Reply #8: 'output' is a figure per year; this is an absolute figure

[muriel_volestrangler]

It is an astounding amount; the $50 trillion is 'credit default swaps', which is, basically (I think) company X saying to company Y 'if company Z can't pay its debts, we will pay you something; if not, you pay us something' - a sort of insurance, but it's been used just for speculation, it seems.

The higher figure is for all sorts of derivatives, just one of which is a credit default swap. Here's the estimates from the Bank of International Settlements of the state of things in 2007: http://www.bis.org/press/p071219.htm . From that:

"Notional amounts outstanding went up by 135% to $516 trillion at the end of June 2007" - the total

"Open positions in interest rate contracts increased by 119% to $389 trillion" - this is thus the largest type of derivative, when 2 companies swap their loan obligations, eg Company A has a fixed rate loan, but wants part of it to be a variable rate loan (presumably they're guessing interest rates will go down), while company B has a variable rate loan, but wants to go in the opposite direction. So they agree to swap some or all of their loans. Again, in theory you could use this to decrease risk, but it seems a lot of it is just done to bet on which way interest rates will go, and if one company gets its bets wrong, and can't pay up, then you're left with a complicated mess that could bring other companies down too.

"Growth in notional amounts outstanding of OTC foreign exchange derivatives was less brisk at 83%, taking the volume of open positions in such contracts to $58 trillion." - based on how exchange rates vary. Again, can either be used to decrease risk for real reasons (such as protecting an exporter from variations in exchange rates), or for speculation.