Money Have A Stable Predicable Value?
Published: Thursday, 24 August 2017 12:49
Category: The Pamphleteers
Why do we use a financial system based on money whose value cannot be defined by any one or more definable real things? Money is used to price real resources on which markets forces are supposed to efficiently allocate.
But how can we explain a belief in efficient markets to a super intelligent alien? I asked this question to a super intelligent high profile economist who has his hands on the financial system levers. I suggested two answers: Humans are either insane or it’s a religion. The answer I obtained was “a bit of both”!
This answer is not inconsistent with the views of another high profile economist, Lord King[1]. When Mervyn King was Governor of the Bank of England he stated to an audience in New York in 2010 that: “Of all the many ways of organising banking, the worst is the one we have today”. In his 2016 book Lord King stated: “Another crisis is certain”[2]. According to King the inspiration for his book was a comment he obtained in Beijing when he was the guest of a senior Chinese Central Banker in 2011. He was informed: “I don’t think you’ve quite got the hang of money and banking yet”[3]. A view apparently shared by the Queen of England when visiting the London School of Economics in October 2008. Her Majesty inquired as to why “no one saw the credit crunch coming”[4].
The greatest threat to any investment is uncertainty. A currency with volatile and unpredictable value inhibits investment. Uncertainty is exacerbated with international investment with floating currencies. Foreign exchange fluctuations arise from multiple complex unpredictable variables that include sentiments and perceptions to political and social events around the world.