Broad Oak: your emotional support animal

Saturday, August 03, 2013

Interest rates will trigger the meltdown - Hugo Salinas Price

In King World News (2 August) Hugo Salinas Price alerts us to the threat of interest rate rises, which he describes as "fatal" and leading to worldwide "massive bankruptcies".

I'd known that derivatives are a huge market; what I hadn't realised was that the overwhelming majority of the contracts are related to interest rates.

The graph below is a visualisation of data from this Wikipedia article on the derivatives market:


Theoretically all the bets net off against each other, but we've seen what happens when a counterparty defaults (Lehman etc). Now consider that the annual GDP of the USA is only 3% of the notional value of interest rate contracts alone.

Frightening.

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