For months, I've been trying to get my head around the enormity of the global derivatives market -- a vast and imaginary pool of speculative money that has ballooned to gargantuan proportions in recent years. Some think the bursting bubble may be catastrophic. Every time I get close to understanding derivatives, the (mostly) Sex Pistol's song, The Great Rock 'n Roll Swindle, pops into my head.
John Robb at Global Guerrillas uses a couple of simple graphics to provide some perspective on a growing supposition that the worst may be yet to come as the world undergoes a bit of a financial reset.
Robb's first graphic simply shows the frightening lack of equilibrium between the U.S. economy, the global economy and the global derivatives market. Essentially, the derivatives market is roughly $450 trillion -- in contrast to our $10 trillion U.S. economy.
Then he speaks a bit about debt solvency, suggesting that we're about $20
million trillion north of that equation. It's a rebalancing that only happens through write-offs, a long period of economic depression, or extremely abrupt and significant changes in behavior. Or some painful blend of the three.