This Week On Wall Street: 6-16-2008.

Greetings!

America's Financial Crisis is far from over.

Your humble author informed you earlier that inflation was coming. And now, its here in all its ugly glory. And what's worse, we have a long way to go before the worst of it is behind us.

We ain't seen nothin' yet!!

So with the inflation theme stuck firmly in our minds, I'd like to present some items for your review.

First, Financial Sense has an interesting discussion regarding the various stages of inflation, and the ongoing commodities bull market. Have a listen here.

Next up, the International Forecaster digs deep and explains what inflation is really made of, and why we are royally screwed in the long term. See here.

And finally (and most disturbingly), let's look at what Deepcaster has to say about the total dollar amount of outstanding derivatives contracts:

... Systemic Meltdown Risks & Devilish Derivatives

The risk of Systemic Meltdown continues to increase. The Total Value of all Derivatives Outstanding now exceeds One Quadrillion U.S. Dollars, nearly a doubling since the last BIS (Bank of International Settlements, the Central Bank's Bank) report. The value of listed Derivatives is now about $548 Trillion and OTC (Dark Liquidity) Derivatives is $596 Trillion, as of December 2007, for a total Notional Value of over $1000 Trillion.

Remember that Derivatives Markdowns and Failures are at the core of several ongoing financial crises, including the Credit Market Freeze-Up and Mortgage Crises. If any major counterparty/ies to these Derivatives contracts fails, that could bring the entire “Paper Domino” Derivatives Edifice (and thus the entire Financial System) crashing down as well.

Thus, whatever funds (taxpayer guaranteed or provided, ultimately, of course) are necessary to rescue major financial institutions at risk for failure will be provided by Central Banks. Since Derivatives Markdowns or Defaults are increasing dramatically, this entails Central Banks providing a veritable flood of paper money, a flood which has already begun. And this dramatic Monetary Inflation necessarily entails increasing Price Inflation (i.e. Hyperinflation), an indirect “tax on taxpayers...

Did you catch that?

One Quadrillion Dollars?

What the Fuck?

Have you ever heard someone say Quadrillion in the course of a serious discussion??

A Quadrillion dollars is $1,000,000,000,000,000!!!

Can you imagine what would happen if even 10% of those contracts became due?

(1000 trillion) * (.10) = 100 Trillion dollars!

And how does that compare with U.S. GDP?

(1000 Trillion) / (14.1 Trillion) = 70.9.

The total number of contracts outstanding is 70 times more than U.S. GDP.

Crappola!

And finally, lets compare this amount to the only true money supply in the world: Gold and Silver.

(1000 Trillion) / (2.2 bil ounces)*(16.6) + (10 bil ounces) * (870.90) = 114.

The total number of contracts outstanding is 114 times more than the entire supply of available Gold and Silver!!

What does that mean, Dear Reader?

In my mind, this shocking number means that, if the shit really hits the fan and these derivatives begin to tumble like dominoes, then either the worlds central banks will need to INFLATE like the Devil Himself be after them in order to save the numerous financial institutions that are involved in this trade, or there will be a MAD MAD rush for the safety of Gold and Silver because they are assets, and NOT LIABILITIES ON A CENTRAL BANK BALANCE SHEET. Gold and silver remain money at all times, whereas our paper dollar doesn't even have enough value for me to wipe my arse with it!

With all that being said, let me warn you once more. We are in for the financial storm of our lives. There will be no escape. There will be no magical solution. Our Money Masters have mortaged the planet in their insane quest for economic growth by any means necessary.

Plan ahead, talk to your financial adviser, eliminate whatever debt you can, and if you can't get rid of it entirely, then make sure that its at a FIXED interest rate, and try to consolidate as much debt as you can at a fixed rate. In this way, you know that these payments won't increase in times of hyperinflation, if it comes to that.

However, lenders and creditors aren't stupid. They understand that fixed interest rates during times of rapid inflation are a bad deal for them, because borrowers can pay off their loans with devalued currency. So before you make any power moves, see your financial adviser, and make sure you read the fine print in your loan contracts, promissary notes, and credit card terms and conditions to make sure that they do not have the power to alter terms in the event of massive inflation.

Also, consider making food purchases that will hold you over for long periods of time. For example, we have a 50 pound bag of rice here at home. Because of this, we have not been affected by the massive increase in the price of rice. Buy now, and in quantity, so that you can lock in your cost NOW.

Buy stuff that won't perish in bulk, throw it in the deep freezer, or whatever you gotta do. Pick up water in mass quanities. DO NOT forget the Beer.

Remember:

Do your own homework.

Talk to your financial adviser, and ask him or her if its possible for you to diversify OUT OF THE US DOLLAR. Some of the biggest stars in the investment world have already made the switch, and you should talk to your adviser about doing the same.

Get out of debt.

The debt that you gotta have, try to make sure it is a fixed rate, and consolidate as much of your variable rate debt into a fixed rate as you possibly can.

Keep your car at a full tank of gas at all times.

And get ready for the long haul. It's not gonna be pretty.

Toku out.