Money As Debt Page #3

---

to 1 actual dollar in gold.

These regulations were enforced by surprise inspections.

It was also arranged that,

in the event of a run,

central banks would support local banks

with emergency infusions of gold.

Only if there were runs on a lot of banks simultaneously

would the bankers' credit bubble burst

and the system come crashing down.

The Money System Today

Over the years, the fractional reserve system

and its integrated network of banks backed by a central bank

has become the dominant money system of the world.

At the same time, the fraction of gold backing the debt money

has steadily shrunk to nothing.

The basic nature of money has changed.

In the past, a paper dollar was actually a receipt

that could be redeemed for a fixed weight of gold or silver.

In the present, a paper or digital dollar can only be redeemed

for another paper or digital dollar.

In the past, privately created bank credit existed only

in the form of private banknotes, which people had the choice to refuse

just as we have the choice to refuse

someone's private cheque today.

In the present, privately created bank credit

is legally convertible to government issued "fiat" currency,

the dollars, loonies and pounds we habitually think of as money.

Fiat currency is money created by government fiat,

or decree, and legal tender laws declare that citizens must accept this fiat money

as payment for debt or else the courts will not enforce the obligation.

So, now the question is

if governments and banks can both just create money,

then how much money exists?

In the past, the total amount of money in existence

was limited to the actual physical quantities

of whatever commodity was in use as money.

For example, in order for new gold or silver money to be created,

more gold or silver had to be found and dug out of the ground.

In the present, money is literally created as debt.

New money is created whenever anyone takes a loan from a bank.

As a result, the total amount of money that can be created

has only one real limit - the total level of debt.

Governments place an additional statutory limit

on the creation of new money,

by enforcing rules known as

fractional reserve requirements.

Essentially arbitrary, fractional reserve requirements

vary from country to country and from time to time.

In the past, it was common to require banks

to have at least one dollar's worth of real gold in the vault

to back 10 dollars worth of debt money created.

Today, reserve requirement ratios no longer apply

to the ratio of new money to gold on deposit,

but merely to the ratio of new debt money

to existing debt money on deposit in the bank.

Today, a bank's reserves consist of two things:

Rate this script:0.0 / 0 votes