Scotland Surprise; Denninger

----- Original Message -----

From: Len Cranford

To: Richard Finley ;

Sent: Thursday, September 18, 2014 10:32 AM

Subject: Scotland Surprise; Denninger

{You asked about Scotland;  "Not so fast Kemosabe!"}  http://market-ticker.org/akcs-www?post=229419

Guess What: The States (And Scotland) Have The Hammer

Here's an interesting take on the whole "Scotland" breakaway issue, and it directly bears on the United States as well.
We often hear that a state "can't" secede successfully, for the simple reason that the Federal Government controls too much of the economy and that if, say Texas, was to say "**** you" the result would be the immediate collapse of the Texan-cum-nation economy.
Not so fast, kemosabe.
There is a downside to massive debt accumulation by a sovereign and so-called "modern finance", and it is the rise of derivatives at gross multiples of the debt outstanding.
"Gross" means 10x, 100x, even 1000x the underlying actual amount of debt out.  And all of these derivatives have trigger events at which point they become payable.
Said "credit events" virtually always include a "reorganization" clause, which includes secession or partition of the underlying political entity.
So who's got the hammer?  It's not the Federal Government and most-importantly it does not matter whether or not the Federal Government recognizes the secession or whether they try to show up with guns and put it down.
No, rather it is the States that have said hammer, just as Scotland has said hammer.
The reason the UK is freaking out is because if Scotland secedes all of the derivatives on UK sovereign debt trigger, and while that may not sound all that awful since they haven't defaulted (yet) the protection evaporates and that triggering means that holders of said derivatives can force delivery on the derivative contract!
This also means that should any US State, or collection of States, decide to do the same thing the US Government's ability to deficit spend is likely to instantly end irrespective of whatever threats are made to send in the tanks.
This is not the 1800s and all the bleating about indivisible political unions is in fact about the drunken, addicted fashion that our nation (and England) have been intentionally destroying currency value via deficit spending.
Secession, whether ultimately put down by force of arms or not, instantly endsthe ability to do that and that is more-frightening to these politicians than Satan himself appearing in the Capitol Rotunda.
It is well beyond the point where someone needs to call the US Federal Govermment's bluff -- the question is which state(s) have the balls to do it?