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RENEE MONTAGNE, HOST:

To better understand events in Greece and other countries struggling with large debts, we spoke to financial writer Philip Coggan. "Debt, Money and the New World Order" are the subject and the subtitle of his new book called "Paper Promises." Good morning.

PHILIP COGGAN: Good morning.

MONTAGNE: You know, just briefly, what exactly do you mean by paper promises?

COGGAN: Well, paper promises are all sorts of things, from money - the bits of paper we hand over to buy our Starbucks - from debts that we take out to buy a house or to a company, take a loan; and, of course, the promises that politicians make toward citizens in terms of giving future benefits, like pensions, health care, these vast number of promises that have been made that aren't all going to be honored.

MONTAGNE: But they are presumably promises that people generally believe. And way back when, people used something valuable to exchange for something else of value. But about a thousand years ago, you write, China introduced paper money.

COGGAN: Exactly. And Marco Polo, who visited them, couldn't believe that they would hand over paper money when everybody else handed over a real thing like gold and silver. Because, of course, it costs nothing to produce a piece of paper. And that's what our current system depends on. You used the word belief. We all have to believe in each other, that the economy will keep growing, that the government will raise enough taxes to meet its debts. And when you start to lose that belief, as in Greece right now, then the economy starts to get into severe difficulty. And Greece cannot afford to pay back its debts and is not going to pay back its debts. And this is part of a pattern that has recurred throughout history, that we have monetary systems in place, they last for a certain period of time, and then they break down when debtors can't pay back their debts.

MONTAGNE: You write our current predicament - meaning more debt than real wealth - begins in the 1970s, when the U.S. went off the gold standard.

COGGAN: Exactly. Up till then, every form of money had some link to precious metal- gold or silver. So the central bank of the U.S. had a certain amount of gold to back the currency and other countries could exchange their dollars for gold. All that ended in 1971 when President Nixon went off the gold standard.

(POST-BROADCAST CORRECTION: In 1971, President Nixon abandoned the Bretton Woods fixed exchange rate system.)

And essentially, you had no limit on the amount of money that could be created and no limit on the amount of debt that could be created. But eventually, what it led to was a whole series of asset bubbles. We used that debt to buy assets. The assets went up in price. When the assets faulted, as they did - 1987, Black Monday, late 1990s with the dot com bubble bursting - then central banks cut interest rates to keep the whole thing going. And the result of all that was a kind of one-way bet for speculators - keep borrowing money to keep buying assets, central banks will always bail you out. And that's why we ended up in this mess that we are in the moment, with lots of debts and central banks creating money to try and prop the whole system up.

MONTAGNE: Which also leaves us with a situation where everywhere you look these days, countries are trying to get themselves out of this debt. Greece, which you just mentioned, says it can only pay back about half of what it owes. The U.S. is doing something different. You see individual cities go into bankruptcy. The U.S., the government is printing more money. Any of these or other efforts likely to work?

COGGAN: No. It depends what you mean by work. Let's put it a different way. In Greece you have fixed the exchange rate, so you cannot devalue away your debt or inflate away your debt, so they will have to not pay it all back, formally default. In other countries like America and Britain, we still can print our own money, we can still let our exchange rate fall, so for a while we can devalue our currencies, inflate away the debt. But, of course, from creditor's point of view it all comes to the same thing - you're not getting your money back in real terms. And the debts are so large and the promises that we've made are so great, that eventually these paper promises will have to be broken, either to creditors: not paying them back in full or, of course, to citizens: not paying the kinds of levels of pensions or benefits that we have previously promised.

MONTAGNE: And then?

COGGAN: And then it's an enormous crisis. This is going to be the subject of politics for the next 10 or 20 years, not just for the financial pages - this is a subject that's at the heart of all our interests.

MONTAGNE: Philip Coggan writes about finance for The Economist magazine. His new book is "Paper Promises: Debt, Money and the New World Order." Thanks very much for joining us.

COGGAN: Thank you.

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