Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Beyond The Sub-Prime Bubble: The Other Seven Deadly Bubbles . . .

Posted by Tom Foremski - November 8, 2008

There is a perception among some of my contacts that the financial crisis has stabilized and that the fallout from the sub-prime bubble has been contained. What is missing in that analysis is the fact that this financial crisis has still a long way to go because there are other bubbles bursting.

Interestingly, this time there is no tech bubble but there might be little that tech can do to mitigate the effects of this financial crisis and its effects on the global economy. There is no place to hide from this.

Please see this analysis of the financial crisis from DK Matai, chairman and founder of ATCA Open.

There is a rising myth of the single bubble which suggests that The Great Unwind -- manifest as the global credit crunch -- is essentially about subprime mortgage default, a USD 1.5 trillion challenge. The truth is that there are as many as eight bubbles at play which are in the process of bursting, taking the form of deleverage on an unprecedented scale. Even 1929 pales in comparison. At a recent ATCA roundtable we posed the following questions for Socratic dialogue:

I. If the Dow Jones Industrial Average has fallen from above 14,000 to below 9,000 as a result of the subprime mortgage bubble collapse, ie a 5,000+ points drop or 33% decline, where will the equities market reach by 2010 as other larger bubbles burst?

II. If the world government bond market is around USD 30 trillion, how can governments rescue the eight bubbles bursting step by step with an ever larger quantum and momentum? What ought to be the focus at Bretton Woods II starting November 15th?

There are at least eight bubbles in play worldwide and their approximate scale is as follows:

1. Subprime Mortgage linked Loans and other Assets (USD 1.5 trillion);

2. China, India, Eastern Europe and other Emerging Market Loans (USD 5 trillion);

3. Commodities (Commodity Derivatives at about USD 9 trillion);

4. Corporate bonds (USD 15 trillion);

5. Commercial (USD 25 trillion) and Residential property (USD 50 trillion);

6. Credit Cards Outstanding Debt (USD 2.5 trillion);

7. Currencies (Foreign Exchange Derivatives at about USD 56 trillion); and

8. Credit Default Swaps (USD 58 trillion) as a subset of all Derivatives (USD 1,144 Trillion).

In the ATCA briefing, "The Invisible One Quadrillion Dollar Equation" we discussed the main categories of the USD 1.144 Quadrillion derivatives market as quoted by the Bank for International Settlements in Basel, Switzerland:

1. Listed credit derivatives stood at USD 548 trillion;

2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:

a. Interest Rate Derivatives at about USD 393+ trillion;

b. Credit Default Swaps at about USD 58+ trillion;

c. Foreign Exchange Derivatives at about USD 56+ trillion;

d. Commodity Derivatives at about USD 9 trillion;

e. Equity Linked Derivatives at about USD 8.5 trillion; and

f. Unallocated Derivatives at about USD 71+ trillion.

The relative scale of the world's financial engine is as follows:

1. The entire GDP of the US is about USD 14 trillion.

2. The entire US money supply is also about USD 15 trillion.

3. The GDP of the entire world is USD 50 trillion. USD 1,144 trillion is 22 times the GDP of the whole world.

4. The real estate of the entire world is valued at about USD 75 trillion.

5. The world stock and bond markets are valued at about USD 100 trillion.

6. The big banks alone own about USD 140 trillion in derivatives.

7. The population of the whole planet is about 6 billion people. So the derivatives market alone represents about USD 190,000 per person on the planet.

Assuming a 10% conservative default or decline in asset value, this could be a USD 100 trillion challenge on the base of a Quadrillion. What are the likely outcomes? We are keen to receive your answers and solutions. Please note that the numbers quoted are a rough guide.

We welcome your thoughts, observations and views. To reflect further on this, please respond within Facebook's ATCA Open discussion board.

The "ATCA Open" network on Facebook is for professionals interested in ATCA's original global aims, working with ATCA step-by-step across the world, or developing tools supporting ATCA's objectives to build a better world.

The original ATCA -- Asymmetric Threats Contingency Alliance -- is a philanthropic expert initiative founded in 2001 to resolve complex global challenges through collective Socratic dialogue and joint executive action to build a wisdom based global economy. Adhering to the doctrine of non-violence, ATCA addresses asymmetric threats and social opportunities arising from climate chaos and the environment; radical poverty and microfinance; geo-politics and energy; organised crime & extremism; advanced technologies -- bio, info, nano, robo & AI; demographic skews and resource shortages; pandemics; financial systems and systemic risk; as well as transhumanism and ethics. Present membership of the original ATCA network is by invitation only and has over 5,000 distinguished members from over 120 countries: including 1,000 Parliamentarians; 1,500 Chairmen and CEOs of corporations; 1,000 Heads of NGOs; 750 Directors at Academic Centres of Excellence; 500 Inventors and Original thinkers; as

well as 250 Editors-in-Chief of major media.

The Philanthropia, founded in 2005, brings together over 1,000 leading individual and private philanthropists, family offices, foundations, private banks, non-governmental organisations and specialist advisors to address complex global challenges such as countering climate chaos, reducing radical poverty and developing global leadership for the younger generation through the appliance of science and technology, leveraging acumen and finance, as well as encouraging collaboration with a strong commitment to ethics. Philanthropia emphasises multi-faith spiritual values: introspection, healthy living and ecology. Philanthropia Targets: Countering climate chaos and carbon neutrality; Eliminating radical poverty -- through micro-credit schemes, empowerment of women and more responsible capitalism; Leadership for the Younger Generation; and Corporate and social responsibility.

Story link | Subscribe free | Categories:




ForemskiInnovator.jpg

The Holmes Report names Tom Foremski one of the top 25 Innovators of 2013.




-->