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Trans-Atlantic Massive Asset Bubble is Waiting To Collapse

Aug. 13, 2014 (EIRNS)—The latest well-known figure to decry “a massive asset bubble” making him “very nervous” was Carl Icahn, famous/notorious investor and recently an advocate of restoring Glass-Steagall, on Aug. 12. Both William White, former BIS chief economist, and Raghuram Rajan, Reserve Bank of India chairman, have recently said that these “massive bubbles” of leveraged debt, made by central bank policy, are heading for a 2008-like crash. White adds that much of it is leveraged toxic debt which will never be paid.

Now the bubbles are starting to pop. All financial press report that hedge, mutual, pension, and index funds are trying to extricate themselves gradually from the “leveraged debt” and “junk bond” bubbles, fearing their crash. The chameleon of financial columnists, Ambrose Evans-Pritchard, in “Oil and gas company debt soars to danger levels,” Aug. 11, trashes even the “energy sector” which was supposedly lighting our way out of recession:

“The world’s leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry. The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March.... Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep malaise.”

And how are the funds trying to “exit” from the credit markets they fear are about to crash? By buying into financial derivatives indices betting on the same credit markets! The derivatives monster-bubble keeps expanding; estimates now made by Goldman Sachs research of the size of the OTC derivatives market as of the end of June, put the nominal value at $745 trillion, another 5% jump in three months. Both JPMorgan Chase and Goldman have introduced new types of credit derivatives called “global total-return swaps” which are essentially derivative bets on indices of derivatives! As Bloomberg described it Aug. 12, “Derivatives that helped inflate the 2007 credit bubble are being remade for a new generation”—of losers.

Anything but invest in productivity and creativity.