Printer Friendly

eMail Article

May 15, 2004

Time Bomb
by Sean Corrigan

Warren Buffett also frets on this.

Not bad, for government work.....

The BIS derivative survey reveals that, as of Dec 2003, the global derivatives market amounted to $234 trillion of notional contracts, of which some 75% - or $175 trillion - are interest rate-related (and 80%, or $142 trillion, of those OTC).

Risk - much of it unquantifiable and much of it, no doubt in the hands of those who either can't understand it at all, or who are too reliant on flawed models, which are usually oblivious to non-linear, network effects - now stands some 2.7 times higher than it did when LTCM blew up in 1998.

Over the year, the 1% Fed, the 0% BOJ, the 2% ECB and the 0-point-something SNB - in the pursuit of the harmful myth of 'macro-economic stability' - managed to encouraged a massive 41% jump in outstandings - a climb fully 3 ½ times faster than the change in OECD total GDP, which was estimated to have been $3.12 trillion (a figure itself flattered greatly by a decline in the USD which helped take 'real' growth from a paltry 2% to a nominal USD rate of 11.9%).

It also means that the Global Casino Economy racked up a whisker under $22 in interrelated risk transactions for every $1 of estimated growth in its Physical counterpart in 2003 - surely testimony to a financial system spinning wildly out of control.

Perhaps even more incredibly, that $234 trillion now amounts to $36,750 - or close to 10 months' income for the median household in the US - for every last one of the estimated 6.3-odd billion men, women and children on the planet, many of whom would be lucky to earn that sort of money in the course of three whole generations!

O tempora! O mores!

Sean Corrigan
Capital Insight

Sean Corrigan is a principal of www.capital-insight.com, and a co-manager of  the Bermuda-based Edelweiss Fund.

If you would like to read further articles by Capital Insight, or wish to subscribe, or to contact us, please visit www.capital-insight.com for details, or mail us at info@capital-insight.com

CAPITAL INSIGHT performs top-down analysis, wedded to an understanding of market action founded during long experience on the trading floor.

The Austrian School approach to an entrepreneur- and capital structure-oriented system of political economy is used to expose standard macro-economic fallacies and to exploit the misunderstandings, policy missteps, and market inconsistencies to which these give rise.

Money and credit flows worldwide are monitored for their impact on currencies, financial assets and ultimately on the real sector. The emphasis is on identifying long-term trends, but suggestions relevant to shorter time frames are also incorporated.

Legal Disclaimer: This document is sent from Capital Insight Ltd solely for information purposes and does not constitute any recommendation to buy or sell any security or derivative. The data contained in this report are derived from sources we deem reliable, but we do not accept responsibility for its accuracy, completeness or reliability.

Copyright © 1999-2004 Capital Insight, Ltd., All Rights Reserved

Image rendition and html coding Copyright © 2000-2009 SafeHaven.com

« Opinions expressed at SafeHaven are those of the individual authors and do not necessarily represent the opinion of SafeHaven or its management. Articles are available via RSS/XML. Please visit RSSHelp for instructions. »