Debt, Derivatives and a Growing Fear

(News & Editorial/ Debt, Derivatives and Growing Fear)

A.  McGrath: “Somebody In Government Is Afraid Of What Is Coming” *Video*
9 Oct 2013,, by Mac Slavo
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whatcome planners

While the average American may have been convinced that the economy is recovering and happy days are dead ahead, few are talking about the reality of what’s going on behind the scenes. They act as if the crisis of 2008 has long passed, and whatever was responsible for it has now been solved through massive trillion dollar bailout injections.

Most fail to realize how serious of an issue we faced just five years ago, and even fewer understand how close we are to a collapse so incredibly horrific that it could change the very landscape of this country.

For those paying attention to the warning signs, it should be clear that something isn’t right.

Charlie McGrath, of Wide Awake News, weighs in and suggests that not only is the next stage of collapse rapidly approaching, but that our government is fully expecting it.

It was sold to the people of this country that bailouts had to happen, because if they didn’t happen we would see pandemonium in the streets.

A recent biography by Gordon Brown, former Prime Minister of England, showed just how worried he was if the banks shut down – people couldn’t get their food, they couldn’t get their fuel, they couldn’t get their medicine… there would be literally anarchy in the streets.

We know that never happened. We know that the people of the world were scared into that happening, yet we spent trillions of dollars to rescue these institutions, namely the ones who were not regulated in the first place who caused the problem, who are even larger [now] than they were before…

So what happens when the next crisis hits? And it could be very, very soon.

If you want to know where we’re going, listen to the words of the President – We’re never going to have another taxpayer supported bailout.

I beg to differ. The next bailout is going to come from the taxpayers. We’re not going to call it that. We’re going to call it a bail-in.

All we have to do is look at the Financial Stability Board inside Europe to see what they did and to see the stage that’s been set for the next round of collapse… The people who have their money in the banks are going to be the ones that lose.

This is the agenda going forward.

The Associated Press confirmed in February that the Department of Homeland Security has an open purchase order for 1.6 billion rounds of ammunition. Armored vehicles have been seen flowing through the streets, drones flying through the air, the expansion of the security industrial complex.

For what? For what?
Somebody in government is afraid of what is coming.
And you can’t believe the lies of this administration of the past or the agenda that’s been put forward to have us believe that this is all to protect us against terror.
Somebody knows what is coming… Is it all just coincidence?

YouTubeIs DHS Preparing for Next Financial Collapse. See at,

We know the U.S. government security apparatus has been simulating economic collapse scenarios and the fallout that would follow, and this is why they are actively implementing a multi-billion dollar control grid all over this country.

See these articles:
1.  Mark Levin: Government Is “Simulating the Collapse of Our Financial System, the Collapse of Our Society and the Potential for Widespread Violence
2. McGrath: “The Control Grid is Being Put Into Place to Handle What They Know Is Coming.”
3. U.S. Treasury Warns of What’s to Come: “Catastrophic Effect… Could Last for More Than a Generation

There can be no other explanation for the activities of the Department of Homeland Security, the military and governments on all levels – from local to federal.
In fact, the US Treasury Department just released a report indicating that the nation’s debt crisis could lead to a collapse so catastrophic that it could last more than a generation (goto article #3 link, above). Whether that happens on October 17, 2013, or five years from now, it’s only a matter of time.

We’re talking scenarios much more severe than the Great Depression.

But this isn’t just happening in America. Switzerland recently engaged in war games that simulated an economic collapse scenario, as well as an invasion by bankrupted nations and millions of refugees. In 2011, the British government developed plans to evacuate their citizensfrom European countries in expectation of monetary and economic crisis.

4. Swiss Army War-Games Economic Collapse and Refugee Invasion: “21st Century Threats”
5. British Prepare Evacuation Plans Ahead of Spain and Portugal Collapse

The exercises and drills may be compartmentalized so that most who are partaking in them don’t really know why, but there are those in the higher echelons of power that know very well what the end game is going to be.
None of this is a coincidence.
If you aren’t taking steps to prepare for a new paradigm – one plagued with destitution, riots, starvation and bloodshed – then you are going to be a victim of what’s coming.

Gordon Brown is right. When the economic system breaks down or the dollar collapses food, fuel, and medicine will be nearly impossible to acquire. The experience of Greeks, who saw this first hand, is a perfect example.
The only option for the government at that point will be to control the looting and violence that follows by declaring Martial Law and locking this country down.


B. How a Debt Ceiling Crisis Could Do More Harm Than the Shutdown
3 October 2013,, by Nathaniel Popper
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The [recent] impasse in Congress this week has overshadowed the fact that the government is fast approaching its borrowing limit — or debt ceiling — later this month. Most economists and investors view the debt ceiling as a much more significant issue for the economy, with the potential to set off a global financial crisis. What is all the concern about? Here is an attempt to answer the basic questions.

Q. What is the debt ceiling?
A. Congress has long set an upper limit on the amount of money that the United States can borrow by selling Treasury bonds. That cap has been raised many times because the government regularly spends more than it brings in, forcing it to borrow more and more money to pay the bills. Most recently, in August 2011, Congress voted to raise the limit to $16.7 trillion.

The government actually hit that threshold in May. But since then, the Treasury Department has used “extraordinary measures” to continue borrowing money while staying under the limit. Among other things, Treasury has not made new investments with money from the retirement funds it oversees for the Postal Service.

Q. What happens on Oct. 17?
A. Treasury Secretary Jacob J. Lew has said that on that day his department will run out of tricks to stay under the debt ceiling, making it impossible to borrow any more money. While new tax revenue will continue coming in, if the government cannot borrow, then it will not be able to pay all of the bills due that day. In a letter sent Tuesday to Representative John A. Boehner, the House speaker, Mr. Lew estimated that on Oct. 17 the government would have $30 billion on hand, indicating that its daily expenditures can be as high as $60 billion.

Q. Does the Treasury Department have any options to keep paying some or all of its bills at that point?
A. The inspector general of the Treasury Department said in a 2012 report that when the department approached the debt ceiling in the past it considered multiple contingency plans, including selling the government’s gold or its portfolio of student loans and reducing payments across the board by a set amount. Both alternatives were deemed to be impossible.

The report also said that Treasury officials determined that they could not choose to issue some checks while ignoring others. The only feasible option, according to the report, would be to delay payments until an entire day’s obligations could be paid at one time.

Q. How quickly would big government bills come due?
A. A payment for $12 billion in Social Security benefits is due on Oct. 23. On Oct. 31, the government is due to make $6 billion in interest payments on bonds it has already issued. If it missed any of its payments, the government would default on its obligations. If it missed an interest payment, it would default on its debt, which is considered particularly serious.

Q. Why is there such concern about the interest payments on Treasury bonds?
A. At the most basic level, if the government shows any hesitation in making scheduled interest payments on its outstanding bonds, investors will demand higher interest payments when the government borrows money in the future. That would add significantly to the federal budget.

Treasury bonds are also used as a benchmark against which most other financial assets are priced. If the government was forced to pay higher interest rates, the borrowing costs for businesses and homeowners would rise as well. This would lead to less borrowing, which would put a brake on economic growth.

Banks, meanwhile, already have large holdings of Treasury bonds. If the value of those bonds suddenly dropped, banks would have less money on hand and would be less likely to lend to one another, potentially causing a freeze in the credit markets like the one in 2008.

More broadly, because investors have long believed that the United States government would always be able to pay its bills, Treasury bonds have become the bedrock of the global financial system and the dollar has become the most widely used currency in the world. If investors come to doubt the ability of the United States to pay its debt, the dollar could lose its special status and the basic plumbing of the financial system could become jammed.

As the Treasury Department put it in a report released Thursday, “a default would be unprecedented and has the potential to be catastrophic.”

Q. Is it possible the United States would truly default?
A. Some investors and legal scholars believe that the president would be required to make interest payments on its bonds even if Congress failed to lift the debt ceiling because of the 14th Amendment, which says that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

President Obama has said he does not think the Constitution grants him that authority. At the very least, many investors think that the Treasury Department would make debt payments the top priority, potentially buying time before the government actually defaulted on its debt.

Q. Have we reached this point before?
A. In the summer of 2011, Republicans hesitated to lift the debt ceiling until the last minute but ultimately relented. In 1979, there was a similar standoff, and it went so close to the wire that the Treasury Department accidentally failed to make one interest payment. But the government has never knowingly failed to fulfill its financial obligations.

Q. Is Wall Street betting that the country will actually default?
A. When investors believe a default is likely, the stock market will almost certainly plunge. So far, the markets have suggested that Congress will ultimately come to an agreement, but the mood is growing darker. On Thursday, the Standard & Poor’s 500-stock index had its worst day in more than a month.

Another barometer is the price of insurance that investors can buy against losses on Treasury bonds, known as credit default swaps, which rises as the possibility of a default rises. The price of such insurance has been climbing over the last three weeks and jumped sharply on Thursday. But it is still far below the level it reached in the summer of 2011.

Q. Will there be damage if Congress waits to solve the problem until the last minute, as it did in 2011?
A. Much of the worst damage in the financial markets in 2011 came after Congress reached its agreement. In the days that followed, Standard & Poor’s downgraded the United States’ credit rating to AA-plus from AAA. The broad stock market dropped more than 10 percent.

This time around, Fitch Ratings, one of the other main credit ratings agencies, said that it would consider lowering its AAA rating on the United States if the debt ceiling is not raised in a “timely manner prior to when the Treasury will have
exhausted extraordinary measures.” If two of the three main agencies rate the United States below AAA, many investors would no longer be allowed to hold the bonds.

C.  Derivatives and the Government Shutdown: Wall Street Bets One Thousand Trillion Dollars of Everybody Else’s Money
Derivatives Market Worth Over 16 Times Gross World Product
9 Oct 2013,, by Glen ford
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whatcome derivatives bomb

 The clock is ticking, we are told, on the “good faith and credit” of the United States government, which might technically be unable to pay its bills after October 17 if the two corporate parties don’t make a deal on the debt limit. Congressional Republicans and the White House are “playing Russian roulette with the global economy,” says an editorial in the Dallas Morning News, warning of impending “economic Armageddon” as financial markets “crater,” the economy stalls and interest on future federal borrowing skyrockets.

Given that capitalism has entered a terminal stage of acute and escalating crises, the Dallas editorialists may be right; anything could set off another spasm of financial mayhem in a system that is ever more unstable. However, it is the “markets” – a euphemism for the financial capitalist class – that are the ultimate source of instability, the folks who play Russian roulette 24-7 and have dragged humanity to a place where an actual Armageddon is only a twirl of the chamber away. In this game, everybody’s head is in play.

It is proper that the corporate press speak of the impending fiscal threat – a minor one, in the maelstrom of crises that beset the system – in gambling terms. An increase of interest rates by a few basis points (fractions of a percent) on trillions of borrowed dollars amounts to quite a chunk of public money, to be paid directly into the accounts of these very same private “markets” that are supposedly biting their nails with anxiety over the budget. The Dallas Morning News and its fellow corporate propaganda spores spread the myth that the “markets” (bankers, hedge funds, etc.) crave stability, when the vital statistics of the real world of finance capitalism scream the opposite.

The Lords of Capital (the “markets”) are pure gamblers who have transformed the global financial marketplace into a machinery of perpetual uncertainty, in which all the wealth of the world is bet many times over by people who don’t actually own it, in a casino whose operators scheme against each other as well as their patrons, most of whom are not even aware that they are in the game – much less, that it is Russian roulette.

The notional value of derivative financial instruments is now estimated at $1.2 quadrillion – that is, one thousand two hundred trillion dollars. This statistic is fantastic in every sense of the word, amounting to 16.7 times the Gross World Product, which is the value of all the goods and services produced per year by every man, woman and child on the planet:$71.83 trillion. Derivatives are valued at six times more than the total accumulated wealth of the world, including all global stock markets, insurance funds, and family wealth: $200 trillion.

The great bulk of known derivative deals are held by banks that are considered too big to be allowed to fail, with the top four banks accounting for more than 90 percent of the exposure: J.P. Morgan Chase, Citibank, Bank of America, and Goldman Sachs.

We are told that derivatives are simply bets between knowledgeable partners – hedges against loss – and that every time one of these financial institutions loses, another gains, so that there is no net loss or threat of global collapse. But that’s a lie. Never in the history of the world has finance capital so dominated the real economy, and only in the past two decades have derivatives been so central to finance capitalism. The players do not know what they are doing, nor do they care. The meltdown of 2008 was caused primarily by derivatives, requiring a bailout in the tens of trillions of dollars that is still ongoing, with the Federal Reserve buying up securities that no one would purchase – that is, bet on – otherwise. Yet, the universe of derivatives deals has grown much larger than in 2008, effectively untouched by President Obama’s so-called financial reforms.whatcome protest

The casino has swallowed the system. The sums the players are betting are not only far larger than the value of the rest of their portfolios, but six times larger than the combined assets of every human institution and family on Earth, and almost 17 times bigger than the worth of humankind’s yearly output. Even if the whole planet were offered as collateral, it could not cover Wall Street’s bets.

The events of 2008 demonstrated that derivatives collapses, like other speculative financial events, behave as cascades of consequences, rather than orderly “resolutions.” Derivatives deals infest or overhang every nook and cranny of the U.S. and other “mature” economies, poisoning pension systems and municipal finance structures. Detroit has been rendered a failed city by the full range of derivatives and securitization. When the casino is the economy, everyone is forced to play, and the poor go broke first.

Reformers of various stripes tell us that derivatives can either be regulated to a less lethal scale or abolished, altogether, while leaving Wall Street otherwise intact. That’s manifestly untrue. Finance capital creates nothing, reproducing itself through the manipulation of money. The derivatives explosion occurred because Wall Street needed a form of “fictitious” capital to continue posting ever higher profits, and ultimately, fictitious portfolios full of tradable bets. Derivatives deals are the ultimate expression of financial capitalism: they are primarily bets on transactions, rather than investments in production. The rise of derivatives signals that capitalism has run its course, and can only do further harm to humanity. The derivatives economy – all $1.2 quadrillion of it – is the last stage of capitalism.

If the Occupy Wall Street movement had understood this, and articulated the necessity to overthrow and abolish Wall Street, its impact would have been far more profound. As it stands, Americans are directed to quake in fear as the clock ticks down to some technical federal budgetary deadline on October 17 – as if that’s the sword
of Damocles hanging over the world.


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