Sometimes, it would be nice to return to the barter system, before the invention of money. In those days, things made sense – trading goods and services on one’s wits, swapping a fine Persian rug for a flock of sheep from which to eventually weave your own. It makes rather more sense than a world in which a financial insitution can simply ‘write down’ $18 billion of bad loans, more than the entire GDP of Armenia. What does that mean, exactly? Where does this $18 billion cast asunder by Citigroup actually go?
Write down is different to ‘write off’, in the sense that it does not actually disappear from the balance books, it is just reduced in value (to zero?), but surely this amounts to the same thing – money you’re never going to see again. So, does it disappear from the money supply completely, and does this in turn have an effect on inflation? Think about all the bad debts that have been ‘written off’ (or down) over the years, never to be heard of again. UBS ‘wrote off’ $10 billion of loans linked to the sub-prime crisis in December. That’s an awful lot of cash. So, could inflation actually be lower than we think it is?
The total US money supply is hard to estimate (roughly $21,000 billion), but the total in circulation (M0) is thought to be about $756 billion. We’re already up to 4% of that in write offs and downs, and that’s without much research.
Still, it probably doesn’t matter. The money may even fall into a different measure of supply. The problem with money is that it’s all about confidence – ‘I promise to pay the bearer’ – the dollars and cents, pounds, pence and yuan don’t actually mean anything in themselves, like the shares which they are used to value. It’s all a barter of promises, abstracts, futures and best guesses, no matter how complex it gets. Still, there is a great benefit in knowing how much your average trip down the supermarket will cost, it gives you a sense of control and is a key point of social stability.
This sense of self-determination can be deceiving, though. When William Shatner read Captain Kirk’s death scene in Star Trek: Generations, he believed that he could make the best of a bad situation, make the death epic and fitting through sheer force of will. This didn’t happen. Presumably this is why he wishes to return, to give Kirk one last grand promenade, the big chief on the big screen. A moment’s silence, please, as a great character passes not with a shout, but with a whisper.
News hour, with Jerry Caesar 