Paper Promises | Philip Coggan

Summary of: Paper Promises: Debt, Money, and the New World Order
By: Philip Coggan

Introduction

Dive into the complex world of money, debt, and financial crises in this summary of ‘Paper Promises: Debt, Money, and the New World Order’ by Philip Coggan. Explore the primary functions of money in facilitating trade and fostering trust between borrowers and lenders. Learn how debt amasses over time, leading to nationwide and global financial crises, including the one that occurred in 2008. Finally, understand the consequences of mounting debt and its effects on society, the economy, and future generations, while considering the potential solutions that could ensure the long-term stability of the world’s financial systems.

The Power of Money

Money is more than just paper. It serves as a medium of exchange, unit of account, and store of value. Its ability to simplify transactions, facilitate valuation, and promote investment makes it an essential tool for the economy and society.

From ancient times, people resorted to bartering to settle deals. However, this method had limitations. The needs and preferences of two parties might not align, making it hard to find mutually beneficial trades. The introduction of money changed all that. By designating a universal medium of exchange, money simplified transactions and removed the hurdles of bartering.

Moreover, money aids in measuring the value of the products exchanged. Unlike bartering, one can easily evaluate the worth of an item in monetary terms, facilitating trade. This ability to measure value makes it easier to compare prices of different products.

Money also serves as a store of value. Countries maintain the stability of their currencies to promote investment and prevent inflation. This helps ensure that the value of money remains relatively constant over time.

In conclusion, money is a tool whose power goes beyond its physical appearance. As a medium of exchange, unit of account, and store of value, money plays a significant role in shaping the economy and influencing society.

The Role and Origin of Debt

Debt is a concept that relies on trust and mutual confidence. The borrower needs to believe in their ability to repay the loan, while the creditor trusts in the borrower to do so. Both parties should also be confident that they will profit from the arrangement. However, the accumulation of debt has been rising rapidly in recent decades, with most Western countries carrying debt that is three or four times higher than reported annual income. This can be attributed to the growth of Western economies, increasing living standards, and productivity. As societies became more confident in their ability to earn and repay loans, they borrowed more from banks and other countries, which trusted them to repay the loans on time. The author explores how the trust and confidence between borrowers and lenders led to the accumulation of astronomical debt that surpassed levels ever seen in the global financial system.

Debt Clock

The article discusses how the United States and other countries accumulate debt over time without considering repayment. The debt system eventually crumbles, causing the financial system to halt and credit to dry up.

The Global Financial Crisis

The financial crisis of 2008 resulted from an artificial boom fueled by cheap credit. As lenders kept giving out loans, a bubble formed in the financial system. Investment banks borrowed huge amounts of debt to buy and trade other forms of debt. This created a domino effect worldwide when Lehman Brothers filed for bankruptcy protection. Banks and insurance companies that had lent money to Lehman suffered massive losses. The crisis hit countries that had funded growth with massive borrowing. The financial crisis was both massive and devastating, changing our practices of borrowing and finance.

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