As to why changing the monetary system should be a priority in altering the political landscape

By way of premise, we must realize that not everyone wishes to change the political landscape. Because one man’s loss is another man’s gain, there are entities that are profiting handsomely from the status quo. This situation will persist for as long as those sustaining the losses can do so without hard feelings. or till they realize the game is rigged and how badly it is rigged.

Change is a constant of life or at least so we would like to think. In the West today we boast a political quilt of parties that ostensibly have different goals and/or different solutions to reach a presumably ideal state of general prosperity and well being and the masses are allowed to express their opinion as to whom they think will be better suited to bring about the change they desire.

The reality is of course that whatever the political party that  may take your fancy, it must necessarily and inevitably make use of exactly the same basic tool that everyone else must make use of: money.

Fascists, communists, marxists, socialists, republicans, democrats, libertarians or what have you must all inherently, necessarily and inevitably make use of money.

There is no alternative.

Since money is the most basic indispensable tool to crystallize ideas and theories into actions and facts, it is useful to understand how money comes into being, how it is managed, whether there are alternative ways to create and manage money and, if there are, what the ramifications of using one management method over another may be.

In The Evil of Inflation I highlight the relationship that exists between inflation and aberrant policies that lead to the devastation of the environment and or the depletion of resources sooner than otherwise would be the case. So, clearly, the nature of money shoulders significant responsibility in dictating how we lead our lives.

This particular iteration of the monetary system in use in the West today is a Debt Based Fiat Monetary System. This simply means that government gives the privilege to create the currency to a third party for which the third party will be paid a fee known as interest.

The defining characteristic of Debt Based Fiat Money (DBFM) is that it has no perceived intrinsic cost of production. It is just paper. Or linen to be exact (I’m skipping here the concept of credit and Fractional Reserve Accounting for ease of comprehension). But the cost of producing a 1 or a 100 Dollar unit of currency is grossly insignificant compared to the fee paid to the creator of the currency.

And here is the first problem. The creator of the currency has no significant cost of production and yet gets paid for what it produces. Clearly therefore, the creator of the currency has a vested interest in producing huge amounts of currency in order to earn ever more fees.

And here is the second problem. Not only is government (i.e. you and me) obligated to pay the creator of the currency a fee to make use of said currency but by law it may not make use of any other type of currency.

So our governments have bestowed the privilege to create currency at zero cost to a third party and then they make it a criminal offence to not make use of said currency all the while charging you and me interest that is paid to said third party for something that has no cost of production.

Nice work if you can get it. But the logical ramification of this construct is that as the party creating the currency at zero cost injects ever greater amounts of currency into the system, society must find ever greater productive sources in order to pay back the creator of the currency. The creator of the currency enjoys the dual privilege of zero cost of production and a guaranteed market at usurious rates. Society is thus forever beholden to the creator of the currency as not only is it a criminal offence not to make use of the currency but in making use of it society must also pay the currency back plus more of it in the form of interest.  This is the law.

THIS IS THE LAW.

The law of Western countries says that society must make use of the currency created by the central bank and it must pay it back plus more.

If it were not yet clear, the above construct means that there will never be enough physical currency in circulation to pay back the central bank. Because regardless of returning the entire stock of money in existence in the realm, the interest on said stock of money would still need to be paid. But having returned the entire stock of money to the creator of the currency, where would you get money to pay the interest?

Hence the vicious circle brought about by DBFM. Hence the permanent enslavement of the masses to the monetary authority.

And here is the third problem and this one is a doozie.

As society requires ever greater amounts of currency to be created because it must pay interest on the money it requires but, there not ever being sufficient quantities of money to do so, inflation is guaranteed i.e. the permanent and aggressive expansion of the monetary stock is assured.

The final problem with this construct is this. From an arithmetical point of view, inflation cannot be and is not infinite. There is only so much purchasing power that can be eroded before you hit the singularity. But as you approach the singularity, you can be assured the monetary authority will do anything and everything to keep the system going as long as possible. Can you spell TARP? Can you spell Preferential Accounting Treatment? Can you spell rewarding deliberate and criminal colossal failure with a slap on the wrist? Can you not see that the same people that have perpetrated what would ordinarily be considered serious criminal actions are still in power and are given even more power? Is it not yet clear that if you are close to government or, indeed, are a primary dealer the rule of law does not apply to you?

How much more proof is needed in order for the ordianary citizen to see what is happening? What will it take?

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14 Responses to “As to why changing the monetary system should be a priority in altering the political landscape”

  1. Patrick Donnelly Says:

    Guido,
    Australia is nearly a Republic. The Crown meddled in the last referendum on this. The “Leader” of the Republican cause was a banker worth $100,000,000 …… need I say more?!

    The famous Snowy River scheme I believe, was self funded. Again, I can only imagine what counter measures took place afterwards! Harold Holt was against Pine Gap and disappeared into the sea ….. Another prime minister was sent packing for his opposition to the same thing. Sovereignty….

  2. Patrick Donnelly Says:

    The involvement of the rentier simply means that wealth is transferred to a non-productive class.

    Their restriction to the essential would assist in making a fairer society and minimising disruption caused by industry collapse.

    Malinvestment by the credit boom is the greater problem as it disrupts values and wastes effort.

    Deflation is better, and ought to be recognized in every constitutional document, which will draw resistance from those who claim to have special knowledge!

    • guidoamm Says:

      Stability should be the normal state of a healthy productive economy. Rising and falling prices would then only be relegated to the life cycle of innovation and productivity. Innovation would command a higher price whilst productivity will bring the price down.

      Certainly in the context of honest money, inflation and deflation have no place. Rather, we could make do with a fixed amount of money so that the purchasing value of each unit of currency would then be dictated by the preference of individuals to either save or spend. As it is, DBFM does not give the individual the option to save which is another great big hole in our “democracy” story in the West.

  3. Patrick Donnelly Says:

    Is deflation, natural as we manufacture more and more, as populations decline, and as we become more efficient, any better?

    Politicians wish to “create jobs”, be more popular and win votes. The Central bank is an attempt to moderate their behaviour.

    Bankers claim to moderate the mechanism and this time they have spectacularly failed. 2001, 9/11 was the desire to reinflate the asset bubble then apparent, which had bust and stave off the depression.

    Deflation or inflation?

  4. Patrick Donnelly Says:

    An excellent article! I will refer as much as possible. One of the commentators is confused by the involvement of bankers! Understandably, of course. The Australians used direct creation of credit/fiat during the 1930’s to stimulate and reward infrastructure.
    Bankers claim special knowledge and ability and sell their involvement to TPTB as a result. TPTB join in the assumption of wealth for as long as they know of the pact. The rentier bankers try to eliminate this knowledge!
    The involvement of bankers is completely unnecessary.

    The point of such a monetary system is to spur on investment and win votes by inflation. But the malinvestment by the rentiers destroys all the temporary advantages. By keeping the rentier class small there is a natural check upon the bust…. But the malinvestments may continue? As measures of inflation neglect the asset bubbles, apart possibly from that of Steve Keen, it often proceeds until a bust is inevitable.

    Reliance upon specie, however, can mean continual deflation.

    • guidoamm Says:

      I was not aware of the fact the Australians experimented with direct creation of currency… and the British Crown had nothing to say about it?

      But the most famous example of direct creation of currency by cutting out the third party in order to get out of a funding crisis is Hitler of course. Which, incidentally, may or may not have contributed to the certainty of WWII. Here is an introduction to how it was done although in this explanation, the author does not go as far as highlighting the implications of cutting out the central bank: http://en.wikipedia.org/wiki/Mefo_bills
      A quick side note here. It is also interesting to note the names of prominent bankers in Germany and in the USA at this time.

      But, yes, a central bank is not at all needed.

      As I said before. We cannot change the nature of man nor indeed can we change the nature of politics thus of government. But we can change the nature of money by making it honest. Honest money will by itself curtail the fraud that is otherwise an inherent necessity in DBFM

  5. ducati998 Says:

    guido,

    Excellent post.

    After government had monopolised the monetary system, they monopolised the educational system. If your populace is monetarily illiterate, you are pretty safe in continuing to expropriate them.

    jog on
    duc

    • guidoamm Says:

      Absolutely. Hence the reason today even people working in banking and finance are unaware of what monetary system we are on and, of those that might know, few can work out the ramifications.

      The monetary system was a current topic of discussion till the end of the 1800s. Since the end of WWI, reference to and discussion of the monetary system has gradually vanished.

  6. Manor Mouse Says:

    Ignore my previous question. I do see how the system enslaves us, I think, but I am profoundly ignorant of the mechanics of how it works.

    When a loan is repaid with interest to the central bank (by an ‘ordinary’ bank?), I imagine that it all ‘disappears’. Are you suggesting that the central bank directly ‘skims off’ a percentage of its own product as a “fee”? I find it hard to believe!

    • guidoamm Says:

      It is surprisingly and deceptively simple yet ingenious.

      Let’s take the Federal Reserve as an example and a fitting one it is too since the US Dollar is the global reserve currency.

      When Treasury asks for the creation of 1 Dollar, the Fed prints and delivers a 1 Dollar bill to Treasury. However, by the time Treasury receives the bill, it is worth less than the 1 Dollar face value because now Treasury owes interest to the Fed.

      At this point, Treasury must inject the 1 Dollar bill into the system and in order to do so, Treasury hands the 1 Dollar bill to the Primary Dealers whom in turn receive the bill which is now worth even less because now the Primary Dealers owe interest to the Treasury.

      The Primary Dealers then hand the 1 Dollar bill to the commercial banks whom receive even less value because they now owe interest to the Primary Dealers.

      At this point, it is useful to remember that the Primary Dealers are in fact members of the Federal Reserve. Thus, by step three of the cycle of life of the currency, the Primary Dealers have already been paid twice.

      The interesting thing is (the damning thing in fact is) that by the time the 1 Dollar bill finally reaches the pockets of the consumer it has already been devalued by all previous transactions.

      The beauty is that as this 1 Dollar bill is finally returned to the Fed as it must be because our currency are in fact Federal Reserve Notes on loan to us, the Primary Dealers and then the Fed get paid once again. So the creator of the currency gets paid first, third and last for the use of the currency.

      Now, you ask “How is this an incentive to the producer to produce more of the stuff?

      The state has decreed that society must by law make use of the currency created by the Fed. No other currency can be used and, indeed, making use of any other currency constitutes a crime punishable by law. https://guidoromero.wordpress.com/2011/04/03/the-nature-and-threat-of-money/

      So, you give a third party the privilege to create an item that you then force society to use.

      The mere fact that this item has no cost of production for the creator of the currency is exactly the reason why the productive capacity of society is slowly sucked out of the system. If society is under obligation to pay for something that costs nothing, it means that whatever we do, we must pledge productive capital in order to get enough currency to pay back the creator of the currency. This is when we pledge assets against loans. This is how the productive capacity of society is eventually all pledged to the banks.

      There is an inflection point past which when enough productive capital has been pledged during the prior inflationary cycle is then finally and irreversibly appropriated by the banks in the following deflationary bust.

    • guidoamm Says:

      The fundamental question is this:

      Why give the privilege to create currency to a third party? If we have to pay interest on currency why pay it to a third party?

      If government kept the privilege to create the currency then, at least, if interest must be paid at least it is paid to government (i.e. society). But by paying interest to a third party the productive capacity of society is slowly leaked out of the system to the third party.

      • Manor Mouse Says:

        Thanks for the explanation Guido.

        I am presuming that the money system is meant, in theory, to be some sort of free market self-regulating mechanism, whereby money is not created by central command from the state, but in response to a genuine need in the economy. Is this how you see it? If so, did someone sit down and design the system? – it strikes me as possibly quite clever. But I can’t quite get my head around whether it is also a cynical way of enslaving the people in perpetuity. To whose benefit? A shadowy cabal of ‘bankers’? Are they born as bankers, or do they attend job interviews and work their way up? Is it possible that while the system may enrich bankers, it also benefits the people as well in that it is ‘the least worst system’ as people often say?

        You said: “Why give the privilege to create currency to a third party? If we have to pay interest on currency why pay it to a third party?”

        I was naively thinking that the levying of interest was merely to ensure that the money really is needed i.e. as a ‘governor’ preventing (excessive) dilution of the currency and was not intended as a profit for anyone.

        Am I right in thinking that while the Fed is supposedly a private organisation, the BoE is ‘nationalised’, in which case the UK, at least, is paying the interest to itself?

        • guidoamm Says:

          Your presumption would be … spectacularly wrong… from an empirical point of view of course. Because if you ask the people in charge, they would say that is exactly the case.

          There is nothing “free market” about our monetary system nor, indeed, is there anything that resembles capitalism. In fact, not only has this monetary system been imposed without debate but it is also managed by decree behind closed doors as interest rates are set by unelected officials acting as so many apparatchiks trying to plan the economy centrally by pulling and pushing levers. There is nothing normal or free market about a trend in interest rates that in thirty years goes from the top left to the bottom right. It is manipulated to satisfy those perceived needs that relate to the raison d’etat.

          The system did not need to be designed. Debt Based Fiat Money has been around for millennia. It was known to the Chines for example who quickly discovered the logic enshrined in the system eventually brings about total devastation as the productive economy is hollowed. More famously, France experimented with debt based fiat money under John Law during the reign of Louis XV and Mr. Law was lucky to escape with his life so much devastation he wrought upon the country.

          The inherent logic of debt based fiat money is well known. The only variable is time and government intervention can stretch the time line quite far. The abrogation of Bretton Woods in 1971 was exactly the type of government intervention needed to save the US$ and give it a new lease on life. By 1971, the USA were already (and once again) where we are today globally: that is bankrupt. Globalization as, indeed, the introduction of a new currency such as the Euro are all gimmicks aimed at extending the lease on life of DBFM. Keeping alive those economic entities that should rightly go bankrupt is also a popular strategy. General Motors stopped making a profit on their core business (manufacturing of vehicles) at least fifteen years ago. General Motors was compensating the loss made on each vehicle by engaging in credit financing which eventually also got involved in credit financing for real estate. GM should have been allowed to go bankrupt over twenty years ago or, at the very least, it should have been restructured. But it wasn’t. That’s because DBFM requires state champions to help uphold the system and help in circulating currency far and wide. Usually, the honor to help the state uphold the system falls on those entities that are politically connected hence are large and therefore are Too Big To Fail. GE, Fannie Mae and, indeed, the Primary Dealers are prime examples of state champions that help uphold the monetary system. As a by the by, the United Nations too is a necessary pillar of DBFM but I won’t bore you with the details.

          Is it a way to enslave the people in perpetuity? I cannot answer that question. What I can say without doubt is that the handful of banks that have sold the system to the politicians in 1913 in the USA and in 1971 to the rest of Europe knew exactly what they were selling. Those banks are today, through a succession of amalgamations and take overs, some of the Primary Dealers whom are the sponsors and the pillars of the system hence our governments’ unwavering devotion to bailing out the largest global banks and letting the smaller regional banks go under with gay abandon. The bankers that are being bailed out are most certainly not a “shadowy cabal”. We know who they are and they operate in plain sight and in day light. Look no further than the special treatment global banks enjoy in being able to disregard “mark to market” rules that would apply to everyone else.

          What can be debated is whether the politicians were and are unwitting accomplices or whether they are genuinely mere useful idiots.

          Does the system benefit the people? In some respects it does. But it is the same benefit that is derived from all pyramid schemes. The people that get in early benefit to the detriment of those that get in later. But the hidden cost of this pyramid scheme is devastating because it hollows out the productive capacity of society. So the initial perceived benefits and well being of DBFM is nothing but a credit induced sugar rush.

          As to levying interest to ensure the money is really needed. Why? The only thing that is required is transparency on behalf of government. If interest must be levied then the market should set the rate AND it should not be paid to a third party.

          We cannot change human nature nor can we change the dynamic inherent in politics. Politicians are by definition people that wish to lead other people. Therefore, politicians are by definition manipulators of information. We cannot change that.

          But what we can change is the nature of money. If money is honest, the ability of the politicians to manipulate information will be greatly curtailed. In contrast, if the variety of money in use is predicated on fraud as inflation most certainly is, then upholding the system requires that government perpetrate fraud at many levels.

          The nature of money is paramount in dictating how we lead our lives.

          The devastation of the environment is a direct function of the monetary system for example. As you push inflation artificially, aggressively and pervasively into the system over many decades, you compress in time the consumption and productions cycles. In accelerating these two dynamics you play havoc with agriculture and the extraction of oil for example. Land will have to be planted more often and will need to be fertilized more aggressively. Water will need to be extracted faster thus depleting aquifers that would otherwise replenish naturally. Oil must be extracted faster and abandoned sooner because in precluding slower more protracted extraction you preclude the thorough extraction of each well.

          These are all themes I have in the past and will continue to explore in my blog.

  7. Manor Mouse Says:

    “The creator of the currency has no significant cost of production and yet gets paid for what it produces. Clearly therefore, the creator of the currency has a vested interest in producing huge amounts of currency in order to earn ever more fees.”

    But if the fee is paid in currency that has cost nothing to produce, then the fee is worth nothing. How is this an incentive to the producer to produce more of the stuff?

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