Tuesday, October 2, 2007

Pondering the Meaning of $$

Sometimes my mind rambles and comes to some frightening insights - Like when I question the real meaning of money. How can a simple concept like money be so abstract that we are constantly mislead as to its true nature? Well here I attempt to not only define money, but attempt also to show it's meaning within the context of our capitalist economy - and this is where it gets exposed, and scary..

For instance, with all the money the Fed has supposedly created over time, in reality I never ever even use cash. I use pieces of plastic in the real world, in cyber-space, everywhere. And if I do, there are lots of other people doing it, more and more of the time. The obvious conclusion therefore, is that money isn't really created by the Fed's printing press at all, unless they are now engaged in the manufacturing of plastic, that is.

So, does this mean plastic has now replaced currency as money? That would be a logical conclusion, however incorrect based on an ill-defined concept of what money really is. Let me explain further..

Money is more than a medium of exchange (like gold, dollars, euros, pesos or plastic). If I say that money represents the ability to trade one's wealth for goods and services, it would be closer to the truth, however still in error since wealth can be substituted for another's wealth rather than my own. In order to trade wealth when I have none, I have to borrow another's wealth. This creates a debt to those who have the wealth I need to borrow. Likewise I've promised these persons an increase of their wealth for the luxury of using their's when I have none. So I promise them a loan with interest payable at some time in the future.

So now money has become a credit-based system of exchange. However unlike the trading of wealth for goods and services on a par value, I have debased the value of my own future wealth by creating interest. Likewise I have created a means of enriching the existing wealthy who lend their wealth to me at interest. They no longer toil, but I must work just to pay for goods and services which have already been consumed.

Ah-Ha! So I have debased the value of my wealth by paying back a debt which includes the value of the goods and services I traded, PLUS the interest on the debt. So the truth in the transaction is the Fed didn't create any of this "money", I just did.. Because I am paying back in value more than I received in trade, the lender now has more chips to lend to the next debt slave, right?

Which brings me to my final "insight".. A credit-based monetary system not only creates "money" by creating interest on top of principal, it debases the "money" to the person who is indebted. And if all my neighbors are doing the same, the overall supply of "money" is eventually debased for everyone.

But Wait - Doesn't this rhyme with the definition of INFLATION???

So what is the use of money (in any form) in a credit-based economy, if not a means to create an unsustainable level of inflation (ie: debt)? If inflation represents the combined debtors' promise to pay interest on future earnings (wealth), and hence "money" is being created, this increase in the "money supply" creates monetary inflation, which is by definition a debasement of the monetary unit. Also since we can only service so much debt, limited by our income, it is finite and must at some point either be reduced or defaulted on which contracts the monetary base.

Therefore once the maximum amount of debtors in an economy have maxed out their ability to service debt, the system must go into reverse. And if the up-cycle to inflation is spending and increasing debt, then the down-side represents contractionary spending in order to service the payment on an unsustainable debt-load.

So debt is clearly a key force in credit-based monetary systems. One could argue then that money in a capitalist society is the equivalent of debt, since for every monetary unit I create with a credit card incurs a compounding of interest on prior unpaid debts, I create an additional burden called interest, which is paid from future wealth. The more I spend, the more I dig myself into a hole until I hit concrete with no way out other than to reverse direction. This inflation (debt production or creation of money) goes into reverse, or debt reduction, which begins the contraction of the monetary base known as a deflationary cycle.

Therefore money in our credit-based economy is constantly in flux. We go through inflationary up-cycles only to be subjected to deflationary down-cycles. Inflationary booms must always crash into deflationary depressions just as sure as night follows day. This is also how the rich get richer all the while the middle classes vaporize into the throes of debt enslaved poverty...

So there you have it -- Money creation represents Financial Suicide at its Best!

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