All of the world’s money and markets in one visualization

Originally published at:


Is it just me, or is the link to the infographic broken?

Also – derivatives are not automatically bad or obscure by themselves; ordinary commodity futures and buy/sell options, for example, are pretty vital for having a functioning market. But Buffett’s entirely right that there are a lot of overly complex derivatives with only a tentative connection to reality, and that stuff can be tremendously dangerous, as 2008 showed.


Yeah, link broken for me too


I think this is what the article was supposed to link to:


So look at all those stacks of Cuisinaire rods.

Now think about “gold standard.”



That tower of derivatives, though… what’s a better word for scary?


I’m in the graph, somewhere…

Their big danger is in amplification of the market forces. When the market is going up this amplification effect is awesome, people become billionaires through crazy complex schemes that nobody completely understands. When the market is going down it means otherwise controllable losses can become larger than the entire real economy.

It’s probably too strong to say they should be outlawed entirely, but a government risk assessment for any new product that looks at the downside in a crash situation seems reasonable, especially if that government is going to be forced to cover the losses in a situation like that to avoid economic collapse. I want to see investment bankers fuming mad because the government told them that their crazy derivative scheme is too risky for the economy at large, even though it will make 10:1 returns while the market is going up.


I’ve wondered why people don’t use derivatives to get around gambling laws. Maybe you can make one that pays off if “New England-area football organizations meet success goals on Feb. 3 beyond 7 success measurement units”. And not only is it legal everywhere, but you only pay 15% tax on winnings.

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I remember reading something that said that all of the gold that has been extracted in history fills about 2 olympic sized swimming pools.


Tulips anyone?


Derivative values really are impossible to calculate. In theory, some are infinite.

Say you have a steel mill. You need natural gas below certain cost to be profitable. It’s low enough today, but what about a year from now? Future’s market to the rescue. You buy an option to buy natural gas at a fixed price a year from now. If it’s lower than that on the open market, you don’t exercise the option. The derivative value was the price of the option. You eat that cost.

If gas is more expensive, then you exercise the option and buy the gas. To you, the derivative value is the option plus exercise price. To the other guy, it’s the price they have to pay for selling you the gas at less than market value. So the derivative cost to them is the total gas bill minus the option price.

So is the derivative market calculated on the option price or the total transaction dollar amount? And how do you predict the total transaction price if you are trying to value the entire market? In theory, there could be some super duper hyper inflation and the value could be a bazillion.

But except for the option price, this is a transaction (buying gas) that was going to happen anyways. So the total market could be a sum of transactions for years or decades into the future.

To confuse things further, no one wants to be left high and dry if, as in our example, gas goes up. So the option seller will sell all or part of the option to someone else who has options that are making a bet in the opposite direction. And that entity my parcel out the risk to others. Diversifying to minimize risk. Logical thing to do. But now is the total derivative market just the original derivative, or the sum of all the times it is consolidated or divided up and resold?

It’s this cascade that scares everyone. Diversifying would normally minimize risk. But if one party at the end of the chain goes belly up because of some economic shock and can’t fulfill the contract, then the guys further down the line are on the hook for their derivatives without recourse. They go belly up. You get collapse that spreads geometrically.

Derivatives are useful … unless they aren’t. No, there isn’t going to be some quadrillion dollar money hole, but it can give financial markets lethal constipation while they figure things out. Think fiscal lord of the flies.

And before you say “Just end derivatives,” you should understand that they are responsible right now for keeping commodity prices (food, fuel, etc) stable. For example, farmers can confidently plant crops knowing there is a stable market to sell into. Stable is a relative term, but in this case, stable means that they know crop prices won’t hit zero because everyone is harvesting at the same time and selling at the same time. And we know that food prices won’t spike to crazy amounts if there is a bad harvest.

Wise derivative rules need to be done wisely. :wink:


Actually, that is not the situation today. The China tariffs on top of a structural oversupply dropped the price of corn and soy from about 90% of production cost to 50% of production cost. That price is neither stable nor profitable. Farms need big operating loans to cover their annual expenses, but banks are not going to provide loans with that kind of balance sheet.
Watch seed and fertilizer orders this month and next to get an idea of how 2019 will shake out. It could be very ugly. There are always vulture capitalists ready to step in.

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Thank you. You actually just proved my point. You gave prices for corn and soy that are based on the futures market. Farmers ca use this to decide their seed and fertilizer orders this month for crops that won’t be harvested until much later this year.

Edit: your prices are wrong, however. Corn and soy are still projected to bring in more than production costs. A miserable margin, but positive. An example:

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Tulips? I know what you mean, but this is triffid-level stuff.

The UK sort of does it in reverse. We literally gamble on the stock market.

See the bit on financial spread betting.

It seems crazy to me but there you go. I am not a master of the universe.

Part of the appeal, at least in the UK, is that gambling winnings are not taxable. I don’t know whether that’s true in other places (where gambling is even legal to begin with). In a way there is something refreshingly honest in openly admitting that financial speculation is fundamentally the same toxic, sordid activity we normally associate with unshaven old guys slumped in windowless betting shops chain-smoking roll-ups and watching the horses all day.

Presumably it is linked to derivatives, since you can imagine lots of ways that a spread-betting company might use its customers’ betting data to inform its own investments.

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That was well explained, in language any reasonably intelligent lay person could understand!

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