Towards a Golden Age

3Fs: Towards a Golden Age? A Wisdom based Global Economy

London, UK - 13th October 2009, 12:35 GMT

Dear ATCA Open & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

1. The synchronised combination of the Fuel, Food and Finance aggregate demands -- 3Fs -- is accelerating disruptive change across the world's 200+ countries given the rising global population (~7 billion in October 2009). This disruptive change is amplified by anytime, anywhere communications and is bringing about a metamorphosis in humanity's approach towards each other and the efficient management of key resources including human talent, skill-sets, energy, raw materials and waste.

Towards a Golden Age?

2. The age of ignorance is coming to an end as humanity realises that every action has a reaction and all production, distribution and consumption has an externalised and internalised cost associated with it. Not all costs can be represented in profit and loss terms immediately but become evident in quality-of-life and financial terms over decades. The consequences are asymmetrically reversible. It may take a few years to cut down a forest to grow food for fuel and decades to grow it back.

3. The 3Fs and their consequences, socio-economic and geo-political black swans, are the result of the mismanagement of expectations. The present socio-economic trajectory, which is ultimately incapable of sustaining seven to eight billion people on the planet at median living standards of the West, is going to be drastically modified as false expectations are confronted and replaced with entirely new and holistic ones.

4. Asymmetric threats are multiplying and so are asymmetric solutions given the ingenuity of humanity for re-invention and innovation when pushed into a corner. From linear processes, which are essentially about fragmented production, consumption and waste, we are evolving towards non-linear and circular processes that have pervasive energy efficiency and holistic recycling as well as recyclability at their design core. Expect non-linear asymmetric solutions -- highly imaginative, inventive and innovative 'killer' applications -- in the area of group thinking, incentivisation models, continuous education and training paradigms, new science, radical management philosophies, focus on ultra energy efficiency, alternative sources of energy, drastic waste minimisation, total waste processing and pervasive recycling. Much of the new production and consumption methodologies are going to focus on utilising recycled and recyclable materials with extremely high energy efficiency as opposed to virgin raw materials and large quantities of energy and natural resources -- water, air and land -- generating excessive waste. There will be increased reliance on local sourcing as the 3Fs bite.

5. The number of asymmetric solutions deployed collectively in dealing with the 3Fs are becoming the 'gold measure' of resilience for that individual, family, community, organisation, corporation, region and nation state. Expect taxation to evolve dynamically to act as a penalty on laggards, who do not adopt the 'gold measures' swiftly.

6. The boundaries of the sovereign nation state are being superseded by trans-national entities -- corporations, NGOs, movements and ideologies -- and by the sovereign individual in many asymmetric ways as they exploit arbitrage opportunities. The boundary-less environment is creating a globally inter-dependent matrix, as if in quantum entanglement. The 3Fs are propelling humanity towards longevity and sustainability based on holistic thinking and collective good. This disruptive change will have extremely beneficial long term consequences for humanity and despite the short term pain, it may usher in a Golden Age of individual and global transformation. This Golden Age will be characterised by a Wisdom based Global Economy.

7. The characteristics of the Golden Age are accelerated enlightenment, renaissance and reinvention of the individual's thinking, societal group think and the redesign of linear industrial age systems and support mechanisms towards non-linear and circular ones by corporations, organisations and governments. In the recent past, the West -- Europe and North America -- have had a huge lead and capacity to reinvent. Faced with the 3Fs, which are affecting poorer nations the most, Asia, South America and Africa are also becoming sources of asymmetric solutions in the 21st Century. Given their large-scale demographics, China and India, are emerging leaders in finding global asymmetric solutions for the 3Fs. Japan's fantastic lead in energy efficiency is worthy of being copied, matched and eventually surpassed across many parts of the world, lowering global energy demand substantially.

8. Traditional and knee jerk responses from established governance organisations and regulatory institutions are not necessarily working and may indeed exacerbate the effects of the 3Fs. The modern solidarity society, ie, the nation state dependent society, which evolved in Europe and North America especially after the second world war is being severely tested by the 3Fs. On the present trajectory, the support mechanisms are capable of bankrupting many nation states from amongst the 200+ worldwide. In the last two decades or so, many arcane nation state systems have survived on the back of Chinese and Indian export of deflation and a relatively low cost of energy. As the 3Fs remove the crutches, there will have to be socially and politically acceptable reformation. The model which will evolve will have non-linear asymmetric characteristics and point towards sustainability as measured against the 3Fs.

9. The step-by-step "Golden Age" revolution has just begun and it has a long way to go as humanity realises its full potential by integrating the physical, intellectual and spiritual dimensions to build a non-linear and circular economic model that produces near zero waste and consumes responsibly whilst being conscious of the consequences to the environment and upon itself. The concept that the environment, ie, the habitat and humanity are not separate from each other and are essentially one is going to gain ground as we seek to find asymmetric solutions for the 3Fs. What we do to others we do unto ourselves. With the elimination of duality, and confrontation of one-ness, how easy will it be to wage war with mutual assured damage and destruction? There is also the wisdom of another great spiritual poet -- Saadi -- to be considered:

"The human family is one body with many parts Creations arising from one unseen essence Any harm to any part summons an awakening a dis-ease and a healing response from all parts Those who fail to feel the pain of others cannot be called truly human."

10. The Golden Age's triumph will be the delivery of individual, societal and world harmony albeit with massive hurdles along the way, initiated as an extreme metamorphosis by the 3Fs.

The 128th image added to the "E8 Album" within the HQR initiative is of Towards a Golden Age! Visit here to view the image and to contribute to the Socratic dialogue. The "E8 Album" photos are visual intersections of Spirituality, Science, Art and Sustainability! Feel free to share the images by clicking share or you can tag yourself!

Based on the original article, "Towards a Golden Age? A Wisdom based Global Economy" published on 23rd May 2008 by ATCA on mi2g.net

[ENDS]

We welcome your thoughts, observations and views. To reflect further on this subject and others, please respond within Twitter, Facebook and LinkedIn's ATCA Open and related discussion platform of HQR. Should you wish to connect directly with real time Twitter feeds, please click as appropriate:

II Phase of Global Financial Crisis? 5 Interconnected Black Holes

London, UK - 28th November 2009, 21:35 GMT

Dear ATCA Open & Philanthropia Friends

Interconnected Black Holes

Recent movements in financial markets in regard to China, Dubai, PIIGS, Flying Yen and the Commodities Bubble may portend a second phase of the global financial crisis. Rising volatilities suggest that the 'bird and animal' behaviour crowds are fleeing certain asset classes and congregating at other havens as if in anticipation of several tremors! However, the rapidly unfolding interconnected five black holes suggest a potentially explosive mixture with extremely unpredictable events -- Black Swans -- in the offing that are totally unanticipated by the psychologies of the global investment crowds.

1. China’s banking regulator is signalling that it is tightening the reins on banks as concerns mount about their capital adequacy ratios. Sometimes the signals are public, like the China Banking Regulatory Commission (CBRC) statement and sometimes they are not so public at all. The CBRC is urging top Chinese banks to beef up their capital adequacy ratio and limit new loans for the rest of the year. Is that the end of the asset bubble music generated by the $1.2 trillion monetary stimulus applied since the start of the year alongside the near $600bn fiscal stimulus? Note that the asset bubbles spawned by Chinese lax lending have also spread outside of China especially into global commodities. As Shanghai and Hong Kong casino financial markets correct in response to the severe contraction in future lending, the global commodities bubble is also in danger of being pricked.

2. Little Dubai is in poor financial shape and is, basically, insolvent without a bailout from its neighbour Abu Dhabi. Whilst the rulers of the two nations are related, the bailout may come only after an example is made of the smaller nation. The more relevant question: Whether a technical default on Dubai’s debt may prove to be a trigger for something bigger in the sovereign debt markets? Whether or not this default takes place, it may lead to other sovereign risk events by way of domino effects. Basically, investors have priced emerging market debt as almost less risky than US Treasuries (T-bonds) and other major countries government debt. The Dubai default is likely to trigger a flight to quality and that means bad news for emerging market sovereign debt and good news for the US and a few other members of the G7.

3. PIIGS: Within the Euro-zone, government bonds of Portugal, Ireland, Italy, Greece and Spain -- the PIIGS -- are falling in value, yields are rising and spreads against German and French bonds are rising dramatically. Black Swan events that may come out of a developing sovereign debt crisis are also most likely in Eastern Europe where currency devaluations and real sovereign defaults are actually happening and have been happening since the start of the financial crisis in late 2007. As a result of the European black swans, the US dollar may end up rising and not falling against the Euro!

4. Flying Yen: Japan is increasingly concerned over the Yen’s strength as it hits a 14-year high against the US Dollar. The Yen is up about 10% against the Dollar in recent weeks, which is an issue for the Japanese since they export significantly more goods than they import. At this rate, the second largest economy in the world will not remain competitive with the attendant consequence that corporate and citizen tax revenues will fall dramatically in the coming 12 months. The national debt to GDP ratio which is approaching 200% will jump significantly higher. In comparison the US and UK national debt to GDP ratio, at below or near 100%, looks positively attractive. How long before the flying Yen becomes the sinking Yen?

5. Commodities Bubble: Essentially, food, fuel and metal prices -- including oil and gold -- are being dictated by global fund managers, investors and speculators and not the principles of Demand-and-Supply any longer. Note the significant gyrations in all commodity asset classes on a weekly and sometimes daily basis. This suggests the time may be ripe for the pricking of the global commodities bubble as a result of 1, 2 and 3. Note that oil and gold futures took a tumble after Dubai moved to delay repayment on billions of dollars of debt as the first step to restructuring, sending a shudder through globally intertwined financial markets.

What happens next? Is this the start of a second phase of the global financial crisis? Recently stock markets across the world and commodity markets including food, fuel and metals, have become increasingly correlated. As one asset class goes up so do the others including equities, oil and gold. Will all asset classes go down together as well or break away from their recent tight coupling? Early indications are that they may go down together as there is a flight to liquidity from illiquidity in the process of global deleveraging.

[ENDS]

II Phase of Global Financial Crisis? 5 Interconnected Black Holes

London, UK - 28th November 2009, 21:35 GMT

Dear ATCA Open & Philanthropia Friends

Interconnected Black Holes

[ENDS]

. ATCA Open

. @G140

. mi2g Intelligence Unit

. Open HQR

. DK Matai

Best wishes

DK Matai, Chairman, Asymmetric Threats Contingency Alliance (ATCA) & The Philanthropia

Andrew Winston

Environmental Strategist, co-author, Green to Gold

Posted April 3, 2009 | 12:09 PM (EST)

Rising Transparency -- One Way to Avoid Massive Market Failure

Last week, Hernando de Soto (the insightful Peruvian economist and author of The Mystery of Capital) wrote one of better pieces I've seen about the financial meltdown and all these "toxic assets." In the Wall Street Journal, De Soto made the compelling case that "the real problem is not the bad loans, but the debasement of the paper they are printed on." The $50 trillion in bad paper, he says, is far more than the $1 trillion in subprime mortgages that supposedly started all of this.

To put the magnitude of the derivative financial creations in perspective, de Soto describes simply the scale of all assets in the world: $100 trillion of tangible goods (land, buildings), $170 trillion of semi-liquid assets (mortgages, stocks), and $1 quadrillion of new derivatives (mortgage-backed securities, collateralized debt obligations, and so on). Let me repeat that. One quad-rill-ion -- as in one thousand trillion. First, I've never heard anyone use figures like that outside of my 5-year-old making jokes about wanting infinity or googol more minutes to play a favorite game before bedtime.

Ok, shocking numbers aside, de Soto outlines six prescriptions to avoid this kind of market failure in the future. In short, the answer is making sure "property" is not some financial figment, but something definable and trackable, something we can guarantee the value and legitimacy of. The first two guidelines he provides are why I'm writing about this.

First, he says, "All documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries." Second, "The law has to take into account the 'externalities' or side effects of all financial transactions..." This sounds an awful lot like themes of sustainability and business. Internalize the externalities and get much more knowledgeable and open about your impacts. I couldn't agree more. The solution de Soto recommends hinges on a renewed commitment to transparency so there's no "back-room" financial market that regulators and, more importantly, investors can't see.

Transparency is one of the driving forces keeping the green and sustainability waves moving (it's a theme I touch on in my new book, Green Recovery, coming out this summer, so I'll return to this topic over the coming months). I believe that we're rapidly entering an era of radical openness, driven both by regulation -- see the EPAs recent announcement that it plans to "ask" 13,000 facilities in the United States to share data on carbon emissions -- and the rising demands of employees and customers, particularly the younger ones. The new level of transparency will make any of us old enough to remember a world before MTV uncomfortable. But the Facebook and MySpace generation will have no problem with it -- in fact, they'll be expecting it.

A renewed transparency drive may be partly fueled by the latest emotional issue of the day -- executive pay and bonuses. I don't really believe in government-mandated 90% tax brackets for bonuses, no matter how repugnant the payments may seem. But I do think the government can set standards for openness. Let's list everyone who got bonuses at these firms and how much they made. Let the court of public opinion (and that of peers and co-workers) be the judge.

I'm going to make a seemingly unlikely prediction: companies will increasingly reveal all salaries and bonuses (far beyond sharing the pay to a few top executives as required by the SEC). The most responsible companies already do this to some extent -- Seventh Generation has a public commitment to keeping the CEOs salary below 14 times the lowest salary. The biggest companies will, painfully, follow suit (about sharing, not about the 14x multiple) over the coming years as it becomes clear that the more open they are, the more trustworthy they'll be.

Imagine what openness about salaries and bonuses might do for some other thorny issues, such as equal pay for women and minorities. Wal-Mart is facing a highly publicized class action suit about its treatment of women. Will complete openness about pay generate more of these kinds of claims, or help companies avoid these problems? I have no idea, but I certainly hope it's the latter since the transparency is coming, like it or not.

How do you prepare for this new open world? It's not easy, but some of those old grandmotherly maxims seem to gain some force: don't say anything about anyone that you wouldn't be comfortable with that person hearing...or don't do anything you wouldn't want on the cover of the paper...or the standard Golden Rule certainly comes to mind. No doubt there will be some real challenges in handling increased transparency, but my hopeful view is that it will drive more ethical, sustainable behavior.

In this view, those who can't meet the standard will struggle. But those companies that are proud of their operations will be fine talking about what's in their products, how products are made, how much energy they use, how much they pay people, who else is involved in the production, and what their executives receive in compensation. They will also attract and retain the best people who trust their employers. And they will build a more loyal base of customers that feel the authenticity. Sorry for all the unbridled optimism in such a pessimistic time, but maybe it's time to look on the bright side of some of these massive changes in the works.

The Second Financial Shock Could be Worse Than The First

I've been remarking lately that we haven't yet had the second market correction. People forget that after the stock market crash of 1929 the market seemed well on its way to a recovery before crashing a second time in 1932. It then took decades to recover. Investors would have to wait until November 1954 to recover to 1929 levels.

It won't be pleasant but we need that second correction so that we can get to work on the longer cycle of rebuilding value. With the current recovery in stock markets and some housing markets it seems that we might be building up to that second correction.

Is there anything that can be done to prepare? Fed Chairman Ben Bernanke is a student of the great crash so he would know best and be best positioned to mitigate its effects. But maybe there isn't much to be done except to let the financial system work through its destiny.

I was glad to see a post by DK Matai, chairman and founder of mi2g.net and ACTA Open writing about this topic on Facebook and he has some very interesting data. I'm republishing because ACTA Open is a closed group but I think this is an important article.

They will say, nobody saw it coming. Who could have predicted it... It is worth noting that the 1932 stock market crash is deemed to be the worst in the 20th century and not the one in 1929. By mid-1930, the market was up 30% from the trough of the 1929 crash. However, by the summer of 1932, the Dow reached a low of just 11% of its high in 1929, or a loss of roughly 89%, trading more than 50% below the low it had reached on October 29th, 1929. If one had $1000 on September 3rd 1929, it would have gone down to $108 by July 8th, 1932 -- end of the worst crash -- or an 89.2% loss. To recover from such a loss, one would have to watch one's portfolio go up by 825%!

All this happened despite assurances from prominent government and business leaders of-the-time that the worst was behind.

. September 1929: "There is no cause to worry. The high tide of prosperity will continue." - Andrew W Mellon, US Secretary of the Treasury

After the stock market crash in October 1929, the Dow Jones Industrial Average (DJIA) partially recovered in November-December 1929 and early 1930.

. May 1, 1930: "I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity!" - US President Hoover

. August 29, 1930: "American labour may now look to the future with confidence." - James J Davis, US Secretary of Labour

. October 16, 1930: "Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment." - Charles M Schwab.

On July 8th, 1932 the Dow reached its lowest level of the 20th century and did not return to pre-1929 levels until 23rd November, 1954. The full impact was not felt until the next year. By 1933, the Great Depression was very real and it would take more than 22 years before the market would regain what had been lost.

So severe was the impact of the 1929-1932 crash, that by spring of 1933, when President Roosevelt (FDR) took the oath of office, unemployment in the US had risen from 8 to 15 million -- roughly 1/3rd of the non-farm workforce -- and the GDP had decreased by more than 45% from $103.8 billion to $55.7 billion. Although the depression was worldwide, no other country except Germany reached so high a percentage of unemployment as the US. The poor were hit the hardest. By 1932, New York's Harlem district had an unemployment rate of 50% and property owned or managed by African Americans fell from 30% to 5% in 1935. Farmers in the Midwest were doubly hit by economic downturns and the Dust Bowl. Schools, with budgets shrinking, shortened both the school day and the school year. The breadth and depth of the crisis made it the Great Depression.

FDR, after assuming the presidency, promoted a wide variety of federally funded programs aimed at restoring the American economy, helping relieve the suffering of the unemployed, and reforming the system so that such a severe crisis could never happen again. After the crash in 1932:

2. The US Congress passed the Glass-Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds and other securities;

3. The Federal Deposit Insurance Corporation (FDIC) was established to insure individual bank accounts for up to $100,000; and

4. Works Projects Administration (WPA), the largest New Deal agency, was set up employing millions to carry out public works projects.

However, while FDR's New Deal did help restore the GDP to its 1929 level and did introduce basic banking and welfare reforms, FDR refused to run up the government deficits that ending the depression required. Only when the federal government imposed rationing, recruited 6 million defence workers (including women and African Americans), drafted 6 million soldiers, and ran massive deficits to fight World War II did the Great Depression finally end.

The extent of the economic devastation of the 1930s went far beyond the imagination of anyone in the financial markets or governments across the world.

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

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:

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

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:

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

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

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.

The Size of Derivatives Bubble = $190K Per Person on Planet

1. Derivatives are securities whose value depends on the underlying value of other basic securities and associated risks. Derivatives have exploded in use over the past two decades. We cannot even properly define many classes of derivatives because they are highly complex instruments and come in many shapes, sizes, colours and flavours and display different characteristics under different market conditions.

2. Derivatives are unregulated, not traded on any public exchange, without universal standards, dealt with by private agreement, not transparent, have no open bid/ask market, are unguaranteed, have no central clearing house, and are just not really tangible.

3. Derivatives include such well known instruments as futures and options which are actively traded on numerous exchanges as well as numerous over-the-counter instruments such as interest rate swaps, forward contracts in foreign exchange and interest rates, and various commodity and equity instruments.

4. Everyone from the large financial institutions, governments, corporations, mutual and pension funds, to hedge funds, and large and small speculators, uses derivatives. However, they have never existed in history with the overarching, exorbitant scale that they now do.

5. Derivatives are unravelling at a fast rate with the start of the "Great Unwind" of the global credit markets which began in July 2007 and particularly after the collapse of Freddie Mac and Fannie Mae in September this year.

6. When derivatives unravel significantly the entire world economy would be at peril, given the relatively smaller scale of the world economy by comparison.

7. The derivatives market collapse could make the housing and stock market collapses look incidental.

1. The so-called rogue trader Nick Leeson who made a huge derivatives bet on the direction of the Japanese Nikkei index brought on the collapse of Barings Bank in 1995.

2. The collapse of Long Term Capital Management (LTCM), a hedge fund that had a former derivatives and bond dealer from Salomon Brothers and two Nobel Prize winners in Economics as principals, collapsed because of huge leveraged bets in currencies and bonds in 1998.

3. Finally, a lot of the problems of Enron in 2000 were brought on by leveraged derivatives and using derivatives to hide problems on the balance sheet.

The single conceptual pitfall at the basis of the disorderly growth of the global derivatives market is the postulate of hedging and netting, which lies at the basis of each model and of the whole regulatory environment hyper structure. Perfect hedges and perfect netting require functioning markets. When one or more markets become dysfunctional, the whole deck of cards could collapse swiftly. To hope, as US Treasury Secretary Mr Henry Paulson does, that an accounting ruse such as transferring liabilities, however priced, from a private to a public agent will restore the functionality of markets implies a drastic jump in logic. Markets function only when:

1. There is a price level at which demand meets supply; and more importantly when

Satisfying criterion 1. without satisfying criterion 2. which is essentially about trust, gets one nowhere in the long term, although in the short term, the markets may demonstrate momentary relief and euphoria.

In the context of the USD 700 billion rescue plan -- still being finalised in Washington, DC -- the following is worth considering step by step. Decision makers are rightly concerned about alleviating immediate pressure points in the global financial system, such as, the mortgage crisis, decline in consumer spending and the looming loss of confidence in financial institutions. However, whilst these problems are grave, they are acting as a catalyst to another more massive challenge which may have to be tackled across many nation states simultaneously. As money flows slow down sharply, confidence levels would decline across the globe, and trust would be broken asymmetrically, ie, the time taken to repair it would be much longer. Unless there is government action in concert, this could ignite a chain-reaction which would swiftly purge trillions and trillions of dollars in over-leveraged risky bets. Within the context of over-leverage, the biggest problem of all is to do with "Derivatives", of which CDSs are a minor subset. Warren Buffett has said the derivatives neutron bomb has the potential to destroy the entire world economy, and is a "disaster waiting to happen." He has also referred to derivatives as Weapons of Mass Destruction (WMD). Counting one dollar per second, it would take 32 million years to count to one Quadrillion. The numbers we are dealing with are absolutely astronomical and from the realms of super computing we have stepped into global economics. There is a sense of no sustainability and lack of longevity in the "Invisible One Quadrillion Dollar Equation" of the derivatives market especially with attendant Black Swan variables causing multiple implosions amongst financial institutions and counterparties! The only way out, albeit painful, is via discretionary case-by-case government intervention on an unprecedented scale. Securing the savings and assets of ordinary citizens ought to be the number one concern in directing such policy.

To reflect further on this, please respond within Facebook's ATCA Open discussion board.

Must Read Analysis: Why Markets Are Still Falling . . . The Shadow Financial Systems

I'm fortunate to be a member of the ACTA Open, which provides great analysis of today's complex financial markets. Here is an excellent analysis by DK Matai, chairman of the ATCA Open. (I'm reprinting it because it is a member only organization - see description at end - but the information should be more widely distributed, imho.)

G20 Summit must focus on Derivatives, Off-Balance-Sheet Vehicles

8 Bubbles Quadrillion Play Grows 22% to $206k per person-on-planet

London, UK - 19th March 2009, 10:30 GMT

Dear ATCA Open & Philanthropia Friends

As the April G20 summit in London approaches, it is worth noting that the trans-national play of derivatives has grown from USD 1.144 Quadrillion to USD 1.405 Quadrillion, ie, +22% worldwide. This is a staggering increase and most of it is seen in the Over-The-Counter (OTC) category as opposed to exchange traded derivatives. As a result, the global size of the derivatives bubble which was calculated last year at USD 190k per person-on-planet, has risen to USD 206k per person-on-planet. The ever rising commitment of governments for the repeated bailouts of financial institutions is partially linked to various flavours of derivatives exposure settlements and “black hole” losses emanating from off-balance-sheet vehicles.

The traditional argument has been to discount derivatives altogether: “On one side of the equation there is a loss, on the other side there is a gain. Nothing disappears. It is just one big shuffle of wealth and assets.” However, if this is the case, why has the US tax-payer had to bail out AIG repeatedly in excess of a hundred and fifty billion dollars so that AIG could settle the Credit Default Swap (CDS) and other derivatives claims of the largest trans-national financial institutions in the world?

In the ATCA briefing, "The Invisible One Quadrillion Dollar Equation" published in September 2008 we discussed the main categories of the quadrillion dollar derivatives market as quoted by the Bank for International Settlements in Basel, Switzerland. Since then the quantum has grown significantly in certain crucial categories and the latest revised numbers follow:

1. Listed credit derivatives stood at USD 542 trillion, about the same as before; however

2. Over-The-Counter (OTC) derivatives stood in notional or face value at USD 863 trillion (UP +44%) and include:

a. Interest Rate Derivatives at about USD 458+ trillion (UP +16%);
b. Credit Default Swaps at about USD 57+ trillion (DOWN -1%);
c. Foreign Exchange Derivatives at about USD 62+ trillion (UP +10%);
d. Commodity Derivatives at about USD 13+ trillion (UP +44%);
e. Equity Linked Derivatives at about USD 10+ trillion (UP +17%); and
f. Unallocated Derivatives at about USD 81+ trillion (UP +14%).

The myth of the single bubble behind The Great Unwind -- manifest as the global credit crunch -- has essentially been dumped in the last few months and subprime mortgage default, a USD 1.5 trillion challenge within the USD 5 trillion mortgage based assets envelope, is seen as a component of a much larger overwhelming global crisis with unprecedented scale, speed, severity and synchronicity. The global crisis has wiped a staggering USD 50 trillion off the value of financial assets — currency, equity and bond markets worldwide — last year, according to the Asian Development Bank.

The truth that there are as many as "Eight Bubbles" [ATCA] at play and in the process of bursting together is understood to a greater extent now than in the past. We have gone from being able to “rescue the world” with less than USD 1 trillion in October 2008 to USD 11.6 trillion commitments in the US alone along with a further announcement of USD 1.2 trillion of quantitative easing by the US Fed in March 2009. There is a realisation worldwide including the G7 + BRIC + MISSAT that this is a USD 20 trillion problem and growing. As time goes by, the full extent of the collateral damage from the Quadrillion Play and 8 Bubbles burst is being revealed.

The bursting process is taking the form of deleverage on an unprecedented scale. Even 1929 pales in comparison because the industrial production collapse witnessed over five successive years in the 1930s in the US is now taking place in five to six months, most notably in Japan. At a follow on 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 7,500 as a result of some of the 8 bubbles collapsing, ie a 6,500 points drop or 46% decline, where will the equities market reach by 2010 as other larger bubbles burst?

II. If the world government bond market is around USD 35 trillion, how can governments rescue the eight bubbles bursting step by step with an ever larger quantum and momentum?

III. How can Quantitative Easing (QE) defy the laws of financial gravity without devaluing paper currencies significantly?

IV. What ought to be the focus at the G20 Summit in April to bring about stability in regard to the rising derivatives exposures and use of off-balance-sheet vehicles?

We discussed “Eight Bubbles” in play worldwide in November 2008 and their approximate scale, based on latest information in 2009, is as follows:

1. Subprime Mortgage linked Loans & Assets (USD 1.5 trillion) within Mortgage backed Assets (USD 5 trillion);
2. China, India, Eastern Europe and other Emerging Market Loans (USD 5 trillion);
3. Commodities (Commodity Derivatives at about USD 13 trillion);
4. Corporate bonds (USD 18 trillion);
5. Commercial (USD 22 trillion) and Residential property (USD 45 trillion);
6. Credit Cards Outstanding Debt (USD 4.5 trillion);
7. Currencies (Foreign Exchange Derivatives at about USD 62 trillion); and
8. Credit Default Swaps (USD 57 trillion) as a subset of all Derivatives (USD 1,405 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 and falling.
2. The entire US money supply is also about USD 14 trillion with rising Quantitative Easing in trillions.
3. The GDP of the entire world is USD 45 trillion and falling. USD 1,405 trillion is 31 times world GDP.
4. The real estate of the entire world is valued at about USD 65 trillion.
5. The world stock and bond markets are valued at about USD 70 trillion.
6. The trans-national universal model financial institutions own about USD 150 trillion in derivatives.
7. The population of the whole planet is 6.8 billion people. So the derivatives market represents about USD 206,000 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. USD 50 trillion of asset decline is already manifest. What are the likely outcomes? "Four Scenarios” have already been suggested by ATCA. We are keen to receive your answers and solutions. Please note that the numbers quoted are a rough guide.

[ENDS]

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