Commonsense Money

Since 1913, debt has been the only way that we in the U.S. have known to create money. Choking on debt yet short on money, Americans are reeling from too much monetary theory and too little commonsense.

Those who sold us the theory also ensured recurring recessions. Each debt-induced cycle features rich-get-richer booms followed by debilitating busts. We designed our way into this mess. We can design our way out.

As yet, there’s no sign that policy-makers know a way out. Nor do their advisers. Over the past century, every economist has been educated the same. They are unable to see the real problem because the theory they were taught is the source of the problem.

The U.S. Federal Reserve model of central banking was one of America’s key exports. Every nation now “monetizes” pretty much the same way — with debt.

Good news is on the horizon from major exporting nations. Many of them are Islamic and flush with money. Much of that money originated as debt in industrialized nations.

Those nations are staggering under immense debt. Much of that debt is owed to nations where they must buy oil and gas to fuel their economies and generate funds to…repay debt.

Yet the creditors too are in a bind. Where can they prudently invest their vast pools of debt-backed money? Do they buy more U.S. government debt? Euro bonds? Do they hold their reserves in dollars, euros or pounds sterling — all debt-based?

Invest instead in commodities and they just bid up the price. That may be good news for speculators but it is not a sensible risk management strategy. So what to do? When all else fails, commonsense may yet find its way into this debate.

Tomorrow’s Commodity Today

The safest commodity is one you can control. Look at China’s control over rare earth metals. However, control of that sort is a beggar-thy-neighbor approach, akin to investing in precious metals like gold or silver. Such investments miss the point — and the opportunity.

The commodity hedge for the foreseeable future is clean energy, particularly solar power due to its abundance and ease of collection. Clean energy is also what must be monetized — not debt but electrons captured by solar panels and converted to useable energy.

Monetization comes with an implied promise. To maintain value, currencies must be backed by productivity — the capacity to generate real goods and services. Productivity is what makes a financial security truly secure.

Those who designed America’s central banking system assured us that debt-based “monetization” would be backed by real productivity. That thin tether to reality was severed in 1971 when backing for the U.S. dollar shifted from precious metals to a candid slogan now stamped on U.S. currency: “In God We Trust.”

Federal Reserve Chief, Alan Greenspan, not only trusted Wall Street’s “financial creativity,” he also enabled it with cheap credit. Layer upon layer of cross-collateralized debt produced little more than more money for financial sophisticates. Meanwhile real people living in real communities witnessed the dismantling of the U.S. economy.

Ask around. Would those with commonsense prefer their money secured with debt or with clean energy? Which is more secure?

Those who propose we reform central banking miss the point. Why reform it when, by design, it can gradually be displaced?

Instead of relying solely on debt-backed money, why not also issue asset-backed currencies? Why not complement centralized money with decentralized monies? Instead of one-size-fits-all money, why not tailor currencies to the diverse needs of communities?

Rather than trust in God, why not put your faith in money secured by clean energy?

Commonsense Money

Total assets in sovereign wealth funds now exceed $8.1 trillion. China has reserves approaching $2.4 trillion. Oil exporters have considerably more including $1 trillion held by the United Arab Emirates and $510 billion by Norway.

As an energy exporter with large currency reserves, Russia is revisiting the wisdom of investing in other countries those funds generated by the sale of its natural resources.

With increasing frequency, political leaders are looking at the global financial crisis as an opportunity to reconsider what they monetize — and for whom. That suggests commonsense may yet find a way.

An alternative is known, available and viable with energy-backed “complementary currencies” designed to operate parallel with national currencies.

Do not expect leadership from the U.S. Those who sold us the current system retain too much control — for now.  Their interest lies in more money secured by more debt. Or backed by nothing at all.

Look for this overdue innovation to emerge from cultures long wary of those who collect fixed interest regardless of the debtor’s condition. The Quran forbids it as “riba.” The Bible forbids it as “the pound of flesh.”

The source of this common malady is now coming sharply into focus — as is the cure.

Jeff Gates is author of Guilt By Association, Democracy at Risk, and The Ownership Solution. Read other articles by Jeff, or visit Jeff's website.

9 comments on this article so far ...

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  1. bozh said on January 4th, 2011 at 8:45am #

    in short, use the money like any other tool: make it useful for all people; while benefits derived from it going to all people in equal amount.

    once that is achieved and thus universal trust obtained, one wld only need a hand shake; making use of money superfluous! tnx

  2. Deadbeat said on January 4th, 2011 at 7:10pm #

    bozh writes …

    in short, use the money like any other tool: make it useful for all people; while benefits derived from it going to all people in equal amount.

    Money is not a “tool”. Money is a device of CONTROL and POWER. Money is a commodity that is DETACHED from human intercourse. Money is an OBJECT that interferes with human intercourse. It is not a tool like a telephone that enhances human intercourse.

    Money can be accumulated and horded. Money can be stolen, confiscated and lost. The lack of money leads to a diminution of human intercourse and life’s opportunities and liberties. This is a commodity that MUST be ELIMINATED not “reformed” as bozh suggests. Money can Capitalism goes hand in hand. Thus in order to end Capitalism, money must also be eliminated.

  3. AaronG said on January 4th, 2011 at 8:34pm #

    Good point Deadbeat.

    Money shouldn’t be required to eat, which is a basic human need/want. If I plant an apple seed in the sun, water it, maybe fertilise the soil, I should end up with an apple. Money is not required anywhere in this cycle. The seed, sun, soil, water and fertiliser came from the natural systems and my labour was used to plant the seed and then collect the apple from the tree. Where’s my reward for my labour, you ask? Why, it’s the apple and the kilojoules of energy it provides me to live life – THIS IS COMMONSENSE.

    If I privatise the seed, sun, soil, water and fertiliser (none of which belongs to me) and then charge you money for it, then you buy the above with money, and pay labourers to plant and pick the apples, then you charge the end user to eat the apple (via 2 or 3 “middle men”, who each extract a profit). The workers in this scenario used the same amount of energy to plant and pick the apples, but ironically, due to low wages they are the ones who cannot eat the apple since they do not have enough “money” in their pocket to buy one – THIS IS NOT COMMONSENSE.

  4. Deadbeat said on January 4th, 2011 at 9:22pm #

    Thanks AaronG. We have the technology today (the “tools”) to enhance human intercourse and efficiencies that allow us to engage in many more endeavors if we were not prevent for the lack of “dollars”. Getting rid of money will definitely free us especially from the insecurities of not possessing enough money.

  5. Deadbeat said on January 5th, 2011 at 3:17am #

    Jeff Gates writes …

    Monetization comes with an implied promise. To maintain value, currencies must be backed by productivity — the capacity to generate real goods and services. Productivity is what makes a financial security truly secure.

    This idea is only a reformation to the Capitalist system. Productivity measures output per worker. However the past 30 years there has been phenomenal improvements to productivity yet workers incomes have remained flat. Part of this is due to the fact that computers and automation has made many workers superfluous. Under the system of Capitalism, the Capitalist class appropriates this productivity while under Socialism the entire society would benefit from working fewer hours and engaging in leisure or other useful endeavors.

    Also just measuring a societies “worth” based on its productivity especially under Capitalism leads to other problems such as unemployment. This is why it took a war to get the U.S. out of the Great Depression because it put people to “work” and certainly was highly “productive”. In other words productivity is useless and is confined to the norms of Capitalism rather than the norms of humanity.

    What should be of concern is how to transform political economies to humane relationships not how to better achieve output.

  6. bozh said on January 5th, 2011 at 9:24am #

    with trust, our most noble and valuable trait, by now utterly destroyed in almost all ‘democratic’ societies, all tools can be and will be used as weapons by the clerico-noble class of low-life.

    no tool can do anything. tool can be used or left lying dwn. ask, who’s using it and how it is being used.

    but this caveat can only be useful after trust is restored. recall, please, that money had not been invented until ca 3.5k yrs ago.
    yet slavery, serfdom, warfare, torture, murder, belittlement existed for ca 10k yrs.

    u change minds of people, u change everything and abolish all injustices! whether it’d take decades, centuries, or even millennia, one has to start it today.

    but flail also ?all priests, mullahs, rabbis, et al. they utterly control at least 4bn people. with such numbers of enserfed people and being against an enlightenment, we are not going anywhere with just blaming.
    more cld be said.

  7. Deadbeat said on January 5th, 2011 at 9:47am #

    The point bozh is that money is NOT A TOOL. Money INTERFERES with human intercourse and cannot be reformed. What you fail to understand is that your premise is incorrect.

    Also bozh money is anachronistic. With all the real tools that are now present in 2011 the resources that people need can be easily transported to them. Exchange requires no money whatsoever. Without money (meaning without Capitalism) human exchange will occur naturally without the constant need to price everything.

  8. Deadbeat said on January 5th, 2011 at 9:54am #

    Think about it without money the following “industries” would become obsolete:

    Real Estate
    Debt Collection
    The Treasury
    The Federal Reserve
    Tax Collection
    Stock Exchanges

    Without all this wasteful and superfluous activity people whose lives are controlled by money would be freed to engage in socially useful endeavors.

  9. kalidas said on January 8th, 2011 at 11:32am #