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Not that long ago, politicians and economic leaders trumpeted the idea that they had prevented the worst economic collapse since the Great Depression.  In the same breath, they generally gave the impression that they had taken steps to prevent another financial collapse similar to the 2008 financial crisis.  Those steps apparently encompassed punishing banks with new regulations on their profitable risk-hedging and trading strategies, including passage and/or implementation of Dodd-Frank and Basel III.

With politics as the background, here is what the world’s biggest financial numbers look like today with a discussion of how they looked in the past.  It’s not pretty.

The Numbers

The following is a bubble plot of what is most likely the largest financial figures the world has ever seen.  A table of the figures is given a little later.

The Financial World's Biggest Values

Currency in Circulation

The smallest of the bubbles is the amount of U.S. currency in circulation, at about $1.3 trillion, followed by euro currency in circulation at around $1.5 trillion.  Globally, there is around $5 trillion of all currency in circulation. Amazingly, in 1990 there was a mere $1 trillion; in 2002, $2 trillion; now, just twelve years later, $5 trillion.

EU and U.S. Debt

Next on the list is government debt in the EU and the U.S.  Total European government debt stands at around $15.7 trillion, while total U.S. federal government debt stands at around $17.6 trillion.  If you add in state and local government debt, the total U.S. government debt balloons another $5 billion or so.

The expansion of western governments’ debt has expanded astronomically in recent years, with, for instance, the size of U.S. federal government debt up an amazing $10 trillion over just the past ten years.

The Financial World's Biggest Values, Table

Offshore Accounts vs Derivatives Contracts vs Debt

At about twice as big as EU and U.S. federal government debt is the size of the offshore accounts of individuals smart enough to stash cash offshore – an astounding $32 trillion in 2013. This figure is surely low, with the 2014 estimate at around at least $35 trillion. Total offshore account values may surpass $40 trillion by the end of 2015.

Yet ahead of cash stored offshore by smart (some might say “wealthy”) individuals is that of an investment bank. The estimated value of Goldman Sachs’ derivatives contracts is about $49 trillion.
Besting the notional value of Goldman Sachs’ derivatives by about $11 trillion is the sum of all corporate, government, and consumer debt in the U.S., at about $60 trillion. On top of all U.S. debt is the notional value of all JPMorgan Chase’s derivatives contracts, estimated at about $70 trillion.

Worldwide GDP and Global Debt

Slightly ahead of JPMorgan Chase’s massive derivatives business is worldwide GDP, estimated to end 2014 at $75 trillion. It would not be surprising if JPMorgan Chase’s derivatives business surpasses total measured global GDP in 2015, if not sooner (in fact, it would be surprising if it didn’t).

At about $100 trillion is total government debt across the globe, up an astounding $30 trillion since the 2008 financial crisis. Dwarfing government debt is the sum of all consumer, business, and government debt at $225 trillion. The massive accumulation of debt began in the 80s, and is still growing at an exponential rate.

Derivatives – U.S. Top 25 and Global

Just ahead of all worldwide debt is the top 25 US banks’ exposure to derivatives at about $238 trillion. The master of them all is the notional value of all derivatives contracts in the world, ranging from a low of $700 trillion to as high as $1,500,000,000,000,000. Yes, that’s $1.5 quadrillion.

What Exactly Did Politicians and Government Bureaucrats “Fix”?

So, what exactly is it political and economic leaders are talking about when they say their policy moves “fixed” the world from a financial crisis? The simple answer is – who knows? Some elected officials probably think making it harder on banks to trade in commodities or limiting trading by banks with their own money somehow is making the financial system better.

Judging by the financial numbers, what it looks like happened is policymakers simply kicked the can down the road, at least when it comes to reducing the future costs of government debt.
Eventually, the rooster will come home to roost. When that day comes – i.e. the day when individuals lose trust in the highly leveraged financial system, it will not be pretty. Maybe the “just keep spending” economists will be right that the financial day of reckoning will never come. It’s an unlikely maybe, but hey, everyone can hope.


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