Topic: Foreigners Catch a Clue

[Weisshaupt]

Treasuries a Safe Haven? - well the rest of the world is seeming to not think so.  Historically problems like the Euro crisis would be driving capital into Dollars and Treasuries. Not this time, and still the yields are stupidly low. 

The Federal Reserve keeps printing dollars to buy the U.S. Debt - the debt Obama just asked to add another 1.2 Trillion ..

And how about that Gold? . 

To achieve the EW target of $4,500 on the next upward move will require something to trigger substantial new buying of gold. What could that event be? By definition, it will be a surprise to all market participants, a “black swan” event. That doesn’t prevent us from making a guess.
 One likely area from which problems could emerge with very large numbers are derivatives. The Bank for International Settlements produces a list of outstanding derivatives twice a year.....This reveals that the total notional value increased from $601 trillion (with a “t”) at December 2010 to $707 trillion at June 2011. Nearly all of the increase was accounted for by interest rate contracts which now have a notional value of $553 trillion, some 78% of the total. As we discovered in 2008, derivatives are benign until losses occur. Once losses emerged from credit default obligations, it was game on for the GFC. Interest rate derivatives protect banks from interest rate rises. Most banks borrow short but have large loan books at fixed rates for long periods. Thus a big rise in interest rates could trigger claims on these derivatives. For the time being, rates seem to be locked at virtually zero in the USA, but this is not the case in Europe. Europeans are learning the lesson that rates rise when investors become concerned that the borrower can’t repay the amount borrowed, let alone the interest on the capital. When we drill down further into the BIS statistics at we discover that $219 trillion of the interest rate derivatives are denominated in Euros, compared with $170 trillion denominated in US Dollars. If just 10% of the interest rate derivatives in Euro’s produce losses, the world’s banking system would be looking down the barrel of a loss of $22 trillion. That is enough to bankrupt the entire world’s banking system, something that the politicians of the world could not tolerate. What would a bail out of $22 trillion do to financial markets? What would it do to the gold price?
 If it is not interest rates, there are $64 trillion of foreign exchange derivatives and a “mere” $32 trillion of credit default swaps outstanding that could produce “black swan” surprises.

However, I think the comments in the first article on zerohedge put it better:

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Thu, 01/12/2012 - 20:42 | 2060338 goldencrumbs
Don't worry, these guys see things WAY before it's time to get concerned.

The transcripts of the Fed’s Open Market Committee meetings in 2006, released after a standard five-year delay, suggest that some of the nation’s pre-eminent economic policy makers did not fully understand the basic mechanics of the economy that they were charged with supervising. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in models that turned out to be broken

http://www.nytimes.com/2012/01/13/business/transcripts-show-an-unfazed-fed-in-2006.html?hp

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Thu, 01/12/2012 - 20:50 | 2060349 Yes_Questions
 
Ripley: How many drops for you is this, lieutenant?
Gorman: Thirty-eight. Simulated.
Vasquez: How many combat drops?
Gorman: Uh, two. Including this one.
Hudson: Oh-ho, man...
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Thu, 01/12/2012 - 21:18 | 2060404 Freddie
Hudson: Game over man!
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Thu, 01/12/2012 - 21:21 | 2060418 lolmao500
Nuke it from orbit, it's the only way to be sure.

[Libertas]

I caught that posting earlier.  Pretty stunning, no wonder there is a 5 year delay in posting FOMC minutes...if the rest of the world knew this outfit spends so much time with their heads up their butts, the markets would be reacting a lot quicker.  As it is the markets can read between the lines as well as we can so there isn't as big a lag as one might think, but really...saying we need overhaul every aspect of our fiscal and monetary system is beyond obvious.

But, these idiots put themselves in this corner, they'll be left to die in it as well.

Any word from the ratings agencies yet?