Quadrillion=10^15. Derivatives?

Remove "millions" from your immediate vocabulary. It’s outdated and no longer has use in political language. “Billions" can also be kept at arm-reach as "trillions" has become the new appropriate, politically-correct and common terminology. But, is there a new 800 lb gorilla about to enter the room? Likely, and his name is "Quadrillion!" Surprised? Here's how it looks: 1,000,000,000,000,000. And, I don't even want to think of how many times that sum would stretch to the moon and back - let's just say "many times" and save that brain energy for pouring more coffee.

The current see-saw debate Congress is having over Obama's spending plan pales in comparison and is simply "political cover" for what is forthcoming. They are merely "throwing us a bone" to make it appear that they are "doing something" to help with American job losses. However, in reality it's just part of a larger scheme to soften our palpability to another gargantuan bank-bailout and a cushion for the gorilla about to plop his big, ugly self down. Recently, it was noted that US banks are still dramatically under-capitalized, facing more than $3.6 trillion in additional credit losses as the financial crisis broadens. You may have already heard sound bites indicating that there will be another "bailout bill" coming soon - this time likely trillions in another attempt to re-capitalize the failing banks. Think that's bad news? Well, it gets worse, far worse - the 800 lb gorilla still lies ahead.

There are over $600 trillion (careful, that's trillion, not billion) in credit derivatives steadily tanking as we speak, effectively draining world liquidity. Stumped yet? Derivatives (though I've never seen one) are basically "insurance policies" that cover large loans in case of default. But, it wasn't just the homeowner as we’ve been led to believe that was hedged to fail, it was the paper itself - bundled repeatedly, replicated and sold that became gargantuan. The heavier and deeper these derivatives grew the more volatile they became. Ultimately, they all default because no one, no one fund is solvent enough to cover these large losses. And, now we know why the Fed's money-printing presses have been working 24/7 - they can't print enough money fast enough to fill these default holes.

Consider for a moment that the "combined" world stock exchanges represented only a mere $62.5 trillion in the fall of 2007 (though it fell to $36.6 trillion in the fall 2008); we're talking small potatoes compared to the dark derivatives market that is sucking the US and the world dry. Federal Reserve Chairman Ben Bernanke knows this – he sits on the board of the Bank for International Settlements, a consortium of the world's central banks. $600 trillion in derivatives is what the consortium has estimated and claim is now maturing, emptying depositories and keeping credit markets clogged. Amidst the secrecy shroud, it’s my guess that it’s much bigger and we'll soon hear the term “quadrillion.”

We've been hoodwinked by every conceivable excuse for the financial crisis - from poor folks that should never have been given mortgages, to corrupt politicians like Barney Frank who couldn't balance his own checkbook much less comprehend the scale and scope of what's happening or do anything about it, to shady Wall St traders who were just trying to pay for their yachts and beach homes. Sure, it's all complicit, but none hold a candle to the dark dealings in derivatives, unregulated and obscure with a life and death of their own making.

What can be done? Clearly, it's going to take larger minds than out-of-work lawyers in Congress, or Presidential soothsayers and Chairman Bernanke’s team. Personally, I give them two chances of resolving this mess: slim and none. Certainly, nothing will be done quickly to stave off children’s hunger pains caused by laid-off parents. The stimulus plans have been noble, but they miss the mark. Now, with a job lost every 13 seconds, it seems unlikely that more obtuse spending will dissuade the crisis. The financial elite are fighting a beast they can't beat - their gorilla has slipped and busted it on a banana peel of epic proportions in a quintessential, wrecking slide of greed and corruption. Unfortunately, he has bruised more than his pride, leaving millions jobless, perhaps homeless and hungry for answers.

related-What Cooked the World's Economy?
It wasn't your overdue mortgage.
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US banks "insolvent" - bankruptcy looming

The Obama trillion-dollar spending stimulus may just be the "tip of the iceberg" of an even more gargantuan government bailout plan if what Nouriel Roubini says is true about the US banking system. Roubini, the economist who predicted the financial collapse a couple of years ago, said this weekend that US banks are "insolvent" calling it a "systemic banking crisis." He goes further to say that problems at Citi, Bank of America and other banks are signaling that the system is essentially bankrupt and that Europe's scenario is very similar.

US banking and brokering credit losses are expected to reach $3.6 trillion which are only capitalized by $1.4 trillion. So now, in addition to the $350 billion leftover from the Bush stimulus package, Obama will likely have to also use his entire proposed trillion-dollar stimulus money to further recapitalize the banking system. With such massive cash-injections and a renowned economist basically declaring the system bankrupt, the so-called prolonged recession is taking on more of a depression outlook although Bush, Obama and others are spinning it more subtly, saying the situation could simply worsen without adequate and prompt funding without actually admitting the “D word" possibility.

If the Great Depression similarly started with massive bank failures one could certainly draw conclusions that the US could be facing another grim period. And, there are other similar and different variables, today. The debate still rages over whether the depression and our current plight was caused by failures in global trade policy, a failure of government to aptly regulate financial institutions or perhaps both. Then, there was little money in supply compared to today’s spiraling, straight-upwards supply the Federal Reserve is continuously and feverishly printing. Then, we had little national debt comparatively, but today our debt is surpassing $11 trillion and this year’s budget deficit will exceed a $1 trillion for the first time in history. Home and business values falling, little credit, cheap goods – all are deflationary and similar to both eras. However, the common bank troubles, job losses, trade and government issues are all exponentially more complex today.



The Treasury’s money-printing presses are running beyond capacity to feed the expense of government, float bank depositories and keep the flow of goods and services moving. Yet, every aspect of the economy reflects a deflationary move in the economy. How can that be? Is there a lag between the massive influx of money and inflationary prices and higher interest rates? Evidently there is. With all that money being injected into the system economic concepts should point towards inflation. So, why haven’t we seen that yet? Hoarding? It happened in the 30’s, too. Some economists believe it’s still coming towards us and the lag will result in “hyper-inflation” – meaning that when it hits it will hit with a vengeance. A loaf of bread could cost $100, interest rates will go up, more businesses will close, unemployment will double or triple, the dollar is likely to collapse and America could find itself in an even deeper and darker depression than the 30’s.

It’s apparent that massive bank-recapitalization will soak up new, unfathomable amounts of freshly-printed money, substantially more than Obama or Congress has resolved needed. Obama’s job creation plan will require an additional trillion just to spur temporary jobs in infrastructure, education and energy – none of which will become available quickly, and possibly too little-too late given the recent predictions of massive retail closings, manufacturing, financial and other job losses in 2009. Obama will probably address the nation soon, warning of the continuing, plaguing problems before taking his case to Congress in an effort to persuade them to pass an even substantially larger stimulus package – now one of trillions instead of billions. Clearly, America’s recovery is going to come with a much higher price tag; and, if it can recover at all and debts repaid, the heavy burden will fall squarely on the fortitude and pocket books of future generations.


related-Cranking up the presses

"Moonlight Cowboy" is a regular contributor to Jer's Place. If you would like to contribute an original article for possible posting contact Jer at jerbearox@yahoo.com -Jer


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Obama - Trillion Dollar Man!

Never before in America’s history has a newly-inaugurated President been handed a trillion dollars to spend revitalizing an ominous economy. And, unlike the “Six Million Dollar Man’s” bionics wielded by Lee Majors in the popular mid-70’s TV series, this “Trillion Dollar Man’s” power will come from a virtually blank checkbook – an era of “Obamanomics” ushered in by a complicit Congress and hastened by a plethora of “free-traders” drunk with borrowing and spending.

Obama’s stimulus plan will only create temporary public-sector jobs, grow permanent government bureaucracy and continue to fuel the mass exodus of manufacturing and service jobs to foreign shores. America doesn’t need more FDR-like spending for national parks and monuments, or roads and bridges and other temporary, pseudo-real projects – we need real jobs, manufacturing jobs that grow permanent wealth. Our companies leave because we have the second-highest corporate tax rate in the world and through trade agreements, allowing them to take advantage of cheap resources and cheap (even child) labor to drive profits. Since NAFTA and other WTO agreements were initiated over fifteen years ago, America has lost nearly four million jobs and sold nearly 17,000 American companies to foreign interests. Unfortunately, Obama’s campaign pledge to renegotiate these agreements has waned, already altered and likely hoodwinked by the groping, drunken power of Washington bureaucracy, big-business and foreign lobby.

His plan thus far has no incentives for permanent wealth for a nation whose borrowing capacity is exceeded only by its larger appetite for spending. We now borrow trillions instead of billions with no real plan to reverse our dismal course. Our debt of $11 trillion is sky-rocketing and we no longer generate enough tax revenue to cover just the expense of Social Security and Medicare – forget funding for running the government, defense and other mandatory or discretionary spending. These foreign loans also subject us to their stipulations, limiting our action on democracy and freedom ideologies. We are debt-ridden, entirely dependent on loans to feed growing entitlements suffered by our cornerstone loss of wealth in manufacturing and support for entrepreneurship.

We must create new manufacturing protectionisms like our trading partners and set a true course for re-growing the nation’s wealth. We must renegotiate or do away with these trade agreements, implement import tariffs and limit the lobbying power in Washington. We’ve taken liberty for granted and if the course isn’t changed the nation "of the people" may likely exist only in history. We need to get involved in taking back our country - learn what's happening, take real action to preserve and endear it! Leaving things "up to someone else" has left us in the shape we're in now! Join a group (Campaign for Liberty), contact your congressmen and senators or write POTUS Obama at Change.gov - demand these trade agreements be renegotiated or revoked and hold them accountable.

Obama can take the helm of this economically starved, consumer-drunken nation if he follows his campaign promises and bring America back to being the strongest nation in the world! And, his future legacy shouldn’t resemble that of FDR or of Lincoln, but rather as a “restorer” of our wealth and sovereignty. Otherwise, America will awaken from this “trillion-dollar drunken spending spree” with an empty bottle and a jobless hangover, powerless and stumbling around looking for handouts from the economically-prosperous, less apt than ever to lend us more hair of the dog that bit us.

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