The debt ceiling debate in the United States is over (for a few months, at least) and to we take the opportunity to hilight this video from Mike Maloney discussing the debt based money system and the current version of US Currency: the Federal Reserve note.
We say 'current version' because the United States has gone through a number of different currency's in it's 237 year history.
The current version, the Federal Reserve note, is only 99 years old.
So as the US debt ceiling is raised once again, we bring you this interesting dissertation on the fiat the currently makes up the world's reserve currency.
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Electronic Fiat with Interest: Do not try and understand this money - that's impossible. Instead, only try to realize the truth.
ReplyDeleteNeo: What truth?
Electronic Fiat with Interest: There is no money.
Neo: There is no money?
Electronic Fiat with Interest: Then you will see that it is not money that exists, it is only debt.
It's an interesting video but it's missing an important point that a lot of people (businesses mainly) are borrowing to create value. The economy isn't a zero sum closed system as the video implies. There are inputs to the system (e.g. mining gold to create jewelry that is sold at more than the face value of the gold). Value is being constantly added, the problem occurs when growth of the economy is outpaced by the interest on the debt
ReplyDeleteMust borrow to "add value", and somehow pay back the borrowed amount with interest that can only exist if as more debt with interest taken by someone else. Check.
DeleteMust borrow to consume what the producers "add value" to, and somehow pay back the borrowed amount with interest that can only exist as more debt with interest taken by someone else. Check.
Somehow this makes sense for some, and and can continue forever if we just don't get too much into debt or if we do more of the above.
Something is very wrong here. Looks like value is always subtracted, if you do the math and watch the real world evidence.
You don't have to borrow to add value but if I can borrow 100k to upgrade my factory making me 200k and I pay 3% interest on the loan value has been created. The assumption that *everyone* is borrowing to spend is false (although consumer debt levels are way too high). I trade my time for money so I'm inputting time into the system, this is an addition of value too, my work generates profits for our my employer and in turn our clients, my company uses some of this profit to pay me. Nobody has taken on any debt in this equation
DeleteSomeone HAS to get into debt to service the non-existing interest payment on existing debt. That someone is either the city, province, government via deficit spending and selling of bonds, the employer via bank loans, or the consumer the same way.
DeleteIt's a simple arithmetic consequence of all money being issued as debt. Even physical money is debt, monetized by the treasury.
It's not rocket science, but it's indeed mind boggling how we managed to fool ourselves into prosperity.
But there are external inputs into the system that aren't money, time is one, minerals, metals, oil are others we haven't yet reached the point where we're in a closed loop. If I dig something valuable out of the ground and sell it I add money to counteract the debt taken on to invent money. It's why most currency's were originally linked to some physical valuable finite good. The problem with that is it artificially limits the money supply based on the scarcity of the good. This in turn inhibits growth which is why most countries have ditched it
Delete>It's not rocket science, but it's indeed mind boggling how we managed to fool ourselves into prosperity.
DeleteThis is actually why I went in to the physical sciences. One of the reasons why I do research and (try) to discover new things and develop new tools and technologies is that I actually create something physical and applicable that is useful to others. It's a thing, even if it's really a process, rather than just some form of monetary product that seemingly can be conjured from thin air without much effort.