Protecting personal wealth 101

Last month the International Monetary Fund (IMF) released a statement that they didn’t have enough funds to properly invest in failing countries around the globe, and that they were going to have to “print” money to keep entire sections of the world afloat (1)). Since the world decided that a collective shrug would be a valid response, we can safely assume one of two options:

1)the majority of the western populace is ignorant and apathetic
or
2)western media outlets have decided to downplay the philosophical significance of the event

So why’s this such a problem?

To give a little background, the IMF was created in 1944 to facilitate global economic development, acting as a central bank to the world (2). A central bank’s main function is to provide relief to failing banks, acting as a last source of credit, and within a fiat currency system having the ability to basically “print” money into existence (9). The IMF is a little different, though, because it’s an international organization that focuses on lending money to failing countries instead of banks, giving a list of changes that the recipients have to make, known as the “Washington Consensus(3).” When countries receive money, they then have to agree to implement the changes deemed necessary to stimulate their economies and ensure a return on the IMF’s investment (privatization and reduction of trade barriers are common requests).

Now, the problem with our current situation is that the IMF, an international body of officials you didn’t vote for, has decided to print money, which acts as a form of taxation because it will reduce buying power and the value of savings, all through inflation of the currency it prints. After all, when more money is available within a system, people will have to pay more for the things they want. Some advocates of the proposal have suggested this may be a good thing, since it can be said that the same inflationary function that reduces savings also reduces debts, and both American society and government are insolvently in debt (4)(5)(6). Philosophically and economically, though, this is incredibly backward.

Assuming that the IMF does in fact print massive amounts of currency, people must remember that since inflation causes rising prices, wages follow prices only after an unspecified period of wage/price disalignment, although not necessarily reassuming the exact same ratio after readjustment. Basically, prices and wages never increase at the same time. And it must be remembered that a cost of living increase doesn’t guarantee that everyone’s employer will raise their wages, and the only people whose incomes would quickly adjust would be the self-employed entrepreneurs. This, as one can imagine, puts a lot of Americans in a pickle, and can be considered a form of unlegislated taxation since it has the same effect as taxation: the government immediately gets money, and you can’t buy as much. This, aside from cheating anyone who lends by reducing the buying power of their expected returns.

Secondly, even assuming that everyone initially has equal amounts of money, printing money shifts the ability to collect resources toward those printing the money. Let’s say that you and Ben Bernanke had $100 dollars each and lived on an island with a man who had food. Since Ben was worried about survival, he decided to print another $100 for himself, which allowed him to accumulate more resources than you before the purchasing power of your $100 was effectively reduced (due to the same amount of resources being available, but more cash in your economy available for purchasing). This basically means that he acquired wealth by social manipulation without contributing to production (a process known as rent seeking), and you paid for it in the end by not only getting less resources than him, but by also having your $100 lose value. This is a double-whammy for those not directly receiving printed money, and completely sick. No population should suffer this at the hands of its government, ever, let alone someone else’s government. Unfortunately, this is exactly what’s happening with the IMF: an unAmerican entity just took resources and cheapened buying power.

But the problems don’t stop there. To give you an idea of how sick our monetary system is, printing money from the Federal Reserve (our central bank) is both evil and absolutely necessary to keep our economy moving. Not just because of the crash we’re experiencing, but because monetary inflation must occur so that lenders can collect interest on loans.

For example, let’s assume that all the debt in existence has interest that has to be paid to the lender, as in almost every lending situation. If every borrower in existence paid off their loans, where would all the interest money come from? In a fictional American economy in which there was no massive trade deficit of 56.5 billion dollars with foreign entities(7), the money might have come from the money that other people paid us for our goods and services. However, the real answer is that the money for interest payments never actually existed, but was created by our central bank in order to fuel the lending process. Without printing money, safe lending on a large scale (with actual profit within a fractional-reserve banking system) is functionally impossible because there couldn’t be any serious income in widespread lending. As such, it could even be said that the exorbitant credit required to buy your home only exists because other people already promised payments with interest to the bank, which the Federal Reserve made possible through inflation. Your money is available because of other people’s debt (for a great explanation of this abstract concept, watch the following link and the chapter after it: http://www.chrismartenson.com/crashcourse/chapter-7-money-creation).

Another horrendous aspect of fiat currency is that since money must be printed into existence, the value of “money” steadily decreases over time, forcing you to invest your money instead of saving, since your savings today will be worth substantially less in the future. As such, Chris Martenson mentioned that people who own money are forced to invest. He also stated that by logical conclusion you can assume that all investments involve risk, and that the populations using a fiat currency system are thus forced into taking risks with their funds, which is immoral. This is immoral because saving is a virtuous practice encouraged since the beginning of time by every wise person who ever lived, in every healthy economy. In American society, there’s nothing for a saver other than a penalty, and you should see this as a threat to your security.

Taking this one step further, if we can assume that wages and savings basically decrease as a result of monetary inflation, and that printing money is necessary to fund debt, we can thus safely say that our printing presses are effectively creating more debt, since it becomes harder for people to survive on their functionally depreciating wages and the capacity for more loans is increased every time we print cash. Take a second and let that sink in: central banks are not only used to pay the interest money that didn’t exist, but they’re used to create more debt. And to any disbelievers out there, inflation is real. Just because the government tells you that they’re taking money out of circulation doesn’t mean anything, because the cost of everything has radically increased in the last 40 years. You can’t buy anything for a penny anymore, and some day, you won’t be able to buy anything for a dollar. This isn’t caused only by “borrowing” (as shown by Jimmy Carter and the Federal Reserve[10]).

This is a reason that our entire economic system is collapsing: because it’s predicated on risk and rent seeking (through legal manipulation and sneaky financial tricks) instead of actual production. Those of you who scratch your heads at fancy terms like “credit default swaps” and “collateralized debt obligations” should take solace in the fact that you’re not dumb for failing to understand their functions. These tools were nothing more than ways for non-producers to get money by doing basically nothing, which you pay for when money is created from nothing to support the interest payments on them. And when the Federal Reserve makes money easily accessible through either printing or lowering interest rates, history has shown that people will invent ways to invest the money poorly, as seen in our current market crash (8). After all, if you hang on to the cash, you’re basically throwing it away. And the purpose of banking isn’t to hold cash, it’s to lend it.

Eventually, this process will always shift capital and eventually property from the hands of the people into the hands of the elite, which is already happening as you read this. The cry for a socialist agenda by all major American candidates should be a huge warning sign that something isn’t right here, aside from a severely lacking moral fibre and philosophical capability of the American people. If you consider that a massive transfer of wealth to the elite still occurs even under a “socialist” set of ideals, suddenly socialism just sounds like the same enslavement with higher taxation, more bureaucracy, and less rights. One would think that a party concerned with protecting the people would embrace an economic plan that doesn’t guarantee increasingly unmanageable debt, but whatever.

There’s silver lining, however: a non-socialist solution to the problem exists. Unfortunately, this means temporary discomfort as our system purges the things we should’ve purged a long time ago, which means that if we correct the problem by returning to a gold standard, a lot of people won’t retire on time, and a lot of people won’t get rich so quickly. As such, returning to the gold standard and eschewing financial trickery may be political suicide for a candidate (cough, Ron Paul, cough), but it’s better than being practically enslaved. The bad news is that in order to get it, either massive collapse or bloodshed is going to have to occur. But as Jefferson said, “The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.”

Ladies and gentlemen, I hate to break it to you, but we’re living in the real world, and really bad things happen to people who don’t safeguard their liberties.

An interesting part about all of this fiasco is that this system will either crash because the American populace will revolt under massive amounts of debt, or a lack of resources will bring the system to its knees. This is because on a macro-scale level, there are only a finite amount of resources being produced at specific rates for consumption, and ultimately only a finite amount of resources.

For instance, as shown in the case of oil production and The Organization of Oil Producing Countries (OPEC), the supply of resources is actually suppressed in order to affect the amount of money for which resources can be exchanged. In essence, those who control the resource also control its price through the laws of supply and demand, since people will willingly fork extra cash over for necessities in short supply. Our entire system of purchasing oil is predicated on this, with oil producing nations selling barrels of oil that haven’t even been pumped yet (known as futures contracts) to specific buyers, in exchange for amounts of gold and money predicated on estimations of future supply.

But what if the oil shortage wasn’t artificial? And what if the demand was higher?

Since as of this moment there really isn’t any real shortage of oil, things are moving along smoothly, but in an environment in which there aren’t many resources to go around, our printing presses would be very dangerous, to the point of causing international strains when countries begin printing money or releasing massive quantities of capital from their bank reserves in order to accumulate a scarce resource. As mentioned earlier, the first to fork over the cash receives the goods, then everyone else using the currency suffers, and what do you end up with? International tension, also known as war.

And since we’re already on the topic of resources, the reader should know that our monetary system must constantly grow along with our economy. The reason this has to happen is because a growing monetary system with a stagnant economy produces an unhealthy inflation, which ends up hurting people as mentioned earlier. Chris Martenson was quick to point out that if your economy has to grow with your monetary supply, then your resource consumption has to grow with your economy. This is all fine and dandy as long as you have unlimited resources, but guess what: we don’t. We’re almost at maximum carrying capacity for the human race as it is, and when our planet has about 10 billion people, we’re going to barely be scraping by with basic meals and necessities, let alone oil and the plastics that come from it (search Wikipedia for “overpopulation” to see all the different theories that come up). So what do you think needs to be done? Maybe we should get rid of a monetary system that relies on exponential resource consumption for basic stability. The only decision you really have to make is whether you want the change now, before your entire community is bankrupt and propertyless, or later, when you’re not only economically disadvantaged, but you don’t have access to resources.

Those opposing the gold standard and real money have their arguments, of course, one of them being that gold’s value is dependent upon people’s whims, and nothing else. One major thing you have to realize about gold is that although it is dependent on people for worth, it isn’t dependent on or controlled by governments. This gives gold several distinct advantages over fiat currency: your government doesn’t have the power of inflation and deflation, which Thomas Jefferson said would enslave us and was one of the major threats to democracy; the government can’t print money to cure unreasonable debts, which leads to less international strains due to buying powers from debt money not being reduced; and, as usual, gold has always been the resort currency when a currency system collapses, and it always will be along with oil (at least until access to food and water becomes more of a problem, or until our economy becomes oil-free).

The second thing people usually say about the gold standard is that it’s “backward and outdated.” In response to that, yes: they’re right. You can’t support the rickety house of cards that is the modern scam economy on a gold budget. But would you want to? You’re just going deeper into debt this way, and you’ll have to suffer market corrections while people in control become rich off your losses. And might I add that at some point during the decline of Roman civilization, the way they did things was referred to as “modern.” No doubt people found sophisticated lies to be appealing, but in the end there’s a right way to do things and a wrong way. When people willingly choose the wrong way, their society collapses. Eventually, the wrong thing to do always becomes “modern.”

In conclusion, we need to be cognizant that a government in control of currency’s value is never good for the people, regardless of what social programs the government tells you it needs to fund by printing. And if that can be said about your government, it can definitely be said about organizations that you don’t even vote to sustain. So don’t choose the wrong way. You’ll end up impoverished and dependent, and you probably won’t have the power to change things when the situation gets that bad. Heck, you probably won’t even be allowed to own guns, the way things are headed. So think about it, pray about it, and then talk about it. And make sure people know that the IMF needs to keep their damn hands to themselves.

1)the IMF prints money
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3269669/IMF-may-need-to-print-money-as-crisis-spreads.html
2)The history of the IMF
http://ucatlas.ucsc.edu/sap/history.php
3)The Washington Consensus
http://www.iie.com/publications/papers/paper.cfm?researchid=486
4)US treasury debt
http://www.treasurydirect.gov/NP/BPDLogin?application=np
5)US Total household debt
http://www.economagic.com/em-cgi/data.exe/frbz1/FL154102005
6)US Insolvency
http://www.financialsense.com/fsu/editorials/martenson/2006/1217.html
7)US trade deficit
http://www.census.gov/indicator/www/ustrade.html
8)Low interest rates and bad lending decisions
http://mortgagesloans.suite101.com/article.cfm/high_risk_mortgages_disaster
9)Fiat currency definition
http://en.wikipedia.org/wiki/Fiat_currency
10) Jimmy Carter and inflation
http://www.nationalreview.com/nrof_bartlett/bartlett200406140846.asp

This entry was posted on 2. January 2009 at 20:41 and is filed under politics, economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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