If the world assets are less than world derivatives does this mean the whole world is bankrupt. I have no knowledge what derivatives are. Just know that derivatives are over-hyped phony instruments.
World assets are worth $400 Trillion to $500 Trillion. This includes real estates, stocks markets, world GDP, gold. Whereas world derivatives are worth $600 Trillion to $700 Trillion. Does this mean the whole world is bankrupt????
No, it means the first world will use its military might to acquire necessary capital from the third world. Just as it has always done.
$1000 trillion is the same as $1 quadrillion. Be on the lookout for people "throwing" that number around soon.
The way to find out if you are bankrupt is to find out if your income is enough to pay your bills. In the U.S. our income is not enough to pay our bills, therefore, we are bankrupt. The world debt as of the end of 2008 was 60.96 trillion dollars The GWP (gross world product) was 61.22 trillion. So basically the entire world is in debt about 1 years salary which doesnt sound like much, but try to remember that alot of governments right now are spending more than they make, so its going to get alot worse. 2009 tax revenue is going to be really bad. 2010 will be worse.
No. Lets say X owes me 1 billion dollars in derivatives, and I owe Y also 1 billion in derivatives. In order to settle my debts I don't need any assets, I can just take what I get from X and fully pay Y. If, in addition, Y owed X 1 billion in derivatives, then all three of us could fully clear a total of 3 billion debt without needing a single asset. The word is full of such debt circles, almost everyone plays both sides of the game, so much less assets are actually needed to settle all derivatives in existance. The big problem is that if lets say X became bankrupt in my example I'd be screwed, unable to pay Y, and I would have to go bust. Which in turn would screw up and bankrupt Y as well. This is why they didn't want to let the big banks and AIG go bankrupt, it would have fucked up the whole system. Or so they said.
Keep in mind that the derivatives often trade with 40x leverage. So, the 600Trillion listed is really only held with perhaps 15T dollars. For example, if you buy $100K derivs with a $2500 account, once your account goes to $0, or whatever the margin value is, the broker liquidates. So, you wont lose 100K, you might lose around $3K. There was also a post about the world GDP being ~60T while some form of debt was also ~60T. I disagree that it would only take one year to pay back the debt. Any debt payback would have to cone from savings. So, assuming a rather high savings rate of ~7%, it would take ~14 years to pay back this debt, assuming all savings goes to debt payment.
It has always been this way, that's what are money system is debt "If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." Robert Hemphill Credit Manager of Federal Reserve Bank (1935)