MY opinion is that the derivative market is closer to 1000 trillion dollars than only $600 trillion. In the US, a thousand TRILLION dollars is a Quadrillion – isn't it?. In science and computing it's peta-. But wait! If we look it up, because we wonder how many zeroes we are actually talking about, we discover that a quadrillion can be a thousand BILLION, OR a thousand TRILLION. It depends on who is talking. If you go here and look it up, you see the phrase “short scale”. That's a United States definition. “Long scale” is pretty much everyone else. Does everyone understand the distinction?
ISO: peta- (P)
- BioMed-Insects: 1,000,000,000,000,000 to 10,000,000,000,000,000 (1015 to 1016) – The estimated total number of ants on Earth alive at any one time (their biomass is approximately equal to the total biomass of the human race).
- Computing: 9,007,199,254,740,992 (253) – number until which all integer values can exactly be represented in IEEE double precision floating-point format.
- Mathematics: 48,988,659,276,962,496 is the fifth taxicab number.
- Science Fiction: In Isaac Asimov's Galactic Empire, in what we call 22,500 CE there are 25,000,000 different inhabited planets in the Galactic Empire, all inhabited by humans in Asimov's “human galaxy” scenario, each with an average population of 2,000,000,000, thus yielding a total Galactic Empire population of approximately 50,000,000,000,000,000.
- Cryptography: There are 7.205759×1016 different possible keys in the obsolete 56 bit DES symmetric cipher.
© Copyright 1999, Jim Loy
People sometimes ask me the names of the large numbers. Here is a table. The system used in the U.S. is not as logical as that used in other countries (like Great Britain, France, and Germany). In these other countries, a billion (bi meaning two) has twice as many zeros as a million, and a trillion (tri meaning three) has three times as many zeros as a million, etc. But the scientific community seems to use the American system.
|Number of zeros||U.S. & scientific community||Other countries|
|9||billion||1000 million (1 milliard)|
The next financial crisis will be hellish, and it’s on its way
by Addison Wiggin – Forbes
“There is definitely going to be another financial crisis around the corner,” says hedge fund legend Mark Mobius, “because we haven't solved any of the things that caused the previous crisis.”
We're raising our alert status for the next financial crisis. We already raised it last week after spreads on U.S. credit default swaps started blowing out. We raised it again after seeing the remarks of Mr. Mobius, chief of the $50 billion emerging markets desk at Templeton Asset Management. Speaking in Tokyo, he pointed to derivatives, the financial hairball of futures, options, and swaps in which nearly all the world's major banks are tangled up.
Estimates on the amount of derivatives out there worldwide vary. An oft-heard estimate is $600 trillion. That squares with Mobius' guess of 10 times the world's annual GDP. “Are the derivatives regulated?” asks Mobius. “No. Are you still getting growth in derivatives? Yes.”
In other words, something along the lines of securitized mortgages is lurking out there, ready to trigger another crisis as in 2007-08. What could it be? We'll offer up a good guess, one the market is discounting.
Seldom does a stock index rise so much, for so little reason, as the Dow did on the open Tuesday morning: 115 Dow points on a rumor that Greece is going to get a second bailout. Let's step back for a moment: The Greek crisis is first and foremost about the German and French banks that were foolish enough to lend money to Greece in the first place. What sort of derivative contracts tied to Greek debt are they sitting on? What worldwide mayhem would ensue if Greece didn't pay back 100 centimes on the euro?
That's a rhetorical question, since the balance sheets of European banks are even more opaque than American ones. Whatever the actual answer, it's scary enough that the European Central Bank has refused to entertain any talk about the holders of Greek sovereign debt taking a haircut, even in the form of Greece stretching out its payments.
That was the preferred solution among German leaders. But it seems the ECB is about to get its way. Greece will likely get another bailout — 30 billion euros on top of the 110 billion euro bailout it got a year ago. It will accomplish nothing. Going deeper into hock is never a good way to get out of debt. And at some point, this exercise in kicking the can has to stop. When it does, you get your next financial crisis.
And what of the derivatives sitting on the balance sheet of the Federal Reserve? Here's another factor behind our heightened state of alert. “Through quantitative easing efforts alone,” says Euro Pacific Capital's Michael Pento, “Ben Bernanke has added $1.8 trillion of longer-term GSE debt and mortgage-backed securities (MBS).”
Think about that for a moment. The Fed's entire balance sheet totaled around $800 billion before the 2008 crash, nearly all of it Treasuries. Now the Fed holds more than double that amount in mortgage derivatives alone, junk that the banks needed to clear off their own balance sheets. “As the size of the Fed's balance sheet ballooned,” continues Mr. Pento, “the dollar amount of capital held at the Fed has remained fairly constant. Today, the Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet.
“Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30-to-1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51-to-1! If the value of their portfolio were to fall by just 2%, the Fed itself would be wiped out.” Mr. Pento's and Mr. Mobius' views line up with our own, which we laid out during interviews on our trip to China this month.
90% of success is showing up. Getting the math right is the other 50%.