Martin Weiss is a respected economist/financial analyst who periodically offers his increasingly Faber-esque installments in Money and Markets. His latest warning about the looming Derivatives Monster is foreboding, but the problem is much, much worse than he (or apparently anyone else) is able to grasp.

First of all, we are looking at OCC derivative figures dating from 6/30/09 in his supporting data. Surprisingly, though the OCC stated it would not be providing call report summaries going forward, it has. But we have more detailed information available from the interbank call reports (always available in the links section to your left) and those notional amounts are much, much larger than what Martin has referenced in the OCC report.

For example, Bank of America ALONE shows an understatement of over 30 TRILLION DOLLARS in interest rate derivatives (Merrill Lynch absorption??) as compared to the OCC data. Even if the I-Bank info can be trusted, it is still dated, especially if quarter to quarter increases are as dramatic as available past data suggests. And it also appears that interbank reporting was discontinued after Q2 even though Q3 is well behind us (note: this has since been updated).

Then, we have the assumption that OTC derivatives represent some 94% of ALL Derivatives, and yet … thousands of contracts written by insurance companies like AIG’s Financial Products division–the systemic risk guarantor that nearly, single-handedly would have bankrupted the entire system during the panic of 2008, if not for TARP, ARE NOT EVEN COUNTED in any interbank, OCC or BIS report. 

Beyond all of this, the data coming out of the Depository Trust and Clearing Corporation further suggests that total gross notional amounts among the broadest definition of derivatives may now exceed 300 trillion for the US, and worldwide we are probably in the vicinity of 1.75 QUADRILLION dollars in financial bets, among millions of derivative contracts.

Last but certainly not least, when one considers the accounting chicanery of the FASB rule changes, the so called “stress test” sham, the continuing “recovery” fraud (as highlighted by the shameless recovery.gov behavioral propaganda experiment) as well as the global cover up of the total insolvency of the entire financial system, it is ludicrous to assume that any data out there is fully accurate.

Taking all of this into account, I still maintain that THE MARGIN OF ERROR ALONE IN THE CALCULATION OF GLOBAL DERIVATIVE BAILOUT EXPOSURE IS SUBSTANTIALLY LARGER THAN THE TOTAL GROSS DOMESTIC PRODUCT OF THE WORLD.

Adding insult to injury, consider that contractual title to ficticious streams of income and never-to-be-fulfilled debt obligations are simply being “monetized”, and as such, are now being counted toward that calculation of gross national ”product”. That said, even the outrageous statement above loses all meaning–just as all accounting of what is real in the world has fallen off the same cliff that real jobs are tumbling over.

But fear not loyal taxpayer. Reality has a way of FORCING its way back into the real world, and back into the lives of it’s inhabitants, in an equal and opposite reaction to the massive DENIAL still underway. And when reality comes crashing in… when the CONfidence in the Fantasy is finally exhausted… there will be blood.

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