So just how big is a trillion ?

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I'm planning to review some of the books about the banking crisis here.  One of the problems is that the numbers being bandied about are beyond the comprehension of ordinary mortals, perhaps even only understood by aliens  - which might tell us something about the cause of the crisis  (No, no.  Joke. Not Roswell.  Just don't even start.)

Here is my light hearted guide to those big numbers :

£1

You know what this is, right.  And you know what it is worth.  Got any on you ?  Get one out.  Hold it in your hand.  Got it ?  Something like one in thirty are fake, so you have almost certainly held a fake one at some point.  Can you tell ?

£100

What an ordinary person earns in six or seven hours, so about a day's work.

What a fairly successful professional earns in about one hour.

What an investment banker like Bob Diamond earns in around 30 seconds.

£1,000,000   (a million)

What the average person earns in about forty years, a lifetime's worth of wages.

An unacceptably low bonus in the City, something to have a tantrum about. In a bad year.

The price of four ordinary, but perfectly decent houses. So, for most people,  a quarter of a lifetime's wages need to go on a roof over your head, except that you need more to cover the finance charges, probably the same again, twice over. So housing requires more than just one income.   There is a clue there to just how important an adequate housing stock is to the country.

£100,000,000  (one hundred million)

This is more money than you can spend in a lifetime. A couple of really nice houses, a few flash cars, several holidays in sunny places and a healthy income to live off  - you can do all that on £10 million,  or even £5 million if you don't do flash, maybe less.  Of course, you could blow £70 million on a painting and put it in a bank vault, but do expect your shrink to ask you if you have penis envy issues. There is clearly something unusually wrong with our sense of what money is for, if we are prepared to pay an extraordinary sum for a daub, no matter how great the daubing.

My humble estimate, then, of the yardstick "more money than you'll ever need", is £10 million, a tenth of one hundred million. And it is not even enough to buy a decent painting.  Whatever can I be thinking !

£100 million is a quite awesome sum of money for an individual.  If you work in a big company, you might have gotten1 a little blasé about sums like this.

£1,000,000,000  (one billion, or a thousand million)

What we old fashioned Brits used to call a milliard. If £100 million was 'awesome', a billion is 10x 'awesome'.

A billion is roughly what one thousand ordinary people could expect to earn in their entire lifetimes.  You might, just about, be able to name a thousand people that you meet frequently in the normal course of your life, but more likely it will be around two to three hundred.

There are slightly more than one thousand dollar billionaires on the planet, according to Forbes Magazine, so less than one thousand if we value them in pounds sterling.  The UK has over forty, China has more than sixty, rising fast,  and there are over four hundred in the USA.

A billion is about what you need to run a major hospital for three years. Something like two thirds of that will be staff salaries and wages. So if a hospital is run inefficiently, then even a small improvement can release quite an immense sum to be better used elsewhere.

At the height of the banking crisis, RBS, via ABN Amro,  was owed $65 billion by AIG2. This was substantially credit default swap insurance.  A number of banks were using insurance to hide the full extent of their gearing from regulators. Others were using it to manufacture synthetic mortgage assets to sell on to their clients (as the world was short of real mortgages to sell on, and you can't earn commissions if you haven't got something to sell). The 'efficient' free market led a significant proportion of the world's banks to all buy their insurance from the same place, concentrating the risk so much that the effect was none were insured.

The Bank of England provided quantitative easing to the four major UK banks (Barclays, HSBC, LloydsTSB, and RBS) to the tune of one hundred billion pounds in 2010.  This is enough to employ four million people for a year, or one hundred thousand people for life.  It equates to about £3,000 for every working person in the UK, or enough to run over 300 major hospitals - more than we have in the country.  When those banks report their profits, and crow about their performance, just remember where that profit came from - you (or rather, your future, and probably your children's future too).  And that was just 2010.

£1000,000,000,000  (one trillion, a thousand thousand million)

What we old fashioned Brits used to call a billion.  Ten thousand times 'awesome'.

There are no trillionaires.  Bill Gates and Warren Buffet are each worth about fifty billion dollars.

A trillion equates to a year's wages for 40 million people in the UK, or a lifetime's wage for a million.

The UK economy amounts to some $2.2 trillion (£1.4 trillion), about the same as Brazil, France and Russia3. This is  $35,000 per head, or in GBP about £22,000.

For the working population, which is about 34 million (my guesstimate), the UK economy is equivalent to £42,000 per person. £1.4 trillion is also roughly the amount Britain owes on its mortgages, personal loans and credit cards.

The Chinese economy amounts to some £10 trillion, or $7,500 per head of total population.

The US economy amounts to some $15 trillion, or $47,000 per head of total population.

The world economy amounts $74 trillion, or just under $11,000 per head.

A trillion dollars is the amount the US Treasury decided they might need to rescue the banking system in 2008.  Even they had trouble getting their heads around what a trillion is, so the lord only knows what Congress thought they were agreeing to.  Fathom Consulting reckon the major central banks have needed $5 trillion to do the job so far. Some people doubt the necessity.  What is not in doubt is that the banking system is being allowed to carry on in pretty much the same manner with very little change.  Hmmm.

 

[1]  Lighten up, it is just an Americanism

[2]  See Sorkin, Too Big to Fail

[3]  IMF, purchasing power parity GDP, 2010  (per Wikipedia)

 

 

 

Last modified on Wednesday, 25 May 2011 08:59
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