Money, Money, Money…
September 27, 2007
My good friend, Mervin, had a comment to post on my “USD” blog entry. There was so much to it, I thought I’d put it out here as a blog entry:
First, I have to say… Yes, Paul is weird. However, I don’t want to minimize his fact and what this means for the world.
In my studies I have found that every money system has a lifespan. The society that uses the particular money system fails through political distress after the lifespan is over.
Every graduation to the next stage is brought on because the society tries to expand both influence and power. In the end, however they overextend themselves and fall. One could make the argument, then, that money is the greatest reflection on the intentions of mankind.
The Four Stages To The Money Lifespan
- Real Money
Another word for this is “Commodities”. You will find the world’s natural resources and elements here. This is anything that has a real use, and therefore value, to human kind. It could be something needed to sustain life, like water, or a man made need - such as oil. Real money = Real wealth.
- Money Standard
Think of this as an IOU. This money, whether paper or a stick (i.e. Talley Stick), is generally used because of the ease of transporting. It is backed or pegged to real money. Actually, this is probably the healthiest stage because it is easier to do commerce, but the money is still restricted to real money that is in storage somewhere. This is the stage of economic expansion.
- Fiat Money
Ah credit, what a wonderful thing. The term “Fiat” just means “By Government Decree”. Of course, another term for this is “Legal Tender Laws”. In this stage “Real Money” is totally disconnected from the IOU. The laws of the Government are the replacement for the “Real Money”. This stage is far more lawful and authoritarian in nature; trying to control money with words alone. It is also the stage of overextension where a “credit bubble” forms.
- Hyper Inflation
In the Fiat Money stage, the Government has earned your trust to print what they feel is necessary to sustain commerce. In the final stage, they abuse this trust by over printing the money. The reason for this is to pay off interest obligations from the “credit bubble” formed in the Fiat Money stage. When the society no longer believes that the Government is acting in their best interest, they start to move away from the money system which, in turn, devalues the money and brings an end to the system. The Government might be able to get away with over printing for a while, but once the society “wakes up” to it, the collapse happens very fast.
A money system is one of the most powerful systems of control over a society, but if people understand how money works they can use it as a tool instead of letting it be the master.
Thanks, Mervin!
January 4th, 2008 at 12:46 pm
We neglect one cardinal point that apparently few people recognize or understand and that is the entire fiat monetary system is completely collateralized by debt making debt the asset upon which the complete monetary and economic system rests.
Every single dollar in circulation, whether digital or physical, has been borrowed into existence. All growth within the economy is totally sustained by the expansion [inflation] of the money supply and the money supply is totally dependent upon the equal expansion of debt. The debt is irreversible and because on top of the principle debt an interest obligation is attached, the debt must continually be multiplied exponentially.
Now, I could provide the equations to show that under such a system there is a mathematical termination point, but I will simply explain what is happening with the system at the present.
Since Nixon cut all ties between our fiat currency and the underlying commodity specie, the system must totally rely upon the creation of credit/debt for its viability and economic sustainability. The problem arises when the system begins, as it has, to reach its practical possible lifespan where the debt becomes so huge that it begins to require more service than the economy can actually produce in growth.
Due to the multiplication of the debt, which includes the periodic principle and periodic interest, the debt, as we are now seeing is expanding far faster than the rate of economic growth. Eventually, the entire system will reach what can be called it’s maximum possible lifespan or terminal point where it reaches the point that all profitability within the economy begins to be siphoned off by the service requirements of the debt [principle and interest] and the economy will no longer be able to tolerate even minor disruptions, such, as we have seen, small interest rate increases. At one time, the economy could sustain much higher disruptions and keep growing; that is no longer the case and it now struggles to maintain itself.
We are in a classic Catch 22 because we must expand the money supply to keep the economy going, but by expanding it we hasten the day when the debt demands much more service from the economy then the economy can provide. Everything that is built upon this system will suffer the same fate as the system itself. We tend to hear politicians state that we are yoking our children and grand children with a massive debt; unfortunately it is not that simple or pretty. The truth is that our children and grand children will only be left with the broken pieces of a society crushed by system that will break down everything we now know and recognize as society. Everything we know, everything we now trust in is built upon a system with an inherent terminal point where the entire system collapses under the weight of the debt that it relies on for its existence.
All investments, currencies, pensions, insurances, government programs, IRAs, 401ks, mortgage securities, etc., everything we know that makes our society what it is today will follow the fate of this monetary system.
Under such a fiat system the outcome is completely unavoidable; it continued existence is a mathematical impossibility. It would require a complete reversal of mathematical law in order for it to continue perpetually and that is impossible.