There’s a finite amount of wealth in the world. How can everyone collapse???
I’ve often wondered that. Economics is something I just don’t get.
I picture six people in a room, and one borrows money from another, who then borrows money from the third guy, and so and so on. And when the borrowing stops, there is no money in the room.
Makes no sense to me. The money doesn’t go anywhere. It just changes hands. And yet we seem to live in a world in which every country on the planet is broke and in debt.
How?
A lot of wealth exists on paper only,not in tangible goods.
Because a lot of that "wealth" consists of money that somebody or something owes to somebody else.I don't know what the ratio of real money to debt masquerading as money is, but it's surely less than one.
That being true (not enough real money to pay the debts, perhaps not enough real money to even service the debts), the collapse is a certainty.
The velocity with which transactions take place has as much to do with the “value” of the unit of exchange as the intrinsic factor of that medium of exchange.
Velocity of transactions has slowed TREMENDOUSLY as of recent times. The “go-go” factor is missing, drowned in red tape, bureaucracy and a growing fear factor.
If people have cash, they are sitting on it, and for those who do not have cash, their credit cards are about maxed out.
Can you say, “Bubble burst”?
I’m foggy on all this myself, but I think the basic problem is fake “wealth” evaporating, not real wealth simply transferring.
Like you and everyone else think your house is valued at $500k. You may borrow against that amount. You are taxed on that amount. You may plan to sell it and retire off the proceeds.
But then you find out no one is willing to pay more than $200k for it. Essentially that $300k never existed, but you made assumptions that depended on it.
Imagine the game Jenga with the base number of pieces, which under a normal backed monetary system grows by ~1 piece per game cycle (or 1-2% as a backed money system would).
Now you start to play the game (near or totally unfettered credit issuance being comparable to pulling lower pieces out and stacking them higher).
Eventually you will get to the point where the tower is multiple times higher than the wealth (pieces) supporting it. It, like the financial system, is going to fall. The sum total of world wealth is still going to be there, but it needs to be reaggregated and put together, from the scattered pieces of our Jenga pile to the wreckage of a financial system going through years of bankruptcies and asset sorting...