Currency Conniptions

Glad to be back from illness, and in one piece (sort of). I spent a great deal of time flat on my back -- no comments please, just don't go there -- and all too many said that if that was the case, things were at least... looking up.

The lack of physical activity did lend itself to a great deal of thinking, prompted by the various and sundry debt crises affecting the world. Each situation has its little idiosyncrasies, but the more I pondered, the more I perceived a common thread: money had lurched towards being an end rather than a means.

This matters.

I have learned through running a successful business (love those sugar beets) that money must be tightly tied to production, whether of goods or services. In this sense money acts as a medium to facilitate said goods or services. Put bluntly, it has no other value. In fact, the inherent cost of an American dollar, a Chinese yuan or a Euro, is minimal. That we give it a much higher inherent value is an act of faith that rivals anything promulgated by the Vatican or exhorted in a mosque.

As long as this bond (money) between the maker or deliverer of a good or a service and the buyer of same exists, things work well. Yes, there are strictures that come into play, such as the law of supply and demand, the necessity of being competitive, or, as Kenny Rogers might put it, "Knowing when to hold em, and knowing when to fold em."

Moreover, when a new approach beckons, credit might be necessary. Fine, that is what banks are for, but for that credit, there must be collateral. Pawn shops are past masters at this, actually holding the collateralized article for a given period of time. If the approach turns out to be successful, the article is redeemed; if not, bye bye pawned article.

Recently, however, American and European banks saw an opportunity to make money from money. They took the collateralized item (mortgage, land purchase, whatever) wrapped it up in some reasonable investment items, and sold them on to interested buyers who sensed enormous profits. All of which raises the dandruffy head of Signor Ponzi. When a number of the investors, worried about how the bond market was reacting to all this, actually wanted their money back, it simply wasn't there. Money had ceased to be a medium between producer and buyer, and become an end in itself, disappearing into the pockets of what is now termed "the one per cent".

The way out of this mess will be hard. The concept of money must return to its roots as a facilitation medium, and quickly. This will mean a great deal of harsh austerity -- step forward Greece, whose country 'collateral' is nowhere near what the country presently earns -- and very few other countries will be able to avoid fiscal pain.

And what lurks in the background? Well, Clinton advisor James Carville put it this way: "I used to think that if there was reincarnation I wanted to come back as the President or the Pope. But now I want to be the bond market; you can terrify anybody."

Bah, too much gloom. I will try not to get ill again.