This post will look at the mechanics of Fiat debt based systems and the incentive structures that it creates for society, and then compare it to the mechanics and incentive structure that would be present under a competing and decentralized financial system… I will then elaborate on the profound changes that will reshape society with the decentralization of currency, after all currency and money (whether you like them or not) are a central aspect of any functioning market economy as virtually everyone exchanges in, and is dependent upon, money… I think giving a detailed theoretical picture of a decentralized financial system and how it would work is of the utmost importance in a world ignorant of money, of what it is and what it means… I’ll show you how money should work…

The Essence Of Money

Life is about exchange, and exchange between people… In economic exchange, we exchange goods and services… When us humans begin trying to exchange, it will be through direct exchange, that is Barter… The inherent limitations of direct exchange naturally leads to indirect exchange, by way of a medium of exchange… That medium of exchange will evolve into common mediums of exchange, and eventually to The Origin of Money… The money that is voluntarily adopted by the market will be naturally scarce and over time will increase standards of living, that is the Essence of Money… The increased standards of living expressed in the rising value of gold and silver will lead to a need for a specific industry to make storing and exchange of money more efficient, and The Origin of Banking… From Banking will “evolve” Fractional Reserve Banking and The Business Cycle… We’ll kick off proper here…

Fractional Reserve Banking

Fractional Reserve Banking I would posit is the start point for a debt based system… By printing more paper tickets than you have precious metals in reserve you create something that is not there… You are artificially inflating the money supply… Just to be clear here, gold and silver are also (technically) inflating money supplies as they are pulled out of the earth and added to the stock/and or flow in the market economy, at a rate of about two percent a year… In other words the money supply as controlled by the market dictated by the scarcity of gold and silver in the earth would increase at two per cent per annum, a two per cent inflation… Fractional reserve banking is inflating currency on top of this natural increasing money supply, thus distorting that money supply… By printing paper money and spending it on REAL goods and services, the banker gets other people’s stuff for free, and creates a deficit that cannot be satisfied by the REAL underlying capital (gold savings)… In simple terms an unsustainable debt is created, as ALL debts (outside of debts in real money) are ultimately unsustainable… The more the money supply is inflated the bigger and more unsustainable the debt becomes and the more disconnected it becomes from the underlying capital base (boom stage)… At a distant but definite point in the future, this deficit will be noticed by the market as the underlying savings cannot service the artificially increased supply (bust stage)… This deficit will manifest as mass bankruptcies and physical bank runs in which depositors flee to exchange their paper tickets for the REAL underlying savings base (gold and silver)… This is the bust stage of the cycle, where the market discovers the mis-allocation of capital created by fractional reserve banking and corrects the fraud of the banker… In a physical bank run the paper derivative layer (paper money) becomes worthless, as they are only a paper claim on the real thing… I could have summed all of the above paragraph in nine words; you can print money, but you cannot print trade…

Inflation And Interest Rates

Interest rates are simply the price of money… Would you lend someone a hundred pounds today in exchange for getting that hundred pounds back in one year? Only if you were mentally ill… If you lend someone your money, you would be without it for a year depriving you of consuming it yourself, and you would be risking giving it to someone else for a year with no guarantee of getting it back, and so you would never lend it to someone (outside of charity) for free… For deferring gratification for a year and the intrinsic risk of giving someone else your property, you ask a premium on top of what you leant… The interest rate is the rate needed for money holders to get interested in lending it out… So there will be, and has to be, a price for money for that money to be productively invested… You will have a saving rate and a lending rate, dictated by supply and demand and the intermediaries of saving and lending, banks… When banks artificially inflate the money supply this supply and demand of the price of money is distorted… The inflation creates an excess of paper notes which fools the market into mistaking this debt as savings… The market now believes that there is more capital to underpin the consumption of the economy, and so the marginal cost of money decreases to account for this increased (but fake) capital… The interest rate, the price of money goes down, because of the belief that there is more money out there to lend… Of course there is no REAL money, only paper money… The market is temporarily fooled but only until it realizes that the capital really isn’t there, that it is just imaginary… The market realizing its mistake and in order to purge this mis-allocation back to equilibrium, interest rates start to rise to account for this scarcity of REAL money… Rising interest rates lead to bankruptcies and the extinguishing of the debt created by the boom… As more bankruptcies hit more of the mis-allocation is uncovered, the more people seek the sanctity of precious metals in lieu of paper claims… When people get scared they will hoard, waiting for a rainy day in an uncertain future… In this climate it takes a lot more interest for people to part with their money, and so interest rates will rise until there is interest once again in lending out money… Inflation of the money supply whether over years or decades is a temporary phenomenon, which the market will eventually purge…

Inflation And Purchasing Power

When you artificially inflate the money supply you create additional paper units or credit (debt) over and above base money (gold and silver)… Imagine you have a thousand pounds worth of silver in the banks vaults of a local economy with a thousand pounds worth of paper notes exchanging in the market… In this instance the paper currency conserves the full purchasing power of the underlying base money… Now imagine the banker printing an additional thousand pounds worth of notes… The currency supply is doubled, but the underlying money base and goods and services base haven’t changed, which means that prices of goods to account for the inflated money supply will also double over time… Seeing as the banker has control of the printing press he gets to spend his counterfeited notes first and at the original purchasing power of the underlying money… The banker gets to exchange his printed paper notes for REAL goods and services thus defrauding the general public of their purchasing power and private property rights… As these additional paper notes percolate through the economy the market recognizes this inflation as an increase in currency units per marginal unit of REAL goods and services (that cannot be printed), or in simple turns prices for goods and services in that currency increase… By the time the currency has percolated down to those furthest away from the printing press (the poorest and lowest rung in society), prices for goods and services have doubled… Inflation is a tax on poor people for the benefit of the rich… When the money supply contracts following the speculative boom and triggers a physical bank run, people get scared and hoard their physical… There is less gold and silver available to exchange for goods and services in the market, and so prices start coming down… Prices will drop until the market liquidates the artificial speculative boom, from the hyperinflation of the paper currency, down to the bedrock of base money (gold)… Scarce gold and silver of the market acts as the shackle of reality for free market fractional reserve banking, protecting the property rights and purchasing power of the common man…

Central Banking

We have established that inflation of the money supply leads to distortions of both interest rates and purchasing power that the market will correct… When a Central Bank is instituted it takes away this power because gold and silver are no longer base money, Central Bank Fiat is… The now centrally issued currency (Dollars, Pounds, Euros, Yen) is the new base money, even though this currency is redeemable for gold and silver on demand… It is onto this base money that the banks continue their fractional reserve banking… This is far more profound a development than what it would first appear… Fractional reserve banking and the Business Cycles it creates is no longer confined to the individual banks and their localities off a decentralized issued (mined) money, now Fractional Reserve Banking is off the Central Bank issued base money, and so Business Cycles go National… If the Federal Reserve hadn’t had control of the monetary base of the United States, you wouldn’t have had the Roaring Twenties or the epic hangover of The Great Depression (1929-1946) that followed it… Once the issue of currency is centrally controlled then as all other industries are compelled through Legal Tender Laws to exchange in that currency, the carnage chaos and misery that a small handful of bankers can create destroys the whole of the Nation that Central Bank is in… And once a Central Bank has “legally” replaced precious metals as base money, it is only a matter of time until precious metals as the money and defender of the purchasing power of the people are removed completely from the Central Banking System…

Central Banking Full Retard – The Debt Based System

The 20% gold backing that the US Dollar as World Reserve Currency had until the Nixon Shock of 1971, was replaced… Gold was “demonitised” from the Global Financial System to be replaced by the pure Fiat Petrodollar… Look at historical charts of credit, financialization of the economy, the cost of living, the cost of housing, the wages of sportsmen, prison populations, and growth of State Institutions and the Centrally Planned Society, and you will see that everything goes batshit full-retard after 1971… This is simply because the gold shackle was cut, and therefore mark to market (goods, services, property exchanged in precious metals) died… Without precious metal backing, inflation of the currency goes unconstrained and creates the Boom Bust Bubble economy immiserating more and more of society over time… Free market price discovery (goods and services exchanged in precious metals) is also abolished but I have to say only temporarily, for no boom can artificially go on forever… As I have told you artificial inflation also creates a deficit, or debt; well with Central Banking this deficit is monetized, otherwise stated we have a completely debt based system, where debt becomes wealth, and when neither are distinguishable from each other any more… You may also call it usury, because now you are paying principal and interest on debt not REAL money (gold)… You work hard to pay back your debts that has cost a small Elite Cabal of Criminal Bankers virtually zero to produce, money for nothing… This is beyond criminal… When you cut the link between goods and services and gold, those goods and services will become highly distorted by the unconstrained money printing of a debt based system, as long as that Ponzi System lasts before inevitable hyperinflationary collapse… It’s been a long forty five years, but this system is visibly dying…

Society In A Debt Based System

The debt based system is basically the enrichment of the Elites who have control of that printing press and licence to print money, and use it to spend into existence Politicians, Intellectuals, Education and Media to convince you to keep up with your taxes to pay for them… The goods and services you work hard to produce are recycled through the currency to pay for foreign wars and domestic totalitarian police and surveillance states… You keep funding this system that makes you poorer by being forced to exchange in its debasement… With Central Banking over time, the rich that are connected to the printing press get richer, while the rest of society gets poorer, resulting in wealth inequality… Because this money is designed to make you poorer over time, you will have to work harder over time to maintain you and your family’s living standards… When your labour is not enough, then it becomes necessary for both parents to work for a living to maintain that standard of living… The children are then effectively kidnapped into Public Educated schools and indoctrinated into the Statist and servile mindset that the Elites desire… Modern Education is to prepare the next generation of Tax and Debt serfs for the slavery of the modern workplace in funding and maintaining the status quo that Centrally Plan it… Families are fractured with both parents working and their children under the influence of people they barely know… When you cannot maintain your standards of living still, well then you have to go into debt… Central Banking has blown such a Global Real Estate bubble, that you will struggle to find anywhere a housing market where you can buy outright with your salary, so you need a mortgage, you will need to go into debt… Not only does inflation over time rob you of your purchasing power, but the inflation also flows into the goods and services of things you need to survive, water, food, housing, car, etc, making them more expensive, and enslaving you in debt to pay them back… You are now a certified Debt Serf, that is added to your Tax Serfdom in enriching parasitic Ruling Elites… A slave to the system…

The predictable results of an inflationary monetary supply can be seen all around us today… Fractured individuals, families and communities as everybody is perpetually working to keep the wolf from the door as they sink deeper into debt… Voluntary institutions eliminated by Local Authority Governmental bureaucracy and grant paid for institutions, again with more printed money… You spend more time apart from your family and community to pay for the State to intrude more into your everyday lives… Debasing the money of society is debasing the people that exchange in that money… You really do the fund the system that impoverishes you… The good news is that Centralization is a definite point in time, and cannot go on forever… As a Debt Based System relies on the exchange of goods and services for its value (after cutting the link to gold), then it is reliant on intrinsic scarcity as you can’t print people, entrepreneurs, or exchange out of thin air like you do paper notes or electronic digits… When the money printing (debt) of that economy cannot be serviced by the voluntary and productive private sector and their heavily regulated goods and services, is when that system collapses… As we know through several quantitative easings in the last seven years, the solutions of the bankers to the problems of money printing, is moar money printing… It is the only solution left, other than collapse of the system… Eventually they just print so much in debt to service the debts, the money becomes worthless… Hyperinflation of the currency is the INEVITABLE endpoint of a debt based system, and it happens when society loses confidence in its scarcity… This time will be no different…

Back To The Money Of The Markets

I have previously discussed in detail how gold and the blockchain is a digital gold standard on steroids, so I will combine them when talking about them… You will see when I describe market monies how similar gold as physical money, and Bitcoin as digital money, are… The similarities are quite astonishing and makes you realize just how brilliant Satoshi Nakamoto really is…

A market money is not issued centrally by anyone, but is chosen by the market because of its superior utility and scarcity as money… Gold does it physically and Bitcoin (and many future other currencies to all manner of economies of scale) will do it digitally… Nobody issues the money but it is mined into existence (gold out of the ground, bitcoin by computer mining power), and the rate at which the stock of money inflates is at roughly two per cent per annum… These market chosen monies are scarce and inflate at a predictable determined and pre-determined rate… There are no currency “shocks” or sudden inflations and devaluations that rob you of purchasing power overnight, just a steady rate of money production that allows you to plan predictably for the future… Now doesn’t that make life just a little bit easier…

Market Monies Are De Facto Deflationary

The most important aspect of market monies in my opinion is that they are chosen… Even though a State might enforce usage of another money to defraud and debase its citizenry, when that State inevitably blows up they will return to choosing their money… They will only choose a money that has utility and intrinsic scarcity, and they will only choose a money that inflates at a slow and determined rate… Gold and Bitcoin inflate at around two per cent per annum, giving you a two per cent inflation per annum… This would be in a stagnant economy with no innovation, whereas we know that humans are all about innovation… In the absence of State and Banking regulations and controls, if we assumed that humans free to voluntary exchange would increase productivity at five per cent per annum (which in my opinion would be vastly understated), then with an increase of only two per cent in the money supply, would mean a three per cent deflation per year…

A Deflationary currency basically means that it increases in purchasing power over time, or in other words the supply of goods and services into the market increases at a higher rate than the supply of money… A three per cent deflation per annum would mean that the goods and services would become three per cent cheaper over the next year… This is a completely different mindset for most people to fathom… Your money no longer loses purchasing power over time, but it increases in purchasing power over time… You get wealthier over time, and so does everyone else… The costs of your most urgent needs and wants, water, food, a home, a car, luxuries, etc goes down over time not up! You have to work less to maintain your standard of living, which leaves you more free time for relationships with other people, your family, your friends, your community… Market monies are the monies that increase your standard of living and gives you that most precious of freedoms, that of your time… A three per cent deflation over ten years would be a thirty per cent deflation over ten years, otherwise translated in ten years you could work thirty per cent less in order to maintain your living standards… Deflation is the gift that keeps on giving…

Deflation And Interest Rates

Interest rates this last century have been distorted by printing money and creating debt, and they are nowhere reflective of time preference and the REAL productive capital underpinning society… Zero Interest Rate Policy doesn’t abolish real interest rates it just forces them down artificially for a period of time pushing the coiled spring further and further from the equilibrium of real supply and demand that it seeks… Central Bankers cannot control interest rates forever, and when they do finally lose control that is when you’ll see the interest rates spike, Volcker style… Interest rates will spike until supply and demand align that will be far higher than zero, but will acknowledge the deficit in REAL capital that has been built up this last century of Central Planning manipulation of the price of money and time preference, and after plateauing will start going lower again… These interest rates are now going lower because the capital base (the savings) is increasing, which means more savings to lend out and the more plentiful the savings, the lower the cost of those savings will be… In a deflationary environment interest rates will lower until nearly at, but never quite reaching, zero… In a free market economy purchasing power goes up and interest rates come down…

Deflation And Debt

To be clear, now that we have eliminated Fractional Reserve Banking we have eliminated the debt of usury, the artificial and temporary debts and deficits caused by printing money… In a world of market monies there are only the debts that are lent out of REAL savings, and seeing as Blockchain Technology makes banking obsolete and with the open source value free platform of the blockchain allowing FREE COMPETITION, the banks won’t be required going on… The money lending that will be done, will be done most probably by lending clubs and institutions that have existed in the Fiat System for the last decade and more… Where you have willing lenders and borrowers you will have a market for lending and borrowing, but with decentralized money you have decentralized debt markets, and so the necessary lending and borrowing institutions will service the scale of that industry… But consider further than just the natural interest rate, also the deflationary rate of the money… Debt works well in an inflationary money environment because interest rates go down over time (artificially) and so debt becomes cheaper even as you are also losing purchasing power, but debt doesn’t work well in a deflationary environment… The deflation rate adds an additional premium on top of the interest rate… For example say if you lent out a hundred pounds out for a year, you know in a year that your money will have increased in purchasing power three per cent, so not only do you have to pay the interest rate you also have to pay the deflation rate… The more deflationary the environment, the more debt becomes prohibitive, because producing and saving becomes more valuable… Why go into debt when you that all you have to do is save, and the needs and wants you desire you know will be cheaper year after year? Deflation gives you the incentive to produce rather than consume, and transforms the incentive structure of the whole of that society… Indeed, in a deflationary environment of increasing purchasing power of money, debt becomes obsolete…

Society In A Deflationary Environment

I feel I have another post in me to discuss this in a lot more detail, but for now I’ll give a brief description… We have established that deflation of the money supply means a rise in purchasing power making debt prohibitive… This is much more profound than it first sounds… In this magical world of scarce and unprintable market monies then everything priced in money becomes cheaper… Forget asset booms and bust because those don’t exist in this world… For example, an average house will not be shooting up in value over time (as happened the last fifty years of inflation), but will be going down in value over time… Real Estate ceases to become a speculative asset, because just holding the money will make you three per cent better off per year than investing in property… With the housing market going down in value over time then houses become homes for families rather than a speculative gambling casino where once every decade housing markets crash creating negative equity and bankruptcies and misery… The more affordable the housing the earlier young people in love can buy a house outright and settle down to build a family and their future… Deflation is a cornerstone of Traditional family life… And what goes for housing goes for the rest of the market, whether the car market or the food market o… Stuff just keeps on getting cheaper…

How Deflation Benefits The Whole Of Society

Inflation (outside of the carnage of The Business Cycle) is a zero sum game in terms of the redistribution of wealth, the bankers print money from fresh air and get the value of REAL goods and services of the market in exchange… It’s a very clever and devious way of transferring and strip mining the wealth of the 99% and redistribute it to the 1% so they can control and centrally plan the 99% with their own money… Inflation enriches the top while sucking up the wealth from the bottom of society, the poor, the needy, and the destitute, and really is a crime against people… Deflation is also a zero sum game, but because the money supply contracts compared to the production and goods and services of the market, then the purchasing power of the whole of society increases… Living standards (three per cent a year over ten years would be thirty percent per decade) and comfort increase for rich and poor alike, and undoes the wealth inequality created by Elitist control of printing presses… All you Leftists that bleat on about the Evils of Capitalism, well this is REAL Capitalism where money is controlled by the free market, and all who hold that money share equally in that increasing wealth… REAL Capitalism is Wealth Equality… In a deflationary environment, the poor will not stay poor for long…

Conclusion

Inflationary monetary policy is and always will be a political phenomenon, in order to enrich one sub-set of society (the 1%) that control the money supply at the expense and impoverishment of the whole of the rest of society (the 99%)… In the course of printing money, debts and deficits are created, interest rates and the price of money are distorted, and purchasing power of the money drops over time… In short inflation is a productive citizen’s worst nightmare, which is why a whole intellectual class of “experts” are there to tell you it isn’t and that rising costs of living and Moar debt are good for you… The de facto state of nature in the real world, is deflation… Physical gold and silver and Bitcoin/Blockchain as their digital equivalents are deflationary currencies leading to lower interest rates, the effective prohibition of debt, and increasing purchasing power that benefits the whole of society equally… A world of deflationary currencies is an utopia of ever increasing wealth and value… It won’t be long now…

Life is about exchange… You exchange life and love with family, friends, and community, and you also exchange goods and services in the market… The balance you strike between working and being with loved ones is crucial and critical to your mental health and well being… Put your loved ones before your work and you might be poorer financially but you gain in family life, but put your work before your loved ones, and you risk becoming estranged and fracturing family relationships… Inflationary money distorts this balance by forcing to you work longer and harder to maintain your standard of living, and therefore depriving you of the familiarity of those closest to you… With both parents nowadays essentially forced to work to pay for the Central Bank Enrichment Ponzi that robs them blind and with children essentially kidnapped and indoctrinated in compulsory schooling and education, is there any surprise that the family unit has broken down these last several decades? Nobody is ever at home, the parents working and the kids at school, and they see more of other people than they do each other… The strain that inflation puts on the family units leads to fracture and a generation of fragile and miserable children, and all this calamity that befalls society I put squarely at the feet of the artificial inflation of money… In a deflationary environment, the work life balance shifts more towards life because now you have to work less to maintain your material standards of living… The most important commodity you will ever have, that is of your time, is freed from working and allows both parents and children more time at home together with each other… Life under deflation is a lot less worrisome and more laid back… When the pace of life slows then that quality of life will also improve and your precious time is freed for what’s really important in this life…

The difference between the inflationary Hell of Modernity, and the deflationary Heaven of a Traditional way of life, is which currency you choose to accept for what you produce and consume… You give your hard earned wealth to the Banking System and it will keep you overworked and indebted, whereas market monies will keep you comfortable and make you richer doing nothing… As this inflationary debt bubble blows up and as people get ever more desperate in seeking alternatives, then these market monies will make themselves apparent… These market monies will be chosen as the most efficient and stable solutions to the eternal requirement of voluntary exchange… Choose these monies and be happy…

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