A Bedtime Story (Or Explaining Our Money System To A 14-Month Old)

Authored by Bill Bonner via InternationalMan.com,

We are explaining our money system to our grandson, James, now 14 months old…

His mother tries to get him to go to bed at 9 p.m. But the little boy’s internal clock is still on Baltimore time; it tells him it is much too early to go to sleep.

Bill’s living room transformed into a makeshift nursery

Grandpa takes over, drawing out the monetary system like a general spreading a map on a field table. “Here is the enemy,” he says gravely. “They have us completely surrounded. We’re doomed.”

James grumbles. He squirms. He has a sunny, optimistic temperament. But we think our explanations are sinking in.

He seems to understand…

…that money is not wealth; it just measures and represents wealth, like the claim ticket on a car in a parking garage.

…that our post-1971 money system is based on fake money that represents no wealth and measures badly.

…that this new money enters the economy as credit… and that the credit industry (Wall Street) has privileged access to it. The working man still has to earn his money, selling his work, by the hour. But Wall Street—and elite borrowers connected to the Establishment—get it without breaking a sweat or watching the clock.

…that a disproportionate share of this new money is concentrated in and around the credit industry—pushing up asset prices, raising salaries and bonuses in the financial sector, and making the rich (those who own financial assets) much richer.

…that this flood of credit helped the middle class raise its living standards, even as earnings stagnated. But it also raised debt levels throughout the economy.

…and that it allowed the average American family to spend American money that Americans never earned and buy products Americans never made…

Instead, Walmart’s shelves were stocked with goods “Made in China.” The middle class lost income as factories, jobs, and earnings moved overseas. Debt stayed at home.

“Okay so far?” we asked James as his eyeballs rolled backward and his breathing slowed.

But one thing must still puzzle him. How did the new dollar actually retard growth?

Maybe it didn’t make people richer… After all, how can you expect to make people better off by giving them fake money?

But how did it make them worse off?

The Ultimate Absurdity

We began with an attack en masse across a broad, philosophical front:

“As you sow, so shall ye reap,” we said. “And when you put a lot of fake money into a society, you end up with a fake economy.”

Just look at Argentina in 2001… or Zimbabwe in 2006… or Venezuela now…

Prices go wild as people try to figure out what the money is really worth. But the economy shrinks.

It was the same way in Germany during the Weimar hyperinflation. People stopped producing. You might have a billion marks in your pocket, but you couldn’t find a bar of soap for sale.

“But wait… I know what you’re thinking…” we imagined James pushing back. “Those are all hyperinflation stories. We don’t have that now. Instead, we have much less inflation… Prices are almost stable.”

Yes… for now. The inflation is in the asset sector… and in credit itself… not in consumer items. But the phenomenon is much the same.

Fake money is giving grossly distorted information to everyone. In Manhattan, we are told that an ordinary apartment is worth $2 million. But in Geneva—where interest rates have turned negative—we are told that $2 million is worth nothing… You will have to pay one of the banks to take it off your hands.

Without honest money, real savings, and true interest rates, businesses and investors have nothing to guide them. They are lost in the woods. Few want to do the hard work, and take the risks, of long-term, capital-heavy ventures. Instead, the focus shifts to speculation, gambling… and playing the game for short-term profits.

What’s more, artificially low interest rates provide fatal misinformation. They tell the world that we have an infinite supply of resources—time, money, energy, and know-how.

Then, without its back to the wall of scarcity, with no need to make careful choices, capitalism becomes reckless and irresponsible with its most valuable resource—capital itself. It is destroyed, wasted, misallocated, and malinvested. Growth rates fall and the world becomes poorer.

James is startled awake. He is disturbed.

“What kind of a world have I been born into…?” he seems to ask.

*  *  *

The feds know an epic crisis is brewing. And they want to trap your money before you have time to protect it. They know the coming crisis will hit everything—your portfolio, your bank account… even the cash in your wallet.

Of course, America has seen plenty of crises before. But this time is different. Bill’s team recently put together a book revealing how bad things could get and how you can start preparing yourself today. Learn more here.

Comments

Escrava Isaura SafelyGraze Dec 31, 2017 2:38 AM Permalink

Ohh gosh!

Article: He seems to understand……that money is not wealth; it just measures and represents wealth……….

The writer is so indoctrinated that he can’t help himself. The writer contradicts himself without even finishing a paragraph.

Let me help this highly educated writer: Money is a means to an end, just like violence. Money is a more humane way to extract resources and labor. It’s more sophisticate way, say, compared to slave.  

The wealth is not the money itself. Wealth is what the land and the people in that land generates. That land and those people don’t need money. They’re self-sufficient.

And most import point of all: Money cannot have a value, such as in interest rate, ever. Not one, including savers, should issue, charge a price on money. That must be a no no to start with.

Here’s why:

Say you bought a $300 thousand dollars home with $60 thousand dollars as down payment.

Say that you got a 3.78 percent interest rate on that $240 thousand dollars mortgage. 

So, on the end of that 30 years loan, you would have paid $161,603.00 in interest for a total of $401,603.00 dollars.

Interest rate is the main flaw of capitalism, even when it’s low, because it has more value than what’s produced.

Why do conservatives not only fall for this trick but, promote it?

I can see a liberal promoting interest rates galore, but a conservative? It makes no sense.

 

In reply to by SafelyGraze

CogitoMan Escrava Isaura Dec 31, 2017 3:15 AM Permalink

Your thinking is well... let's call it "full of nonsense". Trying to be polite here.

 

Ill ask you one thing. If you believe that there should not be price (interest) paid for money lent then please lend me 300 thousand dollars WITH NO INTEREST for 30 years.

Ill gladly take it. Ill invest in some profitable business earn extra money on it then slowly pay back the money I have borrowed. But you will get nothing out of it. You will actually punish yourself by not been able to do the same. Yet it seems fair to me since you claim that this is the way it should be.

On the side note you are just a proof that the old proverb "New sucker is born every day" still holds true.

Do we have a deal?

In reply to by Escrava Isaura

el buitre CogitoMan Dec 31, 2017 7:08 AM Permalink

You are the one who is confused.  Usury, the classical definition of which is the lending of money at any interest before the term was perverted, was banned by Christian churches for their first 1400 years and by Islam until quite recently.  It is the heart of the Babylonian Money Magick enslavement.  But one might ask, how can you have a thriving economy without usury?  The answer is equity.  The Persian Gulf countries and the west coast of Indian had a thriving economy and trade during the European Middle Ages, and it was all based on equity investments.

To answer your question of a “loan” of $300k,  I might consider purchasing a share of your business if it looks highly viable and you are not a crook or a deadbeat.  Going back to the Middle East / India trade, due to pirates, it was too dangerous to pay for trade with the transfer of gold, so they developed a banking / credit system which was totally devoid of usury.  It was enforced by word of mouth.  If a business cheated, the principals were banned and shunned for life, effectively ending their trade.  Worked very effectively.  More details can be learned from a chapter in Debt:  The First 5000 years.

This system has a lot in common with the ideals of decentralized cryptos.  But when the countries issue their sovereign, blockchain cryptos, it will quickly devolve to the Mark of the Beast.

In reply to by CogitoMan

Escrava Isaura el buitre Dec 31, 2017 9:13 AM Permalink

There’s no global money, ever.

Trade between nations can only happen if a nation has some to offer. Say nation A business has oil and nation B business has meat. These two nations work out an exchange sum agreeable by both nations/business. Money from nation A doesn’t go to nation B. Money from Nation B doesn’t go to nation A.

The value is in what you have and/or what you produced. Money is irrelevant when talking trade between nations.

Money is relevant within the people and the business of that nation. Money is local law.   

 

In reply to by el buitre

Scipio Africanuz Escrava Isaura Dec 31, 2017 10:57 AM Permalink

Just as money serves as a medium of exchange locally, it fulfills the same function internationally. Precious metals serve that function wonderfully, the issue is not that of a gold standard per se, but that of a universally recognized store of value,  "store" being the operative word here. You can inflate your national currency to eternity if you so desire, as long as you understand that a trading partner, choosing to accept said currency with "cold eyed" ruthlessness.

 

If that's not acceptable to you, then you'll have to pony up some precious metals, or failing that, something of acceptable value, which said trading partner, will once again, ruthlessly price, hence precious metals as an international medium of exchange. Gold for instance, is rare, immune to inflation, and stable in value. Don't get confused about the US dollar price of gold, or even the euro price of gold, that simply reflects the consensus price of the currency.

 

Try pricing gold in Zimbabwean dollars and your eyes will water, that's why profilgate governments hate gold, gold imposes fiscal discipline, in fact, it also imposes diplomacy in local and international relations because to acquire gold, you'd have to trade, and for anyone to trade with you, you'd have to have goodwill. The only other way of obtaining gold, is either to steal it "comex" or rob it "USA"

In reply to by Escrava Isaura

Scipio Africanuz Scipio Africanuz Dec 31, 2017 11:16 AM Permalink

Lest I forget, nearly all governments are profilgate. That's why they love the USD scam, it allows them to get away with economic murder, they can collectively inflate their currencies, rob their citizens, enslave future generations, all the while, blaming the nefarious USD. Now you understand why the USD is still alive, producers hate it, crooks love it.

In reply to by Scipio Africanuz

MEFOBILLS Escrava Isaura Dec 31, 2017 1:58 PM Permalink

There should be no global money ever.  This is a true statement. There are two ways to trade goods internationally, which will meet the needs of man, and are non usurious:

1) A Bancor, which marks the flow of goods and services currently extant, and flowing between nations.  In this way, a Bancor exactly equates with goods and services production, to then enable trade.  The Bancor further is linked primarily to commodity, which gives it an anchor independent of financial manipulation.  If a country becomes mercantile, it is punished.

2) Trading banks, something like what Schacht invented in Nazi Germany.  Each nation posts purchasing power in their respective trading bank.  For example, Germany posts into a bank in Burma.  Tin or Rubber transfers from Burma, and the Burmese are paid in their local money unit.  When the Tin or Rubber arrives in Germany, purchasing power appears on trading bank ledger in Germany.  The Burmese now have ability to purchase German goods in Marks.

Trading banks are a form of credit, which is used to stimulate the future.  It is also non usurious in that any debt/credit relations which occur do so in context of trading banks only.  This means that trading nations work with each other legally, solving any conflicts.  It would go something like, this:  I really need those new industrial goods, say Tractors, so I'm willing to give a little extra rubber, and so on. Trading nations negotiate with each other. 

Bancor system settles on-going trade between nations, it works in the now, and is accepted among all nations.  It is international, but is not money - it is an accounting device that operates between national borders.

Trading banks are credit, which work on the future.  So, trading banks are used to work on big projects between nations, where these projects benefit both parties.

Usury is much more than just interest on money.  It is a power relation, where one party is taking unearned income.  Usually it is creditor that is taking usury.  Some ideologies, like Libertarianism, glorify creditors, and thus are in cognitive dissonance with their other stated free-dumb goals. Cognitive dissonance is a form of retardation.

Sometimes a debtor is a deadbeat, and is stealing unearned income.  The U.S is a debtor nation, and taking usury on the world - as a deadbeat.

Benjamin Franklin's Philadelphia Colony had interest on money, but it was a non-usurious system.  Their state bank issued extra money into local money supply, so new loans could be paid.  Franklin made sure the money supply had what was necessary to allow trade. The extra money spent debt free by bank,  channeled into the commons, to then accelerate everybody's productivity.  So, not only was Franklin's money non usurious, it was a virtuous cycle.

It will take a college, something like the Thomas Aquinas "school-men" to train people to understand contracts and usury.  The average person is not trained and equipped to deal with these concepts, as they have been written out of history.  It is also written out of modern religion, especially Christianity. 

 If you have never heard it, then you cannot know it.  Hypnotic funding to erase historical concepts is on purpose of course.  Mammon wants his unearned income.

In reply to by Escrava Isaura

MEFOBILLS northern vigor Dec 31, 2017 2:23 PM Permalink

In the old days when usury was banned people didn't loan money out unless they signed themselves or their children to be indentured slaves

 

Before Venice was corrupted by the ((usual)) agents of Mammon, she examined credit and debt contracts at inception.  As I stated earlier, mankind HAS LOST KNOWLEDGE on money.  He has less understanding now than his ancestors.

If a child was transferred to settle a debt/credit contract, that would definitely be usurious.  It is the taking of outsize gains based on some sort of scheme, a power relation, at the heart of usury.  Venetian scholars would sniff it out immediately.  

Another example:  Two parties enter into a contract to go on a fishing expedition.  The Creditor would not just be allowed to loan his money, he also had to have skin in the game.  If the fishing expedition didn't have enough fish, both Creditor and Debtor would lose.  Debtor was risking his life, but not the Creditor.  All of these sort of things are subtle, and it takes a special legal operation to deal with it. If there was a big haul of fish, Creditor did not get to take make outlandish claims of unearned income. 

https://ratical.org/corporations/Lincoln.html

In reply to by northern vigor

Scipio Africanuz el buitre Dec 31, 2017 2:50 PM Permalink

Thanks for clarifying "simple interest". It is either temporarily "equity" like a mortgage, or continuous like shares, the idea being to induce owners of "surplus" capital to participate in, or fund your projects. In the case of residential mortgage, the lender cannot be a co-resident hence the payment of "dividends" over the loan period. In the case of commercial mortgage, agreement can be structured to convert the loan to equity or simple dividends over the loan period. In the case of a risky business venture, pure equity comes into play.

 

The above, is a simplistic explanation but the idea is pretty simple in that your interest in any of the above listed ventures is simple whether you're lender, or borrower.

 

Now compare that to all the nefarious derivatives floating around as financial instruments of wealth destruction, and you begin to understand "compound interest", where nobody knows who has an interest, or stake in anything hence, the mortgage backed security and robo-signing mess popularly known as the real estate market crash of 2007.

 

Welcome my friends to "compound interest", the "8th wonder of the world", the destroyer of morals, the liquidator of economies, the enslaver of mankind.

In reply to by el buitre

Scipio Africanuz Scipio Africanuz Dec 31, 2017 3:08 PM Permalink

And if you're wondering why banks encourage you to pay just the minimum on your credit card balance, wonder no more! It's so they can compound your interest daily, you see my friends, that 0.000001 daily interest really do add up to a bundle when you consider that it is calculated on your previous daily balance, it is calculated daily!

 

And that, in a nutshell, is why your credit card debt just seems to keep ballooning to infinity.

 

Don't you just love banks?

In reply to by Scipio Africanuz

MEFOBILLS Scipio Africanuz Dec 31, 2017 3:29 PM Permalink

 what's my compensation for foregoing the use of my money

Read up on school of Salamanica, where our Sephardic Kol Niedre ((friends)) codified this doctrine.  Everything our friends touch turns to shit - its what they do.

This idea that your "capital" has some intrinsic value due to foregone wants belies the fact that your capital is surplus to you.  School of Salamanica codified superiority of credit over labor, when in fact creditor gains are always a function of labor surplus.  This is not communism, it is a fact.  Communism is unbalanced as well, creating a pyramid of plutocrats who use the law to enforce their rule.

There have been balanced civilizations in the past, that lasted for a long time.  All of these had to have some sort of mechanism prevent people demanding excess compensation from making unwarranted claims.

Your compensation for foregoing use of your money, was settled initially in the contract inception in Venice: thisvis the proper way to do it, not in the way taught by Salamanica.

To add insult to injury, your supposed stored capital, is in form of bank credit.  On the other side bankers double entry ledger is a debtor.  Banks create the credit you use as money, and they take a huge usurious cut.  So, your stored "credit" is somebody else's debt.

So, understanding usury is not that easy; People are confused because the world emits confusing signals... on purpose, to keep you flummoxed.

 

 

In reply to by Scipio Africanuz

Scipio Africanuz MEFOBILLS Dec 31, 2017 3:45 PM Permalink

That my capital is surplus to me, doesn't mean it's irrelevant, or useless to me. You're forgetting that I'm taking a risk in lending it to the borrower. I could just as well store it safely in bullion and tell the borrower, to take a hike.

 

What happens to the economy in such a scenario? Think carefully about it. Now, for me to risk my capital, I need an inducement, for which I have to do my due diligence, the borrower has to stoke my self interest, note the word "interest" again?

 

You're assuming that all capital is in the form of bank credit? If so, then you've been drinking the banks coolaid, nothing personal, just an observation.

 

Let's continue the discussion so we all can learn what we don't yet know. Thanks for the links, happy new year to you.

In reply to by MEFOBILLS

Scipio Africanuz Scipio Africanuz Dec 31, 2017 4:52 PM Permalink

Let's assume my capital is in the form of influence with a tractor supplier, and the borrower is a farmer in need of a tractor but not enough funds to buy, or lease one, how can he induce the tractor supplier to supply him one?

 

Say he tried and failed, to convince the tractor supplier to supply him, then comes to me after hearing I have some pull with the tractor supplier, why should I invest my influence capital in his venture?

 

Altruism? You're kidding right? Please tell me why oh why, I should invest. Now, you understand risk and "interest".

In reply to by Scipio Africanuz

MEFOBILLS Scipio Africanuz Dec 31, 2017 8:06 PM Permalink

You're assuming that all capital is in the form of bank credit? If so, then you've been drinking the banks coolaid, nothing personal, just an observation

Not cool-aide.   97% of the money supply is bank credit.  Bank credit comes into being when somebody hypothecates themselves with a new debt instrument.

So, somebody is in debt so you can have savings.  Usually, governments go into debt  to banks in a debt money system, to then generate private sector savings.

Capital is one of those words that has multiple meanings, and can also be land, plant, and equipment.

In this case we are talking about money as capital.  The idea that money "has" to have gains, especially outside gains not in alignment with nature, is just more BS emanating from Salamanica.

Like I said earlier, if you want to loan out your money, the contract is to be investigated, and you are allowed only natural gains.

Let's compare that to today's free-dumb bankster world, where savers are getting screwed over, especially with negative interest rates. 

In reply to by Scipio Africanuz

Scipio Africanuz MEFOBILLS Jan 1, 2018 7:16 AM Permalink

I agree with you on many points but I disagree on the major one. Since we're discussing cash at bank, or bank credit as you call it, rather than capital, I'll concede to you that the current banking system, is a travesty which has to die so natural economics can live.

 

The point I won't and can't concede, is that there's no free lunch in nature. Money has to cost something else, there'll be malinvestments, human nature, borne out by history, clearly demonstrate this. 

 

Were money honest, and not artificial as the USD, the USA won't be in her current predicament. The question remains, what's the inducement for the owner of "honest money" to risk his money?

In reply to by MEFOBILLS

Faeriedust Escrava Isaura Dec 31, 2017 10:16 AM Permalink

I take it that you have read David Graeber and are aware that interest was originally (in ancient Sumer) intended to compensate the lender for his opportunity costs in loaning the grain which was not only currency at the time, but next year's seed corn.  Gold, which began to be used as a quick and easily movable store of value during the Bronze Age era of war, failed states, and warlordism, really has no opportunity costs as it can't be planted to produce more of itself.  But tradition, power, and complexity have rendered that irrelevant.  Even more irrelevant is the modern form of fiat debt currency, which has no value at all except as legally decreed by governments which may or may not be backed by international monetary cartels according to what they are willing to offer. 

Looked at realistically over the long haul, fiat currencies should be understood to naturally depreciate over time as the power of governments to enforce their control inevitably declines.  This makes interest a form of compensation for the fact that a depreciated currency will be of less value when returned than when it was borrowed and exchanged for real goods.  The real fly in the honey-jar is not that lenders should be compensated for real losses, but that they must make profits, and that for some strange reason profits cannot even remain consistent and stable, but must continuously increase.  This builds on the idea that a single seed corn might yield a dozen after a good harvest.  But any farmer knows that you only get one really good harvest every 3 to 7 years, and most years you barely break even.

In reply to by Escrava Isaura

MEFOBILLS Faeriedust Dec 31, 2017 3:50 PM Permalink

Gold initially was weight relative to barley.  So, barley "grains" became "grains" of gold.

Later, many thousands of years ago (probably first in Lydia Greece), gold was coined and became legal fiat.  Human's were still confused and thought gold was weight, despite the King's stamp; stamp making money a legal device.

Fit currencies don't have to be understood to naturally depreciate, if their VOLUME is held legally to goods/services according to scientific indices.

Also, fiat does not depreciate if it is CHANNELED to create new wealth, especially in the commons.

In other words, fiat can be made to not be defective, and it is only money type with that ability.

So, until mankind pulls head out of rectum with regards to money, then the word fiat will continue to be slur.  

Money isn't metal, it isn't credit, and it isn't debt.  It's true nature is law.

 

In reply to by Faeriedust

Radical Marijuana Faeriedust Jan 1, 2018 11:46 PM Permalink

"Looked at realistically over the long haul, fiat currencies should be understood to naturally depreciate over time as the power of governments to enforce their control inevitably declines."

The conclusion to the video that I remarked upon, in a reply below to another ad hominem reply to my previous comments, indicated that the most probable foreseeable futures are for the

"the power of governments to enforce their control"

to, most realistically, catastrophically collapse, in ways which manifest runaway criminal insanities. The overwhelming TRIUMPHS OF USURY (that the majority of people neither understand, nor want to understand), indicate that "we" are wasting our time attempting to change the outcomes that the majority of people will end up being mass murdered by the ways that money backed by murder manifest ... The baby, James, may as well kiss his ass good bye, while he still could.

In reply to by Faeriedust

Justin Case BennyBoy Dec 31, 2017 9:30 AM Permalink

When discussing the merits of capitalism and socialism, American media usually restricts the conversation to pointing out that socialist countries in the third world have lower living standards than the United States, a country widely identified with capitalism. Without any context or fair comparison, this alone is supposed to prove the inherent superiority of U.S.-style capitalism.

If the kind of neoliberal “free trade” advocated by U.S. corporations was the solution to global poverty, Mexico, a country long ago penetrated with the North American Free Trade Agreement, would be a shining example of development, not a mess of drug cartels and poverty. The same can be said for oil-rich countries like Nigeria, where exports are massive but the population remains in dire conditions.

The governments of Bangladesh, Honduras, Guatemala, Indonesia, and the Philippines have done everything they can to deregulate the market and accommodate Western ”investment.” Despite the promises of neoliberal theoreticians, their populations have not seen their lives substantially improve.

The American perception that socialism or government intervention automatically create poverty, while a laissez faire approach unleashes limitless prosperity, is simply incorrect. Despite the current hardships, this reality is reflected in the last two decades of Venezuela’s history.

In reply to by BennyBoy

shovelhead BennyBoy Dec 31, 2017 11:02 AM Permalink

Lol.

If that dollar was really backed by oil you'd have 5000 gallons of it in your back yard.

This dollar ain't backed by shit. That's why there's so many of them. Forcing other people to use them to buy oil and trade is not the same as being "backed" by oil.

In reply to by BennyBoy

Cautiously Pes… Dec 30, 2017 9:37 PM Permalink

Won't this kid have more important things to worry about in today's society?  For instance, it is paramount that children figure out which gender they want to be before they leave kindergarten, right?  

Clock Crasher Dec 30, 2017 9:49 PM Permalink

Usery is evil.  We need to compete against 3rd world immigrants and robots for devalued currency only after that currency has enriched the oligarchy and has little remaining value.  Wages have flat lined vs rising inflation.  

The debt is doubling every two term presidential cycle.  In time we will be in the vertical of the parabola.  With lower tax receipts and higher spending deficits rise.  This will trigger a technical recession.  Now the the dollar is in decline and rates start to rise.  But the government can not afford these higher rates so they raise money by selling more treasuries in competition with the Fed.  Now rates really rise.  

So the Fed has to defend the government from insolvency and cuts rates back to zero and starts QE.  Now the dollar tanks.  At this point foreign investors sell their bonds and the Fed needs to initiate two QE programs at the same time one to absorb the overseas debt and retire it and one to keep the government alive.  Now the dollar really starts to take a beating daily.  

CPI is now hurting John and Jane Q public.  Technical recession, a falling stock market and pension crisis manifest.  The Treasury issues helicopter money financed by yet a third wave of QE.  Now the dollar is falling hard against commodities and monetary metals.  Everyone liquidates their assets to stay fed.  The banks will then purchase all assets for pennies on the dollar. 

Get fucked. 

Scipio Africanuz Clock Crasher Dec 31, 2017 5:16 AM Permalink

Agreed! Usury is indeed evil but what exactly is usury? Simple really, it is unreasonable and unsustainable interest on loaned money i.e. "compound interest" AKA "8th wonder of the world". Usury ends up enslaving borrowers, and that my friend, is its intent. Simple interest on the other hand, simply tells you what compensation will induce a lender to give you temporary use of his "hard earned or not" money for your purposes. It is intended to instill productive discipline on both lender and borrower. Due diligence on the part of the lender, and careful utilization on the part of the borrower.

In reply to by Clock Crasher