2. 51ck-6-51x said...

p4ac. I hope you read this - please let me know if you do and what your thoughts are. I agree with many viewpoints of Alex Jones and his band of merry men, however one thing I understand fairly well is finance.

$1Q is the outstanding, which is not a great indicator of market exposure.
Much of this outstanding (~50% of OTC derivatives) is in the swaps market, where the notional of a contract is nowhere near the exposure.

For example if you and I enter an interest rate swap where I pay you a 10% coupon every year and you pay me LIBOR + 6% every year on a notional of $1B then the net payment from me to you (which may be negative) due at each payment date (P_i) is calculated at the beginning of the payment period as:
$1B * ( LIBOR_i-1 - 4 )
In reality the payment period is likely to be less than a year (usually quarterly I think), and upon default only the next payment may not occur - the swap terminates and the party that is still left may now have exposure to fixed rather than floating payments (or vice versa)
For example we may have entered the above annual swap to 'beat the banks'. Maybe we each run a business and after shopping around we have our best loan offers from banks as:
me.fixed=12%,
me.floating=LIBOR+6%,
you.fixed=10%,
you.floating=LIBOR+7%.
I prefer fixed payments due to the nature of my business, whereas you prefer floating due to the nature of yours.
If we both take our preferred payment types then together we pay
LIBOR+19%
However, if we both take what we do not want and swap payments then together we pay
LIBOR+16%,
a saving of 3% (there would be a swap dealer to pay too, so say 2.9% - you can never totally beat the banks, can you!).
When I default you may miss receipt of a settlement payment and will then be re-exposed to your fixed rate loan at 10% - you may well renegotiate this as a floating loan which may or may not be of better value than the LIBOR+7% you were originally offered.

Much of the current financial crisis may be due to people not understanding the nature of financial instruments, or the models they are using to price these instruments (not knowing the model risks, or the robustness of the model to assumptions being incorrect - or not even realising that these assumptions were made in the first place!). Derivative instruments will always be considered dangerous, especially new ones, and rightly so, however banding around numbers like the InfoWars articles you link to does no-one any good - the numbers are not 'meaningless', just misunderstood.

If monetization (or anything for that matter) does destroy the world's fiat currencies gold would not be in orbit, it would be priced relative to whatever is traded (be that wheat, milk, guns, whatever) there would be no reason for it to be more valuable other than that it allows wealth to be physically compressed (i.e. it's value as a portable currency) - admittedly this value will be larger if there is no sovereign (the mediator that attempts to maintain the underlying of the derivative we know as cash, namely trust ['In God We Trust', 'I promise to pay the bearer...', credit, from creed, as in to believe]), so by all means buy gold and stick it in your secure bunker alongside your food & ammo cache if you think the risk of financial Armageddon is upon us.

I would suggest that worthy of reading up on are, firstly as Bob Chapman puts it in one of the articles, 'All of Western Civilization is about to become a smoldering collection of fascist police states.', and secondly the gradual enslavement of the masses via credit, which is a bit of a tightrope for the powers-that-be, as once there is too much credit the control no longer has any effect - since the more people that are having to work all hours to pay off debts which they needed to acquire in order to live in the financial system, many would refuse to play the game. I guess the trick is to make the people *want* the things (leverage comfort) that credit provides, rather than need them, so I would imagine 'their' next step will be to control the essentials such as food, energy and water so that they are free to the consumer, leaving only a problem of those people who attempt to refuse to play the game (electronic cash helps them out here).
- Our best defence, therefore, is to learn to sit in discomfort, to learn the value of the immaterial - to live spiritual lives.
It seems that maybe the eastern gurus were/are right after all ;p