290. Past
Principles
Economics
(Growing up I wasn't sure what money was. It seemed like you always owed and would work forever to pay off something. Borrowing and debt seemed to enslave so better get a profession. Then if you eventually had some money it was a hot potato to leverage out somewhere. You seemed never free of the cycle. A simple understanding of money came to me much later in adulthood. A dollar earned from exchange or labor that stayed consistent as possible. This appealed to the purist in me. Later I realized it is good to know the base, the premise, the core of a concept, but one also has to make peace with what is, ie; the present money system. And then, does one accept this and play debt as if it is actual money? Practical but so cynical.
Following is a look at the two ways of viewing money.)
Leverage and intrinsic value
There is an honest relationship with money that one shouldn't be too removed from. Time, work, energy are exchanged for a good or service using a symbol called money. This money should be as consistent as possible over time, almost as unchangeable as the effort to accumulate it. Symbols for this money should be durable, of limited supply and intrinsic value. Gold is an example. A paper note could be used to represent the gold value, but it should remain consistent. So far money, as in gold, and its relationship with a note representing it, is honest and trustworthy.
When the relation between the paper note and the symbol it represents, say gold, is distorted, no longer reflecting accurately time, work, and energy, that is when we begin to have “funny” money. In one sense this distortion becomes a form of chance taking and gambling.
A simple example is a bank with $1000 to lend and charge interest upon. If ten people are lent 10% on $1000, all is okay. If 15 people are lent $100 on the initial $1000, that is a gamble. If by chance 12 or 13 of these borrowers couldn't pay back their money, the bank would lose its capital and be out of business. If this doesn't happen the bank stands to make unseemly profits based upon risk taking.
Recall the play “The Producers.” The accountant and hustler producer sold to elderly ladies thousands of percent for a play they carefully picked to fail called “Springtime for Hitler in Germany.” Everything seemed a go and the play at best should have been a one night stand. However, the audience after hesitation loved it as one loves kitsch or a grade B movie. The producers were in trouble.
Leveraging and derivatives are more sophisticated ways of manipulation. Often you are betting on the probability of an event happening, whether a crop failure or of a stadium being built near some land. Options and futures are other plays in the market that can multiply earnings.
In addition to this, there has been an effort to eliminate the downside of risk. One foreign individual from an African country said he planned to borrow all he could and invest it and if these investments failed, the International Monetary Fund would bail him out.
A teacher I knew said he worked with another teacher who drove a Lexus on a teacher’s salary. He would run up credit card debt and then declare bankruptcy as a matter of course. Corporations do this on a larger scale as do small businesses. When I was a small contractor I would see one decorating shop close, declare bankruptcy only to reopen across the street under a different name. All the debt goes unpaid with the net result money is cheapened. Of course this doesn't even touch the subject of recent bailouts for major corporations under the “too big to fail” concept.
In the stock market you have vehicles to sell off a stock if it goes below a certain level. Shrewd yes. One limits the downside. But it's too related to gambling. Instead of investing it becomes trading, where there is no belief or loyalty to a company. Technical analysis is even more detached in its methodology. The fundamental make up of a company is ignored and all that's important are the patterns of ebb and flow of capital. It becomes depersonalized, soulless trading.
Finally there is the printing of money which cheapens a currency. If a piece of gold is worth $100 and we print 100 dollars, every dollar to represent 1/100 of its worth, each dollar would be worth less if we printed 500 individual dollars or 1/500 of the piece of gold. In this way our savings are cheapened, our work, our time, our energy are degraded and worth less and less.
Inflation too becomes a form of leverage. Higher wages, higher prices, more printing of money continues to devalue the dollar. There should be some leeway but it should not be commonplace. Otherwise our simple honest relationship with money becomes compromised and society turns into a gambling casino and Ponzi scheme.
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