What is REAL Money?

What is money, and why will our current currency system blow up?

All real assets hedge against the Government, yet only some are movable.  Real Estate will rise during specific periods but cannot be transported if you need to leave. Art is the eye of the beholder, and Diamonds involve opinions. GOLD and SILVER are the only assets that are the same worldwide and known for what they are. The handicap of Silver is that it is much bulkier than Gold: 1 oz. of Gold stores as much Money as 1 kg of Silver.

The price of some Real Assets has the bad habit of coming down during recessions. Real Estate and Capital Goods (High Order Capital Goods) are good examples. Just because it cannot be moved, Real Estate is, as a rule, an easy tax cow for Authorities.

When the price of everything rises (like what happened over the last decade), the value of fiat currency declines because too much of it has been and is increasingly created. This is a direct consequence of the law of Supply and Demand: the more supply (of currency), the less it is worth. Prices rise not because demand for goods and services changes, but because currency value drops.

Ever since 1971, currencies have been manufactured out of thin air. Whichever standard (shells, land, cattle, camels, gold, silver) is used, the Government falsifies the system each time so it can pay for its mismanagement and spend more than what it earns to get re-elected.

Historic Gold failed as a currency because the government debased it: the coins' gold/silver content was lowered.  Next, we had a Gold Standard, where Governments printed more receipts (currency) than there was Gold at an official fixed price. Finally, in 1971, the Gold window was abandoned. From then on, money could be created out of thin air….

Most don’t realize that since 1971, the monetary system has become a self-destructive entity, and it has become harder and harder to keep the patient alive. Because today’s monetary system is thriving on fiat currency, not even a balanced budget can solve the problem we are experiencing. Politicians and Bankers have been playing God, and society will pay dearly for this.

To understand why the system will collapse, one must understand the implications of today’s money, created out of thin air, and the relationship between money, debt, and interest.

You can create infinite quantities of money but only so much DEBT. As debt levels rise, interest rates start to rise dramatically, and the additional fiat money required to pay for that extra debt rises exponentially. This action always results in Hyperinflation.

As money is created out of Debt, interest has to be paid on each created unit. Hence, more money must be created just to pay the interest on previously created money.

When you write a check, there must be sufficient funds in your bank account to cover the check, but when the Federal Reserve writes a check, it creates money out of thin air.

Modern Money is, in fact, the result of a WORTHLESS and CROOKED FINANCIAL OPERATION.  Currency is borrowed into existence. To create money, a country's Treasury creates a BOND (a promise to repay the funds over a certain period and pay interest) and exchanges it for Money (a bad counterfeit check) with the Central Bank (Federal Reserve). The Treasury now uses the funds for its deficit spending and pays for War, Social programs, public works, and government employees…

Businesses and Government employees now deposit the money into Bank accounts.

This is where Fractional Reserve banking comes into play.  For every 100 dollars or euros deposited into your bank account, the bank can keep only a fraction (less than 10%) and re-use the other 90% or more. These funds are loaned out (ex., Car loan) and end up in other bank accounts where the same principle of fractional reserve banking is applied. Each $10 so creates an additional $ 100. (The Central bank creates about 7% of the money supply. The balance, or about 93%, is created by the Commercial banks)

The currency system is imaginary; it doesn’t exist, but it becomes real when you assign it value.  You have to work to pay tax, which is used to pay interest on the Bond issued by the Government out of nothing. Hence, more and more interest has to be paid. The government must collect more and more taxes just to try to balance the budget. In the end, balancing the budget becomes impossible as the income falls (less tax income) and the expenditures rise because of the depression…. Authorities have yet to issue more debt/bonds.

The Achilles heel of this imaginary system is that interest must be paid on money created out of thin air and that this money doesn’t exist. Because of this, more money/debt must be created each month to keep this currency system alive. In the end, exponential amounts of money/debt must be created just to keep the system alive, leading to Hyperinflation.

Once hyperinflation occurs, people realize that fiat currency and bonds have no value whatsoever, and bonds, bank deposits, or the currency system will blow up. Only REAL MONEY survives (Gold, Silver, tangible assets). At this point, the currency supply is contracting, and we enter an era of DEFLATION. Unless DEBT is forgiven, the Deflation cycle makes the economic depression even worse, as the debt accumulated during the Inflationary cycle must now be repaid with a smaller amount of available money. [This is why in Zimbabwe, at the end of the Hyperinflation, ALL DEBT was forgiven]
 

Note:

1. At the same time that the imaginary currency system blows up, so will Governments, Treasuries, Bonds, bank deposits, and Derivatives ($ 600 bn), and the nominal price of Real Assets will come down as there will be less money in circulation.
2. This helps to understand why authorities artificially keep interest rates as low as possible (the higher the interest rate, the faster fresh money must be created, and hence, the faster we shall see hyperinflation)
3. Even with budgets in equilibrium, more debt/money must be created to keep the system alive.

" In a Fiat paper money system, the Reserve Bank only creates the Principal - not the usury or interest that it lends to the Government. Therefore, the usury can NEVER be repaid, resulting in foreclosure and bankruptcy".

The end result is also bankruptcy and foreclosure for Governments.

Because of Usury, Fiat money has to be created exponentially to cover the repayment of principal and interest. This results in Hyperinflation and the financial system's collapse.

The negative consequences of Usury are minimal when the general level of interest rates is low (like today).  Because interest is not created but still has to be repaid, at a certain point money becomes scarce, and interest rates start to rise... exponentially! [This may help you to understand why Authorities are artificially keeping interest rates low].

Usury is a form of non-self-destructing credit.

People create money by borrowing money from the bank to buy a home. The amount of money they create is the balance between the price of their home minus the down payment plus the interest they have to pay. A Mortgage is NON-PRODUCTIVE and NON-SELF-DESTRUCTING credit.

Bad Money drives out good money, but ultimately good money replaces the bad. Self-destructing credit is healthy for the Economy and society, as it benefits the manufacturing process. It exists only for the time of the manufacturing process.

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