Genesis of currency crisis
Earlier ppl would do farming and barter for things they need .
Then we progressed to industrial era and started producing stuff and exchanged these stuff via money aka currency . Then come the services era where no money was exchanged . But values were added to existing things . Consider your wedding planner , portfolio counselor etc . This sort of graduation has two implications for common man .
1. He has to buy far more things than what he produces .
2. He has less control on these things .
This tiny looking thing however had big impact on the social behaviour . We can say that money had to be invested so that all of above is possible or say money made all this progression possible .
Part 2 : The new economic master
Master are always there , from animal kingdom to MR market . Just in the pre-industrialized era there was feudalism which controlled the daily life of the peasants . So when we graduated to industrial era there was nothing new that happened in this arrangement . However somewhere in between the monopolization happened . Things like patent , advertising , alliances etc moved from the benevolent ideals to that of controlled regimen . What happened with that is the free spirit features of democracy process went off . The freedom to invent and prosper , the freedom to choose and compete became more of illusion that reality .
Now look at the 2 implications i told you above . Here we realize the absolute control the newer masters get .
Coming to latest era , if you see the items that are in inflation index , we will realize that a common man needed less of these things than he does now . SIM, DVD, typing , travel , AC etc . Services touch more aspects of our life than it used to earlier . So while we debate on inclusive growth etc , we need to realized that the system was created in the way where consumers are not left with options .. We simply do not have option to remained linked to production economy and still progress !
So what it results is gradual moving up the chain of everything . Things that were agriculture/skill based move to production and then move to service ..
Consider the progression from buying wheat to buying Packaged aata to buying packaged chappati ! Lets do that to all items around us or in the inflation index list and we see that we have lesser choice that the illusion of progress tells us . At the same time it also ensures that the company that facilitates this progression grows exponentially ! That’s why rich grow richer ..
Consider .. Pepsi/Coke which brought mineral water era … Maggi .. Soap/detergent makers .. ah toothpaste ppl .. ( few ppl realize that legal cases can be fought on hand written paper !) ..
Part 3 : The Mathematical Derivative .
If you analyze the past 2 part you see that we moved from natural and original to enchanted paradigm .(See the original BIS file here :dt1920a)
In maths we have this phenomenon called as derivative .. and one of the most interesting phenomenon then is .. the further you differentiate an expression the more you approach zero .
When you look at the financial meaning of such economic shit you see that we have reached the final stage ..
What started as barter .. got derived into money ( on a trust value )…
What started as production sharing for derived as equity ..
and there on we moved to FnO types derivatives …
Then we put join differentiation on the equities as CDO and CDS …
and you know the last number we can get from such stepping down or cross stepping maths … is Currency …
Currency and its value .. which is generally expressed via exchange rate is the last stop .
If we try and differentiate that further via any thing .. any measure .. scheme .. agreement .. we land onto zero which in this case means nothing .. this is where the numbers start disobeying us ..
So all this competitive currency devaluation , QE etc .. is dead end .. if it doesn’t stop as a progression … then the govt will have to also find a way to keep us all in psyched state (which could be a war ) ..
Part 4 : Concluding remarks .
When tarp was started at that time at least the US govt had a recession and housing crisis to defend . Now for QE 2 , things are taken for granted to such an extent that Govt blatantly says that we need this stimulus to progress the economy …
Why ? there is no consideration to it ..
So there is no end to this QE 2 . Govt in deficit can`t print their way out via debt . Its the death bed of currency . What it means is the QE will not stop when all the Default swaps are absorbed and the economy can stand on its own .. Which is like Govt standing as party of all the transactions made in 2000-2008 era .. So in effect there is no end . IF this QE is allowed to happen then we are in for huge multiple for any numbers we use in daily life . Esp considering that US is not know to be slow and steady the QE will generate enough shocks 6 months after its allowed .. and will continue till doesn`t exhaust the currency . So unless US and world economies take fundamentalist approach in the QE .. there is no way out .. (We need some sort of QE since public has to be manged).
Which brings me to the basic point .. that the QE 2 us make or never kind of situation for economies on earth .
Which in essence .. is to say that its not currency crisis .. its actually crisis of reserve currency .. Anything we see things moving to that solution the Bull market will be born .. till then ..
The baby sitting example is very useful one.
Say i baby sit your kid and later you do mine . Both of us save unknown amount of money . But in open market both of us have to pay 2000 rs a month .
Where do i get this money from ?
I have to earn it from my work . And here my employer/company controller my unit of payment . (or i take debt)
Now .. we can’t take things from nature .. we don’t do agriculture .. we don’t do production of our own .. so net net .. we can’t barter and have to depend on currency payment as means of any service or goods ..
so in the long run unless a person is super duper in his craft he is a looser and hell lot poorer for the amenities he can avail .. and the person who controls the unit of payment ( my company ) as an end result only gains . This is what i call as the necessity of the master .. any master ..
In fact currency as means of all our exchanges is the biggest social change that has happened in the western dominated flavor of economic progress .
Its not money or currency is bad but the compulsion of it ..
So when we say QE 2 etc will destroy the currency system .. there is a poetic justice happening ..
Of course the end result will be somewhere in between the 2 extremes of Currency as sole mean of payment vs no currency at all .
Further reading : http://daveeriqat.wordpress.com/2008/12/21/the-myth-of-the-service-economy/