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Philip Coggan

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Paper Promises: Debt, Money, and the New World Order Kindle Edition

by Philip Coggan (Author) Format: Kindle Edition

4.4 142 ratings

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Winner of the Spear's Best Business Book Award

Longlisted for the 2012 Financial Times and Goldman Sachs Business Book of the Year Award

For the past forty years western economies have splurged on debt. Now, as the reality dawns that many debts cannot be repaid, we find ourselves again in crisis. But the oncoming defaults have a time-worn place in our economic history. As with the crises in the 1930s and 1970s, governments will fall, currencies will lose their value, and new systems will emerge. Just as Britain set the terms of the international system in the nineteenth century, and America in the twentieth century, a new system will be set by today's creditors in China and the Middle East. In the process, rich will be pitted against poor, young against old, public sector workers against taxpayers and one country against another.

In Paper Promises, Economist columnist Philip Coggan helps us to understand the origins of this mess and how it will affect the new global economy by explaining how our attitudes towards debt have changed throughout history, and how they may be about to change again.

Editorial Reviews

Review

"A compelling sketch of how the indebtedness of much of the developed world will eventually unravel. Rapid credit creation has always been a double-edged sword, associated with economic growth and democratic expansion of opportunity, but also inevitably leading to asset bubbles. In Paper Promises, history serves as a guide for the new order."

Tim Harford, author of Adapt and The Undercover Economist

This is a remarkable book from one of the most respected economics journalists on the planet. Every page brings a fresh insight or a new surprise. A delight.”

Financial Times
[Coggan] covers terrain with characteristic calmness and objectivity, avoids over-simplification, and laces his arguments with his trademark erudition. The book is free from the shrieking ideology that afflicts virtually all contemporary debates over money. Indeed, it offers a clear explanation of the fresh ideological divisions that have arisen over how to deal with the crisis Paper Promises shows that both Occupy and the Tea Party have real reason to be angry The book should be taken very seriously.”

New Statesman
"Writing with a lucidity that enables him to convey deep insights without a trace of jargon. [Paper Promises is] the most illuminating account of the financial crisis to appear to date.”

Times of London
A smart and witty analysis of the current economic storm, set in the context of the history of money.”

Irish Examiner
Philip Coggan is a well-known financial journalist. He now proves to be an exceptional banking and economic historian.”

Management Today (UK)
Fascinating and authoritative, with the rigour and depth to satisfy an economist and the accessibility and pace to engage the layperson If everyone read Coggan's book we might just be a little more circumspect if and when the next burst of irrational exuberance overtakes the economy”

Independent (UK)
In this context of mildly hysterical panic in financial circles, Philip Coggan's book adds a welcome note of calm analysis.”

Tyler Cowen, Marginal Revolution
”A very good and sensible introduction to the history of the recent economic crisis. Recommended.”

Motley Fool

With the developed world facing fiscal and monetary crises, Coggan's new book, Paper Promises, is a veritable enigma machine for investors who wish to decipher today's headlines.”

800-CEO-READ

Financial Times

"Bold and confident ... Coggan covers the terrain with characteristic calmness and objectivity, avoids over-simplification, and laces his arguments with his trademark erudition ... The alphabet soup of acronyms, from SIVs to CDO Squareds, is blissfully lacking ... Finally, the book is free from the shrieking ideology that afflicts virtually all contemporary debates over money. Indeed, it offers a clear explanation of the fresh ideological divisions that have arisen over how to deal with the crisis ... the book should be taken very seriously."

Publishers Weekly, October 31, 2011

Coggan traces history's tug of war between monetary shortage and excess' in this engaging and timely book about the current financial crisis. Thoughtful and thorough.”

Kirkus, November 15, 2011

Comprehensive. A helpful analysis for anyone who wants to know how the world got into the present financial mess, which issues need to be addressed and what the consequences might be.”

Nassim Nicholas Taleb, author of The Black Swan

This book stands way above anything written on the present economic crisis.”

Joshua Rauh, Kellogg School of Management, Northwestern University

About the Author

Philip Coggan is the Buttonwood columnist of the Economist. Previously, he worked for the Financial Times for twenty years, most recently as investment editor. Among his books are The Money Machine, a guide to the city of London that is still in print in the UK after twenty-five years, and The Economist Guide to Hedge Funds.

Product details

ASIN ‏ : ‎ B006ZOYLLO
Publisher ‏ : ‎ PublicAffairs; 1st edition (January 17, 2012)
Publication date ‏ : ‎ January 17, 2012
Language ‏ : ‎ English
File size ‏ : ‎ 1269 KB
Text-to-Speech ‏ : ‎ Enabled
Screen Reader ‏ : ‎ Supported
Enhanced typesetting ‏ : ‎ Enabled
X-Ray ‏ : ‎ Not Enabled
Word Wise ‏ : ‎ Enabled
Sticky notes ‏ : ‎ On Kindle Scribe
Print length ‏ : ‎ 306 pages

Best Sellers Rank: #1,483,793 in Kindle Store (See Top 100 in Kindle Store)
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4.4 142 ratings

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sien

Superb book about money, debt and the challenges to come

Reviewed in the United States on September 30, 2013

Verified Purchase

Paper Promises (2011) by Phillip Coggan is a masterful study of money and debt. Coggan worked at the Financial Times for 20 years and now writes at The Economist. He has written a number of books on finance that are all highly regarded. The book looks at the history of money and credit and concentrates on the post industrial revolution world where credit and fiat currency rapidly expanded.
The book starts with a brief look at money in history before moving the C19 and then C20 and most of the book looks at the period from the depression onwards. The impact of tight money in the depression is carefully examined. Beyond that the Bretton Woods settlement that was in place during the rapid economic growth after WWII and the post Bretton Woods era of freely traded rapidly inflating currencies and the GFC is studied.
The book has a lot of well chosen quotes including the observation the Alan Greenspan displayed asymmetric ignorance in that he knew when a downturn was happening but did not detect bubbles. Coggan also points out how gold was trading at $35 an ounce in 1971 at the end of the Bretton Woods agreement and now trades at $1900, so the modern world has devalued in 40 years as much as Rome did in 200.
The last chapters of the book are fascinating. Coggan looks at how the build up of debt in the latter half of the C20 for Social Spending has been managed by substantial population growth as well as productivity growth and that at least the first, and possibly the second is reducing and that the debts accumulated today cannot be paid off. There will have to be reductions in the debt burden either explicitly or through currency devaluation. Coggan does miss however, that budgets can be balanced as was done by Germany, Singapore, Australia's last competent government and various Scandinavian countries.
The book doesn't give firm recommendations and fairly describes various positions on monetary and fiscal policy. The final chapters don't give a recommendation but rather a description of the serious problems that many countries around the world are now facing. The books tone and insight are very much like The Economist magazine for which Coggan now writes for. The clear, succinct style is a great strength in looking at a complex issue like money. The book is very much worth reading for anyone interested in finance and economics.

3 people found this helpful

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Serge J. Van Steenkiste

Excessive Debt or the Illusion of Wealth

Reviewed in the United States on February 6, 2012

Verified Purchase

Philip Coggan explores with much clarity the different cycles in which money and debt have expanded. Mr. Coggan reminds his audience that money is concomitantly a medium of exchange, a unit of account, and a store of value. Two of these monetary roles - the means of exchange and store of value - lie at the heart of the ongoing struggle between creditors and debtors.

Starting in the United Kingdom in the late eighteenth century, the Industrial Revolution resulted into accelerated economic growth, significant population increase, and more trade across the developed world and its colonies. This burst of activity required more official money that remained based on precious metals until WWI. The United Kingdom led the way once again with the adoption of the gold standard among developed economies in the first half of the nineteenth century. The absence of universal suffrage allowed the upper or creditor classes to whom central bankers usually belonged, to favor a policy of sound currency backed by gold, regardless of the pain inflicted to the lower social classes. WWI resulted into the suspension of the gold standard and the massive increase in paper money.

Power shifted to debtors during the inter-war period due to the widespread adoption of democracy and the impossibility to restore the gold standard because of the burden of international debts, especially war reparations. During this period, the global money supply expanded, resulting in more paper money relative to gold. The crisis of 1931 resulted into a deflationary trap and the shift toward the modern welfare state to try to mitigate the effects of persistent mass unemployment in the 1930s. Widespread trade protectionism compounded the difficulty for governments of advanced economies to manage the economic cycle during this period.

Under the leadership of the U.S., the Bretton Woods system of fixed exchange rates was introduced in 1944 and remained in place until 1971. This system was built on the control of capital flows and the confidence of international investors in the U.S. economic policy. Currencies were linked to the U.S. dollar, which was itself linked to gold. Only central banks were able to convert paper money into the gold that the U.S. owned. During this period, economic activity far outstripped the supply of precious metals.

Confidence in the U.S. economic policy broke down in 1971. The final link with gold was removed by the U.S. The combination of paper money and the adoption of floating exchange rates, in the developed world at least, resulted into a massive increase in the volume of debt. Governments, mainly in the developed world, further fueled this debt bonfire by making more and more unfunded promises to their (ageing) electorates. The past decades witnessed first runaway inflation, then a series of bursting asset bubbles from the 1980s onwards. During the same period, the increase in consumer prices was constrained thanks to globalization, technological advances, and the greater role of women in the workforce.

The current global debt crisis, which started in 2007-2008, has witnessed the return of the problems associated with the 1930s, i.e., debt/deflation spiral and the paradox of thrift. Central banks have not hesitated to sacrifice the value of their currencies to protect the financial system.

To his credit, Mr. Coggan clearly articulates the likely long-term consequences of this debt crisis, i.e., inflation, stagnation, and default.

1. High inflation is very tempting to the central banks of heavily indebted countries. However, creditors will push back by asking for the same real rate of interest, regardless of the level of inflation. Furthermore, quantitative easing (QE), which also sacrifices creditors' interests to the benefit of those of debtors, is an unproven tactic that is unlikely to work. As Mr. Coggan learns from Lee Quaintance and Paul Brodsky, two hedge fund managers, printing money and extending credit do not create wealth. QE at best redistributes wealth; at worst may temper its creation.
2. Low interest rates, which reward debtors at the expense of creditors, and low growth, go hand in hand. The cost of capital and the return of capital tend to be at the same level. Therefore, if this is the case, the Western world is following a deeply flawed strategy. Electorates will push sooner or later their representatives to erode the debt, in real or nominal terms, to try to escape from stagnation. Nonetheless, creditors will push back as it was noted previously.
3. The temptation to default is also high. The political unpopularity involved in paying "greedy" (foreign) creditors will overwhelm any other issue associated with a default. The best that creditors can do is to cut off (temporarily) the defaulting debtors from access to further borrowing.

It does not matter which of these three scenarios ultimately gets the upper hand, writes Mr. Coggan. Debt is unlikely to be repaid in the form of money with the same purchasing power as when it was lent. Breaking these paper promises will damage the interests of both debtors and creditors.

Many developed Western economies are unlikely to escape from this crisis by achieving high growth due to population and productivity constraints as well as higher energy prices. Some developed countries will be able to muddle through; others will be ensnared into a debt trap. The developing countries will have to review their options under these circumstances.

Mr. Coggan concludes his examination of the history of money and debt by looking at the outlines of a new international currency system resulting from a world economy in crisis. The U.S. and China are at odds with each other about the outlines of this new system. China prefers a system of fixed exchange rates, the U.S. a system of floating exchange rates.

In summary, Mr. Coggan does a great job in making a complex subject accessible to a wider audience.

80 people found this helpful

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karate guy

Great for general investor reading crowd

Reviewed in the United States on August 7, 2014

Verified Purchase

Great summary of past market turmoil with the credit crunch. He does a great job of bringing together opposing views, so that a reader can hear BOTH sides of an argument and gain some perspective on why the markets got so out of tune. (I don't enjoy the "I'm right and I saw it coming" type of books. Instead, the author has a perspective, but importantly gives opposing views and quotes, developing an understanding of why otherwise rational people and investors go off-track in a significant way). The chapters are clear, and the examples are good. The author notes his sources well, so interested readers have great additional books to read. (Again, if someone writes a "this is what happened book," and don't note their sources, what's the point? Fortunately, this book uses excellent sources throughout the story line.)
Lastly, the target audience is probably general investor type. It is not laden with industry jargon, so it's well written for someone with familiarity with investments and with an interest in the financial market operations.

One person found this helpful

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JohnC

Book Review

Reviewed in Canada on May 18, 2012

Verified Purchase

First rate. An excellent, well written and readily understable explanation of the history of financing and lending. Highly recommend to all.

One person found this helpful

Esteban

Great explaination of how money works

Reviewed in Spain on May 29, 2012

Verified Purchase

Paper Promises is an excellent primer on the sometimes contradictory dual role of money as a means of value exchange and wealth preservation and the eternal struggle between lenders (who want their money back plus interest) and borrowers who generally want to delay repayment while inflation lowers the value of the money owed.

This is a great book to get a clearer understanding of the current financial crisis in Europe and the tug of war/ symbiosis of China and the US.

Sphex

Modern money is debt and debt is money

Reviewed in the United Kingdom on January 23, 2012

Verified Purchase

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.

9 people found this helpful

Nick Marshall

The best book I have read that explains what money is ...

Reviewed in Australia on November 12, 2015

Verified Purchase

The best book I have read that explains what money is and is not. For many people, myself included, it is quite shocking to discover that there is nothing behind the crispy banknote or the digital register that is your online bank account. Nothing, that is, except belief that is almost religious in its certainty. Promises, promises.

Christopher Chambers

Clear and well expressed

Reviewed in the United Kingdom on June 8, 2012

Verified Purchase

This is an excellent overview of debt and money - and them being the same thing.

There's an initial awkwardness in the introduction and early chapters where Coggan struggles with terms and concepts he's yet to define. The author is attempting to ensure the reader that the 'big questions' will be answered but there is some leg-work to be done first. I'm not sure his running theme of bimetallism is worth the emphasis but, that linking-device apart, the historical sections are first-rate.

When the current debt situation is dissected Coggan is refreshingly technical and bias-free. He avoids citing easy scapegoats for the post-2008 financial crisis in favour of structural analysis. Overall very well written and a book you'd wish more people would read before starting to tell you what's wrong with world these days.

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