The Great Divergence

[Jester]

I think it's more as just that. The value of 'real' money is guaranteed by authorities, as you say, but the value of 'phantom' money is only promised by its users. Real money cannot be issued by just anyone, while phantom money can simply be created by inventing something abstract and assigning it a value, which is 'backed' mostly by already owned phantom wealth, and only for a small percentage by real wealth. Such 'sophisticated' methods typically require a constant influx of new capital, like any other pyramid scheme, so the total amount of phantom money needs to grow. This is what mostly drives the divergence, imo.

Could you give an example? Most of the esoteric financial instruments in use are pretty clear, based on real things, however much they're aggregated, shuffled, or disassembled. They're either someone's debt, sliced and diced and repackaged, or they're insurance against something happening (essentially, a bet), or they're options or obligations to buy or sell something or another at a future date. None of that should require a constant influx of capital, although most peoples' bets are strongly in favour of the economy growing (tough to be an investor if it isn't.)

With these simple tools, they construct the tower of babel.

-Jester