Wednesday, June 26, 2013

$441 trillion of interest rate derivatives go tick, tick, tick!


Bonds, stocks, treasury yields, currencies and gold are the investments that typically occupy the headlines of the business pages and financial websites!

But there are other trading and investment vehicles hiding behind the scenes in the shadows of the financial world that dwarf these markets and that have the potential to wreak havoc on your money.

They are called derivatives and in the interest rate arena alone there are $441 trillion in bets outstanding around the globe (Read 'Derivatives 101 through the prism of a beer hall!' here).

And sharp moves in rates, like the one we have experienced the last month or so, are not likely factored into the models created by the highly paid MIT quants who create the derivatives contracts.

The result, if this degree of volatility persists, could be losses on a mammoth scale.

This spike in interest rates is one of the many potential unintended consequences that could occur due to the huge amount of money that has been printed by the U.S. government along with the artificially low level of interest rates that has been engineered by the Federal Reserve's Ben Bernanke.

All in the name of improving the economy and creating jobs with the jury still out on whether or not the effort has born any real fruit.

There's an excellent article at The Economic Collapse blog that explains it in understandable detail.

The 441 TRILLION Dollar Interest Rate Derivatives Time Bomb

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