SERVICING THE DEBT BASED SYSTEM
Remember that when the Government gets new money from the Federal Reserve it's actually loaning that money. The Government must pay interest on this
debt, however the Federal Reserve will claim nothing sinister is going on here because all the interest it gets from the Government goes back to the
US Treasury. That is in fact true, and you might wonder why they would even bother charging interest in the first place if that's the case. The reason
for it is complicated but it basically helps mitigate inflation rates, or so they say.
Now this sounds all fine and dandy on the surface, however it ignores the fact that a very large portion of the money supply actually exists in the
form of bank credit created by private banks, and the interest paid to the private banks is not paid back to the treasury. Link this with the fact
that the Federal Reserve makes extremely low interest rate loans to its member banks which proceed to put those loans into reserve and multiply that
money through fractional reserve banking and you begin to see the true sinister nature of this enterprise.
The Federal Reserve simply acts as the figure head for the private banks. In and of its self it's not that easy to incriminate if it's not truly
profiting off the interest charged to the Government. But what about the interest it charges to the people through the network of private banks?
Answer me this: if all money is created as debt, where is the money to service all this debt? It simply doesn't exist, that is the answer. This
creates a type of perpetual loop of insanity where we require more and more money to maintain liquidity.
If all our debt-based money demands to be serviced, but all money comes into existence as debt, it means we constantly need to create new money to
service the existing money. This is an inherent feature of any debt-based system. We are now reaching a point where the Federal Reserve is creating 85
billion a month through its unlimited quantitative easing program. Do not be intimidated by the term "quantitative easing", it's simply a type of debt
monetization process very similar to the one I described earlier.
They know very well that this level of money creation will cause many people and nations to lose faith in the US dollar, and they know it will lead to
very high rates of inflation which will cause all sorts of other problems... it's like trying to put out a fire by throwing more fuel on it, but they
have no other choice if they wish to maintain liquidity in our debt based economy. If the debt cannot be serviced everything will begin to break down
as all debt assets start to become toxic assets. It's a debt bubble just like the mortgage bubble, but this time it's a currency bubble.
However, as explained in Part I, this tool for maintaining stability will eventually become useless and stop working. We are starting to get very
close to that point now where QE schemes and other money creation schemes will simply stop doing what they want it to do and they will no longer be
able to maintain the currency bubble. At this point our debt based money will totally collapse and the entire scam will become painstakingly obvious
to everyone. In truth the correct answer to the above question is D; in the long run it's impossible.
WHAT ARE STATE OWNED CURRENCIES?
State owned currencies are an alternative to debt based currencies. Instead of handing over control of currency issuance to private bankers, the State
directly prints its own money without having to trade debt just to get new money. So all money comes into existence debt free and without attached
interest. A prime example of a State owned currency is Lincoln's Greenback. The Greenback notes (aka the United States Note) were harshly opposed by
the bankers and quickly taken out of circulation to make way for debt based money.
The United States Note was a national currency whereas Federal Reserve Notes are issued by the privately-owned Federal Reserve System. Both
have been legal tender since the gold recall of 1933. Both have been used in circulation as money in the same way. However, the issuing authority for
them came from different statutes. United States Notes were created as fiat currency, in that the government has never categorically guaranteed to
redeem them for precious metal - even though at times, such as after the specie resumption of 1879, federal officials were authorized to do so if
requested. The difference between a United States Note and a Federal Reserve Note is that a United States Note represented a "bill of credit" and
was inserted by the Treasury directly into circulation free of interest. Federal Reserve Notes are backed by debt purchased by the Federal Reserve,
and thus generate seigniorage, or interest, for the Federal Reserve System, which serves as a lending intermediary between the Treasury and the
United States Note - Comparison to Federal Reserve
The Greenback notes are actually still legal tender, but quite rare indeed. This State owned money system was opposed by the bankers because it took a
lot of power away from them and gave a lot of power back to the State. The argument which has been used to justify a private debt based money system
is that the Government is simply too untrustworthy, and it's not false. I mean think about it, at the end of the day it's the Government who is
borrowing a lot of this money from the Federal Reserve and getting themselves into absurd levels of debt.
With a State owned currency the government can create money out of thin air without going into debt. By doing this they cause inflation and the value
of the currency in question decreases, thus making the fortunes of the super rich worth less. And at the same time the new money they create is
generally spent on public services such as the building and repair of infrastructure, healthcare and social security spending, and so on. So the
general populace, which is mostly the middle class, actually gains wealth overall because the money gets spent on these types of things.
But would the Government really be any better if they could just create money out of thin air without needing to trade debt instruments? If they had
full control over the money supply would we be in a better situation even if the money was no longer debt based? Many economists argue we need this
type of central banking system to prevent the Government from abusing this power. However the same question must be asked... are these private bankers
any more trustworthy and is it worth having the debt based system? At least Government officials have some sort of oversight right?
Are we really confined to just these two choices? Maybe we should start looking outside the box on this question. Maybe we don't have to trust the
Government or the private bankers. Some digital currencies such as Bitcoin relieve us of choices by making the entire system decentralized over a P2P
network. Instead of having to trust the Government or bankers, we only have to trust the math and cryptography. The code base is entirely open source
so anyone can check how it works themselves, it's completely transparent in all ways.
LIMITED CURRENCIES VS UNLIMITED CURRENCIES
If we look past the State owned vs debt based money debate, there's a more important debate. Whether it's debt based or State owned, it can still be
created endlessly. If you learnt anything from Part I it should be that a currency must be scarce and limited. The mere idea of something endless
acting as a currency completely undermines the entire concept of what a currency should be. But if a State owned currency can do all these wonderful
things like take power away from bankers and give wealth back to the middle class why not go with that?
Researchers such as Bill Still will argue we can't use anything scarce like gold or any other commodity because all those limited resources have
already been hoarded away by the rich, they're too hard to find and if we tried to use them everyone would be poor because they would have no money. I
respect Bill and I agree with much of what he says about the benefits of a State owned currency, but I simply cannot agree with him that endless money
is superior to limited money. We have used a gold standard in the past and there's no reason we couldn't do so again.
All fiat currencies are interchangeable with gold anyway, it doesn't matter what type of currency we use, the rich will remain rich. It's a redundant
and pointless task trying to design this currency which steals wealth from the rich and attempts to leak it back to the middle class through endless
money printing. Why do you think the rich become rich in the first place? Of course the debt based money system helps a few bankers get very rich, but
a relatively small percentage of the super wealthy individuals are actually bankers.
Using a State owned currency doesn't change the fact we have a business world dominated by huge monopolies and conglomerates which dominate the
financial landscape of entire industries. It's more apparent if you look at industries like the media industry, the oil and energy industries, the
banking industry, and so on. A lot of these industries have now been merged into a few single players which control the entire market. The end result
is that much of the wealth generated in our economy flows up the major shareholders of these monopolies.
The extremely high levels of inequality we measure today are caused by the way we distribute wealth to people in the first place. And the way we
distribute wealth is with our business system. This is really a business issue concerning the nature of "capitalism" that we now operate under, it
isn't a money issue and shouldn't be fixed with money via inflation. Having endless paper money doesn't magically make people richer compared to using
precious metals as money. Wealth will flow where wealth flows, regardless of the currency you use.
For example lets say we use a State owned currency and the Government continually creates new money to spend on public programs, increasing the wealth
of the little guy and decreasing the wealth of the fat cats. However one must remember that this new money will often get funneled through to large
companies directly (through lucrative gov contracts) or indirectly (via consumer spending etc), and what happens is that we get this uneven funneling
process to distribute the wealth back to the super wealthy, where it wanted to be in the very first place.
edit on 24/3/2013 by ChaoticOrder
because: (no reason given)