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The 441 TRILLION Dollar Interest Rate Derivatives Time Bomb


Do you want to know the primary reason why rapidly rising interest rates could take down the entire global financial system? Most people might think that it would be because the U.S. government would have to pay much more interest on the national debt. And yes, if the average rate of interest on U.S. government debt rose to just 6 percent (and it has actually been much higher in the past), the federal government would be paying out about a trillion dollars a year just in interest on the national debt. But that isn’t it. Nor does the primary reason have to do with the fact that rapidly rising interest rates would impose massive losses on bond investors. At this point, it is being projected that if U.S. bond yields rise by an average of 3 percentage points, it will cause investors to lose a trillion dollars. Yes, that is a 1 with 12 zeroes after it ($1,000,000,000,000). But that is not the number one danger posed by rapidly rising interest rates either. Rather, the number one reason why rapidly rising interest rates could cause the entire global financial system to crash is because there are more than 441 TRILLION dollars worth of interest rate derivatives sitting out there. This number comes directly from the Bank for International Settlements – the central bank of central banks. In other words, more than $441,000,000,000,000 has been bet on the movement of interest rates. Normally these bets do not cause a major problem because rates tend to move very slowly and the system stays balanced. But now rates are starting to skyrocket, and the sophisticated financial models used by derivatives traders do not account for this kind of movement.



If rates continue to shoot up, there are going to be some financial institutions out there that are going to start losing absolutely massive amounts of money on interest rate derivative contracts.




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It seems that, at some point, there must come a realization of "too much." With the same economic "brain trust" out there that's already near brought down the world, telling everybody to buy stocks and bonds, that it isn't a pig wearing that silk hat, how big do the debt numbers have to get, how much leverage is too much, how much insolvent does any entity have to be, before somebody rationally concludes something's seriously out of whack? One must wonder at what point The Bernanke can't just keep the press rolling and disseminate lip service, bailing out the guv and the toxic debt of the world, before somebody pulls back the curtain on the wizard and dollars start becoming marketed at Walmart in double rolls?


I wonder why economics is even considered an academic discipline, and, therefore, not voodoo, also. What was it somebody said? If you lined up all the economists in the world, they would never come to a conclusion.

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