Fiat money is at base a form of indirect
wealth transfer from those forced to hold the money to those issuing
the money.
I describe the pernicious servitude created
by debt as debt serfdom, as serfdom implies a neofeudal
arrangement that requires serfs’ acceptance of this financial yoke
of servitude. In other words, debt is freely accepted as the line of
least resistance in a system that incentivizes debt and places high
barriers to debt-free independence from a Status Quo operated to
benefit the owners and issuers of debt, not the debtors.
Correspondent Jeff W. has identified an even
more insidious form of monetary servitude that he calls fiat
slavery, as the servitude is enforced by fiat (unbacked
government-issued) money.
In other words, being forced to use
state-issued fiat currency is a form of servitude, as fiat money is
at base a form of indirect wealth transfer from those forced to hold
the money to those issuing the money.
Beyond this state-enforced wealth transfer from
citizens to the state, there is a secondary wealth transfer going on
in any fiat-money system: the neofeudal financial nobility who are
closest to the money spigot get to buy whatever real-world assets and
income streams offer the best return before the money trickles down
to the debt-serfs paying interest and taxes.
For example, the financial nobility can borrow
billions of dollars at near-zero interest from the Federal Reserve,
and use this nearly-free fiat money to buy student loans that pay 7+%
annually. They can also snap up houses for cash that the nobility
then rents to debt-serfs who have been outbid by those with the
extraordinary advantage of unlimited access to the Fed’s
nearly-free fiat money.
Here is Jeff’s commentary:
In a world where every country prints fiat money, the entire human race today, except for its money masters, is subjected to fiat slavery.
Almost everyone understands what it means to be
a tax slave. It means that people must work several months of the
year for the benefit of the taxing authorities. Taxes in the U.S.
today are several times higher than they were 100 years ago, and at
present-day tax levels, today’s Americans are rightly called tax
slaves.
What it means to be a debt slave is also
easy to understand. It means that one must spend a large
fraction of one’s time to earn money to pay creditors. Millions of
Americans today are mired deeply in debt, but today’s America is
also a country where if you personally stay out of debt, the
government will go into debt for you.
Each American taxpayer is on the hook for his
or her share of over $17 trillion in debt that government admits to;
the real debt total is much higher. Government leaders are eagerly
plunging us ever deeper into debt each year.
Most Americans also have personal experience
of being a wage slave. It means that a person has no way to
make a living except by selling his labor into a glutted market.
Thomas Jefferson hoped that most Americans could own their own farms
and thereby profit from capital improvements that they made through
their own efforts. Such Americans could be their own bosses and
escape wage slavery. But today we live in an age of huge factory
farms, and it is more difficult than ever to establish or run any
small business. Thus wage slavery is the norm for Americans today.
But few people understand what it means to
be a fiat slave. Being a fiat slave means that one lives in
a country where the machinery of money printing is used to maximize
wealth extraction from its citizens.
How do they maximize the wealth they can
extract through money printing? First of all, it is done by
increasing of the volume of transactions that take place in a given
fiat currency. Each newly-printed unit of fiat is a drop in the
bucket in terms of the inflation it creates, and more fiat can be
printed without causing serious inflation if a country has a bigger
bucket.
For example, Canada’s GDP is about 11% the
size of America’s. At first glance this might be taken to mean that
Americans can print nine times more dollars than Canadians. But we
must also remember that U.S. dollars circulate throughout the world,
and Eurodollars and petrodollars also add to the total of U.S. dollar
transactions.
Because of extraterritorial dollar circulation,
the U.S. might actually be able to print 20 times more than Canada
without causing serious (in terms of causing political problems for
the money printers) inflation. From this we see why money printers
may want to fight wars to protect America’s dollar circulation
areas in the Middle East or in Afghanistan, where much of the opium
trade is transacted in dollars.
But a country’s fiat transaction volume is
only part of the equation. A more important part of the equation is
the inflation level. Imagine two countries: Country A with an annual
fiat transaction volume of 100 trillion units per year and Country B
with a volume of 50 trillion. Everything else being equal, Country B
can only print half as much fiat each year to give to its government
and its banking elite.
But suppose further that the inflation rate in
Country A is 5% absent any money printing, and the inflation rate in
Country B is negative 2% due to global wage arbitrage, regulatory
suppression of small businesses, and high unemployment. Suppose
further that a real inflation rate of 5% is the money printers’
upper limit because it is the maximum asset erosion that wealthy
bondholders will tolerate. Now we see that potential money printing
in Country A is reduced to zero, while potential money printing in
Country B is 3.5 trillion units (50 trillion times seven percent).
American money printers thus have trillions of
dollars in incentive to support deflationary policies, which may
include global wage arbitrage (sending work to the country where
labor is cheapest), suppression of job creation by small businesses,
suppression of private-sector labor unions, support for open borders
immigration, commodity price suppression through market
interventions, support for genetically modified seeds so as to push
agricultural prices down, support for owners taking a larger share of
corporate revenues so as to reduce labor’s share, and support for
high levels of consumer debt so as to dampen inflationary pressure in
a nation of demoralized debt slaves. All of these oppressive policies
enrich the money printers at the citizens’ expense.
Tax slavery, debt slavery, wage slavery, and
fiat slavery are four methods that elites employ to extract wealth
from the people. To this list we should also add their
encouragement of Ponzi gambling. Ponzi asset bubbles are constantly
being created and citizens are encouraged to go into debt to “cash
in” on bubble profits (or get wiped out in bubble crashes). Those
five methods are the major wealth extraction methods they use.
Those who support the cause of human freedom
must resist tax slavery by insisting on a government that keeps its
spending down to the bare basics. Free people must also support a
culture that discourages people from getting into debt and encourages
them to get out of debt and stay out. They must demand that
government debt be rolled back to zero.
Policies that favor capital accumulation in
families and a supportive legal environment for small businesses are
the antidotes to wage slavery, and free people must also demand that
there be zero wealth extraction from the citizens through money
printing. That can best be done by requiring 100% gold backing for
currency and eliminating fractional reserve banking. Eliminating the
inflation that comes from money printing will also go a long way
toward eliminating asset bubbles and Ponzi gambling on asset bubbles.
Older Americans have watched as a once-free
people have been reduced to slave-like conditions. Not only has
wealth been ruthlessly extracted from the people, but today’s
surveillance state is more intrusive than ever, and the police are
increasingly insolent and imperious.
What are we going to do? A necessary first step
is to take the blinders off and to see clearly how elites are
victimizing you. A second step is to figure out what practical steps
you can take as an American to secure the blessings of liberty for
yourself and your posterity. Freedom is not free, as the saying goes,
and the price of freedom is not only eternal vigilance, but also
intelligent action. We should begin this work today.
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