What is money and why
our current currency system will blow up.
Assets are a hedge against Government yet only some assets are movable. Real
Estate will rise during certain 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 which are the same
all over the world and know for what they are. The handicap of Silver is that it
is a lot more bulky than Gold: 1 oz. of Gold stores as much Money as 1 kg of
The price of some Real
Assets has the bad habit to come down during recessions. RealEstate
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 is rising (like happened over the last decennia) it is in fact the
value of the Fiat Currency coming down because too large quantities of it have
been and are 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
are rising not because demand for good and services change but simply because
the Value of the Currency drops.
Ever since 1971
currencies are manufactured out of thin air.
Which ever standard (shells, land, cattle, camels, gold, silver) is used, each
time Government ends up falsifying the system so it can pay for its
mismanagement and spent more than what it earns in order to get re-elected.
Historic Gold failed
as a currency because Government debased the currency:
the content of Gold/silver of the coins was lowered. Next we had a Gold Standard
where Governments printed more receipts (currency) than there was Gold at an
official fixed price and finally in 1971 the Gold window was abandoned. Money
could from now on be created out of thin air….
Most don’t realize
that since 1971 the monetary system has de-facto become a SELF DESTRUCTING
entity and that 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 resolve the
problem we are in. Politicians and Bankers have been playing God and society
will pay dire for this.
To understand why the
system will collapse one must understand the implication of today’s money which
is created out of thin air and the relationship between Money, Debt and
You can create
infinite quantities of money but only so much DEBT.
As soon as the level of Debt gets too high Interest Rates always start to rise
dramatically and the requested additional amount of fiat money which must be
created to pay for this 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 and more money
has to be created just to pay off 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.
Money is in fact the end result of a WORTHLESS and CROOKED FINANCIAL OPERATION.
Currency is borrowed into existence. In order to create money the Treasury of a
country creates a BOND (a promise to repay the funds over a certain period of
time 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 to pay for War, Social programs, public works, government
The money is now
deposited by businesses and Government employees into Bank accounts.
This is where
Fractional Reserve banking comes into play.
For each $ 100 dollars or Euro’s which are deposited into your bank account, the
bank is allowed to keep only a fraction of this money in your account (less than
10%) and to 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 have to give it value. You have to work so you can pay
tax which is used to pay the interest which has to be paid on the Bond issued by
the Government out of nothing. Hence as more and more interest has to be paid.
Government must collect more and more tax just to try to balance the budget.
Balancing the budget in the end becomes impossible as the income falls (less tax
income) and the expenditures rise because of the depression….and Authorities
have yet to issue more debt/bonds.
Achilles heel of this imaginary system is the fact that INTEREST must be
paid on the money created out of thin air and that this money doesn’t exist.
Because of this each month MORE money/debt MUST be created in order to keep this
currency system alive. In the end exponential amounts of money/debt must be
created just to keep the system alive and this in turn leads to
Once there is
Hyperinflation people realize that Fiat Currency and Bonds have no value
whatsoeverand Bonds, bank
deposits or the currency system blow up. Only REAL MONEY survives (Gold,
Silver, real assets). As this point there is a contraction of the currency
supply and we enter an era of DEFLATION. Unless DEBT is forgiven the
Deflation cycle makes the Economic Depression even worse as the debt which has
been 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]
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
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)
with budgets in equilibrium more and more debt/money must be created to keep
the system alive.
" In a system of Fiat paper money 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 and the end result is
foreclosure and bankruptcy" .
The end result is also bankruptcy and foreclosure for
Because of Usury, Fiat money has to be created in an exponential way to cover
the repayment of principal and interest. It is the exponential creation of fiat
money which results in Hyperinflation and the collapse of the financial system.
The negative consequences of Usury are minimum when the general level of
interest rates is low (like today). Because the interest was 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 the Good money but ultimately the Good money replaces
Self-destructing credit is healthy for the Economy and Society as it is
beneficial to the manufacturing process. It exists for the time of the
manufacturing process only.