That's the problem though the amount of money doubled but the amount of global capital is roughly the same. There hasn't been any real inflation so there has to be a correction of some sort
Woah, wait. This is bending my mind. You're saying that, though the nominal value has doubled, the total capital has stayed roughly the same, over the last ten or so years? Also, there hasn't been any real inflation? (I feel like the answer to one of these questions is the answer to the other.)
I guess if you look at 2000 and assume 4.5% capital growth then then you would get right around a doubling. At 4% its 18 years 3% 24. The real question is 4.5% realistic or is it a blip of an accounting gimmick. I would argue the latter but maybe kleinbl00 can chime in with a better answer. I dont have my copy of https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century at my desk to reference but I remember historic growth being surprisingly small on the order 1-2% maybe 3% in the last century.
Well, the piece I linked to above claimed a doubling in 6-7 years in global fixed income securities. That's something like 10-12% growth a year. Which is.... insane. And a lot of that growth probably happened in the middle and latter years, reflecting the bonanza in the American residential mortgage market, so the growth in those years was probably even more. (I don't know what global fixed income securities is a subset of exactly.) Something's gotta be wrong here, but, assuming these numbers are true, the only explanation I can fathom for that level of annual growth is the fairy tale fiction that became the on-the-ground reality: that housing prices would never go down. And when you take something like that as a baseline fact, then I can imagine some ridiculous levels of economic activity. kleinbl00, am I getting something wrong here? I must be.
Derivatives are securities. So what's a derivative? Let's say you have a house. It's worth X. Let's say I decide to sell stock in the value of your house. It's worth X x Y, with Y being whatever the fuck I want it to be. The underlying fundamental value of your house and the stock combined is X. However, the securities value of your house is X plus X x Y. It's not as completely simple as that (you can't trade your house on the stock market... at least, if you're living in it) but options, futures contracts, derivatives, mortgage-backed securities, they're all securities. "Fixed income securities" are basically bonds, issued by bond issuers, backed by whatever the fuck they feel like backing it with. It's all just contracts.
So we reached a worldwide doubling in fixed income securities (in 6 years) because wealth and fund managers went hog wild with derivatives and other financial instruments? I forget who said it, but they said the last good financial instrument invented was the ATM. I know that's cheeky and simplistic, but derivatives seem to me to invite speculation. edit: I think it was Paul Volcker.
"Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist." - Ken Boulding, 1973
Well a minor correction is that doubling in 7 years is a14%/yr rate and 6 years is 16.5%.
Well, by the math of the "rule of 72" where Where'd you get 14% and 16.5%?
and I said dt (doubling time) = 6 or 7 and we're looking for the rate of doubling, our range for r is ~10.2%-12%. dt = 72/r
That's embarrassing. I did some trial and error in a spreadsheet and I have no idea what mistake I made to get those numbers. You're right