So the euro is in ‘real danger of collapsing’, is it? We’re expected to worry about that, but I wonder what it actually means. Would it really matter if our currency was suddenly worth nothing at all?
I don’t know about you, but I’d be fine frankly. It’s true there probably isn’t a lot of work for a cartoonist in a collapsed economy, but I have other strings to my bow – which these days is getting to more resemble some sort of harp. Something I am not at all bad at is making broken things go again. I started as a small boy on alarm clocks, I do it now with computers and such. I reckon I’ll be getting plenty work after the currency collapses and no one has the means to buy new things. I will accept payment in food and body warmth.
What happens though if someone needs my services, but doesn’t have anything I can use right now? I can’t eat when I’m not hungry after all. It will be down to good old barter. You could give me some copper wire and I could exchange that with someone for, say, a big ball of wool, which someone else may be willing to barter for a bag of salt, which I could then swap for six bundles of sticks, which I can finally trade for the Blu-ray of The Adventures of Tintin I need.
It would be a lot easier though if we had some system of tokens, so you could trade with those instead of carrying goods with you everywhere. Say, special printed documents with distinctive designs on them. And as luck would have it, there’s one readily available. We could use all those unwanted euro notes.
We’re hearing a lot about how ‘the markets’ are reacting to changes in the Greek and Italian governments. It would seem the broad assessment is ‘unhelpfully’. Mysterious beasts, these markets. The only clear thing is that they’re damnable tricky to please. Whatever you do, it turns out to be not even close to what they wanted. Basically, the markets are a dreadful girlfriend. I know, in reality they are just bunches of people. But you can never trust people in bunches.
The other day I heard someone say that markets are powerful mechanisms for finding the correct price of things because they depend on the ‘wisdom of crowds‘. This is a real and very interesting phenomenon. If you ask a crowd to estimate something, it often happens that the average of their guesses is more accurate than even the closest individual one. In other words, the crowd as a whole seems to know better than any one of its members. It’s as if all their ignorance, being distributed randomly, cancels itself out – leaving nothing behind but the smart.
Which in fascinating and useful to know. It’s not however how markets work. And particularly not financial markets, where what is being traded isn’t a tangible commodity but – when it comes down to it – promises. People making promises to repay a certain amount of money in the future (or, thanks to some of the more complex financial instruments, the past) in return for money now. People packaging up those promises and re-selling them as promises about promises. People trading on promises yet to be made. All for money – which is of course itself only a promise. It’s not a crowd trying to estimate something objective. It’s a crowd all trying to second-guess each other – a deeply unstable situation. It could turn into a stampede at the first peal of thunder. Yet this is what we’re depending on now, so soon after our experience with the property market. We’re incurable.
Ireland’s government is considering making a deeper fiscal adjustment than planned next year in a bid to further distinguish itself from Greece and build on its recent bond market rally. – Reuters
Ah yes. I think they call that “masochism by proxy”. Our government stands ready and willing to show how much we can suffer.
The UK has taken a rather different approach, one not open to us as Euro members. “Quantitative easing” they call it. Sounds like a euphemism for a good solid dump, but it actually disguises something even more unmentionable – what they used to call “printing money”. Of course, they don’t actually print the stuff these days. Who uses cash, darling? Somewhere in some secret turret of the Bank of England, they push a button and simply magic £75 billion into existence.
Doesn’t seem right, does it? If you like, you could think of it as the B of E simply raising its own credit rating and lending itself that £75 billion. But if it’s a loan, who does it have to be paid back to? The future? An alternative universe maybe? I think it’s best to just grit your teeth and accept the reality. Money is fictional. What the B of E has done here is simply made some more up.
Yes, fictional. Money is nothing except what we pretend it is – not even power. Power after all is the ability to make other people do what you want, and money only has that effect if we all play the game, doing what someone else wants in return for mere tokens in the knowledge that other people in their turn will do what we want to get them. If you think about it too much it seems like an utter house of cards. Why do we go along with it – especially we who don’t have so many tokens to begin with?
Well, the only non-fictional way to make people do what they don’t want to do is the threat of direct physical violence. So playing along is preferable to that. Plus it’s hard to see how anyone could be scary enough to organize a whole society through intimidation, certainly not one of any real size.
The other thing that bothers people here is, who owns this £75 billion? Actual wealth like a resource is still there even when it goes unclaimed and unexploited, but money only exists by virtue of someone having it (and someone else wanting it). So when a government just wishes billions into existence, whose exactly are they?
Well the Bank of England gets to spend it, so I guess it’s theirs. What they do though, mostly at least, is immediately use it to buy government bonds. Not from the government, I hasten to add. Modern economics is insane, yes, but it hasn’t quite reached the point where a government invents money to buy the bonds it invented from itself. No, they buy them from people who have invested in them, thereby making those investors’ assets liquid again so that they can spend, spend, spend. Which is good for the economy.
Or so Tories always say when they need to justify the transfer of public funds to private friends.
Will it work? I’m not so sure. When a government makes money up they are unilaterally modifying the rules of the game. Or cheating, as we once called it. This may encourage other people to get creative too. Will markets play fair with the UK government, or will they say that this new stuff just isn’t as good as the old, and they need some more please?
Brace yourself for more irritating, hyperactive adverts on TV, more men with laptops and weighing scales in shopping malls, and more burglaries. Gold has reached a new record price of over $1600 per ounce. This means that, for the first time ever, gold is now actually worth its weight in gold.
But I shouldn’t get surreal, the reality is ridiculous enough. Buying gold is the global economy’s answer to popping valium and praying. Whenever the markets don’t know what’s going to happen or what to do next, they run to the yellow metal. There is no clear reason why, it just has this talismanic ring to it. Weight. Historical value. Shininess.
Also of course, it’s an actual thing. All those brave traders out there, wildly speculating all day on derivatives and futures and other fanciful ways to bet on how other people will make bets on how you will bet suddenly realise that all they own are pieces of paper written in the conditional mood, and succumb to an urge to possess something that you can actually hold and touch and hug. Or at least, a piece of paper that says you possess something you can hold and touch and hug.
This superstition-based value is highly dysfunctional. The problem with the flight to gold is that there is not enough room in gold. You’ve heard that factoid about how much there is in the entire world? Enough to fill just two Olympic swimming pools. It depends of course on how deep those pools are, but this is roughly right. There are something like 155,000 tonnes of gold lying around. Assuming that ounce price is for troy ounces, the normal ISO (International Silly Old) unit, and that comes to about eight trillion dollars ($8 000 000 000 000).
That’s hardly the current account deficit of a small South American republic these days. With the Euro in dire straits, there is clearly a lot more money needing somewhere to hide than that, and all the gold in the world is not a big enough hiding place.
Unless, of course, its price goes up even further and even faster.
You can almost hear the new wars starting in Africa, as it becomes lucrative once more to arm some children and turn over a neighbouring country. (Arms manufacture is always a good secondary bet when gold goes up.) Oh and if you have any gold fillings, now would be a good time to cash them in. Before someone else does, with a brick.
