THE ASCENT OF MONEY

THE ASCENT OF MONEY

Niall Ferguson


AT TIMES, the ascent of money has seemed inexorable . In 2006 the measured economic output of the entire world was around $47 trillion. The total market capitalisation of the worlds stock markets was $51 trillion, 10% larger. The total value of domestic and international bonds was $68 trillion, 50% larger. The amount of derivatives outstanding was $473 trillion, more than ten times larger. Planet Finance is beginning to dwarf Planet Earth. And Planet Finance seems to spin faster too. Every day two trillion dollars change hands on foreign exchange markets. Every month seven trillion dollars change hands on global stock markets. Every minute of every hour of every day of every week, someone, somewhere , is trading. And all the time new financial life forms are evolving. In 2006, for example , the volume of leveraged buyouts (takeovers of firms financed by borrowing) surged to $753 billion.
An explosion of securitisation , whereby individual debts like mortgages are tranched then bundled together and repackaged for sale, pushed the total annual issuance of mortgage backed securities, asset-backed securities and collateralised debt obligations above $3 trillion. The volume of derivatives contracts derived from securities, such as interest rate swaps or credit default swaps has grown even faster, so that by the end of 2007 the notional value of all over-the-counter derivatives (excluding those traded on public exchanges) was just under $600 trillion. Before the 1980s, such things were virtually unknown.