David Morgan: Oil Derivatives Explosion Double 2008 Sub-Prime Crisis

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January 7, 2015 4:29pm NYSE:USO

crudeoilGreg Hunter:  Precious metals expert David Morgan says the plunge in oil prices is not good news for big Wall Street banks.  Morgan explains, “The amount of debt that is carried by the fracking industry at large is about double what the sub-prime was in the real estate fiasco in 2008.”


“In summary, we’re looking at an explosion in potential that is greater than the sub-prime market of 2008 because, number one, oil and energy are the most important sectors out there.”

“Number two, the derivative exposure is at least double what it was in 2008.  Number three, the banking sector is really more fragile and we have less ability to weather the storm.”

Morgan, who is also “a big-picture macroeconomist,” says oil derivatives could take down the system just like mortgage-backed securities back in the last financial meltdown.”

“The Fed said the sub-prime crisis would be “contained.”  It was not.  So, could oil derivatives take down other derivatives in a daisy chain type of collapse?  Morgan says, “Absolutely, there is no question about it.  The main problem is the overleverage of the system as a whole.”

“Warren Buffett calls derivatives weapons of financial mass destruction, which is a true statement.  Secondly, look at how derivatives are interconnected.  Derivatives can tie a financial instrument to another financial instrument or a financial derivative can be tied to an oil derivative.”

“This is just a flavor of how complicated these mathematical equations really are, and no one really knows the risk in them.”  So, underwater oil derivatives in one bank could bring down the financial system?”

“Morgan says, “Absolutely, because it is all tied together, all the banks are interconnected.”

So, if the oil sector unraveled, what would happen to gold and silver prices?  Morgan thinks, “Gold, I am pretty sure, would maintain right where it’s at, and that would be the worst case scenario, or it would go up and go up rapidly.”

“Gold and silver may go down temporarily like we saw in 2008, but they will catch a bottom and come up.  Silver in a deflationary environment has not done that well in the past.”

“Gold and silver are crisis hedges.  People will say I don’t know what is happening.  I’m scared.  I need something I can trust.  You can trust money that has been money for 5,000 years.  That’s something you can trust.”

“You can’t escape the truth.  The truth wins out in the end.  We are getting to that point, an inflection point.  I think gold will go up, and I think silver would follow and probably go up more rapidly once people caught on there is uncertainty. ”

“There is an unbelievable lack of trust in the system.  People need something they can trust.  Physical gold and silver is something you can trust, and it’s been that way for thousands of years.  People aren’t that stupid, they understand that.” 

Morgan goes on to say, “I am not implying this is going to unravel tomorrow.  I think it’s going to take a longer time frame than you might expect.  I really think it’s going to take four or five months from now.”

“I am thinking May or June before you start looking for the repercussions of this sub $50 (per barrel) oil.”

Join Greg Hunter as he goes One-on-One with David Morgan of Silver-Investor.com.

(There is much more in the video interview.)

This article is brought to you courtesy of Greg Hunter from USA Watch Dog.


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