Transcript: What Is Money?

Published in Investing on 5 March 2012

David Kuo chats to The Economist's financial markets columnist and author, Philip Coggan.

You can listen to or download this podcast here.

David:

This is Money Talk, the weekly investing podcast from The Motley Fool. I am David Kuo, and have you ever wondered what money is? What are those notes and coins that we carry around in our pockets, that we use to pay for things from sandwiches to sardines? Where do they come from, and who controls how much they are worth? Here to explain what is happening to the pound in our pockets is Philip Coggan, who has been a Financial Times journalist. He is now Capital Markets Editor, and the Buttonwood columnist, in The Economist. He is also author of four books, including The Money Machine and Paper Promises. We have a copy of Promises to give away today, so listen out for the quiz question for a chance to win a signed copy of Philip's book. So, welcome to Money Talk, Philip.

Philip:

Thank you, David, for having me.

David:

Well, I'm delighted. I've read your columns in the Financial Times previously, and I also read The Economist, so I'm glad that you are with us today. Now, the one question that everybody asks, and I don't think there is actually a clear cut answer to this is, what is money, Philip?

Philip:

Well, you're right, David. It's staggering that we use money all the time, and yet an actual definition of it is so vague in our minds. I think the best definition of it is that money is something that other people are prepared to accept in return for goods and services, so money has been many things over the centuries. In early times, for example, it was shells or beads. Later on, it became largely precious metals – gold and silver particularly, and today it's something so ethereal, it's amazing – it is bits on a computer screen, largely. When the Bank of England goes about what's called quantitative easing, this way of rescuing the economy it's devised, what it does is it buys bonds from someone in the private sector, and credits their bank account with a bigger number. So it's a bit like one of those emails you get from the widow of Nigerian dictators, which says, just give me your bank account details and I'll credit you with $22 million – the Bank of England actually does that. It's a very rare sort of benign computer hacker. So that's money is today – it's a very ethereal concept.

David:

A computer hacker! So why is it still such a nebulous concept, though? Why is it so difficult for people to understand? I've been on radio shows before, where people say to me, "David, explain to me – what is money? When it says on the back of your £5 note, I promise to pay the bearer £5 – what exactly does that mean?"

Philip:

Well, it doesn't mean anything any more. If you took your note into the Bank of England, then you'd get another £5 in exchange, but in the past it used to mean that that £5 was represented by gold or silver. But nowadays, what does it represent? It really represents a statement of faith. Why do Starbucks or Boots accept our pound notes in exchange for goods? It's because the government has decreed it's legal tender, so it's a statement of faith in the government. Why do Starbucks or Boots accept, as an alternative, a debit card or a credit card in exchange for those goods? Because the banks have provided it, and who stands behind the banks? The government again. So while we have faith in the government to keep on raising taxes, to keep on running the economy, money has value. Turn to a government which can't do that, like Zimbabwe in recent years, or now Greece, which can't finance itself, and then you have a real problem.

David:

So you're saying that money is a medium of exchange – is that correct?

Philip:

It has two big functions: the medium of exchange one is the one we're all used to, where if I had to go into Starbucks and say, in return for a latte, can I give you a swift chat on the euro, or perhaps if I want an extra shot, can I throw in a few words on the pound, then it would be a very cumbersome way of doing business, so that's one key function.

David:

I must interject here, because one day I was travelling in a taxi, and lo and behold the taxi driver did actually recognise me, and I said to him, "Do you take credit cards?" And he said, "I haven't got the machine installed in my cab." So I said, "Well, I haven't got any cash on me", so he said, "Where are you going?" I said, "Well, I need to go to the London Eye." He said, "I'll tell you what – I'll take you to the London Eye, if you talk to me about finance in the back of the cab, and tell me where house prices are going." So is that the kind of bartering thing that you're talking about?

Philip:

Of course. When the system breaks down, that's what we'd be reduced to, but, of course, the chance of you coming across a taxi driver who wants your advice is unfortunately very rare, and imagine if we were at the tube station, and we had to go into the same sort of negotiation every day. But money as a medium of exchange is vital, but it also has this vital role of store of value. So when we put money aside for our pensions or for our saving for the future bill, like a child's wedding or college fees, then we want that money to be roughly worth the same when we get to that stage as it is now. Those two functions have really been in conflict through the ages, so those who want to encourage more trade want more money to be created, and that's the exactly the philosophy at the moment behind central banks expanding the money supply; those who want money to keep its store of value want the supply of money restricted, so that's why the gold standard lasted for so long, because creditors were in charge, and they liked the fact that their money stayed secure.

David:

So what do governments want? Do the governments want an increasing supply of money, so that they can actually have more trade? Or do they want less money in supply, so that whatever is there is going to be more valuable?

Philip:

Well, over history, the role of governments has changed quite a lot. For a while, governments were stern believers in sound money and balanced budgets. The Victorian era was a kind of classic thing of that. But for much of history, monarchs have been the worst debtors around, and monarchs have gone around debasing the currency.

David:

How did they do that?

Philip:

Well, in the old days, if you had only gold and silver, you would melt the coins down, add some copper or some lead or something to the coins, put the silver on top, and then you would circulate them again, so you would instantly expand the money.

David:

So what's wrong with that?

Philip:

Well, what's wrong with that in the long run is, of course, if you have more money and the same number of goods, it's the old rule that prices will go up, and you saw, in the Roman times, the emperors had to keep money available to pay their soldiers, otherwise they'd become ex-emperors pretty quickly. The silver content of a Roman coin fell from 100% in about 70 AD to 4% in 270 AD, so that was effectively inflation over the long term.

David:

A 96% devaluation, in other words?

Philip:

Now interestingly, we lost the last link to gold in 1971, when the dollar ceased its link to gold. Back then, gold was $35 an ounce; now it's about $1,750 an ounce. So we've seen the same, 96, 97% decline in the purchasing power of one dollar relative to gold that we did under the Romans, only we've done it in 40 years, rather than 200.

David:

So are you saying that things like gold and silver are a better way to store wealth than money?

Philip:

They're a better way to store wealth, but do they serve the other function of a medium of exchange as well, that's the question?

David:

Well, they do, don't they? Because you convert that back into cash again?

Philip:

Well, you can, only if the amount of cash is exactly represented by the amount of gold and silver in circulation. However, what happened over history was, we expanded the money supplies, so the amount of paper money in existence only had a small amount of gold, as back in say 20 to 30%. But once you have the idea that it's only 20 or 30%, why not 15 or 10? So once you accept the idea that a lot of money has no real backing, 80 or 90%, why not 100% of the value of money having no real backing? And that's essentially how the system evolved from being all precious metal-backed, to being not at all precious metal-backed, which is where we are now.

David:

So can we not go back to the gold standard?

Philip:

I think it would be extraordinarily difficult.

David:

Some people want it though, don't they?

Philip:

Yes, they do, yes, and there's a presidential candidate, Ron Paul, who's arguing for exactly that in the US. The difficulty with it is, once you've fixed the value of money, and there's a shock to the economy, then everything else has to adjust (wages, prices) while the value of money remains contained. So look at Greece at the moment – it has fixed the value of money relative to Germany. There's a shock occurred, and Greece now has to see its wages and prices fall. Now, that's extraordinarily difficult for a country to push past a democratic electorate, and even if it pushed that through, the value of its debts remain fixed in nominal terms, so they would have lower wages trying to service the same level of debts. Now, exactly the same problem occurred in the 1930s, when many countries were on the gold standard back then. One by one, they all failed to keep to the gold standard. They all found the cost they had to impose on their populations was too great, and they dropped off, and the earlier they dropped off the gold standard, the better their economies did. So I think it's very unlikely that governments would ever want to tie the value of their money to gold again, because it just restricts them too much.

David:

But Greece is tying its currency to the euro?

Philip:

Yes, and look what a mess it's landed in.

David:

What is your solution for Greece, then?

Philip:

Well, Greece has to default on its debts, and it is defaulting on its debts. It's defaulting on its debts to the private sector, and eventually it'll default on its debts to the public sector. So this is just another in this long series of crisis which the book talks about, in which debtors are overwhelmed by the burden of repaying the debts. The whole monetary system is upended, and a new system emerges.

David:

But at the moment, they're trying to keep the monetary system afloat, through this thing called quantitative easing. We're doing it in the UK, they're doing it in America. In Europe, they call it LTRO, or long-term refinancing operations. Now, what is the implications of QE and LTRO?

Philip:

Well, the implications is the money supply is being expanded. Now so far ...

David:

But we're not seeing it, are we?

Philip:

We're not seeing it, because a lot of the money is sitting back in the banking system at the central banks, so it's not being lent out to consumers and businesses. So in a way, it's not achieving its long-term purpose. You can get out of a debt crisis by inflating way the value of the debts, but there is a danger in that, because when the markets see you coming, they say, if we think Britain is going to have a 10% inflation rate, not a 2% inflation rate, then we will charge 12% on debts, and not 2% on debts. So suddenly, the cost of financing your deficit would shoot up alarmingly, and, of course, that's exactly what has happened in Greece and Portugal. They cannot finance their debt at reasonable rates.

David:

But aren't we actually seeing a devaluation of the US dollar and sterling at the moment, because we're seeing currencies like the Japanese yen rising against these two currencies?

Philip:

Yes, we are, but everybody is trying to devalue their currencies at once, that's the problem. If you look at what Japan has done, it has tried to intervene to cap the value of the Japanese yen, and if we look at Switzerland, it has declared it will not allow the value of the Swiss franc to go up any more. So it's, of course, difficult for countries to force the value of their currency up sometimes, as Britain found in the early 1990s, but it's quite easy for countries to force the value of their currency down. All they have to do is create more of it. So if everybody in the world is trying to devalue their currencies at the same time, they can't all do it. Somebody has to have their currency go up. So the US and Britain succeed in bringing down the value of the dollar and the pound from time to time, and then Europe has a crisis, and the euro falls. So it's very difficult – it's like 'pass the parcel', that somebody has to end up with a ticking bomb.

David:

So putting your economist hat on, is quantitative easing the right course of action for Europe, America and the UK?

Philip:

Well, one understands why they've done it.

David:

I didn't ask you that.

Philip:

No, absolutely. I mean, my main worry is, it's a bit like the story about Yogi Berra, the great baseball coach. He was once out for pizza, and asked how many slices he'd like the pizza cut into. He said initially four, then he said, no, wait, eight – I'm feeling hungry! Now, the problem with quantitative easing, it's a bit like that reasoning. You aren't actually creating more pizza. You are creating more claims on wealth, not wealth itself. The best way to get out of this crisis is to grow our economies faster, and that's the difficulty. There's very little sign that we're able to do that. There are various reforms that we can try, particularly in Europe, where there's lots of things they could do better, but they take several years to have a result, and I'm not sure that they can actually produce the inflation that will get us out of the crisis. Look at Japan – Japan has had 20 years of virtually zero interest rates. It's had many attempts to expand the money supply. It has had a long period of fiscal deficits, and it still hasn't got inflation. So what will happen in the long run, I think, is that the debts will simply not be repaid. They will be defaulted on, not just by Greece, but by other countries as well.

David:

Are you saying that Ed Balls is right, and George Osborne is wrong? That the economy needs to be reflated in some way?

Philip:

The economy does need to grow in some way, so Ed Balls is right in that aspect. The question is, how? Now, Ed Balls favours a cut in VAT, which will encourage consumption in the short term, and I think that's a mistake.

David:

But the UK is one of those economies where two-thirds of the economy depends on consumer spending?

Philip:

Yes, and that's too much. We need to have an economy where more of it is based on investment, and growing the economy. We need more investment in better infrastructure. Anybody who lives in London will know the infrastructure needs improving. We need better education, so that the kids who come out of college are equipped for a world in which they're competing against very smart people from all over the world. So all those things are important, and if we're growing the economy that way, that's great, and that will help in the long run. It's not going to help a lot in the short run. Now, you know exactly why George Osborne disputed this policy, because he fears that if he doesn't, the markets will panic and treat us like Greece, and suddenly push interest rates up to the 7 or 8%. It is a very difficult situation. It's one of those classic things where you ask a local for direction, and they say, "Oh, I wouldn't start from here, if I were you". We have got ourselves in this mess. There are no easy ways out of this mess. I cannot promise you an easy answer to this solution. Almost all the ways we can go from here are bad.

David:

Now, as far as quantitative easing is concerned, creditors are going to be the victims, because creditors are going to be the ones who are going to suffer. Now, the thing that people don't understand is, we know that there is quantitative easing in America, so why are creditors falling over themselves to buy US treasuries, when they know that those treasury notes are not going to be worth anything in 30 or 40 years' time?

Philip:

There are two reasons, I think. First of all, it's what one investor described to me as "the least dirty shirt" in the world, so you know when you're going on a Friday night, you realise you haven't done the laundry, and you search through the basket and you grab the least dirty shirt.

David:

I've done that before!

Philip:

So the US looks better than Greece.

David:

My problem is, I had to wear a jumper, because otherwise the shirt was, you couldn't wear it.

Philip:

So it's the least worst option, and the second reason is, of course, investors aren't buying treasury bonds for the next 30 or 40 years. They're buying it for the next three months or so, because they can be confident they can sell it again. The US is not just the world's largest economy, it's the world's most liquid bond market. So if you want to put your money aside for a short term, it's the safest place to put it. Now, do they hope that, in three or four months' time, they'll put their money somewhere else? Yes, probably. They're hoping that Wall Street will recover even better than it has so far; they're hoping maybe to put their money in emerging markets or commodities or something, so it's a bolt. Now eventually, the US will run up against the same problems we have in Europe, but unless they sort their finances out, then they'll see rising bond yields, and that's, I think, when the big crisis will occur, probably five or six years down the road. That's why the relationship between the US and China is a bit like the relationship between Germany and Greece. Just as Germany regards Greece as a kind of spendthrift nation which hasn't sorted itself out, that's how the Chinese view the Americans, and that's going to be the key relationship for sorting out the new monetary system which I think will emerge.

David:

But surely, America has this magic machine called the printing press? It can print as much money as it wants to. So if it runs out of cash, all it has to do is to print some more, and just simply get Congress and Senate to say, let's lift the debt ceiling again?

Philip:

Oh, it can do that, but it still has to borrow money from abroad, and that's the key thing. So the Chinese will eventually become tired of buying paper from the US, earning 2% or so, when they know the dollar is declining. They are already tired of it. When Tim Geithner went to Beijing, said to students, "Your treasury bonds are safe in our hands", they laughed. When the US got downgraded in August, there was a long lecture from Xinhua, the Chinese news agency, saying you can't go on. So China already has 3.2 trillion of foreign exchange reserves, a lot of which are in dollars. Does it want 5 trillion, 10 trillion? So at some point, the US needs to get its act together, and that's where a deal will have to be done between the US and China, just as after the Second World War, a deal was done between the US and Britain to sort out the monetary system.

David:

So why can Japan get away with debt to GDP of over 200%?

Philip:

Because Japan owes the money to itself. Japan has a bargain within the country, it's run trade surpluses for year after year after year. In America and Britain, we haven't done that, so we are dependent on the kindness of strangers. We need to persuade foreigners to buy our debt, and that means showing some sort of control over our willingness to issue more currency, and indeed our willingness to run endless deficits.

David:

But aren't we doing that in a similar sort of way to pension funds over here, by forcing them to go and buy gilts, and in America forcing those pension funds in America to go and buy treasuries?

Philip:

Yes, you're right, and this is what's called financial repression. Carmen Reinhart talked about it. In the wake of the Second World War, the debt mountain was eliminated steadily by holding interest rates very low, both on short-term rates and on bond yields, and effectively blow the rate of inflation, so slowly the debt was inflated away, and yes, it's not just pension funds – banks own more government bonds now; insurance companies through solvency requirements own them, too.

David:

Is that a con, then?

Philip:

Well, it's not good news, if you have money in a pension fund, and it's losing money in real terms.

David:

That's really shafting pensioners?

Philip:

It is. Of course, pensioners can buy index-linked, pension funds can buy index-linked bonds, which don't yield much in real terms, sometimes negative, but still will keep up with inflation. But the difficult of this is that, under the system that prevailed after the Second World War, called Bretton Woods, there were capital controls in the world, so you couldn't move your money overseas. Nowadays, of course, investors can move their money overseas. So you can keep your domestic institutions captive, but again you can't make foreign investors buy your bonds. So they can put their money in more attractive opportunities now – just look at the emerging world. Developing countries have much lower debt-to-GDP ratios than the developed world. They have currencies which people think, over the long run, will rise rather than fall. They have economies which will grow faster than the developed world. So international investors have much more attractive opportunities than just lending to the UK and US government. It's only because there's still an element of panic about the system at the moment that they are willing to lend money to us now.

David:

But I mean, what are the chances of savers and investors getting index-linked savings? I mean, it didn't take long for National Savings and Investments to pull their index-linked securities, like index-linked Savings Certificates, because too many people were going for it?

Philip:

No, well I'm sure that will continue, and I feel this is one of the great rip-offs that Britain has produced. I have index-linked National Savings Certificates.

David:

My son has as well, thankfully yes.

Philip:

And I have index-linked gilts, which I bought some years ago. But the idea that the government should cut off a savings vehicle, because it's too popular, at a time it needs to borrow $130 billion this year, seems extraordinary. It's all done to protect the banks, of course. But savers are going to be punished for the next few years. This is what government policy, central bank policy, is all about. It is about rewarding borrowers, and punishing savers for their thrift. So forget all those lectures we used to get from Mrs Thatcher and in the Victorian era about being a prudent saver. Governments in the West are designed to punish those people, not reward them.

David:

So what are better hedges against inflation, then?

Philip:

Well, unfortunately, there is a very good report out, which I'm sure Motley Fool has looked at, from the professors at London Business School in the Credit Suisse yearbook, which looks at what assets do protect themselves against inflation, and unfortunately equities, commercial property, houses, all have negative correlations with inflation.

David:

But not over the long term though, surely?

Philip:

Well, over the long run – it depends how high the inflation is. Equities have negative returns, negative real returns, in the years when inflation is highest, and we would need quite a lot of inflation to get rid of this debt. Gold has a positive correlation with inflation - of course, index-linked bonds go up with inflation, too, but both of them have very low long-term real returns. So the answer, I think, has to be, put your money in the countries where they're not trying to rip you off, in the growing countries of the developing world. Put a bit of your money into index-linked bonds, where the returns aren't great, but at least there's some protection, and I suppose you have to have a little bit of money in gold, or I'm very nervous about the fact that it's being advertised on TV, and it's gone up so much over the years.

David:

So how can people preserve wealth? I mean, that is one way to keep pace with inflation, but how do people preserve wealth in a world where asset prices have risen quite quickly, but debts have risen even faster?

Philip:

Yes, unfortunately I don't think there are any good solutions. You have the least bad solution, like the least dirty shirt again. You have to pick things that won't do as well as they did in the Eighties and Nineties, but will do a lot better than government bonds. If you look back to the last time that government bonds were at these kind of yields, 2% in the UK and the US, over the following 30 years investors lost money in real terms. Yes, we could end up like Japan, where yields are 1% for the long term, but even that, returns from government bonds haven't been that great. So you're faced with a very skewed risk/reward ratio, where the likely rewards are very low and the risks are extremely high, so that's the asset class to be extremely suspicious of – government bonds in developed countries, which we know that governments would like to hold rates below the rate of inflation.

David:

And what are your views about Europe, Philip? What do you see as being the end game for Europe?

Philip:

The end game for Europe is that more countries will default.

David:

And who is going to get hurt?

Philip:

Private sector creditors – they have made that abundantly clear, in the case of Greece, that private sector creditors have taken all the hurt, and not public sector creditors.

David:

So are we going to see more of what's been happening? In other words, the central banks lending money to the private sector creditors, such as the banks, at half a percent and at 1%, allowing them to relend that money back out again at 5 and 6%, in order to bolster their balance sheets?

Philip:

Yes, I think we will see more of that. I think though, in the end, the price that the Northern European governments are insisting for that support, which is long periods of austerity, will not be borne by the electorate. So we go back again to the 1930s, and the gold standard. In the end, you cannot impose year after year of austerity on voters. Yes, the mainstream political parties may sign up for it, as they have in Ireland, and just grudgingly in Greece, but all that means is that voters vote for extreme parties. If you look at the polls in Greece, there are three very left-wing parties which have more than 40%. So in the end, you chuck out the mainstream politicians, and you find someone who you can vote for who will say, "No – we're not going to go on with this. We are going to renounce our debts." That's essentially what's going to happen – it's what's happened before, in the past. People will not go through year after year of lower living standards, just to please foreign creditors. It's just a no-win proposal for politicians who try and push that through.

David:

But can you imagine America defaulting on its debts? I mean, what is China going to say, if America were to default on its debts and say, sorry guys – I can't pay you?

Philip:

Well, America has to default in one of three ways, I suppose. It's not going to pay them back the money in proper money. So it can default outright, and there's a very good set of papers by the George Mason University McCarter Centre, which is just out on the web, you can find, which discusses all these options. So it can default outright; it can inflate the debt away; or it can default on the promises it's made to its citizens in the form of pension and healthcare benefits, and that's the paper promises of the title of the book. It's really about, not just money or debt, but these promises as well. So if you think about it, the biggest burden on the US government is the three great entitlement programmes of social security, which is pensions; Medicare, which is healthcare for the elderly; and Medicaid, which is healthcare for the poor. Those programmes, if they keep on at the current rate, will absorb all the federal budget by about 2025.

David:

Are you saying they can't afford it?

Philip:

They won't be able to afford it, no.

David:

So why did President Obama go down that road, then? – knowing full well that it's going to cost them well over a trillion dollars to put these into place?

Philip:

He's not going to go down that road, for the very simple reason that people don't understand the problem and resent the cuts. They always think the cuts can be made elsewhere. One loses heart at the number of politicians who say that we'll deal with the deficit by cutting government waste. Well yes, I'm sure there is government waste, but you never find it, and it's never enough to deal with a serious deficit. People think that foreign aid is a huge part of the budget, whereas it's 1 or 1.5% of the budget, and if you cut it, it wouldn't make a blind bit of difference. So the problem is that people don't understand the issue. A politician who honestly says to them that this is the issue, and we need to cut these programmes, will immediately lose office. So that's why we are going down this long road where we're going to have, for the next 10 or 20 years, this is going to be politics. We're going to be pitting public sector workers against taxpayers, old against young, rich against poor and one country against another.

David:

There was a Chinese leader, a Chinese banker, who described the West as being a worn-out welfare state. What do you think he meant by that?

Philip:

Well, for China, of course, oddly enough as a Communist nation, they don't have the same level of social benefits. People are used to being supported by their families in their old age, which, of course, they were ...

David:

Or the state.

Philip:

... up to the 20th century, yeah; well more by the families than the state, to be honest with you. They don't have the same pensions that we have in the West, and we got those pensions in a period when the population was rising very fast. So if you think of the pension scheme as essentially a pyramid scheme, which is what it is, then you need a bigger coming generation to pay the benefits of the last generation. Now, what we have at the moment is the baby boomers, who are the kind of rat inside the python, working their way through the system. There's a lot of us – I'm in that generation; I suspect you are, too.

David:

I kind of resent being described as a rat inside a python!

Philip:

Our children are a smaller generation than the baby boomers who came before them, in many European countries, so they are going to support a larger number of elderly. Now, that means we'll all have to work later, perhaps to 70 in Europe, rather than 65, but it does mean that it's a huge burden for economies to bear. We've never really known a period, apart from the Black Death, when the population of workers has fallen in history, as it will over the next 30, 40 years, and that just adds to the problem. When you go on a debt spree, you're usually confident about the future and growth will pay it off. Unfortunately, we've landed up with this huge credit card bill at a time when we're suddenly not going to grow as fast, and that's why it's so difficult to get out of it.

David:

So what should young people, around the age of 18 or 19 – I'm asking on behalf of my son, what should he be doing, Philip? – apart from emigrating to China!

Philip:

Well, of course, China has its own demographic problem.

David:

Which is?

Philip:

In 2030, it had the one-child policy, so its workforce starts to shrink in about 15 years' time from now. There are other countries where it's better off, you'd be better off in demographic terms, like India, which is growing even faster. It's difficult to find a Western country to emigrate to, where you'll do better. Perhaps you might try Canada or Australia, where they've handled their government finances a bit better, and they have natural resources, and my advice would be not to take on too much debt, to be extremely cautious. People used to think that they should borrow as much and buy a house, but in a world where the younger generation is smaller than the older generation, it's very hard to see how house prices can keep going up. So that's not necessarily a great bargain, even if, of course, you can get the bank to lend you money to buy a house in the first place. I think the whole generation's attitude will change. My father grew up in the 1930s. To him, debt was a burden, debt was a curse, debt was what ruined businesses and individuals. People who grew up in my generation viewed debt as just a tool, and a way of financing your lifestyle. Well, perhaps your son will view debt in quite a different way.

David:

Will he, though? My son's generation are going to university and coming out with debts of £15-20,000, and my daughter, who will be going to university, will be coming out with debts of even more!

Phillip:

Yeah, so they won't want to be accumulating any more debts on top of that lot, right? So they are already being burdened with that. They're being burdened with the effective debt of our generation, which will mean higher taxes probably for years to come for them. So taking on any other form of consumer debt or mortgage debt on top of that will seem too big a risk, probably. They just won't want to finance it.

David:

I don't know whether I should be happier or sadder, having invited you in today, but at least you gave it to me straight.

Philip:

Well, thank you very much for inviting me.

David:

And that is something that the Financial Times' journalists always do, and The Economist's, of course – they give it to you straight.

Philip:

Good.

David:

Well, thank you very much. Now, I have a signed copy of your book to give away to one lucky listener who can answer me this one very simple question: what is the name of Philip Coggan's column in the Economist? Did you like that question?

Philip:

Good question!

David:

Please email your answers to moneytalk@fool.co.uk. And now for the quote, which comes from Yogi Berra, who said: "A nickel ain't worth a dime any more." That's inflation! This has been Money Talk, I have been David Kuo, and my guest has been Philip Coggan, author of Paper Promises. Thank you very much for coming in today, Philip.

Philip:

Thank you, David.

David:

If you have a comment about today's podcast, you can post it on the Money Talk web page, which you can find at fool.co.uk/podcast, and until next week, have a great week.

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TomJefs 16 Apr 2012 , 3:19pm

Characteristically pessimisitc.

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