The knowing ignorant

It should be the case that we agree that there's only so much on this planet to go around. To put it in technical terms, there is a finite amount of resources available to humankind. We're clever, that is true, and we have learned to do a lot with our waste, with our garbage and we can do a lot of sustainable things and we can recycle a lot. But regardless of how hard we try, we can't make up for what we don't have.

Last time, I pointed out that if there were only 370% (that is, over three-and-a-half times) more resources than are currently available, everyone on the planet could live as well as we do. We all know, that's impossible, and so I wanted to take the opportunity to point out another impossibility, but one that we believe in just as fervently as we do that hard work and personal responsibility are the key to our salvation.

For those of you who may have forgotten, the Gross Domestic Product (GDP) is the value of all the goods and services produced by a country. For the USA, it's about $17 tr (that's trillion, 1 with 15 zeros after it); for the EU it's around 18 tr; and for the world as a whole it's almost $75 tr. What the GDP tries to calculate is the actual worth of real value in products and services that a country, or the whole world, produces. This is an estimate, to be sure, but it is an estimate about real things, tangible products and experienced services. It's not a fiction, rather it is an attempt to put a number, a (in this case) dollar value on what we make and what we do.

Money, on the other hand, is not really a real thing, rather it is a number linked to an account. The USA, for example, may have a GDP of $17 tr, but that does not mean that there are 17 trillion dollar bills (or their equivalent) floating around in the world. Most of the "money" is just a number on a balance statement or an account statement. Yes, that's how our monetary system works and it is really not much of a problem as long as the money we think we have is backed by something real somewhere (a house, a business, an iron-ore mine, or whatever).

But, here's the kicker (at least to me): in 2008 when the financial crash came, when everything threatened to go belly-up, when the banks screamed bloody-murder and needed to be bailed out, the reason, you may recall were risky investments that threatened to collapse. We heard a lot about so-called "financial derivatives" and, in particular, "CD swaps" (bundled packages of investment papers created by the banks), and how not being able to "honor these obligations" threatened to destroy the entire banking system (i.e., the too-big-to-fail issue).

What most people don't know, and what the banking industry doesn't really want you to know, and what too many are willing to overlook is that the value of the CD-swaps alone (yes, the most precarious, but not the only doubtful, "investment instrument") was six time the WDP (world domestic product). In plain-text: the paper that was a problem, was valued 6 times higher than all the products and services that the world was able to produce at the time. In other words, it was backed by nothing. It was a fiction. It was just a number on a piece of paper, so to speak.

Those in charge at the time knew that this was unreal. Governments around the world (except, for example, in Iceland) acted as if there was no alternative but to save the banks. That there was nothing to save is inconsequential. That the losses were fictitious doesn't matter. They knew, but got us to believe, that the only way "out" was to save them.

And now we have the consequences: the banks are in charge, and the rest of us have nothing to say. Oh we have so much to be proud of, especially of how little we know and how little we are willing to do about it.