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Derivatives, Or: How The Money Power Created The Greatest Depression

June 15, 2014
Robert Rubin, Alan Greenspan and Larry Summers

Left: Robert Rubin, Alan Greenspan and Larry Summers, three of the main architects of the derivative induced Greatest Depression. As usual, the Ministry of Truth portrays them as those who prevented collapse.

Depressions and the boom/bust cycle are wholly artificial phenomena. In earlier days, Bankers created deflations simply by calling in loans. Nowadays things are a little more complicated, but crashing the money supply is still the main thing. Derivatives are today’s preferred method.

Let us first reestablish that recessions and depressions are caused by deflation. Here’s the graph showing the money supplyover the last few years, courtesy of Shadowstats:

M1, M2, M3 over the last 10 years

M1, M2, M3 over the last 10 years

Let us analyze a little what this graph shows. M3 is the main issue here. This is because it is the widest definition of the money supply, including long term deposits and several other forms of liquidity, including some derivatives. M3 is most telling about what is happening in the shadow banking system.

In the first place, M3 is first shown in red, then in blue. This is because Greenspan ended Fed reporting of M3 in 2006. An unbelievable scandal, off handedly done away with as a cost cutting measure.

However, we can clearly see the malicious intent here, because Greenspan was just hiding what he knew what was already starting: a massive inflation, followed by a legendary crash in M3.

As said, M3 is the widest definition of money and directly related to this is that the main deflation after 2008 happened in the shadow banking sector, non-banking lenders, like hedgefunds. It was the implosion of the derivatives that caused M3 to tank in the way it did.

In 2008, we see that M1 starts to peak when M3 crashes: this is the Fed printing money: they were buying up busted derivatives, in effect replacing derivatives with ‘real’ (freshly printed) dollars and bailing out the busted loansharks.

This is also where the rumor of hyperinflation stems from: the Austrians were only looking at M1, endlessly showing the peaking balance sheet of the Fed (M1).

Austrian Economics in general of course is always fearmongering about hyperinflation while promoting deflation. As a result, many reasonable people these days will say, ‘well, declining prices you know….’. But deflation means money is becoming worth more and this is nice for those who have a lot of it: the ultra rich in particular. During deflation wages decline too and this is not so good for those working for a living, being most of us. Much worse: debts become worth more in real terms, which is obviously disastrous with everybody drowning in debt.

And the deflation is simply the reason the economy is in shambles. The contracting money supply causes a collapse of demand in the economy.

In this particular instance, the Money Power created the depression with the derivative trade: first blowing a huge housing bubble with them, and then busting them. Next, the shadow banking industry collapsed. As a result, the housing bubble was starved from easy credit and imploded. The Fed bailed out all the banks and billionaires with their hedgefunds, no harm done there, but Mainstreet is now saddled with a huge debt, millions of homes underwater. Nobody is bailing them out. On the contrary, it’s Wall Street that is buying up all the homes for pennies on the dollar. QE funds this, as it does the ridiculous NYSE record breaking bull run.

Meanwhile, the economy is a mess, ongoing depression and it does not look like the Money Power is done with us quite yet.

How they do it
Of course, all this is a little convoluted. One needs to see that the Banking System is indeed One, that they all own each other, that it is run from the top down globally. There is no ‘chaos’ as described by the financial press, both mainstream and alternative. The financial system is operated just as any other system.

In earlier days, bankers just had a nice confab, agreed to start calling in loans at this or that moment and creating panics and depressions was much easier. Nowadays a good story is needed. But there is an ample supply of those and the derivative trade is just the modern way of both plundering the non-insiders and controlling the entire system.

For Mainstreet, there are many stories. That greed causes it all (not untrue of course), that we need to consume less, because the Earth cannot sustain our way of life, that there is a lack of faith, that structural reform is necessary, that we are losing the competition with China, etc., etc.

But all these narratives just serve to hide the truth: that the boom/bust cycle is a totally artificial tool of plunder and centralization of wealth and power by a centralized financial system.

The Derivative Congame
Derivatives are financial products, that are derived from more ‘real’ assets.

A famous example are the Mortgage Backed Securities (MBS). Taking for instance ten mortgages, slicing them all in ten pieces, mixing a tenth of each together and selling them as one product. The buyer is then owner of one tenth of ten mortgages, instead of one complete one. The idea is that this spreads the risk of default.

Another example are the Credit Default Swaps. Lenders buy guarantees from other lenders: if a loan goes sour, the lender is no longer on the hook for the (entire) bust. The rationale is again that risks are shared by the lending community.

Very important (in terms of trading volume) are derivatives that ‘insure’ against higher or lower interest rates. Interest rates (the cost of money) ultimately drives the entire financial world and swings in interest rates can destabilize institutions.

As always, the rationale is just the sell. If we want stable interest rates, I suggest going 0% always. That certainly would solve a great deal of problems, but it would also end Plutocracy, of course, so it’s not really on the horizon for the time being.

In reality, derivatives are nowadays the main plundering scheme, run by the main players. It transpires, that the top 5 Wall Street banks (JPM, BofA, Morgan Stanley, Goldman and HSBC) are the counter party for 95% or more of all derivatives worldwide. This means that they are ultimately on the hook for all risks insured in the entire financial sector, globally. Obviously, this is hardly stabilizing. Quite the opposite is the case, as it goes without saying that these banks simply don’t have the assets, huge as they are, to make good on their promises, should things go wrong. Which they must.

As always, in purely Orwellian fashion, their ‘idea’ of ‘spreading risks’ has in reality done the exact opposite.

This is one key reason why we have Goldman Sachs alumni in European Governments everywhere: should European sovereigns default on their loans, Goldman Sachs would be one of the players who would have to pay up as the ultimate counter party in the Credit Default Swaps market and this would vaporize them long before everything would be settled.

The derivative trade is hugely lucrative for players, as long as things go well. Their total nominal outstanding value was at some point nearing a Quadrillion, dwarfing total global GDP. What is more, they are all off balance: they are not seen as assets and they are not part of the Generally Accepted Accounting Principles (GAAP).

This means that nowadays nobody really knows anymore what the real asset position of any financial institution really is: they might have huge obligations through the derivative trade, but it’s not visible in their books.

Derivatives are obscure instruments and are nowadays the main game for fleecing unsophisticated investors. Pension funds, municipal entities, semi public institutions and the like. Interest based derivatives are simply bets: interest rates can go up or down and while they are officially for ‘insurance’ against unexpected swings, they are in reality mainly used for speculation purposes.

It is the derivative trade that brought Detroit down. Of course, Detroit is not really down, their CAFRs (Comprehensive Anual Financial Reports) show plenty of assets, but that’s another matter. However, Detroit was suckered into speculating with tax payer money, their conscience eased with the narrative that they would ‘help stabilize the Financial System’ and everybody would get rich. They went bust instead and now pensioners can pay.

Another good example is Vestia from the Netherlands, until a few years run by the now disgraced Eric Staal. A few decades ago Public Housing institutions were semi-privatized into QUANGOs (Quasi Autonomous Non Governmental Organisations),Vestia among them, with the predictable consequences: quickly rising rents and salaries for top management as a result of focus on ‘efficiency’ (profit) instead of effectiveness (service to tenants).

Eric Staal was a typical example of the ‘new manager’, ambitious, egotistical. Thinking he could play ball with the big guns. They lured him with some superhot ‘account managers’ in short skirts, copious diners, and expensive call girls. Next, his bets went south and Vestia can now cough up 2 billion euro. Which they don’t have and for which tenants can now pay up in the coming decades (with interest, of course) with higher rents.

It’s easy to blame Staal and to mock him for getting busted, but in reality the man was just suckered into something that was way above his head and this is a pure congame by soulless vipers. These people are very adept at exploiting ambition and other human weaknesses.

Larry Summers and Wall Street
August last year, Greg Palast published a bomb shell memo by Larry Summers, front running candidate to succeed Bernanke at the Fed at the time.

In the 1997 memo it was made very clear that Summers, with the Treasury at the time, was conspiring, completely illegally, with a couple of the main Wall Street Kingpins to force deregulation of the derivative scam worldwide. Rest assured that this publication was the reason that Summers missed out on the Fed presidency, which would have crowned his already despicable ‘career’.

This in itself creates the interesting question who wanted him out of the equation, and organized this by leaking to Palast, but that is another matter.

Of course Summers and the named bankers should have been arrested immediately, the memo provided more than sufficient grounds for this, and jailed for the rest of their lives. These people are the prime culprits of the 2008 implosion and should never see the light of day again. The memo shows them openly discussing the ‘end game’ of full control of the economy by the financial industry.

But hey, too big to jail, you know. Obviously, locking up people destabilizing the system would be very destabilizing in the colorful narrative of ‘democracy’ and ‘economics’ and ‘the legal system’.

But Palast’s memo was the smoking gun that proves that the derivatives scam was foisted on the financial industry by some of the highest executives of the Money Power and it must be obvious that the ‘disaster’ of 2008 was only a disaster for those picking up the tab: the tax payer and those losing their jobs, houses and businesses through artificial deflation.

The Bank of International Settlements
The BIS is the apex of the global banking system, the Central Banks’ Central Bank. It’s the main executive in what Quigley famously described as “The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.”. It’s the top of what the Economist called ‘the marvelous edifice of international finance’.

And the BIS does indeed hold a crucial trump card when it comes to the global management of the volume of money and thus the creation of the boom/bust cycle: it sets the capital reserve requirements for banks. It was the BIS raising capital reserve requirements in the late eighties that made the Japanese banks insolvent overnight, popping the outrageous Nikkei/Real Estate bubble that had overtaken Japan. They never recovered and neither did Japan.

The BIS of course knew well what was going on in the 2000’s with the derivatives and real estate. The derivatives allowed huge leveraging by the banks, many of which at some point had no more than 2% in capital reserves. BIS policy now is to raise capital reserve requirements, officially to ‘improve stability’, and this has a huge impact on the banks’ capacity to lend, guaranteeing ongoing depression.

The BIS, in its publications, is also openly calling for stronger deleveraging and the end of quantitative easing.

What does it all mean?
As we have seen above, the basic sell for derivatives is that they manage risks. This was very important, because they helped create the false sense of security with the banks and regulators in the 2000’s: the idea was that lending had lost its traditional ‘risks’ and that therefore speculation in real estate was no longer a problem and that real value was being created.

Of course, nobody in his right mind, most certainly not the bankers, believed this, but the point is that bubbles need to be blown so they can be popped and this happens to be the story with which they blew the housing bubble of the 2000’s.

Mortgage Backed Securities now made sure that everybody, including sub prime borrowers, could get a mortgage, interest rates were kept low, and housing went through the roof. Next of course problems emerge, borrowers can’t pay and Mortgage Backed Securities all of the sudden transpired to not at all have taken any risk away.

The top people of Wall Street have created the scheme top down. This has a number of important implications. In the first place: these people are not going to take undue strategic risks with the financial system. Contrary to popular folklore, it’s not short term gain that drives them primarily. They’re master strategists. They knew exactly what they were doing. They knew there were going to be huge bankrupties and they knew the Fed would bail them out. Bail outs are one of the main purposes for which they created the Fed to begin with.

After 2008, the derivative trade just continued to proliferate in a completely unsustainable way. Hundreds of trillions of nominal value and although this greatly overstates the real risks involved, it has already been shown what damage they can do. A next round is guaranteed.

It is more than interesting that it is the American banks that run the trade. The top 5 banks that are the counter parties may look strong now, but they’re actually in an extremely vulnerable position. While sold to manage risk, it’s in fact these banks that ultimately carry all risks in the financial industry. This is an accident waiting to happen.

This could be classically interpreted as just another example of American imperial over reach, but if one realizes the Money Power is not the US Empire and looking to put America and its dollar down as the hegemon, an even more sinister picture emerges. These banks are at the core of the American economy and the Money Power can at any moment detonate a nuclear bomb right at the heart of the American Empire by just popping the derivative bubble. True, it’s very difficult to fathom how the global financial system itself could survive such a melt down, but knowing what the bankers are capable of, and the direction they seem to be heading, it’s an interesting scenario.

Blowing bubbles and popping them with alternating inflations and deflations is, with Usury, the Money Power’s core business. Each cycle has its own story and derivatives are the story of the Greatest Depression. The worst is yet to come. Years of scarce money, depression and centralization of wealth lie ahead of us. They will undoubtedly manage to spring something nasty on us yet.

At the moment the economy is temporarily improving a little bit, but we have been looking for green shoots for years now. In reality, indebtedness globally, both private and public, is much worse than in 2008. For years the Central Banks have been postponing the real pain, but huge deleveraging is necessary within the current paradigms of financial management.

As always, it’s not even so much the debt, but the Usury that is the issue. Even Greece could pay off all its debts within 20 years just from what it loses to debt service today. Most nations have, since the 2nd World War, paid more in interest on their debts than they have debts outstanding.

But the banks have us exactly where they want us: unsustainable debt, a huge portion of our incomes raked in through Usury, the ‘need’ for deleveraging, resulting in deflation and thus giving them the depression they so clearly crave.

Within the paradigms of the current system, this cannot be solved. Only ending banking as it operates today can end centuries of wholly artificial booms and busts.

But this will only become possible when people stop wondering about corruption in finance and start seeing finance itself is corrupt.

The Dying Dollar and the Rise of a New Currency Order
The Inflation vs. Deflation Dialectic
Austrian Economics, Apostles of Austerity Defending Deflation
Understand that the Banking System is One
The Few Banks that Own All

  1. sammy mcnight permalink

    First, you impute almost preternatural control to the bankers over all the bells and levers:
    “The top people of Wall Street have created the scheme top down. This has a number of important implications. In the first place: these people are not going to take undue strategic risks with the financial system.”

    Then you say this:

    “True, it’s very difficult to fathom how the global financial system itself could survive such a melt down…”

    Make up your mind. You are right to conclude the US dollar is a temporary and ultimately expendable vehicle for the money power. Pax Americana and the petrodollar almost delivered the planet to a world government under peacable means. But it has sputtered at the 11th hour. There are two emergency solutions remainging are the IMF SDR “coming to the rescue of the world” or a third world war, massive demand destruction and fresh interwar period to reconsolidate the ashes.

    • It’s a paradox, not a contradiction.

      • Shreyas Niranjan permalink

        Hi Anthony,

        I am from India. I wanted to bring some information to you that everyone in Internet is ignoring- the fact that Rothschild Family became rich overnight was not only because of the Napolean Factor but also because of the Indian Factor.

        The Captain in the above and many other blogs states that India held 80% of the World’s Gold & almost all of the World’s Precious Stones in Hindu Temples.

        Then Mughals came and some of it got plundered but most of it stayed here in India itself.

        He says that till the British came to India we had been producing according to his “Conservative” estimate 25-30% of World GDP.

        The Captain argues that so much gold and precious stones accumulation in Hindu Temples was not possible because of the reason media and PAID historians deliberately only state as Spice Trade.

        People cant use the argument of that much gold/precious stones coming from Gold or Precious Stone Mines in India as we dont even have 1% of Gold/Precious Stones ores in India and they have a very uneconomical extraction rate even by today’s standard

        So he says that most of the gold came to India from Various Parts of the World in exchange for

        1. Indian Priceless Knowledge in the form of Vedas,

        2. Books on Ayurvedic Medicine & Surgery, which shows methods for curing all diseases & disorders of this planet, even of the ones which exist today

        3. Herbs which was used to make Ayurvedic Medicine such as Aloe Vera etc. Millions of such herbs in abundance in India were traded

        He mentions that Rothschild stole all the Gold, Precious Stones and Vedic Texts which are the main reason for all Western Knowledge today and for Rothschild’s unimaginable wealth today

        The Capt. estimates the gold stolen by temples from one town was equivalent to 300 Billion USD of 1799 and if you use inflation calculators it would go upto 5 Trillion Dollars as of 2014.

        This does not include the price of the priceless Vedic Texts & Ayurveda which if patented in today’s value would bring trillions of dollars more

        This was only ONE TOWN, imagine what would be the sum total value of all the gold, precious stones (including diamond) & Vedic Texts stolen from India….!!!!!!

        Capt. also says that Rothschild was able to steal this much wealth from India when East India Company owned by Nathan Mayer Rothschild, came here and stole everything in 50 years.

        There was so much wealth that it took him so much time to steal all this,

        The stealing took place through his agent a king Tipu Sultan. He didnt want to do this directly as there was a curse if you stole gold etc. from Indian Temples.

        After all the stealing took place he orchestrated the Battle of Mysore by just shooting cannons into the air. Tipu at that time was at his palace having his meal when his own PM bribed personally be the Rothschilds shot him and dumped his body where the cannon fire took place and then his PM also was killed Mysteriously








        Anthony I would hope you read the Blog written by Capt. Ajit Vadakayil

        It is the source of all this information..!! There is a tonne of information that I would like to share with you.

        I hope to see your reply soon

        Your Fan,

  2. Ross N. permalink

    MBS, to my mind, are debt instruments hypothecated on top of debt instruments. One debt instrument begets another, and in the conversion process, the new one demanded more money from the supply. In other words, the composition of the supply changed to an increased ratio of debt instruments to money. Debt instruments are always claims on money.

    Look close: Some debt instruments, like mortgages, create credit money. Some debt instruments claim existing money from the supply. A MBS does not create new money, but instead adds claims on existing money supply. A MBS does speed up the bubble though as first banker see less risk. The flood of credit also pushes market prices, creating a buying frenzy to further positive feedback loop.

    So, the first instance of debt instrument creation, the mortgage, creates a flood of debt money per unit time. That usury is front loaded on the mortgage (you pay most of the usury up front, and later pay down the principle).

    This works out really good for finance, of course. The first mortgage lender, off loads the mortgages to a SPV special purpose vehicle) in a TBTF bank. Note: most TBTF’s are primary dealers for the FED.

    By off loading the debt instrument, the first banks books are cleared to make new loans. The First Bank gets a lot of up front profit and fee generation. The second shadow bank (the SPV) gets to then attract more of the economies credit money toward itself with the new Securities. MBS’s in particular attract the floods of money moving around offshore. When these funds park somewhere, they are not insured. However, with MBS, there was a line of insurance back to the FDIC and also co-signing risk reduction by insurance like AIG. AIG was both insuring the first instance of credit creation, and also buying end products like MBS’s. Banking and Insurance is a numbers game, and a reason Glass Stegal had firewalls.

    Somebody can look this up, but I think capital requirements for land and housing are less than most other hypothecations. They would be in BASEL capital accounting rules for banks. Therefore reserve requirements are very low.

    All of this chicanery made the MBS look better than it was, and hence make claims against the money supply out of proportion to reality.

    Government also consumed the extra flood of credit money issuing forth out of housing bubble to pay for war. Even more trade imbalance China cash was recycled in their gambit by buying TBIlls and keeping interest rates low. This helped China steal industry, screwing the producers with Wall Streets help, and thus undermine real wealth production.

    Our finance money system has nothing to do with industry and wealth, It is completely unscientific, and is a cancer on laboring producers.

    The Butcher, Baker, and Candlestick maker should be able to focus on their jobs, and not worry about what parasite of the day has mounted them.

  3. Kudos to Real Currencies for doing what it should – explaining the rigged game to those who can handle it (and to some who clearly cannot.) DERIVATIVES. Such a robust subject!

    Derivatives are NOT UNDERSTOOD even by most of the people who are obliged by their cubicle jobs to handle them. For them to become more generally understood would be tantamount to a school shooting plot being leaked to law enforcement. Because the whole thing is a crime and a criminal conspiracy. Understood rightly and against the backdrop of laws the rest of us are obliged to live under, the SWAT teams would roll and it wouldn’t just be the snitches being tossed off skyscraper roofs. Okay?

    They take a thing (a bundle of bad mortgages, just for instance) and they put it in a box. Wrap the box. Put a price tag on it. Sell it for way more than it will ever be worth since it is valueless. Plug their ears. No explosion? Good. They peel their money from the game-table and go home snickering. The people who bought the box then put it in a bigger box with other speculative monetary ‘products’ and the process repeats and repeats in an ever expanding bubble. It is a bit more complicated than a strictly defined Ponzi scheme – and much more complicated in the vernacular of the money pits than how I have summed it up – and in so being it is much more adaptive to the nonsense of the ‘business cycle.’ But it’s still just a bunch of ‘elite’ people who produce nothing playing games on the commonwealth’s credit. If I walk around writing $100 checks on an empty account I will last a day or two, spend a few thousands and then go to jail for years. But if I get hired in an off-Wall Street boiler-room somewhere I can write checks for millions, help wipe out the GNP for a decade and walk away with a bonus.

    Years ago after Nick Leeson took off Barings at their bloody knees, he was asked frankly by Adam Curtis ‘how and why’ in an interviews which Curtis built into a great documentary. Leeson basically said ‘Because Barings were stupid and they didn’t understand derivatives.’ He also explained to a dumb and unhearing global audience that most of his criminal charges were for things that are standard procedure for the industry including all bankers and traders and Barings, things all these scoundrels do everyday to fuck the world.

    Why did they crucify Nick Leeson? Because you have to know who not to fuck with.


  4. Carl Jones permalink

    My understanding is that M3 calculations were always done and they just stopped publishing the numbers. You say is was done to save money, I don`t see how this saves any money?

    WW3 on the way. The world is already starting to split into its two factions.

    • It was just presented as a way of cutting cost at the time, but obviously this was just a calculation: take the flak and move on and hope to hide the real story of M3 in this particular racket for a big part of the public. And it worked: everybody was only looking at ballooning M1 all the time.

  5. Ross N. permalink

    I think of MBS, TBILLS, BONDs, Mortgages and the like as debt instruments. Within that category, there are different flavors and behavior. For example, a new TBILL can be printed and it finds new FED money to then do deficit spending, and grow the money supply. The TBILL eventually finds its way to the FED by way of their TBTF agents.

    The FED could spend the TBILL back into the economy and then drain money supply. In the first case, money was created and allowed to stay in the supply until the FED chooses to recall it. An existing TBILL can bounce around in the secondary market, swapping with existing money, and not be the basis for a new loan until somebody hypothecates it.

    Derivitives on the other hand are derivations of something else. They are instruments that are bets. One side of bet makes claims on the money supply if certain conditions exist, and the other side of the bet makes claims if the conditions change. It works something like a debt instrument that makes claims on the money supply, but doesn’t cause the money to disappear. Instead, it just pulls usury toward the claimant.

    Most derivitives are insurance rate swaps. As long as interest rates stay low, the path is thus: Municipality taxes you; tax money then goes to a TBTF bank for their derivitive. The game is that interest rates will stay low and you will continue to pay. It is a rent scheme disguised as risk hedge.

    If rates go up, then the opposite happens. TBTF has to pay the difference to the municipality. The flow is from TBTF to city governments. Municipalties entered into these swap (bets) with banks to hedge their risk and not have to go to the taxpayer for more money were interest rates to rise.

    But, of course, the bankers gamed the system and manipulate it – witness the LIBOR scandal.

    Heads I win, tails you loose. It’s great to be a bankster.

    Theyhave made more bets than we have money in supply. That means if the bets go bad, banksters will socialize their risks onto your back.

    • Unbelievable stuff, no Ross? Set rates yourself and make bets on what they will be. That people even fall for this crap.

      The question is, is a new round of bailouts really possible? Can the Fed print another 16 Trillion?

      My bet is: they can’t. But if they can’t, what then?

      • Ross N. permalink

        When the banker’s socialize their risk onto your back, they will do it with a confiscation scheme. They will simply take your time deposits and convert them to bank stock. They will then take your money and make their derivative payments. If interest rates go up, interest rate swaps become a time bomb.

        Conversions and swaps are integral parts of banker games, and usually when you convert something to something else, there is room for usury and rent scheming. This is why they make things devilishly complex, so average sheeple cannot follow the con game. Most people are too busy with their lives anyway to keep up with it all.

        Cyprus was a dry run. The IMF, EU, and ECB allowed a Bail in:

        “That deposit account is a liability of the bank on the bank’s books and on its balance sheet. Because the bank is authorized by law to make loans up to a multiple of its reserves, the bank’s reserves on hand to satisfy payment of deposit liabilities amounts to only a fraction of the total which the bank is obligated to pay in satisfaction of its demand deposits.”
        ‘Most people would be surprised to learn that they are legally considered “creditors” of their banks rather than customers who have trusted the bank with their money for safekeeping, but that seems to be the case.”

        When you take out a loan at a bank, it is really your signature authority that allows hypothecation. Bank Money (your credit really) is then spent into the money supply – but usually also is stored in checking and savings accounts. These stored M2 or M3 time deposits are de-activated credit which no longer has velocity. The banker pays you some of his usury takings for your deposit. Your deposit helps his reserve and capital position, but that really doesn’t matter too much as he can always borrow reserves from the FED. Banks always make loans first and find reserves later, and they are not reserve constrained.

        During the next collapse, FDIC will insure a component of the money supply. Then the bankers will let you have a small fraction of your savings. The rest of your savings will probably be converted to bank stock. You then become a forced stock holder of a private banking company. Your signature authority for credit was given to the banker for a debt instrument at moment of hypothecation, and then through another set of conversions your stored credit will become stock.

        Ellen has more on the confiscation scheme. Remember also Dodd-Frank doesn’t allow another TARP like bail out:

        The people that win are our new Oligarchs who double and triple hypothecated (fraudulent conversions) debt instruments from debt instruments, and then were rewarded with QE money. QE money swapped (converted) by buying MBS and other debt instrument paper. That paper also got pushed up in price by the very act of buying it with QE money.

        During the next crises, Oligarchs will buy up real assets, such as land and business, as former laboring producers will be desperate for M1 type cash and hence will offer their goods and services at depression prices. Banksters will take your M2 and M3 in the conversion and, as a reasonable sounding ploy, will probably have some sort of holding period for you, where you can sell your bank stock at some point in future, and regain your former bank money/credit. That will give them time to manipulate our brain dead paid for politicians – never let crises go to waste.

  6. John Cummings permalink

    Central banks did not do anything. What happened was the nation state to liability of 7 trillion dollars………..but did not service that 7 trillion dollars. People get confused by this. Basically it is 7 trillion dollars owed to nobody. It is in suspended animation.

  7. Ross N. permalink

    Here’s a theory on how derivatives may create systemic collapse: 1) Loss of U.S. petrodollar status. Already Russia is trading oil outside of Dollar 2) Overseas dollars then want to return home to their U.S. source 3) Excess Dollars are not bought up by other central bankers using currency swaps. 4) Currency swaps no longer work because alternative BRIC system has reached critical mass; some western central bankers will have “selfishly” defected post bretton woods system 5) Bond issuance is the next play to buy up excess returning dollars, probably using TBills with high interest rates. U.S. government does not want these dollars buying strategic industry and blocks real asset purchases. 7) High interest rates on TBills mean high interest rates on Interest Rate Swaps.

    Too big to fail banks now have their derivative position exposed, and are on the hook to pay, rather than harvest. This then causes a positive feedback spiral of banker defaults. Shadow banks have chains of credit risks that then also default in a domino pattern. Lack of firewalls dismantled when Glass Steagal was overturned by Grahm Leach Blily, means that banker credit system, with its inherent instabilities – allow the contagion to spread to producer part of economy. Wall Street Credit, Main Street Credit, Shadow Bank Credit, Insurance, and Real Estate all work together now in a numbers game akin to gambling.

    Bank credit and chains of counter parties is a numbers game that depends on knowing the future, as this money type is paid off by laboring producers paying off loans that have a forward time component. Bank money as credit has a future bias as a function of its nature, unlike floating money which already is, and hence comes from the past.

    Hidden actors, the TBTF banks, who are really at top of pyramid and have both derivative positions and parasitic control of society – will not go quietly. They will crash the producing main street economy rather than die off, and hence make us – as host, think that a parasite is necessary for civilizations survival.

  8. Ross N. permalink

    More on BRICs system. The latest twist is the BRIC countries will swap reserves to avoid dollars.

    “We are discussing with China and our BRICS parters the establishment of a system of multilateral swaps that will allow to transfer resources to one or another country, if needed. A part of the currency reserves can be directed to [the new system].”

    In other words, small dollar reserves may be shuttled around BRIC zone as needed, this as a tool to keep dollar reserves small as possible. This is also a method to bypass the IMF.

    “At the same time, the new system will also act as a de facto replacement of the IMF, because it will allow the members of the alliance to direct resources to finance the weaker countries. As an important bonus, derived from this “quasi-IMF” system, the BRICS will use a part (most likely the “dollar part”) of their currency reserves to support it, thus drastically reducing the amount of dollar-based instruments bought by some of the biggest foreign creditors of the US.”

    The U.S. petrodollar reserve currency of the world is being bypassed. When Goldman Sachs came up with BRIC idea, they probably didn’t consider that it would backfire.

    Why do we (I’m American) allow banking parasites to infect our brain and thus we do their bidding, like a giant golem. The sheeple of America have no idea of how far our parasites will go to maintain their rentier status.

  9. Ezra £ permalink

    Christopher Story claimed that derivatives were created to crash the US empire.

  10. Shark permalink

    Dear Anthony,

    You say in your above article ‘it’s very difficult to fathom how the global financial system itself could survive such a melt down’

    Such a Detonation will be permanent destruction to the financial system, beyond repair!

    Albert Pike wanted such financial destruction but along with World War 3 Annihilation. Maybe until the financial detonation is ready, they will not trigger world war3, and vice versa. Thus the current standoff via pretend & extend.

    And thereafter (After ww3) Alice Bailey talks about Order out of Chaos = Reappearance of Christ to Usher in the NWO in this new age of Aquarius.

    Since a derivative detonation is irrecoverable it is doubtful whether this will lead to a new Continental Union e.g. Eurasian or Brics or other. I think the Globalists have no further time.. they have to enact the final NWO.

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