Chapter 79 Chapter 9 The Achilles’ heel of the US Dollar and the Gold One Yang Finger

If all bank loans were repaid, bank deposits would cease to exist and the entire circulation of money would dry up.It's a startling thought.We (the Fed) are completely dependent on commercial banks.Every dollar in our currency circulation, whether it is cash or credit, must be borrowed by someone to generate it.If commercial banks create enough money (by extending credit), our economy will prosper; if not, we will be in recession.We absolutely do not have a permanent monetary system.When one gets to the crux of the whole problem, the pathetic absurdity of our (monetary system) and incredible helplessness (of the Federal Reserve), it becomes so apparent.Money is the most important thing people should investigate and think about. Its importance is that unless the people widely understand this (monetary) system and take immediate steps to fix it, our current civilization will collapse.Robert.Hamfer, Federal Reserve Bank of Atlanta

Introduction to this chapter In terms of its essence, currency can be divided into two categories: debt currency and non-debt currency.Debt currency is the legal currency system commonly used in major developed countries today, and its main part is composed of government, corporate and private monetized debts. The U.S. dollar is the most typical example of this.Dollars are created as debts are incurred and destroyed as debts are repaid.Every U.S. dollar in circulation is a debt IOU, and each IOU generates debt interest every day, and the compound interest increases. To whom do these astronomical interest income belong?To the banking system that created the dollar.The interest on debt dollars is part of the original monetary aggregate, which inevitably requires the creation of new debt dollars in addition to the existing monetary aggregates. In other words, the more people borrow, the more money they must borrow.Debt and currency are deadlocked together, and the logical corollary is that debt will increase forever until its debt currency is completely abandoned or its interest burden overwhelms its own economic development, leading to the final collapse of the entire system.The monetization of debt is one of the most serious underlying instabilities of the modern economy, by overdrafting the future to meet the needs of the present.There is an old saying in China, that is exactly what it means to eat more food than you need.

Another type of currency is non-debt currency represented by gold and silver currencies.This currency does not depend on anyone's promises, nor is it anyone's debt. It represents the fruits of human labor and is a natural evolution of human social practice for thousands of years.It does not require the coercion of any government power, it can cross eras and national boundaries, and it is the ultimate means of payment in currency. Among all currencies, gold and silver currency means actual possession, while legal currency represents IOU + promise.There is an essential difference in the gold content of the value of the two.

China's yuan falls somewhere in between.Although the renminbi currently has components of a debt-based currency, as far as its subject is concerned, it is still a measurement that reflects the products and services that have been completed in the past.The issuance of renminbi does not have to be collateralized by national debt like the U.S. dollar, and the currency is issued by a private central bank, so it can avoid huge interest payments falling into private pockets. From this perspective, the attributes of renminbi are closer to gold and silver currencies.At the same time, since the renminbi is not backed by gold and silver, it has the basic attributes of a legal currency, and it must rely on the coercive power of the government to guarantee the value of the currency.

A true understanding of the inherent nature of the Western legal currency system, especially the US dollar system, is a necessary prerequisite for the future reform of the renminbi.