AuntShecky
08-21-2009, 05:15 PM
Sheckonomics 101
(I would appreciate any and all comments! But keep in mind we're supposed to steer clear of discussions about current politics.)
In today’s Dilbert comic strip, Dogbert the CEO announces, “We're getting into the financial services game,” and in the second panel adds, “That way all of our products can be imaginary.”
Cartoonist Scott Adams brings up a valid point. Television commercials for various insurance companies and yes, “financial services” mention their wide variety of “products.” Products? I thought that a product is that which is “produced.” By that I mean, a product is something that has been manufactured or otherwise fashioned from raw materials, a material object that one can actually use or consume, for example, a lawn chair or a glass tumbler or a Popsicle.
Let’s say one of our prehistoric ancestors first took a piece of clay and shaped it into a pot. Let’s say he already had enough pots in his own cave, but what he didn't have something to cook in it. His neighbor in the cave across the ridge was a shepherd, so what the caveman may have done was make him a deal – he'd trade the pot that he'd made for one of his neighbor’s sheep, which could be stewed in one of the man’s pre-existing pots. With early transactions such as that hypothetical one and similar instances of “barter” man began to evolve as an economic creature.
The barter system worked well for a couple of millennia, I'm guessing. But gradually the system became too unwieldy--not to mention messy, with all that swapping of livestock. After that came the monetary system, in which an agreed-upon number of shells or precious stones or bits of rare metal (such as gold) were used to symbolize a certain number of clay pots, sheep, what have you.
But even then, lugging around all those seashells and gold was heavy and cumbersome. Around that time that’s when smaller bits of precious metals were shaped into coins, customarily imprinted with the image of the leader of the realm. When inflation reared its ugly head, as it always does, the number of coins required to make certain purchases became too inconvenient to carry around as well.
That’s about the time when paper currency was introduced, and the printed money was actually a “certificate” which meant that the piece of paper symbolizes the fact that a certain amount of gold has been stored away to back it up in an physical place such as Fort Knox. Theoretically, at one time one could present the dollar certificate and exchange it for the corresponding quantity of gold. But the gold standard eventually was replaced by the silver standard, in which the bearer of the currency could (theoretically) demand the silver backing up his dollars.
In the United States, our cash has not been “certificates” for a long, long time. What our paper currency became instead were “Federal Reserve Notes” which were no longer backed up by precious metal but by the government. Nobody panicked because if you walked into a store and handed the clerk enough “Federal Reserve Notes” for your purchases – you could still go home with your clay pot, CD, or cotton briefs, or whatever you were buying. What you got for your dollars were products, items you could hold in your hand to use, wear, or consume.
Then came the credit card revolution, which for many folks, made money virtually obsolete. When you went to the store, you didn't have to hand the clerk any money, just your debit card (which you got back.) You also went home with your new underwear in a bag (either paper or plastic.) Meanwhile back at the bank, the cost of the purchase was deducted from your account– that doesn't mean that six dollar bills and ninety-nine cents in change were physically removed from your coffers. All that happened is numbers were moved around!
This idea of a “paperless” economy rapidly expanded with on-line banking in the sense that writing and mailing a check is becoming a ritual of the past. Decades workers used to receive their pay in cash, in little envelopes with the deductions written on the front. Then came the paycheck, along with a stub for the worker’s tax records. Today many folks don't even get paychecks, even though some still work all week. Instead of receiving a paycheck on Friday, a worker’s wages are directly deposited into his bank account, and he pays his bills on-line or even by direct withdrawal. Again, none of these transactions involve any actual currency changing hands: it’s just simple arithmetic, adding and subtracting, electronically. The only thing that happens is numbers moving around.
It is possible to live one’s entire life without opening a wallet, but a fully-automated financial lifestyle doesn't come without consequences. I remember reading just a couple of years ago a heartbreaking news story in which a man had been dead for months before his body was found -- in a chair in front of his television that was still running. Every aspect of this poor soul’s life had been managed electronically –pension checks directly deposited, bills paid automatically, even the guy who periodically cut his lawn was paid through direct withdrawal, despite the fact that the man wasn't even alive!
But even more widespread consequences occurred when our nation’s economy collapsed last year. Hedge fund managers and financial markets were making billions of these invisible dollars merely by moving numbers around. They didn't “produce” anything. Mortgage brokers and international traders of bundled securities also raked in profits, even though they themselves didn't build the houses or create the land that was bought and sold. The land and the buildings didn't change, but somehow the price and value did, but the real estate scam was so lucrative, that people were literally brought in off the street and talked into signing mortgages for which they couldn't afford. And when so many defaulted on their debts, this giant bubble burst.
Then you know what happened: the banks and security traders were deemed “too big to fail” and so the government famously “bailed” them out with tax revenues, both current and far into the future. As MSNBC’s Dylan Ratigan pointed out this morning, the banks are using funds provided by the American taxpayers so they can lend it back to us at 20% interest. Ordinary people have lost their houses and their jobs, but the bankers still own their luxurious villas and they're still reaping enormous profits.
Our economic system (what’s left of it) consists primarily of numbers being moved around. It’s a global shell game, folks, and sometimes I think we might be better off reverting to seashells. Of course, all of us have to provide ourselves and our families with basic needs, food, clothing, shelter, health care. But I don't believe we should waste a second of our precious lives worrying about invisible numbers moving back and forth between computers.
So don't sweat this lack of “money.” It doesn't really exist!
(I would appreciate any and all comments! But keep in mind we're supposed to steer clear of discussions about current politics.)
In today’s Dilbert comic strip, Dogbert the CEO announces, “We're getting into the financial services game,” and in the second panel adds, “That way all of our products can be imaginary.”
Cartoonist Scott Adams brings up a valid point. Television commercials for various insurance companies and yes, “financial services” mention their wide variety of “products.” Products? I thought that a product is that which is “produced.” By that I mean, a product is something that has been manufactured or otherwise fashioned from raw materials, a material object that one can actually use or consume, for example, a lawn chair or a glass tumbler or a Popsicle.
Let’s say one of our prehistoric ancestors first took a piece of clay and shaped it into a pot. Let’s say he already had enough pots in his own cave, but what he didn't have something to cook in it. His neighbor in the cave across the ridge was a shepherd, so what the caveman may have done was make him a deal – he'd trade the pot that he'd made for one of his neighbor’s sheep, which could be stewed in one of the man’s pre-existing pots. With early transactions such as that hypothetical one and similar instances of “barter” man began to evolve as an economic creature.
The barter system worked well for a couple of millennia, I'm guessing. But gradually the system became too unwieldy--not to mention messy, with all that swapping of livestock. After that came the monetary system, in which an agreed-upon number of shells or precious stones or bits of rare metal (such as gold) were used to symbolize a certain number of clay pots, sheep, what have you.
But even then, lugging around all those seashells and gold was heavy and cumbersome. Around that time that’s when smaller bits of precious metals were shaped into coins, customarily imprinted with the image of the leader of the realm. When inflation reared its ugly head, as it always does, the number of coins required to make certain purchases became too inconvenient to carry around as well.
That’s about the time when paper currency was introduced, and the printed money was actually a “certificate” which meant that the piece of paper symbolizes the fact that a certain amount of gold has been stored away to back it up in an physical place such as Fort Knox. Theoretically, at one time one could present the dollar certificate and exchange it for the corresponding quantity of gold. But the gold standard eventually was replaced by the silver standard, in which the bearer of the currency could (theoretically) demand the silver backing up his dollars.
In the United States, our cash has not been “certificates” for a long, long time. What our paper currency became instead were “Federal Reserve Notes” which were no longer backed up by precious metal but by the government. Nobody panicked because if you walked into a store and handed the clerk enough “Federal Reserve Notes” for your purchases – you could still go home with your clay pot, CD, or cotton briefs, or whatever you were buying. What you got for your dollars were products, items you could hold in your hand to use, wear, or consume.
Then came the credit card revolution, which for many folks, made money virtually obsolete. When you went to the store, you didn't have to hand the clerk any money, just your debit card (which you got back.) You also went home with your new underwear in a bag (either paper or plastic.) Meanwhile back at the bank, the cost of the purchase was deducted from your account– that doesn't mean that six dollar bills and ninety-nine cents in change were physically removed from your coffers. All that happened is numbers were moved around!
This idea of a “paperless” economy rapidly expanded with on-line banking in the sense that writing and mailing a check is becoming a ritual of the past. Decades workers used to receive their pay in cash, in little envelopes with the deductions written on the front. Then came the paycheck, along with a stub for the worker’s tax records. Today many folks don't even get paychecks, even though some still work all week. Instead of receiving a paycheck on Friday, a worker’s wages are directly deposited into his bank account, and he pays his bills on-line or even by direct withdrawal. Again, none of these transactions involve any actual currency changing hands: it’s just simple arithmetic, adding and subtracting, electronically. The only thing that happens is numbers moving around.
It is possible to live one’s entire life without opening a wallet, but a fully-automated financial lifestyle doesn't come without consequences. I remember reading just a couple of years ago a heartbreaking news story in which a man had been dead for months before his body was found -- in a chair in front of his television that was still running. Every aspect of this poor soul’s life had been managed electronically –pension checks directly deposited, bills paid automatically, even the guy who periodically cut his lawn was paid through direct withdrawal, despite the fact that the man wasn't even alive!
But even more widespread consequences occurred when our nation’s economy collapsed last year. Hedge fund managers and financial markets were making billions of these invisible dollars merely by moving numbers around. They didn't “produce” anything. Mortgage brokers and international traders of bundled securities also raked in profits, even though they themselves didn't build the houses or create the land that was bought and sold. The land and the buildings didn't change, but somehow the price and value did, but the real estate scam was so lucrative, that people were literally brought in off the street and talked into signing mortgages for which they couldn't afford. And when so many defaulted on their debts, this giant bubble burst.
Then you know what happened: the banks and security traders were deemed “too big to fail” and so the government famously “bailed” them out with tax revenues, both current and far into the future. As MSNBC’s Dylan Ratigan pointed out this morning, the banks are using funds provided by the American taxpayers so they can lend it back to us at 20% interest. Ordinary people have lost their houses and their jobs, but the bankers still own their luxurious villas and they're still reaping enormous profits.
Our economic system (what’s left of it) consists primarily of numbers being moved around. It’s a global shell game, folks, and sometimes I think we might be better off reverting to seashells. Of course, all of us have to provide ourselves and our families with basic needs, food, clothing, shelter, health care. But I don't believe we should waste a second of our precious lives worrying about invisible numbers moving back and forth between computers.
So don't sweat this lack of “money.” It doesn't really exist!