Here you’ll find links to good resources for learning about our money supply, its impacts, and better alternatives. But to start it is important to at least understand what money is and how our current monetary system works.
So, what is money? Simply put, it is primarily a medium of exchange to facilitate efficient trade. Sound Money should also be a store of value. Historically, money has taken on many different forms and many different mediums of exchange have come and gone. What a society uses as money has a major impact on how that economy functions. Empires have risen and fallen and people have been enriched and impoverished based on the type of money supply that was used.
For the last 50 years, we have lived in an era where the main form of money are currencies which aren’t backed by anything with intrinsic value (known as a fiat system). Unlike the tale told in this book, central banks do not even pretend that the currencies they issue are backed by anything of value. This is why the supply of these currencies can grow endlessly. This kind of system has been tried throughout history and has always failed.
So, how is currency created in the current system? Well, the vast majority of new currency is created as debt in the banking system. This is called credit creation, and it can be explained in one simple sentence. When you go to the bank to borrow money, the bank lends that money into existence. In other words, when you borrow money from the bank, they basically just type the numbers into your account after you sign the promissory note to repay it.
To be clear, despite widespread belief, banks do NOT need to have deposits to lend money. The bank creates money out of thin air and you have to pay it back to them with interest. Yes, it’s that simple.
I know that sounds a bit absurd, but that is how it works. And if it sounds fundamentally wrong and dishonest, that’s because it is. This mode of money creation as debt not only drives wealth inequality, but it also causes a whole slew of additional economic problems including:
• An increase in the amplitude of boom and bust cycles which contributes to general economic instability.
• Bubbles in certain asset classes for which money can be borrowed (e.g. Housing and financial assets) while other important areas of the economy get neglected.
• Loss of the currency’s purchasing power which eliminates any incentive to save and acts as a hidden tax.
• A huge incentive to borrow and speculate which encourages irresponsible financial behavior.
• A shift away from truly meaningful and efficient economic activity towards economic pursuits that are profitable in monetary terms.
• Wealth extraction by those close to the source of money creation and those who know how to play the system.
• Necessity for an ever increasing monetary supply to avoid a total systemic collapse.
A lot of these problems could be alleviated to some degree if we returned to a monetary system based on sound money. Educate yourself and your friends and family. Here are some links to get you started…
Technical Explanation describing exactly how the credit creation mechanism of money creation works Can banks individually create money out of nothing?
Great video series to introduce you to the history of money Hidden Secrets Of Money
A thinker and author who understands the problems with Fiat currency and the potential for Crypto currencies as well as anyone Saife Dean
An alternative currency that merges the benefits of both crypto currencies and precious metals Kinesis.
An organization dedicated to promoting sound money in the USA Citizens for Sound Money