Fake Money?

This article published in Vox is not very insightful (as most articles in Vox are mostly partisan political parroting), but it does raise lots of questions for the layperson to contemplate. First off, all fiat currency money is fake until it’s made real, which means until you trade currency for real assets, it’s only worth the paper it’s printed on. Value is not in money, it’s in the positive returns that an asset delivers over time. That return can be in additional currency, time, or energy.

Money Has Never Felt More Fake

Some excerpts:

“Money feels cold and mathematical and outside the realm of fuzzy human relationships. It isn’t,” he wrote. “Money is a made-up thing, a shared fiction. Money is fundamentally, unalterably social.”

Yes. As stated above. Money is actually stored time. The more money you have the more time you’ve stored up. But it doesn’t extend your time on earth, it only allows you to trade it for more free time within that uncertain lifetime we all have.

GameStop has come to epitomize an era of meme investing, where ordinary investors are piling into stocks and cryptocurrencies and digital assets not necessarily because they believe in the underlying value of the thing they’re buying (though some do) but instead because it just seems like a thing to do. Dogecoin or NFTs or stock in theater chain AMC get popular online or in their social circles, and they turn around and think, why not?

Yes, the psychological nature of fiat money means that psychology can drive the prices of goods and services. This is especially true with speculation based on the greater fool theory of value.

Value is ultimately a story, one we tell to ourselves and to others. In the United States, we’ve convinced ourselves of the story of the dollar, which is backed by the full force of the US government. But it’s ultimately just a piece of paper. Cryptocurrencies and NFTs and AMC all come with their own stories, which, admittedly, can be on the kooky side.

Well, yes, it’s a story, but whether that story is truth or fiction is borne out by subsequent experience. Value is a function of a positive stream of desired “goods,” much like a bond delivers coupon payments (i.e, interest) every quarter. If the bond fails, well then, the story was fiction.

There’s more to the current money landscape than dogecoin and meme stocks that makes the whole thing seem a little fake. The stock market soared during much of 2020 and 2021, even during the depths of the pandemic, making it hard not to wonder what the whole thing is for. The federal government was able to deliver a lot of money through monetary and fiscal relief to keep the markets — and regular people — afloat.

Yes, money printed by the Fed to monetize excess government borrowing is fake unless it is converted to real value through the conversion of time and energy into real goods and services. Paying people not to work is converting money into fake value that will evaporate in time.

“If it’s just a dot-com bubble, it sucks for the people who invested,” says Hilary Allen, a law professor at American University who specializes in financial regulation. “But if it’s 2008, then we’re all screwed, even those of us who aren’t investing, and that’s not fair. It really depends on who’s getting into this and how integrated it’s getting with the rest of the financial system.”

Well, Prof. Allen doesn’t quite get it. In the early 20th century, market meltdowns bankrupted speculators and financiers and the rich who saw their assets devalued. That is no longer the case as just about everyone has a stake in financial assets through their pensions, real estate, and income flows. We’re all “invested” and it is true today that those most hurt today are those without asset portfolios. The Fed protects the asset rich today. It’s why when Mr. Market eventually ends this game, there will be nowhere to hide except far off the grid. Maybe that’s why the tech billionaires want to colonize outer space? Good luck.