Money And Liberty II – (The Monetary Straightjacket)

Money facilitates interaction between individuals. Money is a place holder for the value we assign to our skills, ideas and knowledge thereby allowing us to exchange anything at any given moment without stumbling on problems such as perishability. By eliminating the temporal issues of barter, money allows the division of labor thus specialization.

Money therefore cannot exist prior to there being and idea or an item to exchange. That being the case, it is not money that drives the economy; creativity drives the economy and money facilitates the exchange.

The more money is accumulated in profit, the more goods and services can be accumulated thereby simultaneously expanding the economy and wealth.

The above would be great if individuals had the right to choose what to use as money and if the accumulation of money occurs amongst  individuals that exchange goods, services and ideas. This is the ideal market economy.

If for whatever reason a government successfully endows an entity with the task of creating money and at the same time, makes the use of this variety of money an obligation enforced by law, the the role of money changes significantly and so does its utility.

When government mandates the creation of a central bank and tasks it to create the currency to be used by society, the currency that will be created will necessarily be debt based. This is inevitable because on one hand there would be no need of a central bank if the currency was either value based or a fixed amount of fiat currency and, on the other hand, the central bank must be paid for their activity.

The moment a central bank is instituted and the currency it creates is made the only legal tender, all individuals that have ideas and skills to exchange are placed at an immediate arithmetical disadvantage.

In simple terms, there are four problems:

– The first and most pernicious problem is that there is nothing to constrain the creation of the currency and credit. Quite the contrary. The central bank is encouraged to create currency liberally because that’s how it makes a living.

– The second problem arises from the excessive creation of currency and credit because in allowing the unchecked creation of currency, the central bank gradually devalues the purchasing power of the money it circulates.

– The third problem arises due to the routing the newly created currency takes in order to be injected in the economy. Newly created credit enters the economy through exclusive gates controlled by the central bank and the entities that gravitate around it such as commercial banks and other financial institutions. As first users of newly minted currency and credit, these entities enjoy a disproportional purchasing power advantage over any other entity that receives the money farther down the line. Although marginally ahead of children who perceive a weekly allowance, the salaried consumer or the recipient of government assistance are the very last recipient of newly minted currency so that by the time the currency reaches their pockets, the cost of living has already increased considerably. In this construct, the central bank and its acolytes are always a few steps ahead of the rest of society.

– All of the above is obviously a strategy that is limited mathematically because there is an absolute point past which the currency can be debased no more.

When this dynamic is allowed to run its course undisturbed, eventually, all profits will gradually but inexorably concentrate in the financial sector and, with the profits, so will the productive capital of society as well as political power.

During this cycle, society is gradually divested of savings and is burdened with debt. If the debt is not assumed directly by individuals, the state will overspend on behalf of citizens and will then try to recover the sums through taxation. As this dynamic evolves, individuals gradually work longer and harder just to stay in place till, towards the end, they are on the proverbial hamster wheel. At this point, the majority of individuals are stuck in jobs they hate and prospects of new jobs are dim. Similarly, numerous individuals may be employed by entities whose policies they may not necessarily agree with but are in no position to contrast because their life style depends on them keeping the job – this is particularly the case for people employed by government and by para governmental agencies such as the UN for example.

Like all pyramid schemes, as this monetary system reaches its arithmetical limit, the underlying economy no longer generates sufficient profit to service the debt. At this point, individuals and corporations have to liquidate assets in order to try to repair their balance sheet. However, as more individuals try to do this, demand wanes, asset prices collapse, tax revenue dwindles, sovereign deficits worsen and this dynamic engenders an increase in unemployment just at the time that government is short of revenues and has already ransacked public funds.

All the while, as financial entities acquire progressively more political clout, they become the first and only recipient of public funds and enjoy accounting privileges. Conversely, personal debt is not forgiven nor is it reduced.

At this point, society is hostage to the banks.

Make no mistake. This is only the beginning of what is to follow because if there are hostages there is necessarily a demand that must be met or else…

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6 Responses to “Money And Liberty II – (The Monetary Straightjacket)”

  1. josephbc69 Says:

    This is a most astute essay, and again Patrick Donnelly’s comments are spot on! My Internet friend Richard Eastman writes profusely about this same point, but not as concisely as above, so his readers lose interest [pun not intended!], and drop off.

    At any rate, a fiat currency is fine as long as two crucial criteria are met:

    1. “We, the People,” must believe in the “full faith and credit” of the issuing feral gubbmint, and

    2. its quantity is issued by a Central Bank’s accurate estimate of the spending power required by all the populace.

    Unfortunately for the USSA [not a typo], the world has lost its faith in Uncle Sam’s buck, and the Fed Res Bunco simply doesn’t ‘get it’ about the needs of the majority –or deliberately chooses not to care– and continues to reward the banksters and other perps for their very real crimes against humanity.

    Here in Kanada we have the polar opposite problem: what I call “the hideous strength of the Canuck buck”, identical to what the Aussies are experiencing: the strengths of a commodity-backed currency. This makes imports too cheap and easy, and discourages domestic job creation by innovation and new production.

    This alone should give pause to those who advocate a S&G backed currency. It may make you feel good in inflationary times, but a fall will come one day as deflation sets in. Deflation is not as bad as its detractors make out: Japan’s recent history shows what happens. The nation’s domestically well-off, but the price paid was that imports became more expensive.

    Yet this took place in a free market context, as it should; do its critics really want the comforts of a Smoot-Hawley Tariff era and its consequences? I think not, but at the gut level such retaliatory acts have a brief ‘feel good’ moment in history before further collapse. [http://en.wikipedia.org/wiki/Smoot-Hawley_Tariff_Act]

    • Patrick Donnelly Says:

      Can you imagine the “true” value of the $AU? Divide the silver and gold, titanium, thorium, lead etc in known reserves by 25,000,000 and we end up “richer” than any society, except Croesus and his family….

      But the “market” might be merciful with us. Same applies to Canada, except you would be over run by migrants from the South. Fact is that all markets are rigged in one way or another, temporarily. By the time the next credit boom occurs, Australia will be 100,000,000 population? We might suffer worse than we have to date.

      Thanks for the compliments. I looked up my WordPress account so ya got liked!

    • Patrick Donnelly Says:

      Globalization may be a means to ensure Oceanic hegemony. Food etc is cheapest when transported by sea, and earth wobble means there are two seasons of harvest with the tropics producing in more, but smaller peaks. TINA. Those who run the freedom of the seas, run the world. Almost as good as being the US dollar, printing as fast as possible in USA and Switzerland apparently…. and by digital means as well.

  2. Patrick Donnelly Says:

    Have you a FB page?

  3. Patrick Donnelly Says:

    You know there are consequences at that stage, right? I was not there, but I believe we reached that point a few times, hence the Jeffersonian dictats on Central banking? The French Revolution was one result …… The Fabians invented economists, copying Adam Smith somewhat, knowing they would in the main, degenerate into what they now are. Whether they get their NWO or the mercantilists get theirs is soon up for grabs!

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