647,762,000,000,000 Reasons to Worry: The Derivatives Time Bomb [johngaltfla.com]


by John Galt from johngaltfla.com

The hits just keep coming and with $647 trillion reasons to worry, aka, the total notional derivatives now outstanding as of Q4 in 2011 per the Bank of International Settlements just released this afternoon and published officially on Monday (click here for the PDF of the full report).  The really, really good news is that our Federal Reserve has this completely under control and the trillions of dollars in Credit Default Swaps (CDS) and European Interest Rate Swaps will as always settle without concern.

Right?

Of course the problem is that as one can see in the graph above, the amount of Gross Credit Exposure has returned to 2008 levels, something the world might want to pay attention to. Once the lessons of the mistakes of the past are ignored, the risk factor increases proportionally and with Europe teetering on the edge of a Lehman event, the increase in interest rate derivatives might well indicate a new risk that has not been accounted for:

A sudden collapse of the Euro currency below the 1.20 or even parity level.

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