The Three Trillion Dollar War

Apple s stock capitalization has soared, and it became the first trillion dollar company.

It was hard work engineering a five trillion dollar deterioration in America s fiscal position.

Finally, investors are adding nearly a trillion dollars worth of net dollar securities to their positions every year, thus increasing the risk of continued dollar accumulation.

Especially as the dollar lost its sacred place as a store of value under the Bush administration, rebalancing these multi trillion dollar portfolios entails selling off dollar holdings, contributing to the dollar s weakening.

First, a trillion dollar bailout package in May prevented an immediate default by Greece and a break up of the eurozone.

But I read this fact the other day, that one trillion seconds equals 32 thousand years, so if you think about that, the context, the casualness with which we talk about trillion dollar bailout here, and trillion there, we are stacking ourselves up for long term leverage.

In the two decades that followed, America s debt usually was around 3 trillion, rising or falling with the exchange rate of the dollar.

Japan, China, and other export oriented East Asian economies are indeed eager to keep the value of the dollar relatively high, and their central banks have piled up close to 2 trillion in dollar denominated assets.

Another Fed governor, Jeremy Stein, has pointed out that foreign banks have dollar liabilities of roughly 8 trillion, much of it short term wholesale funding.

Fully two thirds of that total around 2 trillion is invested in dollar based assets, largely US Treasuries and agency securities (i.e., Fannie Mae and Freddie Mac).

China s existing portfolio of some 3 trillion worth of dollar bonds and other foreign securities exposes it to two distinct risks inflation in the United States and Europe, and a rapid devaluation of the dollar relative to the euro and other currencies.

Moreover, as Bilmes and I argued in our book The Three Trillion Dollar War, the wars contributed to America s macroeconomic weaknesses, which exacerbated its deficits and debt burden.

Meanwhile, many of these gases need to be curbed because of their wider environmental impact on public health, agriculture, and the planet s multi trillion dollar ecosystems, including forests.

Do people think it is easy for a 12 trillion dollar economy to spend beyond its means year after year just to prop up other countries reputations for stability?

Have those who pushed deregulation ten years ago learned their lesson? Or will they simply push for cosmetic reforms the minimum required to justify the mega trillion dollar bailouts?

And we can't fight the threat in the kind of stupid way we're doing, because a million dollar act causes a billion dollars of damage, causes a trillion dollar response which is largely ineffective and arguably, probably almost certainly, has made the problem worse.

Consider what a decline of the dollar relative to the yuan would mean for the Chinese. If the Chinese now hold 1 trillion in their official portfolios, a 10 rise in the yuan dollar exchange rate would lower the yuan value of those holdings by 10 .

The plan s central conceit is that government ingenuity can disentangle the trillion dollar sub prime mortgage loan market, even though Wall Street s own rocket scientists have utterly failed to do so.

What started with subprime mortgages spread to all collateralized debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi trillion dollar credit default swap market.

Indeed, since late 2003, when the Fed first cut interest rates to 1 , triggering the US housing bubble, dollar reserves in emerging markets have increased six fold, reaching 7 trillion by 2011.

Today s 70 trillion world economy will be at 140 trillion before 2030, and 280 trillion before 2050 if we extrapolate from today s growth rate.

US debt exploded to nearly 12 trillion ( 16.7 trillion if intragovernmental holdings are included).

The Financial Stability Board has estimated that total global shadow banking assets in 2011 amounted to 67 trillion, with the US accounting for 23 trillion, the eurozone for 22 trillion, and the United Kingdom for 9 trillion.

These instruments combined worth reached 5.9 trillion last year, led by corporate bonds ( 2.3 trillion).

China s 3.2 Trillion Headache

The 200 Trillion Question

And then we discovered these things gold and oil and fishing and timber and it became, you know, a trillion dollar economy, and now we take our honeymoons there. The same thing will happen in space.

At the end of last year, Japan s net international wealth amounted to 296 trillion ( 3 trillion).

In 2004, total consumer spending in Latin America and the Caribbean amounted to 0.94 trillion, with the figures being 0.55 trillion for China and 0.35 trillion for India.

As more time passes with neither the value of the dollar declining sharply nor market forces beginning to shrink America s current account deficit which may well reach 1 trillion this year two diametrically opposed reactions are emerging.

For example, U.S. farmland had a total value of 1.9 trillion in 2010, compared with 16.5 trillion for the US stock market and 16.6 trillion for the US housing market.

At the end of 2012, China s commercial banks held 6.4 trillion in core capital and 1.5 trillion in non performing loan provisions, for a risk cushion of roughly 8 trillion.

The total cost would be about 9 billion, and the benefits of preventing the temperature increase would add up to about 20 trillion. That is the equivalent of doing about 2000 worth of good with every dollar spent.

India s GDP of 3.3 trillion compares to China s 5 trillion, and is 20 that of the United States.

Estimates of the losses on US loans and securities range from under 1 trillion to almost 4 trillion.

Between November 2008 and June 2009, China s banks issued more than 8.6 trillion ( 1.3 trillion) in new loans.

After two rounds of quantitative easing (QE), the balance sheets of the European Central Bank and the United States Federal Reserve have grown to 3.2 trillion ( 4.1 trillion) and 2.9 trillion, respectively.

It is, she calculates, in the order of one trillion, although it could be as high as 2.7 trillion.

According to Morgan Stanley, SWF s are expected to manage 12 trillion by 2015, up from about 2.5 trillion today.

The expected foreign aid 1.9 trillion.

That might not sound like very much, but the reduction in prices and improvements in food security would help almost everyone. It would be worth nearly 3 trillion in social good yielding an enormous 34 of benefits for every dollar spent.

The balance of bank loans to LGIVs increased only slightly in 2012, to 9.3 trillion, from 9.1 trillion in 2011.

Total financial losses including possibly 1 trillion in mortgages and related securitized products could be as high as 1.7 trillion.

It is said that the International Monetary Fund, which earlier this year revised upward its estimate of bank losses, from 1 trillion to 2.2 trillion, will announce a new estimate of 3.1 trillion for US assets and 0.9 trillion for foreign assets, figures very close to my own.