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4.3 out of 5 stars
Paper Promises: Money, Debt and the New World Order
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56 of 58 people found the following review helpful
on 21 December 2011
This book highlights, in very simple and understandable language, and with great elegance, the complexity of the world we live in. Everybody wants the best of both worlds. Governments want to please the voters through promises, and borrowing money, which they have to return back. Governments are inefficient than the markets, yet, the markets may not exist without them. We all want a comfortable life - working less and consuming more. However, life is hard. And if we try to do everything for ourself, we might end up growing potatoes in the garden, to cook it using wood chopped from the nearby forest. Trading, amongst ourselves or with other nationalities benefits us, but we always want our nations to prosper more than others. There is always a friction. Like Buddha said, we need to find a balance.

Debt is the subject of this book. Debt is a "promise to pay back", sounds simple. But modern debts are promise to pay back in promises to pay back (as fiat money is also a form of debt). This makes the economic system very complex. Money these days can be created by central banks with a click of a mouse. Creating money may cause inflation, but it may be vital to help the economy function property or to help avoid mass bankruptcies in our society. Money is the store of value as well as the medium of exchange, we need to find a balance between the two functions. The futures of debtors and creditors of the world are tied together. And debt is not only the fault of the borrowers, but also a fault of the lenders. All this has implications of the global economy. This book addresses these issues flawlessly.

To sum up, a wonderfully researched book. Acknowledges ides from all political and economic spectrum. One of the most enjoyable reads (went through the book in 18 hours, and could not put it down). I recommend it to everyone interested in issues facing the global economy.
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39 of 41 people found the following review helpful
TOP 1000 REVIEWERon 28 December 2011
The author sets the current financial crisis in context. If you are a regular reader of the financial press you may not learn too much about the latest crisis itself. However, in my own case I had huge gaps in my understanding of everything that happened before my own time - for example the gold standard, Bretton Woods, and earlier monetary systems.

Philip Coggan starts at the very basics, with an explanation of what money is, and of various monetary systems that have been tried out in the past, from whales' teeth to gold to paper money, and also the pros and cons of each. By placing the current crisis in context, our overall understanding of what is happening in 2011 becomes clearer. He also answers many questions I had wondered about for years but had been too afraid to ask.

The author writes with an outstanding simplicity and clarity. If you are not familiar with the ins and outs of the current crisis, this would be a great place to start. And if you are familiar, you will benefit from reviewing the crisis in its context.

Highly recommended.
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6 of 6 people found the following review helpful
VINE VOICEon 14 April 2012
This is a well written and very accessible book on the monetary system and the financial crisis. The author offers a reflection on paper money and presents the historical movement from metal based currencies to paper ones. He then makes a link between money supply and the increase of debt. It is a good introduction to these issues, but it is not highly theoretical. The transition from the money supply and nature of money discussions to the crisis and the debt problem is not as well done as it could be. It seems at times that the author tries to put down too many ideas, without the links and overall theme being always obvious. If you would like a more technical treatment of these issues try Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown, while for something really new and thought provoking try The End of Finance. All in all this is a good title.
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34 of 36 people found the following review helpful
Not many people understand how the world got into such a financial mess. Philip Coggan is the best possible guide. He explains the world of finance with a clarity that is really quite surprising, given the complexity of the subject matter. And he tells stories that grip the reader from the start. Who knew that modern governments, with their overactive printing presses, had outdone the Roman emperors who debauched their gold coins by mixing them with cheaper metals? I can't recommend this book highly enough.
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4 of 4 people found the following review helpful
on 24 April 2012
Philip Coggan has compiled a 400 page book with enough knowledge and analysis to make it feel like an 800 page book, without seeming at all like a long and demanding read.
Having read previous books in the financial and monetary sector, Paper Promises compares favorably in the sense that it is truly the best of all worlds.
The first part of the book is a financial and monetary history in every sense worthy of Niall Ferguson's Ascent of Money, coupled with a monetary analysis every bit as astute as the works of Barry Eichengreen, but much more readable.
Despite the length of the book, Coggan leaves no stone unturned. The collapse of the Gold Standard, Bretton Woods, and the 2008 and subsequent sovereign debt crisis are all covered appropriately within this volume.
Rather than just been a simple chronological sweep of finance, phenomena such as bubbles, inflation, and monetary practices such as quantitative easing are all explained.
One is hardly left wanting for more, as most questions one is left asking after the events of recent years receive explanation.
As a book that, among many other things, focuses on the value of money, Paper Promises in itself is superb value for money, and an important asset for the investment portfolio of any economics enthusiast.
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10 of 11 people found the following review helpful
on 23 January 2012
This is a book about debt, and why "money is debt" - one of those striking phrases that starts simple and gets murkier, so that even after reading Philip Coggan's intelligent analysis of the credit crisis, I'm left wondering just how much I've really understood. That's probably a good thing, given the combination of complexity, reflexivity and intangibility that is peculiar to economics, and given Coggan's own admission: "If there is a fundamental theme of this book, it is that there are no easy answers in economics."

Despite its familiarity, money remains "a nebulous concept". Fortunately, Coggan is not a nebulous author, and in this clearly written guide he coordinates detail and theory in terms that this non-economist could (just about) follow. It's worth persevering through the intellectual vertigo and the numerical indigestion provoked by trade figures and debt ratios, especially given how crucial these issues are to all our lives. However, just as there there are no easy answers, there is no happy ending. Promises will be broken, and the result will be economic turmoil, as both debtors and creditors suffer. "The global economy is changing; for many in the West, it will not be for the better." Many of us might welcome a new order, but we should be aware that, "like so many of the goods sold in Western supermarkets, it will be made in China".

Coggan balances abstruse talk of the Triffin dilemma and the trilemma of currency policy (how do we juggle fixed exchange rates, free capital movements and interest rates?) with the kind of historical detail that we can all grasp (John Law hiring tramps to boost confidence in his emerging markets fund). The text is peppered with characters like Law (both hero and villain: he was the first Keynesian, the first modern economist, he introduced paper money into France - and he duped investors) and also out-and-out villains like Bernie Madoff and Charles Ponzi. (Strangely, out-and-out good guys are few and far between in the world of finance.)

To those of us civilians not trained in economics, some lines of thought can seem to be leading us down the rabbit hole. Money is debt, and there has been a vast increase in debt since 1971, which means there's been a vast increase in money, and more money is usually a good thing, right? So how is it, as Coggan argues in this book, "that we have reached another of the great crisis points in history"? Borrowers will fail to pay back their debts and creditors will demand a new system to protect their rights.

For me, one of the strangest ideas is that we can create money out of thin air, "with the click of a computer mouse" ("fiat money"). Indeed, banks "can create money simply by extending an overdraft" - and "this money is clearly also a debt". Coggan's emphasis is on the ability of central banks and governments to do this (the "fundamental worry of creditors is that governments can issue as much money as they like"), rather than on commercial banks, which are responsible for the bulk of debt money in circulation.

Money is not a commodity dug out of the ground like gold but a public good, and while its creation is largely in the hands of private banks, Coggan does emphasize the ultimate role of the state and its central bank in backing any financial system. Money only works because "we have faith in the government that stands behind it" and "our faith in paper money is the key to its survival". Although there are plenty of quasi-theological debates in economics, the relevant meaning of "faith" here leans more towards "trust" and "confidence" than the religious "belief without evidence". Wherever we stand on the political spectrum in Britain, we have more reason to trust the state than does the population of, say, Zimbabwe (which is not to say we shouldn't be more active in holding our politicians to account).

The two main functions of money - as a medium of exchange and a store of value - pull in opposite directions: creditors want to restrict the supply of money; debtors want expansion. More money is good for trade, less is good for savings, and both creditors and debtors have their very own patches on the moral high ground from which to bellyache. Our economic history has seen a series of systems devised to diffuse this tension, with varying success. The gold standard didn't last long, and Bretton Woods got us as far as flared trousers.

One of the most important qualities we can bring to this subject is scepticism. Words like trust and confidence underpin how money works, but these ought always to be firmly grounded in reason, not blind faith: printing money is no substitute for the wealth that flows from manufacturing industry, for example. Questioning assumptions is a key habit of the sceptical mind, and, in my opinion, at least a couple have slipped a little too easily into this book. Coggan rightly highlights the role of credit in a modern economy, but his blanket statement that without it "businesses would be unable to grow and create jobs" ignores the German model of Mittelstand, in which firms grow over many generations and not as a result of bank loans taken out in a dash for profit.

A second assumption that ought to be questioned is that declining populations are necessarily a bad thing. In assessing our future prospects, Coggan comments that "the demographies of Western Europe are very poor indeed" - and yet the only logical alternative to declining populations is unsustainable increase.

These assumptions are not minor quibbles, of course, but they are not the focus of the book and do not detract from its main theme, which is "the ancient battle between creditors and debtors" and the explosion in the amount of debt that we have experienced in our generation. As a result, we in the West have gratified our desire to consume and to speculate. Central banks stood by and watched. Indeed, "by intervening when markets fell, but not when they rose, they encouraged speculation" and, inevitably, "the pyramid scheme ran out of new clients". Now the music has stopped, it may be that only the Chinese are sitting comfortably.
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3 of 3 people found the following review helpful
on 4 March 2012
Having read a few other books on the recent financial crisis such as The Return of Depression Economics and having seen a few good documentaries such as Inside Job, I can say that Paper Promises is the most clear retelling of what happened in 2008 and the years that followed that I've yet come across. This is because it details in a linear fashion the history of the financial markets that set the context for the current crisis, especially the importance of a gold standard and what happened when it was abandoned, before leading into the events of recent years. Highly recommended for anyone trying to grasp what is going on in the global economy and the challenges we are facing.
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15 of 17 people found the following review helpful
On all British bank notes from £5 to £50 the words `I promise to pay the bearer on demand the sum of ...' still appear. In eighteen-century Europe an experiment with paper money was begun by John Law, a Scottish mathematician and gambler, who moved to France toward the end of the reign of Louis XIV. The monarchy of France was, at this time, verging on bankruptcy and, as the successor to the King was still only an infant, the duc d'Orléans held the reins. John Law suggested to him that the creation of a bank that could issue paper money in lieu of gold and silver was the best way to get France out of debt. The Banque Générale was created and the duc d'Orléans decreed all taxes could be paid using Law's new paper money.

Unfortunately, Law held the view that `it did not matter that paper money was not backed by an equal amount of gold and silver' and it was this belief that Coggan cites as the downfall to this early experiment: `Had the scheme been kept on a modest scale, with banknotes backed by gold and silver, French economic growth might indeed have been boosted over the long run.' However, Law's experiment did not diminish the eventual power of paper money, primarily because precious metals are easy to steal, rare and cumbersome to manoeuvre.

In order to keep their gold and silver safe people began to store their valuables in safes at goldsmiths where they would receive a receipt for their deposit. This receipt was effectively an early banknote and the reason why we see the words `I promise to pay the bearer on demand the sum of ...' on our modern day equivalents. The difference between the original receipts and today's notes is that these days the bearer cannot go into a bank (or a goldsmith) and demand the requisite amount of gold in return for the paper money. This is because in the 1930s the global economy broke with the gold standard, so today most of the world's currencies are no longer linked to the amount of gold any given country holds in its reserves. Instead most currencies are pegged to the US dollar and worth as much as the exchange rate claims it to be.

In Paper Money Phillip Coggan charts the journey of money from its direct links with gold to the present day climate of abstract money, exchanged at the press of a button. This book provides a valuable insight into the field of economics for those of us who have never studied in depth the ins and outs of such a complex system. The author succinctly charts the story of money and outlines, in layman's terms, the reason why we find ourselves in the current financial crisis. The reader is taken step by step through the Depression of the 1930s, the breakdown of Bretton Woods, asset bubbles, the problem with sub-prime mortgages, all the way to the collapse of Lehman Brothers and the vast debts the world is now drowning in. As Nassim Nicholas Taleb states on the front cover, `This book stands way above anything written on the present economic crisis', and furthermore it explains it all in a way that anyone with any interest in the subject can understand.
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1 of 1 people found the following review helpful
You don't think twice about handing over pieces of paper and bits of metal to pay for your purchases. Nor do retailers question accepting these seemingly simple, pedestrian items in exchange for goods and services of value. You have faith that your money is good, and so does the entire global economy. But what happens when that confidence falters? Journalist Philip Coggan traces humanity's longstanding use of paper money and coins and explains how that practice led inexorably to the massive indebtedness that now threatens the economic lives of everyone on the planet. His book is instructive from a historical perspective and provides a thorough background review, but it offers little new to readers schooled in modern macroeconomics. His prescriptions for the "new world order" appear as a brief afterthought, with only a few well-worn opinions on next steps the global economy should explore. Still, getAbstract finds this thorough review of the history of money useful for those new to the topic and for those who wish to know how the world has enslaved itself to debt.
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1 of 1 people found the following review helpful
on 9 September 2012
This booK at the same time gives a refreshing recap and asks sobering questions for the future. For me who was born in 1971, the year Bretton Woods collapsed, it's an unsettling account of how the explosion in debt and money creation, the unprecedented swings in exchange rates and the massive growth of the financial industry over the 40-odd years since have caused the build-up of gargantuan promises by Western governments. The thesis of this book is that these promises will remain unfulfilled one way or another, either through inflation, stagnation or outright default (and most likely a combination if all three) which will lead to a reduced standard of living in the developed world and ultimately to a new world order. Dizzying stuff.
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