July 10, 2011
Debt-based fiat money, which implies never ending debt and constant inflation, is not a sound, stable or sustainable monetary system. Major economic problems today, such as rising global commodity prices and the sovereign debt crisis, are not aberrations or inherent problems of capitalism, but are the inevitable consequences of a centrally planned system that, by design, produces never ending inflation, ever increasing centralization of financial power and increasingly extreme concentration of wealth.
Monetary systems that rely on debt-based fiat money can be accurately described as confidence games and the global cartel of central banks that exists today is similar to a criminal cartel, such as the drug cartel, except that the banking cartel has been legalized,can extort hundreds of billions from governments with impunity,and can conjure unlimited trillions out of thin air for its own benefit with no accountability. In stark contrast,hapless billions of people labor worldwide for single-digit hourly wages on an ever faster moving hamster wheel of inflation and debt.
Like a commodity, supply and demand is the putative basis for the value of money in the field of economics,but many economists and most investors know very little about the underlying structure of the monetary system. The legal and,in a systemic sense,mathematical structure of money is debt,i.e.,a note or debt instrument, thus money is the liability of its issuer (a government or central bank),rather than a tangible asset. Money,which is a purely legal construct (rather than a direct representation of a physical asset or an actual commodity),is created ex nihilo through legal agreements,such as mortgage loans,car loans,student loans,credit card charges,business loans,etc.,hence the term “fiat” money. Governments help banks to create money by borrowing for deficit spending (and by paying interest on the debt),but central banks create money directly through loans to banks or favored parties,debt monetization and asset purchases.
1. Gold is a tangible financial asset with no bank or government liability. Fiat money is a debt instrument or note that is the liability of a government or bank.
2. Transactions in gold are fully settled. Both parties hold finished goods. There is no outstanding liability. Transactions in fiat money are not settled. One party always holds a note owed by a bank or government.
3. Gold certificates or electronic credits in allocated gold accounts are redeemable in a real,physical asset:gold. Fiat money is not redeemable. While it functions as a medium of exchange,it lacks any backing in terms of real assets.
25 Reasons @ Business Insider here.
This article was posted: Sunday, July 10, 2011 at 1:05 pm