How Many Grasping Hands Want Your Dollar?

This post inspired by: There Are Five Times More Claims On Dollars As Dollars In Existence by , published on Zero Hedge.

If you see this headline somewhere, and you may spend a lifetime looking to find it anywhere else, please know that it refers only to US dollars.  This means that every US dollar that you come across anywhere, in a wallet, on a screen, in a newspaper article, caught on a tree, in your bank statement, then there are five different hands holding on to it with the same mistaken thought as you ie. that it is their very own dollar.  How will that end up I wonder?

But, get this.  I recently calculated and wrote up on Facebook the fact that in terms of worldwide available money, then for each single dollar’s value there are actually 40 different hands grasping and claiming ownership of that dollar. That is a problem of entirely different dimensions.

The post was based on the huge stock market losses almost a month ago now on September 8, and I repeat it here:

So, the global markets have lost 12.8 trillion dollars in around 2 months. Big deal?  Well, yes, it is a big deal, even though it is not real money.  Our whole society is built on debt.  Over $200 trillion of it ($199Tr Q2 2014; 5.3% compound growth; Debt and (not much) deleveraging).

So, $12.8Tr is just a smidgen of total debt.  But some part of our global society must be missing that loss; it is after all not a small insignificant sum.  The loss will no doubt be felt as a drag in global growth in a society that is already slowly grinding to a messy halt.   And a society that ought to be rapidly deleveraging to go way beyond economic stagnation into the world of reverse or negative growth.

Looked at another way, $12.8Tr represents more than double the amount of real money floating around the world, which is given at between $5Tr and $6Tr (I am talking about cold, hard cash here not what you think you have in the bank or in other assets; How Much Money Is There on Earth?).  

So, when it all turns to excrement, and people stick their hands out to the banks for what their bank account tells them they are owed, they had better do it quickly, because for every dollar you think is rightfully yours, there are more than 40 other people (200+ divided by 5) who think they own the same dollar …and that is not taking into account the one half of one percent of us who are said to own more than half of everything.   It will be a real bun fight, no doubt.  It is also not taking into account that a fair proportion of the $5+ trillion available money (real dollars) will already have been socked away by astute persons in preparation for such an event.

Hint: you need to stash some away before it happens. Not that it will be worth anything after a short while …and not that there will be anything much to buy with it for more than a few days.

I am sure that if you were to search diligently you may find slightly different values for global money and debt levels, but not by much, and whatever the real, actual figures are, the picture must remain roughly the same.  When push comes to shove, once again, I wonder how that will play out?

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What’s Your Money Worth?

Let’s just see if we can work out how much the money in your bank account, if you have one, or a $5 note in your pocket, is worth.

Suppose that you take your $5 note from your pocket to the bank and tell them to look after it for you.  What would they do with it?  Where would they put it?

Well, the next ten people who came into the bank asking for a loan would get it.  Each of them would get $5.  Of course it wouldn’t be your $5 note.  How could it be?  That note would be handed over to some shop or something like that to be given to some other person as change for goods or services, from where it would go back to the bank.  A sort of money-go-round.Australian Money

Let’s get back to the ten folk who borrowed $5 from the bank.  Each of them thinks they have $5 in their bank account. If they look at their computer screen they can actually see it in there, or more precisely, numbers that represent it.  They can actually test that they have that money by using it to buy something and can see that the $5 was taken from their account and given to the person who they purchased from.  Or they could invest that $5 and watch it grow.  Isn’t that how the world works?

Let’s say there comes a time when you want your original $5 note back.  Let’s also assume that all ten people who were lent $5 on the basis of your $5 deposit also wanted their $5 in cash at the same time. Times were getting somewhat difficult and everyone needed a little extra to keep going.  Let’s also suppose that everyone in the world who had deposited money into a bank or who was owed money by people who had borrowed from them also wanted their money back.  What would happen?

In short, chaos.  The whole monetary system is based on debt.  The bank takes on debt when they take your $5.  People, organisations, companies and governments take on debt when they borrow for some purpose.  All debt is payable back to the lender.  This is ok as long as the debt keeps growing because it is the same money, your $5 note and everyone else’s $5 notes, that is going round and round all the time, replaced as numbers on computers and statements.

How much debt is there in the world?  I had a look today.  It is just over $50 trillion.

How much actual money (notes/coins) is there in the world?  I had a look at that too.  This seems to be something that there is generally much confusion about.  This is likely to be a deliberate ploy, all tied up with the definition of money.  But I found an answer.  It is something like $5 Trillion combining all world currencies.  It was said to be $4.5 Trillion in 2009 so I have adjusted it up a bit for today.  Now, there are other estimates which include things like short term deposits, travel cheques etc.  Including these in the definition of money would bring the amount up to between $7 – 10 Trillion, but it is cold hard cash that we would want to be paid in, right?

Now, you see how nicely that fits in with the ten people who got your $5 from the bank?  $5 Trillion becomes $50 Trillion.  Magic, or illusion?

So, how much is your money worth?  I know this is a simplistic view and in the real world it would be much worse a picture but if everyone who is owed money from anywhere were to be repaid at one time, they would each get ten cents in the dollar.  It couldn’t  possibly be any more, unless you were one of the fortunate ones who got in first before the banks realised there was going to be a ‘run’ on.  Your $5 would now be worth $0.50 (50 cents).

Your home would be worth nothing.  You wouldn’t own it anyway as the bank would have taken it to help them repay all the institutions they had borrowed from.  Same for your car, boat, anything bought on credit.

One question occurs to me:  How long do you think this money roundabout can go on for?

Answer: Can’t say.  But it will soon all come crashing down in a big heap.

Two questions then:  And doesn’t it strike you as being somehow fraudulent?

Answer: No comment.

Added Some Time Later

I’m afraid that there are discrepancies in the above information that I was not aware of at the time it was published.  My apologies.

The World Debt Clock article that I linked to as a source of world debt I now realise covers only public (government) debt.  If we add private debt on top of this the picture is much much far far (can’t come up with an appropriate word) worse than I originally painted it to be.

I haven’t been able to find a total world debt level but the total (public & private) debt of the US alone is something like $54.5 Trillion.  That is more than the world public debt put together.  Yet the US is not by any means the most indebted nation in the world in %GDP terms.

Two points emerge:

  1. Do not take everything that you read on the internet as correct until you have checked out the facts for yourself.
  2. My inadvertent error made the picture look better than it actually is.  Sorry.