Money
In the present financial system, money is literally created as debt.
- The existence of the Fractional Reserve System means new money is created any time someone takes a loan from the bank
Currency is just a way of tracking debt, and debt is only meaningful if you believe it will be paid back
While religion asks us to believe in something, money asks us to believe that other people believe in something.
Money is based on 2 principles:
- universal convertibility: ex. a physician can convert health into legal assistance, a prostitute can convert sex into food etc., thereby negating the need for barter.
- universal trust: any 2 people, no matter how little they trust each other, can exchange goods/services for money
Fiat currency
Fiat currency is money that is created by government fiat (ie. decree), as opposed to individual bank.
It is legally enforceable that Fiat money is accepted as a medium for payment of debt. This amounts to the government giving its stamp of approval on the money, claiming that no matter what, this money has value that is enforceable by the government.
Money can only be created by issuing debt for the same amount, that means if the banks were to decide to stop lending and thus create no more ‘new’ money, that’d be a big problem because there isn’t enough cash out there to actually pay off all the debts. On the other hand, let’s say banks continue to lend and create new money. All the loans at some point need to be paid back with slightly more money (interest charges); this means whoever is receiving the loans must be growing their business in order to just keep their net value even. This then assumes that all businesses out there can continue to grow; in effect this means it assumes the economy itself will continue to grow, forever.
Let’s say the economy does grow forever, at a higher rate than money is created; that’s fine, but means a slow rate of deflation (more goods becoming available relative to the amount of money available). Conversely, let’s say the economy does grow forever but at a slightly lower rate than money (debt) creation; this is a big problem, as was alluded to earlier: the businesses taking on the loans are not able to grow their businesses as fast as is required by the interest rates, so by the time they pay off their loans, their net value is slightly lower. If this were to continue on infinitely, eventually all net value is transferred to the banks.
Backlinks