Credit Crisis: The worst is yet to come

Excerpt:

If money is backed by nothing more than government seals, decorated paper, and strongly voiced promises, greed enters into play. No army in history has hindered central bankers and governments from creating money out of thin air and then spending it according to their own vision. The modern term for this is credit money, the loaning of credit by the central bank that becomes money itself. In normal and stable systems, bankers have only been able to loan out money that they have in their own vaults, and they were also always ready to exchange issued paper money and obligations for the gold bars stored in the vault of the bank. However, there has come a moment when bankers realised that people were not coming back to request gold, the result of which was that worthless pieces of paper (read: banknotes and electronic impulses) were placed into circulation and if they issued supplementary paper currency, which lacked any coverage, nothing happened, at least initially. In the old days, the mess would eventually surface and the matter ended with either the bankruptcy of the bank or the destruction of the state’s monetary system through hyperinflation.

Currently, the entire monetary system is global, and therefore has lasted longer than usual. The process, which took place in Germany in the 1920’s over a period of 3-4 years, will last for 3-4 decades on the global market. Throughout history there has been no monetary system that was not backed by a precious metal or some other equivalent accepted by all, ever, without exception, that has remained standing. The current experiment cannot remain standing either. We have created financial “capital” in a heretofore unseen extent. This “capital” is incorrectly believed to be wealth, because it could be exchanged for actual wealth during certain historical stages. Unfortunately, all this financial “capital” and all of this financial “wealth” have little backing in real goods or productive assets. This is an inherent property of our modern-day fractional-reserve banking system. Te result is that, whether we want it or not, the entire global financial system will fall into chaos and will destroyed, and hopefully a new and better system will be created.

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