The Financial System and Money Supply
in Banking, Insurance & Loans ·
Maria Thomas48 said:We all deal with money. We earn it, we spend it. We know where it gets printed, but the real question is where the money actually comes from. It’s just paper, really, with almost no intrinsic value beyond what’s written on it. There was a time when every bill was backed by gold reserves, but that’s gone now. So how does this whole thing actually function?
After an intro like that, most people probably think I've lost my marbles, but sometimes it’s hard to tell where genius ends and madness begins. Based on my theory—which is just a simple, plain-spoken idea—it can be shown that a government can't go bankrupt if there is actual profit being generated by businesses. Basically, if there is global profit being realized.
The core of the theory lies in newly created value. It’s hard to demonstrate this at a national level, but you can see it within a single household. For instance, the head of the family (regardless of gender, they earn money and hold it). However, if a family member wants to sell something to the head of the house, they ask for money, and that money has to come from the outside. Let’s say Jack is a skilled woodworker and he makes some hay rakes. He asks the head of the family for $33. It makes sense for the head of the family to pay him because the rakes are good and they are needed (by farmers). But the money the head of the family uses comes from elsewhere, so he has to take part of his external earnings and give it to Jack. On the surface, everything seems fine. But here is the paradox. Money is a great medium for exchange, but when dealing with added value, there's a bit of a dilemma. If Jack were a talented painter instead, he could have painted a bill worth $33 and used that to buy the rakes, then sold them back to the head of the family. You’d reach the same result. In both cases, you're creating a product with added value, but the difference is that in the second example, an extra $33 bill has been injected into circulation. Of course, that's illegal, though the first scenario is also technically illegal (unauthorized manufacturing and trade).
So, I've started this thread about how products with added value are valued, and practically every product works this way.
Let me stick with the example. If little Jack were an even better craftsman, he might have built a wooden threshing machine. That’s where the problem starts. The head of the family doesn't have enough cash on hand, so he takes out a loan to pay Jack. It’s absurd; Jack created something so valuable that even the head of the family doesn't have the funds to cover it. It feels a lot like the way a government operates. They want something, so they take on debt to get it. It’s a good thing there’s always an external source of funding. 🙂.
In my example, you can see how a problem arises within a household if someone produces goods but there isn't enough money to pay for them. If the head of the family had made a bunch of willow brooms, she could have settled the transaction through simple bartering. That is, provided little Jack actually needed those brooms. But he could also sell them on the open market and earn cash. Again, it works out because we have an external market.
Bit by bit, it becomes clear that this logic applies to the state as well. But where do we go from here? Is Switzerland the source of money, or maybe the USA (the current situation)? All over the world, billions of people work and want money for their labor. Where does all that money come from for everyone?
The answer is: money is printed in a printing press. One problem is, what if that printing press isn't located in our own country? So, where is it?
I'll leave the printing press aside for a moment and think: why do we need to print money? According to my theory, there can be no increase in wealth (daily newly created value) without printing money (more technically, increasing the money supply). And look, my theory assumes the state *should* be the one printing the money. But how much? Well, according to my theory, if the state prints exactly as much as the newly created value, then the value of the currency won't drop. So, after this long-winded explanation, we arrive at a financial equation that saves all countries with industrious populations from bankruptcy.
The state cannot simply distribute the printed money, yet theoretically, it holds all our newly created value in its hands (in the form of freshly printed bills). The state needs to inject that money into the monetary system. This is where I hit a bit of a snag, because money is a medium for exchanging value, and you can't just inject it unilaterally. I'd love for the experts to help me finish this thought.
But why does all this money actually need to be pumped back into circulation? It’s because every time new value is created, it sucks the liquidity right out of the system, which triggers a crisis. Just the other day, someone mentioned that the 1929 crash in the States was caused by overproduction. That fits my theory perfectly. If you produce an endless amount of goods and try to sell them at previous price points, you can basically break the entire financial system. The system just runs out of cash. Even if those products are genuinely valuable.
That’s exactly what's happening—the financial system is collapsing. Some people might argue it’s actually for the best, but I’d say that’s like a group of idiots claiming they’re doing great while they're falling from the 50th floor past the 3rd. You could say the same thing while passing the 2nd or 1st floor, but they’re definitely going to need to replace the tiles on the ground floor.
So, I think I’ve picked the right topic here. I'm no economist, obviously, but I feel like I'm on the right track to solving the economic crisis. In the past, I believe leaders solved economic crises in the simplest ways possible. Plenty of historical events back this up—war campaigns were often used to refill the national treasury and inject new capital back into the financial system. We see a modern example too—Somalia. They bring new value into their financial system through ransoms paid for ships.
Basically, I need a Solomon to cut through this Gordian knot of finance.
The solution has to be fast, because once we enter Europe and the Eurozone, things are only going to get way more complicated.
I'd ask that people don't respond based on credentials, just use actual arguments.
Well, that’s where you messed up. It’s like they used to say in the service: "Total nonsense." 😉
Otherwise, I still find it fascinating how people will spend hours arguing on a forum but won't bother reading a single book or a simple booklet like 🙂Modern money mechanics
.