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| Economy |
| BREXIT and the Derivatives Time Bomb |
| 2016-07-03 |
| h/t Gates of Vienna Brexit could trigger a $500 trillion derivatives meltdown, by forcing the EU to allow insolvent member governments and banks to write down debt. Italy is in financial crisis and is already petitioning for that concession. How to avoid collapse of the massive derivatives house of cards? Alternatives are considered. Sovereign debt -- the debt of national governments -- has ballooned from $80 trillion to $100 trillion just since 2008. Squeezed governments have been driven to radical austerity measures, privatizing public assets, slashing public services, and downsizing work forces in a futile attempt to balance national budgets. But the debt overhang just continues to grow. ...But Brexit changes everything, says Summers. Until now, the EU has been able to reject debt forgiveness as an alternative, using the threat of financial Armageddon if the debtor country left the EU. But Britain has left, and Armageddon hasn’t hit. Other Eurozone nations can now threaten to do the same if they don’t get debt forgiveness or a restructuring. The First Domino -- Italy That has evidently started happening, with Italy as the first challenger of EU rules. On June 27th, Ambrose Evans-Pritchard reported in the UK Telegraph that the first serious casualty of the Brexit contagion had struck. The Italian government is preparing a €40 billion rescue of its financial system, as Italian bank shares collapse. The government is now studying a direct state recapitalization of Italian banks, to be funded by a special bond issue. They also want a moratorium of the bail-in rules and bondholder write-downs, although those steps are prohibited under EU laws. |
| Posted by:g(r)omgoru |
| #7 BREXY an effort to contain the damage of the derivatives? Better to fall at your own hand than the hand of someone else such as at the EU. |
| Posted by: JohnQC 2016-07-03 14:08 |
| #6 The "derivatives time bomb" has been waiting to explode for over 10 years now. The world of debt finance can continue on its insane path for much longer than any of us "little people" can stay solvent. |
| Posted by: Anguper Hupomosing9418 2016-07-03 12:11 |
| #5 Debt will be a huge issue for all countries in the next 10-15 years. Everyone is running on credit cards and the party can only go on so long. When the global credit bubble does pop, expect a economic collapse and depression unlike anything we have seen. It might take a century to fully recover and the new global order will not be familiar to us. |
| Posted by: DarthVader 2016-07-03 11:56 |
| #4 I'd rather have it now when my kid is 11. |
| Posted by: g(r)omgoru 2016-07-03 09:51 |
| #3 That which cannot continue forever will not. Is it worse for the derivatives time bomb to explode now or later? |
| Posted by: Glenmore in Mt Vernon 2016-07-03 09:36 |
| #2 The way to stimulate economies is to get money into the pockets of people who will spend it. Demand (money) stimulates supply (productivity What's the incentive to work if the U.S. government is paying the 47%+ not to work? Multiply this by other countries. We have seen this kind of bubble before on a smaller scale. Subprime loans (bupkas) were bundled into derivatives (more bupkas) and sold as investments. When the defaults started occurring, people lost their shirts and even countries went under (e.g. Iceland). So now it is suddenly a good idea to bundle worthless government bonds and sell them as investments (sarc.) Brexit only highlights the problem. Damn those globalists and One World Government types. |
| Posted by: JohnQC 2016-07-03 07:27 |
| #1 Banks? Who needs them? If governments began manufacturing synthetic corn and flooding the market with it, there would eventually be no need for farmers. Government as a business model is bad. Government as an actual business is much, much worse. |
| Posted by: Besoeker 2016-07-03 07:01 |