Economics of Planet Earth for dummies

This is the whole shebang of how much money, wealth, assets, and therefore power exists on Earth – life, the universe, and everything – infographicked:

Value of all the real stuff on Earth

Earth: $62 trillion is combined estimated value of world economy per year. Most of this wealth comes in the form of paper stuff – investments – rather than in tangible stuff – like raw materials, houses, cars, etc.

I heard that the combined value of real and paper assets is $55 trillion (on top of this GDP), but nobody really throws around hard numbers. And all those assets have no fixed value under capitalism. It depends on how much somebody else is willing to pay for them.

US economy: $14.6 trillion (about a quarter of the world’s assets)

Virtual Assets on Earth

$100 trillion = world insurance policies (CDOs, derivatives, credit default swaps, etc) on those assets. Two Earths are shown because the second one exists on paper in the form of promises and obligations that might have to paid out in the future.

When Real and Virtual Earths meet: Financial Chaos

If, let’s say, some region of the world became financially unstable and people started calling in bets, loans, and insurance claims on those assets, what happens?

  1. Institutions start creating wealth out of thin air in order to balance what is impossible to balance. Today we learned that the US Government secretly loaned $7.7 trillion dollars to US banks at the “discount window” in 2010-2011 which it never had.
  2. The real value of stuff becomes unpredictable. Generally the value of real stuff owned by people who owe money to others will fall dramatically, as there is suddenly a huge supply of real stuff that needs to be converted into money, and very few buyers willing to trade their money for “illiquid” assets. Those without debt are suddenly rich and powerful, as whatever money they have has huge buying power from those who owe. (Hello China, Saudi Arabia, Dubai…)

Well, we can scratch #1 off our checklist, because it just happened…

$7.7 trillion added in fake wealth in 2010

Oil

Oil runs the global economy. So it’s worth pointing out that by the time we recover from this crisis brought on by the Greedanistas who wrecked the world’s economy to make money for themselves, we have an even bigger problem to deal with.

~1,300,000,000,000 (1.3 trillion) barrels of oil left (2010)

~37,000,000,000 (0.037 trillion) barrels of oil get consumed in a year (2010)

divide supply by demand and you get 36 years of oil left, assuming population and consumption remained stable, which of course they are not.

Most estimates place peak oil at 2016. Meaning that global supply will decrease every year after that, while global demand increases. On a positive side note, there probably isn’t enough oil on the planet to irreversibly destroy the atmosphere with pollution (maybe rising 5 degrees?), but it will require moving about 20% of the world’s people away from coasts (a billion or two).

What we can do for fix these problems:

  • Vote. Become politically aware. Recognize the problems as real and inevitable and elect leaders who also realize that we must act to minimize the fallout. If both candidates are wrong, vote for a third candidate. Politicians have a way of listening after the lose elections.
  • Invest in new technologies that replace the need for oil. (Either we get busy doing it today, or we can get busy doing it after the global economy grinds to a halt – it’s our choice.)
  • Support institutions that act like democracy but are not lobbyist-friendly. Not all of these programs require a dysfunctional government to fix. Investing in new technology could be done by citizen investors. Changing consumption behavior is a social problem as well.
  • Disincentivize: Support higher oil prices! Either we artificially penalize those who are using fuels now, or lack of supply with raise them for us in another 5 years.
  • Pray: It helps. Never been proven to hurt, so long as we also act to solve the problems while we do it.

Disclaimer:

Many of these numbers are estimates, but none of them are an order of magnitude off the mark. If I say we have 36 years of fuel left, you can be sure we have between 20 and 60 years. If you don’t like my numbers, get your own and post them below.

Postscript:

That $7.7 trillion was an underestimate. Huffington Post reports that a 2012 audit of the Federal Reserve puts the amount closer to $16 trillion. That’s two moons! Ron Paul and Dennis Kucinich pushed for the audit, making them look a little less crazy in a world that creates fake wealth in order to maintain economic stability. From that report:

As a result of this audit, here is a list of institutions that received the most money from the Federal Reserve:

  • Citigroup: $2.5 trillion ($2,500,000,000,000)
  • Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
  • Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
  • Bank of America: $1.344 trillion ($1,344,000,000,000)
  • Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
  • Bear Sterns: $853 billion ($853,000,000,000)
  • Goldman Sachs: $814 billion ($814,000,000,000)
  • Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
  • JP Morgan Chase: $391 billion ($391,000,000,000)
  • Deutsche Bank (Germany): $354 billion ($354,000,000,000)
  • UBS (Switzerland): $287 billion ($287,000,000,000)
  • Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
  • Lehman Brothers: $183 billion ($183,000,000,000)
  • Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
  • BNP Paribas (France): $175 billion ($175,000,000,000)

So what does a report of this significance get titled by the GAO?

GAO Federal Reserve System- Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance 266pp 321506

Download your own copy.

In case you are lazy, here is a wordtree of the 266 page report:

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3 thoughts on “Economics of Planet Earth for dummies

  1. Thanks James! The lead in of your ‘fake’ story has an excellent summary of the global financial situation:

    “China owns $1.1 trillion of U.S. debt and Japan owns another $900 billion. But that is just a drop in the bucket compared to the $7.7 trillion the Fed gave the major banks and Wall Street financial firms to keep them afloat at the end of 2008.

    Previously, a figure of $700 billion was thought of as the entire bailout, but a recent Freedom of Information Act (FOIA) request revealed the true nature of the giveaway to the financial industry.”

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