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Bank Of England Estimates Global Output Losses From Financial Meltdown At Up To $200 Trillion

Tyler Durden's picture


Not much commentary needed here:

Counting the Systemic Cost

One important dimension of the debate concerns the social costs of systemic risk. Determining the scale of these social costs provides a measure of the task ahead. It helps calibrate the intervention necessary to tackle systemic risk, whether through regulation or restrictions. So how big a pollutant is banking?

There is a large literature measuring the costs of past financial crises. This is typically done by evaluating either the fiscal or the foregone output costs of crisis. On either measure, the costs of past financial crises appear to be large and long-lived, often in excess of 10% of pre-crisis GDP.

What about the present crisis?

The narrowest fiscal interpretation of the cost of crisis would be given by the wealth transfer from the government to the banks as a result of the bailout. Plainly, there is a large degree of uncertainty about the eventual loss governments may face. But in the US, this is currently estimated to be around $100 billion, or less than 1% of US GDP. For US taxpayers, these losses are (almost exactly) a $100 billion question. In the UK, the direct cost may be less than £20 billion, or little more than 1% of GDP.

Assuming a systemic crisis occurs every 20 years, recouping these costs from banks would not place an unbearable strain on their finances. The tax charge on US banks would be less than $5 billion per year, on UK banks less than £1 billion per year. Total pre-tax profits earned by US and UK banks in 2009 alone were around $60 billion and £23 billion respectively.

But these direct fiscal costs are almost certainly an underestimate of the damage to the wider economy which has resulted from the crisis – the true social costs of crisis. World output in 2009 is expected to have been around 6.5% lower than its counterfactual path in the absence of crisis. In the UK, the equivalent output loss is around 10%. In money terms, that translates into output losses of $4 trillion and £140 billion respectively.

Moreover, some of these GDP losses are expected to persist. Evidence from past crises suggests that crisis-induced output losses are permanent, or at least persistent, in their impact on the level of output if not its growth rate. If GDP losses are permanent, the present value cost of crisis will exceed significantly today’s cost.

By way of illustration, Table 1 looks at the present value of output losses for the world and the UK assuming different fractions of the 2009 loss are permanent - 100%, 50% and 25%. It also assumes, somewhat arbitrarily, that future GDP is discounted at a rate of 5% per year and that trend GDP growth is 3%. Present value losses are shown as a fraction of output in 2009.

As Table 1 shows, these losses are multiples of the static costs, lying anywhere between one and five times annual GDP. Put in money terms, that is an output loss equivalent to between $60 trillion and $200 trillion for the world economy and between £1.8 trillion and £7.4 trillion for the UK. As Nobel-prize winning physicist Richard Feynman observed, to call these numbers “astronomical” would be to do astronomy a disservice: there are only hundreds of billions of stars in the galaxy. “Economical” might be a better description.

It is clear that banks would not have deep enough pockets to foot this bill. Assuming that a crisis occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of $1.5 trillion per year. The total market capitalisation of the largest global banks is currently only around $1.2 trillion. Fully internalising the output costs of financial crises would risk putting banks on the same trajectory as the dinosaurs, with the levy playing the role of the meteorite.

Full depressing speech.

Haldane BoE Speech 3.31


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Wed, 03/31/2010 - 15:31 | 282058 AndItsGone
AndItsGone's picture

And it's gone!



Wed, 03/31/2010 - 17:53 | 282341 cougar_w
cougar_w's picture

Only if you think it was ever there. They pull this stuff out of their asses, along with the monkeys.

I will never believe the word or accounting of an economist or banker ever again ever ever like never or never ever for ever and ever I mean totally never again ever. On any topic. Anything at all. Ever.

Wed, 03/31/2010 - 19:31 | 282472 Cathartes Aura
Cathartes Aura's picture

+10 (and then some)

delurking first timer here, thanking all at ZH

for the stellar work, and brilliant commentary.

a pool of sanity in a flood of crazy.

Wed, 03/31/2010 - 15:36 | 282070 Hephasteus
Hephasteus's picture

Hi. I need a map of a cat.

Thu, 04/01/2010 - 04:45 | 282805 ED
ED's picture

Hi. I just so happen to have a map of a cat. Which locale were you particularly interested in?

Thu, 04/01/2010 - 06:50 | 282817 Hephasteus
Hephasteus's picture

LOL. I didn't think anyone would get that one.
That's from Surely You Must Be Joking Mr. Feynman. He took a friends zoology class and was in the library looking for a map of a cat. The librarian finally figured it out and said "You mean a zoological chart." But there was a running joke around campus about some old freshman looking for a map of a cat.

Thu, 04/01/2010 - 21:39 | 283871 ED
ED's picture

Feynmans a good read ;)

Wed, 03/31/2010 - 15:37 | 282073 Lndmvr
Lndmvr's picture

And the point is??

Wed, 03/31/2010 - 15:38 | 282074 Traianus Augustus
Traianus Augustus's picture

I thought this was a global financial melt "UP" that we were experiencing?

Wed, 03/31/2010 - 15:38 | 282075 10044
10044's picture


Wed, 03/31/2010 - 17:48 | 282332 WaterWings
WaterWings's picture

Here's some literature to remind you how lucky you are to be "Free and Clear".

Wed, 03/31/2010 - 15:40 | 282080 equity_momo
equity_momo's picture

Thats alot of taxes.

Wed, 03/31/2010 - 16:30 | 282176 Justin Credible
Justin Credible's picture


That's the best response in this thread - LMFAO!

Wed, 03/31/2010 - 19:46 | 282478 Stranger
Stranger's picture

Depends how much inflation you factor in.

Wed, 03/31/2010 - 15:41 | 282083 Cognitive Dissonance
Cognitive Dissonance's picture

"Bank Of England Estimates Global Output Losses From Financial Meltdown At Up To $200 Trillion"

Clearly I'm not fully acclimated to the insanity yet because I saw the headline as $200 Billion and said to myself, what's the big deal? It was only upon clicking the link did the $200 Trillion come fully into focus.

My clients are completely lost at sea with these numbers and the implications for them. It just doesn't register. I try using word pictures to explain what a Trillion is, including pallets of money stacked so high but it just doesn't mean much because there is no reference to their daily lives.

In fact, this is one of the reasons the Fed, CONgress and other assorted scoundrels, minions and banksters are getting away with this. The numbers themselves are a traumatic blunt force and everyone is wandering around suffering from PTSD.

Wed, 03/31/2010 - 16:02 | 282126 Conrad Murray
Conrad Murray's picture

" I try using word pictures to explain what a Trillion is, including pallets of money stacked so high but it just doesn't mean much because there is no reference to their daily lives."


If you haven't seen this before, it's worth a look:

Wed, 03/31/2010 - 16:23 | 282168 tpberg7
tpberg7's picture

Excellent graphic CM.

I purchased several one hundred trillion dollar Zimbabwe notes that I have been spending freely by giving them to friends as a novelty.  America is moving towards this vision you have given us.


Thu, 04/01/2010 - 05:05 | 282806 ED
ED's picture

That's some cold, hard cash right there. Cold and hard alright

Wed, 03/31/2010 - 16:43 | 282199 Cognitive Dissonance
Cognitive Dissonance's picture

Thank you. I've bookmarked the page and will make good use of it.

Wed, 03/31/2010 - 16:11 | 282134 B9K9
B9K9's picture

CD, I try to explain to savers that their "savings" wouldn't exist if there weren't any debtors. (Equity investors share the same predicament - credit drove consumption [sales].) Since debtors are all in default, that means the value of the savings is also a big fat -0-.

So everyone is back where they started. That's why these types of analyses are ultimately meaningless. If I sell you my cat for $200 trillion and you default, am I $200 trillion the poorer?

The whole point of the exercise, which has been repeated endless numbers of times over the past 5-6 millennia, is to have a contractual agreement whereby certain lenders take possession of the underlying collateral.

The power elite's game is upset only if the 'losers' don't hand over any real wealth assets or drive the money-lenders out of the country. Both options have been utilized many times in the past, but infrequently enough to make the potential payoff to the power elite worth the time & trouble.

Iceland appears to be choosing the option of not handing over assets. I presume Ireland will follow, then the PIGS, etc. Eventually all the rest will follow, including the UK & USA. Which is why I advise anyone with real assets to follow the giants by converting to physical gold and store it offshore (with looming capital controls, it may already be too late) either in Switzerland and/or Israel.

These two countries will ultimately prove to be the safest havens - protected either by mountains and/or nukes, and willing to use them to defend their (ill gotten) wealth.

Wed, 03/31/2010 - 16:24 | 282158 Ragnarok
Ragnarok's picture

The problem with hoarding large (+25M) amounts of gold is the trade-off between secrecy (having stolen by your gov't) and security (having stolen by everybody else).  Personally I would hide (bury, pour in cement) a couple million where only I knew and could access quickly if I had to run.  The rest I would need to find a country with a small population that upheld its property rights and was not subject to US/UK/EU pressures.


Assume for the moment I come from a country that does not have claim on my world income, what's a list of countries that fit that description?

Wed, 03/31/2010 - 16:33 | 282177 B9K9
B9K9's picture

Secrecy and security are only problems for you & I. How many freighters filled with gold are currently off-loading in Haifa - all under protection of Mossad? How many private airplanes are landing in Zurich under cover of darkness?

Having been in both countries and having met different types of security personnel, I can assure you they don't fuck around. Both countries have very long time-frames and respect the rule of law.

They let the USA run around playing macho-man, but the smart money stores its wealth in places that will be amongst the last ones standing.

Even if you're not a J (where do you think the oil rich sheiks store their gold?), they respect contracts and will allow you to withdraw your gold if you (a) manage to get it there, and (b) manage to get yourself there.

Wed, 03/31/2010 - 16:36 | 282187 Ragnarok
Ragnarok's picture

Thanks for the input, any other countries that would maybe make your list lower down? Or is it when it comes to gold and wealth one shouldn't fuck around.

Wed, 03/31/2010 - 17:04 | 282240 B9K9
B9K9's picture

Get out and see if they will accept you as an honorary J. If you're operating above 125, they may think you're worthwhile to keep around as a pet. It's got nothin' to do with religion. It's all about teaching the stupids who's really in charge.

My parents got caught in the Yom Kippur war while visiting on vacation. They think it's a little dicey, but I told my dad he's smart enough to be entertaining. The thing about Israelis is they really don't fuck around.

That little country is gonna be the last one standing, along with most of the world's gold safely tucked away.

Wed, 03/31/2010 - 18:04 | 282364 WaterWings
WaterWings's picture

They sure are pulling US around with a nose ring.

Wed, 03/31/2010 - 18:48 | 282430 dark pools of soros
dark pools of soros's picture

really??  so we can stop protecting them like Ron Paul has requested since they 'don't fuck around' and 'will be the last one standing'  what a joke..  we pull their shield away and they are flatten in a week

Wed, 03/31/2010 - 16:30 | 282174 jm
jm's picture

...getting away with this.

With all due respect, I don't think you get it either.  I'm honestly not trying to offend you. 

Like it or not, most businesses can't operate purely out of cash-flow.  Without credit they go belly up.  The world needs a financial system, and just letting it all burn up in November 2008 would have ended the banking system.

Banks collapse, then businesses go belly up, and a big chunk of formerly working, now out of a home people become angry and hungry fast. 

This guy has a vantage point that tells you what lies over the edge, although he may be exagerating to strengthen his agenda.  He has a nearly insurmountable credibility problem.  But he is right in principle if not in the figures. 

Everyone is too busy being pissed to figure out that this multi-decade problem is too big for slogans like "throw the bums out."   

So throw out all encumbents.  Nationalize any bank whose MTM assets and equity doesn't cover liabilities.  You won't get any argument from me.

But if you think that this disaster is all clear, QE only benefitted the chosen few, and didn't have a beneficial effect for all our asses, you're just dead wrong.

Wed, 03/31/2010 - 16:48 | 282207 mikla
mikla's picture

With all due respect, I don't think you get it either.  I'm honestly not trying to offend you. 

Like it or not, most businesses can't operate purely out of cash-flow.  Without credit they go belly up.

Yes -- businesses need access to capital (capitalization).  They could use credit, or sell shares-of-future-profits to get the capital they need.

The complaint against today's system is that it's done through fraud:  You come to me, asking for capital.  I "give" you money that I don't actually have.  So, you must pay that back, plus interest (I win, getting dividend on something I never had), or you stop paying me back and I then claim all your assets (house, property, vehicles, equipment, etc.)

It's strange, but that's how the current system functions:  I have nothing to give, but no matter what, I will be rich with your interest payments or rich by claiming your assets, without me actually contributing anything.

But if you think that this disaster is all clear, QE only benefitted the chosen few, and didn't have a beneficial effect for all our asses, you're just dead wrong.

You're asserting that we've avoided reckoning.  No, all that's happened is that the taxpayers are now explicitly subsidizing the ponzi while "the few" quietly exit, before the house comes down.

There *was* a time when the taxpayer did not back Fannie & Freddie.  You're saying we got a benefit by backing them.  Nope.  You're saying we got a benefit by backing GM & Chrysler.  Nope.  You're saying we got a benefit by owning AIG & Citigroup.  Nope.

All we did was make the taxpayer the last-and-final sucker, buying worthless crap at top dollar, so the counter-party could exit unscathed (actually, with a bonus and a profit).

You are correct that the financial world would have collapsed in 2008, but the sovereign USA would not have collapsed.  That is different now:  Both the world financial system will collapse, *and* the sovereign USA will also collapse (right after the EU collapses, probably by 2012).

Wed, 03/31/2010 - 16:56 | 282220 jm
jm's picture

Good comments.  Sure don't think we are out of the woods.  Sure think that taxpayers, future taxpayers and currency longs are going to get a divine hammer on viagra.  QE allowed a bit of time (?) to think out how to deal with the next bomb to drop, and maybe shape the future.

Looks like few are thinking about these issues at all.  Sure not the guys on office who are spending even more money.


It does look like

 I have nothing to give, but no matter what, I will be rich with your interest payments or rich by claiming your assets, without me actually contributing anything.

But this isn't as asymetric as it looks: the trade off you're missing is that nobody had to put a damn dollar down as collateral in the past 10 years. 

This implies banks took on credit risk like crazy, and now its all coming due for everyone.

Wed, 03/31/2010 - 17:32 | 282298 mikla
mikla's picture

But this isn't as asymmetric as it looks: the trade off you're missing is that nobody had to put a damn dollar down as collateral in the past 10 years.

You are correct that society has had the benefit of "cheap credit" for decades (we didn't pay the true costs of the credit, all borrowers were effectively "subsidized").  Individuals, businesses, and nations "benefited" from this "invisible subsidy".

However, we are merely describing the "behavior of the system":  These aren't really benefits, but merely the "delayed reckoning".  Sugar was needed to give us the sugar high.  We've had that now, and that's over.  Now comes the crash.

You can say the "sugar" aspect of the system is a "benefit", but I'm actually not very enthralled with the decades of mal-investment, social engineering, and subsidization of bad behavior that IMHO makes society and families "sicker".

This implies banks took on credit risk like crazy, and now its all coming due for everyone.

On paper we can pretend it's "risk".  However, a better metaphor is that bankers run a casino, typically winning, and winning over time.  Remember, they put nothing down (contributed no capital) to reap their benefits.  When the house finally "loses big", remember that the house merely shifts those costs to the taxpayer (socialized losses).

So, (1) wall street contributed nothing, and (2) wall street extracted huge sums of cash in salaries and bonuses, and (3) wall street doesn't care if their casino is unmaintained and ready to fall down, because they will be claiming real property from the rest of society (e.g., they have the lien notes).

I say this as a *huge* capitalist -- as you say, businesses need access to capital, and it's worth a *LOT* to society to have liquid capital markets.  However, that's not what wall street does, that's not what the COMEX does, that's not what the S&P does.

Wed, 03/31/2010 - 17:46 | 282328 jm
jm's picture


Banks probably have an incentive to avoid good risk management:  bonuses and the Greenspan put.

The casino analogy is apt.  My read of it is that the casino caought on fire while everyone was playing, and the Fed had to axe open the door with QE.  Maybe they'll put the fire out.  Maybe not.

I'm smart enough to know I don't know.

Wed, 03/31/2010 - 18:45 | 282423 jm
jm's picture

BTW-- if banks did extend credit, and went BK if their risk assumptions were wrong, I would disagree, and say they added economic value.

If taxpayers and other have to backstop their purpose, taking credit risks, then they don't serve an economic purpose.  But we have to trudge through with the shit we have until we have something better.

Wed, 03/31/2010 - 19:31 | 282471 dark pools of soros
dark pools of soros's picture

jm - you are mainlining the big bank kool-aid..  there are LOTS of banks and credit unions that would of picked up the slack if the few giants were allowed to fall to their death..


you act like they hold the keys to life itself...there would of been massive disruption of POWER more than banking and that, in the end, is what was really saved...

Wed, 03/31/2010 - 20:12 | 282491 jm
jm's picture

I know the kool-aid of which you speak (weird English there).  I have no qualms with firing the execs and wiping out shareholders.  Let's manage this inevitability thoughtfully, that's all.    

There is more to a banking system than small businesses.  There are insurance companies, pensions, international trade financing, blah, blah, blah that needs a reasonably large scale to do.  I don't care if a Swiss or French or whatever bank does it.  Problem is in my view they are probably all decapitalized/insolvent-ish. These are important, valuable roles that are necessary for people and businesses.  

I don't think I'm biased towards the sharks,  because if my firm blows up there ain't no bailout coming.  Also, there's not much love lost between different species of the ecosystem.  I don't hate anybody either. 

Wed, 03/31/2010 - 22:25 | 282611 ThreeTrees
ThreeTrees's picture


We cannot let Those in Power go without it.

Wed, 03/31/2010 - 20:04 | 282493 scaleindependent
scaleindependent's picture

Excellent summary! Thanks

Wed, 03/31/2010 - 17:08 | 282247 Cognitive Dissonance
Cognitive Dissonance's picture


You're putting words into my mouth. I was simply taling about the size of the number. I am not a simplistic mouth breather whose solution to our "problem" involves random hangings and mass riots, though the idea is tempting. When I said "getting away with this" I'm talking about the corruption, deception, manipulation, war mongering, false flag attacks, black ops and dozens of other things done in the name of national security and apple pie. I don't dispute we need an financial system and that we need some way to extend credit. But not as it is currently structured and not by who controls it.

The TBTF banks for saved because there are over $600 Trillion of outstanding and certifiably insane derivative bets that would topple the world into chaos if they were allowed to crash in an uncontrolled manner. I get that. So why was this allowed to get to this point and why isn't this insanity being unwound?

I constantly talk about how the average Joe has benefited by this insanity with cheap consumer products and a life style that they could not afford. But this is also the noose that will hang everyone. So who is more guilty here, the deliberately kept in the dark average Joe (who most certainly participates with his denial) who is handed credit because s/he is breathing or those who extended that credit or those who should be regulating both? It's obviously all three. But who has the control? Who has always had the control? I get it that everyone participated in this mess. You should read my comments, of which there are thousands. I'm not narrow minded nor stupid.

I am so sick and tired of bastards telling me they must feed the masses more bread and circuses or the masses with turn upon them. The masses have been brainwashed, conditioned and indoctrinated to believe that the consumer culture is the be all, end all ideal way to live. The wealthy few created a monster. I will never buy the idea that the few at the top only gave the masses what they demanded. The wealthy few manipulated and extorted the masses for the wealthy few's gain.

Wed, 03/31/2010 - 17:43 | 282321 jm
jm's picture

Your post wasn't about black ops and whatever, so it didn't occur to me that such was how you would take this. I commented on what you said here, as I don't particularly follow what you post elsewhere.

It occurs to me to insist that people be realistic about the situation.  The reality is that it took years to make this problem.  It will take years to get out of it. 

Blaming and figuring out who did what to whom only resolves to people using selective info to their perceived advantage, or only adding noise.

This is so much bigger than subprimes, ARMs and NINJAs and the old buzzwords.  The issue lies at the insolvent core of the world financial system.  This means it lies at the core of the world economy. 

Are the wealthy exploitive, sure.  But so is everyone.  Dumbasses have it coming from someone and the wealthy have greater means to that end.  Not that I approve or like it.

Continue to be sick and tired.  Sadly, bread and circuses have been the name of the game since Rome.  When domestication ends overnight, the results are often brutal. 

So I believe that in this case, you can't pull the plug on the life-support without really bad things happening to many people--nothing related to a Mad Max movie.  In a brighter time, I think it is right to end all backstops.  We should stop rewarding failure immediately.  They are mutually exclusive.   

We just may be in complete agreement.  

Thu, 04/01/2010 - 09:59 | 282917 Cognitive Dissonance
Cognitive Dissonance's picture

You pulled a few words out of this sentence......

"In fact, this is one of the reasons the Fed, CONgress and other assorted scoundrels, minions and banksters are getting away with this."

....and then read many things into what I said, including an interpretation that I wanted to take the system down or let it fail.

Wed, 03/31/2010 - 23:28 | 282674 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"Trillion, as formally reserved for astronomy."  Heard that a few weeks ago and have been using it ever since.

Wed, 03/31/2010 - 15:43 | 282088 AR15AU
AR15AU's picture

Congratulations, dumbasses...  Now you know why its futile to try and bail corporations out...  This is the natural cycle of creative destruction.

Wed, 03/31/2010 - 19:37 | 282095 carbonmutant
carbonmutant's picture

" It just doesn't register."

PTSD indeed with the MSM showing symptoms of Stockholm Syndrome.

Wed, 03/31/2010 - 15:46 | 282096 EllisWyattOTC
EllisWyattOTC's picture

Question did the $200 Trillion really exist in the first place or was this greatest monetary illusion ever pulled?

Wed, 03/31/2010 - 15:53 | 282109 Ragnarok
Ragnarok's picture

I was thinking the same thing, perhaps they created 175T to suck in 25T of real wealth and skim it off the top.

Wed, 03/31/2010 - 17:44 | 282323 cougar_w
cougar_w's picture

Largely correct. Even the multiplier is about right.

They "lost" $200T the way you and I "lose" $1M when we DON'T win the lottery this week.

In fact, we lost a dollar (the cost of the ticket) and even that bought a few minutes of fun. The difference is you and I don't go banging on the government door for our "lost winnings" whereas the banks do exactly that, and threaten to destroy the world if they are not "compensated" for their "losses"

Pretty cool racket, huh?

Wed, 03/31/2010 - 18:01 | 282356 Ragnarok
Ragnarok's picture

I need to get on the other side of that trade.


1. Get uber-rich and marry into old money

2. Throw away any notion of nature's law and the civil society.

3. Have utter contempt for my fellow man



Wed, 03/31/2010 - 15:48 | 282104 MsCreant
MsCreant's picture

Surely they are all just swaps and will cancel each other out on the balance sheets and everyone can go on with their happy lives?

No harm, no foul.

Black hole sun, wont you come, and wash away the reign...

Wed, 03/31/2010 - 16:17 | 282136 mikla
mikla's picture

Surely they are all just swaps and will cancel each other out on the balance sheets and everyone can go on with their happy lives?

The "experts" keep asserting that, but no:  These swaps do NOT cancel each other out, because:

  1. A (very) small percentage of a (very) large number is itself a large number.  The entire GDP of nations (and the planet) is now "rounding error".  So, even if the "intent" was that these are all covered, the numbers are so large that effectively it's impossible to cover with that level of precision.
  2. Counter party risk is non-zero.  Even if all swaps are covered, they are NOT covered, because so many of the counter-parties are the walking dead.  There is NO WAY all these claims can be paid, and that will start the dominoes-a-fallin'.

I like the Richard Feynman quote -- this is absolutely a creation of man, and the scale "economical", with numbers beyond the mere "astronomical".

I used to think "Geologic Time" was big (and it is).  It's bigger than what most people can handle.  However, ice ages are in the mere thousands of years, life and species in the mere millions of years, and planets and solar systems are in the mere billions of years.  It takes a tremendously cruel joke to be speaking in terms of Trillions.

Wed, 03/31/2010 - 16:47 | 282205 Ragnarok
Ragnarok's picture

It took 10 million years of constant terenchal rain to fill our oceans. 

Wed, 03/31/2010 - 18:12 | 282376 hooligan2009
hooligan2009's picture

TORRENTIAL ! terenchal sounds much to much like giant vampire squid sucking on the face of humanity!

Wed, 03/31/2010 - 20:57 | 282534 delacroix
delacroix's picture

 I call bullshit, the atmosphere could not hold that much moisture, ever. rain is the result of evaporation, and condensation

Wed, 03/31/2010 - 22:58 | 282643 Ragnarok
Ragnarok's picture



The process of filling the oceans and liquid water on the surface took 10 million years.  The water vapors source is mostly from water trapped in the mantel from the formation of the planet expelled to the surface during cooling as heavier elements were drawn down towards the core and lighter elements floated towards the surface. Some also came from asteroids.  I say the process of filling the oceans took 10 million years because the surface had to cool enough to allow liquid water not to evaporate on the surface, so the same water would have precipitated and vaporized several times over that 10 million years.  It would have been one hell of a storm.

Wed, 03/31/2010 - 16:59 | 282212 B9K9
B9K9's picture

Mako makes a great point that it really doesn't matter how many zeroes there are. It's simply a function of the relationship between compounding principal+interest (debt) and the ability to service the loan (income generated from underlying assets).

It doesn't matter if the number is 10 or 10^10. It only matters that the exponential equation reaches its inevitable end point 50+- years after the beginning of each cycle.

I sometimes feel like a broken record - this shit has been going on for thousands & thousands of years. It is the same exact thing over & over again. The point of the ENTIRE exercise is to have a contract that says I get to take possession of your collateral.

It's the ultimate magic trick. Let the dupes, morons and stupids slave away attempting to build careers & families, all the while laying in wait. A little piece of paper that says you owe me X, even though I never really even loaned you Y (I made it all up on other pieces of paper) transfers real land, real ships, real timber, real ports, real facilities, real oil, real mines, real cattle, etc, etc all to my eager, waiting hands.

Get how it works? The only time it doesn't work is if the stupids rise up en masse, as they did in 1290, 1492, 1789, and so on. But, you can see this cycle is spaced out over 200-300 years, whereas the default cycle runs in 50-60 year cycles.

So, the power elite face a 1:4 chance of having it all taken away. Them odds look pretty good, don't they?

Wed, 03/31/2010 - 23:09 | 282654 tip e. canoe
tip e. canoe's picture

yes but it's only 1:6 in russian roulette.

Thu, 04/01/2010 - 01:18 | 282749 Chumly
Chumly's picture

"The point of the ENTIRE exercise is to have a contract that says I get to take possession of your collateral."

Thank you!  Only Calvin Elliot in his treatise on "Usury," (Millersburg, OH, 1902) may have said it better.

Wed, 03/31/2010 - 23:30 | 282677 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Funny that I was thinking about, well, all of this yesterday, and began to spontaneously sing this song.

Wed, 03/31/2010 - 15:52 | 282108 anony
anony's picture

So the global economy is, 'Complex and fragile like a Tropical rain forest', eh?

Sounds nice but the wrong metaphor

You are instead in an ocean of sharks, barracuda, orcas, sting rays, and getting the life squashed out of you by a Vampire Squid.  



Wed, 03/31/2010 - 17:47 | 282330 cougar_w
cougar_w's picture

... and both your hands are tied and you are wearing lead overshoes and the water is so turbid you cannot see.

So yeah just like that. Only worse.

Wed, 03/31/2010 - 15:56 | 282113 Dr Hackenbush
Dr Hackenbush's picture

the keynesians have kicked the can since the 30's and the can keeps getting bigger.


Wed, 03/31/2010 - 17:48 | 282331 cougar_w
cougar_w's picture

Nicely put DH !

Wed, 03/31/2010 - 18:39 | 282416 AnonymousMonetarist
AnonymousMonetarist's picture

Soon they will be gangbanging a string.

Wed, 03/31/2010 - 16:08 | 282137 cymro33
cymro33's picture


 No worry look out the window and see Helicopter Ben dropping everybody money.

Wed, 03/31/2010 - 16:09 | 282139 hooligan2009
hooligan2009's picture

ummmm..i put this down to yet another example of stupid central bankers. I think they mean zim dollars, not us dollars. I mean really, when you start bandying around numbers like 200 trillion, you need a bit more context. Not that the glass is half full, but if you go back twenty years, 200 trillion was about ten years of the entitre global GDP. We have come a long way. If the Old Lady said that around 200 trillion of excess frothy GDP was removed by the much needed correction, leaving only 100 trillion in bullshit to get through then fine. But I don't recall these overpaid civil servants having got anything right, ever, only to play out a few fancy charts courtesy of some graphic artists and attempt to articulate a (screwed up and always wrong) consensus. US GDP is what now? 120 trillion? and thats half of the world? So the financial crisis cost an entire years worth of global ouput by 6 billion people? what an absolute crock. oh unless it zimbabwe dollars, then fine.

Wed, 03/31/2010 - 16:10 | 282141 Caviar Emptor
Caviar Emptor's picture

Pour some Miracle Grow on the green shoots, add in some tax cuts and we'll make it all back.

Wed, 03/31/2010 - 23:11 | 282655 tip e. canoe
tip e. canoe's picture

urine is a much better fertilizer...and it's free.

Wed, 03/31/2010 - 23:34 | 282682 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"Did you know that urine is sterile?  Thast right!  You can drink it."

Wed, 03/31/2010 - 16:21 | 282164 pragmatic hobo
pragmatic hobo's picture

$200T seem highly dubious given that global GDP is only $60T.

Wed, 03/31/2010 - 16:25 | 282169 G.O.O.D
G.O.O.D's picture

Whowa thats a lot of trillions!

Wed, 03/31/2010 - 17:50 | 282335 cougar_w
cougar_w's picture

Yeah. Hey someone remind me ... what comes after trillions? Are we up to "assloads" yet?

Wed, 03/31/2010 - 16:32 | 282180 ChanceIs
ChanceIs's picture

Bu..bu..bu...but they told me.  We couldn't live without the efficiencies the TBTFs bring us.  They told me that.  Now I am mad.  They lied me.  Motherrrrrrrrr!!!!

Wed, 03/31/2010 - 16:38 | 282193 hooligan2009
hooligan2009's picture

ok here...

Euro GDP is 18 trillion, US is 14 trillion and Japan 4 36..what abunch of wankers.. the crash cost almost 6 years of output from these countries? Pay them more money and throw in some hookers so they can screw some sense into them

Wed, 03/31/2010 - 16:44 | 282201 Steak
Steak's picture

Big numbers yes, but the "counterfactual path" included all the bubble driven froth, right?  Thats like Frank Lucas looking at all his confiscated millions saying "if only i didn't slang dope i'd still be a millionaire."

Wed, 03/31/2010 - 17:34 | 282303 hooligan2009
hooligan2009's picture

well lets say the bubble was what, 20% of GDP for 3 years, so 5 trillion in total, which had to be gotten rid of? and the financial market bubble was the equivalent of fraudie and funnys book of what 10% of GDP for 4 years to get to its debt of another 5 trillion? Remove those excesses and make some sort of assumption that the other 90% of the population actually had some sort of legitimate growth of 90% times 2% for 7 years, so 13% of average GDP over those 7 years of 10 trillion to the good guys? so + that makes -10 trillion of crap for TMT and 1.3 trillion of good stuff? how does this get anywhere near 200 trillion ?

Wed, 03/31/2010 - 17:40 | 282317 non-anon
non-anon's picture

I remember being pissed because the Savings n Loan bailout cost us $60B. This is something else that words have no meaning!

Wed, 03/31/2010 - 18:09 | 282371 hooligan2009
hooligan2009's picture

well im sure my numbers arent quite right either, (few JD's) but at least I'm on this planet and not up Theiranus or was that Uranus. Someone buy them each a yappy dog and some bread to go feed the ducks with!


Wed, 03/31/2010 - 19:13 | 282452 Bob
Bob's picture

Fully internalising the output costs of financial crises would risk putting banks on the same trajectory as the dinosaurs, with the levy playing the role of the meteorite.

Hey, I like it!  Ya gotta start somewhere. 

I wonder what the Fed would be worth liquidated or "nationalized.'' Anybody know how much it costs us to rent our own money from the Fed (which would have to include the profits of the banks all the way downstream through the banking system)? 

Sure, we need a banking system.  But one like we've got?  What does this system actually cost us . . . even in a "good" year?

Wed, 03/31/2010 - 20:09 | 282500 mikla
mikla's picture

I wonder what the Fed would be worth liquidated or "nationalized.''

The Fed liquidated would be worth very little -- it's merely a highly leveraged hedge fund that would be bankrupt and liquidated in any sane regulatory structure.  It's true that it owns securities and shopping malls (some real assets), and in theory it has a little bit of gold, but the unsecured "claims" on the Fed assets suggest that nobody would get very much of anything (it's mostly toxic crap worth zero, or less than zero).

The biggest "real" thing the Fed actually owns is US Treasury Bonds (claims on future taxes), but it's highly debatable that those are worth much (given the unfunded future liabilities of the US social programs that dwarf any possible future tax base).  Since all governments debase (that's what they do), these bonds are never expected to be paid back (all governments merely increase what they roll), so you can expect them to decrease in value over time.  (Even in deflation, I'd expect the US to default before paying these, since the tax base cannot support them, and the government would always rather buy new stuff than honor old commitments.)

Sure, we need a banking system.  But one like we've got?  What does this system actually cost us . . . even in a "good" year?

The explicit cost in any given year is the interest payments on the national debt.

In FY 2008, that was some $451B.  It's hard to tell what it "really" is today, because the debt was rolled to short-term instruments paying very little (like zero percent).  This increases roll-risk and sensitivity to interest rates, and really messes with any computation of "risk-adjusted-return".

However, since the US Federal debt today is so much higher than 2008, it's fairly reasonable to assume we're in the ballpark of $700B for 2010 when interest rates normalize.  Still, this ignores off-balance sheet liabilities, like some $5T in Social Security where (1) The US pays interest on the bonds in the "lock box" that doesn't exist, and (2) starting last year (2009) the US must issue new bonds to fund the interest payments on the bonds in the "lock box".  This means you'll pay interest on the interest in a massive way, and that's not quantified well in these numbers (the cost is much worse -- compoundedly so).

Beyond the explicit cost, the "implicit" cost of our financial system is the drag it places on the "real" economy.  Nobody can quantify our increasingly large debt roll-risk, and it's impossible to under-estimate the fraud and waste in our current system of cost-shifting, market distortion, and the unbelievable hours people spend trying to understand "Fed-speak" around arbitrary data-and-talking-point-delivery by our central planning masters.

IMHO, the "implicit" costs of the current system tremendously dwarf the "explicit" costs.  However, it will be the cash-flow problems with the "explicit" costs that trigger the system SUDDEN STOP, which is exactly how it will go down.


Wed, 03/31/2010 - 21:27 | 282555 Bob
Bob's picture

Yes, that is my guess, that it is the implicit costs that are the real drain. 

It's a parasitical infestation of all things economic.

Wed, 03/31/2010 - 19:41 | 282475 scaleindependent
scaleindependent's picture

I disagree. There has been (Andrew Jackson did it) and are other options.

For example,

What about this; let the system and their overlords crash and become insolvent. THEN, do TARP and QE to create new banks, but the banks would be owned by every citizen of the nation in equal public shares.

Problem solved.

Thu, 04/01/2010 - 07:20 | 282826 anony
anony's picture

Government has become about creating problems, not solving them on the premise that the less problems there are, the less need for useless men and women who can only find work in government jobs because no one else would hire them.

What would anyone hire TheBamster for?  He's had one job as senator. Can't even wipe his own ass.  And Dubya? What on earth is this numbskull going to do if his daddy didn't get him a job as POTUS?  Barney Frank? A towel boy at the YMCA?  Bob Dole? 

Pick any of them or any bureaucrat like Ben Bernanke and tell us the world wouldn't be better off if they had never been born.

Lord Blankfein? Jamie Dimon? geithner,orszag, bernanke, summers, paulson, greenspan,rubin, friedman,fuld, thain, dodd,mozillo,o'neal gensler, cassano, shapiro,yellin, fink,kashkari, dudley, nauseum.

And the millions in government employment?  Detritus, every damned one of them.



Wed, 03/31/2010 - 20:10 | 282498 Mercury
Mercury's picture

Be sure to see next month's white paper:

'So How Big A Pollutant Is Perpetual Growth, Self Aggrandizing Government?'

Wed, 03/31/2010 - 20:50 | 282529 Gimp
Gimp's picture

After consulting with my think tank of 12 monkeys we have determined that the actual loss to the global economy was a trillion trillion trillion. Now prove me wrong. 

Wed, 03/31/2010 - 21:10 | 282538 DaisyMae
DaisyMae's picture

Stopped reading after the title.  100 Billion?  how pre-2008.

Wed, 03/31/2010 - 22:14 | 282599 ThreeTrees
ThreeTrees's picture

Moreover, some of these GDP losses are expected to persist. Evidence from past crises suggests that crisis-induced output losses are permanent, or at least persistent, in their impact on the level of output if not its growth rate. If GDP losses are permanent, the present value cost of crisis will exceed significantly today’s cost.

This couldn't be because each and every time there's been a recession since the 30's good ol' government has stepped in to prevent the liquidation of the malinvestments, could it?
Thu, 04/01/2010 - 12:52 | 283163 snakeboat
snakeboat's picture

Methinks it was the cartel (Fed) purposefully snagging bailouts from the suckers (you n me n everyone you see).  The government is a pawn.  Track down the Bilderberg group and you'll find the beneficiaries of each and every one of those recessions.

Wed, 03/31/2010 - 23:47 | 282690 sourgrapes
sourgrapes's picture

Thanks for the above scaleindependent.

We need to think beyond the coming economic earthquake.

A 100% gold-backed dollar issued directly by The Treasury...a new United States Note.

Thu, 04/01/2010 - 07:11 | 282825 anony
anony's picture

My abacus says it's a little bit over One Quadrillion 99 Trillion 465 billion 857 Million 746 hundred thousand 452 dollars and 96 cents.

Give or take.

Mon, 04/12/2010 - 04:53 | 296110 mark456
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