What is not often fully appreciated about the financial markets is that it is largely driven by storytelling. I can remember talking to an oil and gas analyst who said, after reflecting on what his job entails: ‘Basically, I just tell stories. That is what I do.’
It was a rare moment of self-realisation. Because most of the ways of describing what is happening in the markets involve numbers and ratios, there seems to be a veneer of scientific discipline, with the ability to predict that comes with that. But it is deceptive. Expert predictions are rarely better than any other guess about the future. Being facile with numbers and the technical terms of finance does not lead to any special insights.
Financial markets are made up of human beings and human beings have always been storytellers — long before science, or modern finance, or accounting even existed. Accordingly, the main skill of successful analysts, advisers, financial gurus and commentators is the construction of compelling narratives. They are, if not exactly creators of fairy stories, not too far removed from it.
Essayist and fiction writer G.K. Chesterton noted how powerful story telling is, something he learned in the nursery: ‘The things I believed most then, the things I believe most now, are the things called fairy tales ... they are not fantasies: compared with them other things are fantastic.’
The appetite for stories becomes problematic in the financial context when it prevents people from understanding inconvenient realities that require serious attention. Witness the story that is perhaps enjoying the greatest currency at the moment, the idea that ‘fiat money’ — money created by government edict — is the cause of all the current fragility and excess in the markets. This is the fanfare of crypto-currency devotees and also powerful players in the financial markets who are seeing their extremely profitable, debt-driven manipulations losing their effectiveness. The story is essentially about a big, bad dragon, called either the government or the United States Federal Reserve, that has for decades exerted excessive control over the free markets for money with its ‘fiats’, thus degrading the value of money.
Problem is, it is nonsense. In fact, Western governments got out of the business of issuing fiats in the 1980s, with only occasional exceptions such as in 2008 when the US Treasury bailed out the world financial system by closing the money markets and underwriting deposits to stop a catastrophic run on the banks. The