Broad Money includes Narrow Money
December 23, 2015 12:45 PM   Subscribe

All of the World’s Money and Markets in One Visualization

The US Stock Market is slightly larger than all others combined, but all are dwarfed by the Derivatives.
posted by soelo (14 comments total) 13 users marked this as a favorite
 
I love how debt multiplies the amount of money in the world. If I have a chicken and you have a rooster, that's all the wealth there is in this toy economy. But if I take your rooster in exchange for a promise to give you two chicks later, the promise of future chicks is valuable now. (And since I can now breed more chickens, it's a trustworthy promise.) And if my debt to you is printed on fancy green paper and called "cash," you can trade it to anyone without worrying about who originally made the promises behind it.
posted by Rangi at 12:56 PM on December 23, 2015 [4 favorites]


This is fine.
posted by RobotVoodooPower at 1:00 PM on December 23, 2015 [3 favorites]


Interesting but less meaningful as you scroll down and the quantities become more apples-to-oranges. In particular, the total notional value of derivatives is a huge but meaningless number. There is real systemic risk in some derivatives markets but this isn't the way to measure them. It's a little like saying "shouldn't we be concerned about yogurt, just one pint has MILLIONS more bacteria than these other foods combined" : )
posted by neat graffitist at 1:08 PM on December 23, 2015 [6 favorites]


I have the (much more charming, 'natch) XKCD version of this on my office wall. I teach entrepreneurship, so it can be fun to ask students to point at the squares that make up their market...
posted by blahblahblah at 1:28 PM on December 23, 2015 [1 favorite]


Yeah, the notional value of any derivative often has only a tenuous connection with the actual value that is at risk. So for example, if I buy a single call option for 100 shares of Apple which is trading at $110, the notional value is 100*$110 = $11,000. But the actual option I've bought is likely worth a tiny fraction of that. Furthermore, the actual $ I have at risk will vary depending on the option's strike price and expiry date. It can be as little as a few hundred dollars or it can range into the thousands.
posted by storybored at 1:46 PM on December 23, 2015 [1 favorite]


Yeah, there are absolutely lots of good reasons to be concerned about derivatives' role in the contemporary economy, but this graphic does not remotely depict any of them. The online infographic world is deep into How to Lie with Statistics territory these days.
posted by RogerB at 2:06 PM on December 23, 2015


So what would be a better way of visualizing the derivatives market and its relationship to money/debt? At this point in 2015, the entire financial system seems to require a certain amount of dogmatic faith in its (increasingly absurd and mystifying) logic.
posted by nikoniko at 2:39 PM on December 23, 2015 [1 favorite]


So how do the gold bug cranks imagine there is enough gold in the world to run the economy? There doesn't seem to be enough to cover any major industry, much less the whole world economy.
posted by Bee'sWing at 2:48 PM on December 23, 2015 [2 favorites]


So how do the gold bug cranks imagine there is enough gold in the world to run the economy? There doesn't seem to be enough to cover any major industry, much less the whole world economy.

Extending that question, assuming all possible bitcoins were mined, how small of a fraction of the world's economy could be handled by trading that commodity?
posted by a lungful of dragon at 3:06 PM on December 23, 2015


I love this.
posted by triggerfinger at 3:34 PM on December 23, 2015


I was just going to say that derivatives visualization is meaningless but you guys beat me to it!
It becomes especially apparent if you think about all the trillions and trillions of notional that is referenced by relatively mundane things like interest rate swaps.

And also that Buffett quote about derivatives = WMD is so ironic because he is one of the biggest put sellers in history. People love him because he projects this folksy and good ol' fashioned value investor persona, but in reality a lot of his riches have been generated through financial engineering and other shenanigans.
posted by pravit at 6:46 PM on December 23, 2015 [2 favorites]


I am confused about the notional value of the call referenced above. I understand what the notional value is but storybored, aren't you only describing your risk, (which is just what you paid for the call,) not the risk to seller on the other side which is theoretically unbounded?
posted by Pembquist at 7:44 PM on December 23, 2015


So what would be a better way of visualizing the derivatives market and its relationship to money/debt?

janet yellen had a go of it -- Interconnectedness and Systemic Risk: Lessons from the Financial Crisis and Policy Implications -- before becoming fed chair! (in particular see figures 1,2,3&4 ;)
posted by kliuless at 11:42 AM on December 24, 2015 [2 favorites]


So how do the gold bug cranks imagine there is enough gold in the world to run the economy? There doesn't seem to be enough to cover any major industry, much less the whole world economy.

The values of things are not set in stone, they constantly change. If gold and gold-backed currencies became our primary medium of exchange, gold would become much more valuable.
posted by foobaz at 2:29 PM on December 24, 2015 [1 favorite]


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