Credit default swap confusion.

A typical CDS is an insurance policy against a debt default.  You calculate the cost by 'basis points'.   A basis point equals $1,000 annually on a swap protecting $10 million of debt.  

If you were long $10 Million in Italian debt, you'd have to pay almost $387,000 a year to insure that ten million against default.  That's not worth doing for very long.  But you'd only have to pay about $50,000 a year to insure ten million in US debt.  Still, the return on your bonds has to be higher than your CDS insurance or it's pointless to buy them.

So.  Italian debt looks shaky.  The return on Italian bonds has to be high enough to warrant an investment gamble on them plus the cost of a CDS to insure them and THEN there is no guarantee that the CDS will pay if the sovereign debt goes south.  

France is the most costly AAA country to protect against default. Credit default swaps on France trade at 143.8 basis points, almost triple the U.S. Spain is at 407.6 basis points and Italy at 386.8 basis points. Swaps on Switzerland, the safest country, are at 35.3 basis points.

Let's do precious metals again while we are here.  Silver and gold have no intrinsic value other than that silver is used extensively in manufacturing and the 'gold is money' syndrome.  About 40% of all gold sold is recycled and the mines are still operating – we aren't running out of it – we are merely producing more people.

Silver, which wasn't worth mining at $10 an ounce is worth mining at $40 an ounce – and it IS used up in manufacturing – but no one has enough money to corner the market, so we aren't running out of that, either.   

Since they have no intrinsic value, the price depends entirely on whether other people will keep buying them no matter what it costs, and the deeply ingrained idea that their value will NEVER go to zero as fiat currency easily can. That's a circular argument.  Precious metal is priced in fiat currency – not the other way around, as was the case for the last 10,000 years.  When you could take your paper in and redeem it for gold or silver, which had a fixed value, you could be pretty sure that your money WAS actually money – because there was a fixed amount of it in circulation – the amount that could be covered by reserves of precious metals.

Now there is about a Quadrillion dollars – that's a thousand Trillion dollars – just in OTC CDS which were written as insurance policies to cover losses in case the sovereign debt they are insuring fails.  And the sovereign debt they are insuring is basically bonds sold to pay the INTEREST on the national debt of whatever country – not the debt itself.  That debt almost never decreases until the country is destroyed by war.  

None of this current debt is going to be paid and people are beginning to realize it.  Industrialization depended upon unlimited supplies of raw materials.  Those materials are no longer unlimited.  We are using them up.  There aren't any more when they are gone.

As long as there is cash floating around, people will flock to what they hope are safe investments.  But the richest man in the world lost almost 8 BILLION dollars on Thursday.  The money just evaporated and was gone.  'Wealth' only counts if you can barter it for food.  Who was the richest man in Hiroshima on August 6, 1944?