Once again, the unthinkable has happened! Who ever thought the housing market would turn to garbage in 2007, rendering Mortgage backed securities contracts into toilet paper! Rendering every ‘close’ US ally virtually bankrupt – from Iceland, UK…. You name it!
And who ever thought Oil demand would plummet like it has in 2020, or that unemployment would hit 20% in the U.S.?? Rendering virtually the whole US and Canadian shale oil industry bankrupt! Who da thunk it?
Global derivatives have once again risen sharply in the past year or so. At the end of 2019 we rang in $2 quadrillion in total global financial aggregates (derivatives). And, according to the Bank for International Settlements, notional amounts of over the counter (OTC) derivatives rose to $640 trillion, up from $544 trillion at end-2018—an almost 20% increase!! A quadrillion dollar is 1,000 trillion dollars. About 15x the GDP of the world.
Yes, these contracts are all supposed to net out i.e. positive and negative values should zero out but in fact, the true net is somewhere between $9.7 trillion to $12.1 trillion (a 25% increase in a short period of time), led by increases in euro interest rate derivative contracts. This is the amount that bettors have immediately at risk and could lose in the blink of an eye.
And as these contracts go to hell, central banks will lose control of their endless nightmare. We will see zero and negative interest rate regime, and corporate junk debt will go down, but derivatives will explode.
As key commodities lose their value, the underlying value of the derivative contracts associated with them goes to hell very fast. And then there are banks, traders, buyers, sellers etc. all severely affected by the downturn. And the dominoes start falling … and soon we have a bubble bursting… this time its not a few trillion dollars in mortgages, but we are talking a few quadrillion dollars in global derivatives all linked to each other. It could be the collapse of the whole global financial system.
The global debt-to-GDP ratio is about 318%, a dangerously high level – and there isn’t room to bail out these markets.
Meanwhile, because of sanctions, Iran has diversified its economy to over $50 Billion in non-oil exports to friendly ‘countries’. And at the same time, fortunately for Iran, Iran has been frozen out of the global financial system for decades – so it has no real external debt, no involvement in global financial markets.
While the world collapses with another major financial market bubble, Iran can basically hold strong …. Immunized from financial disaster. Yes, Iran has virtually no external debt ($90 per capita), and no outside government securities – like US treasury bills or bonds etc.
While ordinary folks in the west literally owe hundreds of thousands of dollars the moment they are born, Iranian have virtually no debt per capita! i.e. they are among the richest nations in the world. I do realize the situation inside Iran is hard, but its will be a hell of a lot harder for ordinary folks in the West very soon. Whole economies are collapsing. It will be worst than 1930’s or the 2008 debacles. The West have farmed out real value added activity of shore and built their whole economies on ‘false’ paper securities and contracts – derivatives on top of derivatives – that serve no real economic value.