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“Flying Money”
Originally posted at http://capitalistexploits.at/
China circa 1100…
This was a time when commerce was booming, life was grand and the Chinese economy was expanding rapidly.
We
don’t know the figures but by all historical accounts real GDP was going through the roof.
Alternating crops on the land, irrigating and fertilising with manure – in other words, innovation – had led to farmers squeezing out 3 crops annually, where not long before they harvested only 1 per year. Add to this an expanding network of roads and dramatic improvements in water transport, and all of a sudden farmers could get their excess production to markets far beyond the immediate locale.
Chinese shipwrights, copying their counterparts in Persia, Arabia and Southeast Asia, built large, ocean-going junks with watertight compartments good for storing and transporting grains at sea. As a result, shipping costs plummeted and large-scale trade took off.
Shipping brokers and middlemen sprouted up to service this new industry. They warehoused cargoes, loaned money to facilitate trade and turned ships around faster.
These were interesting happenings in their own right, but what I find fascinating is what began taking place with the monetary system.
The Chinese government of the time minted bronze coins. The rapid increase in trade meant that the velocity of money increased, and the demand for more money than what was created intensified. The economy was expanding rapidly, but the money supply was not keeping up.
Historical records show that due to massive efforts to find new copper resources, as well as efforts to debase the currency by mixing it with lead, the money supply grew from 300 million coins to 1.83 billion between 983 and 1007 – 24 years.
Even while the money supply was expanding dramatically, demand was outstripping supply. Despite the massive amount of new currency in circulation, the economy was STILL growing faster than the money supply.
Enter the tea trading days
In the 9th century the tea trade started booming. Tea traders set up offices in Chang’an where traders could exchange bronze coins received from selling their tea for “flying money.” These were paper bills of credit.
When traders returned to Sichuan they could convert their bills back into coins (real money) at the trader’s head offices. The advantages were obvious, and soon merchants were using bills as cash in their own right. Money deriving it’s value from trust rather than intrinsic value had been created. Tea traders were the 9th century equivalent of modern day central bankers.
Meanwhile, the technological changes which were allowing for greater divisions of labour and greater productivity allowed numerous new inventions and products to be designed and brought to market. Coal, with it’s vastly superior energy content, assisted in the ascent.
Interestingly, China had a true industrial revolution in the production of textiles and steel a full 400 years before the West.
Iron output went up 6 times between 800 and 1078. to about 125,000 tons. This was almost as much as Europe would produce in 1700.
Reading through this history it is notable that the increase in the money supply did not detract from the real growth and increasing prosperity. The reason for this is obvious. The money supply growth came as a result of the real GDP growth and not the other way around.
Contrast this with the situation we find ourselves in today.
Real GDP growth worldwide has been increasing roughly 4% annually for the last decade. Since today money is credit-based, let’s contrast this figure with the credit growth over the same time frame – 12% annually. The 8% variance is compounded each year! Just put it on our tab folks…
This has left us with a situation where global credit market debt (sovereign debt, consumer debt and corporate debt) has run from US$80 trillion to over US$200 trillion today, leaving us with a debt to GDP globally of somewhere around 350%.
As we’ve been trumpeting ad nauseum, the biggest perpetrator of this is Japan, with a Crescendo of Debt – ¥1,086,000,000,000,000.
This ridiculous growth in debt is a result of global central bankers expanding the money supply through credit issuance in an attempt to create real GDP growth. We humbly suggest that this is arse backward folks!
It’s a horrible idea, and we’re of the opinion that rather than creating real GDP growth we are going to see more sovereign defaults. GDP growth will remain well below the rate of growth in money supply (inflation), and at some point in the future a reset of the global monetary system will be inevitable.
This is but one reason why we are focused on countries that are experiencing real GDP growth with low debt levels, and companies and management teams focused on running their businesses conservatively and responsibly. We can’t protect against every eventuality, but we can hedge a little by staying clear of obvious impending train wrecks.
- Chris
“Unsustainable trends tend not to be sustained.” - Herbert Stein (economist and presidential advisor)
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Conversation within China Politburo----Kick the Barbarians out of China again. But wait, then we lose our overseas export markets. Better to keep the game on a bit longer until we are strong enough to go it alone. In meantime start unloading those worthless US treasury bonds and buy US assets and equities with technology, energy and food components. Maybe we can buy Booz Alan, Exxon and Smithfield Food
This article comes as close to understaning what money actually is as any I have seen. I hope more people will pick up on it.
Proper management of any Medium of Exchange (MOE)
-------------------------------------------------
Money is “a promise to complete a trade”. This is obvious by studying its genesis as an efficient improvement over simple barter. Look at barter. In a trade, at the instant a good moves from one hand to another there is an open promise to complete a trade. The instant before, it is a trading promise in the making. The instant after it is a promise kept.
All that money does is allow that promise to occur at different times; over different periods; at different places; and with intermediate trades. These promises (called loans) are “certified” and then take on value themselves. The certificates are freely traded and called money. When the trade is completed, the trading promise is extinguished. The certificates (money) representing it are returned and extinguished with it.
Again ... money is "a promise to complete a trade".
Characteristics of a properly managed MOE:
o INFLATION is zero at all times and in all places
o The time value of money is always zero (same as above)
o Money is in free supply at all times and in all places
o Supply and demand for money are always in perfect balance
o Money circulates freely and is universally accepted
o Responsible traders enjoy zero INTEREST
o Irresponsible traders pay INTEREST ... it's an actuarial issue
o Traders, not governments, determine the value of money
o No capital what-so-ever is required
o There is no commodity, precious or otherwise, backing the currency
o There are no runs on banks
o There is no business cycle
o There are no bubbles
o Saving and hoarding have no effect on the economy
o No cascading effects
o No marking to market
o No inflation measurements or estimates
o No price measurements or estimates
To properly manage any Medium of Exchange (MOE), the controlling relation is:
INFLATION = DEFAULT – INTEREST
Proper management entails:
o measuring DEFAULTS on trading promises
o collecting INTEREST equal to DEFAULTS experienced
o thus maintaining INFLATION at zero for all time and in all places
o assuring a free supply of certificates for trading promises at all times in all places
It is the marketplace, not capital or commodities, that backs money (promises to complete trades). And it is precise management of defaults and interest collections that give the responsive negative feedback assuring stability and integrity in the marketplace.
Money is debt, that is true … but that is not a bad thing any more than making a trading promise is a bad thing. Gold, silver, and any other good is not money. It is simply a good exchanged in simple barter.
Virtually all governments would find themselves outside such a system as they are chronic irresponsible traders. Their INTEREST levies would be prohibitive because they don't ever keep their trading promises (they don't pay their debts ... they just roll them over).
Todd Marshall
Plantersville,TX
"This ridiculous growth in debt is a result of global central bankers expanding the money supply through credit issuance in an attempt to create real GDP growth. We humbly suggest that this is arse backward folks!"
let me edit this a bit if i may:
This ridiculous growth in debt is the result of NWO wholly-owned subsidiary central banks expanding the money supply through fraudulent credit issuance in an attempt to leverage the GDP of the entire planet and steal sovereignty so that the nation states may be integrated into a single, global governing body. To which end the gold linkage of the RMB to an SDR in an environment of a USD that is being strangled to death by design (but will be kept around as tier 3 slave paper for slaves) will present the "greatest creative opportunity" imaginable for madmen who own us all from birth folks!
Couldn't gve a rats arse about a down arrow but just to be clear; if i was a bytch i wouldn't accept a credit note only payment up front.
And they managed it without a helicopter even.
It's a bytch that a bytch will never accept a credit note; otherwise we'd all be getting laid.
And truth is a bytch to debt stuff. Which is why the shysters lie about it.
that debt stuff
is a bytch..