Is The 505 Trillion Dollar Interest Rate Derivatives Bubble In Imminent Jeopardy?

Off the keyboard of Michael Snyder

Follow us on Twitter @doomstead666
Like us on Facebook

Published on The Sleuth Journal on May 31, 2015

Visit the New Diner News Page for Daily Updates from around the Collapse Blogosphere

Bubble-In-Hands-Public-Domain-460x242-770x470

Discuss this article at the Economics Table inside the Diner

 

All over the planet, large banks are massively overexposed to derivatives contracts.  Interest rate derivatives account for the biggest chunk of these derivatives contracts.  According to the Bank for International Settlements, the notional value of all interest rate derivatives contracts outstanding around the globe is a staggering 505 trillion dollars.  Considering the fact that the U.S. national debt is only 18 trillion dollars, that is an amount of money that is almost incomprehensible.  When this derivatives bubble finally bursts, there won’t be enough money in the entire world to bail everyone out.  The key to making sure that all of these interest rate bets do not start going bad is for interest rates to remain stable.  That is why what is going on in Greece right now is so important.  The Greek government has announced that it will default on a loan payment that it owes to the IMF on June 5th.  If that default does indeed happen, Greek bond yields will soar into the stratosphere as panicked investors flee for the exits.  But it won’t just be Greece.  If Greece defaults despite years of intervention by the EU and the IMF, that will be a clear signal to the financial world that no nation in Europe is truly safe.  Bond yields will start spiking in Italy, Spain, Portugal, Ireland and all over the rest of the continent.  By the end of it, we could be faced with the greatest interest rate derivatives crisis that any of us have ever seen.

The number one thing that bond investors want is to get their money back.  If a nation like Greece is actually allowed to default after so much time and so much effort has been expended to prop them up, that is really going to spook those that invest in bonds.

At this point, Greece has not gotten any new cash from the EU or the IMF since last August.  The Greek government is essentially flat broke at this point, and once again over the weekend a Greek government official warned that the loan payment that is scheduled to be made to the IMF on June 5th simply will not happen

Greece cannot make debt repayments to the International Monetary Fund next month unless it achieves a deal with creditors, its Interior Minister said on Sunday, the most explicit remarks yet from Athens about the likelihood of default if talks fail.

Shut out of bond markets and with bailout aid locked, cash-strapped Athens has been scraping state coffers to meet debt obligations and to pay wages and pensions. With its future as a member of the 19-nation euro zone potentially at stake, a second government minister accused its international lenders of subjecting it to slow and calculated torture.

After four months of talks with its eurozone partners and the IMF, the leftist-led government is still scrambling for a deal that could release up to 7.2 billion euros ($7.9 billion) in aid to avert bankruptcy.

And it isn’t just the payment on June 5th that won’t happen.  There are three other huge payments due later in June, and without a deal the Greek government will not be making any of those payments either.

It isn’t that Greece is holding back any money.  As the Greek interior minister recently explained during a television interview, the money for the payments just isn’t there

The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega.

This crisis can still be avoided if a deal is reached.  But after months of wrangling, things are not looking promising at the moment.  The following comes from CNBC

People who have spoken to Mr Tsipras say he is in dour mood and willing to acknowledge the serious risk of an accident in coming weeks.

“The negotiations are going badly,” said one official in contact with the prime minister. “Germany is playing hard. Even Merkel isn’t as open to helping as before.”

And even if a deal is reached, various national parliaments around Europe are going to have to give it their approval.  According to Business Insider, that may also be difficult…

The finance ministers that make up the Eurogroup will have to get approval from their own national parliaments for any deal, and politicians in the rest of Europe seem less inclined than ever to be lenient.

So what happens if there is no deal by June 5th?

Well, Greece will default and the fun will begin.

In the end, Greece may be forced out of the eurozone entirely and would have to go back to using the drachma.  At this point, even Greek government officials are warning that such a development would be “catastrophic” for Greece…

One possible alternative if talks do not progress is that Greece would leave the common currency and return to the drachma. This would be “catastrophic”, Mr Varoufakis warned, and not just for Greece itself.

“It would be a disaster for everyone involved, it would be a disaster primarily for the Greek social economy, but it would also be the beginning of the end for the common currency project in Europe,” he said.

“Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the eurozone is not indivisible,” he added.

But the bigger story is what it would mean for the rest of Europe.

If Greece is allowed to fail, it would tell bond investors that their money is not truly safe anywhere in Europe and bond yields would start spiking like crazy.  The 505 trillion dollar interest rate derivatives scam is based on the assumption that interest rates will remain fairly stable, and so if interest rates begin flying around all over the place that could rapidly create some gigantic problems in the financial world.

In addition, a Greek default would send the value of the euro absolutely plummeting.  As I have warned so many times before, the euro is headed for parity with the U.S. dollar, and then it is going to go below parity.  And since there are 75 trillion dollars of derivatives that are directly tied to the value of the U.S. dollar, the euro and other major global currencies, that could also create a crisis of unprecedented proportions.

Over the past six years I have written more than 2,000 articles, I have authored two books and I have produced two DVDs.  One of the things that I have really tried to get across to people is that our financial system has been transformed into the largest casino in the history of the world.  Big banks all over the planet have become exceedingly reckless, and it is only a matter of time until all of this gambling backfires on them in a massive way.

It isn’t going to take much to topple the current financial order.  It could be a Greek debt default in June or it may be something else.  But when it does collapse, it is going to usher in the greatest economic crisis that any of us have ever seen.

So keep watching Europe.

Things are about to get extremely interesting, and if I am right, this is the start of something big.


Michael T. Snyder is a graduate of the McIntire School of Commerce at the University of Virginia and has a law degree and an LLM from the University of Florida Law School. He is an attorney that has worked for some of the largest and most prominent law firms in Washington D.C. and who now spends his time researching and writing and trying to wake the American people up. You can follow his work on The Economic Collapse blog, End of the American Dream and The Truth Wins. His new novel entitled “The Beginning Of The End” is now available on Amazon.com.

Knarf plays the Doomer Blues

https://image.freepik.com/free-icon/musical-notes-symbols_318-29778.jpg

Support the Diner
Search the Diner
Surveys & Podcasts

NEW SURVEY

Renewable Energy

VISIT AND FOLLOW US ON DINER SOUNDCLOUD

" As a daily reader of all of the doomsday blogs, e.g. the Diner, Nature Bats Last, Zerohedge, Scribbler, etc… I must say that I most look forward to your “off the microphone” rants. Your analysis, insights, and conclusions are always logical, well supported, and clearly articulated – a trifecta not frequently achieved."- Joe D
Archives
Global Diners

View Full Diner Stats

Global Population Stats

Enter a Country Name for full Population & Demographic Statistics

Lake Mead Watch

http://si.wsj.net/public/resources/images/NA-BX686_LakeMe_G_20130816175615.jpg

loading

Inside the Diner

Somebody suggested we get started at the new Global Collapse Forum early.  I'm going to start a Kickoff thread there.https://globalcollapse.createaforum.com/general-discussion/following-in-the-footsteps-of-the-doomstead-diner/RE

In her 2020 book, How the South Won the Civil War: Oligarchy, Democracy and the Continuing Fight for the Soul of America, Heather Cox Richardson provides a history of the two opposing ideas that are rooted in US history and may be the source of the pol...

https://rebellion.global/blog/2021/04/13/global-newsletter-50/?link_id=0&can_id=d4e96a888a65b26abfffc48652b2e679&source=email-the-scientists-have-had-enough-global-newsletter-50&email_referrer=email_1145059&email_subject=the-scientists-have-had-enough-...

I have joined the People's Party and will sign the petition in Missouri to get the Party active in elections. It is aimed at grass roots individuals not corporations and big business. I will be joining a regional Zoom meeting on Sunday afternoon to dev...

Quote from: knarf on April 13, 2021, 04:47:07 AMQuote from: Eddie on April 12, 2021, 10:34:11 AMQuote from: knarf on April 11, 2021, 07:35:40 AMEnjoy!  Bea...

Recent Facebook Posts

No recent Facebook posts to show

Diner Twitter feed

Knarf’s Knewz

Quote from: knarf on April 13, 2021, 04:47:07 AMQu [...]

Quote from: Phil Rumpole on April 13, 2021, 01:26: [...]

Quote from: knarf on April 13, 2021, 07:48:45 AMEv [...]

Quote from: knarf on April 13, 2021, 05:02:37 AMQu [...]

Diner Newz Feeds
  • Surly
  • Agelbert
  • Knarf
  • Golden Oxen
  • Frostbite Falls

Quote from: UnhingedBecauseLucid on March 18, 2019 [...]

CleanTechnicaSupport CleanTechnica’s work via dona [...]

QuoteThe FACT that the current incredibly STUPID e [...]

Quote from: knarf on April 13, 2021, 04:47:07 AMQu [...]

Quote from: Phil Rumpole on April 13, 2021, 01:26: [...]

Quote from: knarf on April 13, 2021, 07:48:45 AMEv [...]

Quote from: knarf on April 13, 2021, 05:02:37 AMQu [...]

Quote from: K-Dog on February 24, 2020, 06:23:52 P [...]

I wonder how much these coins have been debased? [...]

Precious tip of the day.....Buy silver NOW  She [...]

Scientists have unlocked the power of gold atoms b [...]

Quote from: azozeo on August 14, 2019, 10:41:33 AM [...]

Somebody suggested we get started at the new Globa [...]

I started a new Forum to discuss Collapse Issues o [...]

I am OUT of Jury Service!  I got summoned to be a [...]

Quote from: Eddie on May 16, 2020, 10:30:30 AMQuot [...]

Alternate Perspectives
  • Two Ice Floes
  • Jumping Jack Flash
  • From Filmers to Farmers

You Only Have One Inalienable Right A Rant By Cognitive Dissonance   I don't normally publish m [...]

  Tyranny, Inc.   By Alexander Macris Contemplations on the Tree of Woe   What government wants to d [...]

Getting Out of Dodge By Cognitive Dissonance     Recently I received an email from a reader who aske [...]

Penalizing Prudence By Cognitive Dissonance     “Economy, prudence, and a simple life are the sure m [...]

Harvest at Chez Cog By Cognitive Dissonance   It became obvious to Mrs. Cog and I by early February [...]

Event Update For 2021-05-04http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2021-05-03http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2021-05-02http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2021-05-01http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

In the meantime, industrialised chickens – and their viruses – have come home to roost in Victoria, [...]

Based on extensive scientific research, a fictional reminder that COVID-19 is but a mild pandemic – [...]

In other words, treat COVID-19 like a dry-run for the upcoming “big one” [...]

However don't expect strikes and yellow vests to fix underlying problems [...]

Daily Doom Photo

man-watching-tv

Sustainability
  • Peak Surfer
  • SUN
  • Transition Voice

"Demand for soy in the EU uses 6 million square miles. 5.2 million of that is in South America. [...]

"A year at a time is how we are taking life now. It is preparing us for our future."Covid [...]

"How do pandemics, climate variability, plastic, toxic pollution, and other threats affect fert [...]

"Unicorns and angels are real, and anyone could become rich just for being famous."Ökodorf [...]

"Legalization of cannabis may be, for the global climate, like re-creating the fossil fuel indu [...]

The folks at Windward have been doing great work at living sustainably for many years now.  Part of [...]

 The Daily SUN☼ Building a Better Tomorrow by Sustaining Universal Needs April 3, 2017 Powering Down [...]

Off the keyboard of Bob Montgomery Follow us on Twitter @doomstead666 Friend us on Facebook Publishe [...]

Visit SUN on Facebook Here [...]

Camus didn't predict Covid, but he studied enough about pandemics throughout history to depict [...]

Sarah Chayes spent decades studying networks of corruption in the Third World. Now she's findin [...]

What extinction crisis? Believe it or not, there are still climate science deniers out there. And th [...]

My new book, Abolish Oil Now, will talk about why the climate movement has failed and what we can do [...]

A new climate protest movement out of the UK has taken Europe by storm and made governments sit down [...]

Top Commentariats
  • Our Finite World
  • Economic Undertow

In reply to Xabier. Classier, but no beach and no reliving England's finest hour: https://peash [...]

Hi Gail - a few months ago you requested everyone to knock it off with the "fake moon landings [...]

In reply to Michael L'Merchant. The genius move this time around was the lock-downs, which requ [...]

In reply to Gail Tverberg. It's an ominous trend. Not only criminalized, but also defined as a [...]

In reply to Fast Eddy. (Sigh) https://ben-bussey.tumblr.com/post/135047003075/stanley-kubrick-estate [...]

In reply to ellenanderson. Gibbs certainly doesn't like biomass generation, another desperate l [...]

Found my way this morning, via Pepe's lastest article at The Saker, to a long essay from April [...]

As for derrick jensen I have mixed feelings. Like me he's anti-civ and he didn't fall into [...]

right on, ellen. reading through that material about silicon manufacturing is a reminder of just how [...]

Hi all, I put some literary suggestions up on the recommendations page. This is such a great post, S [...]

RE Economics

Going Cashless

Off the keyboard of RE Follow us on Twitter @doomstead666...

Simplifying the Final Countdown

Off the keyboard of RE Follow us on Twitter @doomstead666...

Bond Market Collapse and the Banning of Cash

Off the microphone of RE Follow us on Twitter @doomstead666...

Do Central Bankers Recognize there is NO GROWTH?

Discuss this article @ the ECONOMICS TABLE inside the...

Singularity of the Dollar

Off the Keyboard of RE Follow us on Twitter @doomstead666...

Kurrency Kollapse: To Print or Not To Print?

Off the microphone of RE Follow us on Twitter @doomstead666...

SWISSIE CAPITULATION!

Off the microphone of RE Follow us on Twitter @doomstead666...

Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money

Off the keyboard of RE Follow us on Twitter @doomstead666...

Merry Doomy Christmas

Off the keyboard of RE Follow us on Twitter @doomstead666...

Peak Customers: The Final Liquidation Sale

Off the keyboard of RE Follow us on Twitter @doomstead666...

Collapse Fiction
Useful Links
Technical Journals

In the past decade, several dedicated tools have been developed to help natural resources profession [...]

The aim of this paper was to analyze the impact of air pollution and meteorological conditions on th [...]

Climate trends suggest an increase in the frequency of intense rainfall events and the aggravation o [...]

Arabian Sea upwelling in the past has been generally studied based on the sediment records. We apply [...]

Follow on our http://www.doomsteaddiner.net/forum/