Wednesday, December 9, 2009

Will China Default on Derivatives Causing a Black Swan Event? Got Gold-Ammo?

Will China ‘Amnesty’ Birth the Black Swan?

There was a most interesting article on Gold Seek in a nut shell it suggests China may default on risky derivative positions. Whether you choose to invest in Gold or not is irrelevant to me I am just bringing this to your attention because should an event of this magnitude occur the United States banking system would undoubtedly fail.  If that happens all credit cards will be stopped, stores will run out of food, etc. for a picture of what life might be like I suggest you read this "fictional" (for now) scenario and prepare. China has defaulted before HERE.

I could easily see this happening China was recently complaining about being stuck with losses due to our Banksters selling them CRAP (not to say they haven't sold us plenty of Poison and cheap crap themselves) but keep in mind China has plenty of people to keep in line and they may just see doing this as a kind of payback or a write off, a tit for a tat so to speak. Here is a snippet from Gold Seek....

"For those who have been unsettled by gold's corrective weakness in recent days, I've reprinted a reassuring letter below from a friend and longtime subscriber who also happens to be a U.K.-based gold-dealer and metals trader. Andy, as he is known in the Rick’s Picks chat room, is bullish as ever on gold and sees a potential "black swan" bearing down on the financial system in the form of a Chinese derivatives-default.  This is a looming catastrophe that we've written about here before, as some of you may recall. The threat surfaced with an announcement byChina a couple of months ago that the government would take no legal action against its own banks if they walked away from derivatives deals gone bad.

Imagine what this would mean if you were running one of those banks yourself. In effect, it would allow you to build extremely risky derivatives positions, but with no exposure if they didn't work out. Here's an analogy: Picture yourself being allowed to use counterfeit money in a casino. You make huge bets in roulette, blackjack and baccarat, and although most of these bets lose, the casino pays your winners in real money.  You bank the winnings -- buy gold bars with it, perhaps -- and continue to gamble with funny money until you've used it up.

Heads or Tails: Who Cares?

This, in effect, is undoubtedly what some Chinese banks are doing right now: laying highly leveraged bets all over town, knowing they won't have to cover them if the derivatives market starts to implode again. Moreover, the mere fact that the Chinese government has promised legal amnesty to those who lose big at this game is probably causing the volume of such bets to explode. We'll find out for sure when reality comes calling once again on the banking system, which, with the help of regulators and the central banks, has done little more than sweep a $600 trillion derivatives problem under the rug.

Make no mistake, when the festering creature under the rug emerges one day breathing fire, we're likely to see a panic into gold that will make bullion's ascent so far from $260 to $1227 look relatively tame. What will be the catalyst for this Day of Reckoning?  Nick Guarino, a well-known seer, thinks Dubai's troubles are about to take the global financial system down. But he also believes the resulting panic will be into U.S. dollars rather than gold, which he says is in a bubble along with oil and stocks. (Click here for a scary read, in Guarino’s own words.)" Rest at site.

I have been watching the collapse of our economy for some time and preparing for the worse. The reality is the FDIC is broke, many banks are full of toxic mortgages and commercial real estate loans, many more will fail and if Dubai can do it why not China?

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