Can someone give an overview on US derivatives?
Also any explanation on the insane amount of derivatives that the US banks holds?
Chinese Economics Thread
- Thread starter Norfolk
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Also any explanation on the insane amount of derivatives that the US banks holds?
And this should be 'total assets'?
There, Goldman Sachs is ranked at 7th at about 500 billions while in derivatives its at rank 1 at 53 trillion dollars lmao.
JP Morgan has 3.2 trillion assets ranked 1st, and 50 trillion derivatives ranked 2nd lol.
With that said, someone more knowledge in regards to economy/banks and what it means to have such big values of derivatives compared to total assets?
It means when shit goes wrong, there is a lot more paperwork and settlements of IOUs going around.
The US and Western financial and economic models in general are so speculative nowadays that they extremely hard to understand. Basically they live from various forms of financial speculation and doing their best to hide and overcomplicate it.
However, I can make a personal guess. Due to perma low, near zero, interest rates enviroment that they used to be ever since 08 financial crash, it simply wasn't very profitable for their banks to the traditional services like giving loans to everyone almost free, therefore they needed to find new ways to make profits. Enter, riskier derivatives. Who knows what kind of new instruments they invented.
And assets like bonds don't yield high coupon rates when interest rates are low. Equity markets don't have nearly enough liquidity for their capital size, especially for the biggest banks.
Meanwhile, countries like China, and other, everyone but the West, had much higher intest rates in that period, than the West, healthier economies, therefore, their banks would've kept more profits and didn't need to switch to trading derivatives like that.
It means when things go kablooey they better hope that SupaPowa buys servants at 10,000 times the market value for prestige reasons because there aren’t enough actual assets to cover their bases.
This is why China needs to keep its currency and financial markets extremely restricted. The US and its pawns had already executed financial warfare against China from the late 90s onwards (and especially in the 2010s). The restricted Chinese currency and financial market was the biggest and best shield to protect it. It's why the asian financial crisis (aka george soros declaring and executing financial warfare against asia) screwed everyone else in asia except china.
China is past that stage of its development now. It cannot be a super power and keep its currency constrained. Otherwise, no one else will use it. The biggest security threat facing China is America using its reserve currency status to employ power and surround China and suppress China. The biggest countermeasure is China's efforts to internationalize its currency. However, you cannot expect countries to form stronger relationship with you unless they can have more easy access to your currency and be able to invest in your economy and bonds/stocks. As such, China needs to have less constrained currency control.
You can have that without reaching the level of "financial sophistication" that Western banking system has reached. Politicians don't have to be bought out by the big banks. You can have a tightly regulated banking system that doesn't take the same level of risks. Things might be less profitable for the banks but you also won't have these major meltdowns. Also, China does not have these debts issues that America has.