Monday, Jan 05, 2009
Refreshing and down to earth article that questions the crazy sums of money being banded about.
Guardian: With all these trillions, how can we keep hold of the meaning of money?
My wife asked last week: "Is £35bn a lot of money?" This was not intended to be a facetious question, and was certainly not a foolish one. It was prompted by news that £35bn is the latest unofficial estimate for the cost of the Beijing Olympics and its associated infrastructure projects.
Last summer, international opinion held that China's spend on its prestige games was grotesquely large. It was alleged such a huge sum could only be squandered by a newly rich dictatorship unaccountable to an electorate. In September 2007, the British government's bail-out of Northern Rock was said to have reached "an eye-watering £7.75bn". A few months ago, we were told that the Ministry of Defence faced a financial crisis because there is a £2bn "black hole" in its annual budget
4 Comments
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1. jackas said...
Who cares about the value of money? Certainly not the govt or BoE.
It seems as long as people's houses are still nominally worth as much as they were, people will still feel nominally rich.
Which makes them nominally not an idiot.
2. plato said...
Good comment jackas........
It seems that education and subsequent understanding has been brought to a level where any intelligent life would easily perceive a recipe for mutually assured destruction in the value of money, as history will one day show.
3. uncle tom said...
Very versatile writer is Max Hastings - his pieces range from the arrogant to the humble (as in this case) to the delightfully funny.
A good article.
4. Kruador said...
All we can do is simply WRITE OFF the largely illusory debts and start again.
Seriously. The government is borrowing money from the banks to give back to them. Where did the banks get it? They created it. Look up 'fractional reserve banking'.
Apparently, though, in the US and UK, there is no actual reserve ratio requirement, only capital level requirements. Those are based on the supposed 'Value at Risk' in the bank, something attacked with venom by the author of 'Liar's Poker' in a New York Times op-ed piece this weekend at http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?_r=1&hp. Basically 'value at risk' covers good times only; the bank is far short of the needed capital to actually cover events when things go wrong.
What the government have done with the bailout is simply to add to the bank's capital level. Since the money was used to buy preference shares, the shareholder no longer has any claim on that money so it's considered legitimate working capital, no matter where it came from. Meanwhile the government is a trusted borrower - nearly *the* trusted borrower - so it actually reduces the risk statistics. Result, EVEN THOUGH £50BN OF MONEY WAS CREATED FROM THIN AIR, the bank looks more stable.
Now, the taxpayer is on the hook for the interest on the £50bn. The banks are supposed to pay us back with high dividend rates on the preference shares we bought, however. IF the banks recover and start making profits, the bailout loans pay themselves off. If not we probably have bigger problems.