In the first six months of this year the financial industry created an additional $107 trillion of derivatives – taking the global total to over $707 trillion. (Congratulations to ZeroHedge for spotting this.)
Just think about that for a minute. Bankers created over $580 billion of new debt every single day for six months – and they accuse the Greeks of profligacy! That is a 34% annualised increase, during which the global economy is entering recession – experiencing little or no growth. These derivatives have nothing to do with productive human activity.
The increase is almost entirely accounted for by interest contracts. These are simply bits of paper passed around amongst banks with large numbers written on them. Bank A borrows some paper from bank B who borrows some paper from Bank C … and so on until it gets back to Bank A. And they say: ‘Look – no risk, because bank X owes me as much as I owe Bank Z – we are safely hedged‘. A nice theory, but one which AIG and Lehman Brothers proved to be simply untrue.
In reality the derivatives are used to mask insolvency and to create the illusion of profit for the banks. It is no co-incidence that bank profitability has zoomed up this year at the same time as the increase in derivatives. Those profits justify enormous bonuses to the financial terrorists who are responsible for creating them.
The derivatives form a dark financial vortex which sucks money out of the rest of the system. They attract interest and must be serviced regularly. The only relationship they have to the real economy is that it is ‘real’ people’s work that ultimately creates the wealth of a nation. Our governments invoke austerity measures to take that wealth and shovel it into a banker’s debt-hole.