Money from Nothing

Atop the Stoa this day, I am thinking about money and where it really comes from and how to manipulate it so that it can grow.

In the old days, when actual metal coins were the preferred currency, you would spend a few copper on materials, spend some time, effort, and apply some skill and you could then trade your work for silver coins. You grew wealthy doing something useful. Later on, people realized that you could charge interest (as in, you "have an interest") by loaning someone some copper pieces to generate silver. You would take back your loan, plus a little extra. Abuse of this created "usury" laws to keep people from being taken advantage of.

Even later, Nation States used silver and gold as their currency. Paper money existed, but it was a certificate for its equivalent in gold. It stood for a certain amount of gold being held elsewhere. If a nation borrowed money to fight a war or build a bridge, it had to transfer a certain amount of gold (or goods) to the country doing the lending.

Today, nations are trading in each others' debt. Ponder this. They are trading on a countries' future ability to generate more wealth than they currently possess. This means that, intrinsically, the country is borrowing money that it does not currently possess to finance their lifestyle NOW. People do this in their own lives on a small scale only the "debt vehicle" is a credit card. Show of hands, all, how many people do you know who are bankrupt because they can no longer meet minimum payments? How many people "roll over" debt from one card to another to stay just another month ahead of default? Too many, unfortunately. Nations play that game as well.

If you have to borrow money to pay off your debts, then you are already functionally bankrupt. What if you get terminated from work? No paycheck means no more future earnings. Those people who loaned you money (some of which they borrowed at lower rates to loan to you--yes, it makes your head spin sometimes) expect to be repaid with interest. Millions are a few missed paychecks away from actual, not functional bankruptcy.

Greece, Ireland, Iceland, and Portugal know all about this. Spain and Italy are becoming familiar, and Germany is slapping the credit card back in their wallet and yelling, "NEIN".

Why loan money to a country that is arguing about the meaning and triggering of the word, "default". Not a good investment. Now Italy is calling for a Eurobond, to "share" the risk. If Germany is the only country in Europe with real money, why would they want this? They would fund the debt and everyone would suck their blood. It only hides the illness (drunk on debt and spending) and kicks the issue of default a little farther down the road. Sooner or later, only debt will exist and paper money will be worth only paper--a commodity, if I recall. Gold, silver, and copper will once again be the only means of "currency".

What happened to those days were a dollar was money? What is a "debt swap" and is it really "worth" anything? Am I rich if I own a million dollars of your future earnings? I doubt it very much.

Now, on to other things to ponder. This stuff gives me a headache.

Live well and DON'T trade in your gold for dollars.

--Zavost