When someone uses “quadrillion” in a headline, you know you’re in for a bit of an alarmist rant. We’re talking 1,000,000,000,000,000, which, stated another way, is a thousand million million. Or a million billion. Or a thousand trillion.
Stated in dollars, that’s more than the debt racked up by the federal government since President Obama took office. Way more. It’s even way more than the Federal Reserve Board spent buying bonds when it was in QE mode. 
So when Bill Holter of Global Research wrote an article with the headline, “Derivatives are a $1 Quadrillion ‘Ticking Time Bomb,’ ” it caught our attention.
So did the series of charts he included, which showed movements in the government bond market that were double-black-diamond steep, even without moguls.
We’re talking government bonds here, not junk bonds, not commodities, not emerging market stocks. Government bonds are Nebraska – flat and predictable. During volatile times, they’re the bunny slope, not a double-black diamond.
So what’s up with the volatility?
Two Global Meltdowns in a Week
Holter called it a “global meltdown of the credit markets,” noting that it happened twice in just four business days! He also said he expects it to be seen, in retrospect as, “ ‘THE’ trigger event.” We’re not sure who he was quoting when he put quotation marks around, “THE,” but he clearly means something serious when he capitalizes the word; in case you missed “quadrillion” in the headline.
The (or “THE,” if you’d prefer) reason Holter is alarmed is that sovereign bonds and their yields have been moving in wider standard deviations than most commodities ever do – e.g., they’ve been really, really volatile. 
That’s not supposed to happen, as they are, “THE bedrock of the entire financial system. They are ‘supposed to be safe.’ They are supposed to be for widows and orphans. Sovereign credits are THE core to nearly all retirement funds on the planet. If everything else fails, it is this sector, government bonds, which should stand tall and stave off the failure of retirement plans.”
Two more THEs in all caps and he’s quoting himself again, so he must really mean business. His point, though, is that volatility in the bond markets is “endangering everything financial,” as “a foundation of BAD credit is no foundation at all!”
So what’s driving this volatility? A few possible explanations have been given. The simplest explanation is that bonds are being sold out of fear of a Greek default, but Holter believes bond market weakness is “being caused (and saved)” by OTC derivatives.
“I believe that ‘bankrupts’ are strewn all over the place and have been hidden with overnight loans,” he wrote, “but there is a new problem. The recent volatility has created more and more losers … which creates more and more FORCED SALES! (Please don’t scoff at this as there are a handful of ‘choice’ firms who have not had a single day of trading losses in over four years, with a whole string of losers in their wake?)”
Holter noted that the global bull market in bonds that has existed since 1982 “has culminated in negative interest rates and we ended up with everyone on the same side of the boat with no one left to ‘buy.’ ”
Which begs the question, why would anyone buy bonds when interest rates are zero or even negative? Remarkably, few have asked that question.
The end game, according to Holter, is the collapse of our credit system, which “has become the basis for all paper wealth and the lubricant for all real economic activity” (hence, the quadrillion reference).
“Should credit collapse (it will), everything we have come to believe in (been fooled by) will change,” Holter wrote. “Credit has come to be viewed as ‘wealth,’ it is considered an ‘asset’ … with just one problem, it is neither! Credit is only an asset and can be considered wealth as long as the borrower ‘can pay.’ ”
The Greek Butterfly Effect
So back to Greece for a moment. Greece cannot (or will not) pay its debt, which follows that the holders of Greek debt cannot pay their debt, which means the holders of the holders of Greek debt cannot pay their debt, and so on.
It’s not Greece that matters, but the cascading counterparty risk that results from Greece not paying its debt. And, of course, there are many other countries with Greece-like debt that could default. The bond market movements, according to Holter’s interpretation, are a sign that counterparty risk is breaking down the entire financial system.
“Derivatives are a $1 quadrillion ticking time bomb, soaked in gasoline and sprinkled with gunpowder,” Holter concludes, adding that volatility will ignite the explosion.
Central banks have twice stepped in and bought debt to steady the markets, but “the day will come when it does not work. This game has gone on for a very long time and resulted in a mania where most all of the players are ‘long.’ The only potential new longs left are the central banks themselves who can only buy more debt with money created by debt.”
This control of debt creates the power to control prices.
“Once debt breaks loose and trades out of the control of central banks, these central banks will also lose the control to price everything else,” Holter wrote, so the stock market will also be affected.
And finally, “the greatest margin call in all of history will be issued … and it cannot be met!”
We can only hope that Holter is wrong.