"The problem is not Government debt
per se. The real problem is that the
$70 trillion in G10 debt is the
collateral for $700 trillion in
derivatives…
Yes, that equates to 1200% of Global
GDP and it rests on very, very weak
foundations.

http://images.smh.com.au/...06/06/3353844/endgame.pdf

so, basically, everyone goes broke?

I'm not sure about the credibility of that.
Spreading fear is a proven marketing technique to get people to buy what you are selling (be it gold or snake oil)

1) The graph about debt:GDP ratio is wrong. While Canada isn't horrible, Canada definitely does NOT have the lowest debt:GDP ratio in the G10... actually somewhere in the middle.


2) The # of defaults is misleading because there are time periods missing and the time intervals are not consistent. Also the regulations and relative size of various institutions is very different now than it was for everything pre-1989

3) EU sovereign default is extremely unlikely at this point. Even if Greece implodes.. it's such a tiny portion of the EU economy that the rest of the EU wouldn't really notice (economically). It's more that it looks sort of embarrassing for them. The EU has much higher personal savings rate than the reset of the world which makes a difference.

A blind statement about derivatives is somewhat meaningless too. A lot of that is hedged against real assets (like commodities and cash).

The reason why parts of the EU are facing recession is that they cut too much government spending too quickly (which is wonderful to know in retrospect). did they need to cut that much? Maybe. But many financial analysts feel that they could have accomplished the same thing by cutting the same amount more slowly..


There are still serious unresolved issues (really? no really) with the system though including the way risk is measured, and the fact that some institutions don't necessarily comply with the regulator and get away with it..

Obviously if the EU and the US face a 1930s level of sustained collapse everyone else will fall too.. but it seems that that has been prevented from happening.

Oh yeah, oil is low partly because china decided to cut back on their growth targets.. but I doubt that it's gonna remain there.

Excellent points martian, and your positive attitude and optimism are refreshing. The article in the Sydney Morning Herald that commented on this character made similar comments.

It is a thought provoking viewpoint nonetheless. When sovereign nations print trillions of dollars and the banks gamble with it trusting that the government will bail them out if they lose by printing more, finally we will see a loss of confidence in sovereign governments. It is trust and confidence that supports all global currencies. They are backed less and less by real assets as we print more money.

Greece could very well be the start of a domino effect of loss in confidence in currencies. There could be the global equivalent of a huge run on the banks. Perhaps Russia, China and the OPEC countries will join together to help crash the markets. And cyber weapons are at a new peak in power with little defense.

I'm a pessimist. I think global financial Armageddon is a real possibility in the near term.

it's always possible. Part of my job is to run these types of scenarios (well not global armageddon, but bad stuff) and cost them.

Human tendency is to make things out to be worse than they really are or think that we are somehow immune from things.

The ratio of currency:real assets is kind of a moot point in a way. It's the stability of currency and our trust in it that matters more.

For example if I added 10 zeros to every price and 10 zeros to your paycheque, nothing really has changed (other than it gets annoying to read the value of money).

For context: lookup Greek GDP as a % of the total EU.

As far as cyberweapons: well we've been living for more than 50 years under the shadow of MAD so we can't really do any worse. The level of espionage probably hasn't changed much since the end of WW2, just he players are probably somewhat different. The tools are probably no more destructive then than now.. just different.

What I object to is writing articles like that simply to spread panic for ones own financial gain.

Debt per si isn`t bad, as someone`s debt is someone`s else asset.

It's only an asset providing the other party doesn't default:P

insurance companies, colaterals and the judicial branch?

If we've learned one thing from derivatives, its that just because you CAN create a market for something does not mean that you SHOULD create a market for it.