Paper money has not been able to deliver on its promise. Ever since its link to gold was severed in 1971, paper money has been created at will or decree. It is therefore a claim on someone else, whether a bank or a government. Modern money is debt and debt is money. From unsuspecting individuals to national governments and from financial institutions to commercial banks, everyone seems to be under severe debt. While our parents still consider holding debt akin to sin, for individuals and governments it is a basic fact of modern life. Simply put, spending more than what has been earned is more of a norm than exception.
How long will this trend continue? Philip Coggan argues that economic history has been a never-ending battle between borrowers and lenders. Ironically, it is the borrowers who have always won out in the end. Indeed that is the case as total global debt, held by governments, corporations and individuals has reached a whopping $190 trillion at the end of 2010 – more than 3.5 times the size of the total global economy. The trouble is, proposed solution to the issue of debt comes with side effects: devalued currency, trade barriers, and the risk of countries being reduced to a barter economy. No surprise, therefore, that leading banks and governments are back to building ‘gold’ reserve as an asset to fall back upon. Seems the world is returning to its reliance on gold. Will it glitter yet again may turn out to be one of the greatest riddles of the 21st century!
One may not be a student of economics to read Philip Coggan’s illuminating account of the history of financial crises. There is nothing about money that cannot be understood by the person of reasonable curiosity, diligence and intelligence. Largest creditors have set the rules of the global economic game in the past. If it was Britain and the USA in the past, speculation is rife that it may well be China designing the new monetary system in near future. Spread over thirteen chapters, the book provides comprehensive understanding on money, its rapidly changing nature and the bubble economy it nurtures.
Paper Promises is informative, thought-provoking and engaging. This is one book that deserves to be read because we are all victim of the financial system of which we are an integral part but seem to know woefully little about it....Link
Paper Promises: Money, Debt and the New World Order
by Philip Coggan
Penguin Books, UK
302 pages, UK£ 10