First, this item about Dubai:Nov. 25 (Bloomberg) Dubai World, the government-owned holding company struggling with $59 billion of liabilities, is seeking to delay repayment on all of its debt, even after Abu Dhabi banks provided $5 billion for Dubai’s support fund.
It didn't take long
, did it, for the "pearl" to turn into a turkey?
On with the value of money (Debra's comment on the last post made me do it, honest....).
There I was two days ago sitting in my attorney's office, when a couple of guys walked in; a father and son pair, as it later turned out. They had come to receive compensation as settlement of a securities fraud case. Apparently, they had invested in a fund that went under several years ago; after a prolonged legal battle they were finally to get forty cents on the dollar. Despite the buzz-saw cut they suffered they were very happy - grateful even - to get something back.
They didn't look all that prosperous and I felt kind of sorry for them, when I noticed that what they were about to receive implied an original investment of over $1 million. Not exactly a pair of hoi polloi. But, anyhow...
We started talking while the lawyer was drafting a receipt and our discussion inevitably turned to money. I climbed onto my usual monetary affairs soap-box and started the dime speech on what constitutes money and banking in a fiat currency regime. Back I went into monetary history, watching their faces all the time... The link between dollars and gold (yes, yes of course we know this, signalled their nods), Bretton Woods (eh?), Nixon's final revocation of the gold standard in 1971 (whaaa..?), how money is created today (the government prints it, no?), the power of banks to create money out of thin air via credit demand (no, no, that's not possible!).
In this exchange, as in many before it, I once again witnessed the widespread ignorance about money and banking that permeates our society. Father and son, like 99% of all people, still hung on to a super-outdated notion that gold and money were - somehow - still connected. That money is still attached to (and thus reflects) some tangible "value", and that its creation is strictly regulated by a higher authority permanently answerable to society.
So, I explained to them that our money is like a ship: centuries ago it was firmly anchored (gold and silver coin), but that as time passed more and more cable was let out so the ship swung wider around its anchorage (gold standard). Finally, in 1971 Nixon let go the anchor altogether by shutting down the gold "window", so the ship is now completely untethered; it floats and rides the waves freely, counting solely on its captain's seamanship to stop it from running aground.
Though father and son listened attentively and even respectfully (probably a reflection of our legal surroundings and the fact they were about to receive a bunch of money they considered forever lost), I could see that they didn't really believe me.
I was not surprised; this is almost always the case: people find it extremely difficult to come to grips with the idea that today's money embodies nothing more than pure confidence, fides, credo.. That fiat money is a belief system; an organized, state-sponsored religion complete with high priests, acolytes and genuflecting flock.
In more scientific terms, the pair's aversion to the truth is similar to believing in a Newtonian/Einsteinian unitary "reality", as quantum uncertainty and multiplicity are swirling all around us.
So, what is the Value Of Money? Just like the quantum universe(s), simply what we think it is.
Happy Thanksgiving to all.