“Potential losses on Bank of America’s massive $75 trillion book of risky derivative contracts has just been dumped onto the FDIC by the Federal Reserve.

Derivatives, once described by Warren Buffet as “financial weapons of mass destruction” are complex contracts entered into for speculation or to hedge risks linked to a wide variety of other (derivative) financial instruments such as currencies, commodities, interest rates, bonds, etc. In testimony to the Financial Crisis Inquiry Commission in March 2011, Buffett warned that the trillions in derivatives held by major banking institutions could be “disruptive to the whole financial system” and that the risks were “virtually unmanageable.”

There is not enough money in the world to cover the massive losses of banks such as the above quotation. JP Morgan, Goldman Sachs etc. have massive losses in gold and silver alone, and illegally short these metals every day, and then buy back at the discounted price they have created. GATA has testified again and again and still the illegal trades go on, first in the Hong Kong market, then London and then on the US Comex exchange. By their enormous profits they are slowly gaining a decrease in their short position but are still not anywhere within reach.

Greece will have to bail out of the Euro union, with Spain Portugal Ireland and France not far behind. France represents a huge monetary deficit compared to the relatively smaller other countries. When this occurs, probably in 2013, the flight to gold will overwhelm the above attempts to hold back gold and silver as is “performed” daily at the present. US debt is massive, and as I have mentioned the only thing holding up the US dollar is that it is the international vehicle of buying and selling for example, oil. No one knows the true US gold holdings in Fort Knox, and no one knows if the Secretary of the Treasury is also selling and buying gold every day as his actions are not responsible to Congress or anyone.

One reason the bailouts have been so unsuccessful is that the US bailed out banks instead of stimulating jobs via the private sector. Hiring a new government worker does not increase productivity the way a new trucker, for example might. If there had been logical delivery of the first stimulus money perhaps some of the terrible additions to the debt could have been avoided but now, sooner or later interest rates will have to climb, crippling the US economy.

I agree the true unemployment rate is closer to 22% in the US and that the true inflation rate is probably 9%. China and India will continue to buy oil from Saudi and so will everyone, no matter if the price is $200.00 or $300.00 per barrel. If suddenly a new motor replaced gasoline today it would take ten years to replace the existing fossil fuels, so by ten years the “new” defaults and monetary equalizations would have been worked out.

From what I have read, if governments did not interfere with trying to adjust interest rates to smooth out the supply and demand normal fluctuations, the curves would have been much more gentle. Just as JP Morgan bet that gold was to go down when it went up, politicians are not qualified to indirectly run the Fed. (The Federal Reserve has nothing to do with the US government)

So with the massive debts in all countries around the world, sooner or later Buffets' words above that disruption of the whole financial system is a real possibility; printing more money adds to an inflationary depression rather than the better deflationary depression that would have occurred if the money printing had not started.

I am reminded that the definition of an economist is a man with a Phi Beta Kappa medal on his watch chain but the chain has no watch. (Phi Beta Kappa is the award for the brilliant students, and today he could probably afford a Mickey Mouse watch)