Infographic: The World’s Money and Markets

This is good but not great. (All my comments are up here because the image is so large, here is the original in its own web page with comments). I have 3 big complaints. There’s also a fourth group of stuff to love because we don’t often see it elsewhere.

• There’s some crossover between different categories, so some things are double-counted. Some examples are:
• Several of the “Biggest Companies” biggest shareholders are listed in the “50 Richest People”.
• The “Fed’s Balance Sheet” includes the USA sub-category under “Currency”. And BTW: which side of the Fed’s balance sheet is shown there, or is it both (or do the visualizers not have that straight in their own heads?)
• There’s some mixing of stocks and flows. For example:
• The category “50 Richest People” (in the world) is followed by “California’s GDP”. But the former is a stock and the latter is a flow. A way to think about this is that they are related by a rate of return. Assume that’s 10%/year to make things simple. Thus, the flow of income coming of the wealth of the 50 richest people is about 2 blocks. When compared to the flow of California’s GDP of 26 blocks (yes, there’s a mistake in the chart there) it doesn’t look so big. Even better, California’s flow of GDP is generated by a stock of wealth that’s 10 times as big, so an appropriate comparison is the 19 blocks for the “50 Richest People” to the 260 blocks of wealth in California.
• But that comparison is insightful because the size of the sub-category “United States” under “Stock Markets” is only 73 blocks. Figure about 10 of those are in California. So somehow, California has 260 blocks of wealth of which just 10 are the market’s net worth of corporations. This tells us that most of what is productive in our world is not in corporations, which begs the question of why on earth so many politicians are so concerned with limiting them.
• They need to be careful about what are assets, what the liabilities are, and what net worth (the difference between the two) is. For example:
• They only have some portions of assets listed (e.g., “Gold”, “Currency”) but then they show a much more inclusive and comprehensive “Global Debt” category. This makes debt look too large.
• They also show capitalization of “Stock Markets” which is a net figure. What are the assets and liabilities associated with that?
• The same thing goes for derivatives. They talk about the zero-sum nature of most of those, but they don’t actually show it.
• This is a good example of the “balanced reporting” and “what passes for expertise” problems from my Why Is Macro So Hard lectures. In the sidebar about derivatives, they quote Dr. Richard Sandor (why does he get a title if it isn’t important to the position he takes?), Warren Buffet, and Jeff Greene. So what you have there is a guy who markets derivatives, a guy who’s rich mostly from non-derivatives, and a guy who got rich from derivatives. Any expertise there on the history of derivatives, why we have them, or why they’re useful??
• Most people who are buggy about money being backed by something think it has to be gold (in Fort Knox!!). The sub-category “Central Banks & IMF” shows how small that component actually is.

Courtesy of: Visual Capitalist, via Newmark’s Door.