Monday, 11 June 2012


TO: John Humphrys, Presenter at BBC Radio 4 Today.


Robert Peston sidestepped your and all your audience’s question “Can Germany just keep on producing €100 billion …to bail out other countries…  …how much money is there?”

Read these 600 words to gain more understanding than 90% of economists.

The Real-Economy – The Money-Economy – The Knowledge-Economy

Goods, Services – IOU’s, Invoices & Agreements – Currency – Cash – Loans – Interest & Charges – Debt.

You and I agree to trade my house for your BBC IPR Rights & Royalties. This is a Real-Economy transaction/deal which we value at £10M each.  We swap IOU’s. We have just created “Money” and trade. This is the base of all money – real deals between real people for real things of value, noted by ourselves (money). The limitation you ask about is in the existence of real things of value – which are created by human effort and ingenuity. But – we cannot trust /have confidence that each will deliver title and not cheat so we go to a 3rd Party – the Queen HMQ or Mervyn King or our local Bank Manager who for a price – Interest/Charges – will guarantee our deal to both of us and thus inject Trust and Confidence into our complex transaction. HMQ looks at the deal and finds it to be Fair & Reasonable & Realistic and she buys/ swaps /underwrites our IOU’s for her IOU’s – for £10m Sterling – which “Promise to Pay The Bearer”. These are bank notes /currency/ Bearer Bonds. HMQ has an honest face so we are both reassured, have Confidence and, relying on the intermediate-currency, we process our transaction and each pay HMQ 0.5% for her right royal, sterling services.

ALL money is an accurate bookkeeping process to record such real transactions in the real economy which would otherwise be impossibly complex “swaps” of goods and services. Currency & Liquidity is the amount of personal-home-made IOU’s converted into bank-notes which as “cash” are Bearer-Bonds (who holds them owns the value) or as Cheques /Card Payments are specific to the Parties to the transaction (e.g. you and I swap named cheques, guaranteed by HMQ or her licensed banks).  All these papers are the Money-Economy reflecting the reality of the Real-Economy (the world of work).

We will draw a veil over the crooks, criminals, auditors and swindlers who pervert Trust & Confidence; except to say there is a surfeit of crooked bookkeepers gouging out money tax-free from our august institutions; a bleeding wound which must be stopped.

Is the German fundament /well of currency infinite? No – but it is very deep.  I will swap 100 new BMWs for my house, Confident that I can swap /rent a BMW this week for food or a new coat. Most humans would do that deal – and Germany has a very large capacity for manufacturing reliable goods. We do not count German’s wealth only on what they have in stock-on-hand today – but we have Confidence they can keep on making swappable /tradable nice things – for ever. More conveniently – I will translate my Confidence & Trust into German currency – today the Euro.

Into the calculation of the depths of Germany’s pockets to prop up the EU we must add the entire capacity of the whole of the EU – even Greece makes wine, olive oil and amuses tourists. So Euro Confidence rests on the whole current and future Real-Economy of the whole of Europe – kept working and producing by that fierce and merciless Angela Merkel. As long as the human race keeps working to make things, with the help of automated robots, – the well /flow of money is assured.

The global production of goods and services every year is about US$60 trillion or $17,000 per worker per annum. The 100 billion set aside for Spain is 0.16% of one year’s real-economy – if it is a 10 year deal then it is a mere 0.016% of global production. You may rest easy in your bed – for now.

Follow my blog on these and other future matters:

Best wishes

Noel Hodson

REALITY CHECK: The global annual production of goods and services (GGDP) is $60 trillion a year, to supply 7 billion souls – wealth created by a workforce of about 3.5 billion people. $60,000,000,000,000 (60 with 12 zeros) divided by 3,500,000,000 workers (3.5 with 9 zeros) is a yearly production of $17,412 per worker. Most is consumed in the same year. The $18 trillion Tax- Haven cash is 30% of the annual global $60 trillion production. The GGDP surplus p.a. is about 1% - for 30 years siphoned to tax-havens (30 years x 1% = 30%).

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