Bond Bubble

I have noticed there has been more interest over the past few years regarding Government Bond Rates. In many countries they are at historic lows, all time lows even. Interest rates in many countries have gone negative, whereby the rate of inflation is now higher than the rate of return in the bond. Its gone even spookier than that now. A rate of return economists thought was impossible has now happened, that is interest rates on bonds have actually turned negative in some countries. In Switzerland a 10+ year bond can be bought to actually have a minus rate of return. This has never been seen before. I first mentioned the bond bubble six years ago and its worth revisiting as it applies equally to where we are now:

However with the new intention for expanding the money supply to "combat" deflation, QE is now monetising many of these bonds, in effect creating artificial buyers. Similar to the recent housing bubble, real demand was never there, it was just people flipping houses to one another with artificial cheap money as the driver. The market anticipates this new QE artificial demand, by lowing rates as there is less risk on default as more buyers have entered the market - seemingly increased demand, limited supply. This is where the real trouble begins, the point we find ourselves in now.... 

We are only in the early stages of the above. In theory, this could be stopped now with the Government abandoning QE, but I doubt it. Not with the huge deficits to come and the lack of Global Capital. The above describes the very process of how the Central Banks believe they can beat the market. However they can't, as the above details, they can only make it worse and the longer they try to 'beat' the market the worse they make the situation. In the event that things go to far they will destroy the currency, the lifeblood of the economy, thus impoverishing us all. Prices are there for a reason. Economists will tell you that when yields come down, that the Central Banks have saved us and proclaim that QE has worked. It can never work and is doomed to failure. The longer they try and hold the short term price down, the higher it will shoot up eventually and the longer it will stay there.

Its a measure of the mess we find ourselves in that rates continue going so low, to lows that we once thought impossible. This is a once in a lifetime super bubble, one that we will tell our Children and Grandchildren about. To an inquiring mind, how and why have rates gone so low and what format will the aftermath take?

A number of reasons exist why bonds have gone so low, the main one however is QE. Its no coincidence that since the ECBs announcement to an extension of the QE program that rates have gone to all new time lows. QE is distorting prices of bonds by creating artificial buyers. The increase in demand causes prices to rise (when bonds interest rates fall, they go up in value as any existing holders can sell theirs on for a increased profit as they locked in higher rates) just like in any market. 

So we have Governments buying bonds but that still doesn't explain private buyers. Well, by law a number of financial institutions have to buy bonds. For example due to regulations set by the Government pension funds for example have to allocate a portion of their funds in Certain Government securities, regardless of the rate of return. How about banks or other buyers who are not forced? We still can't explain why they would buy a bond that will erode in value over time. Like any bubble it works on the premise of buying an asset for the belief it can be sold to a bigger fool.

When people were buying technology stocks in the late 90's, where a company had no dividend, no assets - in fact in some cases barely a business case. Still such companies were on paper worth billions. People bought the stocks not for fundamentals but for the belief they could sell them for a higher price than they bought them for. A similar prognosis back then to now causes this phenomenon; cheap money. Like technology stocks of the late 90's or real estate of the 00's, bonds are the new bubble in town. And just like real estate and the Technology stocks they will go pop. Central banks have made sure of that and when they do you need to stay well away.

How long have we got? I'm sure rates will still go lower, to lows we don't think is possible. However when rates go into long term upward trend Governments (or institutions the Government forces to be buyers) will be the only buyers in town turning the greatest bond bull market in history to the worst bear market. Currencies will gyrate with wild fluctuations. Inflation will go hand in hand with this. Markets will act in ways we have never seen before. Central Banks will provide small glimpses of the illusion that they have control but you can not contain a market price, it always breaks out in some form of spontaneous nature. Stocks and Real Estate will offer no protection. These assets generally go to new all time lows in real terms in such an environment. Precious Metals will once again resume their bull market run, going into a mania phase. CNBC and the such will have feature programs and stories of people getting rich by holding such assets, which incidentally is sure to be the next bubble once the bond market goes up in flames. 

The bond bubble. It may mean nothing to you now. It may mean nothing over the next few years. But in the coming decade however it will mean everything. So long as there exists centralised monopolistic control over money there will be bubbles. Reading what those bubbles will be can be the tricky part but once you can read histories rhythmic patterns the future is for all to see. Then its just a case of taking the correct actions, sit back; relax and watch history unfold.

In the Eye of the Storm

House prices are once again on the rise. London has seen the fastest increases to date with money slowly filtering out towards the rest of the country. Mark Carney, the Bank of England Governor, pays empty lip service to interest rate rises. Even if they were to go up tomorrow the damage is already done. It was done when they bailed out everyone, slashed rates and embarked onwards with Quantitative Easing. Raise interest rates tomorrow and we would be back where we started only worse. However history shows that central banks are always reluctant to raise their rates in a timely manner, even when they are raised they stagger it over months and it then takes months or years for the broader economy to feel the restriction of credit once more and fall back into a recession.

The 21st Century will view the central planning of money as an absolute disaster and free market alternatives will replace the current defunct system, good money always drives out bad and Government money is never good. Many Central Banks are using their faulty inflation rates as guidance as to when interest rates should rise but their metrics are critically flawed. 

Inflation is not just the price of staple goods such as milk, televisions, cheese or oil. If the price of the stock market rises that's inflation. If house prices rise that is inflation. If Gold rises that is inflation. If the price of a Picasso masterpiece rises, its inflation. If we take these items into account, the hard assets, then inflation is rising at increasingly faster rates. Its important to understand that the prices of these items are inflation the Central Banks just choose to ignore them in their indexes.

Another problem facing the planners is that interest rates can't rise or at least not by much. Many Governments don't want them to rise as it impacts on their already woeful deficits. It would hurt their tax receipts. It would ruin the "feel good" feeling in the run up to the UK election. People are beginning to stretch themselves once more and pile up debt on the low rates that are currently on offer. Mark Carney blames everything but loose monetary policy the real fuel to the fire that sparks off an asset price bubble. The same reasons that were cited during the previous boom are once more trumpeted to causing the recent house price rises:

• Too much Demand
• Too little Supply
• Not enough building

The real reason is excess credit. Its loose monetary policies that are causing house prices to rise once more. Demand and supply dynamics have changed no more than back in 2009, the difference is Central Banks have turned on the taps once more to release more credit and banks are once more recklessly lending to anyone with a pulse. Same with Gold. Same with art collectables or with vintage cars, the free market can not produce hard assets to keep up with inflation. Electronics and consumer goods hide real inflation as capitalism does such a wonderful job of providing these services in ever greater quantities at lower prices. We are not building more land. Houses are getting built but its the land they sit on that causes them to rise in value. 

So we are in the eye of the storm and if I'm a betting man it will go on for a few years at least. "Get it on tick" is once more a way of life for people. Once the tanker moves in one direction it generally holds course for longer then people can call it. When will the crash come? No one knows. What format will it take? Again no one can say for sure. All we do know is that the fundamentals are progressively deteriorating. When the 2000 stock market bubble popped the central banks re-leveraged the system, cranking down interest rates to low levels. Then 2007 and interest rates went to zero and monetisation actions were also taken. So once interest rates rise (if they do) then once more they will see-saw back to zero but it will be very hard to get credit moving with all the extra problems. Again monetisation of debt will happen, this time will see even more draconian manoeuvres. We could get "Bail-ins", similar to a Cyprus situation where money is simple taken from the wealthiest account holders (or even across the board) to try and bail out the system; a direct attack on freedom. One thing is for sure, it won't be pretty and it won't be moral.

The asset price bubble is global. This pod-cast with Krassimir Petrov highlights Asias problems and how it is creating reckless bubbles. House prices are rising there even faster than the UK, yet no doubt the same reasons are given, limited supply, too much demand not enough new builds and so forth. As mentioned near the end of the pod-cast central banking really does change the morality of people for the worse. Excessive credit does great harm to us all.

Crypto Currency Part 2

Its Gold 2.0

Winklevoss Twins

It's been a year that I last posted about the crypto currency known as Bitcoin, since then its been on quite a bull run. From a price of around $10 per coin to now over a $1000, more interest from the public has caused the price to continue to rise. China has taken particular interest and the recent senate hearings in the US has praised its innovation and how it could be of great use. Even Richard Branson has begun accepting it should you wish to fly into space. It's recent price rise is nothing new, its part of Bitcoins short history. The recent run has definitely overshot its medium to long term trend but it will still make a good investment moving forward. So how valuable could Bitcoin become? The quick answer, very valuable indeed. I've broken this post into sections to detail some important topics on the subject.

Its a ponzi scheme

This charge is raised all the time by many. People look at the price rise from nothing to hundreds and conclude that this must be a bubble. Now Bitcoin may collapse tomorrow with a flaw that no one has seen yet. However Bitcoin is not a bubble. Its a revolutionary concept, one that will more than justify its current price over the long term. 

Before refuting the bubble hypothesis lets first accept, for arguments sake, that it is a bubble. Now when bubbles happen the masses never call it a bubble, its the financial acute amongst us that call bubbles. Its the public, not investors, who are calling it a bubble. When was the last bubble you know of that was identified by the media and the public? The Dot Com Boom? Housing? The complete opposite was said for these genuine bubbles at the time. Your mum who has as much economic knowledge as John Prescott was calling it "a new era", "prices will rise forever", "whats a bubble?". Until your mum is saying that, it ain't a bubble. My mum still doesn't know what a Bitcoin is.

Some look at people in finance such as Peter Schiff who say it is a bubble and conclude it must be, however Peter Schiff doesn't like Bitcoin because you don't need to go to his brokerage firm to buy some. He doesn't get a cut. Its puts finance at the hands of everyone, even people in the third world. A last thing about bubbles - they always go on longer then people think, usually years after the first person called a bubble. 

We can use history as a guide. When the internet was created there was one very large problem. How are people going to find the information they want? There was no central registration system where web sites had to register with (thank god the Government didn't know about it - they probably would have tried to do this!), so search engines appeared. Now at the time in the nineties no one knew if there was a business model behind such a thing, allowing people to search the internet for free. It was also a vastly complex computer science problem to solve and some of the industries best minds set to work to solve such problems. Google was around then, but it was tiny. The big guys were DEC with AltaVista, Yahoo, AOL etc. Of course you would have made money if you bought their stocks but the real winner would have been what has become the market leader since, Google. It came from nothing and made Multi-Billionaires. Even after the Dot Com bust its value has still increased. Why? Because the internet wasn't a bubble, it really was a revolutionary concept. Its price went too fast in the short and medium term but the dollar worth of the Internet is far greater than 10 years ago.

So if we compare search engines altavista was once a leader who used centralised large computers to process the internet which was beaten out by Google's superior infrastruture which used lots of cheap computers all seemingly working as one. Their innovations such GFS and MapReduce in what would be published and create the field BigData. So will Bitcoin be the leading crypto currency in ten years? Probably not.

Alternatives to Bitcoin

There are many alternatives already appearing to challenge Bitcoin. As Bitcoins protocol and source is open anyone can now create their own currency. The value that bitcoin has over the others is its eco-system - the services, the entrepreneurs  the user-base  however that doesn't mean it will be a leader forever. Here are some "flaws" that other currencies could take advantage from.

• Relative long transaction times (10 minutes for verification)
• Hard limit of 21 million
• Proof of Work (the mining you will hear of)
• Ever expanding Block Chain public ledger

There are others, in fact there will be flaws we haven't even thought of. Remember this was the first crypto currency that was truly distributed and solved the double spend attacks that has now revolutionised finance and payments forever. But it will carry this baggage.

Transaction Times

Currently it takes around 10 minutes to confirm a transaction for it to be added to a Block in the public ledger. This is phenomenally quick compared to traditional finance, however you wouldn't want to pay for a quick cup of coffee and have to wait 10 minutes to get confirmation. Other alternatives such as Litecoin have slashed this to 2.5 minutes. Others further, Primecoin down to a minute. There is no doubt there will be further innovation in this area. Who knows what currency will come about that offers quicker times?

Hard limit of 21 million

Now the creator did this so it would be a deflationary currency and the currency does go down to around 8 decimal places, however I think he didn't account for the fact that people loose their coins and once they are gone, they are gone. If Bitcoin did make it Global then along with coins getting lost I don't think the currency will be divisible enough. A fork of the protocol would be difficult.

Proof of Work

Known as mining to many, however the coin rewards will eventually cease to be. The belief is that people will want to pay transaction fees in order to secure the network. I'm not too sure on this one. Miners are incentivised to secure the network because the current lottery system gives them some form of guaranteed payout. In the future this however may not be the case and the network could become susceptible to a 51% attack.

Ever expanding Block Chain

By all accounts the block chain is currently Gigabytes in size, however this will go to Terrabytes and beyond at an ever increasing rate. They don't have a solution to this yet. If people want to have a local wallet they are not going to want a public ledger of that size.

The alternatives of interest I have seen so far:

• LiteCoin - 2.5 minute transaction times
• PeerCoin - Proof of Stake and Proof of Work
• PrimeCoin - 1 minute transaction time

The last two are of interest. They were created by a developer called Sunny King, probably an alias like Bitcoins creator Satoshi Nakamoto, he is by all accounts another genius and a very motivated developer. PeerCoin in principle can eventually work under a proof of stake to secure its network. The has a number of advantages over Bitcoins Proof of work:

• It requires less energy - People don't have to run dedicated hardware to mine. They just hold their coins.
• A 51% attack is less likely - In order to do this someone would have to obtain half the currency. However this would cost a lot as market forces would drive the price higher (assuming over 50% of the current holders wish to sell). Then if the attacker wished to compromise the network their holding would decrease as their 51% stake would devalue. Compare this to Bitcoin; an attacker would have to get the hardware but they could re-sell this hardware, thus the costs of the attack are not as great. For a large currency the hardware costs less relative to half a global currency.

PeerCoin has been earmarked as a future savings account. It has a 2 Billion coin limit (although in practice it will never get that high) and fixed transaction costs, thus making it expensive to pay for small items, but with the proof of stake could be potentially more secure.

PrimeCoin is by the same developer, this would be used for regular payments, as the transaction times are very fast and the fees are lower.

Ultimately I can see people will hold multiple crypto currencies and will not be limited to one. They will still hold their national currencies, their credit cards and even cash. 

How High?

So how high could Bitcoins price go? They are already at $1,000 a coin, that was easy, I mean you still can't buy anything with them! What about $10,000 or $100,000 or even $1,000,000 per coin. That is not as high as you may think. Bitcoin has no barriers at all, it only requires an internet connection. More people have access to the internet then access to a bank account. The global population is 6 billion. 3 Billion people can't use conventional banking. The Global economy is worth Trillions. Bitcoin has a limit of 21 million coins. Warren Buffet can still comfortably buy every bitcoin in current existence  Thats why $1,000 is nothing. When Bitcoin becomes usable a price of $1,000,000 could become a reality. 

In the short term I'm convinced Bitcoins price will crash. It will probably go back down in the $100-$200 range killing all the recent interest and people feeling vindicated that they called the bubble (when did the masses ever call a bubble?). In between the spikes Bitcoins price has been remarkably stable for a new currency, but like all new things it has these wild swings as more interest and potential is unleashed.

Of course Bitcoin could crash tomorrow. Its experimental. Its cutting edge. No one knows for sure whats going to happen. All I know is its been one hell of a ride so far and its only going to get more interesting. Got Gold? You bet, thats got bags of history. Got Gold 2.0? It could be the one asset you buy that could change your life. Even if you don't buy, it will change all our lives for the better.

Do you believe in Magic?

To view the first video click here (apologies, the video is too wide to be embedded in the post).

How did they make such a profit so soon after their catastrophic failure?



Despite what the first video says about 'supply and demand' underpinning the reason for huge salaries, its all in fact one big con. I have explained many times on this blog along with other economic academics who have pained to point out that it is the fractional reserve banking setup along with the monopolistic tendencies of Government who take grotesque actions such as bailing out banks at all costs to the detriment of the average person on the street.

If you really want to find out about the 'complex' work on Wall Street have a read of Liar's Poker by Michael Lewis. It's reality is no more complex than being a scientist, doctor, engineer or mathematician, and there are plenty of talented people out there. The difference is that the former list of professions are paid a real market wage, while bankers continue to profit greatly from the current rules that are in place. Of course people such as Michael Lewis realised this, he worked for a few years but managed to earn more money than his father did in his lifetime and couldn't understand why. He couldn't see the benefit he brought to society for the money he was given, one of the main reasons he decided to quit so early in his life.

Anyone who believes that people in finance are paid correctly need to seriously examine the current monetary system we live in and the rules that are in place. Similar to the Church a few hundred years ago, they may have the majority fooled but people in the know realise the truth. Just like with religion, in which we now live in a secular state that atheism is no longer something to be ashamed of, people will come to realise what a con the current financial system is over time. Sure, there is a place for it, but it means changing the rules so that they are fair and just, with people earning a reasonable wage to do a reasonable job. It seems everything is in a bubble right now, Central banks and Finance are included. The time will come when they will pop and people will see them for what they really are.

Ascent or Descent of Money

Murray Rothbard once said, "Historians don't understand economics and economists are useless historians". As an avid reader of history, it's a common issue that I fully appreciate. One historian who is held in high esteem regarding economics is Niall Ferguson. After reading his recent book, 'The Ascent of Money', I beg to disagree. He may be on TV, he may have a fancy academic post, he may in fact be a highly intelligent person, but clever people can be as fallible as any other person. In Contrast with his other works, 'The Pity of War' or 'Empire: How Britain Made the Modern World', his recent book felt rushed, an attempt to cash in on the unfolding economic events at the time of publication. It was after all published a full year after the credit crunch.

Money, Regulation, Gold Standards, Bubbles and Greenspan are typical topics discussed, but in many of the above, confusion is the only common theme. Professor Ferguson tries to piece together various areas without the pre-requisite economic knowledge. The Achilles heel of historians is once again on display for all to see.

Money. The books title has the word. It dramatically begins with a list of aliases, however the book falls woefully short of explaining what money is, what its context is, how important it is. A passing mention regarding our sovereign monopoly of money doesn't connect the dots. If the required homework had been carried out, Ferguson would have realised that this was the key. Why do we live in seemingly free markets but they periodically crash, overproduce, mal-invest? Its our governments incompetence over money that causes this. There is no mention that money originated from the free market to overcome barter, that kings took over money for personal gain, that inflation has always been a common phenomenon under this type of arrangement. This admission sets the pace for the rest of the book - for non-critical minds a satisfying read, for others, frustrating.

Stating 'Anything can serve as money, clay, silver, paper', it is true many things have served as money but it doesn't mean they have lasted throughout the ages. Metals have generally been used as the de-facto monetary standard. On the other hand, paper, has continuously ended in runaway inflation as there is no limit to expand the supply. Unfortunately this part of history is omitted leading Ferguson to the conclusion that its 'different this time', they can suck out the liquidity, but as Winston Churchill would argue 'All fiat money has ended in inflationary disaster'. Gold Standards are rendered as inflexible, inelastic, incompatible to increase the money supply under times of extreme contraction, however only half the story is told. It is the first part, the initial unwarranted monetary expansion during the boom that causes the bust, not the lack of expansion in money after the crisis. Classic examples such as John Law in France, which lead to hyperinflation because he tried to fix the economic bust by printing more money seems to allude our academic friend. Despite coming to the conclusion that it ended in disaster and no good came from printing more money, Ferguson still believes it to be a good idea. As the quote at the top of this blog states, you either keep expanding indefinitely destroying the currency or you take the medicine.

Despite mentioning the recent great economic powers, Germany, United Kingdom, America, Holland did he ask the question what did all of these have in common during their height? Sound Money. The United Kingdom exported sound money around the world, gold, silver or bimetallic standards, to keep a check on government abuse. All the nations listed went into decline as soon as they abandoned these principles. The Bank of Amsterdam abandoned 100% reserves, Britain abandoned its gold standard in the thirties, Nixon's closing of the Gold Window in '71 in which we have since seen a relative decline in Americas Global dominance.

One pressing issue isn't even mentioned, fractional reserve banking. Its one of the most important issues in banking and one of the reasons finance makes a disproportionate income compared with all other sectors of a modern economy. Despite what is conventional told, you don't need fractional reserve banking to run a successful economy. 100% reserve banking, where the banks can not create money out of thin air would not only give greater stability, but would be fairer for all. Savers are rewarded, peoples purchasing power would increase, all sections of society would gain equally from such a system. One of the reasons society is plagued with great income inequality is that when you inflate the currency based on no supply and demand dynamic, this excess liquidity will inevitably end up in assets such as houses, stocks and so forth. The rich in general posses more assets and when they increase in value caused by the monetary expansion their wealth increases disproportionately. For example, if houses went up 100%, then a person with the previously valued £100,000 house would gain £100,000, however the asset rich person with a £1,000,000 would gain £1,000,000 - ten times the gain, or to put it another way a 1000% more! The rich get richer while the poor get poorer. People with no assets have no such luck.

Fractional reserve banking is an immoral system. It allows the banking community to leverage, i.e. create money at will and profit from something that they can create out of thin air. Can you imagine a factory that could make products out of thin air? A civil engineer making invisible bridges and getting paid for them? This is finance, the rules the government lay down. Allowing our banks to inflate the money supply based on governments targeting their inflation metrics. The better the free market does its job, by lowering the cost of goods and services, the greater the rewards for the banking community as expansive monetary policy is the solution for falling prices. Alas this topic isn't even covered in the book.

Bubbles and Regulation are narrated upon, nevertheless critical analysis is lacking. Ferguson outlines bubbles along with expansive monetary policy but the vital connection is not made. Instead human psychology is used to explain the 'irrationality' of markets, the conventional scapegoat. If our money was sound there wouldn't be the excess money to inflate bubbles and prolong their expansion misleading people to mistake these false price signals. The liquidity would not be available to inflate bubbles as other sectors of the economy would require capital. I recently saw Ferguson interviewed after his book in which he remarks that behind bubbles you will almost always find a central banker, from John Law to Alan Greenspan. It's a shame the book misses this point.

Regulation. We need more regulation? We need to set up a regulatory committee to stop people from poking themselves in the eye, or do we? People are rational to the extent that they make informed decisions. When banks get reckless they get reckless based on the premise that they get bailed out. One of the most heavily regulated industries is banking. I work in the computer software sector and from what I know we don't have any regulation. We don't have codes of conduct in how to make software. Good software companies survive using good business processes and sound coding techniques. They don't need some bureaucrat who visits every so often to inspect the software. The market, that is people, decide what is good or bad quality and cost effective. It should be the same with banks. If a bank is unsound it fails like any other business. When banks used to be allowed to go bust, they took pride in their long history. This in turn attracted people to bank with them as they continually survived during economic crisis. All of this occurred with little or no regulation, people came to that decision on their own accord.

Take for example electronics companies who for example make Computers. Should we have a regulation that states a certain quality of hard drive should be used in order to minimise computer failures, or should we allow people to decide if they wish to pay more for a PC with greater reliability. Of course the market drives up quality. When the Japanese companies started destroying the Western electronics giants they did so not from government regulations but because of market forces, people individually making rational decisions based on build quality and innovation. The books passing comments in relation to regulators maintaining financial stability contradicts the recent economic crisis we are living through.

Described as the best historian of his generation, what premise do I a software developer, have to disagree? Was it not the clerk in a patent office who challenged classical Newtonian mechanics and set off a whole generation of physicists who questioned authority and conventional wisdom? Just because a person has an academic post or a prestigious award doesn't mean he has mastered a particular subject matter. Just as Einstein was brilliant, he was as fallible as us all. Later in his life he couldn't accept quantum mechanics and a host of other new theories, stuck in the past he slipped into insignificance despite being one of the most recognised scientist in modern history. In my opinion one of the greatest economists, Ludwig Von Mises, couldn't even get a paid academic post whilst residing in America.

Critical thinking is rarely conventional wisdom, something Professor Ferguson has forgot. His earlier books such as 'Empire: How Britain Changed the Modern World' challenged the conventional viewpoint that the British empire was inherently bad for the world, on the contrary Ferguson argues well that it was beneficial and ahead of its time. 'The Pity of War' argues that the first world war was not inevitable, people were more apprehensive than conventional wisdom makes belief. It wasn't as black and white with the infamous Archduke assassination that set off a series of chain reaction events that is narrated by many historical texts. Britain held the key, indeed she was the prime cause of the war due to unusual diplomatic moves and indecisiveness.

Ferguson states that finance is the key to modern society. Finance is vitally important but its no more important than the doctors, the engineers, the scientists, the factory workers; everyone plays a key role in society enabling living standards to rise. Finance is the heart of the economy, not the brain. It pumps credit around the economy to the sectors that require it, the brain is the scientists, innovators, entrepreneurs and inventors. These people decide how to do things better and how best to satisfy individuals desires.

Whilst reading the book the title always troubled me. Have we witnessed the 'Ascent of Money'? If that were the case would the story of money not read that people first experimented with common objects such as, shells, clay, beads then we moved to using metals. This became cumbersome so we transitioned onto a more convenient medium which behind it lay the backing of a finite metal such as gold or silver. Then people threw away the governments monopoly and allowed the market to choose what money was. Instead we witnessed the first three steps, but have now instead moved to fiat money, backwards in time to the exception, not the rule. History warns us that fiat systems have always self imploded and we are no more wiser than any previous civilisation that tried to manage paper money. The 'Descent of Money' I feel would have been a more fitting title.