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Extreme Money: Mirror of the Times

Best-selling author and global finance expert Satyajit Das reveals the spectacular, dangerous money games that are generating increasingly massive bubbles of fake growth, prosperity, and wealth--while endangering the jobs, possessions, and futures of virtually everyone outside finance.
This chapter is from the book

There’s old money; then there’s new money. Old money is the stuff of storied Mayflower descendants in the Hamptons or hyphenated names and titles in London’s South Kensington. New money is the arriviste stuff brandished by Russian oligarchs who buy Chealski football club, and hedge fund managers with a taste for modern art works called The Physical Impossibility of Death in the Mind of Someone Living.

There’s hard money, there’s fiat money, and there’s debt. Gold, greenbacks, dollars, pounds, euros, loonies (Canadian dollars), aussies (Australian dollars), kiwis (New Zealand dollars), Chinese renminbi, Indian rupees, Russian roubles, Brazilian reals, South African rands, Kuwati dinars, Saudi riyals, and the Zambian kwatcha. In the film Other People’s Money, Lawrence Garfield, aka Larry the Liquidator, played by Danny de Vito, tells his lawyer that everyone calls it “money” because everybody loves “money.”

In truth, money exists only in the mind. It is a matter of trust. With trust, comes the possibility of betrayal. The late Michael Jackson understood money’s essence, urging people to lie, spy, kill, or die for it.1

Some Kinda Money

There are different sorts of money. Most of the participants at the Portfolio Management Workshop run by a prestigious business school were in their late 20s or early 30s, already managing other people’s money. One man did not fit the typical attendee profile. Almost 80 years old—tall, straight-backed, and gaunt—he was there to learn to manage his own money better. He told an interesting story about gold.

He was a boy when the great earthquake struck San Francisco at 5:12 a.m. on Wednesday, April 18, 1906, one of the worst natural disasters in U.S. history. The man and his family survived the earthquake and subsequent fire, managing to get out of the destroyed city by boat. His father paid the boatman, who would not accept money, in gold, secreted away for emergencies. Gold, the sweat of the god as the Incas called it, is hard money. It is the only money when chaos ensues.

In the 1970s many Indians emigrated in search of a better life. Indian foreign exchange controls prevented legal conversion of worthless Indian rupees into real money—American dollars or British pound sterling. Emigrants resorted to Hawala or Hundi—an informal money transfer system.

You needed an introduction to a money broker. You paid him your rupees. In return you received a small chit of paper on which were scrawled a few words in Urdu, a language spoken mainly in Pakistan and India. This chit had to be presented to another money broker outside India to receive the agreed amount of dollars. There was no guarantee that you would receive the promised dollars. It was a pure leap of faith. Hawala is paper money, based entirely on trust and honor.

In July 2008, a bank in Zimbabwe cashed a check for $1,072,418,003,000,000 (one quadrillion, seventy-two trillion, four hundred eighteen billion, three million Zimbabwe dollars). In the 28 years since independence, Zimbabwe, the former colony of Rhodesia, progressed from one of Africa’s richest states into an economic basket case. The government’s answer to economic collapse was to print money until the Zimbabwe dollar became worthless. This is mad money—paper money made valueless through inflation and its extreme mutation hyperinflation.

Inflation in Zimbabwe was 516 quintillion percent (516 followed by 18 zeros). Prices doubled every 1.3 days. The record for hyperinflation is Hungary where in 1946 monthly inflation reached 12,950,000,000,000,000 percent—prices doubled every 15.6 hours. In 1923, Weimar Germany experienced inflation of 29,525 percent a month, with prices doubling every 3.7 days. People burned Marks for heat in the cold Northern German winter. It was cheaper than firewood. The butter standard was a more reliable form of value than the Mark. The German government took over newspaper presses to print money, such was the demand for bank notes. The abiding image of the Weimar Republic remains of ordinary Germans in search of food pushing wheelbarrows filled with wads of worthless money.

To avoid calculators from being overwhelmed, Gideon Gono, the governor of Zimbabwe’s central bank who despised bookish economics, lopped 10 zeros off the currency in August 2008. It did not restore the value of the Zimbabwe dollar but made it easier to carry money.

You receive a letter, a fax, or an email. The letter is from the wife of a deposed African or Asian leader, a terminally ill wealthy person, a business being audited by the government, a disgruntled worker, or corrupt government official who has embezzled funds. He or she is in possession of a large amount of money—in the millions—but cannot access the money. You will receive 40 percent if you can help retrieve the money or deal with it according to the owner’s instructions. You just need to send a little money.

It’s a scam. Any money you send is lost. This is bad money. Scammers are known as Yahoo millionaires. “Ego” or “pepper” is money. To be fooled in a scam is to “fall mugu.” “Dolla chop” refers to the receipt of money from a victim.

Money is pure trust and faith. Money itself can have value—gold. It can have no intrinsic value—paper. Money can be easily debased. It can corrupt and, in turn, be corrupted.

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