Tuesday, November 17, 2009

A quick word on fiat money from the BIS...

This post is a quick word from the BIS on the subject of fiat money. As the global expert in "intrinsically worthless pieces of paper," the BIS ought to know plenty on the subject. Therefore, the Bankster Report will defer to a document from the BIS for a quick perspective on the issue. The following italicized quotes are from the Bank for International Settlements, document no. 55, titled "The Role of Central Bank Money in Payment Systems," a paper completed by the Committee on Payment and Settlement Systems (CPSS), and published in August 2003.

BIS CPSS document no. 55, pg 1; On money and fiat money:

Money is fundamental to the functioning of market economies inasmuch as these are based on exchange and credit. In a market economy, any two economic agents are free to agree on the means of payment to be used to settle a transaction. Acceptance of any form of money will, however, depend on the receiver’s confidence that, subsequently, a third party will accept that money in trade. Fiat money is worth nothing without the trust of a community behind it. Manifestation of this trust is exemplified by the use of banknotes. Being intrinsically worthless pieces of paper that everyone accepts from a stranger in exchange for valuable goods and services, banknotes testify to the presence of certain bonds of confidence that tie together the members of a society.”

Wow, that's so nice to hear from your "central bank of central banks," isn't it? But, of course, it is unassailably, perfectly, true: fiat money is fundamentally worthless! So consider this worthlessness and the idea of a free market presented in the second sentence: "In a market economy, any two economic agents are free to agree on the means of payment to be used to settle a transaction." Fiat money systems must remove the "free to agree on the means of payment" part in order to create a paper monopoly on money. Since the US fiat system started in 1914, the Federal Reserve has removed the "free to agree" part by requiring that all taxes be paid not in "the means of payment" agreed to by the involved parties, but instead in Federal reserve notes--period. There is a very functional use for this tactic: the people might realize and understand that fiat money is worthless and takes no effort by the "producer" (the bank) to create, but if you legally require the people to use this currency under penalty of law, imposed by the government, then you can make them find worth in the "intrinsically worthless pieces of paper," whether they want to or not. Does that sound like a "market economy" to you?

Of course not: it is the antipathy of a free market and the legalization of fraud! If people in a true free market would like to freely choose to purchase worthless pieces of paper, then that is perfectly alright. But when you force the people--that's something between extortion on the low side and tyranny on the high side. Actual and true value and worth can only be determined by the free market.

Take gold for example: there are many people who say that gold has "intrinsic value," and these people will gladly exchange fiat money for yellow metal. Others, meanwhile, say that gold is stupid waste of time, and only barbarians would see magical value in it. From of historical view, the latter part is totally wrong, as gold has indeed represented value and had great worth for thousands of years. Yet, in a simply logical way, this same "worthless gold" camp is correct: if the whole planet thought like them, gold would be a worthless, stupid waste of time! The worth of anything non-essential to life itself is very subjective. In fact, there's plenty of subjectivity in those essential things of life, and in a true market economy, the value of anything is determined by the participants. So, I suppose, gold--like anything else--has no outright, objective "intrinsic" or "natural" value, but has a long-standing, historical, market based value as an indicator of effort and labor.

However, if these anti-gold folks are attempting to make some kind of statement about fiat money as somehow being the opposite of gold--if they are contending that fiat money is actually "worth-packed"--well, that is equally untenable. And now you can simply direct them to the BIS itself (or any one of several sections of the Federal Reserve Act). At least with gold, the producers will tell you that the metal is valuable because it takes time, effort, labor, and technology to extract it from the earth. Would the producers of fiat money make the same claim? No, of course not! They are telling you, clearly, that their product is simply "intrinsically worthless pieces of paper" that take no effort to produce and can be created at will, backed by "nothing." At least they are honest.

BIS CPSS document no. 55, pg 1; On trusting money:

“…since the value of money lies in trust, there can be no absolute guarantee that confidence in the currency can be preserved over time. It may be shaken by a monetary crisis or by the malfunctioning of the payment system.”

Uh, yes, that would be consistent with the whole "intrinsically worthless pieces of paper" part.

BIS CPSS document no. 55, pg 1; On money creation:

"In pursuit of its task, the central bank issues its own liabilities for use as money (central bank money). But the central bank is not the only issuer of money in an economy. The multiplicity both of issuers of money and of payment mechanisms is a common feature in all developed economies. Commercial banks are the other primary issuers, their liabilities (i.e. commercial bank money) representing in fact most of the stock of money..."

What an excellent, concise explanation of three huge economic concepts: 1.) fiat money, 2.) debt-based currency (aka notes or obligations), and 3.) fractional reserve lending/commercial bank-money creation! Fabulous! Sickening, of course, but absolutely fabulous! The BIS calls what central banks do, and calls it clear: a "central bank issues its own liabilities for use as money," and while to the BIS and Federal Reserve this is called fiat monetization, the rest of the world would recognize it by its more common name--fraud. Selling worthless liabilities as money--this is what our economy is based on. There is no "store" of labor or wealth--only debt issued on debt. Every federal reserve note is a debt note, not a "reserve" note at all. It was created exclusively through debt, something from nothing (actually, not even nothing, but negative). But as if that's not enough, you also have the commercial banks doing it too! This is fractional reserve lending: a commercial bank "creates" the money it lends to a debtor through the debt itself. The debt is advanced to the banks--read it yourself all over the Federal Reserve Act, such as Section 10A and 10B, but especially Section 16, which is below:

"Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are hereby authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."

Repeat: the Board issues advances to the reserve banks, and these notes are the obligations of the United States. This is why we call them "banksters".

BIS CPSS document no 55, pg 13; On central bank obligations:

Central banks are more creditworthy institutions than commercial banks in their own currency. They have explicit or implicit state support. In a fiat money system, where not constrained by a convertibility rule to another asset/currency, the central bank can always cover its obligations by issuing its own currency. In addition, central banks tend to be risk-averse institutions which seek, as far as possible, to engage only in low-risk financial activities.”

Pretty nice arrangement, isn't it? This is why understand Section 16 is so important, because it is a necessary feature for any parasitic central bank in a fiat money system to de-fraud its host nation for its own (and its stock/shareholders') self-preservation. This whole document is actually worth reading for anyone with the time and patience, and it is interesting to compare this rather idealistic dream image of a "low-risk" central bank in 2003, and compare it to the central bank spending and printing spree of today! Especially, to compare it to the Federal Reserve, which has increased its "low-risk" balance sheet by a mere quadruple factor since 2008. Yes, indeed, the "risk-averse" central bank even accepts such totally risk-free (sarcastic) collateral as student-loan backed securities, car-loan backed securities, commercial real estate-backed securities, and yes, mortgage-backed securities, for its "advances" and "loans" in its endless pursuit of risk-less-ness!

Back to the BIS document: the ideal central bank is apparently supposed to be a “risk-averse institution” and engage in “low-risk financial activities," so as not to unduly compromise the integrity of the issued "central bank money." And so, our central bank, the Federal Reserve, constantly reminds us that it has never taken a loss. Chairman Bernanke likes to say it has never "lost a dime." Well, duh. Yet, people (many of whom are in Congress) hear this and are so impressed with the FRS’s ability to have “never taken a loss" that they therefore decide it is an outrageously responsible institution, and that the Federal Reserve must be ranked with the utmost of conservative risk non-takers. Yeah, right.

These people, apparently, have significant trouble thinking things through. Let's see: how could an institution never, never, never, never have lost a dime? Hey, I know--let's ask the BIS CPSS document no. 55!

Question: "How is that a central bank like the Federal Reserve can operate for nearly a hundred years, persist through panics, recessions, depressions, and even world wars, and yet never incur a loss?"

BIS CPSS document no. 55's answer: “In a fiat money system...the central bank can always cover its obligations by issuing its own currency.”

Wow, thanks, BIS CPSS document no. 55. Again: that's a nice arrangement, isn't it? I would like to note, also, that conspicuously missing from this BIS document is the next logical sentence--which, if I were writing it, would be something along the lines of: “And, of course, in the process of issuing its own currency to cover its obligations, the central bank therefore simply DEBASES that currency by vigorously printing up or actually usually simply digitally inventing more and more and more and more "money" to covers its obligations, thus devaluing the savings of an others who hold that currency, and introducing an upward pressure on price, thus explaining one of several contributing aspects to the inherently inflationary character of fiat money." But they didn't invite me to Basel.

By the way, in case you are curious, fiat is Latin. It means "let it be." The bankster can say "Let it be!" and, viola, we have a $25 trillion on 12 months! Fiat!

Fiat! Do you think the gold producers can say, "Let it be" and instantly we have 25 billion ounces of gold? Hmm. How many alchemists do you know?

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