“there won’t be enough $$ in the world to pay these off”.
There already is not enough to pay them off. The Bank of Intl Settlements (BIS) receives voluntary reports on the amount of derivatives world-wide. The derivatives are long term borrowings (as long as 30 years as with mortgage backed securities), and credit default swaps insure the other derivatives. All derivatives have essentially no adequate capital behind them. Multiple credit default swaps (Ponzi) exist on the same notionally valued equity as “naked” insuring is allowed in the completely unregulated derivative adventure with short term interest due during rollover periods on long term debt obligations.
The BIS up to two years ago reported the risk period for interest adjustment rollovers at 5 year intervals, and then reduced it to 2.5 year intervals...the recent reports of $700T of derivatives represents only half of the former 5 yr period total. So, over the usual short-term rollover period of 5 years, there are really about $1.5Quadrillion of derivatives. There will be 6 5-year rollover periods over 30 years. The 2008 rollover can go to 2013 for completion of the first rollover period. THE WORLD IS NOT GOING TO MAKE IT FOR THE FIRST OF THE SIX short 5 yr term rollover periods. Here is why:
The world GDP, generously, is about $68T this year, and assuming a 20% world tax base in the best of circumstances, there is only a maximum $13T world-wide tax base for running governments, etc. and guaranteeing bank losses on derivative values as is best demonstrated in this country ($16T went out for bank interest payment bailouts on derivative bond losses 2008-2010).
The $1.5Quadrillion of world-wide derivatives, say at 1% interest due each year and paid by the end of the 5 year periods, $15Trillion a year, or $75Trillion each 5 years out to 30 years, fully exceeds the entire tax base of this planet. The world will not make it. Over 30 years the total interest due at a conceptual 1% on the current “book” of derivatives world-wide approaches
5 x $75T = $375Trillion.
There are about $5B ounces of gold on the planet’s surface that is known. At $1000 an ounce, it is worth $5Trillion. Is it useful to use it as a standard for underwriting $1.5Quadrillion and growing of credit derivatives?
One additional problem is that derivatives and their additionally piled on insurance policies are growing, and the bankers and investment houses wish to add even more derivatives not seeing that there must be an end point.
Basically, the whole world has become Iceland, who had, what, 900:1 leverage in their banks.
Can you say crash? I knew you could.
One additional problem is that derivatives and their additionally piled on insurance policies are growing, and the bankers and investment houses wish to add even more derivatives not seeing that there must be an end point.
Maybe because the long term is too dark to contemplate?
Still difficult grasping these numbers, the defy immagination....32 millions years just to count them!
So why not outlaw them? Sounds like a huge Ponzi scheme to me? or is it there is no will in high places to do so?
Derivatives aren't "borrowings".
($16T went out for bank interest payment bailouts on derivative bond losses 2008-2010).
Huh? Derivative bond losses? Are you talking about derivatives or bonds?
The $1.5Quadrillion of world-wide derivatives, say at 1% interest due each year
They aren't debt, why would interest be due?