[OPE-L] The growing global market for derivatives and swaps

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Mon Oct 09 2006 - 11:59:50 EDT

Thanks Jerry for the reference and I do want to read that book, though it is
expensive (libraries don't have it here). I'll try to avoid clogging the
list with unsuitable material and exercise better judgement, I just thought
Gandall's observations were interesting. I haven't been in contact with
Paolo Giussani for ages, wonder what he is doing these days... It's
certainly a long way from Das Kapital to the mindboggling, astronomic
financial transactions we can see happening these days.

Putting it in plain language, I think a paradox in the world economy these
days is that there is supposedly a "savings glut", yet also, a massive and
growing amount of indebtedness. So you have growing savings, and growing
debts, at the same time.

Whatever else you might say about it, surely this is a massive misallocation
of capital, for which economists ought to be able to give an explanation.
Like, who are the real beneficiaries and losers from all this?

And I think it's obvious that you can do that only by looking at who has the
debt, and who has the savings, and what forms they take. It stands to reason
that the people who own all those savings cannot be the same ones that incur
all the debts, though there would be a considerable overlap, insofar as the
more capital you own, the more you can borrow (ordinary people cannot incur
that much debt, simply because they lack the capital collateral for it).

But typically, in official discourse, they don't do that; the two issues are
disconnected from each other - either they're talking about debt levels, or
they are talking about a "savings glut". There is no connection between the
two, or else it is a mystery.

In a conventional economics textbook story, revenues can be spent or saved.
If they are spent, they are consumed, or if they are saved, they are
invested (well, unless they are hoarded). Basic accounting idea. A lot of
economic controversy then focuses on the economic question of how much to
spend, and how much to save, in any given situation, indeed some argue that
is precisely what economics is all about.

But in reality it doesn't seem to work like that at all, anymore...


This archive was generated by hypermail 2.1.5 : Tue Oct 31 2006 - 00:00:03 EST