The arithmetic underpinning Debt Based Fiat Money and Fractional Reserve Banking leads to the concentration of profit in the financial sector. As the enabler of the monetary authority, in this context government spending will gradually crowd out private spending.
The above necessarily results in a system that is stifled by government regulation and where government picks winners and losers by the distribution of subsidies to and/or the protection from legal prosecution of chosen entities.
As government picks its allies, money inevitably flows through these entities allowing them to become cross-market monoliths thus enabling them to acquire academic and media assets.
This is how the values and the knowledge of a society are shaped and channeled.
At the same time, as government deliberately and progressively debases the currency, the purchasing power of individuals is diminished thus fostering ever greater and more pervasive use of debt for even the most trivial expenditures.
Eventually, individuals become dependent on government to the extent that their quality of life and their value judgement is inextricably tied to the perpetuation of the system and its expansion regardless of any moral considerations. The vast majority of people in the West today are dependent on government for their livelihood either because they are employed directly by the administration or because the retirement they were promised is predicated on the system surviving and expanding. At this juncture, considerations of good and bad, moral or immoral or long term sustainability vs short term gratification take a back seat to keeping the system together and expanding it.
Now, picture this if you will.
Imagine a world where government was dedicated to protecting the value of the currency.
In this hypothetical world, debt growth would be severely curtailed. As a direct consequence, government would necessarily be limited to fundamental functions. In this world too, the cost of living would remain stable and in some instances would diminish. In this world, politics would become largely a matter of true ideology rather than a desire to ride the gravy train of immunity and privilege afforded by fiat money.
But most importantly, in this world individuals would find it more advantageous to save because their work and their production suddenly enjoys the protection of sound money. As a direct consequence, individuals would instantly regain full control of their lives thus they would also regain full control of their moral choices. No more dilemmas. No more wondering whether one should act on principle and quit their job or carry on in an environment that is morally corrupt and wasteful because of their fear to lose their “quality of life”.
True freedom can only come about if individuals can make choices inherent to their true beliefs rather than expedient choices because the alternative would result in a loss of quality of life.
Tags: currency debasement, saving, sound money
Guido's temple of the absurd 
August 8, 2012 at 5:35 am |
CK, you are understandably confused.
First, what the government says is usually a lie. Once you pass through this looking glass, all becomes clear. Look at what happens in countries where discipline is not as strict as USA etc. What happens to their currency and inflation rates? What of countries where there is effectively a barter economy? Where self sufficiency is common?
You get the drift? Governments depend upon taxation and other revenues, raised by the monopoly of force. All that increases the amounts of tax is good and will increase the nexus with banks etc and consumption which is taxed.
August 7, 2012 at 7:46 pm |
I still haven’t worked out whether you are ‘pro-‘ or ‘anti-‘ growth, or whether you simply think that it is no business of government and/or the bankers to influence the economy.
I hear that economists are worried that Americans are getting into the habit of spending less and, heaven forbid, are not buying stuff they don’t need. Where do you stand on this, for example? On the one hand, the idea that people should be encouraged to buy stuff they don’t need sounds insane. But on the other, is it possible that without some credit and deliberate inflation, the economy grinds to a halt, and that’s the end of (a certain kind of) progress? In our lives we have all benefitted from our ancestors’ willingness to use credit and growth to stoke the economy (with an unfortunate war or two that seemed to coincide with it hitting the buffers, granted). Basically, my question is: if you got rid of debt based money, would the politicians have to find other methods of artificially stoking inflation and growth, anyway?
August 2, 2012 at 6:11 pm |
(In reply to the ever-thinner columns above)
I don’t disagree with you, but I have a notion in my head that guaranteed interest on savings is just another aspect of the Ponzi scheme, because it implies that the economy will always be bigger tomorrow than it is today, whereas I think it may sometimes want to shrink – even in the world of sound money.
August 2, 2012 at 6:23 pm |
Quite the opposite CK. It is our current monetary system that is predicated on an ever expanding GDP number. And therein lies the problem. In a context of money as debt as we have now, the monetary base MUST expand thereby goosing GDP. There would be no need for this particular variety of monetary system if the object was not the expansion of the monetary base. Ergo. Politicians have chosen to impose this monetary system because it requires the expansion of money and credit as a conditio sine qua non.
But… as you expand money and credit relentlessly and vastly in excess of the underlying production of the economy you guarantee the financialization of GDP. In other words you guarantee that the nominal value (the financial value) of GDP runs away from the intrinsic value. You do this long enough and the expansion of money and credit becomes a necessity without which GDP would collapse…. as is the case today… if today government intervention was taken away, GDP would be negative.
In a context of sound money, the economy can expand or contract but the only thing to change would be the time preference of economic actors. In a contracting economy individuals would rather save more and vice versa when the economy expands. Nothing else would be h
August 2, 2012 at 8:24 pm |
So in the world of sound money, would the ‘amount’ of money be fixed? In an expanding economy prices would fall and vice versa?
August 2, 2012 at 11:29 pm |
… Thats correct… In an expanding economy interest rates (the price of money) would rise because the time preference of economic actors is to spend money in exchange for goods and services. In a contracting economy interest rates drop because individuals are holding on to money.
July 31, 2012 at 8:01 pm |
“Imagine a world where government was dedicated to protecting the value of the currency…
…in this world individuals would find it more advantageous to save because their work and their production suddenly enjoys the protection of sound money.”
Imagine a hypothetical situation where, for whatever reason, the birth rate declined so that the number of retired people increased while the number of working people declined.
Could the government maintain the value of the permatanned retired people’s savings? How would they do it?
August 1, 2012 at 4:37 am |
Hi CK,
A declining birth rate would be largely made up by the number of people wanting to move to a country where the labor, the personal property and the freedoms of individuals are respected and protected.
August 1, 2012 at 4:41 am |
… and, I might add, negotiating from a position of strength, with the political process severely constrained by a sound monetary policy, the country in question would be able to pick and choose the immigrants it wants and needs rather than just opening the flood gates and letting all and sundry in as we have done in Europe for the past 30 years and for which we are now paying the price.
August 1, 2012 at 6:51 pm |
I dare say there’s lots of things they could do, but it sounds as though the state would need to be heavily involved in ‘bucking the market’. Who says that the value of the money the retirees put away was the ‘correct’ value, and should therefore be defended?
August 2, 2012 at 6:45 am |
I don’t understand the question. Let me guess an answer though. Government’s role is to protect the value of the currency which in turn protects and values the work of individuals.
In an environment where the value of money is protected and in the absence of exogenous extraordinary events (a crop failure for example), prices for goods and services would tend to be stable or decline. In this context, the role of insurance would become that much easier because actuarial tables would not need to take into account artificial inflation (the inflation induced by political expediency). So, it would not be government to mandate how much to set aside for one’s retirement.
August 2, 2012 at 7:47 am |
“…in the absence of exogenous extraordinary events (a crop failure for example), prices for goods and services would tend to be stable or decline”
What about supplies of North Sea oil dwindling? When someone put away £1 in the 1990s, they were saving a share in an economy run by baby boomers and boosted by oil revenues. The birth rate was falling and people were living longer. Globalisation was just getting underway. The way I see it, our savings are just ‘shares’ in the economy as it is now, not when the money was put away. The government could have acted in advance to oppose globalisation, and the sale of our oil in order to keep the economy damped down – but I can’t imagine that happening really! It could have invested *our* money in sovereign wealth funds and the like, on our behalf. But that didn’t happen. If the government were now to intervene actively to maintain the value of crumbly old people’s existing savings, logically we may end up with all the youngsters destitute, and the old folk all permatanned and driving Lexuses… Lexii. That situation would not last for long!
August 2, 2012 at 10:31 am
Your comment commingles a number of issues.
There is a difference between arguing: a) what the situation is – b) what an ideal world is – and – c) how to get there.
The problem is that we should not be where we are. We are in our current predicament because for politically expedient reasons, our “leaders” have enacted policies aimed purely at nurturing and supporting a political system that is inherently corrupt and self serving. This is not an opinion. This is arithmetical truth. This is the only outcome guaranteed by a system of electoral politics that masquerades and is peddled as “democracy”.
At this juncture, we only have two options:
a) We can choose to carry on as we have for the past 40 years
b) We can change the system
From an arithmetical point of view, option “a” has been demonstrated to be a pyramid scheme. This being the case, it is empirically and scientifically clear today that any benefit the system may have offered is now behind us. Any money that has been injected into the pyramid in the recent past will no longer be seen nor, indeed, will it be returned neither in kind nor, obviously, in the form of a better quality of life. Poverty and alienation are now guaranteed to increase for all alive today. The wealthy will not escape hardship either. We are looking at a serious adjustment lower in the standard of living for all.
Option “b” presents the problem of how to get from here to there creating the least hardship.
The reality is that option “a”, in doing nothing, guarantees a slow descent into hell and, in my personal opinion, a world war.
Option “b” will likely plunge all immediately into a depression but the upshot is that it will allow us to adjust and re-emerge chastened but all the stronger for it with the opportunity to rebuild for the future.
The reality is that today there are no painless or good choices. The only choice is death by a thousand cuts or a quick, if dramatic, change. We are screwed whatever we do.
July 30, 2012 at 4:58 pm |
http://www.herald.ie/news/gaa-celebs-slammed-for-backing-quinn-as-4000-turn-out-for-rally-3183936.html
The hero they are supporting grew far too quickly, aided by greedy banks, and then he engaged in a share support operation of the infamous Anglo-Irish Bank. He has now admitted to taking strenuous efforts in Russia and Ukraine, to sequester assets from creditors! He has been found guilty of contempt of court.
I recall that hundreds of angry people condemned those who said not to get involved with chain letters circulating in Munster in Ireland! Mind you, they did not understand the nature of banking as another form of pyramid activity, but many now do.
Some people are too greedy to give away their freedom, as we know? They would always jeer at those who wanted to save and would set up schemes to make their supporters rich. Safety nets are needed, but only for those who cannot afford dogy advice from experts on how to defeat creditors!
July 30, 2012 at 2:47 pm |
Most people are afraid of loss and far from thinking that far pastures are greener, they often funk it! Look at the progress made in settlement and population of the so called New World?
I am more concerned not with the idea of individual freedom, but of the possibility of stagnation and lack of change. That is one of my individual beliefs!! 90%+ of people are sheep and will not leave the place of their birth, unless pushed. I am very optimistic about our future, but a bit of insurance against insularity is a good thing.
You can lead a horse to water … but you cannot make him drink. Most people stagnate. We need a better way of dealing with that than poverty, famine war and disease? Some economic squeezing may not harm us and may make us stronger. This is probably the argument that the slimies at the top are doing God’s work?
If they can fool people every 70 years, then why should we do more than ensure a decent welfare system? We are certainly now, rich enough in much of the world to do exactly that?
July 30, 2012 at 2:38 pm |
Yes, this is an issue of liberty or values of others promoted by so many disparate sources that they hardly count as a conspiracy. Indeed, that is one of the fundamental values itself, that we should adopt the views of others meekly!
However, as I keep telling folks, there are more people alive now than have ever even lived before now. Agree? At what date was that true and when will it no longer be true?
With more and more shoulders and elbows rubbing together, we must all undergo Nipponification, conversion to crowded living conditions and slow asset price declines. Being able to decipher the rules is a survival skill and the system we have been given also radically changes the rules, every 70 years or so. All one must do is to read a book!