Fluffing up the Fluff

Comfort_logo2I promised you some thoughts on money, so here goes…

I guess the first question is: where did money come from?

Money developed as a medium of exchange. Barter wasn’t always convenient – goods may have been seasonal and available at different times – there was no “coincidence of wants”. Around 9000BC, to get around the problem, people started trading in “commodity money”, initially cattle, camels, grain and cowry shells.

Coins started around 700BC, with gold and silver the most common metals used, often minted by the current ruler in an early form of monarchic brand management, reminding the users who was boss every time they bought a flagon of best Malmsey or a bushel of olives. After Charles I seized £200,000 worth of private gold stored in the Royal Mint in 1640, merchants found it safer to stash their bullion in the vaults of goldsmiths and jewellers, who thus became the first bankers. They issued notes confirming the amount of the deposit and soon these notes began to be used instead of the coins. Providing they trusted the banks, merchants and shops were happy to take the notes.

Realising that they could issue these notes against the security of the coinage they were looking after and which, increasingly, wasn’t being used, the bankers started lending notes and charging interest. The coins stayed in the vault, as collateral. Now they knew they were onto a winner, the banks started issuing more credit notes than they had coins for, and control of the nation’s currency passed from the government and its coins, to the bankers and their seemingly unlimited notes. The banks had acquired the power to create money. Which is where we are now, with 97% of the money in the economy created by banks, and a mere 3% by the government.

Which is why most money doesn’t exist. It’s merely froth created by the banks. Made out of thin air. Here’s how they do it: when a bank makes a loan it creates a line of credit, temporarily on loan from the bank. Once the loan is paid back, the line of credit – and the “money” – disappears and meanwhile the bank has made a profit from the interest charged on the loan. So they want to lend as much as possible when people are able to pay them back; when they are not able to, the banks don’t lend. Sound familiar? Ten years ago, the banks got over-confident, didn’t properly check on peoples’ ability to repay their debts, particularly “sub-prime” mortgage interest payments, and precipitated the great crash of 2007. So Northern Rock came a cropper in September that year, as its customers lost confidence in its ability to give them their money, there was a “run on the bank” and the British taxpayer picked up the tab.

The froth flies in one direction only, with customers repaying their loans with real money, money that represents energy expended, real endeavour. The banks have thus achieved what centuries of alchemic endeavour has so far failed to do: to create something out of nothing.

And of course banks quite understandably want security against big loans, usually property. What’s interesting though, is that the value of this property depends almost entirely on confidence, the confidence we have in its value not just holding but increasing, the same confidence that underpins pretty much everything we do in the economic sphere – the value of shares, unlimited growth, permanent supplies of natural resources etc. And what underpins confidence? Optimism? Right. That shaky, Micawberish faith that either “something will turn up” or posterity will pick up the tab – sometime. Scary how insubstantial this is as a basis for sustainable human evolution. Amazing how quickly confidence can switch from high to low, how much fear lurks behind either mood.

How close we all sail to that Lorelei Rock of loss or liquidity – like it or not, as most of us don’t have a hand on the tiller.  That siren call is for those creating and then selling a dream most of us can only imagine, a dream that pushes the present far into the future, contaminating it for all time with a fearful confidence, and neatly dispensing with responsibility.

And even more extraordinarily, this funny money, this froth, is traded as a commodity, just like sugar, copper, oil and other real staples. Fantasy finance! We now have HFT, high frequency trading, or algorithmic trading, using superbly sophisticated techno tools and algorithms to speed up trades, making buying and selling decisions automatically and far more rapidly than a mere mortal. Frothing up the froth.

And here’s the killer realisation: in calling for all debts to be written off, Will Self, that brilliant commentator on our all-consuming, consumerist, image-fixated, technology driven world, points out that the $199 trillion of world debt is entirely founded on the sands of expectation; that “…mortgages, bank loans, government bond issues, they all work on the basis that in the years to come, our heirs will continue not simply to work and innovate, but also to extract the world’s natural resources as much, if not more, as we’ve done historically.” He calls this “[an] advance drawn on the future” and talks of our refusal to accept the true economic – and by extension political – fault line running through our society: “…the divergence in interests [lying] between the old and the young”.

So the can gets kicked further down that yellow brick road and, like Pilate, we can wash our hands as the world bleeds.

Next time I might venture into the chaotic, confusing world of largely unregulated commerce. Or I might not, opting instead for something altogether more pleasing and real.

Go well!



What’s the point of school?

Comfort_logo2This is me re-entering the bloggersphere after a few years in the wild.  I’m hoping for a reasonably soft landing.  Last time I blogged it was about working from home.  You know the kind of thing: sitting in a shed at the bottom of the garden, procrastinating (the washing up was never so exciting as then), keeping the cats off the keyboard and naked typing.  (Well, there’s no need to dress if you’re not going to the office, is there?).

Now, having given up naked typing (the faux leatherette of the command post really sticks to your bum) I’m into reflecting on issues around work, why we do it, what it can do to us, what we can do for the world through our work and other existential questions.  Having gone (rather dramatically) through my midlife crisis and missed my quarter life one (it hadn’t been invented then) I’m quite looking forward to the three quarter life version (the latest lifestyle must-have I’m told, along with work:life imbalance and Pilates).  I’m not exactly sure what it will entail but I’m determined to make the most of it when it arrives.  I’m pretty certain it will include some wrath on my part as there is actually quite a lot to be wrathful about.

We could start with education.  And the fundamental question: what’s it for?  Is it designed to mould young people into shapes that fit the mass-consumerism based, image-fixated, corporately manipulated and technologically wound up way of life we’ve allowed to expand exponentially and envelop us?   Is it intended to equip them for the battle for the “good life” we’ve been told to aspire to, to help them get ahead of others in the great race to…who knows where?  Or is it to give them the confidence to be who they are, charting their own course, following their passion, their integrity and their innate sense of morality?

I’m really glad I went to a school where the individuality of the child was paramount, where the teachers’ energy went into growing my talents rather than shaping me for some pre-ordained structure.   I’m also hugely indebted to my parents who, although both committed non-conformists and resolutely in agreement on the education they wanted for me, could never see eye to eye on anything much else not to conform to.  Thus I was also well schooled in the art of hearing both sides of an argument, exercising diplomacy and dispensing large quantities of oil.

So I’m increasingly struck by the thought: what is my responsibility to young people?  Having seen huge changes in the way we organise ourselves in society, but also witnessed how often familiar attitudes and their concomitant mantras come round again over the years (the NHS is a great example of this constant recycling of temporary “wisdom” and fleeting orthodoxy), I feel challenged to find a way of tempering the excitement of the new and its rapidly evolving toy box with experiences from the past and the many lessons that can be learned from what we tend to call mistakes.   And mistakes that we rarely seem to have time to fully understand, losing in the rush to the new the opportunity to apply the insights and realisations they bring   Such is this scramble for novelty, our conviction is that progress can only happen in forward gear.  One of my more sensible crazy ideas is the establishment of a University of Unintended Consequences where, for perhaps a year, we would give time to learning about ours and other peoples’ supposed screw-ups, we would test the current definition of success and find ways of using “failures” to help in the fight against conformity and the bullying of the markets.  (Don’t get me started on branding babies – that’s for later!).

Anyway, before I begin to either bore you rigid or annoy you, I’ll stop and just say I hope you’ll give me feedback on the above.  I hope too that you will disagree as well as agree.  I believe that it’s increasingly essential to debate honestly and robustly what we intend with our education systems, what kind of people we want to welcome into the complex and challenging adult world, so I’d really welcome your ideas.

More in early September.

Take Care!