I read a news item this morning that reported the world lost something like 30 trillion dollars in “wealth” last year. And there was a report yesterday that several billionaires had suffered heavy losses. Some were reduced to mere millionaires. I was almost sorry for them. Almost.
It’s hard for me to conceive of 30 trillion dollars. And it is even harder for me to understand how that much money could “evaporate” – as the news story reported. Let’s try to bring this concept down to earth. As I understand it, the world is home to about six billion people. So 30 trillion dollars would represent $5,000 for every man woman and child (if my math can be trusted the morning after New Year’s Eve).
Now, I can safely say that millions of people do not have $5,000, maybe not even $1,000. So how could they lose what they never had? But you might say somebody must have had all that money, or how could it have been lost?
How was the “wealth” stored? Not in dollar bills, surely. There isn’t anything near that much money in circulation. And not in gold. I understand that the total amount of gold in the world is less than 150,000 tons, which doesn’t amount to a whole lot. You could dump it all on a football field and you probably wouldn’t even be knee deep in the yellow stuff. The total value of all the gold ever mined in the world is about $3.4 trillion. And none of it has “evaporated.” That means the “wealth” the world lost last year was not in gold. And it was not in silver or jewels, either (assuming that gold, silver and jewels have intrinsic value, which I would personally dispute).
My belief is that the 30 trillion dollars never existed in the first place. You see, the “wealth” that was lost was nothing more than numbers on a spreadsheet. The figures represented estimates of the value of an asset at some given time, and it turns out the estimates were wrong.
I am not going to try and explain all the crazy kinds of “wealth” that have been created out of thin air. You’ve heard some of them called “derivatives” and others called “futures,” and so on. But they are nothing more substantial than poker chips. If the casino issuing the poker chips goes out of business the chips aren’t worth anything. Their “wealth” has evaporated.
Hedge funds, which were regarded as magically profitable until recently, have been hit hard. A web site that tracks hedge fund failures reports 108 funds at 66 firms have gone out of business since 2006. And, according to an article by Dan Solin in the Huffington Post, “many more are sure to follow.”
In a sane world, those dicey financial “instruments” conjured up by slick con artists to befuddle fools and part them from their money would not be traded on a stock market, but relegated to gambling dens. At least the people buying them would know they were gambling and not investing. And it should be absolutely against the law for anyone responsible for managing a retirement fund, charitable trust or any other third-party investment to buy into such scams.