The Derivatives Market – A Massive Financial Black Hole
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Conservative estimates value the derivatives market at $600 trillion, but non-conservative estimates value it from anything between $1.4 quadrillion to $4 quadrillion. In essence, the derivatives market is a massive financial black hole. Currently, global GDP is valued at between $70 – $75 trillion. The derivatives market is completely unregulated, and is a giant casino where Wall St bankers place high risk bets in the hope of garnering obscene profits. To date, they have, but the market is so interlinked that the breaking of just one link will bring the market crashing down. This happened in 2008, and it was only as a result of the $700 billion bailout handed to bankers “too big to fail” that a full on global crisis was avoided. If it happens again, as is likely, there won’t be any more bailouts, and the result will be an economic depression far worse than the depression of the 1930’s.
The Role of Federal Reserve Chairmen
Alan Greenspan, the Federal Reserve chairman, refused to regulate the derivatives market, as did his successors, such as Ben Bernanke. Such policies are reckless at best, and completely irresponsible at worst. Giving a free hand to investment bankers and guaranteeing their continued existence if such bankers overreach themselves, allows for greed to go through the roof, which was the case in the years leading up to the 2008 crisis, and has been the case since then. Fuelling the economy with quantitative easing (the printing of fiat money), has the potential of leading to hyperinflation if interest rates rise. It should be noted that the Federal Reserve raised interest rates in the period leading up to the 2008 crisis, and have made noises about raising interest rates again during 2017.
Just trying to get a grip on the derivatives market tends to boggle the mind. No-one wants to see another depression, and the Fed’s role, among other things, is to prevent depression, yet there was a depression in the 30’s which occurred after the Federal Reserve was established in 1913. Essentially, the derivatives market is so large now, that the Federal Reserve has lost control of the money markets by allowing a monster out of its bag. If the market collapses, there will be nothing further the Federal Reserve can do, and it will become an ineffective tool in keeping the financial markets in balance.
This documentary explains the derivatives market in detail, and is well worth watching: