Evidence That Big inflation is Coming

[Spartacus]

Re: Evidence That Big inflation is Coming

the total of A, B and C's balance sheets is $5,000 less at point 2

If C wants to get a loan using the stock as collateral, he will only be able to say it's worth $5,000.

if A had loans, or wanted to write options or do anything else that depends on the dollar value of the shares, he was able to pledge $10,000.

If A was a bank they could have written (depending on the reserve requirements), a far larger amount of loans than C, if C's a bank. Or try substituting "hedge fund" for bank in in the last 2 sentences

EDIT: specifically, It's actually B's balance sheet that's impaired, and it's his ability to do these transactions that's reduced. I got carried away following the bouncing stock ball - cash is easier to loan out.

2nd edit: this tangentially reinforces what I argue elsewhere in this thread. It's not the end-user stock value reduction that really matters - it's leveraged hedgies, investment banksters and banksters that make that transaction dangerous.

I'm not sure I follow. Let me make this concrete and someone can point out my misunderstanding. I'm sure it is basic.

Participants:
A - Has stock
B - Has $10,000
C - Has $5,000

1) The buyer B pays A $10,000 for stock
2) Stock drops in value to $5,000
3) B sells the stock to C for $5,000

A - Has $10,000
B - Has $5,000
C - Has stock

The total amount of money in the system didn't change, so no deflation even though the price of the stock dropped by 50% and B lost a bunch of money.

[cbr]

Re: Evidence That Big inflation is Coming

spartacus, i think we are saying the same things but drawing different conclusions. I certainly am no economic genius, and have little experience in the fire industry, other than as a consumer advocate and client on behalf of my big business clients previously in the financing stage, now in the workout stage.

Are there any estimates Itulipers consider trustworthy for how large the derivative markets actually are (I keep seeing different numbers in excess of 50 trillion), and what percentage of them actually contributes to money supply and the 'real' economy?



Isnt that percentage a prime determiner of whether there is a poom event?

Also, isnt the future of the derivative market, outside of this 'contributing percentage' a purely political issue?

I am curious about that, as my consumer advocacy business depends upon the FIRE industry failing to legislate further chunks out of the FCPA and FDCPA, etc. and this may be a bellweather.

By political issue, I mean if a government committed to preserving the real economy wished, it could essentially decapitate the FIRE industry, literally evaporate the ethernet-held derivative exposure which is significantly concentrated in a very finite number of large players, and legislate the necessary survival regulations to 'make the rest legal/solvent' without an unmanageable 'bailout?

the only 'bailout' needed would then be tuned to the percentage of derivative impact on money supply...leading me to believe that consumers still have a chance, and that a poom may not happen due to the intervention.

[Spartacus]

Re: Evidence That Big inflation is Coming

Short answer, I don't know, I'm not the person to ask about unpublished iTulip canon. Eric has not discussed specific valuations of derivatives. If I've seen it, it slipped my memory.

I've been in these discussions before & for a time I thought the damage to the main derivatives writers would be minimal because lots of the contracts were likely to net to zero - if Citibank wrote one losing swap & another profitable swap, they would net out to zero and have no effect on Citi. This has proved to be incorrect.

I've thought about these issues for a while but don't have the background to go really in depth.

I don't know if EJ's theory contains an estimate for derivative sums outstanding and sums likely to be wiped out, and if it does, how important these sums are to the theory.

iTulip does consult with some very heavy duty, experienced experts in credit markets, though, Warburton & Mayer for example, who both predicted at least some of the current problems with specificity years ago.

Are there any estimates Itulipers consider trustworthy for how large the derivative markets actually are (I keep seeing different numbers in excess of 50 trillion), and what percentage of them actually contributes to money supply and the 'real' economy?

The 50 T is from the BIS, I believe. It's probably as accurate as anything you can find. You might get better numbers if you join ISDA (if the BIS numbers are not just a copy of ISDA or vice versa)
http://www.isda.org/

IMHO, I don't think one can assign a number because the political solutions are going to change any current numbers unpredictably.

Isnt that percentage a prime determiner of whether there is a poom event?

I've read of no valid way to do either (assign a number, or a fraction for overflow)

Also, isnt the future of the derivative market, outside of this 'contributing percentage' a purely political issue?

That seems to be iTulip's main thread of reasoning (part of a carpet, it seems, but still a main thread) - they've fleshed this part out the most, because unlike with the derivatives situation, there seems to be a lot of good documentation from the major players (US FED, Treasury, etc ...) on what they plan to do.

By political issue, I mean if a government committed to preserving the real economy wished, it could essentially decapitate the FIRE industry,

I have no idea on feasibility, workability or probability. I've yet to hear any MSM mouthpiece separate FIRE & real economies. Until that happens, what's the probability of politicians decapitating FIRE?

everyone at or near the top and in the control seems wedded to bailing FIRE out.

[D-Mack]

Re: Evidence That Big inflation is Coming

Are there any estimates Itulipers consider trustworthy for how large the derivative markets actually are (I keep seeing different numbers in excess of 50 trillion), and what percentage of them actually contributes to money supply and the 'real' economy?

The 50 T is from the BIS, I believe. It's probably as accurate as anything you can find. You might get better numbers if you join ISDA (if the BIS numbers are not just a copy of ISDA or vice versa)
http://www.isda.org/

IMHO, I don't think one can assign a number because the political solutions are going to change any current numbers unpredictably.

I've seen something like 60 trillion for CDS.

When it comes to derivatives, I have the impression people let their imagination run wild. 700 trillion, 1 quadrillion, 2 quadrillion etc.

[Chris]

Re: Evidence That Big inflation is Coming

Bank of International Settlements has the stats.

http://www.bis.org/statistics/derstats.htm

[D-Mack]

Re: Evidence That Big inflation is Coming

Bank of International Settlements has the stats.

http://www.bis.org/statistics/derstats.htm

The otc numbers are estimated, they can't know the exact numbers, or can they?

Of that $1.14 quadrillion of derivatives, $548 trillion are listed derivatives, or ones that are traded on organized exchanges, and $596 trillion are over-the-counter derivatives that are basically unregulated and, essentially, unmonitored. They are traded in a chaotic marketplace in which record keeping is sloppy. Institutions that own these over-the-counter derivatives sometimes don’t know who is on the other end because these instruments have been bought and sold so many times.

http://www.sandiegoreader.com/news/2.../city-light-1/