I stumbled upon your sentence "Surprisingly, few institutions collapsed so far". To me, it indicates that you cannot just count the derivatives market like that.
I mean, if you borrow one million in bonds to sell them, in order to buy a house (that's how our house is financed), and interest rate increases, then our house value goes down, but so does the value of our bonds... in other words, we lose money and the lender loses money, but nobody loses real money.
If you look at the real money, measured in Euros, it goes like this:
- A company paid a lot of money to build a house.
- We paid even more money to that company. For a fact, I know that the company, who built our house, had a huge pile of cash when the crisis hit hard. Let's call the price of the house P.
- We have a contract that obliges us to pay a fixed sum every month for 20 years. I cannot remember what the full amount is, but let's say it is 2*P.
- The crisis doesn't change our obligation to pay every month for 20 years. Since we don't plan to move or change the financing, things just continue.
- The company's cash pile is losing value by inflation.
- The company has less work to do, which means that they earn less money now, than they did previously.
- Some of the guys that worked for that company, are now doing other things. This may have changed their wage level, maybe not. We still lack labor in this country.
Conclusion:
- I continue to get wage raises, while my house gets cheaper and cheaper to live in.
The derivatives/virtual money part is, as far as I understand:
- Our debt decreases, because we could now buy back bonds with less money now, than if the crisis had not happened, because of increased interest rates.
- Our house value has decreased, reducing our net worth. The decrease during the last 12 months is greater than the reduction of debt.
- The company now has a lower value, but that won't change much of the lifestyle of the owners.
Summary:
- On paper, this looks like a big problem, but reality here and now is, that it's much less bad than it looks.
My conclusion is, that the biggest effect of all this stuff is, that our retirement money is getting smaller, and that's why so few collapse. The world is realizing that the future is not one of rich non-working retirees all over the place, with very few people to produce. |
