Derivatives Bubble?

[HammerAndSickle1]

Recently I've been hearing about a "derivatives bubble", valued at anywhere from 600 trillion to 1.5 quadrillion dollars. Apparently, derivatives are assets whose value is dependent on the value of something else, which makes them extremely volatile. Warren Buffett has called them "financial weapons of mass destruction" and apparently, if the bubble pops, there "won't be enough money in the world to fix it" What do you guys think? If the bubble pops and the economy is destroyed, would socialism be the only way to recover?
Note: I can't post links yet because of my post count, just Google "derivatives bubble and click on the first couple of links for info

[ckaihatsu]

Recently I've been hearing about a "derivatives bubble", valued at anywhere from 600 trillion to 1.5 quadrillion dollars. Apparently, derivatives are assets whose value is dependent on the value of something else, which makes them extremely volatile. Warren Buffett has called them "financial weapons of mass destruction" and apparently, if the bubble pops, there "won't be enough money in the world to fix it" What do you guys think? If the bubble pops and the economy is destroyed, would socialism be the only way to recover?
Note: I can't post links yet because of my post count, just Google "derivatives bubble and click on the first couple of links for info





The Size of Derivatives Bubble = $190K Per Person on Planet
Source: Silicon Valley Watcher (http://s.tt/13xcD)


Love your country to the tune of a-hundred-and-ninety-k, or leave it.


x D


This is a good find -- recall that pre-1971, when finance was *nation*-centric, the U.S. had the gold standard as its underlying index of capital valuation. Now the world's index for valuations is based on nothing but hyper-leveraged capital valuations that reference *other* valuations -- derivatives, or a kind of circular reasoning on what actually constitutes 'value'. (It's nothing more than gambling itself, or 'casino capitalism'.)








Nixon Shock

By the early 1970s, as the Vietnam War accelerated inflation, the United States as a whole began running a trade deficit. The crucial turning point was 1970, which saw U.S. gold coverage deteriorate from 55% to 22%. This, in the view of neoclassical economists, represented the point where holders of the dollar had lost faith in the ability of the U.S. to cut budget and trade deficits.

In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. In the first six months of 1971, assets for $22 billion fled the U.S. In response, on August 15, 1971, Nixon unilaterally imposed 90-day wage and price controls, a 10% import surcharge, and most importantly "closed the gold window", making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department, and was soon dubbed the Nixon Shock.

The surcharge was dropped in December 1971 as part of a general revaluation of major currencies, which were henceforth allowed 2.25% devaluations from the agreed exchange rate. But even the more flexible official rates could not be defended against the speculators. By March 1976, all the major currencies were floating—in other words, exchange rates were no longer the principal method used by governments to administer monetary policy.

http://en.wikipedia.org/wiki/Bretton_Woods_system

[Sendo]

Love your country to the tune of a-hundred-and-ninety-k, or leave it.


x D


This is a good find -- recall that pre-1971, when finance was *nation*-centric, the U.S. had the gold standard as its underlying index of capital valuation. Now the world's index for valuations is based on nothing but hyper-leveraged capital valuations that reference *other* valuations -- derivatives, or a kind of circular reasoning on what actually constitutes 'value'. (It's nothing more than gambling itself, or 'casino capitalism'.)

I know the feeling, but under the Bretton Woods system we'd revert to wasting manpower and resources on extracting, transporting, and securing gold. Gold is tangible and more stable, but its intrinsic value is non-existent outside some tiny applications in computing (no, I'm talking about useless, gold-plated video connectors) and jewelry.

[ckaihatsu]

Hey, Sendo, I was hoping either you'd remember me and my politics from past discussions here, or else that my self-appointed title would be taken literally. (Same for you, DNZ.)

So, to spell it out, I'm *not* implying or advocating a return to a *capitalist*, fixed valuation index, as from gold.

The first line was satirical *humor*. You may want to look over at Wikipedia to find out what that is.