Who to Blame for Your Debt

I hope that none of my regular readers are burdened with much debt, but I know that many people are. Sometimes shockingly so. And so I’d like to explain who’s really to blame for these situations, because they are more complex than they may at first appear.

blameI hope that none of my regular readers are burdened with much debt, but I know that many people are. Sometimes shockingly so. And so I’d like to explain who’s really to blame for these situations, because they are more complex than they may at first appear.

The Obvious Blame

The most obvious target for blame is the person who signed for it. And while there’s certainly a good deal of truth to that, it’s not quite that simple.

So, yes, if you’re in debt, you did bring it upon yourself, and you could have done better. So, before I begin to excuse you, take that to heart. We’ve all made mistakes (Lord knows I have), and this one was yours. Don’t defend your error; learn from it. And don’t do it again.

That Said…

The truth is that the people of the West (and of the US in particular) have been manipulated into debt. The forces arrayed against them are a virtual armada of undue influence. And so we’ll go through the largest of them one at a time.

Democracy: Democracy, carrying with it the policy of public debt, is a debt machine. It made the masses responsible for the debts of the rulers. Understand, please, that under monarchies, the monarch was responsible for their debts. Democracy took it away from them and tossed it onto our shoulders. And this trick was not lost upon the most observant people of that era. Here’s what Percy Shelley wrote about it as it began:

The rich, no longer able to rule by force, have invented this scheme that they may rule by fraud… The most despotic governments of antiquity were strangers to this invention, which is a compendious method of extorting from the people far more than praetorian guards and arbitrary tribunals… could ever wring.

This system has become centered on debt over the years and has spawned one debt-creation mechanism after another.

Central banking: Central banks, and the US Federal Reserve in particular, use debt as their primary tool. In fact, without debt, dollars wouldn’t exist. (If you think that’s overstated, please read Modern Money Mechanics or at least The Creature from Jekyll Island.) There’s much more to be said here, little of it complimentary toward the Fed, but this is an operation that would implode without the American citizenry taking massive debt upon themselves.

I’ll forgo a detailed explanation, but debt-centric banking affects more or less everything growing out of its central mechanism… and that means either forcing or encouraging ever-increasing debt.

Government schools: Nearly all of us have been compelled to attend schools run by the state. These institutions taught us to trust what is authorized and to distrust anything that is not authorized. As Ivan Illich wrote, “School is the advertising agency which makes you believe you need the society as it is.”

And debt is very much authorized by the system. It is not only expected, but the authorized system rewards debt-taking, as seen in tax deductions for mortgage interest.

Politicians: Politicians are to blame for the reasons above and doubly so in regard to student loans, the rules of which were written by politicians alone. And as you probably know, escaping these loans is all but impossible, thanks to those same politicians… and to the banking corporations that control them.

Major corporations: This one is a bit murkier but no less true. Consider this quote from Paul Mazur, a senior partner at Lehman Brothers (a primary investment house) back in 1927:

We must shift America, from a needs to a desires culture. People must be trained to desire, to want new things, even before the old had been entirely consumed. We must shape a new mentality in America. Man’s desires must overshadow his needs.

I think it’s pretty clear that this effort was successful. Americans buy far more than they need, compelled by endless assaults on reason via corporate advertising.

The Simple Explanation

I think it’s fair to say that the status quo of the West (and of the US in particular) is the root driver of debt and indebtedness. And so, I’ll make a very clear statement:

The status quo expects you to be a debt serf. And so long as you feel a need to fit in… are terrified of standing alone and apart… you’ll act against your personal interests and according to the desires of that status quo. You’ll end up living by their script, not your own.

And we should further understand that the status quo is shaped and maintained by the people and groups that feed off of debt.

There’s a reason so many great men and women separated from the status quo of their places and times before they did anything of importance. I encourage you to do likewise.

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Paul Rosenberg
www.freemansperspective.com

They’re Coming for Your Accounts

debtNearly all of us grew up thinking that we registered ourselves to prove that we were safe and responsible. We advertised our services as “registered” or “licensed,” and we never thought about it beyond that point. After all, that was the way things were done, and we knew that it would help our customers trust us.

There is, however, another side to registration, one that’s about to bite a lot of decent people… and hard.

What Is Registration, Really?

What did we do when we registered with a government agency? We gave them our name, address, birthdate, and so on. If we thought about it at all, we thought that they were acting as some kind of guarantor of our services. But what really happened was that we told them how to find us and hurt us.

Registration involves making ourselves easy to find by enforcers, and placing ourselves at their mercy. Yes, I know that we did it ignorantly (I know I certainly did) and out of necessity, but we did hand our best “how to find me” information to enforcement agencies.

Now, what I’ve described above involves commercial and professional registrations. Unfortunately, the same thing applies to bank accounts and retirement accounts. When you register those with a government, you are telling them where your money is and making it very easy for them to seize it.

Trillion Dollar Deficits

In recent years, the US government has been spending a trillion dollars per year more than it takes in. (And there are many additional factors at play.) The European situation is different, but not particularly better.

These situations can only last so long. At some point, the governments will need more money, especially as banks are ready to fail.

Governments will protect the big banks, at the expense of the citizens. You should take this seriously, and now.

Warning Shots

Just a week or two ago, the International Monetary Fund (IMF) published a horrifying paper, called The Fund’s Lending Framework and Sovereign Debt. That paper, in turn, was based on one from December 2013, called Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten.

Major media ignored all of this, of course.

The December 2013 document, right at the start, says that “financial repression” is necessary. Here’s what it says (underlining mine):

The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression.

It continues:

As we document, this claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.

So, in order to fix debt overhangs – currently at horrifying levels – financial repression is not just an option, but required.

That’s not my interpretation; those are their words.

And, of course, they’ve already had a trial run, when they stole funds directly from individual bank accounts in Cyprus, just last year. Here’s how that went down:

  • March 16, 2013: Cyprus announces a bank holiday and sets the terms of a “bail-in” to save the banks: 6.75% of all bank balances under €100,000 and 9.9% of balances larger than €100,000 will be confiscated. In honest language, the word for that is “theft.”
  • People screamed, and the government hemmed and hawed for a number of days.
  • March 24, 2013: People are permitted to withdraw €100 at a time from their bank accounts.
  • March 25, 2013: A bail-in deal is announced. Accounts with over €100,000 lose either 40% of their money (Bank of Cyprus) or 60% of their money (Laiki bank).

And, as it happened, a number of very rich people and companies were permitted to withdraw their money in full, regardless of the “bail-in.”

The IMF report goes on to say:

Governments can stuff debt into local pension funds and insurance companies, forcing them through regulation to accept far lower rates of return than they might otherwise demand.

… Domestic defaults, restructurings, or conversions are particularly difficult to document and can sometimes be disguised as “voluntary.”

The paper that they slipped out three weeks ago adds this:

The Fund would be able to provide exceptional access on the basis of a debt operation that involves an extension of maturities.

That means that 30-day notes can be instantly turned into 30-year bonds.

The US Treasury Is Already on the Job

It’s not just the IMF, of course. The US Treasury has had a group working on these ideas since the Bush administration.

And in August 2010, the US Departments of Labor and the Treasury held joint hearings, deciding how best they could take control of all assets in IRAs and 401(k) accounts. The decision was that they’d replace them with “Treasury Retirement Bonds.”

More Examples

  • In 2009, the government of Ireland swiped €4 billion from their National Pensions Reserve Fund in order to prop up their insolvent banks. The following March, they stole the remaining €2.5 billion for another bail-out.
  • In November 2010, the French parliament took €36 billion from a reserve pension fund, to pay the debts of a “social” fund.
  • Also in November 2010, the government of Hungary effectively took 2.7 trillion forints ($13.5 billion) from 3 million retirement accounts.
  • The government of Poland nationalized one-third of future contributions to individual retirement accounts. That money will almost certainly disappear into the state treasury, robbing savers of some $2.3 billion per year.

So…

Understand that the financial powers that be – the IMF, World Bank, Bank for International Settlements (BIS), assorted central banks, and your local government – are ready to rob you.

When the time comes, all their usual sucker-bait will be pulled out: “It only hits the rich,” “We have to trash the economy to save it,” “We must all sacrifice,” “It’s for the children,” and so on.

All the right-thinking people on television will wring their hands and say it’s the only way out. Perhaps they’ll even let a bank or two crash for good effect.

But in the end, they aim to steal your money. Government and the big banks will continue unharmed.

If you want to protect yourself, you need to get your wealth out of registered accounts, because that’s where they’ll grab first.

Understand that these people have only two real choices:

  1. Reform their system, close the central banks, and give up their power.
  2. Start grabbing the only big pile of portable wealth remaining: your retirement money.

I don’t think any of us believe they’ll take option number one.

It’s your money. Act.

Paul Rosenberg
FreemansPerspective.com

 

The Earth Belongs to the Living, Not to the Dead

government debt wake upWhat if your grandfather had gone on a wild spending binge, long before you were born, and put himself millions of dollars in debt to people who knew he could never pay? Would it be your obligation to work double-shifts all your life to pay that debt back? And if you died before paying it off, would it become your baby’s obligation?

I think most of us would answer those questions with a resounding “No way!” As well we should. We are not and should not be slaves to the past – slaves to actions we never took and for which we had no possible means of consent.

On September 6th, 1789, in the very first year of the US Constitution, Thomas Jefferson endorsed precisely this conclusion in a letter he wrote to James Madison:

I say, the earth belongs to each of these generations during its course, fully and in its own right. The second generation receives it clear of the debts and encumbrances of the first, the third of the second, and so on.

For if the first could charge it with a debt, then the earth would belong to the dead and not to the living generation.

He wrote the same thing to John Wayles Eppes twenty-four years later, in June of 1813:

The earth belongs to the living, not to the dead.

To lay debt upon the unborn is thoroughly immoral. To try to enforce such a debt is thoroughly criminal.

Your Child or Grandchild

This conversation is critically important, because each child born in the US is born massively indebted. Using $200 trillion to represent the promises already made to people now living (some estimates are higher) and assuming a population of 310 million, that comes to $645,161 of debt, by the time your child reaches his cradle. If you expect your child to become a productive person, his or her share will be roughly twice that amount, or approximately $1.3 million.

(The US government is not unique in this regard, by the way. I use the US example, because it’s easier and because most of my readers seem to be Americans.)

Would you sign papers loading your baby with such a debt?

I am stating these facts in personal terms to cut through the usual BS that passes for public discourse. I am also using the voices of “founding fathers,” partly because it undercuts the fraudulent government story that “we’re following the wisdom of the founders.” Beside, we’re talking about real persons here. Making it personal is not manipulative, but accurate. To make it amorphous would be manipulative.

And while I’m on the subject of founding fathers, here’s something George Washington wrote in a letter to James Madison, also in 1789:

No generation has a right to contract debts greater than can be paid off during the course of its own existence.

I think that’s a very clear and very moral expression. It is not, however, what has been done.

A group formed recently under the phrase, “Not our debt.” I know nothing about the group, but their phrase is entirely correct. The debt of the US government does not belong to us, and we have no moral obligation to repay it.

Most of us do pay something toward that debt (which grows exponentially, just the same), but we should stay very clear as to why we pay. That reason, of course, is naked force, as in coercion and violence. There is no morality to it, except the morality that some people might invent, either to salve their consciences or as sycophants to power. (Though most  just do what everyone else does, never considering why.)

My advice is this: Do whatever you want as far as paying under threat, but don’t ever be confused about the morality of this situation. This is a swindle of gargantuan proportions. And that’s precisely what Thomas Jefferson believed. You can see this in a letter he wrote to John Taylor, dated May 28, 1816:

The principle of spending money to be paid by posterity, under the name of funding, is but swindling posterity on a large scale.

Do what you need to do, but don’t ever think you have a moral responsibility to pay that kind of debt.

Paul Rosenberg
FreemansPerspective.com

I’m sorry

student loanDear young people of America,

I’m sorry. You’re entering a world that has condemned you to slavery before you were even born. No, not the full-blown, work-in-the-fields slavery you learned about in school, but something that has most of the same effects but looks far better: they take half of your life and expect you to thank them for it.

There are actually several parts to your slavery. Today I am speaking of the part you may know best: inescapable student loans.

Matt Taibbi of Rolling Stone calls student loan programs “a shameful and oppressive outrage that for years now has been systematically perpetrated against a generation of young adults.”

Taibbi is right, of course, but I think he’s being mild. So, let me be more blunt:

Millions of young Americans have been forced into debt slavery.

Please understand that I am writing for accuracy here, not flamboyance. If you are in student loan debt, you were pushed and you are being held and it is slavery.

Yes, it’s true that you shouldn’t have signed those papers and spent that money, but – and please understand that I speak as a hard core advocate of personal responsibility – the guilt is mostly not yours.

Here’s why I say that:

Setup #1: Something is wrong with you if you don’t

Answer this question: How many times, between kindergarten and the end of high school were you told that you should or must go to college?

Hundreds maybe? And how many times was it simply implied than any decent kid (you in particular) would certainly go to college. Maybe hundreds more?

Setup #2: You’ll live a second-rate life if you don’t

It was clearly and repetitively implied that without a college degree, you’d be left to a second-rate job, a second-rate life and a second-rate spouse. No, they may not have said that explicitly (or they might have), but isn’t that what you were made to feel?

Think about it:

  1. You were conditioned to believe that getting the best girl/guy required you to go to a university.
  2. You were forced to make this choice at 17 years old, just as a flood of hormones had entered your life (making clear decisions much, much harder).
  3. College costs a fortune, but by merely signing a piece of paper, you got all the free money you needed and a clear shot at the mate of your dreams (not to mention lots of wild parties).

Setup #3: “Sign here and it’s all yours”

Here’s how it went:

  • They made you believe that you needed a degree in order to succeed in life.
  • They passed laws that forbade you from getting a good job without an authorized certificate.
  • They made sure that you could only get the certificates through them.

Then, of course, they raised their prices, offered you loans, made sure you could never escape those loans, and pushed you into a decision. You could either sign for the loan – before the deadline – or accept a second-rate life.

That’s called manipulation. In fact, it’s heavy-handed manipulation. A business contract signed under those conditions would be negated by any reasonable judge or jury.

“They Couldn’t Have Done It All On Purpose”

Yeah, they could have, and they did. I know that’s a horrifying thought, but take a look at these quotes from the founding of government schooling in America:

Here’s what Johann Gottlieb Fichte, the founding father of public education, said in his book “The General Nature of the New Education”:

If you want to influence him [the student] at all, you must do more than merely talk to him; you must fashion him, and fashion him in such a way that he simply cannot will otherwise than you wish him to will.

And here’s what William Torrey Harris, former United States Commissioner of Education, wrote in 1906:

Ninety-nine [students] out of a hundred are automata [i.e. robots], careful to walk in prescribed paths, careful to follow the prescribed custom. This is not an accident but the result of substantial education, which, scientifically defined, is the subsumption of the individual.

Just to show that I’m not picking aberrant statements, here’s one more, from Edward A. Ross, who, I am told, was a favorite of President Teddy Roosevelt:

The role of the public official, and in particular of the public school teacher, is to collect little plastic lumps of human dough from private households and shape them on the social kneadingboard.

Make no mistake: you were conditioned by professionals – 6 hours per day, 5 days per week, 40 weeks per year, between the ages of 5 and 18.

No, Mrs. Jones, your wonderful 6th grade teacher wasn’t out to manipulate you, but the people who built the system that controlled both of you were. She just did her best within that system. (And you should be thankful for her.)

Who Did This to You

It’s amazing to realize just how often the people who abuse you are the ones you’ve been taught to respect. And that’s certainly the case here. Your abusers are the majesties of the age:

The education system: We’ve already explained the conditioning of the K-12 system, and the abuses of “higher education” are pretty obvious. Who really thinks that a single class is worth a thousand dollars, or even five hundred? (I’ll ignore the arrogance and abuse of tenured professors for now.)

Higher education is designed to bleed you and your family dry. They have the magic piece of paper that makes or breaks your life, and you’ll do anything to get it.

Politicians: It’s ridiculous to blame parties on this: Blue and Red both play by the same book.

Both political parties have sold you down the river, and they’d do it again. Who do you think wrote and passed the law that you can’t get rid of a student loan even in bankruptcy?

Think about what that means: The loan stays with you for life. And when you die, the banker holding the debt gets first crack at your estate. This is truly a form of debtor’s prison.

The big banks: When you accept a loan from a bank, they don’t take money from someone else’s savings account – they merely write the number on the line and hit Enter – the money is created right there and then. (There’s too much to explain in detail, but that’s the essence of it.)

So, if they created your loan money with the stroke of an Enter key, how is it that they should make you work like a dog to keep up with the payments, make you worry every day for decades, and then take whatever remains from your children when you die?

Look it up if you’re not sure I’m being fair on this point: Get a copy of The Creature From Jekyll Island and read it.

You’ve been abused, my young friends. Sure, walking away from those loan papers would have been a good idea, but your entire life set you up to fold when you were squeezed into that situation.

And make no mistake: the people who conditioned you and wrote the laws and who now squeeze you for money… they knew what they were doing. The situation is confusing from the perspective of the 18 year old, but it isn’t from the perspective of the 55 year old.

These people may have sold you out to maintain their position, to make more money, or merely to keep their bosses happy. But they did sell you out.

What to Do?

First of all, forgive yourself. Yes, you could have done better – and you should never do anything like that again – but you were an 18 or 20 year old kid, facing off against 40, 50, and 60 year old specialists.

Secondly, don’t accept what was done to you as anything but abuse. Call it abuse and don’t back down. There’s nothing communistic or anti-market about that. Manipulation and fraud are not ‘capitalist’ things – they are crimes.

Don’t give the people who did this to you the benefit of the doubt. Once they release you from your financial prison you can think about it, but not until. They did NOT have good intentions, and it WASN’T okay.

Finally, it’s time for you to stop complaining and start doing. Find ways around the abuse; build new systems; act in some productive direction; then adapt as better choices appear.

You have as much intelligence and resourcefulness as any generation that came before you. Use it!

Paul Rosenberg
FreemansPerspective.com

“I’m Glad I Won’t Live to See It”

dontseeIt’s a little scary how often I’ve been hearing one comment recently, of which the following is typical. It appeared on a financial web site about a month ago:

This is all going down to hell, and we are all to blame for it. I am glad that I am old. It started maybe 10-15 years ago. Before that, pensioners would tell me they would love to be 20 years younger. Now they all say they are glad that they aren’t any younger and will soon be off this rock.

I have a highly informed friend that reminds me of precisely the same thing every time I see him.

It’s Not Just Pessimism

A certain number of people are naturally pessimistic, and some of those people might be expected to make such statements. And I’m sure that some do. But that doesn’t look to me like what is happening here.

First of all, the one common characteristic that I see among people making these statements is that they are well informed.

Second, a good portion of them are basically optimistic people, quite willing to concede that what follows the bad passage may be very good. Their concern is simply that the bad period will last too long to live through, so they’d rather check out before going through it.

Personally, I don’t think the bad period will be quite that bad or last long, but only time will tell.

The Numbers

Right now, the United States government is in the hole something like 200 Trillion dollars. That number includes commitments that are owed in future years, but unless the system breaks, that’s really what they owe. Businesses have to account for their debts that way.

The total annual earnings of US residents is about 13 Trillion dollars. That’s only 6.5% of what is owed.

So, here’s what this debt load would look like when transferred to the scale of a typical American family:

  • You make $50 thousand per year.
  • You owe $769 thousand. (Plus interest, of course.)

Good luck paying that off, especially because that $769K is laid on top of your mortgage, auto loans, student loans, and credit card balances.

These are the kinds of numbers that the “I’m glad I won’t see it” guys understand. The debts simply cannot be paid, and what happens when the system breaks could be very, very ugly.

And, of course, the problems are not just financial. The entire ruling class of the world is out of control, massively arrogant and certain to flip out at some point.

People who say such things fit into two camps:

  1. Those who are older and who understand that the breakdown process will last longer than they will. They’ll be glad to die before it gets really bad.
  2. Those who expect to live long enough to make it through the collapse and into whatever comes after.

A huge number of folks are oblivious, of course, and fit into neither of these groups. They’re the ones who will get run over by all of this… just as they do every time.

It’s my opinion that the sharper and deeper the crash, the sooner it will be purged, and the sooner we move through the welfare riots, shortages, and martial law phase. If the system breaks, productive people will get a glorious fresh start. If the system merely declines, it will drag the entire culture in the direction of North Korea.

But, again, we shall see.

Jefferson Saw It Too

As it turns out, my hero Thomas Jefferson was an early “hope I don’t live to see it” guy. But what he was concerned about wasn’t a currency collapse but the destruction of self-government via a civil war. (There are always smart guys who see it coming, though they are seldom listened to.)

Here’s a passage from a letter Jefferson wrote to a friend in 1820, when he was quite old:

I regret that I am now to die in the belief, that the useless sacrifice of themselves by the generation of 1776, to acquire self-government and happiness to their country, is to be thrown away by the unwise and unworthy passions of their sons, and that my only consolation is to be, that I live not to weep over it.

And Jefferson was right: Four decades later millions of Americans were convinced to grab weapons, march in lines, and butcher each other.

The end result of the American Civil War, aside from wholesale death and mutilation, was that the states lost nearly all of their power to Washington, DC. After that point, any claim of self-government was purely promotional fluff. If the states – who had created the union – couldn’t maintain their rights, how would any individual stand against the Beast on the Potomac?

The Civil War (and Lincoln in particular) killed the America of Jefferson, Adams, Henry and Payne.

I’m glad the destruction didn’t happen during Jefferson’s lifetime. He didn’t deserve that pain… and neither do the better old folks of our time.

I am convinced, however, of this: The more that productive people understand what’s happening, the faster the fall and reset will be.

Start talking to your friends and neighbors. Add deeds to your words. Don’t stop.

Paul Rosenberg
FreemansPerspective.com

The Era of Fiat Currency Capitalism

fiat currencyI have worked long and hard to gather a broad perspective on history. I don’t doubt that there is value in specialization. In fact, I would have great difficulty doing what I do without good specialists.

Nonetheless, my particular set of abilities suits me to play specialist for short, intense periods, and then to integrate my gleanings into a larger whole.

One of my general conclusions has been that if we were to give a name to the last 40 years of Western history, we’d have to call it the era of fiat currency capitalism. There is a contradiction built into this term, of course, since fiat currencies and capitalism are oppositional, but such an inherent contradiction is also highly representative of this period.

Having been inside of this contradiction most or all of our lives, it can seem almost permanent and inevitable to us. Nonetheless, it will end, and probably before terribly long. As Robert Louis Stevenson once wrote:

Sooner or later, everyone sits down to a banquet of consequences.

For the last 40 years, things that should have crashed and burned have not crashed and burned, and it was fiat currency that permitted the consequences to be scorned. Western culture and millions of minds have been bent in the process.

Fiat versus Reality

Fiat currency is money based upon nothing at all. The Monopoly money shown above has the same actual value as the Dollars, Euros or Pounds in your pocket. For the moment, the paper in your pocket will buy you food and furniture, but not because it has any real value.

Our daily money is created by politically-favored groups who have been granted monopolies on the creation of currency. (They are referred to in polite company as central bankers.) They create our money, from nothing, and all others are forbidden from doing so. If that sounds crazy, it’s because it is.

The only people with any authority over these currency monopolists are politicians, and that isn’t terribly strong. (In the case of Great Britain, the monarch has some control as well.)

I won’t bother trying to list the ways this astonishing privilege could be abused. Feel free to play with the possibilities on your own. And do remember that more or less every dirty trick that people could get away with, they have eventually used… and bankers have never been exceptions.

This new era began in 1971, when the previous international monetary arrangements, the Bretton Woods system, fell apart. On May 5th 1971, US dollars flooded the European currency markets and threatened the Deutsche Mark. The central banks of Austria, Belgium, Netherlands and Switzerland stopped all dollar trades. Who was behind this flood of trades is unknown to me but it was apparently someone with inside knowledge. At about the same time, the French were, via complex arrangements, redeeming their dollars for gold from the US Treasury, as Bretton Woods allowed. (It was gold that kept the system honest. If you thought games were being played, you could turn in your paper for actual gold.)

If the US had allowed redemptions to continue, they would have lost all their gold reserves. So, on August 15th 1971, the US pulled out of their monetary agreements and refused to redeem any more dollars for gold. (This was called closing the gold window.) Bretton Woods fell apart and, very shortly, no major currencies were redeemable; everything became fiat currency, based on government edicts alone.

This change from redeemable money to fiat currency has affected Western life immensely. For more than 40 years, life in the West has been based on money with no value, which has spawned a lot of other things that have no value.

Quigley’s Chart

The chart below is my modernization of a chart used by Carroll Quigley, one of the best generalist historians of the 20th Century. The chart displays his seven primary factors of Western Civilization, and how they have varied over the last thousand years or so. You’ll notice that I’ve circled our era in red and called attention to the form of economic organization with blue.

fiat currency

As I’ll illustrate below, fiat currency has had significant influence, not only within the ‘Economic Organization’ category I have highlighted, but also over ‘Political’, ‘Economic Control’, ‘Dominant Group’, and even ‘Intellectual’. It has more or less defined our era. So, if I am correct that the reign of fiat currencies is ready to end… big, big changes lie in our future.

Horrific Debt

Fiat currencies allowed politicians to spend money without raising taxes. They did this by creating debt. I won’t spend time on the complex process involved, but every new Dollar, Pound or Euro that is created also creates more than its own value in debt. The currency is spent immediately but the associated debt can be pushed back indefinitely.

Faced with this situation, politicians asked their central bankers to create more and more money, which they quickly spent. Whether on social programs or wars, sensible or not, politicians spent money like there were no consequences attached.

But by spending in this way, the politicians also spent the tax receipts of future generations. Every new dollar requires the central bankers to sell more than a dollar’s worth of bonds, which are debt. This debt has been pushed endlessly toward the future… to the point where American children are now born $70,000 in debt, with five times that much promised.

All bonds are claims against future earnings. The children of the West have had decades of taxes pledged to bondholders they will never know, for money that was spent years before they were born. And, yes, it really is that bad.

The Welfare State

The debt of the Western states was spent on something, obviously, and the most notable destinations for that money were “welfare state” programs. This worked in the favor of politicians in the old, reliable way: by promising voters free stuff. And, more importantly, fiat currency allowed them to make good on those promises without raising taxes.

The most crucial fact about debt-funded welfare, however, is that it made it seem that politics could produce magic. Government was able to give massive streams of money to groups that placed ideals above reality. “Wishing makes it so” seemed to work. This corrupted the reasoning of millions of people and punished those who did hold doggedly to reason. And, this corrupting influence has continued for a long, long time.

Wall Street Contributed to the Damage

The people who work on Wall Street, and in the other financial capitals like London, tend to be aggressive and competitive. On top of that, the big financial firms place them into highly competitive situations like “the top producer gets a double bonus.” It should then be no surprise that such people would want to get in on the central banking game, and to create their own money from scratch.

Central banking need not be the only way to create money; any trusted debt can be used. Here is what Alexander Hamilton (who created central banking in the United States) had to say about this in his Report on Public Credit in 1790:

It is a well known fact, that in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are therefore equivalent to payments in specie. [“Specie” was silver or gold.] In other words, stock, in the principal transactions of business, passes current as specie.

Hamilton’s formulation in plain words is this: Debt can be used as money, and people will accept it as money.

So, if the clever boys of Wall Street and Fleet Street couldn’t get in on the central banking game, they could nonetheless create a new version of it, by using new types of debt as money. (Though this was probably the result of many small decisions rather than one large one.)

What most people don’t know about Alexander Hamilton is that it wasn’t only American central banking that he created; he also created Wall Street. That his securities dealer descendants pursued an alternate way to create money seems almost fitting.

Wall Street’s new debt money is called derivatives. A derivative is a contract whose value is derived from other quantities. Derivatives have existed for a long time, but in the past dozen or so years the financial centers of the world have pumped out stunning amounts of them in a wide array of new configurations. All of these derivatives have their own value. It was one particular type of these financial products that seems to have started the crash of 2008.

I am not expert enough to reach any conclusion as to what specific fallout can be expected from this but $600 trillion dollars of synthetic monetary instruments have to be significant.

Indeed, it goes far beyond just money. The era of fiat currency capitalism has changed who we are in broad and disturbing ways.

[Editor’s Note: This article is an excerpt from our flagship newsletter Freeman’s Perspective – Issue #07: The Era of Fiat Currency Capitalism. If you liked it, consider taking a risk-free test drive. Not only will you gain immediate access to the rest of the issue (which shares 5 ways in which fiat currency has changed us for the worse), but you’ll also be able to enjoy the entire archive – more than 520 pages of research on topics of importance and inspiration to those looking for freedom in an unfree world. Plus valuable bonus reports and all new issues as well. Click here to learn more.]

Paul Rosenberg
FreemansPerspective.com