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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  • Tom Burnett

    Spot metals opens in half an hour.

    If silver and gold shoot up and keep going, (silver over $100, gold over $2,000), I’m a dumbass and I’ll admit it. But it won’t.

    Watch and see what happens. This is where the rubber meets the road.

    • Thomas

      Silver closed up 15% Friday over a week ago its $39.75 right now in overseas trading.

      That’s up .48 cents or 1% over Fridays close but its the trend that matters not the daily or weekly or even monthly price and its definitely up……..

      15% in a week is huge for anything so don’t expect $100.00 this week but we could see $44.00 this week and that would be another 12% that is very possible. Is it for sure? Of course not but it’s more possible that $100.00 which is not going to happen this week or next…….We will see but anyway you cut it the trend is up…..

      • Tom Burnett


        You just said that the trend of an underlying commodity in an unstable and, in my opinion, price-fixed market predicts the future performance of the commodity.

        That the fact the trend is up is, in itself, sufficient causality to empower it to self-perpetuate it’s own trend.

        I can’t even begin to deconstruct that because it isn’t a logical position. However, I can say, once again, that all anyone can do is make the best decisions they can based upon intelligence guided by experience and I want everyone to do that for themselves – and not to make any decision whatever based upon my opinions – because that’s all they are. I write OP-EDs. I don’t guarantee that my predictions are any good at all.

        I do like to provide contrarian opinions so people have to think about the possibilities but I wouldn’t bet my life on any one of them.

        • Thomas

          Maybe I didn’t state it properly so let me try again, The silver market is volatile moving up and down but the overall trend for the silver market at this time is up. Does that predict the future of the silver market? No but its one of the things I consider when deciding whether to put money into silver or not. Until silver breaks support to the downside it is likely to continue to rise IMO that’s all “in my opinion”. The fundamentals of inflation and the economic uncertainty lends support to the upside in silver also again IMO. Like you I believe everyone should make their own decision based on their own research. I have my money in silver because I believe what I am saying. I believe the next big battle will be for $50.00, if and when silver breaks $50.00 that will be very bullish for the next leg up. It may go back and forth for some time but I think silver will take out $50.00 and move higher. That is just my opinion based on experience and my research nothing more than an opinion about something I study. If silver pulls back like it did on the first of may after running to just below $50.00 (a 30% pullback)it would not worry me unless it broke support at $30.00. If it pulled back this week after its move to the upside last week it shouldn’t surprise anyone the silver market is volatile and manipulated to some degree but I believe they can not stop the overall up trend under the current conditions. They can slow it down, and make a lot of money doing so by taking out stops and forcing or scarring people (the weak hands) into selling their silver. On the other hand if silver moves up to $44.00 or higher this week that would not surprise me at all I kind of expect that but no one I know can say for sure when the shorts will start selling to drive the price down again.

          The bottom line for me is the overall trend for silver is up that was all I was trying to say, until it breaks support to the downside the trend remains up.

          $50.00 is significant if and when silver moves above $50.00 and stays there then we will see where the next resistance will be at. I am not predicting anything but $75.00 dollar silver would not surprise me over the next year.

          • Tom Burnett

            Thomas, I am your friend. I probably stated it improperly – but I don’t want you to EVER think you have to explain yourself to me.

            You do what you have to do and, as you know, I’ll work with you to the best of my ability, no questions asked.

    • Joseppi

      There’s a saying in the construction industry “Termites will never commit suicide.”
      Termites will never eat a house up to the point it collapses, they leave just enough structural integrity to leave their restaurant standing – Same with the present Fiat power elite.
      Those who control and benefit from the present fiat currency ponzi con game are not going to roll over without a long drawn out death drama.
      Those who make emotional announcements of the premature death of the fiat system, just like the recent End Time Christian preacher who predicted the end of the world, will have to continue living with the dying US dollar/debt economic system longer than they think.
      Everyone, no matter what they believe, lives and invests in a way of living that connects them to their perceived reality. We can only hope and pray that our beliefs will nourish us longer than those who condemning us as unbaptized heretics worshiping the golden calf.

      • Tom Burnett

        My point exactly. Fiat currency cannot disappear to be replaced by PM. Most of us don’t have PM and some of us don’t want any.

        You come to my farm with a couple manini and a few eggs and go home with a bucket of beer and some smoke meat and everyone will be happy until the next day.

        To me, that’s the simplest way to handle a financial meltdown.

  • Thomas

    CHART: Inflation Hits 10% In February According To CPI Calculations From Volcker Era (Updated Through May 2011)


  • The other day I talked with my brother-in-law about his $600K investment in Hedge Funds.

    He thinks they’re a yard maintenance company. And the guy he invested with has the largest HD screen he’s ever seen. Right there in his office.

    $600K. Boy. Thanks Tom.

    • Tom Burnett

      Barry, I don’t think you ought to refer to your dear wife as ‘a bunch of tuna’. Then again, I thought “The old harping carp” was bad – what do I know?