Skip to content

How much money is in the world? And the cartoon effect

January 22, 2013

I think understanding the answer to my first question can help elucidate a lot of the issues which face the World's economy at present; and watching cartoon characters fall off cliffs provides an economics lesson, as well as entertainment.

In my view, the answer to my question should be known to everyone, it doesn't require estimates of GDP or populations or statistics, and the answer is the same in 2013 as it was in 1913 and on 1613: in fact, it is always the same answer, nil.

Why?

My wife and I have savings, an asset. That means that (say) Barclays Bank owes us that money, or, looking through the Bank, its shareholders do: the individuals who ultimately own Barclays, or the individuals who own the pension funds or institutions which own Barclays, owe us that money. Or Americans owe vast amounts of money to Chinese banks or their Government, but ultimately to the Chinese people or bank shareholders. In all cases, the sum of the assets is precisely equal to the sum of the liabilities. Always has been, always will be.

Luca Pacioli, Luca Pacioli – Wikipedia, the free encyclopedia, the father of double entry book keeping, could have told us that.

Once you realise that the money in the World is not £XXX Trillion or some other unfathomable sum, but is £nil, several consequences flow.

Firstly, it is a world of haves and have-nots, people who own, people who owe. To one extent, this is a generational thing, with (by and large) older people having, and younger people having the debts. The commitment of the UK Government to pay my old age pension is a (future) debt owed to me by younger taxpayers. So one possibility is a correction between old and young.

Similarly, the Germans own, and the Greeks owe: again, corrections may one day result, but still the sum will be £nil.

Corrections could be managed, controlled, sharp, sudden, dangerous: even war, which economically changes the who owes and who owed, could be a result.

I suspect that good parallels can be drawn to the cartoons we all saw as children, and thank you to google/YouTube for this link http://www.youtube.com/watch?v=_d8ROhH3_vs whereby a cartoon character runs and runs and runs, over a cliff edge, eventually realises there is no land beneath his feet, and plunges to the ground. Splat.

And so the economy: whilst the world had confidence, money flowed, owes and owed changed and increased, the owed lent more, knowing the owes could repay it until, splat, confidence ends, and then everyone doubts the recoverability of their assets, or the ability to pay their debts, and business dries up. The total money is still nil, but the swishing around becomes harder.

I suspect an academic economist- I have no training in the field- might find some or all of this blog risible, but I think it has some kernels of truth.

PS. if nothing else, researching this blog, by which I mean searching for a video of a cartoon character running off a cliff was fun, reminding me of Bugs Bunny, Dick Dastardly, and also coming up with videos of the Fiscal Cliff. Thanks be to google.

From → Economics

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: