From the books and videos and blogs I've been consuming lately on economics, the Constitution, capitalism, etc I've come to a pretty simple understanding. Basically it's this: If your economy is based on fiat currency, then you are not in a capitalist system. Capitalism is just that, a system based on capital, if your money is based on nothing but the government's demand that it be accepted as money (as is ours) then it's not capitalism. When you have a central organization that has the arbitrary power to control the money supply for the purposes of funding their own imperialistic aspirations, placating the restless demands of their working masses, and manipulating the day to day lives of the people who depend on the money they create then what you have is tyranny.
Tyranny? you ask, isn't that a bit harsh, anyway the people in charge of creating all this currency would want to do it responsibly in order to maintain it's perceived value, right? I mean if they printed too much too fast then prices would increase and people would quickly begin not to value the currency. If people did not value the currency then they would find something else to trade with and the central power in charge of creating the currency would lose it's ability to manipulate the people. You're right, but you also must realize that tyrants understand economics as well as anyone.
This is basic economics: fiat money chases value, since it has no value of it's own, it rapidly flows to those things that do have value. This happens because people spend the money, which has no intrinsic value, on the things that they perceive to have real intrinsic value. An excess supply of money always results in the eventual increase in price as the devalued money is traded for less of the things of real intrinsic value. This is a problem for the tyrant, because it impedes the rate at which the currency can be inflated in order fund his tyrannical activities. The financial yoke of the tyrant has always been in the management of the currency, inflating it enough to perpetuate his power, but not so much that it devalues quickly and thereby losing his grasp on the people.
But what if you could control where that money flowed? So that the creation of the new money would not be evident to the masses in the form of price increases of day to day things (like bread, fuel, cable television, etc) because the money never or rarely flowed to those kinds of things. Instead what if you created a "bubble" to inflate the money into, and then controlled the rate at which that new money left the bubble? You could make your friends rich by buying stock in their companies, you could finance wars, finance political campaigns, you could have enough capital to facilitate the merger of gigantic segments of the economy and further consolidate power so that you could create more bubbles in which to place more inflated money and better control the rate at which the currency was released from those bubbles into the economy at large.
An example of this is the derivatives market. Derivatives are basically financial products that are "derived" from the existence of something real (for instance an insurance policy on a mortgage on a house, or an insurance policy on an insurance policy on an insurance policy on a mortgage on a house). The fiat money flows to these products basically because it is fooled into believing that these products have value. But it's a trap, a bubble to hold the new money in so that the creation of it only affects prices in certain parts of the market. Currency still has to be created in order for these products to be purchased. However, since the money stays in the derivative "bubble" and only slowly is released into the economy in the form of big time CEO bonuses Joe the plumber doesn't realize that his currency is being inflated at an alarming rate because the price of plumbing parts is only slowly increasing. So the people managing the fake money and trick products are actually benefiting from the inflation of the currency and the resultant price increases by skillfully keeping the new money from flowing to any of the real things of life, like electricity, twinkies, and orange juice, while at the same time allowing the money to flow to things like stocks and CEO salaries.
How much of this goes on? ALOT. Some estimate that the size of the derivatives market is over 1 quadrillion dollars (that's a trillion thousand, or a billion million, or a million billion, or a thousand trillion, or $1,000,000,000,000,000). And there are other bubbles. For instance someone may trap some money in a derivatives bubble, and then release some of that money to purchase stock in a company, which would in turn increase the price of that company's stock, if you just used this money to buy stocks then you could basically use the whole stock market as a type of bubble without having to worry to much about that money effecting the price of every day things.
So the question is obvious. What if the bubble bursts? What if all the new money comes rushing out and flows to the real things of life? All that has to happen is for for perceived value of the trick product that the fiat money is chasing to vanish, when this happens the money will seek new value. What if the derivatives bubble burst and 1 quadrillion dollars flowed out and say it all tried to go to a safe place like gold.
If there's just over 5.05 billion ounces of gold in the world and it's trading today at $745 per ounce, then all the gold on earth is worth about 3.76 trillion dollars. If 1 quadrillion new dollars went chasing that gold, then it would increase the price of the gold to about $198,500 per ounce!
You can imagine what it would do to bread, coffee, electricity, and bacon.
Anyway, that's all fun to think about, but the important thing to remember is that this is NOT capitalism, because at the heart of all of this is a politically motivated tyrannical organization called the Federal Reserve that is arbitrarily creating our counterfeit currency. They, not the market, are in direct control of the value of things. They manage the bubbles and direct the money where they wish to accomplish the agenda's they have set forth in order to continue their stay in power.
Don't let people fool you with arguments that this current economic crisis is the failure of capitalism, it isn't. Capitalism always wins because it deals in reality and not in abstracted trick products and fiat currency.
How the faithful city has become a whore, she who was full of justice! Righteousness lodged in her, but now murderers. Your silver has become dross, your best wine mixed with water. Your princes are rebels and companions of thieves. Everyone loves a bribe and runs after gifts. They do not bring justice to the fatherless, and the widow's cause does not come to them. -Isaiah 1:21-23
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