Tag Archives: debt-based currency

Debt-Based Monetary System Demands Ever More Debt—Part I


The National Debt was basically flat from A.D. 1900 through A.D. 1971. In A.D. 1971, President Nixon closed the “gold window” and the dollar became a pure fiat/debt-based currency.  Since A.D. 1971, the National Debt has persistently increased, without regard to which political party controls the government.  I strongly suspect that a debt-based monetary system cannot survive without government creating more debt.  Once the dollar was debt-based, the National Debt had to increase.

The Congressional Budget Office (CBO) recently released a 55-page report on the “long-term US budget outlook”. The report implied that the US government is on the road to fiscal chaos and possible collapse that could not be sustained beyond A.D. 2047.

I think the CBO is lying about the “long-term” budget outlook. Instead, I think we’ve only got a “short-term” to go before the debt hits the fan.

According to the report, the “official” National Debt ($20 trillion) currently stands at the highest level since shortly after World War II. (The report did not comment on estimates by others that, including unfunded liabilities, the real National Debt may be closer to $100 trillion or even $200 trillion.)  According to the report, if government maintains current policies and economic trends continue, the debt will likely double over the next 30 years, rising to about 150% of GDP.

I see the CBO’s predictions and “warnings” as bunk, bunk, and, uh, bunk.

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Asset-based vs. Debt-based Economics

One Difference Between Asset-based Money (Gold) and Debt-based Currency (paper dollars):  Savings [courtesy Google Images]

One Difference Between Asset-based Money (Gold) and Debt-based Currency (paper dollars): SAVINGS
[courtesy Google Images]

It should come as no surprise to anyone who reads this blog to learn that I’m not an economist.  Without formal training in economics, I sometimes make statements about the subject that may seem pretty dumb.  But, my lack of formal training in economics can sometimes be an advantage.  Insofar as I’m not formally trained in what to think in the realm of economics, I also sometimes stumble onto what may be insight since I’m inclined to “think outside the box”.  Why do I think “outside the box”?  Because, without formal education on the subject of economics, I haven’t been formally “conditioned” to know where the “box” is.

What follows may be old news to most economists, but I doubt that most ordinary people have considered the subject.  It might be another example of my ignorance—or maybe it illustrates a little common sense. 

I haven’t yet made up my mind.


It’s my understanding that most of classical economic theory is based on a time when the world relied on gold and silver to serve as its asset-based money.

It therefore strikes me as possible that modern economic theory could be opposite from classical economics in some regards.  Why?  Because he fundamental unit of measure of today’s economics is a debt-based currency system.

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Posted by on February 22, 2015 in Debt, Economy, Education, Fiat Currency, Gold & Silver Coin


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Fiat Currency Conjecture

Spinning Fiat Currency--an act of Economics or "Sorcery" as seen in Revelation 18:23? [courtesy Google Images]

Spinning Fiat Currency–an act of Economics or of the “Sorcery” seen in Revelation 18:23?
[courtesy Google Images]

Philipp Bagus (“PB”), author of The Tragedy of the Euro, was interviewed by the Mises Institute (“MI”) about recent developments in Switzerland and the European Monetary Union.  Excerpts from that interview follow.

I (“AA”) understand most of what Mr. Bagus said in that interview, but there are parts that seem almost incomprehensible to me.  Because Mr. Bagus’ meanings are not always clear to me, some (maybe all) of my comments should be taken with salt.

Still, my “discussion” with Mr. Bagus might offer grounds for several items of interesting and vaguely-related conjecture:


MI: Why do you describe the euro as a sinking ship?

PB: The euro is badly designed. . . .”


AA:  I doubt that it’s possible to have a “well designed” fiat currency that could last more than a few decades.   I doubt that any economics spin-meister could ever overcome the fatal flaw that seems inherent in all fiat currencies:  the presumption that, unlike individuals and even major corporations, governments will always be able to repay their debts simply by raising taxes on their people.  Based on that presumption, governments are entitled to borrow beyond their ability to repay–and grow–almost without limit. Eventually, the government grows larger than the private sector can support, and causes a national recession, depression or even collapse.


PB:  “In the EU, there is one central banking system that can be used by a wide variety of governments to finance themselves.  This is the tragedy of the euro: governments can finance their deficits indirectly through the central bank as their debts are pledged as collateral for loans to the banking system.  Or they can be directly purchased by the central bank.”

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The First Danger of Debt-based Monetary Systems

The Pyramid Scheme [courtesy Google Images]

The Pyramid Scheme
[courtesy Google Images]

There are a number of dangers associated with debt-based monetary systems.

The first danger is that debt is deemed to be form of wealth.  As mad as it seems, under this presumption, the more debt we have, the wealthier we become (or at least appear to become).   The wealthiest people would be those who lend the most currency to others, or at least those who acquire the most debt instruments (intangible promises to pay) rather than tangible assets.

Under the debt-based monetary system, if you borrow $250,000 to build a new home, the resulting paper-debt instrument (the promissory note to the bank bearing your signature) is deemed to be more valuable than the physical/tangible house that was built by means of that debt instrument (intangible promise to pay).

Think about that.  Thanks to fractional reserve banking, your signature on your mortgage documents is more valuable than the tangible house the mortgage was used to purchase.

That’s because, under fractional reserve banking, banks can use your $250,000 note (promise to pay) as collateral to justify lending up to 10 times as much ($2.5 million) in additional currency to consumers to buy more flat-screen TVs, computers and groceries with their MasterCard or Visa.  Your $250,000 promise to pay can be used to “stimulate” the economy with the creation of up to $2.5 million in additional consumer loans.  As a result, the nation becomes seemingly richer every time someone borrows currency from a bank and signs a promissory note that can be used as collateral.

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Wagging the Dog

Janet Yellon--a Woman for All Seasons? [courtesy Bing Images]

Janet Yellon–a Woman for All Seasons?
[courtesy Bing Images]

English journalist Ambrose Evans Pritchard recently wrote an article for the Telegraph entitled “Rejoice: the Yellen Fed will print money forever to create jobs”.  That article discussed the appointment of 67-year old Janet Yellen as the next Chairman of the Federal Reserve and the economic consequences that were likely to follow.

According to Evans Pritchard, under Yellen’s rule,


“The FOMC [Federal Open Market Committee] will continue to print money until the US economy creates enough jobs to reignite wage pressures and inflation, regardless of asset bubbles, or collateral damage along the way.”

Note the relationship between the currency supply and more jobs.  It is presumed that by increasing the supply of currency (printing more fait/paper dollars), the Fed can “create enough jobs” to cause an economic recovery.  But is that presumption true or false?

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