Monday, August 15, 2011

Guest Post: The Painless Cure to Our Monetary System

The Painless Cure
(A Proposition: On Seamless Resetting Of Our Economies)

To my utter amazement, I’ve concluded that neither ‘Chicago’ nor ‘Austrian’ economists seem to grasp how the mechanism of our ubiquitous virtual ‘money’ system essentially operates, which occludes their recognition that it’s such a total paradigm shift from its former manifestation, that their familiar ‘rules’ only marginally apply to it. What prompts my bewilderment is that it’s all so clear to me, yet I haven’t been blessed with the luxury of time to academically study the question as intensively as they. I can only attribute this anomaly to intellectual confinement within their respective ‘philosophically rhetorical boxes’. Nevertheless, since I too recognize an impending economic catastrophe looming, I feel obligated to make some effort to put my view into the general discourse, hoping it can merit broad consideration and unbiased critique.

How Did This Happen?

In formulating this hypothesis, I looked back into history at what force drove us from a specie money system to this virtual ‘money’ dominating our world’s economies.
From ancient times, governments’ officers and their elite cadres have depended on excise taxation of trade. As long as the prices of goods-at-market could be maintained or increased, the percentages of excise dependably supplied government operations. It was therefore imperative to ‘defend’ that pricing of goods. However, money obstinately rose in value, consequently driving those prices down. This phenomenon, I ascribe to what I call the ‘Population Demand Factor’. As the recovery of money metals applicable to circulation has been historically less than population growth on average, the slight disparity has slowly driven up money’s ‘intrinsic’, rational valuation by growth of demand.

So, unlike others, I don’t attribute ancient governmental incidents of debasement, clipping and alloying to avarice, so much as in ‘defense’ of prices from which their revenues were derived. In this viewpoint, governments were simply attempting to balance the appreciating value of money to the desired prices of goods. Still, extortion has always been the presumption, but more poignantly, it proved ineffective, as people simply ignored money’s ‘official denomination’ stampings and rather ‘defended’ their money’s value in opposition by assay of weight and fineness or silent enactment of ‘Gresham’s Law’.

At length, the Chinese innovation of paper money seemed to offer a way to monetarily ‘inflate’ those desired price levels beyond tactile apprehension of The Peoples and so it was adopted. By constantly lending this paper ‘money’ into the markets, the rapidly resulting effects of interest’s deprivation on circulation and impoverishing loss of purchase power were blatant. Prices weren’t maintained, they were enormously distorted. It became clear that to manage inflation’s effect on prices, it was necessary to ‘fix’ interest rates to coordinate currency inflation and price maintenance smoothly. Thus was the necessity for ‘Central Banks’

The System is Self-Destructive and Uncontrollable

Today’s currencies are exclusively issued from sole-source Central Banks as loaned principal, at interest payable only in the same currency. Obviously then, the interest servicing currency can only come into existence by further borrowing as new principal at interest. So, we now have a condition of interest compounding on interest, merely to float circulating currency. This ignores subsequent loan of that currency at interest, magnifying the servicing burden still further. In a nutshell, the monetary system is automatically co-generating principal from interest and vice-versa, in an infinitely reverberating closed loop. Extrapolating the growth of interest through ‘complex compounding’, it isn’t difficult to recognize that this expansion of interest must cross into a state of exponentiality.

Though, as envisioned, ‘fixing’ of interest rates by Central Banks does operate to slow down inflation; it’s that complex compounding, mathematically progressing towards exponential growth of interest that overtakes all capacity to maneuver the thing. Despite their initial expectations, it has always been systemically, a self-perpetuating Maw. Like the ‘event horizon’ of a Black Hole, no escape from oblivion is possible beyond that juncture. What makes this so?

While currency inflation and interest service continue to feed one and the other’s inexorable expansion, increasing allotments of productive potential, then sustenance consumption itself, are driven into interest service. Bankers are powerless to control it and all Politicians can do, is to channel the rivers of currency cascading out of the ‘machine’. All the while, necessity to borrow ever more new currency into existence to service the exploding interest obligation must occur, or the entire system implodes instantly.
Someone absolutely must borrow more and more and more.
If not The People, then industry, or government, domestic or foreign. Regardless … ‘someone’ … must borrow interest service currency into existence … perpetually.

Only One Way To ‘Kill The Beast’.

The solution is to re-set our economies to their natural conditions, as they were prior to our currencies having become ‘paperized’. Global estimates are that virtual ‘money’ has depreciated an average of 95% in terms of purchase power since central banks began issuing their banknotes. In the case of America, the depreciation is more like 97%, so the proper expression here would be a 10 gram copper piece per banknote unit, As there are sufficient domestic stockpiles of copper to entirely replace all current banknotes and credits, the ‘national debt’ would be liquidated, leaving all its associated taxation removed from society to, in turn, liquidate private debt. Similarly relieved business operations would then be able to embark on accelerated amortization of their debt and capital investment for renewed expansion of productivity.

The paramount result of following this course will be that all wages, prices and accounts will remain nominally unaffected except as to be quoted in ‘coppers’ as opposed to banknotes. The entire superstructure of our financial infrastructure will continue on normally without anyone suffering deprivation or tumult, regardless of station.

Once this occurs, interchange ratios between the coppers, silver and gold will be formulated quite rapidly and facilitate larger transactions most efficiently and conveniently. Given our highly advanced computing and communications capabilities, it would be immensely liberating to establish a network to track all localized interchange ratios, so that a worldwide free market could efficiently route coinage to maintain truly unbiased ‘standard’ ratios absent from any government’s fiat decree and clearly highlight areas where entrepreneurial effort would best serve a People without self-aggrandizing Bankers imposing themselves as third-party controllers over private transactions.

This is ‘One World Order’ and ‘Universal Currency’ I pray we might seriously give consideration.

-By Pat Fields