“During the time of the Civil War (1642-51), English goldsmiths had taken on the functions of the bankers, making loans and creating a market for merchants’ bills of exchange (credit notes). By the 1690s, the total value of bills of exchange in circulation was believed to exceed the currency of the kingdom. Several writers observe that through its circulation this new form of credit had many properties in common with money. Yet credit, unlike gold, could be created and destroyed. It has no utility and its value depended on an act of belief” – wrote Edward Chancellor in his classic “Devil Take The Hindmost”
Centuries later, today banks and institutions can create money through derivative contracts. By 2007, we had more money created through synthetic derivatives than the currency in the world. As Chancellor has mentioned, it could be created and destroyed unlike gold. History suggests that while this may be a good thing, as it provides credit to businesses and liquidity to markets, too much of a good thing is often bad.
#RidingTheRollerCoaster – 60