By Noni Mausa
The Opposite of Bankrupt
Some time ago I wrote about dollars as bizarre IOUs, with no names,
dates or specific obligations. They are free-floating promises, which
can be used to command the efforts of the other people who accept them
I give you ten promises, and you give me a sack of potatoes. The ten
promises I give you fragment to a fine dust and disperse backwards in
time to command the efforts of growers, shippers, plastic bag
producers, potato breeders, researchers, and a vast pyramid of all the
people whose efforts, minor or major, permit a sack of potatoes to sit
there waiting for me when I enter the store.
Generally, I have them because I have spent time, exerted effort, and
focused my attention upon some task. In return, I received
promise-tokens, which I can use to command the fractional efforts of
other people. They may be near or far, known or unknown to me, in the
past or in the future, but these promises are nothing without their
ability to command the efforts of others and especially, to command
that effort anonymously.
Let’s look at bubbles and crashes with that in mind.
Trillions of promises evaporated practically overnight in the wake of
the 2008 real estate, stock market and investment collapses. But real
wealth — in the form of homes, land, crops, buildings, human skills
and knowledge, and the myriad other desirable and necessary goods –
was practically untouched. This created several important effects.
First, and inevitably, the real value of each surviving promise
ballooned – currency deflated drastically and almost instantaneously.
Huh? Isn’t inflation still piddling along at one or two percent? We
are warned about deflation and we have seen some, but not the steep
slither into the abyss that we saw in the 20s and 30s worldwide.
But the math is simple. If 10% of your paper wealth suddenly
vanishes, deflation (fewer dollars for the same goods) must happen,
it’s a definitional truth. But the key is that the dollar was
drastically inflated before the bubble, but the inflated bit was in
storage, not in circulation where it could inflate prices and require
wheelbarrows for trips to the grocery store. It doesn’t matter if
Marty (“The Artist”) Billingham prints up thousands of hundred dollar
bills, if he then buries them or burns them. These promises only
exist in circulation.
So, when the bubble popped, the potential value of each dollar
grew. If this maneuver had been executed by the Fed, perhaps to
help the federal budget by having to mint fewer coins and bills,
nothing would have changed. Pay would be less, prices would be less,
but proportionality would be preserved.
But no. Proportionality went all to hell, because of whose promises
The rising tide lifting boats is a lousy metaphor because all boats
sit on the top of the water, at the same level. Imagine instead that
your wealth measures how far offshore you are. When the tide rises,
all boats are lifted, but when it falls some are beached right away,
while others float serenely. Even though the ocean liners technically
have 20 feet less water to float in, the difference is not important.
So when our currency deflated, whose hulls were stove in?
Well, we know that. Property values stayed the same, insofar as value
means “a warm dry place that isn’t a cave,” but ownership skipped from
homeowners to the promise merchants, who can now command the efforts
of new buyers. The equity in those homes is gone, whoever buys them
now has to start over and pay the cost-plus-interest from scratch.
Either the owners, or their heirs, take the hit for that tangle of
Pension plans took a big hit also. Wages and benefits, already
weakened, are still being hacked away at the roots.
In short, the effect of the bubble and crash was not to destroy
wealth, since all that wealth is still present or could be very
No, the real effect was to further shift the “ability to command the
fractional efforts of people” from the working majority to a
commanding minority. And so long as money is accepted, so long as
currency can be used to command that effort anonymously, the majority
is in a pickle.
Bankruptcy is the loss of liquidity, the loss of abstract leverage to
command the efforts of other people. Generally, this is a voluntary
process in which you confess you will never be able to provide
sufficient effort to compensate for the loans extended to you, and so
shed those obligations. It pushes you off the rocks and, hopefully,
back into a few feet of water where you can begin again.
What do you call the opposite – the ownership of more IOUs than you
could have ever earned, which can be deployed anonymously, which
multiply over time, and which can be created out of thin air if you
know the magic words? Who are you when you’re permanently anchored
over a Mariana Trench of money where no tide, however terrible, can