Saturday March 25 2017

In many discussions on the internet, when I point out that world capital is close to $1 quadrillion and thus the idea that "there is no money left" to fund government social spending displays blinkered short-sightedness, I am often presented with the argument that the money in the financial sector should not be considered real money that has an effect on the "real" economy.

However, the financial sector doesn't play with monopoly money, as this rejoinder implies; the world financial sector uses what they think of as real dollars. When they make trades and sell financial products that they cooked up in a spreadsheet, they know they can take the money they make to the bank.

Thus the argument that the financial sector does not affect the real economy is wrong because the traders in the financial sector are people with bank accounts that become filled with the money that the financial sector creates out of IOUs circulating as money. (The financial sector has created ten times the dollar volume of world GDP: a world GDP of around $80 trillion has been supplemented by financial instruments numbering $800 or more trillion.) The dollar credits conjured up by keystrokes are ultimately accepted by the Fed at par with Fed dollars.

Source for world GDP: 
       https://en.wikipedia.org/wiki/Gross_world_product
Sources for world capital total: 
  "A World Awash in Money", Bain & Company:
       http://www.bain.com/publications/articles/a-world-awash-in-money.aspx
  2016 BIS Triennial Central Bank Survey, OTC Derivatives:
       https://www.bis.org/publ/otc_hy1612/triensurvstatannex.pdf