Wednesday, 1 April 2009

Money and other illusions

Hello my lovely people.

I doubt I shall be able to say anything new about money since better people than me have been thinking about, reasoning with it and earn more of it than me for since yonks ago. However, it still does seem to need a mention with all the G20 business and the protests going in London. People are obviously very upset -- putting bricks through the windows of banks and stuff like that. It is hard to see from this vantage point how far these protests are based on ideology and how much on character defects like blame and envy.

I know there is a recession going on but I get the distinct impression that there are several million people complaining of the present difficult circumstance whose situation has not worsened at all. There is an influence on the national mood that is in addition to the net material changes in circumstances. It seems a bit like the nation catching a virus. This virus though only infects thinking and mood and makes you feel that things are worse than they really are. This doesn't refer to people who really have lost jobs and homes etc like some of my favourite colleagues at work who, for the record, have not complained at all to my knowledge.

It would be a bit hard to get worked up about the stupidity of global gambling on assets that don't quite really exist if it didn't really affect a lot of people somewhere. If it were not for that, it would seem like the biggest joke of all time. I am in danger of indulging in the latest national pastime -- kick a banker. I doubt they are particularly worse than anybody else. Lots of people gamble for a living. It would seem to be an advantage though at least to gamble on a real horse rather than a notional one.

Today I bought a cash passport and loaded it with some Euros. Although the home office still have my friend's passport, I'll travelling tomorrow and I needed a bit of back up. Or, more to the point, I felt like I did. They are like debit cards but without the bank account and with a £1.50 charge every time you withdraw money from the ATM. Not bad for a little peace of mind I suppose but certainly, in a small way, an example of an industry that employs quite a lot of peopel and makes quite a lot of money for just moving numbers around from one computer system to another.

I am not an economist but in my head it strikes me that this type of industry must be underpinned by a far greater proportion of economic activity that is genuinely based on a mutually favourable excahnge of things that have been developed out of material natural resources. I suppose I see things like agriculture and manufacturing as giving our economy gravity. In some way I see a move towards an economy dominated by service industries as being Lando's Cloud City in Empire Strikes Back -- a thing that doesn't look like it should be standing up by itself but somehow it does. I know the argument about the more developed economies supplying skilled services etc that newer econmies don't do it is just that -- aren't we pegged to the greater currency of what natural resources we have and how we make them into things we can exchange really?

I read in Nial Ferguson's book The Ascent of Money that if I lend you the bank £100 and they keep £10 on deposit and lend the other £90 out to the next borrower, effectively they have created some wealth; an additional £90. If the second lender then deposits that money in a different bank, who, in turn, lends £80 of that to another lender there are now held as deposits £270 from an original £100. The problem is that the additional £170 is only really a notional reality. It only exists in thin air. Thin air might look thin but it can really come back to haunt you like the hounds at head of this credit crunch. That's not bad for an illusion.

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