What Comes After a Trillion?

November 12, 2003
Author: Jim Sinclair

With great pride and joy the derivative dealers have awarded the world with a 20% growth rate in in the first half of the year. (See Reuters story below). Actually, it looks to me more like a 100% growth rate but who really knows for sure given the devious nature of derivative-related dealings.
 
It was madness when these unregulated pieces of “sewage” reached the 60 trillion level; now the OTC derivatives market has reached 150 trillion and is growing steadily. One can’t help but reflect on the comments attributed to Warren Buffett’s billionaire vice chairman, Charlie Munger, who was quoted as saying, "To say that derivative accounting is a sewer is an insult to sewage.”

Since that time, the derivatives picture has moved from madness to pure insanity and portends major trouble ahead for the world’s economic system. Let’s face it, derivatives are not like old US generals who retire because they won’t lie or simply fade away. They are based on massive fraud and can never go away. In fact, they only grow larger to supposedly offset the increased risk.

Well, we are going to find out what comes after a trillion much sooner then you think. The minute that the neckline of the massive 30-Year US Treasury long term Bearish Head & Shoulders breaks down - which will happen when currency considerations are taken into account and a slowdown in the US economic recovery affects Asia - every derivative in existence will require adjustment.

That is when the sewage will hit the fan and derivatives go to a QUADRILLION just before there are no more to report. The impact of this event will remake the political map of the world and secure Asian leadership for years to come.

Paul Volker saved capitalism and defeated communism and Greenspan will go down in history as presiding over the transfer of economic, political and social power away from the West into the hands of former Maoists whose ideology has long been dismissed by Western governments.

OTC derivatives market grows to $170 trillion-BIS
Reuters, 11.12.03, 3:59 AM ET

LONDON, Nov 12 (Reuters) - The global over-the-counter (OTC) derivatives market expanded by 20 percent in the first half of 2003 as interest rate swap contracts continued robust growth, data from the Bank for International Settlements showed. In figures released on Wednesday, the Basel-based BIS said the OTC foreign exchange market resumed growth after a stable second half of 2002 with euro/dollar contracts surging considerably as the euro appreciated over the period.

The BIS, a forum for central banks, said the total estimated notional amount of outstanding OTC contracts stood at $169.7 trillion at end-June 2003, up 20 percent from end-December 2002.

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