Chapter 2: Findings and Analysis- Usury & Fiat Money - National Reserve Currency

2.7.2    Usury & Fiat Money

Fiat Money

Central banks perform various actions to encourage borrowing and investment especially when markets are in recession. These include increasing the money supply in circulation and also by setting a very low interest rate which is then a basis for banks to conduct inter-bank lending and lending to eager consumers of such easily accessible credit.

These are amongst the host of internal factors that are responsible for causing the business cycle and they clearly emanate from the monetary system of the current order. The culture of consumerism fuelled by unrestrained credit creation at low interest rate leads to a false and unsustainable boom that leads to an inevitable bust or recessionary phase of the cycle.

Once the inevitable excessive demand from the manufactured credit causes general price increases and in some cases inflated prices, a phenomena often referred to as a bubble, such as the 2008 housing bubble in the US, then banks tend to respond by raising interest rates to control inflation.

Usually at around this peak point, credit becomes too expensive for many and defaults start to occur coupled with a realization by the market agents that prices have peaked and the time to sell such assets has materialized. This leads to the inevitable contraction in prices and in many cases price crashes thus terminating the false boom phase.

Once the market clears from such excessive behavior through a recession, the whole process starts again and this phenomenon repeats itself in a perpetual cycle. The key point here is that such false booms would be replaced with sustainable growth through a monetary standard that is anchored to gold and silver, which are not subject to such manipulation. Any deviation from a general growth trajectory would be driven by external market factors such as oil crisis that could slow output growth.

Therefore to level the charge that only the Fiat monetary approach, with its cheap credit and endless currency creation, can mitigate the business cycle is a disingenuous argument given that it is one of its primary causes.