What's The Real Value of Something ?
With all the financial turmoil we’ve seen in recent times, especially the latest “Greek Tragedy”, you have to wonder about the basic foundations on which the international financial systems are built.
It seems to me that much is based on paper and numbers on paper and very little on a hard asset to which one can put a value.
Here we have Greece which is heavily into debt. So the European community has to lend it money. How is that achieved ?
Well, correct me if I’m wrong, but at the end of the day a “transfer” of funds, or loan, will take place from one financial centre to another. But what, in fact, is that ?
Isn’t it something like one side, the Eurozone countries, being debited and the other side, Greece’s Central Bank, being credited. And doesn’t that take the form of the transfer of numbers on paper or on a computer screen based on what’s stored on a secure database.
And when financial instruments are constructed and traded what are a lot of them based on ? A few years ago some of those instruments were based on a tangible asset such as property. But that, in turn, was based, amongst other things, on “suicidal” re-payment conditions and unrealistic expectations for ongoing property values.
Out of that we saw the creation of other paper-based instruments such as insurance items to cover the risks involved in the former, etc.., etc..
So it seems to me it’s so much about numbers and paper and very little that’s really tangible that one can put a value to.
Which brings one back to something that is tangible and to which one can put a value and about which there can be no doubt as to how much of it any one country or company or institution actually has. It also cannot easily be manipulated or tampered with, which is probably why it wasn’t that popular amongst the smarter financier set.
In that regard, the following article may be of interest.
financialsense.com
Here’s an interesting extract from the article. I’d say it’s fairly timeless in its content ….
“We must have the humility to admit that it was our reckless experimentation with irredeemable currency and synthetic credit that resulted in this fiasco greater than any other man-made disaster in history. The runaway Debt Tower of Babel is toppling, and the quadrillion-dollar-strong global derivatives monster is vaporizing. There is no bottom to this collapse. The financial system is self-destructing. It is in a death-spiral. Every wave of losses in the mortgage market, in the stock market, in hedge funds, or in derivatives triggers a new wave of losses. This will continue until total exhaustion is reached.” |
