Logical Liberty

We have crossed over the Threshold of Inevitability

I really don’t know how to begin writing this post except to say that I am afraid that we have crossed over the threshold of inevitability.

Since this whole banking fiasco started I have been reading about how the banking system works. The majority of countries, including the United States, use what is called “Fiat currency” (In other words fake money). The governments that use “Fiat Money” do not base the value of their currency on anything other than the publics willingness or requirement to accept it as “Legal Tender”, that governments guarantee to support it, and the balance between how much is in circulation relative to the amount of goods and services that are available to be purchased with that currency.

In addition to this the United States central bank (the Federal Reserve), along with the central banks of other countries, and all the subordinate banks in these countries use a system called “Fractional Reserve Banking” to multiply and manipulate the total amount of currency that is actually in active circulation in order to increase the amount of real and virtual money that is available. In affect this system allows banks to create money out of thin air. Another characteristic of this system and Fiat Money is the fact that every Dollar, Pound, France, or Peso that is created is in affect only an IOU. The banks create it and loan it to us. The money you deposit is the product of an IOU that was generated by someone else, and then the bank where you deposit your money uses your deposit and the “Fractional” system to create more money to loan to someone else.

The problems we are facing today are an inevitable result of this system. Each Dollar you have really represents debt that the government and other money generators owe to “investors” that buy the bonds and/or other government issued securities that are used to backup the currency. These bonds and securities are simply another form of IOU that pays interest to whoever purchases them. This system cannot sustain itself forever. Eventually the principle with interest must be paid. To do this the governments must ask the banks to generate more money to pay the debt but that only creates more debt. This is why the governments of the world say that they cannot let the banks fail because if they do then their currencies will fail. It will not matter how much money you make because it won’t be worth anything. Once you get to a certain point in this spiral of debt the government cannot afford to pay the interest on the debt much less the principle and the whole system collapses.

The fact that the Federal Reserve and the U.S. government have handed out over 10 trillion dollars so far (that’s 10 thousand billion or $10,000,000,000,000 folks) during this bailout panic appears to indicate that we are getting to the point where it doesn’t matter how much money they throw at this problem.

Now I must admit that this is a subject on which I am no expert and I have extremely simplified it but it appears to me that the United States government and the rest of the world have bet the house on a loosing hand.