Phasing Out Debt by James Jaeger
The obsolescence of money could happen by the gradual elimination of debt. On its face, debt might seem like a good invention to some, but one has to separate the impulse for instant gratification from the desire for long-term stability.
Debt appeals to the "instant gratification" mentality because it seems to allow such creatures to avoid the painstaking and slower process of capital formation. Capital formation is simply a term for savings. If a company sells products for an amount more than it costs to produce them, that company generates what's known as profit or a positive cashflow. If some portion of this cashflow is routinely allocated into a savings account, eventually capital formation will take place. This capital can then be used to expand the business through increased market share or new products and since it doesn't have to share part of its cashflow with bankers for interest payments, that business generates capital formation equal to at least the amount it saves on interest, such sum being equal to the rate of interest that would otherwise have been charged by a bank.
Prior to 1913, the nation was doing great.(1) Companies all over were creating capital formation, so much so, they didn't need to borrow money. Everyone was happy but the banks. The banks were not happy because no one wanted or NEEDED to borrow money. So what did the banks do? The largest banks met secretly on Jekyll Island and formed a banking cartel, now known as the Federal Reserve System. The purpose of this cartel was to fix the price of money at artificially low rates and get all the nation's large banks to march together as one huge oligopoly.
The idea was, if money can slowly be divorced from the rigors of gold and silver backing, AND all the banks adopt the same lending policies (price fixing), they can artificially lower the cost of money (interests rates) to a point where money is so "cheap" the companies will borrow it rather than use their own money (capital formation).
So the idea of debt was based on dishonesty right from the beginning. By printing up endless amounts of fiat money, and using the dishonest practice known as "fractional reserve banking,", the banks have been able to drive savings almost out of existence. The banks then get business they would otherwise would not have received. They get to not only collect interest on money generated out of nothing (infinite interest rates) but they get to pick over the choicest assets (homes, cars, business, etc) when the owners default on their bank loans. The banks then scarf up these assets cheap and sell them to their business associates, friends and family members as favors or they use straw buyers and acquire these assets for themselves. This is the daily practice of the banker and his enabling partners in government, such as the TAX SALE CERTIFICATE attorney and the local property tax authority.
So the game of fiat money based on debt makes all these games possible and society is inhibited in growth. The easy money makes possible endless malinvestment, meaning all sorts of buildings and business are built that no one needs. Since there is no need for such products, companies using "easy money" go bankrupt a short time later. Have you ever noticed all the useless products all over the market? How do these come about? Companies borrow money BELOW MARKET rates and use this bogus money to "develop" new lines they hope will sell. They produce all these useless and ever cheaper products endlessly and then they practice "mud-sling marketing." Mud-sling marketing is where a company develops 10 new products and slings them out into the market hoping some percentage of them will stick to the (credit card-wielding) consumer. Of course most products DON'T get bought by the consumer, so the companies borrow yet more below-market money and flood the landscape with endless advertisements. The worse a product is the MORE advertising it requires. Have you noticed how littered the landscape is with ads pushing products no one cares about? Ads are all over the net, mostly from larger corporations and on the "mainstream" websites. Banners and pop-ups, ads at the beginning of videos and songs now. It's totally gross. And it's a product of malinvestment made possible by debt, debt made possible by the dishonest and unconstitutional practice of using printing up endless fiat money ("bills of credit") that is not properly backed.
So, if more people realized the above, especially business leaders, and simply stopped borrowing money and built their business on capital formation and equity, they would grow slowly at first, but they would eventually grow exponentially and they would be more apt to put out products that were actually needed and wanted in the market. Plus, factor out of the equation all the bankruptcy and destruction caused by "easy money" and mal-investment, and the general economy would be orders of magnitude healthier for those business that were building more carefully and responsibly.
So, the cartelized banks and the government that partners with them for its own welfare-warfare expansion-money, are clearly the enemies of business, hence society. In the end, it is the banks and the gov that grow at the expense of free market enterprise and individuals.
But the government destroys the free market in yet another way: by protecting investors.
Investors are people and entities that lend businesses money and then expect to participate in the cash flow of the businesses. Unlike banks who demand a fixed sum from the business every month or year (interest), investors get nothing unless there IS a sum to hand out. So investors need to be able to pick good businesses from bad ones. BUT, if the Securities and Exchange Commission (SEC), with its endless government regulations designed to "protect" the investor, is in the equation, how is the investor-class supposed to learn how to differentiate between good and bad investments? If this ability is laid off on the SEC, aren't we creating a whole generation of "stupid" investors? What happens to a global economy when millions of investors are clueless as to the merits of a business in which they are investing? When the government holds their hands and tells them, 'don't worry, we will make sure the entrepreneur "discloses" everything you need to know,' I say the investor is at higher risk. The INVESTOR needs to do his homework, or the investor has no business investing his money in some else's business. If the investor-class is so ignorant of what makes a business fundamentally workable, then that investor-class ends up being able to do nothing more than "play the market." And we all know what that leads to. It leads to crazy investment instruments like derivatives and esoteric cults that practice what's known as "technicals." None of this FUNDAMENTALLY builds an economy.
So, that's where we are today. A government that has enabled both artificial debt and mindless investors that have no idea how to differentiate the solid business plan from the fly-by-night business plan.
Meanwhile banks continue to foreclose on the assets of society and sell them to their buddies, as above discussed. Investors may choose to invest additional money in a failing business and ride it out hoping that they will participate even more handsomely at the "end of the day." Meanwhile, the business down the street, who is a competitor, is using under-market debt (easy money) to produce ITS products. Well, doesn't this impact the business that's trying to survive using equity (from its investors) and capital formation (from its savings)? Of course it does. So what we have, in effect, is a bunch of unstable, fly-by-night debt-financed businesses down the street and all over the country creating havoc with their boom-and-bust debt while other businesses are trying to do it right. How can a business that's doing it right -- saving its money, carefully deciding what products are really marketable, taking the long-term view, growing slowly but with stability, avoiding debt -- survive in a sea of chaos generated by the other debt-driven business? The short answer is they can't.
So this is a picture of today's economy: a gift from the government intervention- and government regulation-mentality; fiat money, fractional reserve banking and endless debt. Consider this the next time you think of borrowing money. Maybe if you, and your business associates, stop borrowing money and rely on capital formation and more savvy investors, you will help create the obsolescence OF money and a longer-term stability for your economic environment.
(1) The various "panics" you have heard of during this period were generated mostly by the banks so they could "justify" creating the Federal Reserve System, the third central bank scheme since the nation's founding. See FIAT EMPIRE and ORIGINAL INTENT for details and more information on the negative effects of violating the U.S. Constitution. Also see SPOiLER - How a Third Political Party Could Succeed.
02 May 2010
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