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Global GDP
Old 03-10-2016, 09:54 AM   #1
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Global GDP

I think it was one of the series in Zeitgeist (Netflix) that was pointing out the Global Economy, or all of the worlds monetary systems, are based on a necessity for growth through debt. That is, the sustainability of economies requires money to exchange hands, and a lot of that occurs through loans (debt creation) that in turn creates wealth from investment... but fundamentally, wealth must be supported by resources (be it stuff, or labor). Example: If I paid you $1000 to buy seeds and plant apple trees, and charged interest (5%) on the loan, you might pay me back the interest by selling apples... but at some point you may start paying back my loan through other means if your trees don't work out as expected (the debt still exists and requires repayment)... so the debt grows into a chain reaction of obligations that grows and grows, with time, when plans fail... I think the show gets a bit extreme into the conspiracy that the global economy has nowhere to go except total collapse as soon as this debt grows to a level that is unsustainable. I think it was pointing out that debt is essentially a ponzi scheme, because it takes wealth from somewhere and grows it from a source, but it requires a repayment of more than is possible to be created from the debt obligation. So it fabricates new wealth... without resources to support it. I think more likely what is to happen, is that bad debt gets washed out eventually. It'll just be more painful the larger those debts get before they require to be "washed out" as bad. It's unfortunate it's tied into the global economy (example above... if the apple trees didn't work out, then declare bankruptcy and move on... investor needs to be smarter with his $1000 next time).

What was missing from this explanation, in my opinion, is the idea that the advancement of technology creates efficiency that leads to wealth accumulation. However, the assignment of wealth is one I have trouble wrapping my head around entirely. I mean for hundreds of year I guess the global wealth was pretty consistent... and suddenly it has shot up drastically. Populations have also shot up drastically.

Take the following chart:


Global GDP (the accumulation of all the wealth in the world) is going up... exponentially due to creation of wealth and also population growth. A whole different discussion could take place about who controls that wealth... however that's more politics. There is a number that represents the worlds wealth.

All of the equity markets in the world combine to represent about $70 trillion dollars.
All of the money owned by every human on earth combined is $199 trillion dollars.
The derivatives market (debt on books) is $1,200 trillion dollars.

Interesting fact... the richest 62 people in the world have as much wealth as the bottom 3.5 billion. They all accumulate wealth through debt. That is, they invest it in businesses, people, ideas, solutions, etc... some that work, others that don't, but they expect to grow the wealth through these means.

I'm curious to hear thoughts from the economists here, if there are any, on how debt impacts wealth. On a macro level. Are derivatives sustainable? I'm sure I got much of this wrong

My biggest question, as it related to the future of the worlds wealth is... What would the impact be of a slowing global population... or even a decrease in global population. I assume that would severely, negatively, impact the derivatives market and could cause a lot of debt to go bad... or maybe there is no correlation there?
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Old 03-10-2016, 07:06 PM   #2
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It looks like the industrial revolution changed the slope, but it's been the same since.


It only makes sense to look at this data on a log chart.
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Old 03-10-2016, 10:36 PM   #3
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Wow deep subject.

Since the debts rise until unsustainable then collapse like in US mortgages, Argentina decades ago, there is no continuing buildup which would cause a world shattering collapse.

A decrease in population would I think result in very low demand and while you might think this will lead to deflation, the same smaller population means less output, so less available goods.

In essence, population determines both supply and demand, so it will remain largely balanced.

I'm proud to say I'm not an economist.
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Old 03-11-2016, 09:27 AM   #4
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Quote:
Originally Posted by sengsational View Post
It looks like the industrial revolution changed the slope, but it's been the same since.

It only makes sense to look at this data on a log chart.
Excellent, you're absolutely right.

Quote:
Originally Posted by Sunset View Post
Wow deep subject.

Since the debts rise until unsustainable then collapse like in US mortgages, Argentina decades ago, there is no continuing buildup which would cause a world shattering collapse.

A decrease in population would I think result in very low demand and while you might think this will lead to deflation, the same smaller population means less output, so less available goods.

In essence, population determines both supply and demand, so it will remain largely balanced.

I'm proud to say I'm not an economist.
You're right... supply/demand (also production) is dictated by world population, which has always been rising since we've been recording this kind of data. Would be interesting to see how the plague affected these numbers if it could go back a few extra decades.

There is a peak population our world can sustain. The real question I'm pondering with this topic is "have our 21st century minds gotten into a mode of thinking that constant growth is a force of nature?" because I assume it is not. How would our economies work if production, population and growth all met their equilibrium. I think that kind of economy is sustainable, but not in the way we have organized our own through debt and the markets.

I suppose one could argue there is no limit to how technology can improve our lives (economies) by taking over all of the labor, development and work, removing the human productivity and life span limitation. Thus, producing more wealth for everyone to benefit from. However, that kind of system doesn't fit with our current economy either. Money really won't have a place in that future (when essentially everything is available for everyone)... and it'll be interesting to see how our societies adjust to that. Humans still would have a desire for control and power. How that transitions away from wealth will be interesting.

Abstract ideas of a possible outcome a few centuries from now (assuming humanity doesn't destroy itself in the process)... would be fascinating to somehow peak into that future and imagine how we got from now to then.
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Old 03-11-2016, 02:49 PM   #5
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Quote:
Originally Posted by EvrClrx311 View Post
I'm curious to hear thoughts from the economists here, if there are any, on how debt impacts wealth. On a macro level. Are derivatives sustainable? I'm sure I got much of this wrong
Debt doesn't impact wealth - at least not directly. It's basically a zero sum from a global perspective. One person's liability is another person's asset. It's only when someone does something valuable with that borrowed money that wealth is created. If they end up doing something wasteful, then value is destroyed.

And the same is true with derivatives. You've included what I assume is the notional value for all the derivative contracts outstanding. But for each contract there is a buyer and a seller and when combined both of their positions net out to zero.

So I'd probably want to revisit the original premise of your comment that somehow the world's wealth is fabricated by debt and ask a simple question . . . how?
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