Lack of trust or loss of confidence or belief in that promise or premise of inherent value, or dissatisfaction with the level of rent / interest offered thereon, leads to withholding and hence, ceasing of the circulation of money that is so essential to the health of the economy. Such loss of trust then leads to economic recession, to increasing unemployment and to a Financial ‘Bust’. Not being linked to any ascertainable asset value and thus not constrained from being ‘printed into existence’ for weak reasons is a systemic flaw in the concept of ‘Money’.

When a government prints and issues currency not backed by any asset but only by its own FIAT, such currency is called FIAT currency. Today Central Banks of many countries are printing such FIAT currency and their governments borrow this money from their own Central Banks against Bonds issued by them as IOUs, which are then sold to other Countries, and spend such money on subsidies and for other non -productive purposes. Such spending may show some short-term benefits but leads to inflation and would soon require more money and hence more currency to be printed against more Government Bonds, in what is really a Ponzi scheme that is bound to fail.

However today, Money, even though it is not backed up by any real assets of properly ascertainable value, is seen as something that exists by itself and does not rot or corrode or dissipate or lose value over time, as does everything else in Nature. Prime facie such a concept of Money is flawed.

“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist” – Kenneth Boulding

Also, the concept of ‘Interest’ and ‘Compound Interest’ in our Financial System, allows the value of ‘Money’ to theoretically grow endlessly due to the accumulation of such ‘Interest’. Such a concept of ‘Interest’ is also, deeply flawed as it can lead to absurd conclusions. The growth of debt from such accumulation of interest, even at marginal rates, can easily be shown to exceed all possible real assets or wealth. It has been calculated that one penny value of gold in the 1st century CE lent out at five percent interest would by 1500 CE, be equivalent to a ball of gold the size of the Earth and today be more than two trillion such ‘Gold’ balls.

The exponential increase of compounding is best illustrated in the story of a clever Brahmin who got a King to agree to give him rice equal to the sum of all the rice grains, doubling. f r o m one grain on the 1st square of a chess board to the next, up to the last square. The King realized, long before he reached the last square, that such a promise could never be met, even if he had many Earths all growing rice only for this purpose.

The story says that in this case the Brahmin was too clever for his own good and was executed for his presumptuousness.

It is therefore evident that the commonly held concept of ‘Money’ today is deeply flawed in three fundamental ways. First, that it is not backed up by any assets of properly ascertainable value and second, that it never loses value, and third, that it instead can keep on earning ‘Interest’ and thus keep on gaining in value.

Since these flaws are evidently against Nature’s Laws it is a given that any Financial System in which ‘Money’, so conceptualized, is working as the ‘Life Blood’ of the System, the System will sooner rather than later, fail or go ‘Bust’.

Again as Robert Frenay writes – Today ‘Money’ begins in the headwaters of each Nation’s Central Bank, like the Reserve Bank of India (RBI). They all work much the same way attempting to ensure economic stability, succeeding therein only to a point, adjusting the interest rates between Banks (Repo/Prime Rate), to speed up or slow activity, or by controlling the quantity of ‘Money’ (adjusting the CRR or money printed). This of course has a concomitant effect on the general consumer interest rate. It may be noted that our RBI is an autonomous Institution owned by our Government, while the Federal Bank of the USA is really owned by a group of Private Banks.

These Central Banks also, print ‘Money’ into existence, most times without proper correspondence to the value of the assets that are required to back such ‘Money’. Such an act results in easy availability of money leading to a systemic temporary ‘Boom’, encouraging people to borrow money they probably cannot afford to repay, to either consume more, not such a bad thing, but to also, invest into unproductive property/ assets, – a bad thing. Boosted by such easily borrowed money chasing limited available property the value of the property therefore suddenly starts rising and can then be used for further borrowing, thus further boosting the false ‘Boom’, unsupported by any real additional value creation and which attracts ‘Money’ away from productive transactions. Such a ‘Boom’ soon results in inflation and hence, in higher interest rates, leading to a burden, which the entrepreneurs / manufacturers cannot sustain and thus resulting in the withholding of ‘Money’ by the Lenders or the Banks, finally leading to a ‘Bust’. The ‘Tulip’ bubble in Europe in the 18th. Century is a perfect example of a ‘Boom” leading to ever higher investments chasing assets of no corresponding real value and hence, soon followed by a ‘Bust’. Such a “Boom & Bust’ cycle arose again and again.

The ‘Banks / Financiers’ also, lend money, collecting interest at each stage, finally burdening the end customer with all the accumulating interest thereon in addition to paying for the asset or service he is actually purchasing. Many clever Banks / Financiers also, structure the money flows into ever more intricate instruments, to camouflage the risk there of, and circulate them. Once again, the na1ve end customer is burdened with the entire loss when the System fails.

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