Title : Billionaire Issues Chilling Warning About Interest Rate Derivatives
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Billionaire Issues Chilling Warning About Interest Rate Derivatives
Will rapid rise in interest rates rip through the US financial system like a giant lawn mower blade? Yes, the US economy survived rates much higher interest in the past, but at that time there were hundreds of billions of dollars in interest rate derivatives that hangs over our financial system as a sword of Damocles. This is something I've been talking about for quite some time , and now a Mexican billionaire has made a similar warning.Hugo Salinas Price was the founder of the retail chain Elektra in Mexico and he is very worried that rising interest rates could burst the bubble of derivatives and cause huge bankruptcies "everyone". Of course, there are plenty of people out there who would be very happy to see the "too big to fail" banks go bankrupt, but the truth is that if they go down our entire economy goes down with them.
Our situation is similar to a patient with very advanced cancer. You can try to kill cancer with drugs, but almost certainly kill the patient at the same time. Well, that's essentially what our relationship with the big banks is similar.
Our whole economic system is based on credit, and as we saw in 2008, if the big banks begin to fail credit freezes and suddenly nobody can get money for anything. When the next great credit crisis, every major issue of our economy will quickly start to get much worse. The big banks will play a leading role in the next financial crisis as they did in the latest. Only this next crisis may be a little worse. Just check out what billionaire Hugo Salinas Price told King World News recently ...
I think we will see a series of bankruptcies. I think the increase in interest rates is the fatal sign that will ignite a crisis of derivatives. This will bring down the system of derivatives (and the financial system).At this time, there on 441000000000000 dollar interest rate derivatives sitting out there. If interest rates where they are at this time and will not remain much higher, we'll be fine. But if they start to go much higher, all bets are off and we could see the financial carnage on a scale we've never seen before.
There are (more than) one thousand trillion in derivatives and most of them are related to rates Of interest. The rapid rise in interest rates in the United States can set it off. What will happen in the world is the time that we will reach a time when it will be massive bankruptcies worldwide.
What will be left after the dust settles it is gold, and some people will have and some people are not. Then the problem will be to hold on to what you have, because it will not be a very pleasant world.
And at the time that the big banks have to behave because the government He is investigating allegations that have been cheating pension funds and other investors out of millions of dollars by manipulating trading in interest rate derivatives. The following is from an article Telegraph published Friday ...
The Trading Commission Commodity Futures (CFTC) is investigating 15 banks over allegations he instructed the brokers to carry out operations that would move ISDAfix, the rate of primary reference for swaps of interest rates.Essentially they got their hands trapped in the dough and so you got to play straight (at least for now).
pension funds and companies investing in derivatives interest rates are often faced with the banks to insure against large fluctuations of ISDAfix or speculate on changes in the swap
types
ISDAfix is published every morning after the banks submit bids for swaps through ICAP, the corridor between operators, a number of coins. The CFTC has been investigating suggestions that the banks are deliberately moved the speed in order to benefit from these offers.
Given the hundreds of billions of dollars in interest rate derivative transactions that occur each year, even the slightest manipulation can have a substantial effect. The CFTC, which began investigating after ISDAfix Libor scandal last summer has been delivered emails and phone calls recordings showing the rate was deliberately moved, according to Bloomberg.
Meanwhile, it seems that the Fed might not be able to keep rates of long-term interest down for much longer.
the Federal Reserve has been the use of quantitative easing to try to keep interest rates low long-term, but now some more officials at the Fed are becoming very alarmed by the swollen shape of the Fed's balance sheet has become. For example, the following was written recently by the head of the Dallas Fed Richard Fisher ...
This program later referred to as QE or quantitative easing, by purchases public and such a large scale asset or LSAP, internally in the Fed. as a result of LSAP carried out during three stages of QE, Account Open System Federal Reserve Market now has $ 2 trillion in Treasury securities and $ 1.3 billion of agency and mortgage-backed securities (MBS).Fisher has compared the current balance of the Fed to a "Gordian knot", and hopes that the Fed will be able to rest this knot without creating "market chaos" ...
Since last autumn, when the third phase of quantitative easing began, we have been buying regularly $ 45 billion a month in Treasuries and $ 40 billion a month in MBS, meanwhile reinvestment of profits paydowns of our mortgage-based investments. The result is that our balance sheet has ballooned to more than $ 3.5 billion. That's $ 3.5 trillion, or $ 11,300 for every man, woman and child residing in the United States.
The point is: we own a significant portion of these critical markets. This is, in fact, a sort of Gordian knotBut of course, it should be obvious to everyone that the Fed will not be able to reduce the size of its balance sheet without causing great distress in the financial markets. A few weeks ago, only the suggestion that the Fed could finally start to slow the pace of quantitative easing caused markets to throw an epic tantrum.
Those who are familiar with the Gordian legend know that there are two versions: a. One of them has to Alexander the Great, just send the problem by cutting the knot intractable in half with his sword; other deposits Alexander pulled the knot of his pole shaft, exposed the two ends of the rope and proceeded to untie. According to myth, the oracles then guessed he was going to conquer the world.
No Alexander simply cut the knot complex we have created with our rounds of QE. Instead, when the right time, must be removed carefully with pin Polo program and cautiously so as not unroll wreak havoc market. To begin, however, we have to stop building on the knot. For this reason, I have argued that socialize the idea of the inevitability of our dial back and eventually ending our LSAP. In June, I argued that the President of the signal this possibility in his last press conference and the meeting last week suggested that we must gird our loins to make our first move this fall.
We'll see if that recommendation obtained with most of the Commission.
Unfortunately, the Fed may not be able to maintain control interest rates long term, even if they continue quantitative easing indefinitely. In recent weeks interest rates long term have been increasing , and the yield of the 10-year US Treasury slipped slightly higher on Monday.
In this point, many on Wall Street are convinced that the bull market in bonds is over and that rates eventually go much, much higher than they are at this time no matter what the Fed does. The following is an excerpt from a recent article CNBC ...
The Federal Reserve will lose control of interest rates as "high turnover" of bonds into shares is removed all his strength, according to a market observer, who sees US Yields on 10-year bonds hitting 5-6 percent in the next 18- 24 months.If the yield on 10-year US Treasury has not hit 6 percent, we will have a major disaster on our hands .
"It is our view that interest rates have begun their assent, the Fed finally losing control of interest rates. the yield curve steeper in the first place and then move, rates significantly higher movement, "said Mike Crofton, president and CEO, Philadelphia Trust Company told CNBC on Wednesday.
Hugo Salinas Price is exactly right - the derivatives bubble is the main threat to our financial system is facing, and which could potentially bring down a lot of our big banks
But for now, Wall Street is still in. a state of euphoric mood. The Dow is near a record high and many investors expect this rally will last for the rest of the year.
Unfortunately, I would not count on that happening. The truth is that the stock market has become completely divorced economic reality.
Since March 2009, the size of the US economy It has grown by about $ 1.3 billion, but the wealth of the market has grown at an astonishing $ 12 zillion .
And the stock market alone has remained on the rise Although forecasts GDP growth have been falling steadily .
makes no sense.
However, Obama, Bernanke and wizards of Wall Street ensure that there is no end to the party in sight.
believe them at your own risk.
people in the controls are completely and totally disoriented and quickly careening toward disaster .
Maybe we should do what a small town in Minnesota did and put a 4-year-old in charge.
that boy certainly could not be much worse than our current leadership, is not it?
This article first appeared here in the economic collapse Blog . Michael Snyder is a writer, speaker and activist who writes and edits their own blogs The American Dream and Economic Collapse Blog . Follow him on Twitter here .
Source: Activist Post
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