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A fiat system, where base money is not anything real, will always tend to lead to centralized control. Centralized control creates distortions & bubbles, but more importantly it leads to big govt. Big govt & their abuses of power is the real problem, and I think @GeorgeGammon would agree with that.
In a system where money can be created from nothing by an exclusive club of the few, it will always lead to a centralized system. The "free market" of banking risk and bankruptcy will always be plugged up more and more over time until it ceases to exist because the power to do so exists completely in the hands of the banks & govt via simple ledgers and write offs. Money is just a number on a screen. When money is #silver and #gold the people, who have the option of physically holding this cash & not just notes, have the real power of the free market - of deciding who survives & who goes bankrupt by cashing out. There can be no writing off by govt or big corps without also paying up - someone will lose. Pain is necessary for real freedom. #Gold and #silver ensure that pain, which prevents the system from centralizing over time.
That is the most important reason for sound money. Two lesser reasons are:
1) When money comes from nothing, and big banks achieve a certain threshold of societal power - at a certain point they become incentivized to rob society via "investment" in financial schemes & derivatives, because they can make more & faster there than by creating true, long standing value. The scandal of the internet IPOs in the 90s - whereby a bank would make a killing on inside deals beforehand and then sell immediately after IPO & the stock would plummet is an example of this phenomenon in infancy. The incentive to invest in real value was not strong enough to overcome this greed. The companies suffered from the .com bust, banking system chugged on. Now this malinvestment phenomenon is worldwide. This is why the Eurodollar, despite being a result of so called "free market", is a perverse structure: it has pushed financialization worldwide & crushed real value.
2) Their is a value tax with the creation of money which is completely absorbed by the banks. In a more closed money supply system, the value would be absorbed by the public as the value of money goes up when goods & services expand - built in savings.
Would this make rates on loans go straight up? Yes, you are correct, borrowing would be very hard. It would be catastrophic to the current way of life. You are right to not brush that aside. But maybe the current system of things needs to be crushed? There is most certainly a culture of debasement that has grown alongside the big banks, as demonstrated by confessions like this: youtu.be/pn548uALuYw?fe…
Additionally, the culture of investment in a more closed money supply system would naturally move from making a % on a transaction to long term ownership and partnership - which is far more healthy & desirable for society in the long run. Giving away my money would be hard if I can let it sit and earn 3% doing nothing, especially when there is risk of losing it. But if that decision is based on lifetime ownership or long term partnership between two private small businesses - rather than trying to cut the difference on a mortgage transaction with a nameless person, or dumping it into a pile for mega-corps on a stock exchange - then it starts to make more sense. We need more private investment and less public for the middle class to thrive. And middle class is essential for a republican form of govt to survive.
Finally, this theoretical complex environment of crowd sourcing private investment & ownership sharing of non-public companies is complex, but the digital age makes all this achievable with ease. It is not in the interests of the big banks though, so it will never happen without collapse of the current system.
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George Gammon@GeorgeGammon
Interesting Q&A: Great observation, but how would it differ if the manufacturer only borrowed the $5 that exists? (The bank didn’t lend money into existence) Everything you described would happen. So you have to answer the question of why using fiduciary media to create more widgets constitutes a misallocation of resources but borrowing gold doesn’t. What you described is simply the process of creating more widgets which would obviously take resources from something else. Putting on my Austrian hat I assume they’d say it’s because the additional “money” makes rates lower than they otherwise would be and this creates the misallocation/malinvestment/boom bust. This is where my view differs.
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