Have central bankers heard of The South Sea Bubble?
The main theme at this year’s Davos, the annual gathering of the rich and powerful in the Swiss Alps didn’t change much from last year: polarized world powered by historically unprecedented levels of printed money. The global economy continues ticking along undeterred by wars, impeachments or even viruses, buoyed by the central bankers’ money printing, which has, however, (or so the common shared opinion goes) now reached its absolute limits.
What now? Is debt at its peak? Will it take down the whole world when the next downturn comes?
We may be missing something here. Debt cannot fail because it is our second nature.
When London’s goldsmiths in the 17th century figured they can give out more cheques than the gold they stored, it was the beginning of modern day banking. This was unexpected: goldsmiths were supposed to store other’s people gold, produce coins and jewel. They would also give people promissory notes which represented the gold they stored for them (it’s easier to carry and trade paper document than heavy gold).
But since no one knew how much gold they really had stored, it must have felt irresistible to give out more promissory cheques than the value of gold they stored. This small fraud was in fact the invention of modern banking based on fractional reserves. A bank…
