Jan 18 2011

Does Money Make You Stupid?

Crossposted in part from The Stars Hollow Gazette

I can of course only speculate (unless you want to give me some), but returning to the theme of last week’s Gold diaries, including 2 by Translator– Popular Culture and Pique the question always is can you eat it?

Gold is easily digestible, since it is non reactive, but it has no nutritional value.  It’s eating dirt, like the Haitians.

Oil is more dirt eating, only it goes up in the air to kill us and is quickly disappearing.  A real economist would expect the value of Gold v. Oil to decline due to supply and demand, but what do I know?

The real utility of Money is not as a store of value, but as a medium of exchange.  By turning over the ability to create money to private enterprises with little regulation through leverage we’ve encouraged a series of financial inflations in the speculative value of assets that will never be realized in a free market.

Even the most Randian will admit there will be winners and losers, their problem is that compared to their exposure to loss there is literally not enough money in the world to cover their bets.

Eventually it’s this shadow economy that’s going to have to take a hair cut and a devaluation.

Why?

Because that’s where the money is.

If you are leveraging 30 : 1 (that is, betting 30 for every 1 you actually have) where is the bigger number?

9 comments

Skip to comment form

  2. Money


    The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally, a standard of deferred payment

    Without all three you do not have money … you have money substitute.

    Eventually it’s this shadow economy that’s going to have to take a hair cut and a devaluation.

    And here is where your position breaks down. Devalue against what? It has to be devalued against something that has value. Otherwise you have the scenario that we have now … a race to see who’s currency can get to the real value of paper first.  

  3. My position is that “money” is worth what you can trade it for in the market place that actually produces goods and services.

    A Medium of exchange. This can be done with barter … has nothing to do with money.

    Moreover I think this a good thing and that it is not clearheaded to believe that there is some absolute standard of value.

    History would disagree with you. Money by fiat, throughout history has all gone to zero. We are now in a precarious position since Bretton Woods failed in 1971 that all fiat is tied to another fiat…. and the signs of stress on the system are showing.

    If you had stashed that $100 bill under your mattress instead of investing in equities, you might not have lost as much “perceived” value.

    This is one giant assumption that equities never go down ion price. I think we both know that is not the case since we have seen TWO crashes in the last decade.  

Comments have been disabled.