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Is there too much money?

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This essay will probably mark me down as latter day Luddite.

The question is "Is there too much money?" The reason for the question is my belief that the world is very sick and the source of the sickness is the obscene amounts of money available to some people in the developed nations which causes them to behave in a totally selfish and amoral fashion and which distorts the values of the societies in which they live.

When I was employed, the values of our society were based on contribution to the society by way of making the products or delivering services needed by the members of the society. The recompense one received for this contribution allowed one to live at a reasonable standard of living.

I believe that most people in the developed world have become addicted to debt. Personal debt in Australia has reached an all time record level and our National debt has also reached an all time high. While it is true that debt must be repaid, the old adage " Income one pound and spending nineteen shillings and sixpence means happiness; income one pound and spending one pound and sixpence means misery" is still true. In a sense we are living today on the work our children are going to do tomorrow.

The deregulation of the banks in the nineteen eighties which was the first major change to a "market economy" has allowed lending institutions to lend money to people who might never be able to repay the loans. The US economy today is rocking under the sub-prime mortgage disaster because many of these unregulated lenders are failing due to high levels of default and the sums involved are threatening the stability of the economy.

I was horrified recently to discover that 80% of workers in Australia are employed in the tertiary industry, that sector concerned simple with the movement of money. The corollary of this is that only 20% of the work force is actually creating wealth by producing goods and services.

I believe that many people in Australia, and probably elsewhere in the developed nations, have so much disposable income that they will pay ridiculous amounts for all kinds of non-essential goods. My wife recently saw an advertisement in a junk mail catalogue for a pair of sandals priced at $1600. One can only assume that somebody was prepared to pay that price for that item, otherwise the firm doing the advertising would be headed for bankruptcy. Of course they might have been as many companies are these days.

My thesis is that money has become a commodity which has been invested with "value" despite there being no underlying valuable product or service.

I believe that gambling is a symptom of this. The levels of gambling on horse racing, poker machines, lotteries and the like has reached a level which is unsustainable. Even governments rely on taxes on gambling to a ridiculous degree.

The stock market has become the biggest gambling arena with share prices set in a "market" which owes little to the underlying worth of the businesses.

I recently discussed this with a friend who dabbles in the "market" and he had to admit that he had bought shares in a company when it was floated many years ago for $1, the face value of the shares, and that they are now "worth" $92. I commented that the company only got the original $1 and that the rest of the $92 had gone to "investors". I was making the point that the dividends which the company had to pay its shareholders was related to the market price of the shares rather than the face value which means that the company was using the original $1 to fund the capital needs of the business but was paying many times the market rate for borrowing capital to the shareholders who had bought the shares on the market at the present market price. He said that they were only paying 1.6% of the present market price but that means that they were paying 147% on the face value of the shares. About 5% of the dividend was recompensing the original contributors of the capital while 95% was recompensing the "gamblers" for the use of their money which had not contributed anything to the business.

Money has become a commodity and can make money for those who own it without there being and underlying value. Because I believe that the world will not "going to hell in a basket", I believe that there will be a correction sometime in the future as there was in Holland at the end of "tulipomania" but the correction will be very hard on those who experience it.

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Created: 30/10/06 and last revised 17/11/07
Author: Robin Chalmers Copyright in all the material on this site is asserted by the author
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