Wednesday, February 15, 2012

Paper Promises

John Gray reviews a new book by Phillip Coggan, Paper promises. Our leaders have not learned the lessons of history, he says. We have had fiat money since Nixon broke the link with gold in 1971.

However, fiat money runs into difficulty when - as with the euro and the US dollar, despite the relative strength the dollar is gaining from the eurozone crisis - the ruling regime comes to be seen as weak. In the last analysis, it is power that sustains any monetary system, including those that have been based on gold.

Gray is a general pessimist:

Peak oil doesn't mean that there is no oil left, rather that the cost of what remains - in terms of the capital and energy expended in extracting it - is trending inexorably higher. Any pick-up in the global economy is likely to hit this energy constraint pretty quickly, but politicians and economists still seem to believe that we can somehow return to pre-crisis conditions.

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