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Guest Post: Everything Created Digitally Is Nearly Free - Including Money
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
It is immeasurably easier to digitally create claims on real-world assets than it is to create real-world assets.
We all understand that the cost of everything that can be created digitally is near-zero. This is why music, videos, text-based knowledge and telephone calls (Skype) are now basically free.
Since money is now created digitally, it too is basically free. We can see how easy it is to digitally create trillions of dollars in this chart of the U.S. monetary base. Roughly $1.2 trillion was created out of thin air essentially overnight back in the good old days of global financial meltdown:
For another look at the wonders of the digital credit creation machine (a.k.a. digital printing press), here are the assets of the Federal Reserve banks: there's the $1.2+ trillion again--hum, Baby! Hit me with another trillion....
Here's a detailed look at the assets the Fed bought with its digitally created money--mostly Treasury bonds and real estate mortgages:
The key feature of digitally creating credit/money is this: it is immeasurably easier to digitally create claims on real-world assets than it is to create real-world assets.
This is why the digital creation of trillions of dollars in credit/money is distorting and disrupting the real economy of real-world assets: the claims on those assets keep expanding while the actual assets remain stubbornly tied to the real world.
This widening disconnect between rapidly multiplying digitally created claims on real assets and the actual assets has spawned a multitude of pernicious consequences, a few of which I have recently addressed:
How Cheap Credit Fuels Income/Wealth Inequality (May 30, 2013)
Why Serial Asset Bubbles Are Now The New Normal (June 6, 2013)
$179,000 Each--In Debt (June 5, 2013)
The Fleeting Beauty of Bubbles and Bonds (June 3, 2013)
Since money can be created for free, how does it retain its value? The answer is artificial scarcity. The example of a college diploma is instructive.
Digitally created massively open online courses (MOOCs) have now made instruction as free as text-based knowledge. This means that offering a college-level series of courses is now nearly free--a topic I have discussed in some depth: The Nearly-Free University (November 15, 2012)
Recent studies have found that students who watch MOOCs learn more and test higher than students attending live lectures: Professors Are About to Get an Online Education Georgia Tech's new Internet master's degree in computer science is the future
So how can colleges extract $100,000+ for something that is basically free? By monopolizing the issuance of diplomas. You can get the education for nearly free, but since the colleges own the right to print diplomas (for free), you have to pay them $100,000 for the piece of paper accrediting your free education.
This is a classic cartel structure: artificially limit the supply of what is in demand.
So how does the Fed artificially create scarcity-value for its freely created trillions of dollars? It restricts access to all that beautiful free money. Wouldn't it be nice if you and I could reach in and grab a couple of million bucks from the overflowing till?
Or almost as good, how about borrowing a couple million at nearly zero interest rates? At .5%, the annual interest payment on $2,000,000 is a measly $10,000.
Alas, access to the nearly free money is restricted to a small financial Elite, the Aristocracy in our neofeudal debtocracy. This tiny Elite can borrow the money for nearly nothing and then go out and buy real-world assets with the digitally created credit.
Debt-serfs have access to limited sums of this free money, but at much higher rates of interest: for example, student loans cost between 6% and 9%.
When debt-serf purchases of assets serve the agenda of the political/financial Elites, for example buying an auto or home, then the free money is doled out to secure the key feature of debt-serfdom--serfs must service all the debt they take on, thereby enriching the financial system that loaned them the money.
And where did the financial sector get the money? From the Federal Reserve.
How about just giving me $500,000 at .5% interest direct from the Federal Reserve, instead of a mortgage at 3.5%? Sorry, it doesn't work that way: the free money must be restricted to the financial Elite so it can profit mightily from its restricted access to all the free money.
Creating nearly free money and restricting it to benefit a tiny Elite certainly enables debt-serfdom, but it doesn't do much for the real economy. Exhibit 1, fulltime employment:
The Fed can digitally print a trillion dollars at no cost, but that doesn't mean the money flows into the real economy.
Once again we are compelled to ask: cui bono, to whose benefit?
America No Longer Innovative Driven: This is one of the most important video programs I've done with Gordon Long, as we discuss our obsolete education system, the knowledge economy, risk-taking and the bread-and-circuses mindset that dominates our society:
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Good work as usual, Chuckles.
Those charts reveal to me a dying currency, hyperinflation, and poverty. Well, 2 out of 3 ain't bad so far. I guess that's the reason why gold is so heavily manipulated. By any normal "free market" standard, gold would have shown the USD worthless by now. Hyper-control through nefarious paper means in thinly traded markets is the only way to keep the USD the worlds' reserve currency.
And that is downright embarrassing!
hyperinflation and deflation can exist simultaneously.
The world's accounting, banking and money-related information systems are free? That'll be news to a lot of people.
Digiital/accounting/legal/crypto money is doesn't get its value from what it is but what it does, whereas gold sits in lumps in the vaults of the wealthy and paranoid.
Nice try, though.
Gold to $900
But the author does make a good point about access to credit and education. He doesn't seem to understand the point he's actually making - that democratic institutions rather than private ones should provide education and credit - but he makes a good one, nonetheless.
I have to shell out 10 large for a gall bladder operation based on my diagnosis and yes, Google search . The last time I checked, surgeons only take dollars.
My mom had her gall bladder removed for free! Actually, medicare (and all ya's!) paid for it.
As opposed to the paper bugs who store their paper in bits and bytes. Paper bugs who are currently wealthy and exuberant.
12 trillion Dollars and counting to have a "recovery" with modest to no improvements across every sector.
sure, the wheels haven't come off yet but the digital/crypto money is DOING diddley squat for the economy of the vast majority of Americans.
minimum wages are not enough to participate, just enough to not die just yet
humans and their systems are so fucking pathetic and primtive. next dominant species, please.
we can quantify to the the greatest of details, yet we always fall back to a hierarchical system because our thought processes are still very much simple and based on emotion and familiarity rather than genuine intelligence.
We have the society we deserve, folks.
Digital money is created for free so that cheesepopes can give it to their friends to spend in the way they think the world should operate...
~~~
Fuck you for thinking you had any say in the matter...
And the markets are up today because?
Wait, more FED jizz regardless, I keep forgetting.
I'm still waiting for my check for $3,000,000 from the FED for not expatriating to Chile.
If that's not a hockey stick, I don't know what is.
The trouble with fairy tales and faith based credit societies is that once the faith erodes, the system will implode in itself.
When the masses realize how much digital wealth has been created and how little they themselves have been receiving from that, they will ask questions or worse. When they realize that the cost of their labor, the cost of their talents and the cost on their bodies has STAYED THE SAME or decreased, deflated and so on.
The digital wealth is BULL SHIT. Spread the word.
Agreed, but sadly I think the masses are to thick to realise what is happening in their name.
So when does that parabolic monetary base collapse?
This incites an interesting question. If every dollar created by the Fed since 2008 had to be printed on $1, $5, $10, $20, $50, and $100 bills, would their be any trees left in Canada? (Note: America would have obviously imported the raw materials.)
Digital Money.
BitCoin.
Fun now, but don't trust it. It is ripe for a hack, being gamed, manipulated or otherwise screwed with by the criminally inclined, not to mention just outright shut down as it denies TPTB their cut.
Caution.
Banks don't give out money for free.
Banks donn't give out debt for free. It comes with strings attached.
Chuck, you nailed this one. That's why some of the richest men in the world (Gates, Ellison) are into SW. Gates noted many years ago that, unlike Mfg, SW scales much easier and far cheaper. He was the first genius outside of banking to have realized this, and to have made an empire out of it.
Every "dollar" the banksters create is value stolen right out of my pocket. They are remotely extracting their pound of flesh, along with our blood, and it looks like no one is going to stop them.
The ironic thing is that the Fed is eventually going to take away the punch bowl -- for one reason and one reason only -- so that the public will scream for them to put it back, thus further entrenching the Fed's power.
And scream the all-unknowing general public will.
As for the consequences, ZHers can all see the inflation in the equities and bond markets, but here is an article that recognizes some of the other flows of this cheap currency:
http://www.bnn.ca/News/2013/6/7/Emerging-market-jolt-renders-deficit-countries-vulnerable-.aspx
when in debt become the wizard of oz or better still the joker!
That way you own the new web as king spider.
The Net is the greatest invention to catch the flies once they are truly hooked in.
What is more digital than the WWW?
Google for king spider, with Obammy as Joker of Gotham.
Well, now we know why there is Prism!