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Money As Debt

Tyler Durden's picture


On a day when Lagarde happily trots out statement after statement that the IMF has another bucketful of promises to solve the world's excess debt problems with its own debtors providing more of the wealth-creating debt in ever-increasing circles of ridiculous indebtedness, we may have found the perfect antidote. Perhaps, given the weakness in European sovereign markets this week, bond market investors have already watched the following presentation. Explaining in simple terms and for the broadest audience Paul Grignon's 'Money As Debt' explores the baffling, fraudulent and destructive arithmetic of the money system that holds us hostage to a forever-growing debt - and how we might evolve it into a new era. Get your popcorn ready.



Where does Money Come From?

By Paul Grignon, the creator of “Money as Debt”, the animated cartoon seen online by millions worldwide and available on DVD from This is a condensation of an article that may be downloaded from

The simple answer to the title question is DEBT. Whether paper cash or numbers on a computer screen, all money (except coins) is “evidence of debt”.

What is "cash” and where does it come from? Cash can be the familiar paper stuff, or it can be credit at the national central bank which banks use to settle accounts between banks. “Credit cash” at the central bank is always convertible to “paper cash” upon demand.

So, where does cash come from? Is it just printed by the government as we are shown on TV?

NO. Cash is created out of thin air by the central bank of the country (which is often privately owned). The central bank can just have it printed for the cost of printing, by the government or privately. The central bank then uses this cash it creates out of thin air to buy interest-bearing public debt in the form of government bonds.

Government debt is perpetual and thus interest paid on it is perpetual. Therefore a good definition of cash might be: evidence of public debt on which taxpayers will be paying interest forever.

So what is credit? Everything else that isn’t cash.

Take for example your bank account. Your bank account tells you how much cash the bank OWES you if you demand it. It isn’t cash itself. All those numbers in bank accounts are just “promises to pay cash”, nothing more than IOUs created by banks. However, we typically think of these bank IOUs, or “checkbook money” as “money”.

Little wonder. This checkbook money, especially in electronic form, is much more convenient and secure than paper money. Therefore we can transact all of our business with these promises to pay cash instead of cash itself.

So… are there more promises to pay cash than there is cash to fulfill them? You bet. That is because banks usually make what they call “LOANS” by promising, rather than providing, cash.

With a base of “cash” usually much less than 8% of the total they will “loan”, banks create their so-called "loans" as “promises”. How? It is astonishingly simple.

You, the so-called borrower, sign a document that promises to pay the bank X amount of money over time plus interest on the outstanding balance. Your promise is backed by the collateral you agree to forfeit and the effort you will expend to earn the money. Your promise to the bank is an ASSET to the bank. To balance its books, the bank creates a matching LIABILITY. The bank promises the borrower X amount of “cash” on demand.

The “loan money” that the bank puts in the borrower’s account is not “cash”. It is an IOU. It need never be cash unless the borrower demands cash. And, because we accept these IOUs as money itself, and do almost all of our business trading these convenient and secure IOUs instead of inconvenient and risky cash, banks can safely issue many more IOU’s than there is cash to back them up.

Perhaps the simplest and most "magical" feature of this system is "net" transactions. Only the net differences of transactions between banks need to be paid in cash. In theory, if all the banks are getting as much bank credit coming in as is being withdrawn, all the IOUs balance each other out at the end of the day leaving a net difference of zero. No cash required at all, from anyone! In practice, banks are competing.

Winners can demand losers pay in cash. But that amount is still only a small proportion of the whole amount of credit issued. The exception to all this is coins. They don't begin as debt. The government Mint stamps them and the government sells them at face value to the banks, no returns. But coins are an insignificantly small part of today's money supply.

The significant thing about coins is that most people’s understanding of money has not yet developed much beyond the idea of coins, simple POSITIVE tokens of value.

They fail to see how we have been ensnared by a money system based on NEGATIVE shackles of debt. The current system pretends to be “money” but is, in truth, a financial black hole sucking us all in to seemingly inescapable control by our so-called “creditors. The truth we need to see is that WE are the real creditors, because it is WE who produce the real value in the world, not the banks.


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Fri, 04/20/2012 - 21:09 | 2362885 Ahmeexnal
Ahmeexnal's picture

Freedon is slavery.

Hope and Change.

Fri, 04/20/2012 - 21:49 | 2362949 TruthInSunshine
TruthInSunshine's picture

Fractional reserve banking, conjuring what they claim is 'money,' but that which is really debt (since there is nothing of inherent value backing it), from thin air, leveraging it up by many multitudes, getting a nation to endorse it as monopolistic fiat (and enforce the monopolistic recognition of it as such), is the problem.

If 95% of loans go bad (or more), the fractional reserve bankers lose nothing. They created this fiat money from nothing and received the protection of the nation in distributing fiat monopoly currency. Not only do they lose nothing, they actually gain any real assets that were pledged as collateral to securitize most of the loans that went 'bad' - Harvest.

Repeat this process of Harvest by first inflating the money supply, getting people deeply indebted (many of whom weren't indebted before), and soon enough, with enough cycles of harvest, what belonged to many will be concentrated in the hands of a few, all via the sham that is fractional reserve banking.

It's the biggest scam in the history of mankind.

Once a person grasps this basic concept, they'll understand why events have taken place as they have (Bretton Woods*; Plaza Accord; Federal Reserve Act of 1913; closing of the gold standard in 1971*, etc.), and they'll finally grasp how a select few have rigged the game to be able to harvest assets continually, and concentrate wealth and power, by doing nothing other than maintaining Deep Capture of a nation's legislative and judiciary branches (and executive, in the case of the U.S.) of government.

*On August 15, 1971, the United States unilaterally terminated convertibility of the dollar to gold. As a result, "[t]he Bretton Woods system officially ended and the dollar became fully fiat currency, backed by nothing but the promise of the federal government." This action, referred to as the Nixon shock, created the situation in which the United States dollar became the sole backing of currencies and a reserve currency for the member states. At the same time, many fixed currencies also became free floating.

If you could print a currency at no cost, that had no instrinsic value, and get the legal system to recognize it as the only legally permissibly 'tender' to satisfy all debt, public and private, would you print as much as you could, loan it out to as many entities and people as you could, and sit back, not caring whether 90% or 9% of the loans were repaid, since it cost you nothing to produce the loan, meaning that you can only gain assets (securitized) and indebt institutions (create indebted parties that you can then garnish), and literally lose not one atom of anything of inherent value?

Further, if you had access to an entity that could do the above, and you could borrow that currency at absurdly low interest rates, and moreover, you had an express or at least implicit taxpayer guarantee against losses (too big to fail), would you also not do exactly the same?

If you're the former entity, you literally can lose nothing, no matter how reckless your actions or lending standards.

If you're the latter party, your risk of loss is inconsequential, since you're backed by the taxpayers (involuntarily), and even if you weren't, if you're a very large entity able to tap absurdly low interest loans from the former, unless you are galactically idiotic on a level that equals Lehman or beyond (where derivatives did them in, along with a non-bailout), you'd be hard pressed to lose money if even - completely hypothetical and arbitrary % - 20% of the cheap interest money you borrowed and then re-loaned out wasn't paid back to you.

If you're the former, you have not only no risk, but you can't possibly lose anything, since your investment is nothing.

If you're the latter, your risk is incredibly small.

This is why our economy, under fractional reserve banking practices, using currency created from thin air, tied to absolutely nothing of inherent value, and bestowed monopoly status as legal tender, is a factual, literal Ponzi Scheme.

This is why we had to close the gold standard, lest we couldn't show "growth" (even though it was merely nominal, credit/debt based transactions) in our official GDP going forward.

You don't even have to tie the fiat to gold in order to force the economy to produce honest numbers and detect the real level of economic growth or contraction: tie the currency to anything that has inherent value, and that can be stored, and that isn't infinite in quantity.

The mind bender part for the newly initiated (as I was at one time) to the Matrix is that there's no real 'debt' from the perspective of the fractional reserve central bank; it's hard for those steeped in conventional economics to rip out the notion from their brain that the fractional reserve central bank can't lose anything (they didn't lend anything of value or that cost them anything - they have ZERO skin in the game), and that their favored entities that are TBTF have only slightly less risk (because they will always be able to socialize their losses via taxpayer bailouts in the wake of busts, while they retain their ill-gotten gains during the booms), and that what most refer to as debt in this system is only a liability for the debtor. If the debtor doesn't repay what was they borrowed (a monopoly currency that cost the lender nothing to produce), they can lose their farm, construction equipment, home, machinery, infrastructure, vehicle, etc. that was used to securitize or collateralize the loan, or even if the loan was unsecuritized, they can at least see their revenue or wages garnished, be sent into involuntary bankruptcy (where their general pool of assets will be seized upon by creditors, including lenders), and squeezed in other ways.

The only way to avoid this is to not play the game. During crack up booms, you miss out on fiat-based gains, if you don't play the game, and the incentive for playing that game is that if your timing is correct, you can get rid of all debt and convert the excess fiat gains into hard assets having inherent value or other things of inherent value, before the fractional reserve alchemists induce another inflationary-deflationary (or vice-versa) harvest.

If one were fortuitous enough to play the game, and have the skill and/or luck to convert fiat gains into real wealth before the boom turns to bust, they'd probably be idiotic to repledge their real wealth assets as collateral for loans ever again (I say probably, because there are exceptions to every general rule, but these people would have to be extremely smart, competent and or connected to the alchemists in such a way that they'd be assured a bailout in the event of another bust whereby their real assets are pledged as collateral for fiat loans).

The Harvest is the end game for the fractional reserve bankers and their minions. As just one example of the rape that is harvest, even generations of families that were land rich (let's say a family that has owned two square miles of prime farmland yielding high value crops for three generations, carrying no debt) can find that an economic downturn suddenly forces them to take the step of obtaining a loan, pledging their farm and equipment as collateral, in the belief that the loan will allow them to survive the downturn and become more profitable at some future point - they're now 'harvestable.'

By pledging real assets to secure a loan of fiat money (conjured from thin air at no cost), one is playing right into the hands of The Money Masters.


The Secret of Oz - Winner, Best Documentary of 2010


Money As Debt-Full Length Documentary

The Money Masters - Full Version


Money, Banking and the Federal Reserve

Fri, 04/20/2012 - 21:56 | 2362962 Maos Dog
Maos Dog's picture

This is my favorite zh poster. Thanks!!

Fri, 04/20/2012 - 22:52 | 2363051 flacon
flacon's picture

Money As Debt is the documentary that opened my eyes to the world around me. It was my RED PILL. I remember being physically sick to my stomach when I learned the TRUTH! 

Fri, 04/20/2012 - 23:18 | 2363101 AldousHuxley
AldousHuxley's picture

in practice US dollar is worth less than a real debt.

In IOU, borrower of gold promises to pay back more gold in the future.

In US dollar, borrow of gold give promise the same, but you end up with half of original gold returned because Fed took it.


it is more like an iPAd. depreciating asset which becomes worthless as time goes on.


there is no true appreciating asset in the long run except time...your life you lose away as you work for the all mighty dollar.

Sat, 04/21/2012 - 09:49 | 2363503 Richard Chesler
Richard Chesler's picture

2008 presented a great opportunity to seize the parasite bastards. Instead, most fell for the banksters' corrupt puppet selling hope and change.

Sat, 04/21/2012 - 12:20 | 2363554 TruthInSunshine
TruthInSunshine's picture

Plad, Griffin is right to lay bare the rough and tumble question of whether one system of fiat money creation by private, commercial banks should be replaced by another of fiat money creation that's (truly) done by government, but I'm not quite sure it's fair of him to essentially state that the who that is allowed to create the fiat currency matters not.

I realize that he is arguing, in the purest sense, for a hard money/real money system of economics, but IMO he should at least concede that pegging creation of fiat currency to the larger creation of something of inherent value, whether gold, oil or grain, partially accomplishes what he desires, if even indirectly - as it restrains the arbitrary and unlimited creation of fiat money.

At any rate, so long as the dilution of pure fiat currency, unbounded and unrestrained by any built-in disciplinary measure, continues, at least if the government does this, not at the direction of the commercial banks that now form the fractional reserve banking syndicate, the people at least have the opportunity to control their rate of inflation. as they are voting for those who can no longer hide behind an entity such as The Fed ("It's the damn Federal Reserve! - as they vote to renominate its Bernanke/Greenspan/whomever), and will have direct accountability for creating high rates of inflation.

Sat, 04/21/2012 - 20:29 | 2364200 Expatriate in Italy
Expatriate in Italy's picture

Thanks, you really illuminated me. In life, if we don't wake up, we just lose our life working for some illusion (not only the dollar).

Thanks again

Sat, 04/21/2012 - 03:01 | 2363279 SheepRevolution
SheepRevolution's picture


Fri, 04/20/2012 - 23:01 | 2363071 AldousHuxley
AldousHuxley's picture

happiness = how lucky you are

luck = good timing

good timing = buy low, sell high

buy low, sell high = get richer, more money

more money = more power over resources exchanged under such currency


getting rich is all about timing your investments (labor, education, business). Has nothing to do with productivity, production quality, etc. That's just banksters don't do shit except trying to time it right. everything else is marketing PR bs to get more of other people's money.

Fri, 04/20/2012 - 22:06 | 2362977 Max Fischer
Max Fischer's picture



If 95% of loans go bad (or more), the fractional reserve bankers lose nothing....

Pure garbage.

So.... 2008 was a hoax?

Max Fischer, Civis Mundi

Fri, 04/20/2012 - 22:21 | 2363000 Corn1945
Corn1945's picture

2008 was largely a nothingburger for the banking establishment in the US. How many elite bankers have gone to jail or even lost their jobs?

So yeah, it pretty much was a hoax for them (not for the average Joe of course.)


We have a system where the banks are instantly reliquified when they face any losses. That's part of the problem with a monetary system that has no hard backing. 

Fri, 04/20/2012 - 22:29 | 2363010 Max Fischer
Max Fischer's picture



2008 was largely a nothingburger for the banking establishment.....

I can't even fathom the level of ignorance required to believe that the insolvency of Wall Street, the implosion of Lehman, Bear, BlackRock, the country of Iceland, etc. etc. etc.  was......


You guys are really fucking whacked-out, or you simply don't have the slightest understanding of banking and economics.

 when they face any losses......

Wait a minute!  Mr Delusional in Sunshine just told everyone that those banks really didn't loose anything! 

Please clarify.....

Max Fischer, Civis Mundi

Fri, 04/20/2012 - 22:37 | 2363025 Corn1945
Corn1945's picture

I notice you are very angry. Calm down. 

I'm talking about major banking institutions. 

Lehman and Bear are on a very short list of real failures. 

Why is Bank of America still in business? Why is Goldman Sachs still in business? Why is AIG still in business?


I find you very angry and offensive and people like you are really ruining the comments section.

It looks like the Tylers did Round 1 of the comment section cleanup a couple months back.

I think it's time for Round 2. 

Fri, 04/20/2012 - 23:09 | 2363077 AldousHuxley
AldousHuxley's picture

why is America still in business?


because they have the biggest guns in the world.


goldman sachs, fed, us government, all that shit doesn't matter. It comes down to who has the biggest guns. Big guns will get you the real assets like natural resources from other nations to support petrodollar and cover up fed's mistakes and bailouts of banking sector and politicians bad decisions, set the interest rates artifically low and support retarded CEOs and businesses they run.


Elites are not stupid. That's why they spend more on defense spending than all the other countries in the world combined and nearly half of your tax dollars when they close schools and don't even offer healthcare.

Sat, 04/21/2012 - 05:38 | 2363354 Xkwisetly Paneful
Xkwisetly Paneful's picture

WOW you are turning into one of them?

Yes the world has decimated their militaries in favor of social spending and are largely just as broke as the US otherwise excellent point.

30% is not almost 50%.

The dollar is the world's standard bearer largely out of lack of competition.

Guns is not what sent US bond rates to less than 0% incl transaction costs in DEC 2008.

Want free healthcare, sell your house move into one half the size, sell one car,

use the money to fund healthcare-now you live like the typical Euro receiving state sponsored healthcare.



Sat, 04/21/2012 - 12:36 | 2363696 Reptil
Reptil's picture

"Pax Americana" all of that is great in case of europe 1945-1971, but it relied on VOLUNTARY cohabitation in a USA controlled space.

After the globalistas were done with subverting and exploiting banana republics, the next logical step is to turn the USA and Europe into a banana republic. Which is now.

It's all a big "farm" isn't it? Farmville XXL.

A large militairy force needs a healthy economy and broad intellectual base (high level of education) to sustain it. And that's the weird part. That seems to be not necessary anymore.


Sun, 04/22/2012 - 12:31 | 2364832 Diogenes
Diogenes's picture

"A large militairy force needs a healthy economy and broad intellectual base (high level of education) to sustain it. And that's the weird part. That seems to be not necessary anymore.


You used to have an economy with a government and military establishment appended to it. The Soviet Union had a government and military with an economy appended to it.

They proved you do not need a healthy economy or a broad intellectual base to sustain a totalitarian government with its secret police and military.

Sat, 04/21/2012 - 05:30 | 2363347 Xkwisetly Paneful
Xkwisetly Paneful's picture

Yes major banking institutions came away scot free, their market caps being a fraction of what they were is not a loss.

I find the preposterous shit like that idea posted here daily Xkwisetly Paneful.


Regardless you nor any of your ilk is ever changing the game.

The guy who came into it with nothing and walked away with something was the winner.


Fri, 04/20/2012 - 22:43 | 2363035 ZDRuX
ZDRuX's picture

Iceland wasn't a HOAX because they finally realized and understood what was written by the OP. This is why they're so much better off now. If only the rest of the population would say FUCK YOU to the bankers and their loans, we'd all be better off.

So what happened to the banking institutions that had lent all this money to Iceland?... Oh right, NOTHING.

Fri, 04/20/2012 - 23:42 | 2363137 AldousHuxley
AldousHuxley's picture

1)Iceland has small population. Every Saturday 2% of population came out to protest. Imagine 6million OWS protesters outside whitehouse.


2) iceland's debt was only $50B versus Greece's $500B, Ireland's $2,000B


still they were rescued by IMF with large loan and many of their corporations and financial institutions like the stock exchange got shut down.

Fri, 04/20/2012 - 23:10 | 2363060 TruthInSunshine
TruthInSunshine's picture

Max, I'll waste a few moments of time even on the likes of you, whom I know to be a troll extraordinaire.

Answer the following, simple questions, Max:


1)   Forget the smaller (or even larger) banks that have failed, such as regional and community banks, not carrying systemic risk to the Ponzi Web of counterparties that underpins the fractional reserve banking network, for a moment. If you carefully read what I wrote, you'll notice that I am speaking of the too-big-to-fail institutions, who feed off the teat of the FRBNY.

Now, do you believe AIG (or Citi, or Bank of America) were fundamentally insolvent at any point during the last 4 years (if not, stop reading here, because you're either a hopeless moron or incorrigible troll)?

If you concede that one, two or all of them were insolvent at any point, how is it that they avoided bankruptcy/being shut down by banking regulators?

The only reason is they avoided this fate is because the fractional reserve banking entity that is the Federal Reserve printed enough fiat currency (which becomes part of the national debt, as appropriations Congress that are beyond the revenue raised by the U.S. Government turn into deficit spending, aka debt, in the form of treasuries that are sold, which the Federal Reserve buys the majority of - at least since 2009, with fiat money conjured from thin air) to allow it and the Treasury Department to socialize their losses, correct?

2)  Do you think that the Federal Reserve will ever mark the assets it now holds at FMV (as in real, and not fairy tale valuation), and if not, why not?  

3) Do the Federal Reserve Notes have inherent value, apart from the so called "Full Faith & Credit" implicit pledge of the collective U.S. taxpayers to 'lend' (pun intended, so to speak) value to these pieces of green and white paper and electronic issuances?  Do you think that the Federal Reserve Notes that exceed U.S. Government revenue, printed by the U.S. Treasury, much of which have been sopped up/monetized by the Fed over the course of the last 3 years, have any inherent value?

If so, is it only by the "Full Faith & Credit" implicit pledge, or in what other ways do these fiat notes have value?


Pièce de résistance  -


4)  If an individual or company borrows Federal Reserve Notes from a lender that's part of the Federal Reserve System, and they pledge an asset to secure that loan, whether land or equipment or a vehicle, where did the Federal Reserve Notes that are loaned originate from, and what is the ratio of actual Federal Reserve Notes that the lender must minimally carry on hand versus those being loaned out? 

What happens if the loan is defaulted upon?

What happens if the entity that originally made the loan, or any subsequent holder of the note securitizing the loan, goes belly up (hint - who/what ends up with the collateral that was pledged in exchange for the original loan)?

Fri, 04/20/2012 - 23:13 | 2363088 Ahmeexnal
Ahmeexnal's picture

If so, is it only by the "Full Faith & Credit" implicit pledge, or in what other ways do these fiat notes have value?

You are forgetting the other piece of the puzzle, also printed on the fiat notes: "IN GOD WE TRUST".

Yes, the FED is owned by the vatican. It's not only the collapse of the banking system at stake.  It's the complete collapse of the church of Rome, a fiat religion.

Both will happen.  SOON.

Fri, 04/20/2012 - 23:32 | 2363121 Tijuana Donkey Show
Tijuana Donkey Show's picture

Where is this? I would like to see something on that. 

Sat, 04/21/2012 - 00:55 | 2363214 Oh regional Indian
Oh regional Indian's picture

You can kind of start here and work your way around the rabbit hole....




Fri, 04/20/2012 - 23:33 | 2363108 Max Fischer
Max Fischer's picture



You haven't answered or defended your claim that "if 95% of loans go bad, the fractional reserve banks lose nothing." 

YOU HAVEN'T DEFENDED IT.   All you did was write up another post with 25 different questions in it.  You're like a politician... answering a question with another question, or 25 of them.

You're avoiding the fact that you really have no idea what you're talking about.  Some of the banks lost EVERYTHING, while others were on the verge of losing everything...... that's why they had to get bailed out.  It's so simplistic, I can't even believe I have to write it.

Max Fischer, Civis Mundi



Fri, 04/20/2012 - 23:50 | 2363134 TruthInSunshine
TruthInSunshine's picture

Why would I need to defend it? It's inherently factual.

Just because you don't understand it, or you won't concede this, doesn't make it any less so.

Theoretically, 99.99% of loans that were provided by conjuring fiat money at zero cost from thin air could go bust, and the entity that is conjurer won't lose a penny. What is there to lose when that which the conjurer loans is free to create and can be created in larger and larger batches without restraint?

Look above at my prior response to your idiocy, and recognize the distinction between the too-big-to-fails and central (fractional reserve banks, themselves), and the smaller participants that don't carry enough counterparty risk to threaten the too-big-to-fail entities (lest they be AIG, textbook definition, and be bailed out).

Why are the too-big-to-fail owners of the Federal Reserve larger now in terms of assets held/debt held/market share/deposits held (i.e. more concentrated) than they were pre-2008?

Fri, 04/20/2012 - 23:52 | 2363153 AldousHuxley
AldousHuxley's picture

what you lose is the credibility of the institution that's printing it.


money is based on trust. you lose the trust, you attract unwanted attention to your goose laying golden eggs and people start looking for alternatives (ie. gold). all of sudden you have competition. your profit margin erodes, and you have to work to compete against the competition. Eventually competition gets strong enough, you lose power and end up on the receiving end of someone else's abuse.


China, India, Russia, Brazil, Iran are all looking for alternatives.


you don't need capitalistic society and republican brainwashing to have real natural free market do its thing.

checks and balances exists in nature. humans are no match against forces of nature.




Sat, 04/21/2012 - 01:20 | 2363236 Sam Clemons
Sam Clemons's picture

Say you are on an island and you have 1 orange to eat. Now assume a genie shows up and gives you the ability to create more.  You create 7 and lend 6 of them to others on the island with apples pledged as collateral, and eat one yourself as a bonus for doing "God's Work" well.  The others decide to eat their oranges and they don't have the ability to create the orange so they can't pay you back (fixed amount of oranges for everyone but you).  You now get their apples.  

Now you have consumed one orange, saved one orange, and have six apples.  Have you lost? 

Yes, pn the surface you lost a whopping 88% of your initial orange position.  However, before you knew the jig was up, you still got to enjoy the fruits of your labor and save the original one you had, and now have six apples.  

Sat, 04/21/2012 - 01:22 | 2363249 TruthInSunshine
TruthInSunshine's picture

It's even more lopsided than that.

The one with the food can essentially get the one with no food to do anything he wishes in exchange for a single bite of one his apples or a slice of his orange. The one is a literal slave to the other.

So long as the Federal Reserve enables the Treasury to print Federal Reserve Notes, that have monopoly status, with law enforcement backing this arrangement, debt slavery persists.

Sat, 04/21/2012 - 04:59 | 2363336 Max Fischer
Max Fischer's picture



It's hilarious to see someone rant/lecture so passionately about a topic which they obviously don't understand. 

I'll make this very simple:

1.  Banks have the right to "create" money ex nihilo, and the quantity that they can "create" is based on a particular fraction of their cash reserves; hence the term, fractional banking.    

2.  When a bank "creates" money, it also, simultaneously, creates an IOU; as with anything in accounting, the right and left side of a ledger always have to match.  

3.  In other words, when money is "created," it's done in the form of a loan such as a mortgage or a car loan. From the bank's perspective, the money that's created is a liability for them, and the IOU is the corresponding asset.  This is called debt-money.... money goes into circulation as a debt.

4.  Let's assume the money "created" was for a mortgage.  Max Fischer got a loan for $100k.  The bank "created" $100K with a keystroke, and then Max gave the $100k to the home builder.  The bank has just "created" $100k, and it now has an IOU from Max to pay the money back.  

5.  This IOU is an asset that the bank books on its balance sheet.  It can keep the IOU and the interest that it yields, or it can sell it.  It can be sold over an over from one bank to another, always representing an IOU.  Passing this IOU around is EXACTLY what we do when we use the money in our wallet; we are passing around an IOU, owed to the Federal Reserve.  

6.  HOWEVER, as Max begins to pay this IOU, the IOU becomes worth less and less.  This is a process of slowly DESTROYING an equal amount of money that was "created" ex nihilo.  In the end, when the debt is paid in full and the IOU is worthless, an equal amount of money that was originally created has now been DESTROYED, except for the interest (but that's another subject).  This is the PAID-IN-FULL scenario.  

7.  Now, the default scenario...... Let's assume Max looses his job due to a recession and can't pay the IOU (the mortgage).  The bank that "created" the money, must now use its own money to "back up" that IOU. That IOU cannot just vanish, even if it becomes worthless!  It must always stay whole.  When a IOU defaults, the bank MUST use its own cash to make it real.  This is called de-leveraging.  Banks sell other assets to "back-up" bad assets, bad IOU's. 

8.  If a bank issues a million of these IOU's and they all suddenly become worthless, or 50% less, or 20% less, and if the bank must always keep the IOU whole, you can easily see how the bank could completely implode.   

9.  That is (in a very simplistic nutshell) how money is created, how equal amounts of money is destroyed, and how banks can suffer huge losses in a fractional reserve system.  To say that defaulted loans which were originally created ex nihilo is not really a loss is to totally misunderstand the mechanics of fractional reserve banking.  

10.  Besides, if you claim that banks really don't lose anything when they conjure money out of thin air, then you're also saying that 2008 was a hoax. 

Max Fischer, Civis Mundi



Sat, 04/21/2012 - 06:45 | 2363372 Revert_Back_to_...
Revert_Back_to_1792_Act's picture

Ah, now we are in a dialog here.  Good.  I think there are a lot of people here who want to gain understanding.

The builder creates the home and supplies the lumber, etc.

The person taking the loan supplies the labor to pay it off the (principal + USURY).

What does the bank put into this transaction?

The bank creates ONLY the principal at the time of the loan.  Where does the usury come from?  In a system such as this, it only seems logical that the bank would eventually own ALL the real property.  In a system such as this, it pits people against each other in a big fight and conflict with each other to get the Usury they need to pay off their loans. 

Anyways, lets continue.

In most cases, the bank sells the notes as soon as they are created.  Where is the risk if they don't even hold the note?

Even if the borrower defaults, the loan is backed up by the security for the loan (home + the 'real estate' it sits on) - how can you say it is the cash in the banks vault?  Are you saying they have to make payments on their own note if the guy defaults? 

In modern times, the bank purchases insurance on the loan so they get paid even if the borrower defaults.


In the old system, money could be put into the system by anyone via the Assay offices and the Mints.  Real wealth circulated as silver and gold values.  There were tens of thousands of small businesses and farms in America.  It was the strongest possible system - no too big to fail, just thousands upon thousands of prosperous people all meeting each others needs in a very local and sustainable way.  The Silver dimes quarters were how they kept accounts and settled up with each other - value for value.  The USA made 50 percent of the worlds goods, there was NO income tax on labor and our Federal and State treasuries all had a HUGE surplus.  The Federal government derived most of it's revenue from taxes on imports and exports.  There were poor people but their needs were met by charity - there was very little poverty.

Credit money (bank notes or paper money) was created on top of these real values and loaned out by the bank.  The bank notes were redeemable - however, the bank who created the bank note also provided the specie for redemption.  The banks were charted and strictly regulated by the State and also provided a source of income for the State and the people who lived in the State. 

In the old system, the banks had to redeem their own notes.

With the system we currently have, the American People supply the means of redemption for the banks currency.  If you try to redeem a note, they tell you go see the Treasury.  The guy in this video is trying to redeem one.

How did these notes become an obligation of the people to redeem them?

I keep thinking I am missing something but it seems that way to me.  Is there something I am missing here? Some mechanisim I don't understand?  Can you read this speech and tell me where he is wrong?

Bankruptcy and Statute of Limitations used to provide some relief valve from this.  I also think additional money is put into the system via programs and government spending like Social Security, Medicare, and Grants and things like Food Stamps and such but it seems like people are slowly doing away with those things because they think they the poor souls that rely on such things are freeloaders.  It seems like the culture that created the Fed had things like this in mind and the unlimited power to provide for needy people back when the 'New Deal' was created.  But now because of ignorance people are doing away with the very things that keep the system going - for these systems are the very thing that put the extra money into the system to pay the Usury.  The people who are judging and wanting to do away with these things have also never been old or sick.

Here are a couple of Vetos from past presidents (back when Men were Men and you put your objections on the record).  Please take the time to read them and follow their logic.

Jefferson lists many other problems that I haven't even touched on.

Jackson's Bank veto.

Follow the logic in their opinions.  Study how the system used to work in the USA.  It was a system of Prosperity that was based on Liberty and Charity.  With the technology we have now, we can still fix things.  Make things right again. Bring back prosperity.  Restore the paths to dwell in.  I don't think we need to blame anyone - most of the people who are running this system now (and trying to keep it from coming off the rails) weren't even around when it was created. 


Sat, 04/21/2012 - 08:05 | 2363424 Oh regional Indian
Oh regional Indian's picture

Superb Revert!

Awesome links and you clearly know/have considered this deeply. Thanks.

I think the missing step that everyone here mightbe missing is what happens immediately post ex-nihilo.

What happens to that IOU and where does the treasury come in (hint: immediately). That principle is "techincally" off the bank's books and on the treasury's.

From what I understood (still re-searching), this is then tied directly to your UCC account. 

More as it appears to clarify, thanks again.


Sat, 04/21/2012 - 10:55 | 2363527 TruthInSunshine
TruthInSunshine's picture

Wow. It's incredible that even Krugman would concede that trillions of Federal Reserve Notes were essentially created from nothing (I supposed he'd argue and emphasize they are backed by the Full Faith & Credit Clause, and that's 'something, since again - taxpayers back that debt in terms against risk of loss) in order to bail out dozens of too-big-to-fail partners in the fractional reserve Ponzi game (with AIG being a textbook example of the why, as it owed enough debt/fiat money to the likes of Goldman, JPM, et al., but that it didn't have to pay them - so Tim, Ben & Hank stepped in to ensure it received what's now over 220 billion to pay its counter-parties), yet Max the Naive still believes that the losses that accrued from the derelict & even criminal gaming of financial markets by too-big-to-fails have adversely impacted those entities in any real way, and that they didn't essentially shift their losses onto the U.S. taxpayer with the aid and abeyance of Congress (with Paulson's "tanks in the streets" the Kabuki theater justification), Treasury & Ben Helicopter Bernanke.

There was a time in history when most people who were participants in the economy and financial markets suspected that they would live or die by the soundness of the decisions they made and the natural frequencies of something approaching free market capitalism, and they therefore were far less likely to engage in absurd and even criminal behavior, since they would never dream that no matter how absurd and even criminally reckless their decisions, they'd be bailed out not just once by taxpayers (involuntarily), but many times over.

Sat, 04/21/2012 - 11:03 | 2363577 Coke and Hookers
Coke and Hookers's picture

The concept of "asset harvesting" needs to become mainstream because that's what this is all about. In order to harvest assets a bank needs to create a bubble by expanding the money supply. Now, when a bubble is created, an opportunity exists for the bank to go bankrupt when it bursts. The value of collateral drops and the bank is caught with its pants down. So obviously banks can go bankrupt. Nobody's doubting that. Let's look at this more closely. Banks need to grow debt for two main reasons: To pay bonuses/bribes and to engineer the bubble necessary for asset harvesting.

So... when banks create bubbles they KNOW it will lead to their bankruptcy - because there will be little or no asset harvesting without a bubble - which will then become unsustainable for the bank. This is what's called 'suicide banking.'

Banks destroy themselves on purpose to harvest assets.

So, what happens when the bank becomes insolvent?

1) If the bank has bought the Government, it will get bailed out with future taxpayer money and current assets (through inflation/interest difference).

2) If the bank doesn't get bailed out, its harvested assets will be bought by another bank (usually owned by the same people who owned the failed bank).

So this is really a zero risk/loss game, as long as banks own the Government. And as we have seen, the financial system owns the Government and controls taxation into the future.

The banks will continue to find new places for bubbles until they own everything - both current assets and future earnings.

Sat, 04/21/2012 - 12:27 | 2363681 TruthInSunshine
TruthInSunshine's picture

I agree. G. Edward Griffin, in Jekyll, coined that term and applied its usage in the context of the fractional reserve banking scam, and it's the perfect word/verb to summarize the process of how Crony Capitalism (aka another variety of Socialism) rigs the rules of the game to allow those who capture government to reap more and more assets in a concentrated fashion over time.

In a truly capitalistic system, this couldn't happen, because capital would have to flow in accordance with the rules of supply & demand (those who come along and build better mousetraps or at least less expensive but effective ones would knock off the former market leaders; not those who captured the government would stifle budding competitors).

Sun, 04/22/2012 - 10:52 | 2364706 soccerballtux
soccerballtux's picture

You've asserted, but not proved, that banks are interested only in asset harvesting.

Mon, 04/23/2012 - 11:36 | 2364758 TruthInSunshine
TruthInSunshine's picture

Where did I assert the generic sentence that "banks are only interested in harvest?" If you had read more carefully you'd certainly concede that I never stated that.

I did say that the apex banks and financial institutions that own The Federal Reserve have at the core of their very 'business model' the need to harvest real assets that can only be perpetuated in a cyclical fashion through the ability to swell and shrink the volume of fiat money used to make fiat money loans and that this has allowed a greater and greater concentration of assets in the hands of fewer entities and individuals with each and every successive boom-bust cycle.

Have you noticed that the largest banks, aka the too-big-to-fails (JPM, WFC, BAC, C, and GS), now possess assets valued at 56% of U.S. per annum GDP, whereas they 'only' possessed assets valued in an amount equal to 44% of U.S. GDP pre-2008? is that possible? Many of these entities either were or still are technically insolvent (BAC and Citi are but two examples), in reality, so why weren't/aren't they liquidated?

In fact, here's a quotation of mine that maybe will help you with the essential distinction I clearly made between garden variety banks and the apex banks and financial institutions that actually do own The Federal Reserve:

"The Harvest is the end game for the fractional reserve bankers and their minions. As just one example of the rape that is harvest, even generations of families that were land rich (let's say a family that has owned two square miles of prime farmland yielding high value crops for three generations, carrying no debt) can find that an economic downturn suddenly forces them to take the step of obtaining a loan, pledging their farm and equipment as collateral, in the belief that the loan will allow them to survive the downturn and become more profitable at some future point - they're now 'harvestable.'


By pledging real assets to secure a loan of fiat money (conjured from thin air at no cost), one is playing right into the hands of The Money Masters."


Sat, 04/21/2012 - 11:43 | 2363618 Revert_Back_to_...
Revert_Back_to_1792_Act's picture

You speak of the UCC. 

If you are investigating that and if you have a checking account, you should look at a couple things. 

First get a deposit slip and look at the left side of the slip or down at the bottom of the slip - there will be some little teeny tiny mouse print.  Read that.  Weird huh?  Bet you never saw that before until I pointed it out to you.  There are tons of things like this that I am discovering while investigating this and trying to figure out what is really going on.  There has got to be a banker here on ZeroHedge that can jump in here and help us out.

Go to your bank and ask them for a copy of what you signed when you opened the account.  Read the part in that document about "US Person" carefully - that paragraph uses the word "Includes"

Then go read this.

I doubt that the few people who actually read what they sign have that meaning or understanding for the word 'Includes'.

That puts a whole new spin on "alienating or unalienable rights" doesn't it?

Here is more on this subject.

I am not sure that all banks are doing this.  Let me know what you find out by replying to this.  You see, they have to get your permission to do this stuff. Overall, this just makes me really, really, sad because people still have a lot of trust in the banks and the government.   

These two videos are also interesting.


Sat, 04/21/2012 - 06:29 | 2363378 Bag Of Meat
Bag Of Meat's picture

read the comment  2363060 again 

and the interest is not just "another subject"...

i think your problem is you don't follow the flow of "money" up to its source

Sat, 04/21/2012 - 07:21 | 2363397 Ghordius
Ghordius's picture

excellent post Max - I usually start like this:

I have a fully paid house. I pledge 80% to the bank, the bank creates on their accounting books, based on the collateral (the pledged asset) an USD 80k in my favour. For the bank, it's a "zero game", on one side their claim on my house, on the other side my claim on their cash.

As a hedge/insurance, the bank pledges a fraction of the deal (from their capital) to the Central Bank. The funny part starts when I go and want to cash in my 80k, if I'm the only one it's fine, otherwise we have a bank run. But hey, we have a Central Bank! They come and... (end of part one) ;-)

Sun, 04/22/2012 - 10:35 | 2364689 soccerballtux
soccerballtux's picture

is this a scenario where you are taking out a mortgage on your fully paid off house? (confused as to when this would happen)

Mon, 04/23/2012 - 02:56 | 2366063 Ghordius
Ghordius's picture

in europe, some older buildings have been mortgaged/paid-off some dozen times

Sat, 04/21/2012 - 09:02 | 2363460 ForTheWorld
ForTheWorld's picture

A bank can also resell that one house over and over and over again, creating more and more money each time it's sold. If a house was purchased 5 times in a 10 year period (possible with all those people "flipping houses" in the past), and they have to loan/create money each time, even if the original purchase price never changed, they've created at least $200,000 from nothing just for those purchases, and there is still only the one original asset.

When I say at least $200,000, Person A borrows $100,000 to buy a new house. After two years, Person A sells the house to Person B, who borrowed $100,000 to purchase the house. Person A then settles the debt by giving the bank the $100,000 they received to pay off the loan. So if Person B went to sell to Person C, there wouldn't be any real requirement to create another deposit, because Person C borrows the $100,000 from the bank that was returned by Person A.

This still leaves us with double the money in the system. Also, when you factor in rising house prices, more and more money has to be created to resell that one asset at the inflated price. In the event of a default, the bank "keeps" the house, and then has to create another $100,000 (or more) for the next purchaser (because the money wasn't returned). However, that money went somewhere else, and thus we're creating more money again against that one asset.

That's the main problem. Infinite money created against a fixed number of assets.

Sun, 04/22/2012 - 10:18 | 2364664 soccerballtux
soccerballtux's picture

the money from Person A was extinguished when the loan is paid off because the bank doesn't get to keep the Asset (house) backing that debt when the debt is paid off. The Asset is transfered to Person A, who transfers it to Person C in exchange for the money.

I don't get what you're saying.

Sun, 04/22/2012 - 10:32 | 2364685 soccerballtux
soccerballtux's picture

Hm, why must the bank back up that IOU? Why can't they create that cash out of nowhere?


Can you explain what happens in #6 to the interest that was paid ("but that's another subject")?


I need to understand these things better before I can discourse.

The issue we have with the Federal Reserve is that it creates $1000 to purchase a $1000 TBond from the government, yet the government has to pay back $1000+interest that was never created. As a result a 2nd TBond must be created, carrying its own interest, to pay back the interest in the first bond that was never created. Hence the impossibility of being debt free.

Sun, 04/22/2012 - 16:37 | 2365231 zhandax
zhandax's picture

Someone may have hit on this down post, but I don't have the patience to read more than one page of comments.   What is missing here and what Max is overlooking is that the banks securitized the loans they made.  IOW they converted those loans into marketable securities.  Not all the banks had the sense to sell all this paper.  When TSHTF, the banks got big brother government to change the FASB rules to allow them to pretend that those securities with which they are now stuck are worth close to 100 cents on the dollar.   Ergo, no balance sheet impairment. 

Sat, 04/21/2012 - 18:19 | 2364077 donsluck
donsluck's picture

So true, so simple. EXCEPT, you just admitted they got bailed out and hence, LOST NOTHING!

Mon, 04/23/2012 - 02:48 | 2366061 Ar-Pharazôn
Ar-Pharazôn's picture

idiot, read, learn, understand..........................

Sat, 04/21/2012 - 08:58 | 2363404 Benjamin Glutton
Benjamin Glutton's picture

One observation and one silly question. If by 95% percent of Fed Res loans go bad you mean 95% of the total value of Fed Res system loans then you may be correct if the dollar having lost 97% of its value since 1913 could be construed as direct evidence of said losses.

Are you suggesting that .gov is intentionally running Trillion dollar deficits to support the Fed Res acquisition of currently worthless assets for the purpose of cleaning bank balance sheets? If that is true then our deficit is really nothing more than a continuing bailout allowing deflated assets to be transferred to the Fed(capitalized by Treasury debt?) at face value and eventually 'auctioned' back into the 'free market' at a huge discount.


Money laundering in lieu of bankruptcy,imo.


Lastly, if this is even remotely accurate then our Dem/GOP are lying chickenshit co-conspirators who advance a false tax debate to cover systemic intentional accelerated dollar devaluation . I suppose the good news is that wages are rising in China as measured in dollars of course.



Sat, 04/21/2012 - 11:26 | 2363538 TruthInSunshine
TruthInSunshine's picture

Right. I used the 95% figure in the most arbitrary way, on the extreme side, just to demonstrate the fundmental point, but that's an odd correlation you highlighted, to say the least.

And again, the fundamental point that some don't/won't/can't understand, or don't/won't/can't admit, is that when that which is lent has zero cost of production (see Bernanke's electronic printing press quotation) and can be produced in infinite amounts (see closing of gold standard - and the rejection of any other standard whereby the creation of that fiat currency would be restrained by pegging its production to increasing production and holdings of actual things of value), that which is pledged to secure the loan (e.g. land, wells, equipment, vehicles and other actual resources) can be gained by the ultimate loan maker (the participants who form the network of fractional reserve banking), while that which is lent (fiat currency) can't be lost in any true sense, when an equal or larger batch of it will be produced at no cost to 'paper over' the "loss" !

Sat, 04/21/2012 - 00:48 | 2363219 Sam Clemons
Sam Clemons's picture

How much money was "lost" by Lehman when it imploded?  How much were they officially in the red that they could not be bailed out?  How much money was made and paid out in wages and bonuses to Lehman's bankers during the glory years?  I'd wager that the amount of profits booked and bonuses paid overshadow the losses by at least a multiple of 10.

Sat, 04/21/2012 - 01:35 | 2363255 tok1
tok1's picture

I've seen this type of argument before here and the real problem is who should have lost the money.
Ie AIG/Citi/BOA and many others should have gone under in 2008. What should have happened is the share price should have gone to zero (ie wiped out). but deposits and loans guaranteed and management sacked. Then the loan/ deposit should have been reorganized and possible merged or new stock sold ( years later. ie shareholder were taking the risk and getting the reward . Deposits were miss lead as they only got minimal return and did nor know of the risk the banks were taking with their money ( ie
fraud) . Obama allowed the shareholders to
survive and transferred the loss to tax
payers. That is the crime. Now those same shareholders are still being supported by 0 rate fed funding which is miss use of funds. So key is the equity should have been wiped out before any tax money uses.

Sat, 04/21/2012 - 11:24 | 2363601 Bay of Pigs
Bay of Pigs's picture

Hey Troll,

Fuck off you pathetic loser.

Fri, 04/20/2012 - 22:26 | 2363007 Ricky Bobby
Ricky Bobby's picture

No arguement here cause why waste my time. Fuck You Max Fischer!

Fri, 04/20/2012 - 23:40 | 2363132 LowProfile
LowProfile's picture

Max Fischer is a 50 center

Thanks Gatts!

Sat, 04/21/2012 - 01:41 | 2363257 r00t61
r00t61's picture

If he's getting paid in 1964 Kennedy half-dollars, it's definitely worth his time, heh.

Fri, 04/20/2012 - 22:28 | 2363009 Ricky Bobby
Ricky Bobby's picture

No arguement here cause why waste my time. Fuck You Max Fischer!

Sat, 04/21/2012 - 00:13 | 2363181 Seize Mars
Seize Mars's picture


Are you a beneficiary of the Ctrl-P system? I'm guessing that's why you jealously guard it.

By the way, I never imagined you were a "lose / loose" guy. Some people do that all the time, some people never make that mistake. Interesting.

Sat, 04/21/2012 - 00:49 | 2363223 Sam Clemons
Sam Clemons's picture

How do people mess that up consistently?

Sat, 04/21/2012 - 01:06 | 2363237 Ahmeexnal
Ahmeexnal's picture

It's right up there with effect/affect and herpes/hairpiece.


Sat, 04/21/2012 - 12:21 | 2363670 Seize Mars
Seize Mars's picture


'scuse me while I kiss this guy...


'scuse me while I kiss the sky


Sat, 04/21/2012 - 01:49 | 2363258 WSMassiv
WSMassiv's picture

You must have missed it... I think they where made whole.  Oh, yes that's right...
Here bud real simple: Banks trade a liability for an asset.

If I could do that in real life, wow...

Fri, 04/20/2012 - 22:35 | 2363021 Gatts
Gatts's picture

All the vids at


Sat, 04/21/2012 - 02:21 | 2363263 Mentaliusanything
Mentaliusanything's picture

And that Ladies and Gentlemen is a Wrap.

Thank you Truth in Sunshine!

That should be written on every side walk all over the World.

It should be spread to all who still have the ability to think.

pity that the brains have been removed from the Majority.

To quote from my favorite person   Professor Sumner Miliar

It is a prerequist that those who can....... Ask?

Why is it so?

Sat, 04/21/2012 - 09:52 | 2363510 Dermasolarapate...
Dermasolarapaterraphatrima's picture

kudos to TIS.

Sat, 04/21/2012 - 11:20 | 2363593 Chupacabra-322
Chupacabra-322's picture

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

--Alan Greenspan, Gold & Economic Freedom (1966)


Sat, 04/21/2012 - 11:49 | 2363627 Teamtc321
Teamtc321's picture

Thank you for posting this information Truth In Sunshine.

This is a must read for anyone in the world IMHO. This information should be shared far and wide. I personally was set free when you posted this information in the past for study. It took me some time to understand this principal. When the light finally went off, I was sick physically.

People, the banking cartel does not want you to understand there corrupt system. Refuse to obide, study it.

Our system is so corrupt and evil it boggles the mind. Understanding these principal's is the first step to freedom for we the people of the world.

Thank you Truth.


Sat, 04/21/2012 - 15:00 | 2363866 blunderdog
blunderdog's picture

It's a good intro to the problem, but the part that really needs the solution is:

What is the relative *benefit* that obtains from rejecting "fiat" and/or "fractional reserve lending" and replacing that system with exchange based solely on *real* physical commodities?

Certainly there's the obvious advantage that asset bubble valuation is far less likely.  (But not impossible, which is important to remember.)

But the other result is extremely limited opportunity for industrial/technological development in places where the underlying commodities are not available.

Unless we're prepared to permit *every* commodity to serve as backing for a currency, it's hard to imagine how the benefit of returning to some simple "resource-standard" is going to outweigh the cost of instantly assigning all the wealth that backs the new currency to a specific set of hands.*

IOW: let's say you're committed to the whole "hard-backed currency" idea.  (And say it happens you've got a lot of gold.)  But then, when the commodity-backed currency is created, it doesn't use gold as the backing--it uses...oh...let's say sodium.

Can you construct an argument which justifies the selection of ANY given resource as the superior basis for the commodity-backing?  (I have my own idea, but it's tricky, so I'll leave it aside for the moment.)


* Awhile back, the commodity everyone was so concerned with was LAND.  Land was the source of all income as well as the provider of food and shelter.  The demand for re-distribution of "wealth" was considered a threat to civilization, and to this day, the phrase "agrarian reform" is considered dog-whistle for communism.  The question is: what's different about the historical demand for "agrarian reform" as the redistribution of wealth from YOUR demand to redistribute wealth based on [gold/silver/sodium/water/etc]?

Sun, 04/22/2012 - 09:37 | 2364625 FutureShock
FutureShock's picture

Thank you for this I watched a couple twice and will have to watch again. The Secet of OZ is a must see, the bankers quotes about the common people are stunning. How are we not getting back to the Gov. Prints with no interest, Private Banking ok but must only lend what it has Ron Paul and Paul Ryan should be more clear and the KArdashian watchers need to learn.  Time for Congreessional pressure is now.



Fri, 04/20/2012 - 23:14 | 2363091 lasvegaspersona
lasvegaspersona's picture



a good pro liberty critique

I'm not entirely even he has the solution ( I tend to believe FOFOA's observations and outlook) but this is a good responce to Still and the the idea that the government is the answer to bankers. As he says...naive...

Fri, 04/20/2012 - 21:29 | 2362918 CClarity
CClarity's picture

Debt = Wealth . . . except it doesn't

Credit has expanded 50 fold since 1968 and so has debt.  How else do you think we got here.  Consumerism has been sponsored by credit/debt.  Not capitalism.

In the "good old days", credit was extended carefully, meritoriously, with an expectation of payback.  Today it is extended in perpetuity with infinite expectation that other debtors will bail eachother out with fiat based promises . . . until the implosion(s) occur.  

Be ready.  It unfolds very slowly until it goes whoosh.

As it has been said, collapses are both rare and rapid events.

Fri, 04/20/2012 - 23:09 | 2363082 A Lunatic
A Lunatic's picture

Debt = wealth for the elite only, for everyone else there's enslavement.

Fri, 04/20/2012 - 23:58 | 2363163 AldousHuxley
AldousHuxley's picture

elites are also enslaved. not by need for productive labor but by need to protect wealth.


to protect your wealth you have to marry your ugly cousin, lead boring lives without any risks, do nothing fun except worry about taxes and others trying to take your money.


slaves, enjoy your bucket of fried chicken.




Sat, 04/21/2012 - 18:32 | 2364085 donsluck
donsluck's picture

I always enjoy the Zen insert! So true, the curse of the materialist is the weight of the material. You are controlled at least as much as you control the physical world. It has been proven repeatedly that, beyond the satisfaction of basic needs, money does not bring satisfaction or happiness. This is why the elite continue to plunder, they are fundamentally disappointed with the result.

Sun, 04/22/2012 - 09:08 | 2364589 pufferfish
pufferfish's picture

Excellent post,

It comes down to personal value and self worth; once food shelter etc are accounted for.

I see no Bentley in Maslow's Pyramid of needs:

Money is being used for a substitute to reality and truth, and an excuse for antisocial personality disorder. I cant think of anything more anti social than going to war with the weak to secure a bank balance.

You have to ask what the core motivation of the Uber Rich really is? Is it a personal prison of social anxiety brought on by feelings of inadequacy. Or is it a predatory need to dominate and consume all.

Both are signs of social illness.


Sun, 04/22/2012 - 10:25 | 2364667 TruthInSunshine
TruthInSunshine's picture


I feel that I'm as capitalistic as one can be, within reasonable boundaries of realizing that it, like every system enabling commerce and having inevitable political and social repercussions, capitalism has inherent flaws, and can't and never will be perfect (no system will bring about utopia, but some are better at creating efficiencies and guiding a more productive flow of capital and allocation of resources than others). In other words, I recognize that capitalism has some ugly warts that I believe at times require intervention, but that should be as limited as possible and only utilized to address genuinely serious episodes of market failure and address/mitigate truly negative externalities associated with such market failure  (e.g. a commercial hog farm is built in a community of 50 year old pre-existing homes and residents, polluting their air and water supply with effluent/runoff; there should be a mechanism to prevent or stop such an externality).

But we're so far removed from any notion of a capitalistic system today that it's literally frightening. While the naive or dogmatic of every political persuasion and belief set associate the concept that is The United States with liberty, freedom (from state nannyism, let alone desecration of constitutional rights), social-economic mobility & success in whatever one is pursuing based on the merits of skill and the next big idea, in reality, we have a centralized, planned economy now, with the banking/financial sector and its main funneling conduit of Wall Street & the FRBNY [mis]allocating the capital and resources that are provided and guaranteed by the taxpayers, whose very core interests such misallocation is injuring (the least productive, least efficient industries of banking/finance via Wall Street - I'd argue these are capital destroying, or at best, capital shifting, rather than capital accretive industries - are parasitically draining the actual productive sectors and units of society, as enabled by the government and Federal Reserve).

Instead of taking the full medicine in 2008, which would have been far more painful for many, but would have at least been consistent with notions of risk & reward associated with capitalism and free markets, and would have had the additional benefit of allowing the underbrush and scrub that's now again interfering with organic economic recovery from occuring to be 'burned out & cleared,' Paulson, Geithner and Bernanke, the firefighters arrived, and doused the flames with waves of taxpayer funds, saving many of those who took risk from what should have been the natural and expected outcome of their decisions, subsidizing the very best friends of the FRBNY with loads of additional taxpayer gleaned capital to 'play with,' and essentially putting a new and very damaging parasitic drain on the rest of the economy and Main Street.

At this point, we now have Main Street business and individuals deleveraging in ways never imagined previously, to try and manage the parasitic drain being imposed on them by the banking/financial sector and Wall Street friends of the FRBNY (enabled by government and The Federal Reserve), while those in the inner circle of favortism of the FRBNY are again receiving record or near record bonuses, and worried about whether their cohort CEO of a too-big-to-fail entity has a larger boat than they do.

Sat, 04/21/2012 - 00:52 | 2363227 Sam Clemons
Sam Clemons's picture

It's difficult to wake up and realize that what you thought made your country great, capitalistic growth, turned out to be nothing more than a huge credit binge.

Sat, 04/21/2012 - 08:06 | 2363427 midtowng
midtowng's picture

If coins are money, but paper money isn't, should we all want the dollar coin to finally succeed?

Sat, 04/21/2012 - 18:33 | 2364086 donsluck
donsluck's picture

If the dollar has lost 98% of it's value, shouldn't the original copper penny be our dollar coin?

Fri, 04/20/2012 - 21:08 | 2362888 Bagbalm
Bagbalm's picture

Zinc pennies aren't very positive.

Fri, 04/20/2012 - 21:12 | 2362892 Ahmeexnal
Ahmeexnal's picture

nickel coins can be used on a gauss gun....cheapest ammo

Fri, 04/20/2012 - 21:50 | 2362951 iDealMeat
iDealMeat's picture

.9999 Silver can be made into colloidal silver with 9 volt batteries..


drink it bitchez..


Sat, 04/21/2012 - 03:01 | 2363280 tallystick
tallystick's picture

Also solder dissimilar metals.

Sat, 04/21/2012 - 00:00 | 2363167 holdbuysell
holdbuysell's picture

Might want to talk to Kyle Bass in case of needs for a reload:


Sat, 04/21/2012 - 15:10 | 2363883 blunderdog
blunderdog's picture

Zinc pennies have a great inherent value to a crank cook.

Fri, 04/20/2012 - 21:14 | 2362895 BlueCollaredOne
BlueCollaredOne's picture

The Mayans were right. Now that Dick Clark is dead how can we have a 2013. Explain that shit to me ZH!

Yes, I'm having a fun 420

Sat, 04/21/2012 - 00:11 | 2363182 AldousHuxley
AldousHuxley's picture

Q: how can we have 2013?

A: Ryan Seacrest


Fri, 04/20/2012 - 21:31 | 2362924 Peter Pan
Peter Pan's picture

Like I always say, you can't store real wealth in a computer but you certinly can store debt in it. Fractional reserve banking is the best pyramid game in town but when deleveraging starts in earnest the weakness of the system is exposed. If people ever woke up to the trickery involved in their perpetual bondage there would be a revolt.

Fri, 04/20/2012 - 21:30 | 2362926 Neo1
Neo1's picture

A Banksters defeatism nightmare, Being forced to Return to Real Money=United States Note=Lawful Money. The real reason you pay an income tax, is for the privilege of using a private currency. Also known As A: Federal Reserve Note, Demand from your bank or brokerage, lawful money and the tax goes away, with a tax exemption on lawful money, all of your money is yours. Use the Remedy within the Federal Reserve Act. Stop being a Slave!!!!!!
Tax Exemption: Web search these four different phrases: Redeemed in Lawful Money or United States Note or Redeemed in Lawful Money Pursuant to Title 12 USC §411 or deposited for credit on account or exchanged for non-negotiable federal reserve notes of face value

Fri, 04/20/2012 - 21:31 | 2362927 EndTheMedia
EndTheMedia's picture

Capital through debt or through savings? The difference between true capitalism and corporatism.

Fri, 04/20/2012 - 21:34 | 2362931 Peter Pan
Peter Pan's picture

One more thing. A good friend of mine years ago once said that he was stockpiling petroleum in his bottom drawer. When asked for an explanation, he explained that he was collecting silver coins which he felt would more than keep pace with fuel prices. It certainly turned out to be a cute strategy.

Fri, 04/20/2012 - 21:37 | 2362932 bugs_
bugs_'s picture

i want my cash money baby

Fri, 04/20/2012 - 21:41 | 2362940 digalert
digalert's picture

Crash JPMorgue buy silver

Fri, 04/20/2012 - 21:45 | 2362944 Caviar Emptor
Caviar Emptor's picture

A reinterpretation of money from a physicist's point of view: money represents negative entropic units. It represents the work that can be applied to increase order (decrease entropy) within a system, in this case an economic system. However according to the 2nd law of thermodynamics, there can never be a perpetual motion machine because entropy tends always to increase or at least remain stable within a system. It never decreases of its own accord. There can not be infinite negative entropic units.

Modern monetary theory has attempted to challenge the 2nd law of thermodynamics by trying to create a perpetual motion money machine through cycles of money printing, money "creation" through fractional reserve banking, and credit pyramiding. 

The concept is as boneheaded and internally self-contradictory as the idea that everybody on earth could simultaneously be millionaires and maintain the purchasing power that millionaires have by comparison with joes and janes with 10 bucks in their account. 

Sat, 04/21/2012 - 08:33 | 2363437 Benjamin Glutton
Benjamin Glutton's picture

The government weaponizes everything.


Fiat currency has become just another tool in the arsenal to be used in the consolidation of governmental power.

Sat, 04/21/2012 - 09:25 | 2363475 Stax Edwards
Stax Edwards's picture


Fri, 04/20/2012 - 21:53 | 2362956 Frankie Carbone
Frankie Carbone's picture

I've converted FOUR human sheep to sheepdogs with this video. 

It's very powerful when used against the mindless. Can't explain why. Any ideas? 

Sat, 04/21/2012 - 02:35 | 2363267 wisefool
wisefool's picture

It is probably the animation. Live action does not do as well for non-fiction. Notice how documentaries, even on current events, have more still photos than live action.

Sat, 04/21/2012 - 07:29 | 2363399 Ghordius
Ghordius's picture

excellent explanation - perhaps it's easier to think abstract thoughts when there is no live action?

If yes, then a modern Dr. Goebbels would prescribe a media mix of sex, violence, 3D and lots of pictures and content that make people emotional.

Sat, 04/21/2012 - 09:58 | 2363520 wisefool
wisefool's picture

Could be. I think it also has to do with traditional format of marketing. The whole "how do you tell when a politician/salesperson, is lying? ... When their lips are moving" and the corrolary "A persons actions speak louder than words"

Was Goebbels in charge of the SS? cause your theory has been working great for the american taxpayer funded above top secret SS goosesteppers who have Timmay for a boss. I heard on the radio that one of the accused in the recent columbia scandal had previously posted to facebook pictures of him openly lusting after his charge, which at the time was sarah palin a VP candidate in 2008, with written caption admitting the action. Meanwhile in tyler's NSA post we are learning that each and every one of us zerohedgers probably have NSA files. And/Or files that potential employers are using 'cause we have ideas about economics,taxation and corruption.

Fri, 04/20/2012 - 22:08 | 2362976 CoolBeans
CoolBeans's picture

I heard an interesting commercial on the radio today -- A community service workshop was being held and the topic was: Saving money -- and the sponsors (not salespeople - just a pure community service group) actually said, "...not about putting money in the bank but how to handle money wisely".   The topics would cover saving money on groceries and other expenses (such as for families, elderly, etc.)

Anyway...It struck me as very interesting that this announcement seemed to ennunciate the "not in the bank" a little too well.  It sounded like a warning.  Bahaahaahaa...take that JP Morgan and you other banksters.

Fri, 04/20/2012 - 22:44 | 2362981 Yen Cross
Yen Cross's picture

Disclaimer;  READ before posting, is a must!

   You will be turned into "soylent green" upon failure to comply!


 One has to go no further than the "Fed 5 year auction", this week. Let's discuss market SKEW. The typical outside end of the curve should be 25 basis points. The risk was dialed in( higher bond price) vs ( yield) at 123 basis points!

 On a bid/cover under 200!

Fri, 04/20/2012 - 22:10 | 2362986 holdbuysell
holdbuysell's picture

Popcorn-eating deer in 3...2...1...

Fri, 04/20/2012 - 23:22 | 2363113 lasvegaspersona
lasvegaspersona's picture

what kind of deer has THOSE ears?

Everyone likes popcorn.

Fri, 04/20/2012 - 22:30 | 2363014 kindape
kindape's picture

tho this videos message is close to the truth the details (like most on blogosphere) can be debunked pretty quickly

95% of our money has been created by commercial banks, not central banks

fractional reserve is irrelevant to current borrowing - it could be zero and wouldnt matter. banks are capital constrained not reserve constrained

i could go on but....

Fri, 04/20/2012 - 23:18 | 2363099 TruthInSunshine
TruthInSunshine's picture

The commercial banks are able to leverage up the initial 'stock' of money supply because of fractional reserve banking, itself.

In other words, the use of debt leverage comes into play.

A garden variety commercial bank (I won't even get into more complex actors within the Federal Reserve Network) can lend 9 Federal Reserve Notes for each 1 Federal Reserve Note it carries on hand.

That 9 to 1 ratio ultimately becomes a far more massive ratio once the chattel paper that serves as evidence of the loan works its way through the entire system (think mortgages and MBS pools, and the synthesized products that were spawned - and are still being spawned - from those, as just an appetizer).

Fri, 04/20/2012 - 22:41 | 2363034 Catullus
Catullus's picture


Fri, 04/20/2012 - 22:43 | 2363038 death_to_fed_tyranny
death_to_fed_tyranny's picture


Fri, 04/20/2012 - 22:47 | 2363040 Cursive
Cursive's picture

I watched it.  A little choppy/campy, but the quotes and analysis were great.  It's a pretty balanced effort , but seems mostly a pro-fiat effort, which is of little comfort to hard money advocates.  Is our current predicament a result of fiat money?  Or is it the result of debt-backed money?  There is a big difference and the right answer will lead us to the necessary reforms.

Fri, 04/20/2012 - 23:36 | 2363125 Yen Cross
Yen Cross's picture

You read it! +1

Sat, 04/21/2012 - 02:53 | 2363276 The Navigator
The Navigator's picture

One of the alternatives mentioned was government issued currency (a la Lincolns greenbacks and Kennedys Executive Order 11110) - I would agree with that in principal but have absolutely no confidence in our government to run it without corruption and deflating the value for THEIR benefit.

Either Peter Schiff or Jim Rogers suggested 'free market/competing curriencies' as an answer. Maybe?

The problems with fiat/fractional reserve are pretty obvious - when the time comes for a new money system I hope we have some good answers; 'cus that time is likely coming sooner rather than later and I don't want some POS solution (designed by Central Bankers) shoved down our throats to screw us over again.

Fri, 04/20/2012 - 23:12 | 2363044 JW n FL
JW n FL's picture



Cash is NOT! Debt!

it is Jewish Lobby Dollars!

Last week, the federal government reported that the U.S. trade deficit grew by 33 percent in 2010 to nearly half a trillion dollars. Most of the gap resulted from an imbalance in trade with China, which shipped $365 billion in goods to America but only bought $92 billion in U.S. goods. The resulting U.S. deficit of $273 billion in bilateral trade with Beijing reflects a persistent feature of the Sino-American relationship since China joined the World Trade Organization in 2001. Over the last ten years, China has mounted the biggest challenge to the U.S. manufacturing sector ever seen, threatening producers of steel, chemicals, glass, paper, drugs and any number of other items with prices they cannot match. Not coincidentally, the United States has lost an average of 50,000 manufacturing jobs every month during the same period.

and the Lobby Dollars were used to GUT! Americas Manufacturing Base.. among other things!

But dont listen to me!

I speak about numerical FACTS!! that are sourced and sighted!

You should listen to someone who talks about thier feelings!


Money as Debt 3 - The Rothschild mafia (Paul Grignon)

Fri, 04/20/2012 - 23:20 | 2363109 q99x2
q99x2's picture

Even I can understand this video.

I think. Therefore, I am.

Somalian currency doesn't suffer as much from inflation when compared to the EURO or the Dollar.

That's because Somalian counterfeiters are not banksters. I learned that from Max Keiser.

Fri, 04/20/2012 - 23:40 | 2363133 Yen Cross
Yen Cross's picture

Heckle & Jeckle ... I love it!  Give the guy a break (q99x2) , Hyperlinking takes practice.

Fri, 04/20/2012 - 23:21 | 2363111 cristo
cristo's picture

Bitcoins Bitchez??????????????

Sat, 04/21/2012 - 03:10 | 2363284 The Navigator
The Navigator's picture

I gave you thumbs up - but a problem I see with electronic money is that its possible for Govt to see exactly what you have (see the article about the NSA whistleblower on ZH earlier today - govt hears/sees all).

And governments, when seeing how much you have, like to start spending your money (thru increased taxes) on programs for their voting base for their continuing employment as CONgressmen/Sinataurs.

Take away the keys (from the govt) to run/shutdown the internet and intercept internet transactions THEN it might be in the running.

I don't know why I should be worrying about this shit when I could be in Columbia enjoying a $47 'love you short time' - wonder if they take silver.......

Sat, 04/21/2012 - 03:43 | 2363301 efiniti
efiniti's picture

I gave you thumbs up - but a problem I see with electronic money is that its possible for Govt to see exactly what you have (see the article about the NSA whistleblower on ZH earlier today - govt hears/sees all).


While you can see the amount of money held by one address on the blockchain, you can actually payout to multiple addresses you can generate "on the fly" and essentially mask the total amount of money you hold.  Almost like having offshore accounts.  Not only that but I run my bitcoin client through the tor onion routing software completely anonymizing my transactions.  Also, intercepting transactions is virtually impossible as the same technology used in ssh key exchange is used here.  


Bitcoin is a truly revolutionary form of money.  Its going to be the future of money.  The only way to shutdown the system is to shutdown the internet or your connection to it.

Sat, 04/21/2012 - 04:49 | 2363333 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

Bitcoins were built as a pump and dump to favor their originators

I do see/hope that more digital currencies will arrive in the future though; one thats just a fixed medium of exchange in order to avoid government control

Sat, 04/21/2012 - 07:13 | 2363393 efiniti
efiniti's picture

You have no idea what you're talking about.  Bitcoin is not a pump and dump.  Its not some proprietary trading platform, its a totally open-source currency.  There is already an economy growing around it.

Sat, 04/21/2012 - 08:53 | 2363454 nmewn
nmewn's picture

Money should be portable, easily recognized as money, easily hidden should the occasion arise...and most importantly, unencumbered...that is, not relying on anything else to retain its value as a unit of exchange.


Sat, 04/21/2012 - 18:53 | 2364105 Zero Govt
Zero Govt's picture

i agree with that

...and it doesn't require a bank, or central bank, to issue it either

Money has been notches on wood, a letter of credit on paper and much more during history. The biggest mistake was when we allowed banks and Govt to monopolise what our money is.

let us return to the free market

Sat, 04/21/2012 - 20:26 | 2364198 nmewn
nmewn's picture

I'm all for it.

But I won't be accepting any wooden nickels nor will I try to pass off any ;-)

Sat, 04/21/2012 - 16:06 | 2363923 Revert_Back_to_...
Revert_Back_to_1792_Act's picture

I can just see running this now to generate BitCoins and then having a time traveler come back in time to steal my computer because I had some of the original 50 bit coins that have now been divided up and 50 bit coins in the future is now worth enough to buy an entire planet. The encryption keys will be so large and encryption will be so complex that nations will devote huge computer systems to generate the next 50 coins as that can make or break an entire nations economy.  People in the future will still be arguing about stuff on the internet (that won't change). Since it is the future we are talking about, gold will be created in the lab and a few people will be saying that in the beginning you could generate bit coins for free and it was gold was really valuable (They already did a Twilight Zone episode about gold and time travel) and people will call them loons and coinspiracy theorists...  Money, Encryption, Time Travel...There is a great sci-fi/twilight zone episode here somewhere or maybe a South Park Episode?


Fri, 04/20/2012 - 23:36 | 2363126 ebworthen
ebworthen's picture


"Promise to pay."

We see how that worked out with Corzine and Mozillo and AIG, etc., etc., etc.

Wherefore tangible assets?


"Fatal delusion born of greed."


"Gold = Liberty"

Ahoy, two swigs of grog in cheers for that.

"Actual payment in cash...real digital money..."

Dream on.  "Ctrl-P$" for those that need it is here to stay.

The individual will be anally raped; the Kleptoligarchy has the dildo and the lube.  The public is pubic, or shaved, however you wish to visualize it, we are screwed.



Sat, 04/21/2012 - 00:29 | 2363204 Yen Cross
Yen Cross's picture

 I would pay 2 "bits" to be a" fly on your wall".

Fri, 04/20/2012 - 23:43 | 2363138 navy62802
navy62802's picture

Fractional reserve banking, bitchez.

Fri, 04/20/2012 - 23:45 | 2363142 jack stephan
jack stephan's picture

Lisa: [writing a letter] "Dear Mom, I no longer fear Hell, because I've been to Kamp Krusty. Our nature hikes have become grim death marches. Our arts and crafts hut is, in truth, a Dickensian workhouse. Bart makes it through the day clinging to his hope that Krusty the Klown will come. But I am far more pessimistic. I am not even sure if this letter will reach you, as the normal lines of communication have been cut. So I close by saying, SAVE US! SAVE US NOW! Bart and Lisa."

Sat, 04/21/2012 - 00:00 | 2363164 DCFusor
DCFusor's picture

Bitcoins.  Have my doubts.

Sat, 04/21/2012 - 01:27 | 2363251 icanhasbailout
icanhasbailout's picture

Debt being a claim on labor, we are all induced into slave trade, as buyers and sellers and often both at once.

Sat, 04/21/2012 - 15:45 | 2363271 Revert_Back_to_...
Revert_Back_to_1792_Act's picture

Some more links to discuss.

This speech is interesting.

It helps to read the fine print on the back of this $5.00 Series 1914 Note to understand what he is saying in the speech.

Then watch this guy try to redeem a Fed Note.

This fed PR guy says the Fed is made up of Private Corporations.

This whole interview (Meet the Federal Reserve by Gary Franchi) seems to be gone from the Internet and only this segment remains.  If anyone has a copy please upload it again.

We had a change in the coinage laws in 1965.  Here are Johnson's comments at the signing of that act.  Would this be considered an ExPostFacto Law? What is up with this?

He says right in the comments that the Treasury would sell silver.  Read it!  Sell silver? For what? To Whom?

Then we have this speech in 1971.  What is up with this speech?

Edit: found complete video of Meet the Fed here; (interview with Jerry Nelson after he tries to ask Bernanke questions is interesting part)



Sat, 04/21/2012 - 05:34 | 2363350 chelonia1663
chelonia1663's picture

The math is simple.....

But debt is not the issue. It is the interest that keeps irreversable multiplying debts into oblivion.....

It can only multiply artificial indebtedness in proportion to capacity to pay, as the unassenting subjects are forced to maintain a vital circulation by perpetually re-borrowing principal and interest as ever greater sums of artificial debt, perpetually increased so much as periodic interest on an ever greater sum of debt, until of course the sum of artificial indebtedness exceeds their (finite) capacity to pay, destroys their credit-worthiness to maintain a vital circulation — and you have what you have right now, everywhere around you.


But there is more.....


Mike Montagne 1/10 (MPE) " MONEY as DEBT " UNDRESSED for ZOMBIES 07.05.11



Sat, 04/21/2012 - 08:42 | 2363444 centerline
centerline's picture

I agree.  I think this is at the core of the mathematics problem in the system.  So simple.  Yet so elusive.  Hiding in plain sight.  

So many economists try and try to explain away how this works itself out through various monetary circuits, yet the real world (and history) shows us exponential outcomes.  Neo-classical economists simply don't stand a chance because they don't include banking in thier models and therefore discount (ignore) the fact that banks create money out of thin air.  AND we haven't even touched the subject of derivatives and other instruments of financial mass destruction.

 My take on the matter is via the shadow banking sector, the calls have been made to cause the end of the system in spectacular way.  We just have yet to realize it.


Sat, 04/21/2012 - 09:34 | 2363487 chelonia1663
chelonia1663's picture

Cheers, but to say banks create money ouf of thin air is just another Paulian/Austrian populistic expression. (Sloganizing the issues with purported solutions for the cheap u know :-)) Of course they do not create money out of thin air. The money is created by us and all the banking system does is publish it on their paper assuming a falsified debt at interest for us.

Sat, 04/21/2012 - 11:41 | 2363620 centerline
centerline's picture

"Thin air" is very sensational and not entirely accurate of course.  The point is to distinguish clearly for apathetic masses between lending that is based on deposits (classical banking model) or based on journal entries (modern banking model).  Reserves are simply forced into existence in the latter example.  In essence, the tail wags the dog.  Derivatives are even more devious in what they have the potential to unless on ths system.  Not to mention how they allow a circumventing of the system.


Sat, 04/21/2012 - 07:45 | 2363410 nick howdy
nick howdy's picture

I don't know how many documentaries, cute cartoons with bears in it or news of banker/politician malfeasance people have to be exposed to before they "get it".

Bankers and Politicians are cancers that eventually destroy the host organism...

Your enemy is the "elite"....Now with that being said does anyone have the old Heathkit plans for a guillotine?

Sat, 04/21/2012 - 08:28 | 2363433 GCT
GCT's picture

Thanks ZH and some of you commenters here.  I do not like the thought of digital money as the government will always have their fingers in it.  

Sat, 04/21/2012 - 08:51 | 2363438 bilbao
bilbao's picture

The author of that paper is correct. All our money, except coins, comes from debt or credit. It's all a form of debt. Once you grasp this concept, it becomes clear that...


It's a fact.

This is especially true since the Treasury does not accept (bank) credit as a form of payment when Treasury auctions are held or taxes are paid. The Treasury only accepts base money as a form of payment. And base money comes from government spending.

Of course, Warren Mosler has been saying this for years. It's actually written in bright red letters in the upper-right-hand-corner of his website:

Sat, 04/21/2012 - 08:40 | 2363441 falak pema
falak pema's picture

money creation  only to the public interest, houpeeee; eureka. We have a solution digital money. World digital money, no banks, just government control via elected honest people.

What tree does 'honest people' grow on? 

Ah....we the honest people grow on a tree called the tree of knowledge...that nobody owns and that nobody guarantees, not even mother nature! Its an invention of the mind. 

Peer to peer digital money. As an alternative to government money. 

Move away from interest bearing systems and perpetual physical growth, instead move to economic shrinkage. 

Will the world be back to one billion in 2100? Who cares ! 

Outmoded assumptions, reality calls and world changes beyond our collective reach.

No more popcorn ! 

Sat, 04/21/2012 - 15:20 | 2363888 blunderdog
blunderdog's picture

Digital money's a pretty slick idea, but there remain a few issues. 

Who "creates" digital money?  Is that process open to all, or only to one central bank?  If open to all, what happens when someone accumulates two identical "notes"?  Do they cancel each other out?  Can he exchange them both without a problem?  If he can exchange them both, how can he not just duplicate a single "note" infinitely?

If digital money can be created only by a single central bank, how does the recipient of any given "note" know that it's not "counterfeit"?  Obviously, if the bank creates every note, it has the technology to create mulitple copies of the "same" note, and if it uses care in distributing them, the duplication might never be detected.  Is that not "inflation" resulting from counterfeiting? 

(Incidentally: if you get serious about "free coinage" of digital money, there's a very real possibility you'll attract the attention of the enforcement branches of our monetary system.  In the US, that's the Secret Service.  Be aware.)

Sat, 04/21/2012 - 08:51 | 2363451 blindman
blindman's picture

Trans-Formation 1 - A Max Igan Film. (2012)
Renaissance 2.0
looking for the hundredth monkey on the tree of knowledge.

Sat, 04/21/2012 - 09:07 | 2363464 orangegeek
orangegeek's picture

If the debt is to be reduced, money  supply will decrease as well.


This is deflationary.  The markets have show the first down leg in 2008.


What's the difference today?  Same unemployment, more government debt and same bad banking loans.


See what's coming here:

Sat, 04/21/2012 - 09:34 | 2363485 Ted Baker
Ted Baker's picture

The truth we need to see is that WE are the real creditors, because it is WE who produce the real value in the world, not the banks.


Sat, 04/21/2012 - 09:42 | 2363497 theprofromdover
theprofromdover's picture


I think what most people forget , is that the Bank, when creating the $200k mortgage for you, has to pay the developer (through you). So the bank -even though it invented the money and wrote it into their books- has spent a real, tangible $200k. At some point it has to recover it all from you.

Lucky for the bank, it doesn't have to pay any real interest back to its 'books', and it really doesn't bother too much for inflation. So, it charges you interest every month, really big bucks over the course of the loan, and eventually stiffs you big-time for its own profit.

When the bank is reasonably sensible, it makes very healthy profits. When it is way too greedy and lends to any idiot, the mass defaulting on loans actually shows up as a cashflow problem to the Bank. When the Regulator (or other banks who have been lending and creating money for each other) realise this is unsustainable, they bank is forced to retain more real money. Since they can't do that very quickly, they cry wolf and demand help.

The entire financial system is broke, your savings and pension are gone, eventually you will be told to pay 100% in tax, and be given state handouts to live. If you don't like that system, folks, better do someting about it.


Sat, 04/21/2012 - 09:54 | 2363511 insanelysane
insanelysane's picture

The simple math that a 3rd party needs to seize upon is as follows:

Government spends 3 to 4 trillion per year and we still have shitty roads, bridges, schools, etc.

Government owes 15 trillion+ in loans.

Government income is 2.5 trillion.

So if the government doubled income, i.e. doubled taxes, they would be able to operate at a balance budget and pay down some of the loans.

The message needs to be that even if all taxes were doubled, tax payers would only receive the same shitty government with the same shitty roads, bridges, schools, etc.  Doubled and we still have shit to show for it.

Sat, 04/21/2012 - 09:56 | 2363517 DavidC
DavidC's picture

"On a day when Lagarde happily trots out statement after statement that the IMF has another bucketful of promises to solve the world's excess debt problems with its own debtors providing more of the wealth-creating debt in ever-increasing circles of ridiculous indebtedness..."

Brilliant! One of your best opening lines ever!


Sat, 04/21/2012 - 10:54 | 2363567 skepticCarl
skepticCarl's picture

Money is debt. That has been the system for hundred's of years. Why do so many ZH reader's consider that to be (1) an epiphany (2) a hidden secret of the Illuminati and (3) an unworkable system?  I learned all of this year's ago, and though everybody knows and understands it. This system has it's flaws, as we are now seeing.  But the conclusion that since a system has flaws, it is an entirely bogus system doomed to fail, is erroneous.  De-leveraging over several years, allowing poorly structured businesses and banks to fail, will ultimately cleanse and restore the system.

Sat, 04/21/2012 - 11:48 | 2363625 centerline
centerline's picture

Is a fair enough argument for sure.  There are some real fundamental questions underneath all of this that most people really haven't even drilled down to yet.  And I don't think there are any easy answers (e.g. questions of human nature and necessary evils).

Sat, 04/21/2012 - 11:23 | 2363596 tony bonn
tony bonn's picture

there is much to commend in this video...the only part where i have reservation is the solution that government create money. while this is a vast improvement over the current system, it makes people wards of the state and denies the right of individual contract - to say nothing of the rights of the people to order their own commerce....

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