Today Egon von Greyerz warned King World News that the global derivatives market has already suffered a staggering $300 trillion of losses. These massive derivatives losses, which are being hidden from the public, will help lead the rebound in gold as it begins the next leg of its bull market. Below is what Greyerz, who is founder of Matterhorn Asset Management out of Switzerland, had to say in this powerful interview.
Greyerz: “A few years ago when the problems in Greece started, it was found that the Goldman Sachs had helped them to hide the real truth of their economy by a major derivatives positions.
Now we’ve found out that Italy has done exactly the same thing. They took out derivatives in order to meet euro criteria back in the late 1990s. They had a total of $31 billion of derivatives and now they are finding that at least $8 billion of that is worthless. That’s about 30% of the entire position….
“This just illustrates what I’ve been saying time and time again, that a major part of the over one quadrillion dollars of derivatives currently held in the financial world is worthless. Here you have a typical position that a government is taking, $31 billion of derivatives, and 30% is worthless.
If you then overlay that loss into the total amount of global derivatives, the loss would be a staggering $300 trillion. It would not surprise me if $300 trillion is in fact very close to the total losses on global derivatives. If that is the case it means that no counterparty can cover those type of losses, so in reality the entire financial system is bankrupt.
This is why the world will witness money printing on an unprecedented scale going forward, despite misinformation and propaganda about “tapering of QE.” So central planners are just hiding the truth and lying to the public.
If we continue to look at Italy, 160 corporations are in “special crisis administration.” That’s 160 major companies in Italy alone are in serious financial trouble. But Italy has a stunning debt to GDP ratio of 238%. In reality it’s probably a lot higher than 238% because of the derivatives losses which have been used to conceal the truth about what is really taking place.
But what this means is we can’t trust any government figures. This is why Draghi recently said, “There is still downside risk.” Of course there is downside risk, and that risk is massive. If we look at the European banking system, it’s terminal. People can never repay their debts to those banks, and of course the banks have continued to borrow money from the ECB since 2008. Of all of the bad debts these banks have, remember that nothing has been written off or even written down so far.
And of course the central banks have bought worthless debts directly from the banks in Europe. The ECB over the last 11 years has grown its balance sheet over 200%. The Fed’s balance sheet has grown 400%. The Chinese central bank has grown its balance sheet 660%, and the Bank of England 800%. England’s balance sheet has gone from $2 trillion to $9 trillion, and of course that debt can never be repaid.
Not only are the central banks highly leveraged, but so are the commercial banks. France is also in a mess. French bank Credit Agricole has a remarkable 46 times leverage! So if there is 2% bad debt, the capital of that bank is wiped out. Another French bank is using 40 times leverage. Credit Suisse, if you use Basel III rules, also has 40 times leverage. Deutsche Bank has 30 times leverage.