Occasionally, central bankers reveal their deepest darkest fears. That fear has a name - derivatives. Although not a central banker, Warren Buffet famously articulated the problem:
"I view derivatives as time bombs, both for the parties that deal in them and the economic system. The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal"
He said that back in 2002, when according to the BIS, the end-of-year notional value of derivative contracts were valued at $142 trillion.
That number is so large that is defies comprehension. In 2002, US nominal GDP was $10.5 trillion. So at the time that Buffet gave his dire warning, the notional value of outstanding derivatives was 13.5 times US GDP.
more ...
http://www.webofdebt.com/articles/its_the_derivatives.php
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