We Are Now In A Situation That Looks Like A Dead End For The Paper Money System

From Philipp Bagus on Mises.org:

A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible.

In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later.

A better strategy, given this scenario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt.

This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government.

We are now in a situation that looks like a dead end for the paper money system. After the last cycle, governments have bailed out malinvestments in the private sector and boosted their public welfare spending. Deficits and debts skyrocketed. Central banks printed money to buy public debts (or accept them as collateral in loans to the banking system) in unprecedented amounts. Interest rates were cut close to zero. Deficits remain large. No substantial real growth is in sight.

At the same time banking systems and other financial players sit on large piles of public debt. A public default would immediately trigger the bankruptcy of the banking sector. Raising interest rates to more realistic levels or selling the assets purchased by the central bank would put into jeopardy the solvency of the banking sector, highly indebted companies, and the government.

It looks like even the slowing down of money printing (now called “QE tapering”) could trigger a bankruptcy spiral. A drastic reduction of government spending and deficits does not seem very likely either, given the incentives for politicians in democracies.

So will money printing be a constant with interest rates close to zero until people lose their confidence in the paper currencies? Can the paper money system be maintained or will we necessarily get a hyperinflation sooner or later?

http://www.thedailycrux.com/Post/43942/end-of-america-update-how-the-paper-money-experiment-will-end

Russia’s Largest Bank Proposes Bitcoin Alternative

Hot on the heels of JPMorgan’s “web cash” developments in the virtual currency arena, the CEO of Russia largest bank – Sberbank – appears to be looking for alternatives…

• *SBERBANK CEO GREF SAYS FUTURE BELONGS TO VIRTUAL CURRENCIES
• *GREF SAYS DEVELOPMENT OF VIRTUAL CURRENCIES ‘CAN’T BE STOPPED’
• *SBERBANK CEO CALLS FOR GREATER REGULATION OF VIRTUAL CURRENCIES
• *SBERBANK MAY FORM OWN VIRTUAL CURRENCY ON BASIS OF YANDEX MONEY

http://www.zerohedge.com/news/2013-12-13/russias-largest-bank-proposes-bitcoin-alternative

U.S. Dollar Freefall Will Continue…Here’s Why By Gregory Mannarino

Gregory Mannarino brings us this ‘alert video’ sharing with us that the US dollar will continue its free fall and there’s a good reason why. Can anything at all stop this ship that is taking on water and rapidly sinking? Gregory informs us that the collapse of the dollar will be felt by every living person in this world…and its end is all but complete.

 

http://beforeitsnews.com/economy/2013/12/alert-video-the-u-s-dollar-free-fall-will-continue-heres-why-by-gregory-mannarino-2578962.html
Global Economy Endangered by “Quantitative Easing”: Towards a New Financial Derivatives Bubble?
Continental developments for a multipolar world
Notwithstanding so many expert studies and international conferences devoted to the reform of global finance and of banks considered “too big to fail”, we are still faced with continuing irresponsible and unacceptable economic and financial behaviour, and this is what bears the primary responsibility for the financial crisis.
To make things more complicated and dangerous, since 2008 public bailout operations have significantly increased indebtedness in the G20 economies. Overall, G20 countries have seen their total indebtedness increase by more than 30%, both domestic and international debt, public and private. This increase in total debt reflects a large increase in public indebtedness, particularly in advanced economies, that has not been offset by any decrease in aggregate private indebtedness.
Despite all efforts to decrease fiscal deficits, gross public debt of the G20 has risen by an average of 22% of GDP in the period between 2007 and 2013. The situation is more favourable in emerging economies, notably among larger economies in Latin America, where both fiscal deficits and public debt have declined on average. Among these economies, public debt to GDP is in most cases close to or below the 40% ratio.
To deal with such a major financial earthquake, central banks in major economies have lowered policy rates to near zero and have massively expanded their balance sheets. As a result, the central banks hold assets that have risen from about $4 trillion just before the crisis to $10 trillion today.
The policy of “quantitative easing”
In fact, since 2007 the US Federal Reserve System has been working with “non traditional policy tools”, that is with non conventional monetary weapons, which are based on enlargement and management of its “balance sheet”.