Is This a Financial Crisis?

The title of this article gives rise to the possibility that many more things are in the picture along with what is being called a financial meltdown. Finances are simply finances, the movement and flow of currency. It appears that something has entered the picture of late that has impeded the flow of currency. It is not as though there is suddenly no currency, in fact quite the contrary is true. It is a fact that the flow of it has slowed to a trickle. Like a game of musical chairs with the people moving around the circle to the music representing banks, and the chairs, representing currency. Suddenly the music stops, there is a scramble for the remaining chairs, but now there is one chair less (a bunch of currency has been declared bad). With no chair there is no bank, one player will leave to game. A level of fear has consumed the banking community worldwide where no one wants to dance to the music for fear that if the music stops, they might be the one holding the worst of the paper at the worst time. Trust has dissolved.

What is money? Even in circles of economists, this topic is not as clear as you or I might assume. You can go far back in history to times when paper money was issued as a convenient means of exchange for goods or services, and that paper represented a measure of some kind of redeemable commodity. Grain, olive oil, salt, beads, blankets shells, gold and silver all come to mind as tangibles that were used to form the basis for exchange at one time or another. Money can be described as whatever the majority of people agree to represent the particular commodity that was accepted as having measurable value. Paper money and coins were convenient representations of commodities as they were easy to conceal and easy to transport if large amounts were needed for a transaction.

In today’s world, money no longer represents anything tangible. Money is created out of debt. A government issues a bond to raise money. Which came first, the bond or the money? Here is where banks come into the picture. It does not matter which came first. Banks have been given permission to create money out of nothing, out of debt. A corporate bond, municipal bonds, car loans, mortgage loans, any kind of promise to pay allows banks to create more promises to pay. Once you sign that “promise to pay” the bank turns that loan into an asset, and can now make a new loan based on that previous loan. A concept for our minds to grasp is that if everyone, everywhere paid back their loans and all government, and corporations did the same, there would be no currency, no money. The system we live in depends upon debt and that debt, that promise to pay back the loan is dependant upon something even more valuable ……. Trust.

So what is this crisis really about? The erosion of trust between countries and Int’l banks has reached a critical mass. The agreed-to system of world finance has handled many abuses and can handle many abuses and still survive. What has happened in these days is a critical point has been breeched where finally greed and corruption became the order of the day. Unfettered, unregulated and unmitigated greed is what is now unwinding before our very eyes. The greed has given way to fear.

This is a crisis of values and character. It is unfortunate that world financial systems require regulations and laws. These requirements indicate a propensity of human behavior toward excess. Value has been placed on having money and things rather than value based on character and integrity. Each of us is presented with opportunities in every moment of our lives to demonstrate where our interests and passions lie. There is no getting around it. We are what we do, what we think, how we treat others and how we treat ourselves.

The crisis such as the one on the world stage right now will not be solved by putting more money on the table, tax rebates, lower mortgage payments etc. Healing will only come when new (old) values come to the forefront, not only on the financial stage, but in our very lives. Until we demand that sound values and character are the most important elements for a stable and thriving society, a cloud of uncertainty will continue to be present.

There are hard times ahead for all of us. This will be a challenge we will all be living through together. It is best resolved by helping each other and restoring trust and integrity between each of us. Trust restored.