After a week of historic drama that was kicked off when the Swiss central bank surprised market participants by dropping their currency peg to the euro, today a former White House official warned King World News that things are about to get even worse as another derivatives nightmare is about to shock the world.
Dr. Malmgren: “Eric, the bank runs in Europe are happening simultaneously with the first big bankruptcy in the fracking world. As the oil price has collapsed it has begun to expose which businesses in the United States are simply no longer financially viable….
Continue reading the Dr. Philippa Malmgren interview below…
There is no question that the world economy is very exposed to the fast decline in the oil prices. Over a week ago the Saudis said unofficially that they could see the oil price fall as low as $20. That would collapse so many businesses if it were to unfold. Some estimates show that more than half the fracking industry could be thrown into bankruptcy if oil prices continue to remain weak. Eric, that is not a small thing from the Fed’s point of view.”
Losses Much Larger Than They Appear
Eric King: “There are an enormous number of intertwined derivatives caught up in this plunge in the oil markets. How messy could this situation get?”
Dr. Malmgren: “Forget oil — all commodity prices have been falling. So you have to ask yourself: What are the derivative exposures to all commodity prices? That has to include the iron-ore to China story and the agricultural goods to China story as well. So the losses are so much bigger than they appear.”
Global Derivatives Nightmare
Eric King: “So this could spill into a major disaster when you factor in the global derivatives nightmare?”
Dr. Malmgren: “There are more than one quadrillion dollars worth of derivatives floating around on the books of various banks and other institutions in the financial world. What will happen is a lot of them will come unstuck for multiple reasons that are interconnected — the oil prices going down, European banks turning out not to be sound or stable, and massive losses in emerging markets due to the collapse in commodity prices and currency turmoil.
Also, the Fed will not do the rate hike as anticipated, so those transactions have to be unwound. So this series of unexpected price movements is bound to cause enormous problems in the derivatives markets one way or another.” ***ALSO JUST RELEASED: Shocking Reason Why Germany, Netherlands And Belgium Are Repatriating Their Gold From The U.S. CLICK HERE.
Dr. Philippa “Pippa” Malmgren: Former Special Assistant to the President of the United States for Economic Policy, Former Member of the U.S. President’s Working Group on Financial Markets, President & Founder of DRPM Group and Authour. To buy Dr. Malmgren's new book "Signals: The Breakdown of the Social Contract and the Rise of Geopolitics" CLICK HERE or ON THE BOOK IMAGE
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The audio interviews with Dr. Paul Craig Roberts, Gerald Celente, Lord Christopher Monckton, Michael Pento, Bill Fleckenstein, David Stockman, Dr. Philippa Malmgren, Egon von Greyerz, Stephen Leeb, Andrew Maguire, John Embry, Rick Rule, Rick Santelli, John Mauldin and Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf — to listen CLICK HERE.