Money

As a very good friend of mine is fond of saying “Money is not every thing…  it is the ONLY thing”.

Whether we like it or not, money is a fundamental part of the life of every single person that is able to read this website.  A large proportion of the transactions that occur between people involve the use of money and  It is the mechanism by which the people and businesses that live within a country agree, whether implicity or explicitly, to exchange their time, goods and services.  Consequently, it is my view that humans should have a thorough and comprehensive understanding of what money is, how it is created, how it is destroyed  and how it is distributed throughout the community.

Of course, this is not the case.  My personal experience was to have very little understanding of money until well into my forties.  Furthermore, my experience with the other humans that I have come into contact with is that their understanding of money is so poor that I consider them to be monetarily illiterate.  This is not their fault, people are being beguiled by experts, possibly even that most accomplished trickster, Nakhash the Serpent, or Loki or any one of the names of the deceivers of other religions.  It is not my intention here to go into the history of money or a discussion of the spiritual pros and cons.  This discussion simply states the facts about money that I know of and presents a very simply model about its creation and distribution.

Many sovereign countries, such as Australia, New Zealand, USA, UK, Poland, China etc have the necessary legal and physical infrastructure to create currency.  In most cases, “the government” of that country has the legal authority to create or delete as much of the currency of the country that they govern as they wish.  This currency is created by the laws of the country and is called legal tender… or… as we often read and hear… by “fiat”… the Latin word for Law.  As such, fiat currency is NOT worthless bits of paper at all.  It is the currency backed by the law of the land.  It is backed by the work, diligence, creativity, commitment and agreement of the people of that land.  Fiat currency does NOT require “backing by gold” or any other such nonsense.  However, a sensible economic entity, such as a country, should jealously guard its right to produce and distribute money throughout the entity and the people involved in that entity should zealously guard and maintain their right to participate in the decision making processes relating to all monetary activities.

The readers should note that, despite the reality that each country does have the legal and moral obligation to create all of the currency it needs to undertake the operations that it choose to, every single country in the world, including China and the individual provinces of China, is in debt.  To what entity those countries owe money the reader should make their own enquiries. One example is that the US Government owes a whacking amount of Federal Reserve dollars to the US Federal Reserve, which is private bank, as well an uncountable amount of USD denominated bonds.

In Australia, the country that I live in, the Government creates money every time it credits the bank account of a legal person or company and destroys money each time a legal person or entity reduces that account to pay one of the many taxes that are levied.  There are some physical notes that are printed, but these are a tiny fraction of the volume of dollars that exist in the virtual world.  In Australia, the only “legal tender” that can be used for the sale and purchase of goods and services within Australia are dollars created by the Commonwealth of Australia.  Up until the arrival of the Rudd Labour Government, the Australian Commonwealth was debt free.  When it ran a deficit, this meant that it spent more money than it received in taxes.  When it ran a surplus, that meant that the Government received more in taxes than it spent.

The Australian Government is not the only entity that is in control of the money supply in Australia however.  Banks increase the money supply by lending money that they do not have to persons and businesses in Australia and, for all I know, overseas.  This is allowable under law and is made possible by a simple accounting trick.  When I borrow, say, $100,000 dollars from the Commonwealth Bank of Australia, that entity credits my account by that amount (less whatever fees and other nonsense that I agree to) and creates a matching entry in its own accounts that I make myself obligated to repay, along with “interest payments”.   In this way, the bank has assets and liabilities always in balance, while the “borrowers” have incurred an obligation to repay money which had not even existed prior to the transaction.  The money that i “borrowed” now goes “into circulation” and the money supply is expanded by that amount.   This process has always been in play and is disguised with phrases such as “fractional reserve banking” and other meaningless phrases, none of which have any basis in fact.  The system of credit card debt is exactly the same, with the added benefit of much higher interest rates being required by the banks.  The reality is that the vast proportion of the money supply of Australia is the money created by persons and businesses agreeing to take on obligations to repay banking institutions in the form of loans or credit card debt.  If these loans were repaid then the amount of money in circulation would plummet… probably catastrophically.

Of course, this expansion of the money supply is inflationary.  When the Hawke/Keating government of the 1980’s took steps to massively boost this activity, this inflationary effect was disguised by establishing an environment which encouraged persons to buy and sell houses in a giant Ponzi scheme.  The net result of the activities since this time is that in 2015, the net debt of the various Australian Governments and banking institutions to foreign entities is more or less equivalent to the debt owed by Australian people on the houses that they are buying.

In Australia, the media regularly has stories that imply that the Government does not have enough money to undertake this or that social or agenda item.  While this may be true at the time of writing, the Government of Australia does have the right to create as many AUD as it wishes.   This is also true of the USA, China, NZ, UK and many countries but, interestingly, it is not true of the countries that have signed up to the European Union.  Those countries, for example Greece, are reliant on the EU Bank for the supply of Euros.  Those countries have completely lost control of their right to create currency.  In my view, the abandonment of this right has completely disenfranchised the people of those countries.  They are one more step removed from the path to economic freedom than I am.

The media does, of course, regularly contain stories about how the creation and control of the distribution of money should be removed from under the auspices of the elected government. Piece by piece, inch by inch, cut by cut this is exactly what is happening in Australia, the land the local inhabitants call “Oz”… without the slightest hint of irony.

My view is that this can be simply reversed.  While the political processes within this country are not going to be easy to regain control of, the fact is that the legal systems which are in place allow the people of Australia to elect a government which can simply reestablish its control of that most important of tasks i.e. the creation and control of the Australian Fiat Currency system.

Advertisement