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We are squirrels by nature, accumulating against a cold winter - By Kitty Miv, Editor

Kitty Miv, Editor
01 March, 2012

Shock, horror, the (relatively) poor Cayman Islands have seen their banking assets fall to just above five trillion dollars. As it happens, that is probably about the level of Switzerland's banking assets as well, athough no-one seems quite sure; maybe they ran out of abacus beads. I know that when I try to work with very large numbers on my own calculator, I often get lost among the zeroes - it's better to stick to pencil and paper. Then we have the relatively puny Hong Kong, with 'only' about one and a half trillion in banking assets. They've got so much money they're busy giving it back to the taxpayers.

So just in these three jurisdictions, all of them 'offshore', by no coincidence at all, there is about 12 trillion dollars' worth of assets. That's no small hill of beans. Where does it all come from? And what's going to happen to it?

Before we start spending it, let's try to put it into context. There are eight billion people in the world, so if this 12 trillion was spread out evenly, it would come to 1,500 dollars a head. For most of the people on the planet, that's nothing short of a fortune. Then, that's just three little countries; the sum of global wealth across all countries could easily be ten times as large. And despite recent problems, most estimates of global assets have them growing at more than 10% a year. Go figure, as they say. It seems we're not that far short of having enough money to be able to give every human being on the planet a living wage, whether they work or not. No, don't worry, I'm not going socialist on you, and I'm not about to propose redistribution, unless it's voluntary (that's when I pay off my feckless son-in-law's credit card bills).

The money comes from you and me, of course. It's our savings, our pension funds, our bank deposits, our inheritances. That's why it keeps growing, because we are squirrels by nature, accumulating against a cold winter. Governments, which are mostly as improvident as you and I are provident, try to steal it whenever they can, most prominently by debasing their currencies in pursuit of political goals which don't coincide except by accident with economic rationality. In most countries, the 'deflator', ie the multiple you have to apply to the value of a currency to find out what it was worth five, twenty, fifty or a hundred years ago, stands at about 100 in respect of 1912.

If people were truly rational, they would never give power to such thieves. All the more remarkable, then, that people's ingenuity and the much maligned asset industry (aka banks) have succeeded in growing the pile of wealth to its current giant proportions. And that process seems set to continue.

What's going to happen to it is a more difficult question to answer. There is nothing immutable about the concept of money; it's one of the key inventions of humanity which has contributed to the development of society, which, for all its ills and atrocities, has given us so much of benefit. But money is no more eternal than the joint stock company, insurance or the institution of monarchy. All of them emerged within the last 50,000 years and they did not evolve in the sense of the word used by Messrs Darwin and Dawkins.

As a medium of exchange, money may be near its sell-by date: securitization, high-frequency trading and Internet markets such as e-Bay (in their infancy) point the way towards more frictionless methods of establishing and exchanging value. Of course, money will be replaced by some other kind of comparator, perhaps lots of them. 'Honour' springs to mind as a currency which could replace money in many fields of human endeavour. But wealth will remain, however denominated, because of the human propensity to accumulate.

The two major trends which will define rich/poor relations in the next hundred years are clearly the growth of total wealth and the decay of 'work' (another recent invention) as a necessary activity on the part of humans. Question:: if no-one has to work and there is more than enough wealth to go around, will there still be a need for money?

Currently it's fashionable for very wealthy people to deploy their wealth in the direction of the poor. Perhaps it always was, but it is becoming a moral imperative where previously it was just a method of personal salvation. As a society, we are becoming wealthy enough to entertain concepts of 'fairness' across national, societal and racial barriers. Is it silly to imagine a time when groups of wealthy people would feel it incumbent on them to help groups of less wealthy people?

I'm not sure of the answer. Being neither rich nor poor, this is a very academic discussion from my personal standpoint, so I'll just stick to building my own little pile of nuts, and helping my daughter!





About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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