The world owes $57 trillion... Who the F*** to? Mars? Jupiter?

[Little-Acorn]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?

No, you owe it to John, Jim, and Jane.

And they owe it to Peter, Paul, and Patricia.

And etc.

What would happen if we all just say, "We just owe that money to ourselves anyway. Let's just renounce that debt, it's not there any more, we'll all start from zero as of today." ?

First thing that would happen is, when you went to the ATM to get some cash for groceries, it would tell you you don't have any money in your account. Never mind that you had hundreds in there yesterday. That money was invested by the bank in various bonds, businesses, etc. All of which was debt. When everybody said all debts were now gone, that one vanished too.

Then shortly after that, your next paycheck would bounce. The money your company had in a bank account to pay you, was also invested by the bank. Some with businesses etc., some was lent out as mortgage loans to people to buy houses. All of it was debt. And all of it is now bye-bye. Because you decided that everyone could renounce all debt.

And when you went in desperation to a friend to ask him to loan you a few bucks to get by with tonight, you'll find the same. He's out of money too. So you're SOL.

But wait - you have that stash of twenty-dollar bills you pulled out of an ATM a few months ago. You quickly check, and it's still there under your mattress. Ahh, you breathe a sigh of relief. You go down to the local Safeway to get food for tonight's dinner. You bring it up to the register and pull out your 20s, nice crisp and green. And the checker says, "Sorry, we don't take those any more. We don't know how long people will be accepting them any longer, since they're really just paper and not much good for anything. We only take gold and silver, because we know people will always value those."

I suggest you not act like an idiot and question the existence of debt. You might get more (or in this case a lot less) than you bargained for.

 

[Toddsterpatriot]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?
The world owes $57 trillion. Who the F*** to? Mars? Jupiter? #2

The take-home message everyone is given is that the world is in deep financial trouble and that if we don’t knuckle down and fix the debt problem, the debt problem will fix us. It seems we are due to fall over the edge of that fiscal cliff in the very near future if we don’t get our act together.

Certainly the world does face future problems of resource depletion and possible climate change. But these are quite different from the problems we see regularly reported in the mainstream press. In America, the concern is that their National Debt is now over $17 trillion.

There is story after story in the US media about how this isn’t sustainable. How its just not realistic to keep borrowing from China and Japan. In the UK the situation looks bad too!



Lets take a look at just how much of a surplus the Chinese and Japanese have managed to build up over the past few years.



This looks odd. but it looks like Japan is broke too! What about China? Surely they must be in the black!


No. They don’t look to be doing too well at all. This is not what we were told. What about all those exports? So what about the world as whole? Surely that must net to zero. The creditors and the debtors must be equal.



No, it obviously doesn’t. So just what’s going on? All the wonder economies are in debt too. Germany is in debt ($3 trillion) Singapore is in debt ($400 billion) Do we owe all this money to the extra-terrestrials?

If I am ever proved wrong about that, they will not be at all interested by the digits in our computers , or the printed pieces of paper we call money. It will the resources of our planet which might interest them and I would expect they, unlike many of us Earthlings, would be smart enough to appreciate the difference between money and resources.

They should also be smart enough to know that all money is created by crediting and debiting accounts, and that money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable), it is just as true to say that the world owns over 57 trillion in financial assets, expressed in USD, as it is to say that the world owes 57 trillion in financial liabilities.

If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter. (Acknowledgements to Mike Norman).

Do politicians not understand all this themselves? Don’t they understand that all governments have to be in debt? That would be stupidity. Or do they understand all this very well but just like to scare us all with these huge numbers? Do they deliberately lie to the very people who pay their salaries? At least under their own understanding of economics they do That would be criminality! Which is worse?

To understand why this is the case, that debts are just another way of expressing assets, we need to start right at the beginning and take a look at what money is and why it has a value.

Keep in mind this $57tr is obviously just govt debt. In the US we are at or near record levels of corporate debt, student debt is at record levels, consumer debt is way up. Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions. Utter madness.

Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions.

Derivatives aren't debt.

 

[g5000]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?

It is owed to investors. Sovereigns, princes, future retirees, hedge funds, traders, college endowment funds, insurance companies, the Federal Reserve, etc.

Welcome to Econ 101.

 

[Little-Acorn]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?

No, you owe it to John, Jim, and Jane.

And they owe it to Peter, Paul, and Patricia.

And etc.

What would happen if we all just say, "We just owe that money to ourselves anyway. Let's just renounce that debt, it's not there any more, we'll all start from zero as of today." ?

First thing that would happen is, when you went to the ATM to get some cash for groceries, it would tell you you don't have any money in your account. Never mind that you had hundreds in there yesterday. That money was invested by the bank in various bonds, businesses, etc. All of which was debt. When everybody said all debts were now gone, that one vanished too.

Then shortly after that, your next paycheck would bounce. The money your company had in a bank account to pay you, was also invested by the bank. Some with businesses etc., some was lent out as mortgage loans to people to buy houses. All of it was debt. And all of it is now bye-bye. Because you decided that everyone could renounce all debt.

And when you went in desperation to a friend to ask him to loan you a few bucks to get by with tonight, you'll find the same. He's out of money too. So you're SOL.

But wait - you have that stash of twenty-dollar bills you pulled out of an ATM a few months ago. You quickly check, and it's still there under your mattress. Ahh, you breathe a sigh of relief. You go down to the local Safeway to get food for tonight's dinner. You bring it up to the register and pull out your 20s, nice crisp and green. And the checker says, "Sorry, we don't take those any more. We don't know how long people will be accepting them any longer, since they're really just paper and not much good for anything. We only take gold and silver, because we know people will always value those."

I suggest you not act like an idiot and question the existence of debt. You might get more (or in this case a lot less) than you bargained for.

You've gotten several answers to your question.

Any comment?

 

[baileyn45]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?
The world owes $57 trillion. Who the F*** to? Mars? Jupiter? #2

The take-home message everyone is given is that the world is in deep financial trouble and that if we don’t knuckle down and fix the debt problem, the debt problem will fix us. It seems we are due to fall over the edge of that fiscal cliff in the very near future if we don’t get our act together.

Certainly the world does face future problems of resource depletion and possible climate change. But these are quite different from the problems we see regularly reported in the mainstream press. In America, the concern is that their National Debt is now over $17 trillion.

There is story after story in the US media about how this isn’t sustainable. How its just not realistic to keep borrowing from China and Japan. In the UK the situation looks bad too!



Lets take a look at just how much of a surplus the Chinese and Japanese have managed to build up over the past few years.



This looks odd. but it looks like Japan is broke too! What about China? Surely they must be in the black!


No. They don’t look to be doing too well at all. This is not what we were told. What about all those exports? So what about the world as whole? Surely that must net to zero. The creditors and the debtors must be equal.



No, it obviously doesn’t. So just what’s going on? All the wonder economies are in debt too. Germany is in debt ($3 trillion) Singapore is in debt ($400 billion) Do we owe all this money to the extra-terrestrials?

If I am ever proved wrong about that, they will not be at all interested by the digits in our computers , or the printed pieces of paper we call money. It will the resources of our planet which might interest them and I would expect they, unlike many of us Earthlings, would be smart enough to appreciate the difference between money and resources.

They should also be smart enough to know that all money is created by crediting and debiting accounts, and that money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable), it is just as true to say that the world owns over 57 trillion in financial assets, expressed in USD, as it is to say that the world owes 57 trillion in financial liabilities.

If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter. (Acknowledgements to Mike Norman).

Do politicians not understand all this themselves? Don’t they understand that all governments have to be in debt? That would be stupidity. Or do they understand all this very well but just like to scare us all with these huge numbers? Do they deliberately lie to the very people who pay their salaries? At least under their own understanding of economics they do That would be criminality! Which is worse?

To understand why this is the case, that debts are just another way of expressing assets, we need to start right at the beginning and take a look at what money is and why it has a value.

Keep in mind this $57tr is obviously just govt debt. In the US we are at or near record levels of corporate debt, student debt is at record levels, consumer debt is way up. Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions. Utter madness.

Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions.

Derivatives aren't debt.

True, just exposure to liabilities.

 

[Toddsterpatriot]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?
The world owes $57 trillion. Who the F*** to? Mars? Jupiter? #2

The take-home message everyone is given is that the world is in deep financial trouble and that if we don’t knuckle down and fix the debt problem, the debt problem will fix us. It seems we are due to fall over the edge of that fiscal cliff in the very near future if we don’t get our act together.

Certainly the world does face future problems of resource depletion and possible climate change. But these are quite different from the problems we see regularly reported in the mainstream press. In America, the concern is that their National Debt is now over $17 trillion.

There is story after story in the US media about how this isn’t sustainable. How its just not realistic to keep borrowing from China and Japan. In the UK the situation looks bad too!



Lets take a look at just how much of a surplus the Chinese and Japanese have managed to build up over the past few years.



This looks odd. but it looks like Japan is broke too! What about China? Surely they must be in the black!


No. They don’t look to be doing too well at all. This is not what we were told. What about all those exports? So what about the world as whole? Surely that must net to zero. The creditors and the debtors must be equal.



No, it obviously doesn’t. So just what’s going on? All the wonder economies are in debt too. Germany is in debt ($3 trillion) Singapore is in debt ($400 billion) Do we owe all this money to the extra-terrestrials?

If I am ever proved wrong about that, they will not be at all interested by the digits in our computers , or the printed pieces of paper we call money. It will the resources of our planet which might interest them and I would expect they, unlike many of us Earthlings, would be smart enough to appreciate the difference between money and resources.

They should also be smart enough to know that all money is created by crediting and debiting accounts, and that money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable), it is just as true to say that the world owns over 57 trillion in financial assets, expressed in USD, as it is to say that the world owes 57 trillion in financial liabilities.

If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter. (Acknowledgements to Mike Norman).

Do politicians not understand all this themselves? Don’t they understand that all governments have to be in debt? That would be stupidity. Or do they understand all this very well but just like to scare us all with these huge numbers? Do they deliberately lie to the very people who pay their salaries? At least under their own understanding of economics they do That would be criminality! Which is worse?

To understand why this is the case, that debts are just another way of expressing assets, we need to start right at the beginning and take a look at what money is and why it has a value.

Keep in mind this $57tr is obviously just govt debt. In the US we are at or near record levels of corporate debt, student debt is at record levels, consumer debt is way up. Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions. Utter madness.

Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions.

Derivatives aren't debt.

True, just exposure to liabilities.

Or exposure to assets.

 

[Rambunctious]

It is owed to investors. Sovereigns, princes, future retirees, hedge funds, traders, college endowment funds, insurance companies, the Federal Reserve, etc.

Welcome to Econ 101.

Welcome to econ 102. You can forget one group that you listed getting repaid...the future retirees. We tried to warn you liberals but some of you insist on learning the hard way.

 

[baileyn45]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?
The world owes $57 trillion. Who the F*** to? Mars? Jupiter? #2

The take-home message everyone is given is that the world is in deep financial trouble and that if we don’t knuckle down and fix the debt problem, the debt problem will fix us. It seems we are due to fall over the edge of that fiscal cliff in the very near future if we don’t get our act together.

Certainly the world does face future problems of resource depletion and possible climate change. But these are quite different from the problems we see regularly reported in the mainstream press. In America, the concern is that their National Debt is now over $17 trillion.

There is story after story in the US media about how this isn’t sustainable. How its just not realistic to keep borrowing from China and Japan. In the UK the situation looks bad too!



Lets take a look at just how much of a surplus the Chinese and Japanese have managed to build up over the past few years.



This looks odd. but it looks like Japan is broke too! What about China? Surely they must be in the black!


No. They don’t look to be doing too well at all. This is not what we were told. What about all those exports? So what about the world as whole? Surely that must net to zero. The creditors and the debtors must be equal.



No, it obviously doesn’t. So just what’s going on? All the wonder economies are in debt too. Germany is in debt ($3 trillion) Singapore is in debt ($400 billion) Do we owe all this money to the extra-terrestrials?

If I am ever proved wrong about that, they will not be at all interested by the digits in our computers , or the printed pieces of paper we call money. It will the resources of our planet which might interest them and I would expect they, unlike many of us Earthlings, would be smart enough to appreciate the difference between money and resources.

They should also be smart enough to know that all money is created by crediting and debiting accounts, and that money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable), it is just as true to say that the world owns over 57 trillion in financial assets, expressed in USD, as it is to say that the world owes 57 trillion in financial liabilities.

If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter. (Acknowledgements to Mike Norman).

Do politicians not understand all this themselves? Don’t they understand that all governments have to be in debt? That would be stupidity. Or do they understand all this very well but just like to scare us all with these huge numbers? Do they deliberately lie to the very people who pay their salaries? At least under their own understanding of economics they do That would be criminality! Which is worse?

To understand why this is the case, that debts are just another way of expressing assets, we need to start right at the beginning and take a look at what money is and why it has a value.

Keep in mind this $57tr is obviously just govt debt. In the US we are at or near record levels of corporate debt, student debt is at record levels, consumer debt is way up. Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions. Utter madness.

Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions.

Derivatives aren't debt.

True, just exposure to liabilities.

Or exposure to assets.

Time will tell. It begs the question though, with the 5 largest US banks facing potential liabilities of over $220tr and assets under $10tr, what could go wrong?

 

[Toddsterpatriot]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?
The world owes $57 trillion. Who the F*** to? Mars? Jupiter? #2

Keep in mind this $57tr is obviously just govt debt. In the US we are at or near record levels of corporate debt, student debt is at record levels, consumer debt is way up. Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions. Utter madness.

Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions.

Derivatives aren't debt.

True, just exposure to liabilities.

Or exposure to assets.

Time will tell. It begs the question though, with the 5 largest US banks facing potential liabilities of over $220tr and assets under $10tr, what could go wrong?

the 5 largest US banks facing potential liabilities of over $220tr

Except they aren't facing that. Potential or otherwise.

 

[baileyn45]

Keep in mind this $57tr is obviously just govt debt. In the US we are at or near record levels of corporate debt, student debt is at record levels, consumer debt is way up. Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions. Utter madness.

Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions.

Derivatives aren't debt.

True, just exposure to liabilities.

Or exposure to assets.

Time will tell. It begs the question though, with the 5 largest US banks facing potential liabilities of over $220tr and assets under $10tr, what could go wrong?

the 5 largest US banks facing potential liabilities of over $220tr

Except they aren't facing that. Potential or otherwise.

TOTAL Derivatives Exposure for Top 5 Banks in the U.S.: $290 TRILLION « InvestmentWatch

It seems many disagree.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

(chart 3/4 way down document)

 

[Toddsterpatriot]

Then of course you can get into derivatives exposure at big banks, now you're talking hundreds of trillions.

Derivatives aren't debt.

True, just exposure to liabilities.

Or exposure to assets.

Time will tell. It begs the question though, with the 5 largest US banks facing potential liabilities of over $220tr and assets under $10tr, what could go wrong?

the 5 largest US banks facing potential liabilities of over $220tr

Except they aren't facing that. Potential or otherwise.

TOTAL Derivatives Exposure for Top 5 Banks in the U.S.: $290 TRILLION « InvestmentWatch

It seems many disagree.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

(chart 3/4 way down document)

Thanks for the link.
I love when silly sources, like IWB, provide a source that disproves their own claim.

NCCE is the primary metric used by the OCC to evaluate credit risk in bank derivatives activities. NCCE for insured U.S. commercial banks and saving associations decreased 2% ($7 billion) to $298 billion in the fourth quarter, the lowest level since the fourth quarter of 2007. The very small change in NCCE resulted from a similarly small change in GPFV. NCCE peaked at $800 billion at the end of 2008, during the financial crisis, when interest rates had plunged and credit spreads were very high. Although market interest rates are now lower than back in 2008, NCCE is well below the $800 billion peak in 2008. The difference between very low current market swap rates and prevailing swap rates in dealers’ interest rate books, which creates credit exposure, has narrowed due to the extended period of low interest rates and the substantial growth in notional derivatives that has occurred during this low-rate period. The yield on the 10-year Treasury note, although up sharply in 2013, has generally been below 3% since the fourth quarter of 2008, at the peak of the financial crisis. Unlike 2008, credit spreads are now very low and the contribution to GPFV from credit contracts has fallen sharply. At December 31, 2013, exposure from credit contracts of $186 billion is $914 billion lower (83%) than $1.1 trillion at December 31, 2008.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

 

[baileyn45]

True, just exposure to liabilities.

Or exposure to assets.

Time will tell. It begs the question though, with the 5 largest US banks facing potential liabilities of over $220tr and assets under $10tr, what could go wrong?

the 5 largest US banks facing potential liabilities of over $220tr

Except they aren't facing that. Potential or otherwise.

TOTAL Derivatives Exposure for Top 5 Banks in the U.S.: $290 TRILLION « InvestmentWatch

It seems many disagree.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

(chart 3/4 way down document)

Thanks for the link.
I love when silly sources, like IWB, provide a source that disproves their own claim.

NCCE is the primary metric used by the OCC to evaluate credit risk in bank derivatives activities. NCCE for insured U.S. commercial banks and saving associations decreased 2% ($7 billion) to $298 billion in the fourth quarter, the lowest level since the fourth quarter of 2007. The very small change in NCCE resulted from a similarly small change in GPFV. NCCE peaked at $800 billion at the end of 2008, during the financial crisis, when interest rates had plunged and credit spreads were very high. Although market interest rates are now lower than back in 2008, NCCE is well below the $800 billion peak in 2008. The difference between very low current market swap rates and prevailing swap rates in dealers’ interest rate books, which creates credit exposure, has narrowed due to the extended period of low interest rates and the substantial growth in notional derivatives that has occurred during this low-rate period. The yield on the 10-year Treasury note, although up sharply in 2013, has generally been below 3% since the fourth quarter of 2008, at the peak of the financial crisis. Unlike 2008, credit spreads are now very low and the contribution to GPFV from credit contracts has fallen sharply. At December 31, 2013, exposure from credit contracts of $186 billion is $914 billion lower (83%) than $1.1 trillion at December 31, 2008.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

Again, many disagree.

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb? | Zero Hedge

At this point the economist PhD readers will scream: "this is total BS - after all you have bilateral netting which eliminates net bank exposure almost entirely." True: that is precisely what the OCC will say too. As the chart below shows, according to the chief regulator of the derivative space in Q2 netting benefits amounted to an almost record 90.8% of gross exposure, so while seemingly massive, those XXX trillion numbers are really quite, quite small... Right?

...Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

 

[Freewill]

A nice blog post regarding the "world debt." The question is, who the fuck do we owe the debt to? Aliens?
The world owes $57 trillion. Who the F*** to? Mars? Jupiter? #2

The take-home message everyone is given is that the world is in deep financial trouble and that if we don’t knuckle down and fix the debt problem, the debt problem will fix us. It seems we are due to fall over the edge of that fiscal cliff in the very near future if we don’t get our act together.

Certainly the world does face future problems of resource depletion and possible climate change. But these are quite different from the problems we see regularly reported in the mainstream press. In America, the concern is that their National Debt is now over $17 trillion.

There is story after story in the US media about how this isn’t sustainable. How its just not realistic to keep borrowing from China and Japan. In the UK the situation looks bad too!



Lets take a look at just how much of a surplus the Chinese and Japanese have managed to build up over the past few years.



This looks odd. but it looks like Japan is broke too! What about China? Surely they must be in the black!


No. They don’t look to be doing too well at all. This is not what we were told. What about all those exports? So what about the world as whole? Surely that must net to zero. The creditors and the debtors must be equal.



No, it obviously doesn’t. So just what’s going on? All the wonder economies are in debt too. Germany is in debt ($3 trillion) Singapore is in debt ($400 billion) Do we owe all this money to the extra-terrestrials?

If I am ever proved wrong about that, they will not be at all interested by the digits in our computers , or the printed pieces of paper we call money. It will the resources of our planet which might interest them and I would expect they, unlike many of us Earthlings, would be smart enough to appreciate the difference between money and resources.

They should also be smart enough to know that all money is created by crediting and debiting accounts, and that money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable), it is just as true to say that the world owns over 57 trillion in financial assets, expressed in USD, as it is to say that the world owes 57 trillion in financial liabilities.

If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter. (Acknowledgements to Mike Norman).

Do politicians not understand all this themselves? Don’t they understand that all governments have to be in debt? That would be stupidity. Or do they understand all this very well but just like to scare us all with these huge numbers? Do they deliberately lie to the very people who pay their salaries? At least under their own understanding of economics they do That would be criminality! Which is worse?

To understand why this is the case, that debts are just another way of expressing assets, we need to start right at the beginning and take a look at what money is and why it has a value.

One place were the US incurs debt automatically, more or less, is Social Security. First, every dollar collected by the SS is invested in Treasury securities, there is no other vehicle for the funds to be invested. So that money cost interest. Then the government spends all that money so that becomes debt, debt plus interest adds up even though it looks like they are not borrowing that money. Some day that cycle needs broken or will be broken. Bush tried but the democrats would have none of it. They are short sighted and not really very bright.

Mrs Clinton's and Sanders answer, take more money in the form of increased SS tax. It is a Ponzi scheme the way it is run but it doesn't have to be.

 

[Toddsterpatriot]

Or exposure to assets.

Time will tell. It begs the question though, with the 5 largest US banks facing potential liabilities of over $220tr and assets under $10tr, what could go wrong?

the 5 largest US banks facing potential liabilities of over $220tr

Except they aren't facing that. Potential or otherwise.

TOTAL Derivatives Exposure for Top 5 Banks in the U.S.: $290 TRILLION « InvestmentWatch

It seems many disagree.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

(chart 3/4 way down document)

Thanks for the link.
I love when silly sources, like IWB, provide a source that disproves their own claim.

NCCE is the primary metric used by the OCC to evaluate credit risk in bank derivatives activities. NCCE for insured U.S. commercial banks and saving associations decreased 2% ($7 billion) to $298 billion in the fourth quarter, the lowest level since the fourth quarter of 2007. The very small change in NCCE resulted from a similarly small change in GPFV. NCCE peaked at $800 billion at the end of 2008, during the financial crisis, when interest rates had plunged and credit spreads were very high. Although market interest rates are now lower than back in 2008, NCCE is well below the $800 billion peak in 2008. The difference between very low current market swap rates and prevailing swap rates in dealers’ interest rate books, which creates credit exposure, has narrowed due to the extended period of low interest rates and the substantial growth in notional derivatives that has occurred during this low-rate period. The yield on the 10-year Treasury note, although up sharply in 2013, has generally been below 3% since the fourth quarter of 2008, at the peak of the financial crisis. Unlike 2008, credit spreads are now very low and the contribution to GPFV from credit contracts has fallen sharply. At December 31, 2013, exposure from credit contracts of $186 billion is $914 billion lower (83%) than $1.1 trillion at December 31, 2008.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

Again, many disagree.

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb? | Zero Hedge

At this point the economist PhD readers will scream: "this is total BS - after all you have bilateral netting which eliminates net bank exposure almost entirely." True: that is precisely what the OCC will say too. As the chart below shows, according to the chief regulator of the derivative space in Q2 netting benefits amounted to an almost record 90.8% of gross exposure, so while seemingly massive, those XXX trillion numbers are really quite, quite small... Right?

...Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

Again, many disagree.

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure

Yes, many idiots are bad at math.

The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank

That's not what bilateral netting is based on.

The best example of how the flaw behind bilateral netting almost destroyed the system is AIG:

How was AIG involved in bilateral netting?

 

[baileyn45]

Time will tell. It begs the question though, with the 5 largest US banks facing potential liabilities of over $220tr and assets under $10tr, what could go wrong?

the 5 largest US banks facing potential liabilities of over $220tr

Except they aren't facing that. Potential or otherwise.

TOTAL Derivatives Exposure for Top 5 Banks in the U.S.: $290 TRILLION « InvestmentWatch

It seems many disagree.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

(chart 3/4 way down document)

Thanks for the link.
I love when silly sources, like IWB, provide a source that disproves their own claim.

NCCE is the primary metric used by the OCC to evaluate credit risk in bank derivatives activities. NCCE for insured U.S. commercial banks and saving associations decreased 2% ($7 billion) to $298 billion in the fourth quarter, the lowest level since the fourth quarter of 2007. The very small change in NCCE resulted from a similarly small change in GPFV. NCCE peaked at $800 billion at the end of 2008, during the financial crisis, when interest rates had plunged and credit spreads were very high. Although market interest rates are now lower than back in 2008, NCCE is well below the $800 billion peak in 2008. The difference between very low current market swap rates and prevailing swap rates in dealers’ interest rate books, which creates credit exposure, has narrowed due to the extended period of low interest rates and the substantial growth in notional derivatives that has occurred during this low-rate period. The yield on the 10-year Treasury note, although up sharply in 2013, has generally been below 3% since the fourth quarter of 2008, at the peak of the financial crisis. Unlike 2008, credit spreads are now very low and the contribution to GPFV from credit contracts has fallen sharply. At December 31, 2013, exposure from credit contracts of $186 billion is $914 billion lower (83%) than $1.1 trillion at December 31, 2008.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

Again, many disagree.

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb? | Zero Hedge

At this point the economist PhD readers will scream: "this is total BS - after all you have bilateral netting which eliminates net bank exposure almost entirely." True: that is precisely what the OCC will say too. As the chart below shows, according to the chief regulator of the derivative space in Q2 netting benefits amounted to an almost record 90.8% of gross exposure, so while seemingly massive, those XXX trillion numbers are really quite, quite small... Right?

...Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

Again, many disagree.

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure

Yes, many idiots are bad at math.

The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank

That's not what bilateral netting is based on.

The best example of how the flaw behind bilateral netting almost destroyed the system is AIG:

How was AIG involved in bilateral netting?

From what I read I don't think they were saying it was. Those that had bought protection from them were, making AIG the weak link.. If they couldn't honor their obligations to others, the dominos could start to fall. At least that's how I read it.

 

[Wildman]

astrologically speaking, Jupiter is my ruling planet.., so i'll take it and pass it on to Jupiter nest time i do a fly by.

 

[Toddsterpatriot]

the 5 largest US banks facing potential liabilities of over $220tr

Except they aren't facing that. Potential or otherwise.

TOTAL Derivatives Exposure for Top 5 Banks in the U.S.: $290 TRILLION « InvestmentWatch

It seems many disagree.

OCC: Home Page

(chart 3/4 way down document)

Thanks for the link.
I love when silly sources, like IWB, provide a source that disproves their own claim.

NCCE is the primary metric used by the OCC to evaluate credit risk in bank derivatives activities. NCCE for insured U.S. commercial banks and saving associations decreased 2% ($7 billion) to $298 billion in the fourth quarter, the lowest level since the fourth quarter of 2007. The very small change in NCCE resulted from a similarly small change in GPFV. NCCE peaked at $800 billion at the end of 2008, during the financial crisis, when interest rates had plunged and credit spreads were very high. Although market interest rates are now lower than back in 2008, NCCE is well below the $800 billion peak in 2008. The difference between very low current market swap rates and prevailing swap rates in dealers’ interest rate books, which creates credit exposure, has narrowed due to the extended period of low interest rates and the substantial growth in notional derivatives that has occurred during this low-rate period. The yield on the 10-year Treasury note, although up sharply in 2013, has generally been below 3% since the fourth quarter of 2008, at the peak of the financial crisis. Unlike 2008, credit spreads are now very low and the contribution to GPFV from credit contracts has fallen sharply. At December 31, 2013, exposure from credit contracts of $186 billion is $914 billion lower (83%) than $1.1 trillion at December 31, 2008.

OCC: Home Page

Again, many disagree.

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb? | Zero Hedge

At this point the economist PhD readers will scream: "this is total BS - after all you have bilateral netting which eliminates net bank exposure almost entirely." True: that is precisely what the OCC will say too. As the chart below shows, according to the chief regulator of the derivative space in Q2 netting benefits amounted to an almost record 90.8% of gross exposure, so while seemingly massive, those XXX trillion numbers are really quite, quite small... Right?

...Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

Again, many disagree.

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure

Yes, many idiots are bad at math.

The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank

That's not what bilateral netting is based on.

The best example of how the flaw behind bilateral netting almost destroyed the system is AIG:

How was AIG involved in bilateral netting?

From what I read I don't think they were saying it was. Those that had bought protection from them were, making AIG the weak link.. If they couldn't honor their obligations to others, the dominos could start to fall. At least that's how I read it.

Those that had bought protection from them were, making AIG the weak link..

Yes, AIG was a weak link.

From what I read I don't think they were saying it was.

They said it, in the part you posted.

The best example of how the flaw behind bilateral netting almost destroyed the system is AIG:

And AIG had nothing to do with bilateral netting. Yet another example of ZeroHedge being a useless source.