Philosophical Musings

Philosophical Musings

Tuesday, January 14, 2014

Wealth creation by dilution

Probably the most basic concept about currency, wealth & money is also the most misunderstood. There is this notion that wealth is a pie, managed by the govt. Poor people get a small slice of the pie, while greedy rich people take big slices. The origination of that pie is not considered.

Wealth begins when a crop is harvested, a building is built, or a product manufactured. There is something of value, which people want. Without the demand, the item has no value, so the beginning of wealth starts with demand. All of the wealth of a nation depends on actual creation of something from raw materials, or the production of those raw materials. 

Production is the basis for all wealth & value.

But what about Quantitative Easing? Can't the govt just print more money & provide the currency that fuels the economy? No. All that does is DILUTE the real product of a nation. It is drug dealer dynamics. A drug dealer gets some drugs & cuts it with powdered sugar or some other cheap diluting product, to make it go further, but he does not 'create' more drugs. It is like a distiller producing a barrel of whiskey, then diluting it with water to make 5 barrels. This is what QEs do. They dump more money into the system. It is shuffled around, skimmed off by bankers, politicians & their cronies, & finally trickling down to the people as borrowed money. But it is not based on production. It has NO basis for its creation. It is fundamentally destructive to the economy, not productive.

So what does this dilution accomplish?

1. It enriches the money shufflers. An unintended consequence of QEs or any fiat money scheme is those who originate it profit the most. Instead of the PRODUCERS getting the bulk of the increase from their product, the money shufflers take the lion's share through dilution. They are like the drug dealers, cutting the original drug with bulky filler.

2. It causes inflation. The currency is not based on something of value, but simply declared.

3. It causes income inequality. The money shufflers: bankers, politicians, govt, financial sector manipulators. They get the bulk of the value from the nation's production, so they become rich off of other people's labor.

What is most ironic is that those who oppose income inequality the most, support those who provide the setting for it to happen! Leftists & occupy wall street types are indignant over obscene profits from the banks, yet it is their political cronies that are making this happen. The politicians, via the federal reserve, are responsible for all the QEs, the complex derivatives & secret financial wranglings that dilute the currency & stifle the economy. They trumpet redistribution, but they are already redistributing from the producers to the NON productive money shufflers! Then, they want to INCREASE the dilution by giving away more money to other non producers in the society via the welfare state. They are merely cutting more bulky filler into an already diluted drug. That is why the value or 'potency' of our currency continues to decline. All it does is burn & not provide the high. But like good marketing drug dealers, they tell us what 'good stuff' this is.

This is why the current financial system is doomed to fail. It is based on drug dealer dynamics.. ponzi scheme increases. It is NOT based on real production, nor does it reward it. Real production is discouraged, while money shuffling is rewarded. That is why people pursue MBAs instead of farming... politics instead of construction.. welfare instead of working. Hard, productive work is not rewarded, but shuffling & cons are.

A currency, to be valid, should be based on something of value. That is the difference between 'hard' & 'fiat' currencies. Fiat currencies ALWAYS fail. They operate by dilution. They are currency by theft. They offer illusion in exchange for the created product. But eventually, the actual producers see through the scam & no longer accept the illusion. Then, you get weimar republic inflation & devaluing. The american dollar is allegedly based on our gdp.. gross domestic product. Now this sounds good, IF the currency is actually based on our production. But that is not the case. The GDP is a propaganda construct. It does NOT measure actual production, but money shuffling! So they use the borrowing, shuffling, & skimming of money in the financial sectors to measure the nation's production. It is all paper based numbers with no reflection of reality or actual production.

This seems like an obvious, common sense observation of reality. Yet when we actually propose & debate monetary policy, we think it grows on trees. We want to pass it out like candy. But there is no value without production. Unless a crop is produced, land improved, a product manufactured , or the raw materials mined or acquired for any of these things, all other increases come from dilution.

The solution is to stop the flood of fiat money. That will end the dilution, limit the enrichment from the money shufflers, & give more of the value to those who actually work & produce the product. We need accountability from the fed, & a constant audit of their actions. It is the responsibility of our elected officials to provide a stable currency, which they have not done for over a century. The current system is theft from the producers by dilution. It weakens the currency, discourages production, & breeds corruption & non-productivity. The currency should be tied to actual production of food & raw materials, like lumber, oil, steel, etc. If that could happen, the currency would stabilize, & those actually producing the products would gain the most, & there would be less money printed for the shufflers to skim from. But if we continue along the current path, history shows the outcome: Economic collapse.

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