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The Monetary Cliff: Its the Driver behind Deficits and the Fiscal Cliff - Rethinking our Centralized Fiat Money System

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Government deficits, fiscal cliffs/debt limits and sequestration have been in the news til we get tired of hearing about them for well over a year. 


(image by Paul Krumm (my self))
there have been a number of proposals to make changes in our money and financial systems to deal with these issues, there has been little or no analysis of the structure and function of the present financial system that we are working from, and how that structure has caused system instability which we will show leads to a monetary cliff.

Understanding the workings of the present system, and how it relates to other possibilities, can help us consider how alternatives might be structured so as not to require the massive deficits we now have.

First is is necessary to know something about the nature of our money.

  • While the network of money transactions around the world is very complex, the way money is structured and works is really fairly simple, and is understandable by the ordinary person.

  • Our money is simply entries in an accounting system . It is not stuff in the usual sense . Our money is simply numbers that measure who has contributed how much to the market, and who has consumed how much. Our money has no intrinsic value. We sometimes use paper representations and coins, however they are just place holders for entries in the accounting system. i

  • On another level our money is an agreement to use a specific set of accounting rules to keep track of economic exchanges . In recognizing that money is an agreement, we are open to look at the nuts and bolts -- the rules - of that agreement, to consider if they are what we want to live with, and to consider changes to those rules that would make the system serve us better. ii

  • Money is created in the process of making loans, and disappears in the process of repaying those loans. It is created as a negative entry in the account of the buyer when they make a purchase and a positive entry in the account of the seller. It disappears as the negative entry is canceled. In the meantime it is passed around between users.

  • It is trust that other users will keep their commitments that makes an accounting money system possible and workable.

  • The value of money is based on the fact that the public accepts it as a medium of trade, and the government accepts it in payment of taxes.

  • Some money systems historically have uses a commodity as the basis of money. These systems share a number of limitations, the most important of which is that the amount of money in circulation is connected to the availability of the commodity used. The limited amount of gold available was a major incentive for moving from commodity based money to the accounting money we use today. A second issue is that control of the economy simply moves from those who control the creation of accounting money to those who control the supply of gold.

  • Since money is the language of economic interchange we can't underestimate the ways in which its rules effect how we think about ourselves as we relate to other people and our environment.

Once we get our heads wrapped around these basic ideas, it is possible to begin to understand our money. Additionally:

  • We need to stop thinking of ourselves just as consumers. In order to consume it is necessary to also be a producer of goods or services. Combining these two functions, we must instead see ourselves as traders.

  • The term 'trader' has been taken over by people who only trade financial instruments for their profit without doing productive work. In what follows, the term trader will be used to describe individual and group traders in the productive market, rather than financial traders.

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I am a semi-retired self employed business owner who designs and builds instruments and machines. Obtained a BS in Sociology (with minors in Physics and Math) in the 1960's and became interested in studying the structural violence built into our (more...)

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The Monetary Cliff: Its the Driver behind Deficits and the Fiscal Cliff - Rethinking our Centralized Fiat Money System


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The article defines seigniorage in a non-standard ... by Scott Baker on Wednesday, Feb 12, 2014 at 4:25:27 PM
I understand Scott Baker's critique. It should... by Paul Krumm on Thursday, Feb 13, 2014 at 9:50:03 PM
Thank you for your valuable work, Paul. Your artic... by Nelson Betancourt on Thursday, Feb 13, 2014 at 11:24:23 AM
Paul, you wrote, "And who bails them out? Us taxp... by Robert Bostick on Thursday, Feb 13, 2014 at 2:44:42 PM
Thank you for pointing out the difference between ... by Don Hall on Thursday, Feb 13, 2014 at 9:29:10 PM
Most investors now believe three things about th... by Lance Brofman on Saturday, Feb 15, 2014 at 8:48:55 PM