Aggregate Derivative Debt Hits $1.5 Quadrillion

[JPSartre12]

The title may sound rather ridiculous, but it's true; the total debt from all the derivatives in the world has surpassed $1.5 quadrillion (that's 1,500,000,000,000,000) just over twenty times the entire world economy.

For those who are not familiar with derivatives, they're economic "bets" that are made on other bets. Let me explain: one person has Banking Scheme A (bank accounts, mortgages, loans, investments, etc), and another person goes about creating Banking Scheme B, which is connected to A makes money based on how successful A is; that is, if A makes a significant amount of money, then the value of B goes up. A derivative would be Banking Scheme C, which is connected to B, and C makes money based on the success of B.

Therefore: a person establishes A, and if it works out well then the value of B goes up, and if B does well then the value of C goes up.

Derivatives, because they are connected indirectly to the original banking scheme A, are very difficult to control and predict, and they're very volatile and risky; They're subject to indirect market mechanisms and hard to manipulate. The fact that they fluctuate so much means that they have the potential to generate enormous wealth.


One day some event will happen which will cause a sudden shift in world financial markets and trillions of dollars of losses in derivatives will create a tsunami that will bring the entire house of cards down. All of the money in the world will not be enough to bail out the financial system when that day arrives. The truth is that we should have never allowed world financial markets to become a giant casino. But we did. Soon enough we will all pay the price, and when that disastrous day comes, most Americans will still not understand what is happening."

http://www.marketoracle.co.uk/Article21764.html

Do you think, when that this $1.5 quadrillion (and exponentially increasing) international derivative bubble grows to the point wherein its no longer sustainable (and at this point, it barely is, so I'd assume that it would be in the near future), could be the world-economy-destroying catastrophe that finally brings down global capitalism?

Discuss.

[Vladimir Innit Lenin]

Absolutely not. Financial capitalism holds hegemony and can expand to far greater depths than we can imagine. Not forever certainly but, like the universe, can continue to expand with more clever packaging of financial derivatives.

Think of it like this: industrial capital gets fucked over when it leverages too much (i.e. borrows a lot of money whilst only being able to guarantee a small fraction of said loan/investment) because it is invariably leveraging on real assets - machinery and so on that depreciate in value, or land that can fluctuate in value and be re-possessed. Financial assets can be leveraged to a far greater extent (whether this is 'safe' or not is open to question, of course) because the sole purpose of a financial institution is to take x amount of money and multiply it for a profit; in other words, not to produce, but to make more money from existing inward capital.

And when shit hits the fan in the financial economy, the shit tends to get shifted to industrial capital when financial capital calls its loans in. Financial capital has a huge hegemony, both over the working class but also over industrial capital. Though Marx could not foresee the modern-day behemoth that is financial capitalism and the financial services sector, and though Marxist theory needed updating to this extent ('degree of monopoly', centralising blocs of capital, eroding of competition; Hilferdung and Lenin on Financial Capitalism etc.), the basic Marxist analysis of capitalism - that its crises, real crises, will arise through over-production, still holds true.

Any 'collapse' of capitalism - in contrast to a periodic crisis - will probably still be found in the industrial sector. The financial sector is simply too slippery and too much a law unto itself to cause the collapse of a mode of production, since it itself does not produce!

[Riveraxis]

could be the world-economy-destroying catastrophe that finally brings down global capitalism?

Discuss.


I think that's what will happen. Best case scenario. Worst case scenario is that they find a way to keep this going for much, much longer. If market mechanisms fail and a world crisis occurs, I'm sure they'll resort to global-fascism, or its new-age offshoot (whatever that will look like) before they accept world-wide communism as an alternative. That's where we come in, right?

The thing about the whole scheme is that no one has the power to completely overrule the market.
The best the capitalists can do is slant it, skew it, twist it, manipulate it. They can't directly contradict the market function. So when we're out of money, we're out of money. The largest and most powerful nation is pretty high up in debt. Yes, we can continue down that road for much longer. But there will be a breaking point, as has been reached by smaller countries recently.
I think the question is as to the magnitude of that point. Will it be another great depression, which ultimately benefitted the capitalist class?
Or will it be enough to inspire people to mobilize?

[cyu]

Every unit of money spent is a unit of power exercised. This bit of power determines what someone will do (economically) for some period of time. If you have enough of this power, you can basically get everyone to do what you want them to do (up to certain limits of sanity and conscience of course) - still, it's been enough to get people to torture others, prostitute themselves, or fawn over you in order to put bread on the table.

Imagine if you had a money-printing machine. Let's call it International Finance Capital. You make loans to yourself, move it around, engage in all sorts of ponzi schemes - and eventually you have this enormous amount of money. The greater the percentage of it that you control, when compared to how much the "noobs" in the real world control, the more power you have over them. You can basically hire large percentages of the general population to do whatever you want.

The catch is that if you actually spent a large percentage of your money, what you would get is economic disaster. The reason is that your massive amount of economic power would allow you to convince people to stop growing food, stop producing heat, and do whatever crazy scheme you have in mind, whether building mega-mega-yachts or a tower to the moon. With all the food and heat that is no longer being produced, you may just end up with mass starvation and death - and as a result, possibly civil unrest and possible revolution.

So the key thing for the mega-wealthy is *not* to spend all their insane amounts of money, since that could bring about their own downfall. Instead, they spend just enough to satisfy whatever ego projects they have, then just do nothing, except when they sense they need to put their jackboots down on the necks of any possible revolutionaries.

[Prof. Oblivion]

Do you think, when that this $1.5 quadrillion (and exponentially increasing) international derivative bubble grows to the point wherein its no longer sustainable (and at this point, it barely is, so I'd assume that it would be in the near future), could be the world-economy-destroying catastrophe that finally brings down global capitalism?No. Aggregate economic debt is a meaningless metric because it doesn't take into account conflicting positions. There will never be a time when all debt defaults, because of conflicting positions. There are always winners and losers. This is not a bubble.



Derivatives, because they are connected indirectly to the original banking scheme A, are very difficult to control and predict, and they're very volatile and risky; They're subject to indirect market mechanisms and hard to manipulate. The fact that they fluctuate so much means that they have the potential to generate enormous wealth.Derivative is as wide and meaningless term as financial security. They are not inherently anything. An option is a derivative. Saying derivatives are bad is like saying stocks are bad; they're not necessarily any "worse" than any other investment. Nor are they necessarily more volatile or "unpredictable".

[ckaihatsu]

How about the development of declining rate of profit --> slowing world GDP --> declining revenues --> riskier investments --> devalued stocks --> devalued derivatives --> * crash * -- ?