On the Creation of Money
Many people are taking the red pill these days. My own watershed event was 9/11, after which I ceased believing the MSM and quickly found some more plausible views on reality.
One of the main items the newly awakened confronts is that money is just another commodity, created out of thin air. And that banks as the main creators of money use this privilege for an ongoing wealth transfer.
Unfortunately many born again Truthers stop thinking there. And this is a shame, because it makes them susceptible to more advanced hoaxes (our current money system being the primitive one). Like the idea that Gold is the only real money.
The problem with money is not that it is created out of thin air. Far from it, it is quite pleasant to realize that a commodity of such tremendous importance is so easy and cheap to produce.
The problem is, that if you control the production of the medium of exchange, you have a number of devices available to sheer the flock. Two of these devices are very important: Interest and the so called ‘Business Cycle’.
The business cycle is not some kind of natural phenomenon. It is created by first inflating the money supply, leading to economic growth, and then deflating it, leading to recessions and depressions. In our system money is debt based. So if the money supply grows, what is really growing is the indebtedness of economic actors, be it the state, companies or individuals.
Deflation in this system implies the paying off of debts and what bankers like about this is, that because people are dumping assets to decrease debt, prices go down and the few that still have cash (the bankers) can buy up these assets for very attractive prices. When the economy starts growing again, these assets will appreciate in value.
In an economy with a sound and humane money system there is no business cycle, because the money supply is stable.
However destructive the business cycle may be, it pales in comparison to the problem of interest. I will not elaborate on it too much here, since it merits a post on it alone. Suffice it to say that you pay 400k interest in thirty years for a 200k mortgage. And that HALF of prices you pay are for capital costs. And that in Germany alone the poorest 90% pay 1 billion euro in interest to the wealthiest 10% PER DAY.
So the problem is not the creation of money, but the tools at the hands of malevolent controllers of its supply. A reasonable institution would not use these tools and supply stable and cheap money.
How to create it
There are a number of ways to create money. The classical approach would be to have Governments create it and spend it into circulation. This how the Chinese did it, back in the 14th century. This is also the way Stephen Zarlenga from the American Monetary Institute would like to do it.
There sure is a lot to be said for it, but I do see a few problems. In the first place, why should it be Government’s privilege to spend the money? Why not hand it out to the populace?
Spending the money into circulation, either by individuals or by the State is an approach better suited for legal tender issued by Government. The reason for this is, that Government collects taxes and can choose to withhold money from circulation. This can be necessary if too much money was issued and prices are rising.
The future, however, will see many alternative currencies circulating beside each other. Many currencies will be issued by private entities and they will not be able to get out of circulation excess money which was given away. Also, since private entities have a limited lifespan there would be problems getting rid of circulating money once the organization quits.
In these cases it is better to issue money based on debt. Strangely enough many seem to have problems with money creation based on debt, but it is unmerited. Debt is a very reasonable proposition for a number of reasons.
In the first place, companies need credit for investments. As long as the economic conditions allow for it, there is no need to withhold this credit from them.
Secondly, the amount of money needed in circulation is a function of the ‘economic capacity’ of the community within which the money circulates. In the case of private money, where the money is basically used within a trading community, the required money supply grows with every new participant joining and shrinks with every company ceasing to use the money.
It is really very rational to have each firm finance its own participation in the network. Simply allow it to create the money by going into debt. The debt needn’t ever be settled, unless the company quits accepting the currency.
The problem is not debt, but abuse of debt through interest.
Some claim debt based money is causing bankruptcies. Maybe so, but the vast majority of loans is payed off. Secondly, if there is no interest the credit worthiness of the borrower is increased a lot. And third, our bankruptcy laws are as barbaric as is our current money system. The fact that people and companies are being slaughtered if they suffer from a liquidity squeeze, not considering their real asset positions, is a disgrace. Bankruptcy in its current form is just another symptom of the domination of debtors by creditors, of Labor by Capital.
Debt based money is the reality not only with ‘national’ currencies, but also with commercial barters all over the world.
Debt based money is rational, as long as it is supplied by a benevolent organization, aimed at serving the users of the money.