Chapter 83 4. Hegemony in the financial derivatives market

If interest payments of at least two trillion dollars increased each year in the form of rolling interest will be created sooner or later into the monetary system, although some of them can be piled up in the future at the cost of higher debts, another part of the additional issuance of interest dollars will be enough to cause significant damage. Inflation, but strangely, inflation doesn't seem to be noticeable in the US.How does the international banker's magic work? The trick is that there must be a place to absorb a large amount of additional currency issuance. This is the financial derivatives market that has grown abnormally in the past ten years.

Twenty years ago, the total nominal value of financial derivative products in the world was almost zero. By 2006, the total size of this market had reached 370 trillion US dollars!It is equivalent to more than eight times the total GDP of the world.Its growth has been rapid and large enough to exceed any normal human imagination. What is the nature of financial derivatives?Like the US dollar, it is also a debt!They are packages of debt, they are collections of debt, they are containers of debt, they are warehouses of debt, they are the Himalayas of debt. These debts are used as assets to fill hedge fund portfolios, and these debts are also used as assets by insurance companies and pension funds.These debts are traded, deferred, squeezed, stretched, rolled, filled, and drawn out. It is a feast of debt and a feast of gambling.Behind the complicated mathematical formulas, there are only two options: empty and long. Every contract is a gamble, and every gamble will surely win or lose.

Since it is a gamble of hundreds of trillions of dollars, there must be a dealer in this casino.Who is the banker?It is the five largest banks in the United States. They are not only heavyweight players, but also do business. The Financial Derivatives Market Report of Commercial Banks for the Second Quarter of 2006 released by the U.S. Department of the Treasury pointed out that the five largest banks in the U.S., JPMorgan Chase and Citigroup, etc., accounted for 902% of the total financial derivative products of all 902 banks. Ninety-seven percent, ninety-four percent of income.Among all the bank's financial derivative products, the largest is the interest rate product, accounting for 83% of the entire plate, with a nominal value of 98%.Seven trillion dollars.

In the category of interest rate products, interest rate swaps have an absolute advantage.The main form of interest rate exchange is to exchange floating interest cash flow for fixed interest cash flow within a certain period of time, and the transaction generally does not involve principal.Its main use is to simulate the operation of long-term fixed-rate bonds at a lower cost.The two largest GSE companies in the United States, Freddie Mac and Fannie Mae, use this tool the most.The two superfinance companies issued short-term bonds to finance 30-year fixed-interest real estate loans, supplemented by interest rate swaps to hedge against future interest rate changes.

In ninety-eight.Among the 9 trillion U.S. dollars in interest rate derivatives, JP Morgan Chase took the lead, accounting for 74 trillion U.S. dollars.In the financial field, investing with a capital leverage ratio of 10:1 is very aggressive, and 100:1 is crazy investment. In the 1990s, the famous super hedge fund Long-Term Capital Management Fund was guided by two Nobel Prize winners in economics. Under this circumstance, he established the most complex risk hedging mathematical model in the world at that time, and possessed the most advanced computer hardware facilities in the world. When investing with this leverage ratio, he lost everything without paying attention, and almost dragged down the whole world financial system.The potential leverage ratio of JPMorgan Chase when it makes interest rate derivative products is as high as 626:1, which is the highest in the world.

What JPMorgan Chase actually does is to dominate the interest rate derivatives market, and it is the opponent of almost all companies that hedge against the risk of rising interest rates.In other words, the vast majority of people need to invest to protect against sudden spikes in interest rates in the future, and JPMorgan is selling insurance by assuring everyone that rates will not skyrocket. What mysterious crystal ball allowed JPMorgan to take such earth-shattering risks to predict changes in interest rates that only Greenspan and the Federal Reserve will know when the time comes?There is only one reasonable answer. JP Morgan Chase itself is one of the largest shareholders of the Federal Reserve Bank of New York, and the Federal Reserve Bank of New York is an out-and-out private company. It is the real maker of interest rate change policy, while the Federal Reserve Board far away in Washington is just an executive body. The change of interest rate policy is not decided temporarily by voting at the regular meeting of the Federal Reserve as the world imagines.Of course, the voting process is realistic, but the voters were installed by the international bankers from the start.

So what JPMorgan Chase is doing is a business that makes no money.It's like JPMorgan Chase is a company that can artificially control rainfall, and it sells flood insurance. Of course, it knows when the flood will flood, and it even knows which area the flood will flood.Einstein once said that God does not play dice.JP Morgan dared to play the hegemony business of the financial derivatives market, but it also would not roll the dice. With the explosive growth of the financial derivatives market, government regulation has lagged far behind.A large number of derivative product contracts are carried out outside the formal trading market, also known as over-the-counter transactions. In terms of accounting system, it is also difficult to compare derivative product transactions with regular commercial transactions, let alone tax calculation and asset-liability accounting .Due to its large scale, high financial leverage ratio, difficult control of counterparty risks, and loose government supervision, it is nothing more than a timed nuclear bomb for the financial market.

It is precisely because of the unprecedented prosperity of this speculative market that it has absorbed a lot of the astronomical liquidity created by the interest payments on US debt.As long as a huge amount of newly issued dollars and dollars returned from overseas are included in this high-speed rotating market and will not be leaked to other markets in large quantities, the core inflation index will be miraculously controlled.In the same way, once the financial derivatives market collapses, we will witness the most serious financial turmoil and economic crisis in the history of the world.