Toes in the Water
Once again I'm going to talk about money, and currency, things I find fascinating, frustrating, and generally misunderstood. Money is anything that stores value, and is widely expungeable, meaning it's easy to trade. This makes almost any object money of a sort. Currency on the other hand is often not money, Fiat currency is never money, yes I'm saying those pieces of paper people seem so enamoured with are not money, though they are currency. So what does this mean on a practical level? For many nothing, they will not make the distinction, and will have a confusing relationship
with what has become an essential tool in an increasingly complex global civilization. Others will quickly grasp the concepts and see myriad ways to apply that understanding for individual advantage. Still others, myself among them come to a rather uncomfortable realization, at the core of many "conspiracy" tale. Private central banks of issuance in a fiat system have come to own the world. Crazier still, with how the systems have been set up, future generations taxes have been promised to pay for "borrowing" of the present (I used the quotes there due to borrowing requires something to be transferred). So the productivity of future generations has been promised as collateral for infinite "borrowing" power in the present. We hear screams of out of control debt in a system where no currency is ever created except through debt. There is a valid reason for this, we are in many ways a bipolar system. On the one hand coldly rational, on the other fluidly emotional. In pure fiat systems, being backed up by nothing other that acts of faith (laws, continuity of government, that the sun will come up...tomorrow), perception is often more important than the hard figures. When fiat currency systems reach numbers people start to view as unrealistic, it triggers a cascade collapse. This of course is an emotional event, not a mathematical event. In a purely math sense a fiat system can expand infinitely. So if debt is the basis of the system, yet to much debt crashes the system, what we have is cleaver tight rope act, of keeping enough debt being retired, or payed off, with a constant supply of new debt being created, Issues begin when you start to add in ideas of fractional reserves, leverage, interest, and speculation. Before I get on with a visualization of these concepts, lets take a quick stab at some of those issues.
The Waves
Fractional reserves, and leverage have much in common. Each act as force multipliers to steal a term from military strategy. In fractional reserve it allows for the lending of thing that do not exist. In simple terms, it lets a bank hold 1 dollar, and lend out 10. In a similar fashion leverage allows 1 dollar to pretend to be 10. These both create distortions in the Current Sea(more on this later), or economy, With the bank there is never any risk when using a fractional reserve system. Banks do not lend any money out, when a loan is created new currency is created, supposedly fractionally backed by bank money. This newly created currency has a life span of the loan, and it's value is in it's tie to house, or car, business it was originated for. Leverage distorts the current sea is similar ways by creating an artificial increase in total number of units making up the complete current sea.
Though it does so in a different manor. Using leverage you can take 1 dollar, put it up as your risk, while you use 10 dollars to speculate in some market, or venture. Leverage is generally a short term loan so to speak. often lasting only the day. This is tied in to the ideas of margin, Margin calls have, or the act of calling in all loans due, is how our system has repeatedly transferred real wealth to the banking interests.
Interest, or usury, especially compounding interest might be the single biggest factor in turning currency from a tool to support the development of humanity, into a tool to enslave it. As already pointed out if a fiat system our currency has nothing physical backing it, and is only brought into being through creation of debt. This sets up the need for what has become known as the infinite growth paradigm. Essentially, if you borrow 10 dollars today cuz you need to eat, and promise to pay it back in a week with interest here is a simplified version of what takes place. You go to a bank, and ask to borrow 10 dollars cuz your hungry, you say you will have more currency in one week, and pay it back in full at that time. The bank says sure, but, you have to pay us 11 dollars. The bank than types 10 dollars into a computer letting the current sea know you now have access to this newly created energy. Ok so at the end of the week you have used the 10 dollars, and go into the bank and hand over 11 dollars just as promised, sounds ok right? On a closer look this presents many problems. As soon as those 10 dollars are created, the value, or purchasing power of each existing dollar is reduced. The 1 dollar of interest was never created, so must be taken from somewhere else. This where the enslavement comes in. where that effort it takes you to generate that dollar is taken from you. In basic theory the interest is the banks "profit", in reality it's much different. As the dollars did not exist until you asked for them, and you "paid" the loan of those phantom dollars with dollars obtained from another source, be it your work, or a loan from another source, or whatever, the whole 11 dollars is pure "profit" with zero risk, all at the stroke of a few keys. This also creates a system where all currency is not created equally. Currency created at lower interest rates becomes much more powerful, and desirable, as it can be used to for speculative purposes with a higher rate of return. That might seem complex, but really it's fairly simple, if a dollar is created with .10 cents of interest attached to it, or a simple flat 10% interest rate, that dollar starts out with a value of 90 cents. Where a dollar created with .20 cents of interest attached with start out with a true value of .80 cents. Not to tough to see, how these hidden differences in the values of the same currency can be exploited by those with access and understanding. Another distortion occurs when the interest rates are manipulated, causing misallocation of currency, along with a changes in the currency velocity. When interest rates are held artificially low, currency pools as the perceived risks of "lending" it outweigh the potential returns, as well as higher returns are easier to find in speculation of growing pools of currency that new real world productive endeavors. When interest rates are artificially high than the speculative investment moves into making loans. Causing the currency velocity to soar, but increased risk in the nature of the loans made. Many other issues exist in interest being attached to currency creation, just look into the history of usury.
Lastly, before we take a look at the idea of the "Current Sea" lets look at at how speculation warps, and distorts our whole economic system. First off there is a difference between speculative, and productive investment. Productive investment has real world attachment, and purpose, for example a community coming together to be sure the farmers have enough seed to provide for food needs, or even providing the currency for research and development of new technology, or advancement of medical understanding. Productive investment carries a risk to the currency invested, but the pay off is not in a return of currency, but produced item, or resource. The flip to this, speculative investing is purely done with the intent to generate more currency for the investor.
Productive investment adds to the well being of the whole, multiplying the beneficial effects of new development by pooling the resources of a group, and directing the flow of the "Current Sea". On the other hand speculative investing is purely done for the purpose of generating more currency for the speculator. Now it still sometimes provides currency used for productive means, and many productive investments are speculative. The real problems arise when the investing drifts into the purely speculative. In commodities when there is no actual transfer of possession, and the speculation is purely on paper, it creates distortions in value of products people rely on for daily survival such as food, and water. When currency itself is allowed to become a speculative commodity, the potential distortion to the purchasing power of the individual units of currency can be catastrophic. Basically each dollar used to bet on the future value of the dollar distorts the current, and future purchasing power the everyday person uses to sustain their daily lives. Pure speculative investment is a tax, plain and simple it creates no value, instead stealing value from whatever it infects, kind of a parasite, on the productivity of the whole. So how can these be avoid, while still allowing for the benefits or fiat currency? Just change how currency is viewed and hopefully it becomes evident.
Smooth Sailing
I've repeatedly used the term "Current Sea" throughout this meandering, but what is meant by it? Our economic system taken in it's entirety is the "Current Sea", with the people, and corporations being the entities, and the currency being the water all depend on and exist in. Like any body of water it has currents, eddy's, shallows, and hidden depths. It can be likened to a living sea with all different types of entities all connected and sustained by the sea. So pretty easy analogy, currency is the water, the life blood, or energy flowing through our "Current Sea" driving the living system that sustains us all. With this depiction in mind, apply some of the distorting ideas, suddenly some of the entities find themselves as fish out of water. The distorting effects of our current economic systems could be likened to whirlpools, drawing in more and more currency, sucking it away from entities on the edges of the "Current Sea". In a healthy "Current Sea" the currency flows bringing along with it all each entity needs to thrive. This relates to the ideas of money, and currency in profound ways, true money becomes a store for currency, but not currency itself. Currency stays in it's proper place as the life blood of productive endeavor, while money acts as a store house for the future use of
productivity. Under the rules of the game as we now play, a central bank of issue, combined with a cartel of private banks run the "Current Sea" for the benefit of themselves. In an ideal system the currency would be managed from the perspective of keeping the "Current Sea" healthy. In other words keeping the currency as a tool of the people. In this type of system, the entities living in the "Current Sea" naturally direct the flow of the currency, ebbs and flows of industry come back to demand based. The rise and fall of the so called business cycle ceases, to shamelessly steal from those much more perceptive than I, the spice flows.
I have no degrees in economics, and might be inclined to debate if any such thing is reasonable in relation to what is an admitted pseudoscience. Our systems have been increasingly complexified in order to obfuscate it's true predatory nature. If I need more qualification aside from having been a participant for my entire life and being capable of observation, it has yet to been brought to my attention. I could go on and on, but I think that will have to wait for future posts.
Jack
aka
PanseyBard
