A combination of fractional reserve banking, bank leverage, money printing, derivative manufacturing and government borrowing has been the reason behind much of the global GDP growth over the past 40 years.
This market is now worth a staggering $1 + quadrillion, that’s $1,000,000,000,000,000 of essentially worthless derivatives where buyers only need to put up a fraction of the purchase price. Add in $250 trillion of government debt around the world and things start to look pretty shaky.
During 2012, the gross world product, essentially the GDP of the world, stood at $84.97 trillion. So, in essence it would take nearly three years of global output to pay off all national debt. However, if the derivative market collapsed, it would take nearly 12 years of output to pay off the debts. Bear in mind that a significant portion of global output is linked to derivative contracts and government debt issuance.
It would seem that the global financial system is in a bit of a mess, which is fine as long as it works. Indeed, the financial system seemed to work fine right up until the collapse of Lehman Brothers then the system imploded on itself. Lets hope that doesn’t happen again or we may never get out of this mess.
Of course, this gives gold bugs more ammunition to fuel the argument that physical gold is the only way to protect yourself from the on-coming collapse. Of course, this idea is currently redundant as it would appear that even the gold market itself is in turmoil with 57.8 people owning paper rights to every physical ounce of gold available