“Only when the last tree has died and the last river has been poisoned and the last fish has been caught will we realise we cannot eat money.”
What is money, really?
If you’ve got tons of it you probably agree to the saying that it’s important but not the most essential stuff in life. If you haven’t got any, then you most certainly would claim that money is one of the most important things. It’s relative.
What’s also relative is its value in pure economic terms. I promised in my latest chronicle that money would be the subject for the next one, so I will in short try to explain why money is so utterly connected to the previous subject – oil.
Money used to be connected to a certain amount of gold, where gold would represent the real value. Hence bankers and central banks couldn’t print more money than they had stored in real physical goods, gold. In other words to prevent reckless lending and inflation not connected to real economic growth.
Somewhere along the way banks and politicians realized that having tied money to gold wasn’t the smartest thing, since it didn’t allow the economy to grow faster than the equivalent amount of the yellow metal. And this is where the “IOUs” in the modern form of coins an bills, and “zeroes” and “ones” (digital) we now use as money were born.
When you go to a bank to borrow money, let’s say for a brand new car (and the bank approves that you are a trustworthy customer) the guy at the counter is actually the printing press. By the stroke of a key he creates that amount out of the blue, from nowhere, and the contract you just signed now holds that very value, plus interest. That’s what banks do, and how they earn their money.
The interest you now swear by the gods of heavy metal to pay on top of the mortgage is then for you to collect from the rest of the money in circulation, the money that other people and businesses took out as loans and put out on the market.
But what if the bound between economic growth and money lending would break because of global (or national) energy shortages, i.e. an inevitable fall in global oil production?
The short answer would be that there would at first be too much money in circulation relative to the economy and after that the whole monetary system would simply implode because nobody would be able to pay interest on the already excisting debt when less money than yesterday would be in circulation, and this would be permanent. Much like a game of musical chairs.
Conclusion, long term. Buy land, the don’t make any more of it 🙂
/Until next time, yours truly,