Peter wrote: > Back in the 80's, I worked at Irving Trust, a large, > venerable (and since taken-over) major money center bank in > NYC (I was literally across the street from the WTC). I > worked on telecommunications software. > > In Federal Funds alone, we typically moved about 100 > BILLION dollars a day. That was 15 years ago, on just > one system, at just one bank. > > I was as incredulous as you, until I worked out what was > going on - like the tide, the same money was passing > through our computers each day. A massive, invisible > tsunami of money flows all the way around the world > every 24 hours, chasing the sun and the best return.
Peter is correct in that there is a gigantic bulge of money that circles the globe each day, following the sun. Though the reason for this constant circulation isn't primarily to obtain the best interest rate on the cash. The reason why this bulge of cash keeps circling the globe is actually much more interesting than a desire to obtain the highest interest rates. Let's say you are running a world-wide trading house with operations around the globe. Let's further assume your European operation shows $50B in cash on the books. What exactly does it mean for a business entity to have a certain amount of cash on the books? It means that this entity can show that amount to be present in their accounts during auditing hours. Which usually equates to business hours. So, here is what is really happening: The moment trading closes in your European operation's time zone, the European operation transfers the $50B to your US operation. Leaving the European operation with no cash in their accounts until the next morning. Once trading closes in the US, the US operation transfers the same $50B to the Asian operation. Which in turn will later transfer those $50B to the European operation, just in time before they open up their doors again in the morning. The result? Your global operations can show a total of $150B of cash on the books when in fact there were never more than $50B at any given time. Such practices (and several variants thereof; similar games can be played with commodity futures, etc.) are not just legal, but standard procedure at global trading houses and just about any outfit of significant size that both has accounts containing cash and runs world-wide operations. Why account for the same dollar only once if you can account for it 3 times? That's the reason why this trillion dollar bulge of money keeps circling the globe each day, every day, following the sun (or perhaps more precisely, the effective hours of the auditing rules). Enjoy, --Lucky
