The world has been on a big binge and it is time to pay the proverbial piper.
Europe decided that bigger is better and created the European Union and a new currency, the Euro. What Europeans failed to recognize is that most of the member nation governments were big government socialists. These governments would continue to grow, their programs to help the needy would expand (primarily via the redefinition of needy) and everything would be just fine or so everyone thought until now. Socialism dislikes private property ownership. Central governments took more and more land and property in the form of taxes to expand government.
When these governments ran out of people to tax they began to borrow, and borrow they did in a big way.
The United States is on the same path as Europe. Taxing and borrowing became reelection strategies for both political parties. When the people rejected more taxes, borrowing became the new narcotic or the political class. Borrowing leads to hedging, which leads to leveraging, which leads to the inevitable - bankruptcy. Sovereign nations in Europe are facing bankruptcy.
So where is the money coming from?
From banks of course. Banks were and are still looking to lend to governments and by doing so have leveraged themselves into oblivion. According to Greg Hunter, former investigative reporter for ABC and creator of USAWatchDog.com, "I keep hammering away at the fact the Fed doled out $16 trillion in the wake of the credit crisis of 2008. This is an enormous sum that is greater than the all goods and services produced in the U.S. in a single year. Domestic banks and companies got the money, right along with foreign banks and companies. In effect, the Federal Reserve bailed out the world financial system. Now, we are right back to square one facing another financial meltdown with European banks and sovereign debt. If the Fed spent $16 trillion, why in the heck is this problem not fixed and why isn’t the world economy taking off like a rocket?" [My emphasis]
The simple answer is it wasn't enough money.
Greg reports, "According to the latest report from the Comptroller of the Currency, just four U.S. banks have an eye popping $235 trillion of OTC derivative leverage. (Click here for the complete Comptroller of the Currency report.) As a nation, U.S. banks have a total OTC derivative exposure of $250 trillion. So, the fact that just four U.S. banks have this much leverage and risk is astounding! The banks are listed below in order of size and approximate OTC exposure:
1.) JP MORGAN CHASE BANK NA OH - $78.1 trillion OTC derivatives
2.) CITIBANK NATIONAL ASSN - $56.1 trillion OTC derivatives
3.) BANK OF AMERICA NA NC - $53.15 trillion OTC derivatives
4.) GOLDMAN SACHS BANK USA NY - $47.7 trillion OTC derivatives
"Considering that the total assets of these four banks are a little more than $5 trillion, I see a frightening amount of risk with a total derivative exposure of $235 trillion! This is nearly 50 to 1 leverage," says Greg.
So who will bail out these banks? Certainly not the United States Treasury given our own increasing debt load and the inability of President Obama and Congress to deal with the long term federal debt and unfunded liabilities of Social Security, Medicare and Medicaid.
There is simply not enough money in the entire world to save us from ourselves. Time to wake up and realize that big is very, very bad.