For those of you who did not read through the article behind the burning Bush, here is a brief overview using the present day context.
Today’s money comes from a very special place. It is called “thin air”. In the beginning, when God said “Let there be light”, He created something by “fiat” – literally “out of nothing”. Likewise when people speak (or rather sign on the dotted line), they create money out of nothing and simultaneously put themselves into debt. That’s why it is called fiat money. It didn’t use to be that way…
…Once upon a time paper money represented something: either gold or sterling silver. That didn’t last long when governments started printing far more money than they had gold or silver reserves. Today, central banks are “printing” (the transactions are electronic now) like there is no tomorrow: giving low interest loans to ordinary banks in the hope that they will lend to businesses and people in the hope that they will continue to pay the interest on their previous debts. This goes for governments too, in the form of international bail-out packages for Iceland and Greece.
This result is that there is a lot more money in circulation (augmented by “quantitative easing” when central banks buy up debt instruments: corporate and government bonds). The law of supply and demand dictates money should become worth less and less. The corollary of the value of money going down is that prices go up, in other words: inflation. This has yet to appear because of the reduced velocity of money: the average man on the street is spending less. He still has confidence that the value of his savings will not decrease rapidly in the future. Once that confidence is lost, people will start spending money like there is no tomorrow and then most of the world will start to look like Zimbabwe.
However, not all currencies are equal. Some currencies are supported by international demand. What creates this demand? Simply if you have something to sell on the global market, like, for example, sugar, holidays or land. This is exactly what Mauritius is doing and why our currency is relatively strong, for now. The other thing that creates demand for a currency is if important commodities are traded in that currency. What comes to mind? Oil, of course. With the amount of debt that the US government has, it’s currency would be next to worthless if it were not for the fact that the world needs dollars to buy oil. If Saddam had had his way and sold his oil in Euro’s then Europe would be sitting pretty and the US would be on its way down the toilet. That’s why the burning Bush went to war.
What does this have to do with Mauritius? Well, the moment that people stop buying our sugar, our holidays and our land, our precious Rupee will tumble in value. When that happens, we will not be able to buy much on the international market. This means fuel for electricity, transport and cooking, cars and electronic gadgets, clothes and plastic crap from China. More importantly, it means food. Since we have to import 75% of what we eat, this means that some of us (read: the poor) will starve. Desperate people take desperate measures (look at all the crime created by opiate addicts). The country will fall into anarchy. That will be no laughing matter.
What can we do to prevent catastrophe?