The most insidious of all of the unintended consequences of both fractional reserve banking and the judicial decisions of Sir William Grant in Carr vs. Carr  and Lord Cottenham in Foley vs. Hill  is the continued shrinkage of the size of the unit of measurement of exchange value.
The unit of money – the pound – is the unit of measurement we each use daily in measuring the value of what we do, what we earn, what we buy and the general course of our individual affairs. We depend on that unit for measuring and determining our future. We each rely on it. Yet, it is an untrustworthy tool for measuring because its size diminishes continually. Measurements taken at different times will not be measured with the same size of unit. Therefore, measurements taken at different times cannot be validly compared and formulae derived from such comparisons cannot produce the results predicted.
Imagine what would happen if the unit of measurement of time diminished continually. Suppose the clock on Big Ben set the official time. Suppose further that it had a mechanical fault so that it lost half a second a minute. Every 5 days we would lose an hour. Every 40 days we would lose 8 hours. Soon it would be dark at noon and light at midnight. Time would no longer be synchronized with nature. Farmers could not rely on the clock to feed their animals. Nights would get shorter and soon we would find that 8 hours sleep left us still tired. We wouldn’t be able to get everything done during a normal day’s work and would have to work later and later. What couldn’t be completed today will need to be done tomorrow. We would have to squeeze more and more into our already [...]
Today’s worldwide paper-, or “fiat-,” money regime is an economically and socially destructive scheme — with far-reaching and seriously harmful economic and societal consequences, effects that extend beyond what most people would imagine.
Fiat money is inflationary; it benefits a few at the expense of many others; it causes boom-and-bust cycles; it leads to overindebtedness; it corrupts society’s morals; and it will ultimately end in a depression on a grand scale.
All these insights, however, which have been put forward by the scholars of the Austrian School of economics years ago, hardly play any role among the efforts of mainstream economists, central banks, politicians, or bureaucrats in identifying the root cause of the current financial and economic crisis and, against this backdrop, formulating proper remedies.
This should not come as a surprise, though. For the (intentional or unintentional) purpose of policy makers and their influential “experts” — who serve as opinion molders — is to keep the fiat-money regime going, whatever it takes.
The fiat-money regime essentially rests on central banking — meaning that a government-sponsored central bank holds the money-production monopoly — and fractional-reserve banking, denoting banks issuing money created out of thin air, or ex nihilo.
In The Mystery of Banking, Murray N. Rothbard uncovers the fiat-money regime — with central banking and fractional-reserve banking — as a form of embezzlement, a scheme of thievery.
Rothbard’s conclusion might need some explanation, given that mainstream economists consider the concept of fiat money as an economically and politically desirable, acceptable, and state-of-the-art institution.
An understanding of the nature and consequences of a fiat-money regime must start with an appreciation of what money actually is and what it does in a monetary exchange economy.
Money is the universally accepted means of exchange. Ludwig von Mises emphasized that money has just [...]
At this moment, the news media is constantly clamoring about the “Three Ds” that are buffeting the markets: debt, deleveraging, and deflation. We intuitively sense that they’re linked — but how, exactly?
Understanding this linking is critical; as debt has fueled the global expansion, it will also dominate its contraction.
Debt and Deleveraging
To illustrate the forces of debt and deleveraging, let’s consider a home mortgage.
Suppose a buyer of a $100,000 home qualifies for a mortgage that requires only a 3% down payment in cash. The buyer ponies up $3,000 in cash and obtains a $97,000 mortgage. The cash collateral is thus leveraged about 33-to-1: Each $1 in cash has been leveraged into $33 of borrowed money.
Let’s say the owner wants to refinance at a later date, and to qualify for the new loan he must have 20% collateral for the new loan. (This is a simplified scenario; we will consider more complex examples later.) If the house value remains around $100,000, then the owner must boost collateral by paying down the mortgage $17,000. This boosts collateral to $20,000 (20%) while reducing the mortgage to $80,000.
The leverage has been slashed from 33-to-1 to 4-to-1: now each $1 of collateral leverages $4 of borrowed money. This is deleveraging.
Another common example is a margin stock-trading account. J.Q. Speculator can leverage his cash collateral 2-to-1 via margin: If he has $100,000 cash in his account, he can buy $200,000 of stocks. If (heaven forbid) the stocks he purchased decline in value by $50,000, then his collateral has shrunk to $50,000. Since margin accounts cannot exceed a 2-to-1 leverage, he must either sell enough of his portfolio to return the leverage to 2-to-1 (that is, $50,000 in cash value and $100,000 in stocks), or he must deposit another $25,000 in [...]
There’s one thing for sure: the U.S. government is printing money like mad. If you require proof, all you have to do is look at this graph below, which comes from the St. Louis Federal Reserve Bank – straight from the horse’s mouth:
What’s the lie?
Well, the lie is that this money creation supposedly does not have any significant negative impact on the economy, employment, businesses, or even the overall health of the dollar itself.
And maybe you feel the same way. Maybe you feel that the U.S. Treasury CAN print as much money as it likes without any negative consequences.
But let’s compare and contrast the above chart with another chart showing oil prices over a similar time frame:
We can see that oil-price increases pretty closely match money creation increases – finally decoupling in late 2008 with the “financial” crisis.
Or perhaps that’s too much of a coincidence for you.
How about a chart of the population of employed people over the same time frame:
Now, this chart doesn’t match up exactly with money creation – but it does show a dramatic decrease in the employment rate that coincides with the huge amounts of money creation between 2001 and accelerating leading into 2009.
We can also look at a chart of a broad based commodity index – showing something remarkably similar:
Meanwhile, we hear from our leadership at the U.S. Treasury, Timmy Geithner, promising that he will not devalue the currency.
His words exactly: “It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to (be) competitive. It is not a viable, feasible strategy and we will not engage in it.”
So there’s really not an honest [...]