As outlined in these pages over the past five years, DBFM and Fractional Reserve Banking can only result in government becoming the largest actor in the economy. As a corollary to this mathematically inevitable dynamic, profits gradually concentrate in the finance industry till they finally concentrate in the hands of a very restricted group of banks with the result that the productive capital of society is gradually taken away from individuals and redistributed to these banks.
As I pointed out in The Stuff Revolutions Are Made Of in early 2009, scandals will be the hallmark of this period of asset deflation. I am not a prophet and neither am I a world class economist. Nonetheless, a basic understanding of the mechanics of our monetary and political systems are sufficient to deduce how things evolve and how they will end. The only unknown is time of course but the eventual denouement is arithmetically preordained.
This monetary system and the system of electoral politics that derives from it, is a self reinforcing dynamic that results in banks becoming perceived as the one and only pillar of our life:
That Western governments have been shoveling public money into banks could have been inferred long ago but, as of Paulson’s “bazooka” stunt, it has now become clearly glaring… for those that wanted to see…
Now, we have the latest scandal that has made the pages of the main stream media.
However, it is clear that the magnitude, depth and significance of this latest scandal has not yet dawned neither on politicians nor on media hacks let alone on the great unwashed.
The usual suspects of the banking world have been caught manipulating LIBOR. In its narrowest definition, LIBOR is merely an interest rate. But as interest rates go, LIBOR packs a punch as LIBOR governs a market that in 2007 was estimated by the Bank of International Settlements at US$500Trillion and that the following year grew to US$650Trillion. LIBOR governs the derivatives market the bulk of which consists of interest rate swaps and credit default swaps (those instruments that, for example, bankrupted Jefferson County in Alabama, lost about $400M for Harvard Uni or allowed Greece to mask gargantuan debt in order to qualify for EU membership).
Just for context, the entire world GDP was estimated at one point to be worth US$50Trillion of which the USA commands about US$15Trillion.
Although I have not followed up on the latest BIS estimate of the derivatives market, I can guarantee that in light of the gargantuan sums that our elected criminals are throwing around as ostensible solutions to what is by now a global depression, the derivatives market is certainly much larger than US$650Trillion. You would think that in light of recent developments since 2007 this market would have unwound at least some of its positions but this monetary system guarantees that cannot and will not happen.
Apologists will rush to claim that the derivatives market only represents “notional value”. This of course begs the question as to why, if this is only notional value, should the great and the good of the banking world bother to manipulate LIBOR? If that makes no sense to these nitwits, then the following question would be to ask them what happened to the derivatives Lehman was a counter-party to? The answer of course is that when one of the counter-parties to a derivative packs it in, notional becomes very real value in a hurry.
This is another breach in an already unstable dam. It is a serious breach.
What remains to be seen is how our elected criminals will deal with this latest structural blow. What is certain is that a catastrophic event is nigh and, therefore, so is a comparably dramatic “solution”. The type of solution I envision the elected criminals to devise, includes a good old fashioned war. You know; the type of war that requires something similar to a draft to be implemented. The type of war that will distract and galvanize the unemployed, homeless, soon to be hungry and likely very angry throngs that would otherwise precipitate a revolution at home.
What is now needed is something to galvanize our populations. Will it be religion? Will it be ethnicity? Will it be territorial claims? How about all of the above?
I say we have time till 2015 at the most.
Guido's temple of the absurd 
July 13, 2012 at 3:30 pm |
The “market” in derivatives has a long way to go before it fulfills the stated purpose and does not itself threaten the financiers. Fewer banks and Basel rules mean it will continue to contract, but the chance of a slip multiplies with time. They do not control banking, still less these WMDs. All the pension funds, insurance assets may well disappear…… Should make nationalization and then offering to the workers in ten years quite an attractive scenario?!
July 3, 2012 at 7:55 am |
Agreed, there is a push to distract. But the only thing Obama has going for him is the Peace Prize. It was awarded as a symbol of hope, not achievement, obviously.
So far, it is the usual support drugs and terror types of ops with Libya etc as small scale ops not involving major confrontation. Wag the dog stuff, caused by dead or dying dictators? Oil as usual. Cutting oil to anyone will cause more of a glut elsewhere, deflation is definitely on the agenda. Hopefully, the big one, between China and USA et al, will not develop for a long time.
The chance to use the tsunami weapon against the USA exists, but by whom?
July 3, 2012 at 9:17 am |
What do you know… I just checked the BIS latest report and the derivatives market has actually shrunk… my bad…
http://www.bis.org/publ/otc_hy1205.htm
Excerpt:
“Key developments in the second half of 2011:
Data at end-December 2011 are not fully comparable with previous periods because of an increase in the reporting population. Australia and Spain reported for the first time, expanding the reporting population to dealers headquartered in 13 countries.
Notwithstanding the increase in the reporting population, total notional amounts outstanding of OTC derivatives declined between end-June and end-December 2011, to $648 trillion. At the same time, gross market values, which measure the cost of replacing existing contracts, increased to $27 trillion, driven mainly by an increase in the market value of interest rate contracts.
The rise in gross market values was the largest since the second half of 2008. The increase in gross market values is explained largely by the impact on outstanding interest rate contracts of the decline in long-term euro and US dollar interest rates in the second half of 2011.”