Like the times immediately following the stock market crash of 1929, today the banksters, their political cronies and the media spinsters are trying to sell you on buying a faulty explanation concerning the reasons for the current economic crash. It is one which is lacking in truth at best, and downright misleading at worse. In actuality, it is very simple to explain the current economic crash. For it occurs on account of just two main factors.
The simple one first. Some business made poor decisions during recent years, and government to date has not yet punished them for doing so. Several major US corporations ran their business operations irresponsibly and/or frequently. Some of these poor decisions were motivated by greed and a desire for power (e.g. CEOs awarding themselves and their peers obscene salaries and bonuses. Others however I believe were made with more malicious intent (e.g., toxic loans, which banksters knew a considerable amount of people would ultimately default upon).
Second however, our economy is based upon fiat money, rather than representative money. Now this reason really requires an in depth explanation. I’ve tried to make this as simple as possible, please bear with me. When you understand the difference between representative and fiat money, you’ve mastered the fundamentals of economic theory. If you do not understand this, then you are apt to fall victim to the economic spinsters, and without a doubt will not be able to understand why our economy is crashing. This is VERY important to grasp!
Representative money is based upon commodities (such as gold or silver), and exists in proportion to the amount of that commodity/commodities available within the economy. Thus fiat money represents WEALTH. The commodity is the wealth; the money is created to be used as a medium of exchange, as it represent the existence of that commodity within an economy. In representative money economic systems, commodities are real money, but not commonly exchanged. They are represented by paper bills and metal coins (such as dollars and quarters), which are exchanged as representative of the real money (the commodities). Thus, the government can only print as much money as there is commodity available. This means the government can always offer you $100 in gold for your $100 worth of paper bills or coins.
Now fiat money is entirely different. This one really is complicated, it is difficult to explain. But please bear with me, for you have not a chance in hell of understanding our country’s current economic crisis, until you firmly grasp the concept of fiat currency, and understand how it differs from representative currency.
Fiat currency is not backed up by commodities, is based upon the trust that it will be accepted as legal tender (money) in the present and future, and is thus only money because the government declares it as such.
Fiat money is based upon government and bank DEBT. It is created through 1) government borrowing from the Federal Reserve (one of the Fed’s two functions is to create money for the government). When the government borrows money, the fed creates it, hence we have money based upon the government’s debt to the fed; and 2) through banks lending out to third parties the money you deposit there.
To elaborate: whenever you deposit money into a bank, they are required to keep a portion of that money in reserves, but may lend out the rest. As you’ve just lent that money to the bank for both safe keeping and lending opportunities, they are in debt to you for that amount. So for example, say you deposit $100 into your bank. If the current reserve rate (setting the reserve rate is the Fed’s second function!) is 10%, your bank may lend out $90, but must keep $10. Now that $9 lent out by your bank will be brought into another bank, in which $81 may be lent out and $9 kept in reserves (we are working off a reserve rate of 10% here, remember). I could deduce this down to the last dollar, but you see how hundreds of dollars are created off the $100 you lent to the bank by depositing it there, or in other words the bank’s $100 debt to you. In essence, hundreds of dollars of bank debt have been created off an original $100 of bank debt.
The significance of the afore provided explanation is this: in a fiat money system, everyone’s bills and coins are based upon bank DEBT. If you have a $100 dollar bill, it is $100 of government debt to the Fed or $100 of bank debt to he deposited that money into the bank. If everyone rushes to the bank with their bills and coins and demands ‘real money’ or commodities, they get nothing, because the money is not backed up by commodities! Even worse, much of this fiat money exists only as numbers in computers. Much of today’ fiat money exists only as numbers in a computer; if everyone at one time demands paper bills and coins for the numbers shown in the computer, the bank’s will NOT be able to give them that. Honestly, I don’t think there are enough trees in the world to print enough bills to cover the US $6 trillion debt alone, just for example!
Hopefully, you’re still with me. If you are, then you must be thinking representative money is honest, and building an economy upon it is apt to be stable. That’s because there can never be more bills/coins in circulation than there are commodity resources in existence, since the government cannot create more bills/coins than it has commodities to be represented thereby (or else the money ceases to be representative, and becomes fiat). On the other hand though, you must be thinking fiat money is dishonest and a scam, built upon a house of cards and apt to be unstable. This is all true, history proves it as such.
The US has instituted and dissolved the gold standard (a representative money system) several times throughout history. Every single time it left the gold standard though, it was because the government did not possess enough commodities to cover its spending. Several of our forefathers warned us about the danger of abandoning the gold standard, and doing so nearly wrecked the US economy following the War for Independence and the Civil War.
By now, you must have realize that our financial system is a house of cards, and our banking system is a sham! Not surprisingly, this house of cards could not weather the storm of irresponsible and fraudulent financial practice by large corporations. When the wind blew, all the cards went tumbling down. Many individuals were able to predict the fall of the US economy, because the understood the difference between fiat-representative money systems, and could thus induct the dangers of the former.
Before moving onto solutions, I would like you to think about this: the Federal Reserve –a quasi-government/quasi-private organization- charges the government interest (which you pay by way of taxes!) to money it prints up out of thin air, while banks charge you interest on money they literally create by punching a couple numbers into a computer! They can do this because of the nature of fiat currency, as previous discussed. Does this strike you as fair, honest let alone ethical banking?
So what do we need to do? We need to return to real money- representative money. To do this, we first abolish the fiat currency and return to a representative money system, based upon commodities. Second, we abolish the Fed, as their only functions are lending money to the government and setting the reserve rate- both of which are ONLY used in a fiat system, and NOT in a representative money system. We do not need the Fed to set reserve rates, if banks make loans based upon their wealth and not their debt. Additionally, we do not need the Fed to lend the government money it creates out of thin air and charges interest upon, if the government is obligated to only spend what real wealth it has, or raise its own revenue (such as through bonds)!
Some might Say the return to real, representative money is impractical. Well, we had a representative money system for most of our history, and we did find during much of that time. We had an honest, stable and ethical financial system based upon real wealth; that was what we had. Moreover, the government did not get into deep debts during these times. If it did, it ultimately switched our financial system over to a fiat system- something to think about. Sure, the government might attempt to raise revenue through over-taxation in a representative system, to meet costs. However, the government must over-tax us now in the current fiat system, on account of the fact that we pay its debts to the Fed. Why should the government bother raising revenue quickly in the current fiat system, when it can borrow from the Fed and hand us the bill later? Finally, some might say a decrease in borrowing and lending will damage economic growth. But would you prefer real economic growth based upon wealth, or increased economic activity masquerading as growth, but actually based upon the creation of more government and bank debt- that isn’t economic growth!
Will the change from pseudo-money to real money be pleasant? No, not at all, at least in the beginning! And you can bet the Fed won’t want to go along with this, for obvious reasons. Yes, this change back to representative money will be painful at first. But in making this change, we are doing right by our nation.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment