Money Matters

Money is so central to everything we do yet so few seem to have a real grasp of what it really is. We frequently see the bemoaning of the growth of debts and at the same time we are all urged to save more. But no one seems to realize the contradiction between the two desires.

Money is very closely related to debt. In a way it can be used to represent any credit/debt relationship. When a credit/debt relationship is viewed that way we say the relationship is "monetized". When people in this country think of money they often think of cash. USD cash are really FRB notes, or obligations of the Federal Reserve Board. It is convenient to measure all monetary relations in terms of the currency, but the currency is merely the most general or liquid form of a debt obligation that can be readily traded for other forms of debt.

Note since credit and debt are always created in pairs, the total sum of all credits and debts must net out to zero. In other word there can be no net savings nor net debts among all participants in the economy. So what do they really mean when pundits call for more savings and less debts? When carefully measured, total savings must equal to total debts, so you certainly couldn't get more of one without more of the other.

An interesting example to the above observation is Italy, where government finance is notoriously bad, but private consumers are actually very conservative, with much lower debt levels than U.K. or U.S. Another example is Japan.

Theme

I have some ideas on how things work and these ideas evolve as I learn more. My plan is to put some of these down on this blog and I will keep on coming back to polish the ideas. A few gems may crop up through the cumulative force of time and experience.