European Bailout Package Announced - $1.3 Quadrillion Derivatives Implosion May Be Next

European Bailout Package Announced  - $1.3 Quadrillion Derivatives Implosion May Be Next 

The announcement from the EU has been made, with the initial size of Europes bailout package announced as $1.7 Trillion USD. Details? What details! 

As I write this (at 3:30 am cst), the stock markets seem to like the news, with Dow futures up 180 points, and similar gains happening globally. The question is, will the party last? 

First, the details as we know them…followed by the HUGE risks that I see coming from this plan.

Here’s what we know so far, and one specific part of it is going to scare the ---- out of the $1.3 quadrillion (in size) derivatives markets, specifically the CDS market, or Credit Default Swaps. 

First, the size. Trust me when I tell you that the announced size of $1.7 trillion USD is just the beginning. This “European TARP”…or Euro bank bailout, which is exactly what I predicted would be announced…will allow for a 50% soft default on Greek government debt. This IS a sovereign debt default, and incredibly, Greece got off without any real forced austerity measures. I can tell you immediately that every bankrupt country across Europe is licking their chops at this deal. Why? Because Portugal, Italy, Ireland and Spain just realized that this is the EXACT deal that they will be able to negotiate as well! And, they will be able to do so without having to announce major changes to entitlement programs, or any other forced austerity measures that would have reigned in their ridiculous levels of beyond bankrupt spending.

Second, and this is where everyone reading this should be furious, it’s clear that a large portion of this bailout money will come from the International Monetary Fund, or the IMF….folks, that’s me and you….taxpayers of the world! How much you ask? Well, even without the official details right now, I can tell you that based on history, my educated guess is that about 20% will come from me and you…so, let’s call it $340 billion USD or so. Hey, this bailout stuff is fun, huh.

Third….next up we will learn how the European Central Bank (ECB) plans to participate in the party. Following the model from the US TRAP and stimulus bailouts of 2008/2009, we saw Ben Bernankes Federal Reserve initiate massive amounts of paper money printing, which they called Quantitative Easing…first QEI and then QEII…which combined totaled more than $2.5 trillion (just that we know of), which was used to by our OWN government and mortgage debt. So….we can look for the ECB to do pretty much the same thing…they will soon begin printing massive amounts of Euros, which will be used to buy European debt. Again, because NO ONE else will!  

Folks, the financial playbook that we have seen play out in the US will now be played out in Europe…almost to a tee. Here’s what it means for our future….massive currency inflation…and eventually, hyperinflation.

Finally, here’s my big concern from what I’ve seen announced so far. This “soft bailout” of Greece, is amazingly being pitched as a “non-default”…meaning that investors that purchased CDS’s against Greek debt as insurance against the exact default that is now taking place, may see their insurance policy (CDS) deemed nearly worthless! If this takes place, I cannot emphasize how big of a deal it could wind up becoming.

Consider this, if the worlds largest investors…those that dominate the credit default swap market, along with all derivatives markets…begin to fear that ALL of their derivatives holdings could be made near-irrelevant at the drop of a hat, then we could be early witness to complete insanity in this MASSIVE and UNREGULATED $1.3 quadrillion marketplace.

How big is a quadrillion you ask? It’s a 1 with 15 zeros. Or how about this…it’s a actually a thousand trillion. It’s also an amount that’s more than 60 times the entire globes GDP. So…if the next collapse starts in the derivatives markets…well, it would make the economic crisis that we’ve seen so far look like a walk in the park.

For now, it looks like the powers that be are willing to do anything and everything to re-inflate the worlds bubble economy. No deleveraging, no real austerity measures, and no economic sanity.  We will continue to aggressively buy gold and silver. And, all of this money printing and debt issuance makes shorting government debt all the more attractive.

The VRA is perfectly positioned to take advantage of every idiotic move our powers that be make. Those that have the courage to make these investments will be the big winners over the next 2-3 years, as this $50 trillion transfer of wealth enters its next phase.

Also, do whatever possible to make it to WMI's 14th m2 Wealth Conference, December 5-8 in Maui. More details on this in the next update! 

Kip    

Comments

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