{"id":239,"date":"2010-04-16T11:24:21","date_gmt":"2010-04-16T18:24:21","guid":{"rendered":"http:\/\/goldcoinsrare.com\/?p=239"},"modified":"2010-04-16T11:24:21","modified_gmt":"2010-04-16T18:24:21","slug":"the-derivative-bubble","status":"publish","type":"post","link":"https:\/\/www.itmtrading.com\/blog\/the-derivative-bubble\/","title":{"rendered":"The Derivative Bubble"},"content":{"rendered":"

The derivatives<\/a> market is a looming omen whose default could collapse the entire world\u00e2\u20ac\u2122s economy<\/a>.\u00c2\u00a0 They are so dangerous that Warren Buffett once declared them as weapons of economic mass destruction and stated that he would never be involved in them.\u00c2\u00a0 Here are some of the main categories:<\/p>\n

1.\u00c2\u00a0Credit default swaps
\n2.\u00c2\u00a0Interest rate derivatives
\n3.\u00c2\u00a0Commodities derivatives
\n4.\u00c2\u00a0Equity linked derivatives
\n5.\u00c2\u00a0Over-the Counter derivatives<\/p>\n

Derivatives are securities whose value depends on the underlying value of other basic securities and associated risks.\u00c2\u00a0 They are essentially leveraged bets.\u00c2\u00a0 A buyer of a derivatives contract only needs to put up a fraction of the value of the contract in order to purchase it.\u00c2\u00a0 Because of this, the dollar amount that currently exists in the derivatives market has been allowed to mushroom unchecked for decades.\u00c2\u00a0 It is currently estimated by the Bank for International Settlements that the amount outstanding in the derivatives market is $1.144 Quadrillion USD. ($1,140,000,000,000,000) That is $1,144 trillion!\u00c2\u00a0 Let\u00e2\u20ac\u2122s put this number into perspective by looking at the outstanding value of some other assets.<\/p>\n

1.\u00c2\u00a0GDP of the entire world is $50 trillion $50,000,000,000 (derivatives market is 22 times larger)
\n2.\u00c2\u00a0Real estate market for the entire world is estimated at $75 trillion (derivatives market is 15.25 times larger)
\n3.\u00c2\u00a0The world stock and bond markets combined are valued at $100 trillion (derivatives market is 11.44 times larger)<\/p>\n

What is scary about this market is that it is unregulated, it has no universal standards, deals are made with private contracts and it is not transparent.\u00c2\u00a0 A collapse in the derivatives market would make the housing collapse look minuscule in comparison and yet it continues to go on unchecked.\u00c2\u00a0 A collapse in this market could occur because of catastrophic events like cascades of bankruptcies and nationalizations, or geo-political or geo-physical events.\u00c2\u00a0 If the party who accepts this \u00e2\u20ac\u0153contract\/bet\u00e2\u20ac\u009d goes bankrupt this would make the synthetic value of the contract\/bet become real money, therefore any large OTC derivative financial firm or brokerage house must be bailed out or taken over by another similar company.\u00c2\u00a0 Didn\u00e2\u20ac\u2122t we just see this happen with AIG and Bear Sterns? Just imagine if all the bettors at the Kentucky Derby went to the cashier\u00e2\u20ac\u2122s window after the race and they were told that the track is bankrupt.<\/p>\n

The derivative market needs to be reigned in.\u00c2\u00a0 It is very dangerous to not only the financial markets here in the U.S. but its tentacles have stretched to financial markets all over the world.\u00c2\u00a0 Its value is about $190,000 for every man woman and child on the planet.\u00c2\u00a0 Regulations need to be put in place, and even then it will still be a dangerous market.\u00c2\u00a0 Just another reason why everyone needs to own gold<\/a> in their portfolio.<\/p>\n","protected":false},"excerpt":{"rendered":"

The derivatives market is a looming omen whose default could collapse the entire world\u00e2\u20ac\u2122s economy.\u00c2\u00a0 They are so dangerous that Warren […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1207],"tags":[27,48],"class_list":["post-239","post","type-post","status-publish","format-standard","hentry","category-blog","tag-american-economy","tag-derivatives"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/posts\/239","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/comments?post=239"}],"version-history":[{"count":0,"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/posts\/239\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/media?parent=239"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/categories?post=239"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.itmtrading.com\/blog\/wp-json\/wp\/v2\/tags?post=239"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}