A long time ago, when the question was asked: "What is the backing behind money?", the answer was always the same: GOLD.
Many people today would still give that answer (try it, you will be amazed). The problem is that it's not true. In the U.S., it has not been true since President Roosevelt made it illegal for Americans to own Gold in 1933. Before 1933, anyone in the U.S. could walk into any bank, offer the sum of $20.67, and leave with one ounce of Gold.
No one has been able to do that since 1933, even though Gold was again "legalised" in the U.S. at the beginning of 1975. No individual has been able to redeem Gold with Dollars since 1933. No government or Central Bank has been able to do it since August 15, 1971.
Yes, you can buy gold with money, but you cannot redeem money in Gold. That's the crucial difference. All currencies are "legal tender" which means that you must accept them by law. And no government will offer you anything for a unit of your currency, except another identical unit.
And what are these units of "money" backed by? Today, they are backed by the full faith and credit of the Treasury or Finance Ministry of the nation which issues them. Everywhere, the official answer to the question: What is the backing behind your currency? is: "The entire wealth of the nation."
THAT, OF COURSE, INCLUDES YOURS!
For nearly 70 years, the West has been writing IOUs and calling them "money". In 1933, the U.S. government owed less than $US 25 Billion. It now owes more than $US 5.7 TRILLION! All other nations have a similar history. When measured on a per capita basis, many have issued even more debt.
But if all governments are deeply in debt, then who are the creditors? Even more to the point, how will these unfinished transactions be finalised?
The "creditors" are all those who hold government bonds or paper currency. The transactions will be finalised in the way of all bankruptcies, by default!
This default has been staved off for decades through credit expansion - new debt piled on top of old. But debt cannot grow to the sky, and the level of debt, especially government debt, is quickly approaching unsustainable levels. The West is approaching its limits to credit expansion!
At some point, all these IOUs are going to be tendered for payment. You didn't sign these IOUs, but you're stuck with them, unless you understand the situation. If you don't understand the situation, then you will have to fall back on modern economic theory - best illustrated by the old phrase - "We owe it to ourselves".
Apply that phrase to yourself and it has an entirely different meaning. "You owe it to yourself" to conduct yourself with dignity; to make the most of your opportunities; to keep your promises. That last one is the key. Don't make promises you can't keep and even more important, don't break promises, to yourself or to others.
Things have changed. Now, broken promises are a feature of our age. But when promises are seen to be broken, the rationalising starts. One of the great pieces of rationalising of this century is the excuse which John Maynard Keynes came up with for government "deficit spending" back in the 1930s: "We owe it to ourselves".
A system of "economics" has grown up around that phrase in the three generations since it first appeared. The two main pillars of the system are the concept of "credit expansion" and the concept of "economic growth". Nowadays, an economy grows, not through the production of goods, but through the "production" of money. The means by which that money is produced is credit expansion.
Old habits of thought die hard. "Money" is still seen by most people as the medium by which they exchange their efforts for the efforts of others. That was true when Mr Keynes was a boy, the handing over of money completed an exchange with no loose ends. It is not true today. There is nothing behind today's money except a promise to pay. Accepting a promise to pay is the acceptance of a debt - and a debt is an unfinished transaction.
Who has made the promise? We have - by consenting to or ignoring the actions of our government. Who will fulfil the promise? No one, according to modern "economics". After all ..."We owe it to ourselves".
If you go along with the above "theory" ...then happy landings!
If you don't, then THE PRIVATEER is for you!
