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                          Paul A Drockton M.A.
            US Govt. Paints Bleak Financial Future
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Paul A Drockton M.A.
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The 2nd Quarter numbers are out and the picture is pretty ugly. Total number of derivatives debt that US Banks are exposed to as of the second quarter, 2012 is over 222 TRILLION dollars. (Source)

To put that number into perspective, the global economy is only an estimated 65 trillion. The US economy is about 15 Trillion in annual GNP. While the US government has a reported 18 trillion in debt, and is considered close to insolvent, banks have 20 times that much on the books and continue to conduct business as usual. The top 5 banks shackled to derivative debt include:

1. JP Morgan Chase: With 2 Trillion in assets, JP Morgan is sitting on about 70 Trillion in derivatives liabilities. Unfortunately for the taxpayer, that liability is now insured by FDIC.

2. CitiBank: 1.3 Trillion in Assets- 52 Trillion in Derivatives Liabilities Exposure.

3. Bank of America: 1.4 Trillion in Assets - 44 Trillion in Derivatives Liabilities Exposure

4. Goldman Sachs: 114 Million in Assets - 41.5 Trillion in Derivatives Liabilities Exposure

5. HSBC:  193 Million in Assets - 4.5 Trillion in Derivatives Liabilities Exposure


The Full List can be seen here.

So the question remains, how can a bank remain in business with all those trillions in liabilities exposure? The answer lies in the fact that the payment on most of those derivative contracts, which are Credit Default Swaps, won't come do until the debt they are betting on goes into default. This will start to happen once the Fed starts raising Interest Rates and companies and government bonds startgoing into default.


When Will They Start Raising Rates?

As soon as they can justify it based on inflation. In other words, very soon. Printing massive amounts of money is inflationary, so is the rising costs of commodities and a surplus of dollars.

Remember, they don't get paid on those contracts until the underlying debt goes into default. How long would you want to wait for a 222 Trillion Dollar Payday?


The Consequences:

Banks will become insolvent overnight when this happens and simply close their doors. Customers will have to get in line behind Derivatives holders to get paid by FDIC for their deposits. That means, JP Morgan alone will bankrupt the Federal Government when its derivatives come due.


The Alternative:

Get the heck out out of dollar denominated assets. Don't wait until after the election, it might be too late. Get into gold and silver.

For a free consult contact pdrockton@aol.com