A First: On Halloween, Nat'l Debt Exceeds Gross Domestic Product

[Brett85]

http://www.thenewamerican.com/economy/commentary-mainmenu-43/9609-a-first-on-halloween-natl-debt-exceeds-gross-domestic-product

[Seraphim]

None of us this saw this coming....


Wait....Oh yeah....

[Brett85]

I have to take over Frank Rep's role for at least twelve more days. Lol.

[Acala]

The debt doesn't include unfunded programmatic obligations and the GNP includes government spending on waste. So it is really far, far worse than even the dismal appearance.

[Occam's Banana]

Now we know how Charlie Brown feels:

http://www.youtube.com/watch?v=hY-FaTuuglo


http://www.youtube.com/watch?v=hY-FaTuuglo

[John F Kennedy III]

I have to take over Frank Rep's role for at least twelve more days. Lol.

Lol.

[John F Kennedy III]

The debt doesn't include unfunded programmatic obligations and the GNP includes government spending on waste. So it is really far, far worse than even the dismal appearance.

We also owe $600 Trillion in derivitives, to name one thing.

[Acala]

We also owe $600 Trillion in derivitives, to name one thing.

Are you deliberately trying to push my red button? :eek:

Yes, although not technically a government debt at this point, it is a virtual certainty that when the next round of derivatives go bad (any minute), they will be dumped on the government.

[Aratus]

this takes trick or treat to a new level

[flightlesskiwi]

We also owe $600 Trillion in derivitives, to name one thing.

600 trillion. is that even a number when dealing with anything besides the astronomy and astrophysics? ;)

i feel quite light headed now.

[Acala]

600 trillion. is that even a number when dealing with anything besides the astronomy and astrophysics? ;)

i feel quite light headed now.

It is a real number but it doesn't measure anything real. It is bets against bets against bets and electronic notations. And it will ALL evaporate. And PDQ if the European crisis unfolds in what appears to be the most likely scenario.

[flightlesskiwi]

It is a real number but it doesn't measure anything real. It is bets against bets against bets and electronic notations. And it will ALL evaporate. And PDQ if the European crisis unfolds in what appears to be the most likely scenario.

i'm going to go crawl back under my rock...

it seems like this is all just one big joke. 600 trillion. of nothing real. i suppose there was lots of money to be made and the joke will be on us.

[Ronulus]

The most frightening thing to happen this Halloween.

[JVParkour]

Can you explain the derivative thing at a beginner basic level? What are derivatives and how are there that many of them?

[Acala]

Can you explain the derivative thing at a beginner basic level? What are derivatives and how are there that many of them?

I'm not an expert. On the contrary, I was asking this same question not long ago.

My understanding is that derivatives are securities that "derive" their value from the performance of an underlying security or other asset. Commodities futures contracts would be an example because they derive their value from the underlying value of the commodity.

The really troublesome derivatives seem to be the credit default swaps which, as I understand it, are essentially insurance policies on the underlying asset. When the underlying asset goes down, the insurance pays. For example, AIG sold CDS on sub-prime mortgage securities. When the mortgage securities started to lose value, AIG had to pay off on the CDSs. But here's the rub: ANYONE can buy the CDS, not just the holder of the underlying asset. So investment banks bought and sold HUGE quantities of CDSs on mortgage securities thereby leveraging the losses. As soon as the housing market started to go south, the losses for the sellers of CDSs skyrocketed. That's what broke AIG and others.

Another kind of CDS insures - or hedges - government bonds. Large quantities of such CDSs seem to exist for the bonds of the PIIGS. So when Italy's bonds tank, the institutions that sold CDSs covering those bonds suddenly owe a LOT of money to the holders of the CDSs. So a downturn in European government bonds (anyone think that can be avoided?) results in highly leveraged losses to investment banks. CDSs based on Italian bonds just killed MF Global. For this reason, under pressure from the folks who expect to be paid on these Euro CDSs, B of A recently transferred an estimated $20 TRILLION in CDS obligations into its commercial bank division, which is insured by the FDIC (you). So, in case you had any doubt as to where the buck will stop, realize that it will be the US Government/Federal Reserve that creates money to pay off the losses to "save the system". But a full-scale meltdown in the Eurozone will create losses so huge that it is unlikely the banks or the dollar can survive without reorg.

At least this is my understanding.