The empty sham of debt-backed money.

From the begining of this whole crisis we have been told by all the experts that what we needed was first cash and then confidence.

When Bear Stearns, Fannie, Freddie and Lehman all fell over we were told by Secretary of the Treasury and former Goldman Sachs CEO Paulson, that without $700 Billion in Bail-out CASH, right now!! – the financial system would end and so would the Western World. Cowardly politicians quailed and TARP was created.

After the cash, we were chastised for lacking in confidence. As if this lack, was some form of cowardice. To lack ‘confidence’ was, they seemed to suggest, to be a defective citizen. To remedy this we were treated to the Bank Stress Test. Which so very nearly went horribly wrong. Several times the test had to be re-run with easier and easier assumptions until the whole thing became one giant condescending farce. What amazed and depressed me was the way not only the paid flatterers but even seemingly intelligent people appeared to accept blatant, brazen lying. The bankers poured sand in our sandwiches and people just tucked right in.

Since then we have see-sawed back and forth between alternating doses of cash and confidence. The Treasury and the FED print up the cash, the newspapers and business news channels print up the confidence.

The cash and the good new both, however, seem to have been printed on soap bubbles. They are here and then, POP, they’re gone.

For all the soap-bubble printing, the simple undeniable evidence kept returning like an unwashed dog that no one wanted – housing was not recovering, debts were not going away and comsumers were not consuming largely because so many of them were unemployed or in debt or both.

We have ground and sparked our way along like this, for nearly two years, like a car riding on its rims on rough ground. Until we smashed into a big rock in the road marked ‘Euro Crisis’.

Once again bankers are howling about CASH and getting their political fags (in the English Public School sense of the word) to bring it to them.

But I don’t think our present crisis is either a lack of cash or confidence. It is something I think the experts have over-looked.

When experts discuss money they talk about inflation or deflation. They think of the value of the money inflating or deflating due to the amount of money in circulation. That is, the amount of cash is thought of as the variable and the value underlying it – is assumed constant. Economists and bankers may at this point guffaw at the very notion that there is any such thing as an underlying value for a floating, fiat currency.

This is, I argue, the mistake – perhaps more kindly – it’s what has changed and is creating our present crisis.

In Weimar Germany the amount of money in cirulation went hyperbolic. Its value declined in inverse proportion – Inflation. What was assumed constant was the value of and in Germany – its ‘value producing capability’. If there was no such value in Germany, then Germany wouldn’t have needed money in the first place. There would have been no value for the money to carry and exchange between buyers and sellers. I think this value tends to be over-looked and is just assumed to always be fixed. But is it any longer?

Might we not see our present crisis as coming from a ‘feeling’ that so much debt has been taken on – that the actual value producing capacity, the value produced by the issuing nation or continent, is now too diluted to give the currency any intrinsic value?

To put it more simply I think the loss of value of the Euro, and potentially of other currencies as well, including eventually the dollar, is not a question of whether it has more or less floating-value as a fiat currency among other fiat currencies. It is a simpler question – what value lies beneath this paper – what should convice me it has any value at all?

In the text books, floating fiat currencies such a question is naive. A question from the Gold standard. But I think the question is BACK.

In a system of floating, fiat currencies their value to each other is realtive. Fine. But there must also be a faith that they have some underlying value – that the whole system has it. This value might come from Land, from Oil or from TAXES on actual productive labour. Such value exists before the fiat currency.

But what happens when the future value of the land, oil or tax is already spent, claims already made on it over and over before the land is cleared, the oil pumped or the labour actually done?

If people feel that the value producing capacity of Europe has already been mortgaged and sold off for years in advance, then they might worry they could find themselves holding a piece of euro paper, that when they come to cash it, spend it, they are told, ‘Sorry mate’, all the value has been spent for years in advance. There’s none left to honour your bit of paper’.

These are the questions and thoughts of a person who is NOT an expert, NOT a theorist. SO if they are naively wrong, discard them and perhaps don’t come back to this blog. OR maybe their significance, for the wiser experts, is that other ordinary people, not just me, might be having such profound doubts about the validity or your entire financial system and even the cash which makes it work at all. For right or wrong, I do have these doubts. I do think this system of debt and debt-backed money is an empty sham.

Just empty promises printed on soap bubbles.