Today's Money Regimes Are Doomed To Failure

Tyler Durden's picture

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Centrally issued money centralizes wealth and generates systemic inequality.

A Thought Experiment on Money
Let’s imagine a small mountain kingdom with only ten very scarce and thus highly valued seashells in circulation.  These few shells are certainly valuable in terms of scarcity, but there aren’t enough of them to act as a means of exchange.
One solution to this innate problem of scarcity—money has to be scarce enough to retain value but not so scarce that there isn’t enough of it in circulation to grease trade—is for the kingdom to issue 100 slips of paper for each shell, each slip of paper representing 1/100thof the shell’s value. Now there is enough money in circulation to facilitate trade and each slip retains a store of value equal to 1/100th of a shell. The slips are paper money, i.e. currency.
This system works well, but the rulers of the kingdom aspire to consume goods and services in excess of what their share of the shell-backed money can buy in the open market.  The kingdom’s leaders print another 100 slips of paper without acquiring a shell to back the new slips with intrinsic value. Nobody seems to notice, and so the leaders print another 100 slips. Note that the kingdom didn’t produce more goods and services; its leaders simply produced more money.
Eventually this excess of paper slips reduces the value of each slip in circulation. What once cost 10 slips now costs 20 slips. This reduction in the purchasing power of money is called inflation, as the price of goods inflates as the money supply is increased while the production of goods and services remains unchanged.
Let’s assume the kingdom’s leaders avoid the temptation to expand their consumption by printing money rather than first increasing the production of goods and services.
As the kingdom expands its production of goods and services and its population, the original 1,000 slips of paper are no longer enough to facilitate trade: lacking money, people revert to the clumsy alternative of bartering goods and services or issuing letters of credit.  The purchasing power of the existing money might well increase due to the imbalance between the demand for money (high) and the supply (limited); what once cost 10 slips now costs only five slips.
The value of each slip has now detached from the underlying value of the shell. It’s not the scarcity of the shell that is creating the paper’s value—it’s the scarcity of paper money itself which is creating the paper money’s store of value.
The kingdom can respond to this shortage by issuing more slips of paper.  If the kingdom only issues a sum of money that is equal to the increase in goods and services produced, demand will remain high (as trade in the expanded supply of goods and services expands) and the value of the money will remain stable as well.
This detachment of the value of the paper money from the underlying value of the scarce shells worries some in the kingdom, and they propose that the kingdom borrow ten shells from others and pay them interest for the loan of the shells. In effect, money is being loaned into existence: the kingdom borrows ten shells and issues 1,000 new slips of paper that is fully backed by the new shells.  But the kingdom has to pay interest on the loan.
One advisor has an insight: rather than actually borrow the shells, why not just borrow the money into existence by selling the kingdom’s promise of paying interest?  Why bother with the shells when the only transaction that’s needed is payment of interest on the newly created money?
And so the kingdom sells ten promises to pay interest—what we call a bond—and the buyers receive interest, just as if they’d loaned the kingdom a valuable shell.
The new money isn’t backed by shells at all; it’s backed by the interest paid on the bonds.  The kingdom sells off the original ten shells and issues ten more bonds. Now the kingdom’s money is not backed by any intrinsic store of value; it is backed entirely by the kingdom’s promise to pay interest on the bonds.
If the kingdom is prudent and only issues enough money to match an increase in the production and exchange of goods and services, the demand for money will remain in line with the supply, and the money will retain its value.
On the face of it, the kingdom’s money has no intrinsic value at all; but if we follow the example closely, we see that the money is both a store of value and a means of exchange, and its value (when priced in shells, goods or services) fluctuates with supply and demand.
The kingdom’s slips of paper fulfill all the requirements of money.
When the kingdom loaned the money into existence, the money retained its value as long as the kingdom only issued new money to match the demand for money from the expansion of production and exchange.  In other words, the supply of money rose in tandem with the expansion of the real economy’s production of goods and services.
The fact that the kingdom had to pay interest on newly issued money created a cost to issuing new money that eventually limited how much new money could be created.  Creating too much money would not only reduce its purchasing power, but the treasury of the kingdom would be drained by the interest paid on new bonds.
This raises a very interesting point: when the kingdom created new money only to match the expanding production of real-world goods and services, it didn’t matter that the new money was not backed by either shells or bonds; demand for the money alone maintained purchasing power. There was no need to back the newly issued money with scarce shells or interest-bearing bonds.
Economist Paul Samuelson observed that “money is a social contrivance.”  In other words, money exists to serve a social function—to facilitate exchange and the real-world production of goods and services to the benefit of all participants in the economy. If the supply of money is connected to the demand generated by the production and trade of goods and services, it needs no backing nor does it need to be backed by interest-bearing bonds.
Let’s now turn to the way money is issued in the present: by central banks.


Money Issued by the Central Bank Benefits the Few at the Expense of the Many
Let’s imagine that we have a $1 billion line of credit with our central bank at an interest rate of .25%--one-quarter of 1%. We don’t need to post any collateral, and the central bank has given us whispered assurances that should we lose the money in risky gambles, the losses will be made good by the taxpayers. 

This is called moral hazard: the risks have been disconnected from the consequences.

If we make a profit with the borrowed money, it’s ours to keep. If we lose the borrowed money, the taxpayers will foot the bill.
It’s difficult to imagine a better deal: near-zero interest rate, no collateral, and no risk of having to suffer the consequences of losing the borrowed money.
But our advantages are even better than this already astonishing deal: with the magic of fractional reserve banking, we get to create $19 billion of new money with our $1 billion of borrowed central bank money.
Our options to make low-risk profits are nearly limitless.  Anything we earn beyond the annual interest of $2.5 million is ours to keep. We could invest the $1 billion in Treasury bonds yielding 2%. That would yield us an annual gain of $17.5 million for doing absolutely nothing beyond clicking a few keys to buy $1 billion Treasury bonds.
If we are willing to take on higher risk, we could buy stocks that pay dividends of 3% or more annually. If the stocks rose in value, then we’d also earn capital gains.  An annual gain of $30 million or more is easily possible in the relatively low-risk investment.
If we wanted even higher yields, we could seek out bonds in other countries that are paying 6%. If those currencies are strengthening versus the U.S. dollar, then this foreign-exchange gain could boost our total gain to 10% annually—a cool $100 million, out of which we only have to pay the central bank a modest $2.5 million in interest.
Or we could set up a bank that issues auto loans and credit cards with the $1 billion. Thanks to fractional reserve lending, our $1 billion in cash (never mind it was borrowed from the central bank—to the rest of the world, it’s cash) can leverage $19 billion in high-interest consumer loans.  If the average interest paid on our loan portfolio is 10%, we are earning $1.9 billion in gross revenues. If operating the bank costs $900 million, we net a cool $1 billion annually from the $1 billion line of credit: 100% annual return.
This is precisely how the banking system works, and it illustrates how central banks enable private banks to accrue vast profits.  Those closest to the central bank money-spigot are given an opportunity to leverage up astounding profits.
In theory, central banks claim the noble task of providing credit to the private banking sector to facilitate increased production of goods and services, but in reality central banks benefit the few with access to their credit at the expense of the many. The few can generate immense profits without producing any goods and services.
Imagine if we each had a relatively tiny $1 million line of credit at .25% interest from a central bank that we could use to issue loans of $19 million. 

Let’s say we issued $19 million in home loans with an annual interest rate of 4%. The gross revenue (before expenses) of our leveraged $1 million is $760,000 annually.  Since the accounting of the $19 million in loans is highly automated, our expenses are modest.  Let’s assume we net $600,000 per year after annual expenses of $160,000. Recall that the interest due on the $1 million line of credit is a paltry $2,500 annually.

Median income for workers in the U.S. is around $30,000 annually.  Thus a modest $1 million line of credit at .25% interest from the central bank enables us to net 20 years of a typical worker’s earnings every single year.
But central banks don’t offer this largesse to individuals or communities; these profoundly profitable privileges are only available to private banks.


Today's Money Regimes Are Doomed To Failure
I hope you now understand that the current system of issuing money and credit intrinsically benefits the few at the expense of the many. This vast privilege and the equally vast inequality that is the only possible output of the system cannot be reformed away; it is intrinsic to centrally issued money and private banking.
The problem isn’t fiat money—currency that isn’t backed by scarce commodities; it’s centrally issued money that is distributed to the few at the expense of the many. This centrally created money is issued not to facilitate the production of goods and services and the demand that naturally arises from the expansion of the real economy, but to serve the state and its cronies.
Centrally issued money centralizes wealth and generates systemic inequality. This is equally true of all centrally issued currencies.  But the inequity that is intrinsic to this system is politically, socially and financially destabilizing, and so this system is unsustainable.
In Part II: The Future Of Money, we consider what the landscape will look like once the current system of central bank-issued credit-money implodes. Which new form(s) of money are most likely to rise from the ashes?
Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
This essay was originally published on, where I am a contributing writer.


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q99x2's picture

Bitcoin Last Price $235.90

Stackers's picture

The Rothschilds who invented the current system certainly understood this

“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”

Cap Matifou's picture

The big question mark is not on the issuer, neither on the material or shape of the currency, but under which conditions it is released into circulation.

Stackers's picture

And before any of us think this system is "doomed to failure", keep in mind it's a system they have managed to put in place and expand to a global scale for going on 400 years now. When they start losing at their own game they hit their magic pause button and change all the rules.

Captain Debtcrash's picture
Captain Debtcrash (not verified) Stackers Apr 10, 2015 11:14 AM

I agree.  Here is my analysis of how we got to this point, and how the powers that be might try to get us out.

Its an unbiased look at monetary history.


Also I have my doubts as to if the US will be punished:

luckylongshot's picture

What is astonishing to me is that the current system is little more than a ponzi scheme that uses counterfeiting and accounting fraud to transfer the public wealth into the Rothschilds criminal cabal and yet noone seems to object to the fact that we are all being scammed. The Rothschilds deserve to lose all their wealth and go to jail for the crimes they have and continue to commit against humanity and all the idiots that continue to believe the system can be fixed by a reset need to be exposed as fools.

BoPeople's picture
BoPeople (not verified) Stackers Apr 10, 2015 11:04 AM

... so to be totally free, one must not covet and one must not fear.

Difficult, but not impossible.

The money system has no power over those who want nothing from the system.

Four chan's picture

there are no accidents. america has been debased in order for the 3 zone money system to be instituted. those controlling this coup with become more weealthy than king midas. there are no accidents.

Creepy A. Cracker's picture

down, Down, DOWN. 

I'm buying Bitcoin when it gets to $2.37 just to say I was one of the cool ones who owned Bitcoin before it disappeared.


RU-GAY2's picture

Don't be a retarded gay ass shit fucker.  Bitcoin can't disappear.

BigJim's picture

Ugg1: But why should I exchange this tasty ostrich egg for a cowrie shell? You say it's worth an ostrich egg... how do I know it will retain any value?

Ugg2: Of course cowrie shells will retain their value! Cowrie shells can't disappear!

Actually, unlike a cowrie shell, a bitcoin certainly can disappear.

Creepy A. Cracker's picture

"Don't be a retarded gay ass shit fucker."

Thank you for the sound, wise, advice.  Did you steal it from Confucius or make it up on your own?


Bitcoins disappear when your battery dies.

Kirk2NCC1701's picture

$239.50, you say? Oh, goodie. I got some at $650.

Should I keep this Store Of Value -- the same way I should keep the other store of value: gold & silver (of which my late father bought $100k worth, only to see it shrink to $60k)?

In the meantime, those "evil, worthless and risky stocks" have gone in the other direction by the same amount.

It's a good thing that ZH has the CYA legal disclaimer, or they'd have their asses sued for all sorts of things.

Bullionaire's picture

On a long enough timeline, you only have yourself to blame.

Like Munger sez, SUCK IT UP.

LawsofPhysics's picture

What part of all fiat (paper or electronic) will fail, don't people understand?

RU-GAY2's picture
RU-GAY2 (not verified) LawsofPhysics Apr 10, 2015 12:54 PM

Ironic that you don't understand what "fiat" means then?

LawsofPhysics's picture

LOL! Enlighten us asshat.

Thirst Mutilator's picture

Darn it!... & just when I was starting to cozy up to the idea of using endlessly depriciating, counterfeitted, joobuck confetti with Illuminati graffitti printed all over it...

GetZeeGold's picture



Looks like your programming is wearing off. We may have to hook you up to the car battery again.

Thirst Mutilator's picture

well so far, at least one person seems to dislike the idea that I didn't properly identify the depreciating, counterfeitted, Illuminati graffitti tattooed, confetti as 'Luciferianbux'

<--- prolly will chime in here as well, notwithstanding my effort to correct the error.

OpenEyes's picture

Hey ZeroHedge, here's another regime that's doomed to failure... YOURS if you don't stop the invasive ad bots..

 "The website ZeroHedge would like to use your current location.... allow.... don't allow"

And, then if I click 'don't allow' (which of course is what any real ZHer would choose) the damn message either comes right back again or actually freezes my browser!  This has happened to me six times this morning.

I've been a loyal ZH member and word-of-mouth evangilist since Marla Singer was a "Tyler" but I'm telling you, you're about to lose me.  Which would be a sad day for me since this is my favorite website by far.

JRobby's picture

Adjust your internet preferences

Silverhog's picture

Get a Ad Blocker dude. I have no problems with ads on my mac. 

Creepy A. Cracker's picture

Flashblock and Adblock Plus on Firefox. I never see any ads, annoying flashing boxes, etc.

CrazyCooter's picture

Firefox with AdBlock Plus and Better Privacy are about as good as it gets. However since FF hitched itself to Yahoo, they have done a LOT of dis-improvements, which I presume are geared to drive traffic to Yahoo. I removed the search bar entirely, set my home/new tab page to google, and that seems to work best. I also fully and completely removed all adobe products (including flash), which can be a nusance if sites don't use HTML 5 for video. I dig out Chrome if I really got to watch it. Another tip is to add "--incognito" to the end of your chrome shortcut target (i.e. shortcut target to "C:\Program Files (x86)\Google\Chrome\Application\chrome.exe" --incognito) and it will start in private mode.

Websites are not free, they pay their electric bill with advertising. Most of that crap you are complaining about comes from the advertising network, not ZH. ZH just puts their scripts on the pages and they do all that shit. ZH can manage their relationship with the advertising network for sure, but frankly what they allow/don't allow will drive ad revenue one way or the other.



silverer's picture

The problem is not ZH, because I experience no such issues.  The problem is standardization (actually lack thereof).  Remember what Microsoft said? This one is classic: "There are many standards".  Every browser is different, and I have access to run several on my Mac.  Each one gives me a different result on a website.  Once in a while, sites will appear identical.  Sometimes they are markedly different.  In the Mozilla browsers - Firefox, SeaMonkey, Camino, browser add-ons can change your results substantially or even dramatically.  Other browsers- Tor Browser, and iCab, are like night and day to Apple's Safari browser.  If you are on a PC, download and try a different browser if you haven't already.  On the Mozilla browsers, try running NoScript (an add-on available right from the tools menu, and an excellent safeguard from many types of malware) and see what happens.  Just remember, ads give ZeroHedge the money they need to put the site up.  I still get most ads, but in a simpler, less bloated form, and the pages load quickly.

JRobby's picture

"this system is politically, socially and financially destabilizing, and so this system is unsustainable."

1. Unsustainable due to mathematical certainty of collapse coupled with the human propensity for greed and recklessness.

2. Unsustainable due to uprisings and revolutions.

Any arguments for sustainable?

Ghordius's picture

oh, well, I can as well recycle this comment here again

originally to "The problem of a debt reset is not the wiping-out of creditors, but the destruction of currencies together with it. Without currencies, the economy cannot function with any efficiency."

here to "Today's Money Regimes Are Doomed To Failure "

the recycled comment:

methinks the problem here is that there is a certain "American Gold Bug" gospel that has to be respected

the first recorded currency war was between the Athenian Empire and what used to be called Asia. silver versus gold

both are still valuable for themselves, even today. that silver won... well, gold had several comebacks, later

later currency wars did have their casualities in the form of fiat currencies being destroyed by hyperinflation and monetary unions breaking up

but for some reasons, the "American Gold Bug" gospel says "all fiat will be destroyed", paired with "in the same decade"

well, it is... a possible outcome. but it would be a completely new way of the resolution of a currency war. and, in historic terms, an amazingly simple resolution

history is messier and more complicated then that. why should be the future become... simpler?


specifically, to this article from CHS:

there is a way easier path to the explanation of what a fiat currency really is: it's a damn government IOU, and a tax token, to boot, used as official currency

the stability of a fiat currency is not given by it's nature, in the same way as a car is never safe for itself: it's how you drive the damn thing

so yes, fiat is a scam and a tax and... it can be driven unsafely

but don't ever forget one thing: a fiat currency is also a terrific tool of state power... over others. it gives a country the leeway of having a war now... and pay later. perhaps

just as war bonds... only "better" and subtler. so don't ever expect it will be relinquished... lightly. or gladly

withglee's picture

so yes, fiat is a scam and a tax and... it can be driven unsafely

The fiat is "not" a scam. The mismanagement of our Medium of Exchange (MOE) is the scam. It allows the government to finance itself though INFLATION and pay its enablers INTEREST.

All money "is" debt. Trading promises "are" debt until delivery. Money is created by traders making trading promises and getting them certified (recorded, monitored, and eventually extinguished on delivery).

Money is created by traders. It is not created by governments, capitalists, or investors. It is manipulated and counterfeited by those actors.

The scam you refer to is called counterfeiting. That can be accomplished with any object taken as media of exchange. Ever hear of gold plated tungsten?

BigJim's picture

 but for some reasons, the "American Gold Bug" gospel says "all fiat will be destroyed", paired with "in the same decade"

well, it is... a possible outcome. but it would be a completely new way of the resolution of a currency war. and, in historic terms, an amazingly simple resolution

history is messier and more complicated then that. why should be the future become... simpler?

Currencies won't fail because they're competing with each other. They'll fail because they've been created in far greater quantities than they can redeem in actual value. ie - they've become unhinged from their underlying collateral. This can be cured by i) inflation, ii) collateralising presently uncollateralised value (exchanging publicly-owned property to write off debt, for instance, or 'nationalising' 401Ks) or both. The former risks tipping into hyperinflation and currency crises, the latter to revolution.

The reason people think fiats will simultaneously fail is - unlike previously - they're virtually all tied to one, transnational fiat - the USD.

But - even if they aren't - the gold bugs imagine gold will be resurrected as an international currency if/when the USD fails. It will become the new money franca, a debt-free (and consequently risk-free) way of facilitating trade between polities, regardless of whether those polities manage to maintain fiat dominance within them.

withglee's picture

BigJim: Currencies won't fail because they're competing with each other. They'll fail because they've been created in far greater quantities than they can redeem in actual value.

In other words, they'll fail because the can't be protected from counterfeiters.

But - even if they aren't - the gold bugs imagine gold will be resurrected as an international currency if/when the USD fails. It will become the new money franca, a debt-free (and consequently risk-free) way of facilitating trade between polities, regardless of whether those polities manage to maintain fiat dominance within them.

When the reset occurs, there will be a brief period of chaos as the new con is moved into place. We can see the positioning already ... the Mises Monks being a clear case in point ... maybe some version of the bitcoin being another.

I submit that during this brief period of turmoil, one would most feasibly live by simple barter (sans money), through use of junk silver coins. These are clearly marked as to their denomination and their purity is known. Some of us even remember what they traded for when they were in circulation. Gold with such attributes really doesn't exist in useful denominations.

Any provision for preserving wealth in the face of this calamity is a crap shoot.


Usurious's picture
Usurious (not verified) Apr 10, 2015 10:13 AM

01/13/2013 - 10:57 | 3148596 francis_sawyer

''francis_sawyer was being completely ON TOPIC by pointing out the hypocrisy of CH1 [with regards to his lamenting about the inevitable demise of the Social Security system]...


- I believe I am correct in observing that the system is in FAIL MODE as we speak

- The only thing, at this point, that can keep it going, will be MORE FIAT DOLLARS [joobux ~ as I've come to call them]

- Doing so will bring about another whole set of problems [the proverbial catfood that grandma has to eat is only the tip of the iceberg ~ the PETRODOLLAR nature of the currency all but requires that resource wars be continuously fought which bring about death & destruction to innocent lives]...

- francis_sawyer IS NOT printing the money

- francis_sawyer does not hold the franchise for printing the money

- Yet THERE IS 'a franchise' that was given 'the franchise' to print money [a feat which was achieved mostly through manipulation, extortion, & even murder ~ which continue to this day]... It DID NOT happen randomly or on its own...

- said 'FRANCHISE' counts, among it's members [& more importantly in the higher echelons of the organization & key administrative & policy positions], an almost mathematically impossible number of 'folks' who identify AMONGST THEMSELVES as [insert "witch" metaphor here]...


The COMMENT SECTION of ZH spends all of it's time "wanking off", talking about "solutions" & complaining about the situation ~ yet nobody even wants to acknowledge what's at the root of this problem [because it offends their faux 'coffeehouse' decorum & otherwise puts their panties in a bunch]...

The problem [with EVERYTHING, INCLUDING SOCIAL SECURITY, ~ but instead 'Popo', above, thinks we need a fucking Ivory Tower debate on the subject ~ Maybe 'experts' like Lew, Geither, Paulson, Bernanke, Greenspan, Krugman, & Bob Rubin can put their vast intellects together and come up with something that is sure to be FAIR for everyone]... The PROBLEM IS DEBT MONEY... & THE GODDAMNED MONEY DOESN'T JUST PRINT ITFUCKING SELF people... Somebody actually does that & they have their own interests in mind when they do... Fret not ~ your ONLY responsibility in the matter will be to JUNK francis_sawyer posts if he ever calls 'FOUL' on the master plan of your heroes...


To put this into a more 'hypothetical' posture... END THE DEBT BASED FIAT MONEY SYSTEM [& you'll see that francis_sawyer will rarely uteer a peep about so called "witches" ~ you'll find it has ZERO to do with 'anti-semitism or bigotry]... However ~ until that system is ended, it will be at the root of every single goddamned thing that anybody talks about because of its inherent ubiquitous characteristic...

There are plenty of things in the world that bug me... I'm bugged by the fact that I can't go through a day without seeing a link to a story aboutwhat Kim Kardashian's last fart smelled like... But Kim Kardashian isn't stealing from my grandmother & I don't use a Kardashian card as LEGAL TENDER to buy things...

I'm outta here people... Good riddance, right?... I'm sure the system will just magically heal itself overnight now that we've discovered that it was all francis_sawyers [& his bigoted views] fault all along... As for the "witches" ~ I have zero doubt that [whether francis_sawyer is around or not], the topic will come up over & over & over & over again... Why?... Because as distracted as people get in their daily lives, they still have the uncanny knack to sense who's STEALING from them...''

Really20's picture

True indeed. "Gold and silver" will not solve anything and will create the deflation problem described above. I don't know why sovereign-issued, debt-free money is so anathema to people here, as it has generally proved to be stable and conducive to the development of internal improvements and maintenance of social services for the dependent. Most often, people bring up the examples of the Weimar Republic and Zimbabwe, but in both of those cases mass increase in the money supply was caused by the central banks of the country lending the money into existence to short-sellers who attacked the currency. Even our current debt-backed system causes the money supply to rise by 10-20% every year - far in excess of growth, personal saving, and observed inflation. The only purpose of this is to inflate asset bubbles and improve the financial positions of those who lend the money into existence.

Gold and silver are easily controlled by bankers by being called in and circulated out, and as such are highly cyclical and cause frequent economic depressions and booms. Sovereign money spent directly into circulation by Congress, created in an amount set by an independent board with a statutory 0% long-term inflation mandate. This money would go directly into the economy because it would fund programs, like Social Security, whose proceeds are almost immediately spent on goods and services.

Thirst Mutilator's picture



Holy fucking shit...


I don't even remember half the shit that I write... I just do what comes to my mind in that moment [BELIEVING it comes from a fountain of TRUTH, then, forgetting, because if I hold onto those thoughts, LIFE ITSELF might become unbearable]...


THANK You for archiving that GEM... my friend!... I can LIVE with that one...

Creepy A. Cracker's picture

Inequality is AWESOME!  What better way to encourage people to strive to better themselves - earning more comfort and providing for themselves and their families.  Human nature is to be lazy, doing nothing if everything is "free."

Money printing by governments - yes, sucks, and destroys economies.


silverer's picture

The word is "temptation".  Ever see politicians resist it?

BoPeople's picture
BoPeople (not verified) Apr 10, 2015 10:37 AM

The US and the world are a little different.

In the US history, another Kingdom, run by bankers that print their own paper, says to the US, "You must allow us to print your paper. If you do, we will make sure you and all of your friends have all of the paper you need. If not then we will kill you and have our friends declare war on your Kingdom, rape your women, kill your children and take what we want by force".

So, the US leaders say: "OK, bankers, it is easier to give you our money printing power, because someone has to do it and why not you?, and it is better for you to give us as much money as we want than for us to give as much money as we want to ourselves (because then the people would get mad at us) and to make us comfortable ..... than it is to fight you"

So the other Kingdom sets up banks in the US and starts printing money. They give as much printed money to the leaders as the leaders want and then they print more and give as much as they want to themselves and their friends who helped them set up banks in the US. The bankers and their friends use the new printed money of the US to buy everything of value and just keep printing and bribing the leaders until there is nothing of value left to buy.

Eventually, because the bankers printed so much and gave it to themselves, the paper money held by the leaders and the people becomes worthless relative to what the bankers hold and the leaders and the people of the Kingdom can afford nothing.

Somewhere there should be a lesson to this story.

BoPeople's picture
BoPeople (not verified) BoPeople Apr 10, 2015 10:46 AM

Oh, and in the process of creating money and bribing the US leaders they create enough money to buy the media companies, print only the stories they want printed, pay to get the people they want leaders elected and then they use these newly purchased leaders to declare war on other countries, kill their leaders, rape their women, kill their children and take everything they want by force...

... unless the other country agrees to turn over its paper money creating power to the bankers.

Sound like a familiar story?

BoPeople's picture
BoPeople (not verified) Apr 10, 2015 10:32 AM


PermaBug's picture

As a long term gold 'bug', it pains me to have to point out the obvious to the gold 'fanbois' found on zh.

Everyone with a brain knows all fiat money eventually goes to 0. This is not news. I was reading about it when i was 16 years old, over 30 years ago.

What the fanbois seem to grossly misunderstand is that the best fiat currency to date (the US buck) is not going to go to zero TOMORROW.

Get it? It's been around a long, long time, and it will take a lot longer to get to 0.

And you know what? Gold has gone from $250 to $1200. Do you get it? It's up about 5 times, and was up even more at one point.

But gold (and silver) got waaaaaay ahead of themselves and a bunch of emotional rookies thought it should go to infinity immediately, as that would fulfill their fantasy of becoming rich by being the owners of a couple of pounds of old silver dimes.

Things overshoot on the upside (gold at 1900) and on the downside (maybe 1000? maybe 600?), and I'm still waiting for a lower price before I start building up a gold position again.

And silver I wouldn't touch with a 10 foot pole.

And bitcoin, although potentially useful in small amounts, requires more faith than any paper currency.

silverer's picture

At first glance, what you state appears to be correct: using the inflation calculator, and pinning the 1971 value of gold at $35.00 (end of Bretton Woods), today's value of that according to inflation adjusted dollars would be $202.85.  Then I started to think about it.  For the calculator to be correct, I would think that you need to look at values based on values that would set by a free market.  In other words, if the government set the price of eggs in 1971 at $4.00 a carton and then let it suddenly float, it stands to reason that the beginning number for the calculation would not be a good one.  We might have to disregard that original gold number due to this distortion.  I think what we see happening out there has to be put in perspective.  For instance, when you see mines going out of business that produce a product that is in demand (gold and silver mines), then you have to ask what's wrong with this picture?  It may be the mines are in fact high cost, low margin operations OR that the actual sell price for the end product is too low.  Free markets will always adjust the price accordingly, but if markets are manipulated to keep prices low, than the supply side experiences the result, i.e. mines shutting down.  One thing we know for sure:  the dollar is taking major shadow damage if gold prices are manipulated, as evidence is overwhelming that it is, as it is being done to protect the value of the paper US dollar as the reserve currency.  That will eventually be revealed.  This will now accelerate toward its eventual conclusion with the creation of the eastern banks.  Every country with half a brain knows this, which explains the enthusiastic sign-on response. You can't print into infinity.  That will soon become apparent.  All that has to happen next for game over is for the foreign banks to put precious metal behind their currency and fix the value.  Bye bye US dollar.

withglee's picture

At first glance, what you state appears to be correct: using the inflation calculator, and pinning the 1971 value of gold at $35.00 (end of Bretton Woods), today's value of that according to inflation adjusted dollars would be $202.85.

$35 was the official value. The street value was over $70 and devaluing further quickly. The French started demanding gold instead. Game over.

PermaBug's picture

Thanks for at least a rational rather than emotional reply.

$35 in 1971 was fixed, so I agree, meaningless really.

Gold price is 'manipulated' only in the very short term, and to believe otherwise is to demonstrate a lack of understanding of how markets work, and how even the largest, most important commodities (oil) cannot be manipulated for long.

The idea that any foreign bank, let alone all of them, will ever move to a gold backed currency is ludicrous, and shows the kind of wishful thinking that destroys someone's wealth rather than increases it.

I of course support the idea of a gold standard, just as I support free markets, but it is sheer lunacy to think that either will be seen in the next 50 years, if ever. And I sure as hell would not base my investment portfolio on hopium.

(FWIW, my own wealth is concentrated in income producing properties in several countries, earning from 8% to 12% net in USD terms. Nothing in the USA. I speculate in oil, stocks and currencies with my play money retirement accounts.)

So go right ahead and concentrate your portfolio on a non-income producing asset in a deflationary world. I wish you luck. But this is where reading zh can be very dangerous to your financial health. Constant nonsensical articles about the US buck somehow moving away from being a reserve currency, without even a mention of what that would require in terms of trade balances. Pure wishful thinking.

If we do someday (after the deflationary collapse) get hyperinflation, I'll just be able to raise my rents on my properties, which should benefit greatly from inflation. Hopefully I will see it coming so I can pile on some debt before it hits, and really make a killing.







withglee's picture

I of course support the idea of a gold standard, just as I support free markets, but it is sheer lunacy to think that either will be seen in the next 50 years, if ever.

How do you define "a gold standard"?

What purpose does it serve?

Really20's picture

"Gold standards" generally mean honored convertibility of paper notes into a certain quantity of gold, not necessarily that the requisite gold to do so is kept on deposit by the government. It is this fact that allowed debt-backed money to slowly take root that had to be paid back in gold (with interest), ultimately concentrating the wealth of society in a few hands. Gold has never been a medium of exchange due to its inherent inflexibility and susceptibility to rapid supply shocks, but has proven more useful for hoarding by a few bankers (who issue letters of credit, repayable in gold, so that they may hoard even more).

Indeed, the debt-backed money system is nothing more than an outgrowth of the well-intentioned, but inherently inelastic gold standard.

withglee's picture

Really20: "Gold standards" generally mean honored convertibility of paper notes into a certain quantity of gold, not necessarily that the requisite gold to do so is kept on deposit by the government


With only one ounce of gold per human on earth, and with the cost to create a new ounce (either by digging dirt or grinding computers) of less than $2,000, it's always been beyond me how it has any use as a standard. That's just petty cash ... even for poor people like me.

You certainly can't serve a run-on-the-gold-vault for all the trades and hoards backed by gold (especially in the face of obvious rehypothication). And it makes no sense to use it simply as a "reference value" because that just adds another degree of freedom to the problem. Not only do you have to have full precision control of the creation and extinction of the MOE itself (a requirement that can never be compromised), you have to have precise control of the gold reference supply and demand as well and be able to predict it over the time span of the trade being negotiated. Impossible!

Indeed, the debt-backed money system is nothing more than an outgrowth of the well-intentioned, but inherently inelastic gold standard.

Since all money has always been created by traders making trading promises and getting them certified, all money systems have always been debt backed. An in-process promise to deliver on a trade is obviously a debt. To the extent that money doesn't represent such trading promises, it is counterfeit on its face or it is "not" money!

Money systems where the media of exchange has value equal to the value of goods being exchanged means it is just another object of simple barter. It's not a money system at all. It does nothing to guarantee that the value never changes over time and space. It does nothing to facilitate a trade over time and space. It's useless and prohibitively inefficient to be used as money.

In a properly managed MOE, hoarding of the MOE itself has absolutely zero effect on its value in the marketplace. In fact, it is likely to be hoarded because it is guaranteed never to lose value. The reason such hoarding has no effect on MOE value is that someone is not required to save before someone else can borrow. Creation of new money is always freely offered to new trading promises. The natural negative feedback needed to prevent bubbles comes from monitoring DEFAULTs and collecting a like amount of INTEREST guaranteeing zero INFLATION of the MOE itself.