DH answers JCH:
If you're talking all kinds of tradable financial assets, the ratios would be huge. So big that it's hardly worth quantifying.
Not sure, though, how that relates to the impact the financial crisis will have on the real economy. Some of the trading is pointless and has almost no impact on the real. Some is tightly connected. It's very hard to generalize.
What does have a real impact is "deleveraging." I.e., no more new credit-financed spending, and money diverted out of the production/ consumption circuit to pay down old loans.
JG:
On a related tack, it's become well-known that there are hundreds of trillions of dollars of credit derivatives out there, many times the annual value of global economic output. I have some inkling of what this means but I'm not entirely sure. Does this figure refer to the gross value of transactions in credit derivatives (or the value of transactions in still outstanding credit derivatives, i.e. insurance policies that have yet to be paid out?). That is, the figure is hugely inflated by the fact that paper changes hands many times before it finds a resting place. Or, and I think this is more or less the correct answer, does it refer to the gross value of insurance policies against defaults of various sorts, much of which is leverage stacked upon leverage stacked upon leverage?
(Of course, both of these answers or any answer for that matter beg the question of how to price instruments that are sold OTC and not traded openly, and deflate when it looks like the insurer can't make good on the claim).
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