Egon von Greyerz continues:  

“They have young people, many times in their 20s, coming in and having derivatives positions of tens of billions or even one hundred+ billion dollars, and these young people have no idea what they are doing.  The individual from UBS, who is now defending himself, said, ‘I just came in to run these positions.  I had no idea about this market.’  He is only 27 years old.

So you have inexperienced people taking massive risks, and running positions which amount to an unthinkable total of $1.1 quadrillion....

Continue reading the Egon von Greyerz interview below...


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“Every time we look at these positions closely and value them, which is when there is a problem, the banks realize the positions are not worth anywhere close to what they believed they were.  The real, underlying problem is that even management at the banks don’t understand these derivatives.  They don’t know how to value them, so they have no understanding of the true value of the positions.

Many times they are virtually impossible to understand, therefore the traders can value them at whatever they want.  Of course they are unregulated and they are not traded on any exchange, and most all of this is held off-balance-sheet.  Meaning they are not included on the banks balance sheet.

What the banks do is net down the positions to a very small total because they assume that counterparties will pay.  Well, we know when something happens in the banking world, take Lehman as an example, and we will have many more Lehmans in the future, the counterparty doesn’t pay or isn’t able to pay.

What that means is the gross remains the gross, and again, we have an outstanding exposure, worldwide, of an unfathomable $1.1 quadrillion.  You also have to realize that there are virtually no reserves against these enormous positions.

This is why investors that hold major assets in banks are taking risks they shouldn’t take.  The reality is the banking system is incredibly fragile because of the ongoing risk of the derivatives bubble blowing up at some point.  I would add that the risk of this happening is very high in my view.

This is the reason, as I’ve said, that investors have to hold assets outside of the banking system.  Let’s take a look once again at the cube chart, just to look at the proportion of outstanding derivatives to gold:

You have $1.1 quadrillion of derivatives, and all of the gold ever produced, which is in one corner of the chart, is $9 trillion.  If you take the gold said to be held by central banks, which assumes the central banks physically possess the 30,000 tons and I don’t believe they have anywhere near that, but hypothetically speaking, if they did, it is only $1.6 trillion worth of gold.

You can see in the above chart that the central bank gold only fits into a tiny corner of the cube.  So what I am saying with this chart is if there is a derivatives blow up, you can only imagine the amount of money that would need to be printed.  And, again, I think there is a very high probability of a derivatives blow up taking place.

If you then related the enormous derivative position to the percentage of gold allegedly held by central banks, if gold were to reflect that, you are not talking about gold at $10,000 or $20,000, you are talking about gold well above $100,000 an ounce.  This is what investors must focus on in terms of the bigger picture for gold.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with Don Coxe (BMO $538 billion), Rick Rule, James Turk, Egon von Greyerz and Gerald Celente are available now.  Also, be sure to listen to other recent KWN interviews which included MEP Nigel Farage,

Jean-Marie Eveillard, Bill Fleckenstein and Art Cashin (UBS $612 billion) by CLICKING HERE.

Eric King

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© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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