Popping the Quadrillion-Dollar Derivatives Bubble: Not If, But When

Europe has belatedly grasped that huge Credit Default Swaps are being sold to hedge short positions that cannot be filled. There is a run-up of precious metal, but it cannot continue because all that metal is going to be dumped to cover the enormous margin calls which, because of long hedges, cannot be met either.

So…..there is an OTC exposure for a quadrillion dollars worth of derivatives — of which several hundred trillion can be covered but, at some point, people will simply stop covering their billion dollar debts — because the paper they are hedging is no good anymore.

I called this before the EU changed their litany of “No default for Greece” to today’s “Greece will default, but we won’t let it spread“. Unfortunately, they can’t stop it and Spain will be the key, with Italy.

Everyone is running in circles after grasping that Greece, Portugal, Italy and Spain are going to default on their debt and that the Euro is going to be a bad memory sooner rather than later.

No one believed me yesterday, but today it is happening. That’s not all. Every bank and government in the world is ‘having high-level meetings to prevent an “event”‘. Baloney. They are all panicked to death because the FIRST run on a major bond market will tank the world.

Italy and Spain could start tanking as early as tomorrow. Yup. In any case you won’t get months of warning. You won’t get days of warning. When it happens, you will already be locked out of anything you don’t have in your hand. I hope it holds off until after the weekend. I HOPE it holds off until the end of summer — but I don’t think it will. Someone will blink. When it happens, that’s it for a generation.

Be where you need to be and be able to feed yourself for a week. A month would be better.

You read it here first. You always do.

Dr. Tom is a retired scientist who is now farming on the Big Island of Hawaii.

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