"Planned Chaos" - Why Fiat Money Is "A Large-Scale Fraud System"

Tyler Durden's picture




 

Submitted by Ryan McMaken of Mises Economic blog,

The Center for Financial Studies in Frankfurt reports on a recent talk given by Thorsten Polleit:  

Thorsten Polleit on the “planned chaos” of money

What are the reasons for economic booms and busts and which reforms are necessary to create an economically viable monetary order? On 2 April, Thorsten Polleit addressed these questions in his lecture “Boom & Bust, or: Planned Chaos” referring to the Austrian school of economics. Polleit is Chief Economist of Degussa Goldhandel, President of the Ludwig von Mises Institut Deutschland and Honorary Professor at the Frankfurt School of Finance & Management.

Polleit identified the state-controlled fiat money system as a main cause of the international financial and economic crisis. This system, he said, is based on the ability of banks to create money literally out of nothing. It is, in principle, a “large-scale fraud system” because today’s money is “intrinsically worthless and not redeemable”. This has damaging consequences for the overall economic development.

Circulation credit reason for economic fluctuations

To prove this fundamental critique, Polleit referred to the theoretical principles of the Austrian School of Economics, in particular to Ludwig von Mises. According to Mises, the circulation credit is the cause of economic fluctuations. Circulation credit means that banks lend money, and thereby expand money supply, without backing them by real savings (or reduction of consumption). This circulation credit is creation of money “ex nihilo”. Booms as well as busts are damaging because they slow down long-term investments with the consequence that resources in fluctuating economies are lacking. According to Mises, the problem is not low consumption but low savings. This means that the countercyclical policy in the manner of Keynes is based on a wrong diagnosis. This policy prevents an early market-driven correction with the result of an even bigger bust.

Fiat money system creates failures

Polleit explained, on the basis of the interest theory of Mises, that the market interest rate in a fiat money system was chronically below the natural interest rate. The consequence of adherence to such a system with its too low interest rates is that economic and political mistakes during the bust phase are not completely corrected – and, thus, new failures will arise. One current example for the failure of the low interest rate policy in the industrial countries is the flow of foreign capital into the emerging markets with all its harming effects. Especially since the US Federal Reserve has announced to reduce bond purchases, many investors have withdrawn their money from the emerging markets. As a result, the exchange rates of the emerging market currencies strongly depreciated – with negative consequences for their previously booming economies.

This destabilization in emerging markets will, according to Polleit, result in an even closer cooperation among national central banks – with the objective to counteract the remaining currency competition. Central banks of emerging economies could be forced to join the network of liquidity-swap-agreements in order to receive credits from other central banks more easily. Thereby, they would basically give up their sovereignty over the national money supply. The result would be a world cartel of central banks led by the US Fed. This cartel would extend the boom phases, which are caused by the credit money system, and, as a consequence, amplify the inevitably following busts.

Against the background of this grim scenario, Polleit demanded a reform of the monetary system towards a market-oriented monetary order. This should include, inter alia, disempowering central banks and privatizing money supply.

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Fri, 07/11/2014 - 18:26 | 4948538 Cattender
Cattender's picture

NOOOOOO!!!!! (one more time) It's a Recovery!!!! go out and SPEND that Green Paper Baby!!!!!

Fri, 07/11/2014 - 18:44 | 4948591 The Alarmist
The Alarmist's picture

It's a new and improved form of slavery ... you work all your life to accumulate savings that represent the value of your years of work, and they take their share through taxes, inflation, bank services charges, and interest on the debt they make so easy for you to get the things you can't afford today but could next year but for the interest you paid in prior years, and, when all of that still isn't enough, they first take a hair-cut of what you have left, and they will ultimately come back to take the rest.

Fri, 07/11/2014 - 18:48 | 4948597 Pladizow
Pladizow's picture

“The process by which banks create money is so simple that the mind is repelled.” - John Kenneth Galbraith

Sat, 07/12/2014 - 08:49 | 4949646 Death and Gravity
Death and Gravity's picture

Mises institute joins the lunatic fringe.

Sat, 07/12/2014 - 10:16 | 4949732 Antifaschistische
Antifaschistische's picture

But there are two points here.   Through history, there has been "fiat".   Meaning, some "thing" that represents some "thing" that may be exchanged for something of value.

There is nothing intrisically wrong or immoral with an IOU (gift cards, or gift certificates are a modern form of an IOU).   This is invented FIAT.

If you tell your neighbor you'll owe him 100 oranges if he mows your lawn, you are in essence inventing credit.   This form of credit invention has and will exist forever.

So we have FIAT in it's purest form, and we have credit that is invented in exchange for something of value.  Both of these are moral.

What is immoral is the FED's invention of credit in exchange for absolutely nothing.  The FED offers nothing of value, yet extends credit and collects interest on it's invented-non-value-added service.   This parasitic phenomena built Manhattan and continues to enrich the 1% at the expense of the 99%.

Sat, 07/12/2014 - 16:37 | 4950651 quadratic_equation
quadratic_equation's picture

In the example you made at least the credit you created can be redeemed for 100 oranges; on the other hand, the fiat credit (currency) the bank created can not be redeemed for anything except for the next sucker to take it in exchange for his goods and services thinking he can redeem it at a later date to some other sucker but the last sucker will be left holding the bag when the musical ends.

Fri, 07/11/2014 - 18:27 | 4948542 goldsansstandard
goldsansstandard's picture

Bit Coin, Bitches?

Fri, 07/11/2014 - 18:42 | 4948584 Escrava Isaura
Escrava Isaura's picture

goldsansstandard ... Which part of "Fiat money [bit coin] is a large-scale fraud system" are you having problem to grasp.... Bitch?


Fri, 07/11/2014 - 19:13 | 4948675 BigJim
BigJim's picture

Bitchcoin.

Fri, 07/11/2014 - 19:22 | 4948690 jaxville
jaxville's picture

"Polleit identified the state-controlled fiat money system as a main cause of the international financial and economic crisis. This system, he said, is based on the ability of banks to create money literally out of nothing. It is, in principle, a “large-scale fraud system” because today’s money is “intrinsically worthless and not redeemable”. This has damaging consequences for the overall economic development."

 

  Some serious errors here. The fiat money system is always state protected but only state controlled in a few nations.The money is controlled by banks as well as central banks, most of whom are independant of the state.

  No mention that the bank created money is loaned into existence with both an interest obligation and a claim on real property. That is the fraudulent nature of credit based money. That is also the key factor by which using/allowing credit based fiat will lead to economic "chaos" at some point.

  I get the impression that he is OK with privately issued fiat and just opposed to a national or central fiat system. No mention of fractional reserve banking? Something disingenuous about this though I tend to agree with most his argument.

Fri, 07/11/2014 - 19:29 | 4948714 Tall Tom
Tall Tom's picture

Although I do not like BitCON...AT ALL...(As I do believe that it is a Fraudulent Scheme in that the system is unsustainable because of the architecture...)

 

But BitCON is NOT a FIAT Currency. It is a PRIVATIZED Currency. There is no Government in the World who has demanded payment in it. It is not a Currency by declaration of ANY GOVERNMENT.

 

What part of the Latin word, FIAT, which means roughly "So be it", are you not grasping?

Fri, 07/11/2014 - 20:38 | 4948883 CheapBastard
CheapBastard's picture

I still get a chuckle when I think about that cute Canadian female news reporter [on live tv] saying “well, gold isn’t back by anything either” that zh posted awhile back.

 

 

Makes me think all those Indians and Chinese flooding into Canada might actually improve their gene pool IQ.

Fri, 07/11/2014 - 21:06 | 4948967 SAT 800
SAT 800's picture

T he key to understanding Canada is that once you get the Hockey and the Breweries up and running, you can kind of let everything else slide for a hundred years or so; and voila--Canada.

Sat, 07/12/2014 - 01:01 | 4949361 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

They are seriously sensitive about this shit.  You probably just made two Canadian dudes cry.

Fri, 07/11/2014 - 21:57 | 4949086 robertocarlos
robertocarlos's picture

OK but our average dick size will take a beating.

Sat, 07/12/2014 - 16:49 | 4950670 quadratic_equation
quadratic_equation's picture

Real money is value and to have value it has to be tangible.  So what's tangible with bitcoin?  Thus, bitcoin is nothing but fiat...although it may not be created by government but when government begins to recornize it as form of payment then it becomes just like any paper currency but worst because it will only be in digital ledger of the banks.

Fri, 07/11/2014 - 18:28 | 4948544 world_debt_slave
world_debt_slave's picture

and under pain of prison, forced to transact with it daily

Fri, 07/11/2014 - 19:30 | 4948719 Tall Tom
Tall Tom's picture

That is what makes a currency a Fiat Currency.

 

+1

Fri, 07/11/2014 - 18:29 | 4948549 NOTaREALmerican
NOTaREALmerican's picture

Survival of the fittest sociopaths, BITCHEZZZZZ!!!

Fri, 07/11/2014 - 18:32 | 4948556 XRAYD
XRAYD's picture

" privatizing money supply" ...

 

Like putting new foxes in charge of the hen house!  These could easily be some of the eminences from finanace, investment, etc. now in retirement (instead of jail)!

Fri, 07/11/2014 - 18:37 | 4948571 Seize Mars
Seize Mars's picture

xrayd
I don't think you understand. All it means is that we would be free ( you and I) to determine what we trade with. Nobody forces us to use their favorite money. No force. Freedom. Get it? No foxes because no henhouse.

Fri, 07/11/2014 - 18:51 | 4948608 disabledvet
disabledvet's picture

NO BAILOUTS or "moral hazard."

"CNTL P" isn't part of a plan...it's just easy to do.

I do find it interesting that the Fed stopped it though.

Fri, 07/11/2014 - 18:35 | 4948558 CaptainSpaulding
CaptainSpaulding's picture

My bartender/ therapist begs to differ. No money, No drinky.

Fri, 07/11/2014 - 18:34 | 4948560 VWAndy
VWAndy's picture

Energy backed for a host of really good reasons.

Fri, 07/11/2014 - 18:42 | 4948568 Chuck Knoblauch
Chuck Knoblauch's picture

The Queen wants a $4 Billion stimulus package.

It's being sold as humanitarian aid.

A planned invasion from South America.

All for the sake of the children.

We must be in some economic trouble?

The Queen will be on vacation in August.

From Aug. 9th to Aug. 24th.

Golfing with his pimps on the Vineyard.

Fri, 07/11/2014 - 19:06 | 4948654 The Alarmist
The Alarmist's picture

I'm a bit slow these days ... I spent the first 5 lines wondering what the hell this had to do with the broad in Buckingham Palace.  She, at least, travels by and in far more conservative and less costly means and venues.  Whodathunk a "first citizen" would be more expensive to maintain than a divine-right royal?

Fri, 07/11/2014 - 18:38 | 4948574 Billy Shears
Billy Shears's picture

Behold, I was shapen in iniquity; and in sin did my mother conceive me.

Fri, 07/11/2014 - 18:38 | 4948575 yogibear
yogibear's picture

If we could just print them up legally like the Federal Reserve.

Fri, 07/11/2014 - 18:40 | 4948580 AdvancingTime
AdvancingTime's picture

We  are all interconnected for better or worse. A bad apple can spoil the whole basket. Welcome to the world our leaders have designed or allowed to form. Whether by design or merely as a byproduct of globalization we have weaved a web of financial transactions that circle the globe. Over the last several years as money was printed by the central Banks it was not contained in the countries where in was printed. This money flowed across borders influencing and distorting markets and prices across the world.  

Some people have been calling for a "world currency" for years. the saying "one should never let a good crisis go to waste" means that a meltdown with high levels of fear would present a perfect opportunity and catalyst to advance this agenda down the field. Remember many people with agendas have a lot to gain when a major shift in the currency markets takes place. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/02/contagion-may-lead-to-new-world-c...


Fri, 07/11/2014 - 18:41 | 4948582 Reaper
Reaper's picture

Who trusts government or government created central banks, or political leaders or their printed promises? All government promises or fiats eventually are distrusted.

And on the pedestal these words appear:
'My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away

Fri, 07/11/2014 - 18:44 | 4948586 NOTaREALmerican
NOTaREALmerican's picture

Golly,  we could have a really FAIR economic system is ONLY we didn't have all these asshole and sociopaths manipulating the dumbasses with bullshit !   If ONLY the assholes and sociopaths would follow the rules set forth by my favorite economist THEN we'd have a free and fair economic system and the nice people would FINALLY get to win.

Fri, 07/11/2014 - 18:48 | 4948595 disabledvet
disabledvet's picture

Yep.

Fri, 07/11/2014 - 18:47 | 4948590 Chuck Knoblauch
Chuck Knoblauch's picture

$4 Billion in new stimulus will buy a lot of Tocos and Underwear.

Have to get GDP into positive territory - ASAP!!!

This was all planned.

More lies.

hahaha .................

Fri, 07/11/2014 - 18:46 | 4948593 disabledvet
disabledvet's picture

"Gold is money." Simple as that. Setting up "new cartels" to "combat the dollar imperium" does nothing to change the said imperium. Unless and until someone is willing to offer up their gold as collateral everyone is under the same(bad)set of rules.

DOLARES.
"It's what's for dinner."

Sat, 07/12/2014 - 09:00 | 4949659 withglee
withglee's picture

If gold is money, then we need something else to do trade and accumulate wealth. There is only one ounce of the stuff per person on Earth ... and that's not enough. Plus, the amount available must exactly equal all the ongoing trades and all the profits from trade for all time ... or we will have non-zero inflation. And "inflation must be zero" at all times everywhere.

Sat, 07/12/2014 - 17:04 | 4950719 quadratic_equation
quadratic_equation's picture

You still do trade with credit except that credit is redeemable in gold.  No inflation is good for the people it's bad for the the banks.  All these credits already created in dollar (unbacked currency) can not be repaid anyway.

Sun, 07/13/2014 - 10:30 | 4952092 withglee
withglee's picture

And if the credit is redeemable in gold ... and everyone redeems at once, then what? I thought the Mises monks were against fractional reserve! In a new system all credit is new. The dollar plays no role. Why are you mentioning the dollar?

Fri, 07/11/2014 - 19:03 | 4948638 Joebloinvestor
Joebloinvestor's picture

Fiat money funds failures & frauds easier.

Fri, 07/11/2014 - 20:40 | 4948891 TruthBeTold
TruthBeTold's picture

I can't help but think this orchestrated flood of illegals is part of the calculated catalyst to crash the US monetary system.  Once our back is broken, government will come along to save the day by installing marshal law and removing what is left of our constitutional rights.  Yes? 

Fri, 07/11/2014 - 21:30 | 4948928 Againstthelie
Againstthelie's picture

This should include, inter alia, disempowering central banks and privatizing money supply.

Far over 90% of money supply IS privately created: it is created by the private buisness banks through credit creation!

The Austrian school of economics is nothing but smoke and mirrors to distract from the core problem: any monetary system that is built on exponential growth on our limited planet with limited resources, due to compound interest is a ponzi scheme and not stable. Because compound interest is an exponentially growing mathematical function.

It can easily be proven, that the Austrian School does not touch the fundamental problem, but in fact distracts from it, by suggesting gold per se would be the solution:

If I take the first loan at a bank of 10 fiat dollars, and the interest rate is 10%, I must pay back 11 dollars 12 months later. But only 10 dollars do exist. The missing dollar must be created by a new credit from a bank by someone else becoming a debtor, who also must pay interest on this money.

If fiat debt money is exchanged with gold and compound interest stays untouched (like the "Austrians" want):

If I take the very first loan at a bank of 10 gold-dollars, and the interest is 10%, I must pay back 11 gold dollars, although I only received 10 dollars. The 1 dollar is not there!

The trick is the same: the money lender must be payed back more than he lent out! The force to create this missing money, leads in both systems to enforced exponential growth and is unsustainable over a longer period of time (a gold standard with compound interest historically never worked, too).

The money lenders only exchange fiat money as debt with gold as debt, while all others, that have no gold, need a credit in gold and become the same debt slaves as today and all the productive people are running to find the missing money and the fruits of their slave labour is delivered to the money lenders.

The mechanism of value transfer to the money lenders for doing nothing stays the same and in that case the gold backed money is accumulated at exponential speed at the money lenders, instead of fiat money.

Austrian School is only smoke and mirrors to keep interest slavery going.

Compound interest is the problem. And the money lenders will do everything to keep the sheeple distracted from this fact, when the fiat debt ponzi will come crashing down (for example by propagating the "Austrian School").

Fri, 07/11/2014 - 21:30 | 4949029 Vidar
Vidar's picture

One of the main points of the Austrian school is opposition to fractional reserve banking, which is the root cause of the problems that you describe. You need to do some more reading and give up the Greenbacker Kool-Aid. The problem with money is the same as the problem everywhere else: the legitimization of force and fraud by the Big Lie known as the State. It allows the criminal class (politicians, bureaucrats, etc) to hide their actions from the people. This is the real smoke and mirrors.

In a commodity money system, money would not be loaned into existence, it would be mined and minted (or produced in some other way) just like all other commodities. Banks would only be able to loan out money that had been previously deposited. Customers would be able to choose between a demand deposit, where they would pay the bank a fee for the service of money storage, or a time deposit where they would be paid interest and the bank would loan the money out at a higher rate and make the spread. This is the real Austrian solution. Read Rothbard's Man, Economy, and State and What Has Government Done to Our Money if you want to really understand what is going on.

The Greenbacker nonsense is the distraction, just another way to keep the people fighting among themselves instead of turning against the rulers.

Fri, 07/11/2014 - 21:56 | 4949057 Againstthelie
Againstthelie's picture

Sure the state is evil and compound interest is good, if it must be payed on gold. Mission accomplished. :D

You must be really glad about the New World Order, the dissolution of the nation states, which is so good for the market and the profits with cheap slave labor. Do you enjoy drinking water with fracking chemicals? Not yet? Then there can't be a problem, since your beloved ruthless market doesn't care about the costs for future generations!

Oh wait: free market? Instead of suggesting others they should read, how about educating yourself about Capitalism, where "competition is sin"?

Why do you suggest others they should inform themselfes, if you don't even recognize that above your post is the explanation why a 100% reserve ratio of a commodity backed currency changes nothing if compound interest is not abandoned?

Instead of suggesting others they should inform themselfes, maybe you should inform yourself, that lending money against interest is NOT a law of nature? That there are many other ways to bring money into circulation - without interest. But that will the supporters of the Jewish "Austrian School" never tell you...

 

Sat, 07/12/2014 - 00:57 | 4949355 yrad
yrad's picture

Easy guy!! Even if you disagree, read his book recommendations!! Knowledge is power and diversification is helpful...

Sat, 07/12/2014 - 08:56 | 4949652 withglee
withglee's picture

How about he tells us what he knows from his reading. I played that "here's your reading list game". Total waste of time doing the reading and the one who gave the assignment was nowhere to be found when I disputed what I read.

Sat, 07/12/2014 - 08:52 | 4949649 withglee
withglee's picture

So, are the Mises monks back to recommending a "commodity money system"? Is there no other way?

I visualize the end of the world where the last Carnival cruise ship lands on the last inhabitable island with it's 2000 passengers and crew.

They're all standing there on the beach and the unspoken question is ... what do we do first. The Mises monks all volunteer ... first, we must all dig for gold so we can have money.

Do you see the problem?

Sat, 07/12/2014 - 08:47 | 4949643 withglee
withglee's picture

Compound interest is the problem. And the money lenders will do everything to keep the sheeple distracted from this fact, when the fiat debt ponzi will come crashing down (for example by propagating the "Austrian School").

Interest collections that exceed or are less than defaults incurred "is" the problem. Interest collections must exactly equal defaults experienced for any medium of exchange to function properly.

What you describe is Ellen Brown's "Web of Debt" nonsense. She ignores defaults as a source of that extra dollar for interest.

Sat, 07/12/2014 - 09:27 | 4949690 TNTARG
TNTARG's picture

"This should include, inter alia, disempowering central banks and privatizing money supply. "

 

Far over 90% of money supply IS privately created: it is created by the private buisness banks through credit creation!

 

Exactly.

The article is crap.

Sat, 07/12/2014 - 11:50 | 4949854 Cthonic
Cthonic's picture

Quasi-private fiat currency; monopoly on the issuance is granted by the state.  You wouldn't have to employ federal reserve notes if the state didn't demand you use them as the unit of account for tax calculation purposes, as well as the legal tender for all debts public and private.  See also 31 U.S. Code § 5118.

The state regularly borrows electronic fiat into existence by auctioning bonds (indirectly to the Fed via the primary dealers) and expends the proceeds therefrom while they have maximum purchasing power, the spent currency pools into deposit accounts and forms the base 'money' supply where the oligarchy of licensed lending institutions multiply it (via fractional reserve lending and duration transformation) into the higher order 'money' supply measures.  With the QE programs more base 'money' was emitted, basically in the form of rentenmarks as they are backed by the Fed's mortgage bond holdings.  The velocity of transfer of this currency is so low, it ends up back on deposit with the Fed in the form of excess bank reserves.  The Fed then emits more base 'money' as interest on these deposits.  This charade can continue until either a) loan demand by qualified borrowers picks up, drawing out the excess reserves, increasing the velocity of money, and accelerating the expansion of higher order monetary measures or b) foreign holders of u.s. currency decide to spend them back into the domestic economy on non-financial assets, forcing devaluation in the process, or c) demand for reform by those being reduced to penury by these monetary experiments.

Sat, 07/12/2014 - 18:36 | 4950921 TNTARG
TNTARG's picture

Please.

I don't thinl I need to explain the whole mechanism. FED, ECB and so on.

Is not that I'm standing for fiat money. I'm not statist either. But you, me and some other people (/S) are perfectly aware of what's going on and who runs the show.

 

Fri, 07/11/2014 - 21:19 | 4948999 Deer Hunter
Deer Hunter's picture

Washington will have to be a smoldering ruin for anything to change. All is well in my part of Texas. Go have some fun this weekend, all this shit can wait.

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