Summary of BIS Warns Of 2023 Black Swan - A Derivatives Time Bomb

00:00:00 - 00:15:00

The BIS has warned of a potential derivatives time bomb that could cause a global recession in 2023. The fallout from this could be widespread, with debtors losing money due to higher interest rates and decreased cash flow.

• 00:00:00 The Bank of International Settlements released a report warning of a derivatives time bomb set to explode in 2023. The report indicates that "derivatives [that are] off balance sheet and [denominated in] currencies other than the dollar" amount to 100 trillion, and that these "obligations do not appear on balance sheets and are missing in standard debt statistics." This missing debt is estimated to be worth 25 trillion, and is mainly owed by non-US banks.
• 00:05:00 The BIS warns of a derivatives time bomb in 2023, which could include Central Bank swap lines that are talked about all the time on this channel but are set in a fog with little information about the geographic distribution of the missing debt or all of this dollar denominated debt that's off balance sheet in the form of these derivatives. What they're saying is that the FED might have policy tools to combat this but their policy tools are directed at a specific country, in other words the FED sets up a swap line with the Swiss Central Bank. Once you understand these derivatives, it's very easy to understand the others. Firm A borrows locally so they need Euros, but they borrow dollars so let's just say they borrow 10 million dollars and in Europe firm borrows 10 million euros. The issue is that both of these firms, since they're not domiciled in the area where they need the money, they're going to pay an extremely high interest rate so let's just say that if the United States borrowed in Euros in Europe, they would pay a 10 interest rate and the European company would pay a 9% interest rate in the United States. They get together and through this swap bank or the bank in the middle, they agree to create what
• 00:10:00 The BIS warns of a derivatives time bomb in 2023, which could lead to a global financial crisis. The agency explains that the debt on average consumer's balance sheet in aggregate total has soared higher due to declining interest rates, resulting in a higher payment due to the interest rate. This has played out in the derivatives market as the interest rates have gone down over the past few decades. The global economy has a 100 trillion dollar adjustable rate mortgage, with the payment due within the next 12 years.
• 00:15:00 The BIS has warned of a potential derivatives time bomb that could cause a global recession in 2023. The fallout from this could be widespread, with debtors losing money due to higher interest rates and decreased cash flow.