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

https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/

by hippich • 6 years ago

135 39 6 years ago

Thats pretty cool, but I question a few of the figures.

westurner• 6 years ago

Derivatives top the list, estimated at $1 quadrillion or more in notional value according to a variety of unofficial sources.

1 Quadrillion: 1,000,000,000,000,000 (10^15)

Derivative (finance) https://en.wikipedia.org/wiki/Derivative_(finance)

Derivatives market https://en.wikipedia.org/wiki/Derivatives_market :

The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives.

chvid• 6 years ago

Completely silly to put in the notional value of the derivatives market in there as most derivatives are designed and issued in a way such as the real value is none or cancelled out.

ggrrhh_ta2• 6 years ago

Can you elaborate on that? (Genuinely curious)

quickthrowman• 6 years ago

For stock options, a vertical spread is a combination of buying and selling a put or a call.

I could buy an AMZN call expiring next Friday with a notional value of $300,000 (100 shares at 3000 strike) for $6,250. I could simultaneously sell an AMZN call with a notional value of $300,500 (100 shares at $3005) for $5,855. My net debit would be $395 with a max profit of $105 if AMZN closes above $3005 a share at expiration.

In the above I bought a call from someone with a notional value of $300,000 and someone else bought a call from me with a $300,500 notional value. I paid $395 for this setup that has a notional value of $600,500, but the most I could ever get back is $500, the spread between the strike prices.

seanhunter• 6 years ago

Some examples:

1. Futures are contracts agreeing to buy or sell some underlying asset at a future date (or exchange cash as though you did). If I am long a future someone is by definition short that future. Therefore the total net exposure is always zero. It makes no sense to add my long future to your short future and decide that the total exposure is 2.

2. Swaps are contracts where we agree to exchange cashflows based on some reference amount. The most common types of swaps are interest rate swaps and an example might be a fixed-for-floating swap where you agree to pay me fixed interest (say 4%) and I agree to pay you floating interest (say 3 mounth USD LIBOR plus 200bps). The notional of a swap is the amount we use for the calculation of this interest payment. It really isn't an amount that's used for anything else - you don't owe me the notional and neither do I owe you that. It's just a multiplier we use when we transfer the net difference between the two rates. It therefore makes no sense whatsoever to add up the notional of swaps contracts. Also since we exchange the net difference the notional can be pretty large and the net cash payments pretty small.

3. Credit default swaps are similar to IR swaps except one of the legs of the swap pays out based on certain "credit events" (typically defaults and/or downgrades) on an underlying "reference obligation" (usually a corporate or sovereign bond, but can be an ABS or probably some other stuff). Since different CDSs are based on different underlying reference obligations, adding up notionals of different CDSs makes as much sense as if I say I have 10 dollars, 2 matchsticks, a ball of fluff, a ferarri and a dog so you say I have 15 things. Well I suppose so but it doesn't really mean anything since the things themselves are very different in nature.

RobertoG3• 6 years ago

It's also problematic to put public debt in the same bucket that private debt. Those are very different things. In some ways they are the opposite.

gumby• 6 years ago

Few people seem to understand this

cryptica• 6 years ago

I think it's still relevant that they show it because it illustrates the irrationality of the situation we're in. I don't see how the notional value can fully cancel out unless it's possible to sell multiple contracts on the same underlying asset. If you want to sell your house, you can't just sell it to two different people at the same time using different contracts. Also, you can't sell your house to someone and also simultaneously rent it out to someone else either... Ultimately there can only be one legitimate contract over any given asset at any given time.

It seems that the financial system has legitimized scams by allowing people to sell rights to assets which they do not actually own under the pretext that they will make the transactions necessary to honor the contract 'if necessary'... But it has been proven time and time again that sometimes they cannot honor the contract due to systemic risks... So the contract is bs; people should not be allowed to sell contracts when they cannot provide 100% guarantee that they will be able to honor it... The looming collapse of the financial system is not an excuse to not honor a contract! People should not rely on taxpayer funded bailouts to protect themselves from systemic risks.

It makes complete sense to show the notional value because it shows the extent of the deception. It's not hard to imagine how a tiny change in consumer habits could create huge asset squeezes and liquidity shortages. The value is just not there.

CryptoPunk3• 6 years ago

In principle, the value of derivatives can represent nothing more than the value that people collectively place on options backed by the collateral of the options and the credit of the option guarantors.

This valuation, in the event that it is not a massive miscalculation by the market, reflects the sophistication of the market in being able to incentivize cooperative behavior like contract fulfillment, through phenonema like reputation, and mechanisms like reputation feedback.

Financial credibility extending to more sophisticated contracts is a genuine expansion of economic resources, that enables more effective economic coordination. It is not a scam, and the assets that emerge from it are not 'fake' wealth.

jfengel• 6 years ago

They do mark the vast majority of it as "notional". As you say, that notional value is immaterial: it doesn't actually correspond to anything of value, more akin to you and I writing each other quadrillion-dollar IOUs.

It does, however, give a kind of hint at why derivatives have such an outsized effect on the economy. People treat that fake money as if a tiny amount of it were real -- like getting a bank to loan you ten grand backed by my quadrillion-dollar IOU. It can easily become a tail that wags a dog, especially since it's so volatile -- it can evaporate in an instant.

It's almost Heisenbergian -- the net value is indeed zero, but somehow it manages to make a tiny difference anyway. It's only important because it's so vast.

enjoyyourlife• 6 years ago

https://xkcd.com/980/

_ZeD_• 6 years ago

yep. while outdated it's a better visualization

vmception• 6 years ago

When you apply this same standard to bitcoin and other cryptocurrencies, it becomes clear that it doesn't matter that only a few percentage of it is used in transactions because that's just the m0 supply, m1 for larger transfers, and m2 for large investments when desired. So it doesn't make sense for that to be an argument against cryptoassets as a money surrogate, when it actually is acting like all other currencies in that regard.

That doesn't mean there aren't stronger arguments, its just that people gravitate towards weak arguments.

onion2k• 6 years ago

Why are below ground gold reserves counted as money and not below ground oil or diamonds or copper or some other thing we know about?

okaleniuk• 6 years ago

Aircraft carriers are too damn expensive. We should probably build more of them to spread the R&D part.

peter_d_sherman• 6 years ago

"Derivatives: Notional Value: 558.8 trillion (Low end estimate)"

acd• 6 years ago

I remember the large size of derivative related to the normal economy from this visualization. If we ever get a derivative bubble in the future, we will probably need to rebuild the economy from the ground up. Why? Because the derivative market is so large in comparison to the normal economy.

nl2• 6 years ago

This comment (and to be fair the visualisation itself) completely misunderstands what derivatives are.

The vast majority expire and never have any value.

thephyber• 6 years ago

To be fair, the visualization mixes store values (eg. Fed's balance sheet) and flow values (annual military spending, annual USA deficit).

zestyping• 6 years ago

To put all this wealth in perspective, consider how little of it would be needed to radically improve society and reduce human suffering.

https://mkorostoff.github.io/1-pixel-wealth/

logicchains• 6 years ago

Just giving money doesn't necessarily help; see for instance the failure of foreign aid to Africa: https://www.lejournalinternational.fr/Foreign-aid-is-hurting.... Supporting development requires creating the institutions and providing the education to support participation in the modern economy, as Asia has done over the past half century, lifting hundreds of millions of people out of poverty into first-world living conditions. Free money can actually be detrimental to this: for instance the https://en.wikipedia.org/wiki/Resource_curse , where countries with easy income from significant natural resource wealth actually experience worse development outcomes.

RobertoG3• 6 years ago

"[..] countries with easy income from significant natural resource wealth actually experience worse development outcomes."

They develop worse outcomes because all the profit goes to a few extractive elites in the country and in foreign powers.

Foreign aid has, I think, a very efficient path to try: just give unconditional money, not strings attached, to the poorest people of the country. You are helping the people that more need it, they know exactly what they need, and they will expend the money in the local economy. See for instance https://en.wikipedia.org/wiki/GiveDirectly

gverrilla• 6 years ago

this is page is awesome. thanks for sharing. we live in irrational times...

dtolnay• 6 years ago

Under the Global Wealth heading, in the sidebar it shows a Chinese flag and next to it says "Wealth: $63.8 trillion; Number of Millionaires: 4,447 (in USD terms)". What is that second number? Surely there are more than 4,447 people in China with wealth greater than 1 million USD.

csa• 6 years ago

I think they are missing three zeros... closer to 4.4m millionaires, iirc.

elil172• 6 years ago

This chart compares wealth and market cap in a way that makes literally no sense. This doesn’t represent the size of the money supply at all. A ton of things are double counted.

fractal618• 6 years ago

Agreed. 100%. These visualizations are pretty, but worthless. XKCD did a much, much better job when he created https://xkcd.com/980/ in 2011

elil172• 6 years ago

Actually I think that chart also confuses cash flow and wealth

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

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