Tuesday, March 24, 2009


This is an excellent rendering of what has happened in the economy:

The central banks hold $845 billion in gold. But of course, currency is no longer pegged to gold.
The money supply = $3.9 trillion = notes + coins + reserves.
$39 trillion was borrowed against it, using the "fractional reserve" system that is built on the premise that everybody won't want their money at once.
Derivatives got around the limits on how much could be borrowed, to the tune of $62 trillion.
Easy money created a huge asset bubble of $290 trillion, where the price of assets greatly exceeded any measure of the world's wealth.

It was all happy time as long as people bought in to the idea that the economy would keep growing and growing -- an irrational idea but people were making money by pretending that it could be true. Eventually, of course, the Ponzi scheme collapses like a house of cards and many get screwed.

1 comment:

Tom said...

So Obama spent more money in one stimulus than the entire reserve of our nation's gold.

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