That was a bit of an "ooops", wasn't it Arjay.

>>...let's do the maths for poor Pericles...<<

It's a pity that shooting yourself in the foot is not an Olympic sport. You'd be a shoo-in.

And you are not afraid to parade your lack of understanding, for all to see and admire...

>>If the GDP of the planet is 70 billion and Pericles says that derivatives are a type of insurance,who would insure their assets for 10 times their worth.<<

Well they just wouldn't, would they. And given such an obvious conclusion, the spotlight immediately falls on the premises "if" and "and". Clearly, one of these is wrong, but which? I'll ignore the GDP figure for the moment, which I suspect might be wrong but I can't be bothered to check. And heck, if Pericles says that derivatives are a form of insurance, that must be right (although only in the sense that computer programs are just a load of ones and zeroes, but we can safely let that pass for the moment).

So where is the fallacy in Arjay's question?

Perhaps it is his understanding of the nature of insurance.

If I take out insurance on my $1,000 car, the value of that car is an exposure to the insurance company. However, my insurance company will mitigate its risk through reinsurance, usually with a specialist reinsurance company. So (even in this simplistic example) my car has been insured twice, even though it is still the same basic asset. Using Arjay-arithmetic, the exposure is $2,000, which it simply ain't.

What the commentators who get their knickers in a knot about "exposure" forget, is that the derivative market is a web of complementary "bets" that effectively balance each other out. Give or take a few billion. Which is effectively no more than noise, at this level.

No doubt we will see the same "Bartnaby Joyce says..." crop up again and again. Fortunately for the ordered working of civilization, he is about as credible on the topic of finance as Barack Obama would be calling an AFL game between Collingwood and Carlton.

Pericles & others;
I am not sure that Arjay is totally wrong on this.

“Derivatives are financial weapons of mass destruction, carrying
dangers that, while now latent, are potentially lethal,” Warren
Buffett wrote in 2002

It may not be a simple case of insurance but of betting on prices.
If the odds were long enough it could be massive.
There are too many reports similar to what Arjay quoted to ignore it completely.

In any case, it may not matter in the long run.
We will all be either broke or dead, or both.

Thank you Bazz.

>>Pericles & others; I am not sure that Arjay is totally wrong on this... There are too many reports similar to what Arjay quoted to ignore it completely.<<

That is precisely the reason why I try to combat his cut'n'paste financial hysteria with some occasional facts.

One of the interesting aspects of the "too many reports" situation, is that their large numbers are predominantly attributable to the fact that they consist of blogs that cut'n'paste the same article - most often entirely out of context - over and over again.

And you are also guilty of the same offence, with this throwaway remark:

>>“Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal,” Warren Buffett wrote in 2002<<

Well yes, he did. But you have taken his remark out of the context in which it was written, and turned it into evidence that Arjay is somehow right.

He ain't. And here's why.

http://www.fintools.com/docs/Warren%20Buffet%20on%20Derivatives.pdf

Buffet was concerned that the use of derivatives was capable of hiding the true profit of an organization, and thus distorting his analysis of a company's true worth - the cornerstone of his investment strategy. Not that they would be the ruin of us all - just himself.

And as a sidebar, he pointed out...

"...the parties to derivatives also have enormous incentives to cheat in accounting for them. Those who trade derivatives are usually paid, in whole or part, on “earnings” calculated by mark-to-market accounting. But often there is no real market, and “mark-to-model” is utilized<<

He later modified his "mass destruction" position somewhat - motivated to do so, one suspects, by the fact that he was a substantial dabbler in derivative products himself...

http://dealbook.nytimes.com/2011/03/14/derivatives-as-accused-by-buffett/

"In the fourth quarter alone, Berkshire made $222 million on derivatives... Mr. Buffett appeared to backpedal from his oft-quoted line, explaining: 'I don’t think they’re evil per se. It’s just, they, I mean there’s nothing wrong with having a futures contract or something of the sort. But they do let people engage in massive mischief.'"

Derivatives are not evil. It's the people.

look we can all gamble..on promises..
but in the end..its about sustainablity..the current system was set up to fail

just like tax sticks went bust when so many lies got burned by govt govt house burned down..[achieving that the lawyer guyfaulks didnt

as previous posts have proved..
in a perpetual boom/bust..deflating hyper inflating
[ie al banker fed manipulations..lok at our past to see our future

can i still spend my one pound note?
or a hyperinflated deutchmark or szimbawe fiction

if you doudt it
get educated up on the lybore liebore scam.
robbo signing and jury nullification

but see the lie bore/where they keep intrest..you get low
so they can endebit and impoverish you and your state
the more you give them the less they will give you to get it

unless its mates rates

here is a simple egsample
i rent perridicules house..and sell it..hoping i can buy it back cheaper*

or try going to avis renta car.
.and trying to sell ya rental

but this gets done everyday..except they dont got any rental
in fact got nuthin but product..[like face off the book, half price

'ya thats the scam..

ANY BUSINESS THAT HAS BIG DEBT
isnt making any real value..only fiat paper promises/fiat money

fixing their debt..while \allowing hyper inflation
turn that on or off AT WILL*

forgeting in good boom!times
assets are worth more than in depression
when capitalists buy up the spoil..stealing via hyper inflation..in the now worthless face values measured in millions.

bankers stole the banking system
stock markets even cash settlements..lol

beurocrats stole govt..lawyers highjacked law
and unions are there for the cash flow..parties are inhouse hacks[or mysogenists ya got the dirt on*

my mouth feels so unclean
just saying the truth.

OUG you and I know the truth and reality.I'm the agnostic and you the believer.

Gold always was and now is today,the refuge of desperation born out of corruption by our elites.Real wealth always was and is in the honesty,integrity and creativity of all humanity.

The banksters have stolen our potential via counterfeiting all the money that equals our productivity + inflation.

The banksters are sewing the seeds of all humanities demise.Their obsessive compulsive disorder of wanting total power,will not be realised.

All empires from the Egyptian,Romans,British,USA come to an end.

We in the West have created new unnecessary enemies in the form Russia and China.The angst and grief that eminates from our insecurities,will be realised in WW3,if we all continue to be blissfully ignorant.

I will take little pleasure in gold reaching $7000 per oz,since this will mean that our collective creativity and potential will be reduced by more than threefold.The increase in the price of gold only reflects a growing decay.

Deary me Arjay, what a confused analysis from you, but I guess
I can't expect any more from you. So be it.

But we'll go through it again, from a more accurate perspective.
Reserve Banks were created with an arms lengths distance from
politicians, for anything else would be like putting Dracula in charge
of the blood bank. Suffice to say, any profits generated by the Fed
or the ECB, or our RBA, eventually is paid to taxpayers.

The charter of reserve banks is to use monetary policy to keep the
economy ticking along nicely, without too much inflation or too much
unemployment. They need to do this, even when politics fails, which
is no easy task.

So lets look at the reality. The standoff between democracts and
republicans in the US, means that there is complete political failure,
democracy evidently cannot solve it, or has been unable to, so far.

The overborrowing in the EU was once again a political failure, as
politicians tried to buy off voters.

In both cases, central banks are left to try and pick up the pieces of
democratic failure and have a limited toolbox to do so.

So the problem is not really central banks, but voters who want their
cake, but don't want to pay for it. Don't blame central banks, blame
the stupidity of the public, for the financial problems that we have.