Chinese Paper Torture

The latest folly from the ‘powers that be’ can be surmised from two recently floated ‘trial balloons’. The first balloon is a quote from The Economist; “The idea that central banks might cancel their government debt, or restructure them into zero coupon debt, is gaining traction.”

The second balloon was alluded to by Mr. Michael Snyder, who wrote a feature article titled What if there was a financial system that would eliminate the need for the federal government to go into debt, that would eliminate the need for the Federal Reserve, that would end the practice of fractional reserve banking and that would dethrone the big banks?”

This loaded question was inspired by an August 2012 IMF “working paper” titled “The Chicago Plan Revisited. The Chicago Plan envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan:

(1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.”

So, what does this mean in plain English? The crux of the matter is this; “In this context it is critical to realize that the stock of …money newly issued by the government is not a debt of the government. The reason is that fiat money is not redeemable, in that holders of money cannot claim repayment in something other than money. Money is therefore properly treated as government equity rather than government debt”

The government would no longer borrow ‘money’… but simply issue it directly. And, the ‘value’ of this ‘money’ would be treated as an asset…  an equity… rather than a debt the government owed to society, to the tax payer. The very pretense that government would ever pay back what it borrowed would be dropped; after all, if it doesn’t borrow anything, just outright steals it, then it no longer has to pay back what it stole… does it? And just what is the government stealing? Why, everything that it buys with its totally fraudulent bits of colored paper called ‘fiat money’!

Historically, as J. P. Morgan declared, “Gold is money … and nothing else”. Later on, paper promises pretended to being ‘money’… and for a while, the promises were kept… the paper promises were redeemable in Gold. Later this promise was reneged on; paper was no longer redeemable in Gold… but rather was ‘backed’ by Gold… at least some of it was backed.

Then paper was no longer backed by Gold… but only by the ‘full faith and credit’ of government. The implicit promise was that the paper would keep its value… of course, this promise was not kept either. Now, with this latest deceit, there is not even any ‘backing’… the government will simply print ‘money’ as it chooses, and that is the end of it.

To put it bluntly, the only thing backing this new form of deceit will be government power; thugs in jack boots with guns. The last illusion is stripped away; no more hiding the ‘money creation’ behind the curtains of the Fed… just a declaration of outright force.

So, why is this editorial called Chinese Paper Torture? Simple; Chinese governments have gone down this path many times before, declaring paper ‘chits’ to be money while gathering Silver… the real money of China for ages… into the current emperor’s  vault. This theft inevitably led to war and destruction, to the fall of dynasties. This destructive scenario played out so often throughout Chinese history that the Chinese passed laws outlawing the use of paper money altogether.

Of course, this Chinese law is presently not in effect… or is it? Is Chinese money… Silver, and lately Gold… simply kept hidden by the inscrutable Oriental? Simply kept hidden, while Western paper currencies and paper economies collapse? It would be sweet irony indeed.

When Marko Polo returned from his world girdling travels, he brought a gift from the Chinese; a bunch of paper money. The impact of this ‘gift’ was amazing; it was hardly conceivable that the Chinese actually believed that these bits of fancy paper were money. It was decided that this was the work of the Devil. The authorities turned around and burned the ‘gift’.

In China, power ruled over money; what the emperor decreed to be money, was money… backed by the emperor’s soldiers. In the West, at least till today, money rules over power; what the bankers decree to be money, is money… and the banker’s money pays the soldiers. Perhaps this is about to change; and perhaps we are going to be subject to Chinese Paper Torture.

Rudy J. Fritsch

About Rudy Fritsch

I was born in Hungary in 1947, and fled Socialist tyranny during the Hungarian Revolution of 1956. My family had lived through WWII and the consequent Hungarian hyperinflation, thus I have intimate experience with financial destruction. My Dad used Gold to buy our way out of Hungary. Paper money was as good as toilet paper. Later in life, during my studies of Austrian economics, I came to realize that only Gold could solve the Global Financial Crisis (which should be called the Global Monetary Crisis), just as Gold solved our otherwise insoluble problem of getting out of Communist Hungary.
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