When we launched our series into the US Shadow Banking system in the summer of 2010 we had one simple objective: to demonstrate just how little the process of modern (and by modern we mean circa 2004 not 1981) money creation was understood. Here was just one example where some $17 trillion (back then, now less) in credit money was rapidly liquidating, an amount greater than the entire M2 and even M3 (had that series still be in circulation) and yet not one academic, pundit or self-professed money expert had or has still accounted for the massive impact of this monetary abstraction on the markets and the economy, which as most know “grows” (to use one of the most misunderstood words in all of economics) primarily by expansion (or contraction as the case may be) of credit, both traditional, which is Bernanke’s domain, and “shadow”, courtesy of America’s #1 export: “financial innovation.”
It is now three years later and we are happy to report that almost not one person, not those that hide their complete lack of understanding of the money creation process behind big words, circular arguments, and three letter “monetary theory” acronyms, and certainly not those who set monetary policy, have understood a single thing of what we have been trying to explain all this time, which is merely the modern monetary reality but not from some textbook theoretical perspective, but from a purely practical, where money is nothing more than 1sand 0s in some server, standpoint.
However, one person has. That one person is Paul Singer. Paul is not some fringe blogger, some academic with a chip on his shoulder and an inferiority complex, nor some lunatic gold bug. Paul runs Elliott Management, one of the five biggest hedge funds in the US, which at last check had some $21.1 billion under management. And having managed money successfully since 1977, and witnessed numerous cycles of growth and contraction, not to mention money creation and liquidation, we would argue that his opinion on virtually all matters finance and money-related is second to none. It is certainly orders of magnitude more relevant and correct than that of the shamanistic central planning hacks who sit down every month in Marriner Eccler building to form a circle of depraved (and arguably deferred genocidal) cluelessness, and after a theatrical vote a la Stalingrad circa 1954, determine the cost of money (at least they did in the Old Normal) without even understanding what money actually is.
So for anyone who wishes to know what really happens in the modern world when money is created – and that would be most people who pretend to be informed on this, and other modern financial topics as nowadays it is all about money creation (and soon, destruction) here is, from Paul Singer’s latest monthly letter, an extended discussion on the nature of money, how it is created, and most importantly, how it dies.