Money From Nothing

For the first time in human history all the world’s national governments are financing and coordinating the relative price of their respective currencies through central banks. By design, central banks have the legal authority to create money out of public and private debt. This sets up an environment where the expansion of debt expands the supply of money. To a populace that sees no connection between prices and debt, it creates the illusion that rising prices are synonymous with the creation of wealth. It’s just the opposite. Money is only a medium for purchasing existent wealth. Rising prices are a consequence of rising debt and a loss of purchasing power. If the supply of money was stable, prices would go down with improvements in productivity,  population growth and goods entering the market. The purchasing power of money increases relative to wages.

On the surface, it looks like the power elites finally achieved nirvana where there is no limit to how much money they can create for themselves without risking rebellion through over taxation. In reality, it’s a hidden tax built into the declining purchasing power of money. If you follow the logic of monetary expansion to its ultimate conclusion, as debt expands towards infinity, the purchasing power of money collapses to zero. Ponzi schemes always end tragically.

They appear to be working for as long as the supply of new buyers exceeds the supply of old sellers, In this case, the scheme requires  the supply of new debt to exceed the extinction of old debt. As it must, the scheme eventually runs out of new debtors to keep ahead of the extinction of old debt. That leaves national governments and their banks to make up the difference with massive amounts of deficit spending. Japan tried it and failed. Japan now has the distinction of being the most indebted government in the world. The US is going down the same path because deficit spending does not address the root of the problem. A problem caused by excessive debt cannot be solved with more debt. It’s like trying to withdraw from a drug addiction with more drugs.

A central bank is modeled after the central planning bureaucracies of the Soviet Union. As the Soviets proved, it is not possible for a central planning bureaucracy to reasonably predict supply, demand, prices or any other component of a dynamic market economy. When prices don’t reflect the free market value of goods they send the wrong signals to buyers and sellers. This causes shortages, surpluses and the decline of real wealth including the destruction of the job market. To be on the safe side, central bankers err on the side of too much debt. The expansion of the quantity of debt money makes calculation of the future value of money more difficult and subject to error. This results in an accumulation of calculation errors over time until the system implodes. Think of it as an buildup of cholesterol in your arteries.

Without a uniform system of weights and measures, modern science and commerce could not exist. Units like meter, foot, pound, gram, Celsius and Fahrenheit have precise fixed definitions. The metric and inch systems have exact equivalents. It is this exactness that makes accurate calculation possible. The same applies to the value of money. Without a metallic standard defined by weight and purity, there is no standard of measure. Gold, silver and copper were used in the past because they were accepted in the marketplace. A metallic standard can be expanded to any number of metals in accordance with market acceptance. Whatever its merits, it cannot make dishonest men honest. Bankers got around the obstacle by promising political authorities an unlimited supply of money without direct taxation. It also solved a problem that plagued banks in the past. When governments defaulted on their loans, the banks often went belly up. It was a natural symbiosis between bankers and politicians.

Take the case of a dishonest butcher. Normally customers could reasonably  assume the butcher’s scale is accurately calibrated. But suppose the butcher decided to take advantage of his customers’ trust by recalibrating his scales to make lesser weights appear as one pound. Obviously he would be cheating them without them knowing it. Suppose his cheating worsened gradually over the years to allow time for his customers got used to the lighter weights.  If these lower recalibrations continued long enough, it would be only a matter of time before his customers noticed that a pound of meat doesn’t feel like a pound of meat. Even if they take their business elsewhere, the butcher will have profited handsomely for the years they didn’t notice. So it is with expansion the money supply. The value of money is defined by its purchasing power, not by its denomination.

There is no historical case where government control of money did not eventually result in the destruction of the value of its issuing money. When official money was metallic, common practice was to dilute the base metal with a cheaper metal and to shave the edges and remelt into new money. At the next stage of regression, governments issued paper currency convertible to a base metal. At the third and current stage, the base metal was replaced with a unit of debt. This is the meaning of “Federal Reserve Note” that you see printed on every bill.

The word “Note” means that Federal Reserve banking cartel is issuing IOUs on the pretense that they are real money. Real money is convertible to a base metal not dependent on the issuer. Debt money is dependent on the integrity of the same two institutions that have been running this massive worldwide fraud for over a hundred years. Let that sink in! When debt contracts, the purchasing power of money increases for a while. As the massive losses escalate, the populace loses faith in their government. At some point the currency collapses and pretty fast. It doesn’t take any magical prescience to see this coming. All it takes is a knowledge of monetary history.

What can you do about it? Nothing beyond taking steps within your power to protect yourself. Get out of debt. Lower your living expenses. If you have some surplus money, use it to buy gold and silver coins while they’re still cheap. Things like that. The worst option is to do nothing in the hopes Trump can turn this around. This Ponzi scheme is too mature and there is no political chance of returning to sound money. How this affects us individually is not something that can be timed with reasonable certainty. Better to use the remaining years to reduce your living expenses and debt exposure then to be one day too late.


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