The Economics of Money Heist

 

Liquidity Injection

If you paid attention to season 5, Vol 2 of the movie, [I can’t tell the specific Episode], you would have come across the scene where the professor was seen proclaiming how in 2011 the European Central Bank (ECB) made 171 billion euros out of nothing and 185 billion in 2012; 145 billion euros in 2013. He then remarks that while the ECB iterates it to be a ‘liquidity injection’, the “money was pulled out of nowhere” and was, in fact, theft. One question that might be running through your mind is ‘What is liquidity Injection and why does the professor have a point?’ Understanding liquidity injection warrants a basic understanding of the term ‘LIQUIDITY’. 

Liquidity, simply means how quickly you can get cash in your hands to finance your needs. Liquidity is a very important concept in the economy. In layman’s terms, a Lack of liquidity exists where there are outstanding assets but no money to acquire them. So, liquidity injection is the act of temporarily increasing the amount of money in circulation. There are various ways of injecting liquidity into an economy, this can be done through a reduction in taxes, introduction of subsidies, reduction in interest rates, or increased money lending. In the context of the Movie, the Professor cited that previous liquidity being injected into the economy by the Spanish government didn’t have any impact on the citizens. 

He argued that his team is doing nothing but basically liquidity injection and as a matter of fact, they are doing it better. He claimed that they are doing it better because previous liquidity injections carried out by the ECB were done in form of cash releases but didn’t have any direct impact on the common citizens. One thing liquidity injection can do is boost economic activity another thing it can do if done in large amounts is cause inflation.

 

Image Source: Veracash

Fiat Money

The Concept of Fiat Money was explained in season one when the professor tears apart a 50 Euro note saying it’s nothing but paper. You will all agree with me that money in today’s world plays a very vital role in shaping our existence. There are a lot of productive and destructive activities going on today just because people want to earn money, but is it worth it? 

The term ‘Fiat’ is derived from the Latin word fiat, which means a determination by authority. Money truly doesn’t have any intrinsic value. For those of you who are familiar with elementary economics, you will agree with me that, the value of money is determined by the assets it is backed by. Humans are the ones who created money. Why then do some people pray to God to bless them with money? Why do some people have excess money and others barely have what they can survive on? 

Many of us have read of the popular story of Pablo Escobar who reportedly burnt over $2m to keep his daughter warm. If we look at the whole story behind the evolution of money, we learned that the ancient goldsmiths issued bills to people who kept their Gold with them indicating the worth of their safekeeping, it got to a time when many people had similar receipts indicating the different worth of Gold kept with the goldsmiths. It then became easier for them to exchange these receipts as a medium of payment for goods and services. The receipts were like a guarantee of value elsewhere and as an alternative to moving around with the Gold, the exchange of receipts became a preferable option. Now I throw this question to you, does paper money really worth it? Answering this question can go a long way in shaping your mindset. If you are passionate about making money, the simple answer to your quest is to create ‘value’.

 

Domino Effect

Money heist teaches us a lot about what the financial market is all about. In season 5, The professor gave a layman’s insight into how the markets operate. According to his words, “financial markets are pretty much like gigantic gambling houses. You can bet on anything. On the New York Stock Exchange rising, on wheat dropping, or a country collapsing. You can place your bet and win so much money, and it’s perfectly legal”. As someone with practical experience in the financial market, I can totally attest to this fact. Now, back to the main topic, what is the domino effect? 

The domino effect isn’t limited to finance alone, but it applies to many other fields. According to Wikipedia “A domino effect is the cumulative effect produced when one event sets off a chain of similar events”. I would want to liken it to the contagion effect which is referred to as “the spread of market disturbances mostly on the downside from one country to the other, a process observed through co-movements in exchange rates, stock prices, and sovereign spreads, and capital flows”.

 

Here’s more on what the professor said “When we tell them the gold is outside of the bank, betting against Spain will become the market’s winning horse. At the same time, all that panic will drive the investors to massively sell out Spanish debt and shares, which will then cause…the stock market to plummet, and even more significantly, the risk premium will skyrocket over 800 points. And what does that mean? That in a matter of hours, Spain won’t be able to get funds from the markets. It’ll become insolvent and therefore bankrupt”.

 

[Professor] Exactly.

“It’ll be like a domino effect, which will generate colossal pressure on the government.

And then we will be the only ones able to stop all of that with a single gesture……giving back the gold”. 

 

In essence, the Domino effect refers to a situation in which an economic problem in one country can spread like a contagion to similar countries and firms. It is basically a chain reaction caused by an event that was not anticipated (Eco Talker).

 

Helicopter Money

Another concept that was used in the movie was the concept of helicopter money, by raining tons of money down on a major city, the team was able to create mass chaos, chaos that had to be addressed by Spanish authorities. While these officers are distracted, the team could escape. Although the intention for dropping the money from the sky might not align specifically with the economic concept, it’s noteworthy we talk about it. According to Investopedia, “Helicopter money refers to increasing a nation’s money supply through more spending, tax cuts, or boosting money supply. Some of the stimulus measures taken in response to the COVID-19 crisis resemble the concept of helicopter drop money”.

Helicopter money can be used to avoid chaos. In the movie, it was used as a means of distraction and chaos, the movie is based on the psychology that human beings like free money and would for a moment lose their full state of mind when they see free cash dropping from the sky. According to Dan Ariely in his book Predictably Irrational, “people change their behavioral patterns when something free comes along. Free isn’t just an indicator of price. It’s a powerful emotional trigger that’s often irresistible”.

 

I hope you enjoyed this article, don’t forget to drop your comments and opinion.