Gary and I have been compiling data for a piece, and since some of you are interested in the economics thing, I thought I'd share. 
Since we're all up on the financial crisis, I'm just sharing raw data here - because it is rather jaw-dropping.
Note: we've talked about the credit default swaps (CDSs) that helped bring the market down. This is a derivative that was designed by JP Morgan in 1994 to trade the "risk" in loans made by banks. There are many types of derivatives - but basically they're financial instrument whose value depends upon the value of the underlying financial instrument. They were created as a way to distribute the risk of the underlying investment instrument. So the housing bubble of the 2000s contributed to the creation of the "derivatives" bubble.
- Derivatives have grown from about $100 trillion in 2002 to $516 trillion in 2007.
Yes, that's TRILLION. (This information comes from the Bank of International Settlements). Obviously, since the crash, this number has fallen dramatically. How much, we don't know. But to put where we were into perspective:
- The U.S. annual GDP is about $15 trillion
- U.S. Money Supply is also about $15 trillion
- Current proposed federal budget is about $3 trillion
- U.S. government's maximum legal debt limit has been $9 trillion.
- U.S. mutual fund companies manage about $12 trillion (before crash valuation)
- World GDP for ALL nations is about $50 trillion
- Unfunded social security and medicare benefit estimates range from $50 trillion to $65 trillion
- Total value of the world's real estate is estimated to be about $75 trillion (again, before crash)
- Total value of the world's stock and bond markets is a little more than $100 trillion (before crash)
- The credit default swap market portion of the derivatives market was estimated (before crash) to be approximately $62 trillion.
Note: this $516 trillion derivatives market is completely unregulated. According to the BIS it's a "shadow banking system." It's basically a new way of creating money outside of normal central bank liquidity rules - because they are private contracts between two companies. It's like a huge black market - because central banks require reserves, like stock brokers require margins - so there's something to back up the transaction. Derivatives don't. They're not "real money" and the transactions take place outside of "normal" business channels.
Since we're all up on the financial crisis, I'm just sharing raw data here - because it is rather jaw-dropping.
Note: we've talked about the credit default swaps (CDSs) that helped bring the market down. This is a derivative that was designed by JP Morgan in 1994 to trade the "risk" in loans made by banks. There are many types of derivatives - but basically they're financial instrument whose value depends upon the value of the underlying financial instrument. They were created as a way to distribute the risk of the underlying investment instrument. So the housing bubble of the 2000s contributed to the creation of the "derivatives" bubble.
- Derivatives have grown from about $100 trillion in 2002 to $516 trillion in 2007.
Yes, that's TRILLION. (This information comes from the Bank of International Settlements). Obviously, since the crash, this number has fallen dramatically. How much, we don't know. But to put where we were into perspective:
- The U.S. annual GDP is about $15 trillion
- U.S. Money Supply is also about $15 trillion
- Current proposed federal budget is about $3 trillion
- U.S. government's maximum legal debt limit has been $9 trillion.
- U.S. mutual fund companies manage about $12 trillion (before crash valuation)
- World GDP for ALL nations is about $50 trillion
- Unfunded social security and medicare benefit estimates range from $50 trillion to $65 trillion
- Total value of the world's real estate is estimated to be about $75 trillion (again, before crash)
- Total value of the world's stock and bond markets is a little more than $100 trillion (before crash)
- The credit default swap market portion of the derivatives market was estimated (before crash) to be approximately $62 trillion.
Note: this $516 trillion derivatives market is completely unregulated. According to the BIS it's a "shadow banking system." It's basically a new way of creating money outside of normal central bank liquidity rules - because they are private contracts between two companies. It's like a huge black market - because central banks require reserves, like stock brokers require margins - so there's something to back up the transaction. Derivatives don't. They're not "real money" and the transactions take place outside of "normal" business channels.
(...I mean if someone in the Bundesbank doesn't know.... 
) 
