File Name: the death of the money book summary .zip
The Black Plague.
Pick up the key ideas in the book with this quick summary. Remember the financial crisis of ? Are you happy the worst is over now and the world can look forward to a period of growth, prosperity and happiness? The current monetary system, by which the money in your pocket has no intrinsic value, is in fact incredibly fragile and the next crisis is already looming on the horizon.
As recently as a few centuries ago, if you wanted to buy a loaf of bread from a baker, you had to pay with a piece of gold or silver, equal in value to the bread. So why does the baker accept this scrap of paper as payment for his labors? Simply because the government gives the paper value. This phenomenon applies for all modern currencies and is called fiat money , fiat is Latin for let it be done. Fiat money is basically a contract between its users and the state.
The state has effectively promised the baker that he can exchange the banknote for something else of value, like flour or salt. Severing the connection between currency and matter of intrinsic value is as new as Other countries then fixed their exchange rates to the dollar, so actually all currencies were linked to the price of gold. But after the financial crisis of , governments around the world lost their confidence in the ability of the US to maintain the fixed rate between dollars and gold.
The US concluded that it had to sever the connection to gold, and let the currency — and therefore every other currency — fluctuate freely. After this point, every currency has truly been devoid of material value, and can only be influenced through government monetary policy.
But today, the modern global economy that is based on freely floating currencies is under attack. In the next book summary we will find out why.
They also targeted the American economy. In the months preceding the attacks, they made huge bets on the share prices of airlines plummeting after the attack. When the share prices did in fact plummet, the terrorists profited greatly.
This is an example of financial warfare, a strategy increasingly used by criminals to profit and by states to attack their enemies. Offensive financial warfare could for example mean hacking into the stock market of a foreign country to manipulate prices and thereby cause economic damage.
A real life example occured in , when the Unites States attacked Iran by excluding it from a system for relaying global payments. As a result, Iran could no longer swap its currency for dollars or euros, making the Iranian currency depreciate as it became undesirable for use in trade. Defensive financial warfare, on the other hand, are used to protect capital markets or to retaliate against states who have attacked. Iran, for example, defended itself by buying up gold in bulk in the months before the US offensive.
That way, it could still trade despite being cut off from the international payment system. The potential seriousness of financial warfare was demonstrated by the financial crisis of And the global economic system is very fragile and vulnerable to such attacks, so even small terrorist or criminal groups could wield huge damage on all of society.
Having come to this realization after the financial crisis, the US and China have now developed procedures for financial warfare alongside their traditional military forces.
Unfortunately, the future might not be quite so rosy: a few potential crises may still lurk within the financial system. One such potential crisis stems from the fact that although the Chinese economy has expanded dramatically over the last decade, this growth has been poorly planned.
Far too much investment has been directed into the wrong areas of society due to massive corruption in the ruling Communist Party. One example is the many ghost cities all over the country: huge deserted urban areas with buildings, parks and roads that no one can afford to use.
A burst in the Chinese market could put the whole global economy in danger of collapse, as investors from around the word have poured money into China, and thereby into these pointless projects. Another potentially looming crisis can be found in the US. Even though the mortgage crisis is over, there is another bubble rapidly forming, this time in the realm of student loans. Because whenever politicians want to insert money into the economy to stimulate consumption, they love to do so by giving students more generous loans.
The politicians know they can rely on students to spend the money in the economy. Such a default en masse could push US households and the financial markets back into turmoil. Have you ever travelled to a country in, say, Africa or Asia with a weak domestic currency?
If so, you may have noticed that locals tend to happily accept US dollars in shops and stalls. As a result, it is seen as a reliable and stable currency, so people in some countries prefer it over their own.
In fact, the whole global financial system is based on the dollar being the main currency — for trading. Yet developments over the past few years have led to some states questioning their reliance on the dollar.
Traditionally they, especially Saudi Arabia, have been happy to ply their oil trade in dollars in return for US promises of security. Besides these groups, the strengthening euro is also putting pressure on the global dollar-based monetary system. It may seem counterintuitive, since the Eurozone has just lived through a currency crisis, but in fact the crisis and the strong German economy pushed the Eurozone into restructuring itself into a stronger, more competitive economy, far more stable than that of the US.
It may be time to contemplate a greater role of the euro in the global monetary system of the future. And for good reason: for the first time since the Second World War ended, the national debt has grown to larger than the entire US economy.
Consequently, political debate has focused on how to bring this debt down. The prudent and sensible way is to strengthen and grow the economy. This can be done by, for example, investing in the development of infrastructure, like transport and communication systems that foster economic growth.
Politicians often favor the politically easier but economically more problematic method: encouraging inflation so it eats away the debt by making the dollar less valuable. To understand what this means, consider the following example:.
In order to increase inflation, the US government has resorted to printing more money and injecting it into the economy. This method is known as quantitative easing , and it results in people having more money to spend, which drives up prices. To understand the scope of this printing operation, consider that it has reached the record-breaking speed of one trillion dollars a year. So far the strategy is not working, because the dollar is also subject to deflationary forces that work to increase its value.
For example, the price of energy in the US has been dropping thanks to the tapping of shale gas. Also, labor costs are dropping as cheap labor enters the market from many developing countries. These deflationary pressures are hindering the US from reaching the desired inflation, and hence the debt continues to grow.
In the previous book summary, you saw how the US government is trying to tackle its enormous debt by printing more money. And in the long term the currency is just becoming less and less valuable, eroding the savings of people and investors, thereby decreasing their confidence in the dollar. This loss of confidence applies to the dollar-backed global monetary system as well, and it is already noticeable in the newly emerging payment alternatives to cash.
One prominent example is the current trend toward electronic cash such as the bitcoin. This digital currency is completely independent of any government or central bank. Another interesting new development is electronic bartering: trading goods online without using cash as an intermediary. For example, one time China Railway received a load of frozen turkeys from one of its customers, and subsequently traded them to General Electric GE for locomotives. GE then sold the turkeys to Tyson Food China for cash, but in the original deal no cash changed hands.
So what can be done about it? One option would be to turn to the International Monetary Fund IMF , whose role is to lend funds to countries who desperately need financial support. Because the SDR functions like a currency and is more stable than the dollar, it is a candidate to replace the dollar as the global reserve currency. Currently, the US determines its monetary policy for the dollar based on its own national interests, which has on occasion hurt other states economically.
Indeed, in the past few decades, the global monetary system has increasingly distanced itself from the value of gold. And yet, if the goal is to build a stable monetary system, we should consider bringing gold back into the equation. Because linking currencies to gold would provide a stable reference point — an anchor — for their value. Currently, the dollar, for example, is not backed up by anything solid, merely the promise of the US government and central bank that it has value.
One crucial concern will be how to correctly determine the price of gold. It seems like far from being just the material for necklaces and rings, gold may in fact be the savior of our global monetary system. If you had been alive in s Germany, you would have perhaps seen a strange sight: someone buying a loaf of bread, and paying for it with a wheelbarrow full of money.
This bizarre circumstance was due to out-of-control inflation or hyperinflation : prices were rising so quickly that money was basically worthless. Of course, this kind of situation is untenable, and in this case, it lead to social disorder and eventually the population turning to Adolf Hitler. Unfortunately, the current situation looks like it is only a matter of time until the dollar also tips into hyperinflation. Faced with this dire circumstance, you should take precautions to ensure you will survive and thrive even if the worst happens.
The simplest precaution is to ensure that your wealth is invested in the broad mix of assets and areas. This kind of diverse portfolio will serve you well even if hyperinflation and social unrest strike.
You should prepare yourself for this scenario. Do you keep all your savings in the bank? If so, you may be exposing yourself to much more risk than you think, because hyperinflation could wipe out the value of your savings in no time. Your local bank can probably even help you decide where and how. If so, prepare to be shocked. The Death of Money Key Idea 1: No modern currencies have any intrinsic worth — only the state guarantees they are worth something. The Death of Money Key Idea 2: Financial warfare could wreak havoc on the fragile global financial system.
Financial warfare can be either offensive or defensive in nature. There are two main methods for doing this. The Death of Money Key Idea 7: The global monetary system needs a truly global currency instead of the dollar. The Death of Money Key Idea 8: Reintroducing the gold standard would stabilize the global monetary system. The Death of Money Key Idea 9: Spread your wealth out into many assets to protect it should hyperinflation strike.
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts , such as taxes , in a particular country or socio-economic context. Money is historically an emergent market phenomenon establishing a commodity money , but nearly all contemporary money systems are based on fiat money. The money supply of a country consists of currency banknotes and coins and, depending on the particular definition used, one or more types of bank money the balances held in checking accounts , savings accounts , and other types of bank accounts. Bank money, which consists only of records mostly computerized in modern banking , forms by far the largest part of broad money in developed countries. The word "money" is believed to originate from a temple of Juno , on Capitoline , one of Rome's seven hills. In the ancient world, Juno was often associated with money. In the Western world, a prevalent term for coin-money has been specie , stemming from Latin in specie , meaning 'in kind'.
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You cannot escape the massive impact of potential crashes and collapses. In today's book summary, we outline why and how should the world.
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Thus, showing that the biggest increases in income go to entrepreneurs and investors— not employees. The emphasis on saving is only found in the poor and middle class. However, the reason why savers are losers is that since there have been three massive stock market crashes. The first three crashes of the 21st century pale in comparison to the great crash of
Pick up the key ideas in the book with this quick summary. Remember the financial crisis of ? Are you happy the worst is over now and the world can look forward to a period of growth, prosperity and happiness?
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