China threating default on derivatives- an act of war? or shot across the bow?

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Subject: China threating default on derivatives- an act of war? or shot across the bow?
Le Zookeeper 9/9/2009 9:10:42 PM

600 trillion in derivatives around the world, if China defaults (essentially walks away, and rest of the world follows China) claiming US institutional financial fraud(could that be true? I mean Wall street is honest isn't it?) It will trigger complete collapse of US economy. Surely Wall street and their US government proxies will say China cannot do that , but what can US do to retaliate? War? Highly possible!

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cwDeici 9/18/2009 1:04:43 AM

When will you move to China?

Under these senarios california and wherever you are will be Chinese new territories. no need to move , ur home lloans maybe secured by chinese banks. its already happening.

OK that's it. I'm half-Chinese, not American... and I see you are clearly a retarded French nationalist. You're just ragging on America, you idiot.
Sarkozy at least has some sense, unlike you, and wants closer bonds to America.

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cwDeici 9/18/2009 1:07:30 AM

I am starting to suspect that you are a moron. Either that or just fond of screaming unlikely tales in different directions.

Our economy is solid, that is billions, not trillions. The US would not go to war over defaulting, it has plenty of economic weapons in its arsenal as well.

And of course, this would not profit us either. Our derivatives are worth money.

That is we have numerous derivates and even more bonds and stocks in other countries, if you were talking about the derivatives we owned (I'm not too good with economic engineering).
Your scenario is laughably insane and discriminating towards the US and relies on a xenoid China with no understanding of consequences.

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cwDeici 9/18/2009 1:10:10 AM

Actually... I do wonder whether foreign companies own more of China than the other way around. Might very well be true, despite our protectionism, as we relied on their gif.. *cough*investments for so long.

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cwDeici 9/18/2009 1:11:10 AM

Anyway, you're probably just teasing the Americans, and there's a core of truth to your statements, we're catching up with their economic leverage pretty quickly (though we've long to go in some areas and are ahead in others).

But it's still a stupid OP.

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cwDeici 9/18/2009 1:11:35 AM

LOL, especially the 'own California'... obvious flame.

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Le Zookeeper What is ze imbecile thinking? 9/18/2009 1:34:52 AM

LOL, especially the 'own California'... obvious flame.

Moi no hablo Francais.I am not French or BW, and u have no clue about what u r talking. The five banks are JP Morgan, CITI, HSBC, Bof A and one more. Their net market capitalization is $700 billion, China has direct control over $200 trillion of the $600trillion global even a 10% default by China wipes oout $200billion . Of course USA gets wiped out and if other countries follow goodbye all major US banks. Just like the guys what away with jingle mail home foreclosures. China is threatening default on a small percentage now (actually approved it). The rest of the world will claim criminal financial fraud in tandem with China and its bye bye US/UK for a long long time in this very galaxy, the US will say no no no you cannot do that and then there will be a war. Its simple. Neither a borrower or lender be (who said that?).

And if anyone has any faith in the US banking system u r living, well under a BIG BIG BIG BIG Frikking rock.

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Le Zookeeper www.gold-eagle.com/editorials_08/summers091409.html 9/18/2009 1:40:13 AM

The Most Critical Time Of Day For Bulls

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September 14, 2009

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In case you have not heard the news, China has announced that it will be instructing its state-owned enterprises to potentially default on their derivatives contracts. As I have written extensively in the past, the derivatives market is a massive time bomb just waiting to go off. China's latest move may be the match that lights the fuse.

All told, US Commercial banks own $202 trillion in derivatives in notional value. To put that number into perspective, it's roughly four times the global GDP. And 96% of this exposure sits on five banks' balance sheets. I've shown the below chart before, but it's worth re-visiting (chart is denominated in TRILLIONS).

Of course, not ALL of the $202 trillion these guys own is "at risk." As their name implies, derivatives are "derived" from underlying assets (homes, debt, etc). The actual "at risk" money can be far FAR smaller than the "notional" value of derivatives outstanding.

However, when you're talking about $200+ trillion, even a marginal amount of "at risk" money can mean ENORMOUS losses. Consider, if 1% of that $200 trillion were at risk, you're talking about $2 trillion in capital. Now, if even 10% of those bets go bad, you're talking about $200 billion in losses.

Now consider that, combined, the top five banks (JP Morgan, Goldman, BofA, Citi, and HSBC) have roughly $700 billion in equity.

And that represents only 1% of the outstanding derivatives that are actually "at risk." Given the over-leveraged, stupid plays Wall Street made on mortgage-backed securities and credit default swaps (both investments that had SOME degree of oversight, even if it were paltry), as well as the fact that derivatives are COMPLETELY unregulated, I would argue it's quite possible that as much as 5% or even 10% of the derivatives outstanding could be "at risk."

In that case, we're talking about $10-$20 trillion in "at risk" capital. If even 10% of these bets go wrong, you've wiped out ALL the equity at all five banks AND THEN SOME.

As I mentioned just now (and before many times), the primary problem with derivatives is that they are COMPLETELY TOTALLY unregulated. NO ONE has any idea what's "at risk" or who owns what or who's betting against who.

But we may be about to find out.

I've detailed the ongoing conflict between China and the US regarding monetary policies on these pages before. The brief overview is that China owns $800+ billion (by some accounts $1.3 trillion or more) of our Treasuries (debt) and is not too happy about Ben Bernanke and other US monetary figures throwing trillions around in bailouts and emergency measures to counteract the financial crisis.

China has fired a couple of "warning" shots already, mainly in the form of various Chinese diplomats expressing concern and frustration with the US's monetary policies. They even flew China's Vice Premiere to an unscheduled talk with US monetary officials back in July.

No one knows what was said during the talks, but given that Ben Bernanke is extended Quantitative Easing to October and has shown little signs of reversing his current "anti-dollar" policies, it's pretty clear China didn't get what they wanted.

I've often wondered what China would do if push came to shove. Their decision to have their state-owned enterprises default or renege on their derivatives contracts may be the answer.

Let me explain.

As I've stated on these pages before, I view the "bailouts" as nothing more than an attempt to funnel taxpayer money to the large US banks so they can raise capital to avoid insolvency. It was essentially a "re-capitalization" effort using public funds. And it came at the expense of the dollar and Treasuries.

China, who owns more Treasuries and dollar-denominated assets than anyone, was obviously not too pleased about this. They've asked time and time again for the US to stop what it is doing. However, Geithner, Bernanke, et al, simply plowed ahead ignoring their requests (Geithner actually told a group of students in China that the math behind the US's policies were solid which resulted in the students laughing at him).

China's decision to default on its commodity derivatives is a very clever means of slapping the US Federal Reserve in the face without "going nuclear" by selling Treasuries outright.

Commodities account for the smallest portion of derivatives on US commerc

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msteed1 China Defaul ? 9/19/2009 3:08:06 PM

China loaned the US trillions of dollars. What, we both default on our loans or get into a pis....contest about defaulting on loans.

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Le Zookeeper US will declare war on China as CHina wins in the default game 9/19/2009 10:38:18 PM

China loaned the US trillions of dollars. What, we both default on our loans or get into a pis....contest about defaulting on loans.

Both will hurt , but the US banking system will be broke, sure China will lose $2trillion it has as plain paper but every penny and bond, t-bill US has will be worth only the weightof the paper- US ill be 100% broke, Mugabe will look like an Austrian conservative economist. China has to consider what will US do- US has only one card, the mighty military- so use it obviously (some yarn will be spun but US hs no choice but to collect with force).

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Nanheyangrouchuan 9/21/2009 4:10:24 PM

When will you move to China

Under these senarios california and wherever you are will be Chinese new territories. no need to move , ur home lloans maybe secured by chinese banks. its already happening.

OK that's it. I'm half-Chinese, not American... and I see you are clearly a retarded French nationalist. You're just ragging on America, you idiot.

Sarkozy at least has some sense, unlike you, and wants closer bonds to America.

Native born Chinese don't consider you to be a real Chinese. Even if you are fairly fluent, you say things in a manner that other people from your home country would. Poser.

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