Size of the derivatives market

[uranian]

Exchange traded derivatives, as of the latest data (http://www.bis.org/publ/qtrpdf/r_qa1003.pdf#page=126) from the BIS (Dec 2009), now stand at 73,137 billion US dollars.

Over the counter derivatives (i.e. an unregulated market) now stand (http://www.bis.org/statistics/otcder/dt1920a.pdf) at 604,622 billion dollars, as of June 2009.

Total derivatives contracts therefore 677,759 billion dollars ($677,759,000,000,000) or a modest 0.7 quadrillion dollars. The size of the derivatives market has shrunk a little over the past year, to being now just equivalent to a little over $100,000 for every human on the planet. The vast majority are still in interest rate swaps, i.e. about manipulating interest rates so as to keep the sovereign debt/bond market going. I had to plagiarise the below graphic back from market sceptics given the demise of the scary charts thread at GIM.

Another perspective on the size of this market is that its dollar value is about 7 times the number of stars in the Milky Way. One dollar bills stacked atop one another would make a pile almost 46 million miles high, or just about enough to reach to the Sun, and back again.

[kregener]

Doomed I say...DOOOOOOOMED!!!!

[uranian]

what surprised me about this is that there is a market measured in the quadrillions that is almost entirely unknown. if you search google news for "interest rate swaps", for example, there are a couple of hundred stories, none of which really do anything to explain the size/impact of this market. i've never seen an MSM piece that really tries to put the derivatives market as a whole into any kind of perspective. who'da thunk, there could be a market in the quadrillions that is unknown to most? the blue whale in the sardine can of the global financial markets.

[jedemdasseine]

The Bank for International Settlements used to value total derivatives at over 1 quadrillion dollars, something like 1,144 trillion or thereabouts. Then they changed their valuation methods, bringing the number down. Others claim it's debt destruction or both. Regardless, it's an absurd number, and a number made more absurd by the unit of measure, i.e., the US dollar. Think about it. One is measuring IOUs with IOUs.


A ship of fools.
http://www.historyforkids.org/learn/people/pictures/boschfools.jpg
But who are the fools?

[Libertarian_Guard]

"But who are the fools?"

The Ship of Fools is not about other people, it is about us.

In The Ship of Fools Bosch is imagining that the whole of mankind is voyaging through the seas of time on a ship, a small ship, that is representative of humanity. Sadly, every one of the representatives is a fool. This is how we live, says Bosch--we eat, dring, flirt, cheat, play silly games, pursue unattainable objectives. Meanwhile our ship drifts aimlessly and we never reach the harbour. The fools are not the irreligious, since promiment among them are a monk and a nun, but they are all those who live ``in stupidity''. Bosch laughs, and it is sad laugh. Which one of us does not sail in the wretched discomfort of the ship of human folly? Eccentric and secret genius that he was, Bosch not only moved the heart but scandalized it into full awareness. The sinister and monstrous things that he brought forth are the hidden creatures of our inward self-love: he externalizes the ugliness within, and so his misshapen demons have an effect beyond curiosity. We feel a hateful kinship with them. The Ship of Fools is not about other people, it is about us.

http://www.ibiblio.org/wm/paint/auth/bosch/fools/

[jedemdasseine]

:)
Yes. The Ship of Fools is about us.


http://www.zerohedge.com/article/lack-cash-loans-sale-any-price-causes-scramble-derivatives
Lack Of Cash Loans For Sale At Any Price Causes Scramble For Derivatives
:D

[madfranks]

Consider that even a quadrillion in derivatives is still just paper. Intrinsically worth no more than a single FRN with "one quadrillion dollars" printed on it. The derivatives are not real wealth, the real wealth is the tangible objects in the world and real skills required to build/develop them. The quadrillion+ held in derivatives could disappear overnight and no real wealth would even be lost! The rub is that these derivatives are a claim on real wealth. So, when they all come due, those people holding them will demand the real wealth they are "owed" through the use of these fictional papers. If they are successful, and considering the staggering sum of the value of the derivatives, conceivably every last piece of real wealth on the planet will be owned by the bankers who created them. That's why Thomas Jefferson said, "If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."

[gunDriller]

what surprised me about this is that there is a market measured in the quadrillions that is almost entirely unknown. if you search google news for "interest rate swaps", for example, there are a couple of hundred stories, none of which really do anything to explain the size/impact of this market. i've never seen an MSM piece that really tries to put the derivatives market as a whole into any kind of perspective. who'da thunk, there could be a market in the quadrillions that is unknown to most? the blue whale in the sardine can of the global financial markets.


it's hard to explain. it takes a lot of thinking and even then you only halfway understand it.

i emailed John Mauldin and a few other people in 2008 asking them to explain credit derivatives. he wrote about them for about 9 months in 2008-2009. Also Denninger writes about them.

yeah it's definitely big like a blue whale !

http://neoncstar.files.wordpress.com/2009/12/bluewhale.jpg

[uranian]

i don't think it's so hard to grasp the basics, once you understand the nature of fiat currency, as it's effectively the same...i tend to explain derivatives as similar to photocopies to people, simplistic but gives an idea of the nature of how the value is derived from another security.

as to real wealth, that's very hard to define. what has value is very much like what is beauty, it exists only in the eye of the beholder. granted that gold has served that function well for a very long time, and as a working proxy for value it has a long and effective history, but just as that, a proxy. what i value is time with people i want to spend time with, the ability to travel and see the world, good food, a nice place to live...different for all.