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Wednesday, May 7, 2014

Saving Civilization: Currency

How a society engages in economic exchanges is crucial for its survival.  Without economic exchange, everyone struggles to cultivate food, clothing, and shelter on their own.  In a civilized society, this is not needed as people can specialize their skills in a particular area and engage in trade in order to acquire the things they lack.

This is why, for instance, not everyone has to be a farmer.  Instead, only a small group of people need to be farmers in order for the rest of us to eat, provided we have means to pay them.  The past century has seen huge leaps in technology that has come about largely due to less people having to jack off turkeys and bulls in order to get their protein in the future (when I put it that way, you begin to understand why people went to coal mines and polluted factories).

The more sophisticated a society, the more likely they are to develop some means of currency or money to facilitate exchanges.  Money is a medium of exchange largely because people don’t like hauling around a gallon of goat’s milk in order to obtain a bushel of wheat.

So our modern monetary system is certainly convenient.  We don’t even need to carry around actual silver or gold any more as our currency is in the form of paper, copper, nickel, and magnetic strips.  And it has certainly been a huge factor in ensuring that our civilization remains in an advanced state.

The trouble right now is that our entire banking system, which basically regulates and creates money, is nothing more than legalized fraud.  Experts call this fractional reserve banking.  I call it fraud.

Basically, fractional reserve banking is where the bank keeps a fraction of your money on reserve but loans the rest of it and gains interest from it.  In other words, they make money off of the money you give them.  What’s more, it is usually money that they have loaned back to you.  Tell me again what the interest rate is on your checking account?

All money that you deposit into your bank accounts is no longer your money.  What you have done is given the bank a loan on their terms.  And they will only hold on to a fraction of it, while claiming they have all of it, and loan out the rest to you and your friends at higher interest rates.  Talk about a scam.  A street hustler would envy this scheme.

The problem with this model is that it is temporary.  By temporary, I mean it only works for a little while in a free market before the whole thing collapses.  But in a government-controlled (or regulated) system, it can last much longer than it should.  It does eventually collapse, but it just takes longer.

On top of the legalized fraud that is fractional reserve banking, which is propped up by the government, we are no longer under a commodities-backed currency.  You see, when money was first created, it was usually in the form of gold or silver.  Since the actual metal was too valuable to carry around freely, it was often kept in a vault and the owner could issue a certificate that represented a portion of his or her precious metal holdings.  This is how paper currency came into play.

But back in 1913, the US currency was moved to a fiat system which basically where money is backed by the full faith (force) and credit (force) of the government.  In other words, the money was no longer measured against a precious metal, but by the end of a gun from a government agent.

It doesn’t bother most people.  By now, most people are used to using either cash or a credit/debit card when making purchases, so nobody has really noticed.  The problem is that over the years, more and more currency has been flowing into the system since there is nothing stopping money from being creating.

With a commodities-backed system, you see, there was limit on how much paper you could issue.  Without that in place, the owners of the printing press create more and more money than spend it before it gets devalued when the rest of us get it.

Unfortunately, this system is doomed to fail as there are always upper limits to what can happen.  Already people are buying gold, silver, bitcoins, and whatever other alternatives they can get their hands on in order to “beat” the failing system.  The financial system itself can only push out more and more money.

Economists on both the Left and Right believe that the Federal Reserve should flood the market with more money to encourage spending.  The trouble is, in doing so, they encourage more debt, and less saving.

There is a time to spend money of course.  And there is a time to save it.  The trouble is, when you encourage spending over saving, you are also encouraging high time preference thinking, which leads to behaviors that do not preserve civilization.  If you live for the moment, you starve in the next moment.

On top of that, there is only so much debt that a person, company, or institution can take on before they have to default on it.  At this point, anyone buying a US treasury bond is a fool of the highest order.  So there are upper limits to this system.  Eventually, it will come crashing down.

The solutions are not simple, easy, or painless.  What needs to happen is for the Federal Reserve to be abolished and a system of free banking be put in place.  Or an alternative form of banking created instead of the one we have now.  This is hard to do considering how the Liberty dollar founder was called a financial terrorist by the US government and sent to prison for 40 years.

The truth is, I don’t think we can do much of anything to save civilization from the currency collapse that is coming.  But if we are to save our civilization from it, we will need to be prepared to fight whatever the elites try to establish afterwards.  More than likely, it will be another fiat system like we have right now, but back to the 1913’s value.

Just be ready to fight for something better that doesn’t leave our children destitute.