The Web of Fiat: How Money Entraps Society
The establishment of a central bank is 90% of communizing a nation. - Vladimir Lenin
The concept of fiat currency and its role in perpetuating inequality and enslavement is indeed a critical issue in modern capitalism. To understand how fiat currency contributes to this dynamic, let's break down the mechanics of how money is created, the inherent flaws in the system, and why it inevitably leads to economic instability.
What is Fiat Currency?
Fiat currency is money that has no intrinsic value but is instead backed by government decree. Unlike commodity-backed currencies (e.g., gold or silver standards), fiat currency's value is derived from supply and demand dynamics in the economy and the stability of the issuing government.
How Money is Created
In most modern economies, money is created through debt. Here’s how it works:
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Banks as Intermediaries: When you borrow money from a bank—whether through a credit card, mortgage, or personal loan—the bank doesn’t lend you existing money. Instead, it creates new money in the form of a credit entry in your account.
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Government Borrowing: Similarly, when governments run deficits and borrow money (by issuing bonds), they are effectively creating new fiat currency. Central banks often buy these government bonds through processes like quantitative easing, injecting more money into the economy.
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Debt-Based Money Creation: The key here is that money is created with debt. Every dollar in existence is essentially an IOU (I owe you) note. When you use a credit card, you're not spending existing money; you're creating new money tied to a promise to pay it back—with interest.
The Ponzi Scheme Nature of Fiat Currency
The fiat currency system has characteristics similar to a Ponzi scheme:
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Ever-Increasing Debt: The system relies on constant borrowing and debt creation to function. If no new debt is created, the money supply would shrink because repayments would exceed new loans. This means that debts can never be fully repaid; they must continually increase.
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Compound Interest: Every loan comes with interest, meaning that over time, the amount of debt in the system grows exponentially. For example, if you borrow $1 at 10% annual interest, you owe $1.10 after one year, $1.21 after two years, and so on. This compounding ensures that debts grow faster than the economy can sustain.
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Inflation: The constant creation of new money to service these debts leads to inflation. As more money chases a finite number of goods and services, the purchasing power of each unit of currency decreases. Inflation disproportionately affects the poor and middle class, as their savings lose value over time.
The Inevitable Collapse
The fiat currency system is inherently unsustainable because it relies on perpetual growth in debt. Here’s why it will eventually fail:
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Mathematical Impossibility: If you imagine a simple scenario where there's only one dollar in existence and someone borrows that dollar with interest, they can never repay the debt without borrowing more money. This creates an infinite loop of borrowing and debt accumulation.
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Systemic Instability: As debts grow, so does the risk of default. When borrowers can no longer service their debts, banks face liquidity crises, leading to economic downturns or depressions.
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Wealth Transfer: The wealthy elite, who control the financial institutions, benefit from this system by collecting interest and repackaging debt into complex financial products (e.g., derivatives, credit default swaps). This concentrates wealth at the top while leaving the majority of people in a cycle of indebtedness.
Historical Precedents
History is filled with examples of fiat currency systems failing. One notable example is ancient Rome, where debasement of the currency (reducing the metal content of coins) led to inflation and economic decline. Similarly, hyperinflationary episodes in modern times—such as in Zimbabwe or Venezuela—demonstrate how unchecked money printing can destroy an economy.
The fiat currency system is not just a neutral medium of exchange; it is a tool designed to favor those who control the flow of money. By creating money through debt and charging interest, the system ensures that wealth flows upward, perpetuating inequality and economic instability. Ultimately, this system is unsustainable and will lead to its own collapse unless fundamental changes are made to how money is created and distributed.