2.5 Quadrillion: Why The World Is Truly and Firmly Fucked.

2.5 Quadrillion. That's the likely Derivative and other financial aggregate exposure across the globe. Then just imagine if official figures are under-reported, or double that and you quickly get the picture why this thing is going south -- deeper down for longer, rather than the reverse.

Derivative contracts, more often that not leveraged, make up a huge part of bank portfolio exposure. The poster child these days is Deutsche Bank, which at best, is already on life support. When Commerz wouldn't go along with the Merkel-encouraged merger with Deutsche, you knew it was already all over in Germany. Other rumblings about HSBC, JP Morgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Wells Fargo are enough to keep us up at night.

But back to the bad boys: in addition to derivatives, other negative-priced underlying instruments or financial exposure include debt, bonds, stocks, currencies, mortgage-backed securities and other asset classes. You've got the Fed buying-back treasuries, corporate bonds and mortgage instruments like it was going out of style with allegations that its trading desk is already buying stocks -- which is not authorized under current legislation. If Congress authorizes that and Trump signs it, then that's the ultimate black swan telling us that we're done as dinner. There's one hell of a lot of fear out there in the markets right now but that doesn't compare to panic and market capitulation which is probably only a few weeks off.

Then add to that the national debt and deficits meaning the American government is already broke unable to finance in a prolonged financial crisis Social Security and Medicare, while the states won't be able to adequately meet Medicaid demand even with partial federal funding. We won't even go there as regards the deliberate shortfalls in corporate pensions.

Interest-rate swaps, forward contracts and credit-default swaps are the canaries in the coal mine. The risk of counter-party default is high and growing.  The mega-mistake of 2008 was not either fully regulating all derivative contracts or abolishing them altogether.  Instead, Bush, Obama and Congress looked the other way, thereby satiating and encouraging endless corporate and bank greed. Trump is no better.

Financial calamity won't repeat itself exactly in 2020 but it certainly will rhyme.