[EMAIL PROTECTED] wrote: > How could this possibly be true? :ast I checked, GDP for the US > was about 10 trillion bucks a year, the combined GDP of > every nation on earth per year can't be more than 100 trillion, > most of which doesn't involve anything crosiing a border, > so how can there possibly be trillions of dollars worth of > foreign exchange a day?
Because the money goes round more than once. Because most foreign exchange ends up right back where it started before the end of the day, with tiny bits shaved off for interest. Because vast proportions of the apparent US money traded are, and have been for years, in the "euro-dollar" market in London and never touches down in America at all. (the relative importance of that has declined but other non-US markets are growing to replace it) Because banks lend money they don't have, and the people they lend it to lend it to others, who can include banks, who can lend the same money to more than one person - and as long as no-one is *really* stupid (remember Nick Leeson?) most of the money comes back home at settlement time. Because lots of money doesn't really represent spending power at all. Say that A owes B a billion dollars. B owes C a billion dollars worth of euros. C owes A a billion dollars worth of yen. Minor fluctuations in exchange rates, combined with traders efforts to pull a fast one, mean that smaller amounts of money - say a few hundred thousand a day - permanently changes hands, and can be spent. But, absent the meltdown of one or another market, the whole pot never gets spent. It can't, because it is mostly always promised to someone else. Because people don't just trade "money", whatever that is. They trade various kinds of rights and duties to money and other property. A has a billion dollars. How much is it worth to B to buy the right to borrow that billion for 1 day sometime next week, if they choose to? That has a value. A sells that right to B, and C and D. What happens if B & C both want to cash in? Well, A has to borrow the second billion from E in a hurry... and so on. Because as Bruce Sterling told us many years ago, cyberspace is real, it is where the banks keep the money. Most of the money in the world is entries in databases in London banks and market traders that no-one will ever spend. Most of the rest is in banks in Singapore, Tokyo, and New York. No-where else has any at all, statistically speaking :-) Ken
