Invisible Money Part II: Artificial Consumption

If you have not read the previous article, then you can read it here. If you have read it, then just a quick summary of the Invisible money. You should know that Invisible money is an issue to all our economies in terms of using invisible assets to pay for real assets, the illusion of an equivalent exchange of goods for money. Other issues include the formation of a bubble economy and the quick deterioration of both investment and commercial banks' money supply. Now, lets examine part two of the problem.

If we refer to our original example of an individual who earns $10,000, yet is able to purchase many things of a monetary value above that of his/her income. This is attributed to the wealth of the person, who has invisible assets; this is a reason for why many people are able to purchase well above their income levels. Here is the exact problem: since our purchasing capability is so much greater than our actual income, then this must also mean that we are consuming at a level above our income level. When we purchase goods, most of the time we do not exchange real money for real goods, in reality, we exchange invisible money for real goods. Invisible vs. Real? I'm sure we know what the problem is now: We are consuming at a level that does not reflect the overall income of our economies, hence the term artificial consumption.


*"What?? I didn't buy my laptop?": Invisible money allowed us to purchase goods that we couldn't buy with real money, creating a purchase illusion.

Computers, television sets, books, a lot of what we own, that a lot of us do not realize is actually a luxury that we might not even have in the first place given our income. At first, it may seem ridiculous to think that the capital, electronic or expensive goods in general that we buy are not paid for with physical money. Each good or service is assigned a monetary value that changes with the price mechanism; the forces of demand and supply. But when we purchase notably expensive goods, then we use credit cards. Effectively, we are using future finance through borrowing money from the banks. So the banks help us pay the firm and we get to pay back in small amounts until the debt is paid back in full with interest.

The main problem with artificial consumption is that we are consuming at a much higher level than our income allows us. If we were to only use physical money to purchase goods, then this means that we may not be readily able to buy a place to live, laptops, smartphones etc. But since we are able to, that means that we are consuming at an artificially high level beyond the money available in the whole economy. If we relate this to prices we see today, since the world aggregate demand is abnormally high, wouldn't this induce demand pull inflation so that every good or service should be priced much more than it is currently? As this is not the case, then this must suggest that there is an illusion of cash flow, alluding people to think that they are wealthy, but in reality are much poorer than they believe. Also, it would be troublesome in the current social environment to suddenly increase the prices of goods as governments would like to prevent social unrest and riots that is an example of market failure; causing unwanted costs to the society. Furthermore, the social and moral dangers of invisible money means that we are using our resources at a much greater, unsustainable rate than our money supply allows us. China now purchases 40% of the world's copper supplies and that the BRIC developing countries (Brazil, Russia, India and China) will consume 3.7 million more barrels of oil a day in 2012 than they did in 2008. The main consequence? Increasing rate of Global Warming and environmental destruction.


*"Please help me!": A result of us humans demanding and consuming at an artificially high level; the rate of Global Warming is much faster than expected.

Credit is the main cause of artificial consumption. The concept of being able to borrow a vast amount of money from a creditor, then return the money little by little is majorly flawed. Not only is the bank putting themselves in danger to borrow money for perceptibly small returns given the enormous figures in an average banker's paycheck (if it is even real money at all!),  Personally, the existence of credit has its benefits of making the cash flow around the economy more efficient. But in the long term, it could well be the biggest problem that lies in the economies of the 21st century, and there is no going back...