, and credit default swaps) that have flooded the market.
Clavis
$1 quadrillion = $1000 trillion
From:
"Investors Daily Edge" <support@investorsdailyedge.com>
The Fed cut interest rates to almost nothing in an attempt to head off the deflationary effects of falling house prices and weakening consumer demand. This “reflation” shows us that the Fed is no longer focused on fighting inflation; they are now completely focused on avoiding a depression.
Why is inflation bad? Well, inflation hurts people who have saved up a nest egg and those who live on a fixed-income. The same dollars buy less goods and services. Also, wages never go up as fast as inflation, so working people can experience an increase in their cost of living, without the pay raise to go along with it.
The average American household is heavily in debt, so inflation will allow them to repay their debt in devalued dollars. I once heard a story of a woman in post war Europe that paid off her entire mortgage for the same amount of money that was needed to purchase a book of matches. Knowing this, today’s 30-year fixed rate mortgages at 5.10% look really good........................
Why is inflation bad? Well, inflation hurts people who have saved up a nest egg and those who live on a fixed-income. The same dollars buy less goods and services. Also, wages never go up as fast as inflation, so working people can experience an increase in their cost of living, without the pay raise to go along with it.
The average American household is heavily in debt, so inflation will allow them to repay their debt in devalued dollars. I once heard a story of a woman in post war Europe that paid off her entire mortgage for the same amount of money that was needed to purchase a book of matches. Knowing this, today’s 30-year fixed rate mortgages at 5.10% look really good........................
Clavis
May be a route to go?
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