FINANCIAL SYSTEM IN JEOPARDY!

by Martin D. Weiss, Ph.D.

http://www.financialsense.com/editorials/weiss/2007/0813.html

The Gigantic, Poorly-Known, Highly Inflammable Market For DERIVATIVES …

[snip]

"In its latest survey, the Bank of International Settlements (BIS) calculates that the total "notional" value of all derivatives outstanding in the world is a mind-boggling $415 trillion.

That's over eight times the GDP of the entire world economy … twenty times the total value of all U.S. stocks … and fifty times all the Treasury debts of the United States Government."

[snip]

http://www.bitsofnews.com/content/view/5955/

The Insolvency Crisis: How we got here, and what to expect

Saturday, 11 August 2007 Written by Garrett Johnson

And Nouriel Roubini, naturally:

'[T]oday any wealthy individual can take $1 million and go to a prime broker and leverage this amount three times; then the resulting $4 million ($1 equity and $3 debt) can be invested in a fund of funds that will in turn leverage these $4 millions three or four times and invest them in a hedge fund; then the hedge fund will take these funds and leverage them three or four times and buy some very junior tranche of a CDO that is itself levered nine or ten times. At the end of this credit chain, the initial $1 million of equity becomes a $100 million investment out of which $99 million is debt (leverage) and only $1 million is equity. So we got an overall leverage ratio of 100 to 1. Then, even a small 1% fall in the price of the final investment (CDO) wipes out the initial capital and creates a chain of margin calls that unravel this debt house of cards. This unraveling of a Minskian Ponzi credit scheme is exactly what is happening right now in financial markets.

http://www.rgemonitor.com/blog/roubini/

And finally:

"Debt securitization is guerrilla warfare against a sound credit system. Unlike a credit-driven economy, a debt-propelled economy will inevitably reach a point where its ability to service the growing debt is exceeded, unless inflation stays ahead of interest charges, in which case the banking system will fail." - Henry C K Liu

(Emphasis added - cfs)

There are similar issues in the UK, Spain, Eastern Europe (Hungary in particular), China, South America, and ect. and so forth.

The tide of hyper-leveraged 50-1 or even 100-1 'liquidity' is a global phenomena driving speculative asset and commodity inflation.

The fall of the dollar relative to other currencies merely means the other currencies have been losing value at a slightly, and only slightly, slower rate.

'US financial assets have been built not only on debt, but on debt recycled at high velocity. It is a form of turbo-debt, in which one dollar of debt can act as equity to finance more than $100 of credit through sequential leveraged financing and leveraged securitization. Borrowers in turn become lenders, who themselves lend borrowed money. Massive financial energy is released through chain reaction of a tiny amount of equity.

Debt is not intrinsically objectionable if it is adequately collateralized by real assets, and the proceeds are invested to increase real national income above what is needed to service the debt. But turbo-debt by definition is generated by practically no equity. And if debt is serviced mostly by the wealth effect of debt-propelled asset appreciation, a bubble is in the making. '

Henry C K Liu - How currency devaluation destroys wealth

http://www.atimes.com/atimes/Global_Economy/IF14Dj01.html

"What's more, in another poke in the eye to the received wisdom, the job picture was much worse in both June and July than originally reported: Revisions slashed June by a whopping 57,000 slots and July by 24,000.

Nor is that the whole sad story. For were it not for the enhancement of August's sickly totals by a formidable 120,000 jobs mythically created by the BLS's "birth/death" contraption, the final tally would have been downright ugly. And the so-called household data, which bulls used to eagerly parade because it consistently outdid the establishment count, continued this year's dismal -- or, should we say, accurate -- performance, shedding 316,000 jobs last month."

Alan Abelson - Barron's column - The Big Stall

That BLS Phantom Jobs Generator needs to be thrown on the scrap heap for good.

Paging Wiley Coyote...

>What cost $70000 in 1970 would cost $371812.92 in 2006.

Also, if you were to buy exactly the same products in 2006 and 1970,

they would cost you $70000 and $13178.67 respectively.<

source: http://www.westegg.com/inflation/

And that's just using the government's rigged CPI figures which are a BAD JOKE.

I keep telling ya'll to get a grip. Houses aren't really appreciating in value; it's your currency that is depreciating.

"Inflation is that moment when as a result of government action the distinction between real money and fake money begins to dissolve. That is why inflation has such a corrosive effect on society. Money is one of the primary measures of value in any society, perhaps the primary one, the principal repository of value. As such, money is a central source of stability, continuity, and coherence in any community. Hence to tamper with the basic money supply is to tamper with a community’s sense of value. By making money worthless, inflation threatens to undermine and dissolve all sense of value in a society."

Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian Economics, Dr. Paul Cantor (quoted at: http://www.financialsense.com/editorials/englund/2007/0924.html)

Ummm, Andrew...the word is 'wear'.

Getta grip.