$51,055,587,000,000 Outstanding Debt Means No Recovery

I Hope I Have This Wrong……

In my efforts to self educate on subjects Economic I have spent a lot of time reading Newsletters of various perspectives. Majorities are from Analysts offering their services in making money in ‘Bear’ Markets. Peter Schiffs “Crash Proof & Bob Pretchers ‘Conquer the Crash’. Both Authors have one clear prediction for the future and it matches any horror story I have read in terms of provoking thought born of fear.

I understand from simple observation that no one bar the most deranged individuals believes a recovery is actually happening. The story is easier to believe living in Australia where the “Greatest Financial Crisis in History” hardly affected us. Yet I know that around the time of Lehman Brothers collapse and the days following it was quite possible I might have woken up to find the ATM offline and the entire Global Banking system in ruins.

I have read the story of Lehman’s (‘A colossal failure of common sense’) I know at the time they were leveraged at something like 44:1 in Derivatives they were entangled with and a Stock price that went from $80 to nothing. I can understand that a lot of Shareholders lost a lot of money. As with Bear Stearns. I quote Ellen Brown of Global Reserch “Before it collapsed, Bear Stearns was the counterparty to $13 trillion in derivative trades”.

My question is what about the Derivatives ? Lehmans and Bear were not the only ones pumping these instruments through the system for the years leading up to the Crash.

I have recently read that over 74 Trillion in Derivatives are still out in circulation; the Author quoted his information from the Bank Of International Settlements. 74 Trillion is several times the Worlds GDP. Its also the lowest estimate I have heard; others claim as much as 140 Trillion is closer to the number.

I went to the BIS Web Site and most of the PDF Tables were unintelligible to me. I did find one that showed Developed Countries at $20,679,877 & Europe with $13,100,908 in Millions of USD these two alone = $33,780,785 Millions of Dollars if I add the appropriate 6 Zeros we get $33,780,785,000,000 throw in the “Other Exposures” $51,055,587,000,000 The number is staggering. The few Trillion of of injections by World Governments hardly even scratch a number that big.

I have to conclude that at present these debts are being circulated around or being kept out of the real Economy by a sort of Financial Musical Chairs the missing chair being provided for by similar forces that created the 14 Digit Number.

A person does not need much Economic knowledge to figure that it would take only a small hiccup and we will wake up to the disaster that was so brilliantly averted by our leaders. What seems to be happening now is the markets are moving sideways, virtually everyone is aware of the Elephant in the room but would rather stay in that most Human of all states when faced with a chronic problem, Denial…..

I will attempt to include one of the tables here, I had to use a Screen shot as they are in PDF and not separate images. The question I would like help with here is for some of you more educated in the subject to have a look your self’s and please tell me I have got this all wrong.

David

#“All of that seems right to us so far. The deflationary argument depends on the collapse of both the shadow AND the real (deposit taking) banking system. The shadow banking system is the murky world of credit, securitisation, and derivatives which currently supports and/or holds some $600 trillion in assets. Yes that's trillion with a T.”

#The Daily Reckoning Australia (Dan Denning)

The Power Of Denial in Market Psychology

The Power Of Denial in Market Psychology



A great deal has been written about Denial in the treatment of addiction, Alcohol, Drugs, Food and Gambling to name a few. Out of 100 average individuals presented with unpleasant or repugnant probabilities; i.e.: “You will die if you continue this behavior” 90 percent of people switch off. They may listen and even agree with the statement, however taking any action, breaking an entrenched habit is not going to happen.


How many Economists and Traders when presented with the information about a possible breakdown of the Worlds Financial System back in 2006, stopped and dispassionately considered the facts and took appropriate action? There were people a very small percentage making the point and presenting the arguments logically even writing books on the subject.


Human Beings do not want to listen, they will ‘Hear’ but they will not listen. While you talk, they are thinking of the their next statement. The majority of people in charge of the Worlds largest Financial Institutions and the bulk of individuals involved are not stupid. They are generally well-educated intelligent people. Yet accepting and acting upon the unpleasant realities that the future held in 2006 was unacceptable.


Only about 20% of the population has recognizable Addictions, Obese people know what they are doing to themselves yet Denial enables them to eat just one more slice of cake. “I will exercise it off tomorrow”, the Alcoholic thinks “Just the one and I will go home” The Gambler is the same. Those of us without these recognized problems believe that the thinking is confined to just that group of people. This is not the case. Most of Humanity shares the same thinking process. How many wealthy people ignore the rising Blood Pressure and the Ulcer or the disintegrating Marriage? They could quit today but habits are hard to break.


It is with this understanding of the ability of Humans to ‘Rationalize’ their behavior we can understand the failure of so many educated and informed people to keep doing the same thing everyday expecting a different result. When the thought pattern breaks is when the individual is faced with an undeniable situation that in its magnitude and personal implications the person is forced to accept the reality of hitherto possible outcomes. The GFC was such an event. A very few people escaped its effect because they had recognized it prior to the event and took action to protect themselves.


The GFC as with the Great Depression was foreseeable, Climate Change is foreseeable, most people accept Climate Change, most Alcoholics know they are Alcoholics. In Economics the thinking and beliefs of the majority drive the Economy. At this moment in time there are a few voices predicting unpleasant events are yet to come because we are still doing the same things expecting different results.


We call them ‘Contrarions’ because they are in the minority and hold views nobody wants to accept. They predict that more pain is ahead, a disaster worse than the one we just experienced. The majority of these few voices are saying that adding more Debt, sustaining Deposits in the Trillions, supporting Companies & Countries that should be Bankrupt will bring down the Worlds Economy.


Many of us ‘Hear ‘ them, very few are listening. Even fewer are acting. If Investors were acting we would see a run to solid assets, paper money would be devalued or worthless depending on the country. How many of you with incomes over 50K have enough food stored to last 6 weeks? I bet you have Life Insurance. Do you have a Generator? With Natural Disasters as frequent events now?


The above are simple “Insurances” cheap ones compared to buying Burglary or Third Party, or Funeral. I bet that most of you do not even have decent First Aid kit.


Right now a lot of people could save themselves a lot of possible future pain and probably if you take a good had look at where unsustainable Debt is taking you, your family or your country. You would take pause, not have that slice of Cheesecake and promise to work it off tomorrow because that is what we collectively are doing. We are waiting for Tomorrow and for some deeply embedded reason the Human Mind is geared this way. If it was not; then the Dow would be at 1000 not 10,000.