Monday, December 19, 2011

Has the US financial system thrown all caution to the winds?

I occasionally look at the US Debt Clock, and record my impressions on this blog. The biggest figure by far on this page, full of mind-bogglingly high figures, is the figure of currency and credit derivatives to which the US economy is exposed. The US financial system is becoming bolder – in the last 6 months, it seems that they have completely thrown caution to the winds, knowing that the rest of the developed world have little choice but to sink or swim with them.
Currency & Credit Derivatives Exposure of the US economy:
8 April, 2010
$648.975 Trillion
See this
26 Jul, 2011
$611.499 Trillion
See this
19 Dec, 2011
$766.628 Trillion
See this
From April to July, 2011, there seemed to be a 5% winding down (see this). However, since then, the exposure has shot up in the last 5 months to an unprecedented level. To put the current figure in context, currency and credit derivatives exposures have risen by $155 Trillion in 5 months – whereas the US GDP is $15 Trillion. The rise in this figure in only 5 months is 10 times the current GDP of the US economy; and 2-½ times the world GDP of $63.04 Trillion (World Bank figures, quoted on Wikipedia. See this).
Keep in mind that a large part of such exposures represent postponement of recognition of losses. This shows that the US economy continues to think that the rest of the world is a limitless risk sink; many ecnomists thought that the world had been cured of this naive belief. Stupidity is alive and kicking in the financial system!

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