the coming collapse, page-29

ctindale

If certain derivatives are such a problem (I assume it is the ones involving banks making promises and perhaps some insurance companies), why don't governments just ban the banks from entering new derivatives contracts or lending to others to trade them? Would this not solve the problem? The current contracts would then just expire and the threat from these financial products would go away. I wonder how long it would take to end this problem, perhaps only one year, which would be for the period of the current annual premium?

The only downside I see is that where these derivative products are genuinely used to hedge risk by lenders, the inability to use them would lead to less risk taking and thereby perhaps reduce the availability of credit which would lead to some contraction in economic activity.

It would still leave the issue of excessive debt created over the last 30 years (and future government debt obligations), but these could be managed over time in most countries by reducing current consumption and government expenditure and continued economic growth (but probably not in Greece which has gone too far). Obviously some major adjustments would have to take place in Euroland given the problems there, and banks generally would need to be recapitalised in most countries (just like Westpac was back in the 1990s).

It would still also leave the issue of trade distortions as a result of major economies using various incentives and currency manipulation to generate export revenue, so not all problems would simply go away if the derivatives problems and banking issues were dealt with.

I am betting that the Minsky moment will not happen and that the financial and economic instability will continue for some years to make gold (and hence gold producers) an attractive speculative investment.

loki