“How much ‘money’ exists in the world? . . . [T]here are multiple answers to this question, and the amount of money that exists changes depending on how we define it. The more abstract definition of money we use, the higher the number is.
“In the following data visualization of the world’s total money supply, we wanted to not only compare the different definitions of money, but to also show powerful context for this information. That’s why we’ve also added in recognizable benchmarks such as the wealth of the richest people in the world, the market capitalizations of the largest publicly-traded companies, the value of all stock markets, and the total of all global debt.
“The end result is a hierarchy of information that ranges from some of the smallest markets (Bitcoin = $5 billion, Silver above-ground stock = $14 billion) to the world’s largest markets (Derivatives on a notional contract basis = somewhere in the range of $630 trillion to $1.2 quadrillion).
“In between those benchmarks is the total of the world’s money, depending on how it is defined. This includes the global supply of all coinage and banknotes ($5 trillion), the above-ground gold supply ($7.8 trillion), the narrow money supply ($28.6 trillion), and the broad money supply ($80.9 trillion).”
You can see that derivatives dwarf all other forms of money. Are derivatives extraordinarily dangerous because of their enormous magnitude? Or, could it be that the sheer “mass” of derivatives is so enormous that that “mass” provides some sort of “ballast” and stability in an otherwise volatile monetary environment? Does that “ballast” threaten to sink the monetary “ship”? Or will that “ballast” help protect that “ship” from minor craziness taking place in silver, gold and stock markets?
Whatever the answer, it’s clear from the following illustration that we live in a time that is unlike anything else every before seen in world history. The modern concept of derivatives may be roughly 20 years old, and yet the sum of those derivatives is over ten times greater than sum of all of the other forms of “money,” combined.
How could that have happened?
If you take time to consider the following illustration, you might find yourself beginning to gape.
Anytime after December 21st?
You may want to watch this short video two or more times.
Caesar: Who is it in the press that calls on me? I hear a tongue shriller than all the music cry “Caesar!” Speak, Caesar is turn’d to hear.
Soothsayer: Beware the ides of March.
Caesar: What man is that?
Brutus: A soothsayer bids you beware the ides of March.
Shakespeare’s Julius Caesar Act 1, scene 2.
Caesar ignored the soothsayer’s warning, went about his business normally on March 15th (the “ides” of March) and was assassinated on that day.
I’m not a soothsayer and I don’t expect anyone important to be assassinated on or about the “ides” of August (August 15th). But I strongly suspect that August 15th might mark the start of a dramatic change in the prices of silver and, soon after, gold.
“Derivative: A financial instrument which derives its value from the value of underlying entities such as an asset, index, or interest rate—It has no intrinsic value in itself.”The reason a financial instrument is called a “derivative” is that it “derives” its perceived value from some other source. The reason a derivative’s perceived value is “derived” from some other source is that the derivative is, by definition, intrinsically worthless.
If a financial instrument had intrinsic value, it could not be a derivative. On the other hand, if a financial instrument is a “derivative” its apparent value is only “derived” from some other source and that derivative is and must be intrinsically worthless.
Over the past several years, the world’s total sum of officially-recognized derivatives has ranged from $700 trillion to $1.4 quadrillion—and yet, all of those derivatives are, by definition, intrinsically worthless.
We live in a world where there there are financial instruments with an apparent value of over $1 quadrillion that are nevertheless known to be intrinsically worthless.
The mind gapes.
I think I might be beginning to understand “derivatives” (See, “Caught In A Derivative World“). Therefore, the following video intrigues me since its allegations are based on a Wall Street conspiracy to advocate and exploit derivatives. If the video’s allegations are roughly correct, every man or woman who conspired to advance the “intrinsically worthless” derivatives should be tried for treason. Those who are found guilty should be hanged.
Incidentally, a major difference between Barack Obama and Larry Summers is that while both men may be evil, Summers looks it. Obama does not. Usually.
“A financial instrument which derives its value from the value of underlying entities such as an asset, index, or interest rate—It has no intrinsic value in itself. Derivative transactions include a variety of financial contracts, including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards, and various combinations of these.”
First, it’s important to grasp that, by definition, “derivatives” have no intrinsic value. Because they have no intrinsic value, their perceived value is “derived” from something else that has an intrinsic value. If a financial instrument has “intrinsic value,” its value would not be derived from something else and such instruments could not be “derivatives”. Derivatives are and must be, by definition, intrinsically worthless.
Therefore, it seems strange, almost incomprehensible, to see that although derivatives have no intrinsic value, just four years ago, researchers calculated that the global value for derivatives totaled $1.4 quadrillion. More recent calculations indicate that there are “only” $800 trillion worth of derivatives on the globe.
But how can there be $800 trillion worth of anything that’s intrinsically worthless?