Fiat debt money, how it drives countries and lives

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I first composed & posted this article in June 2007, I have updated the NZ graphs as of March 2008. USA M3 data is no longer Officially available.

Often used terms:
M3 = Total money supply
Usury = Interest payments
Fiat = Debt based paper money with no gold backing ( what we use now)
I think I have reached a new level of understanding about fiat money and usury and want to share this with you all.

These are some conclusions I have come to:
1. Our economies and actions as countries are as a whole driven by usury and everything else is secondary!

2. Increasing interest rates, increase, not decrease the rate of inflation!

3. We can have a major depression and our fiat money may not actually fail.

Some recent investigations / calculations have opened my eyes to the reality, and it does not necessarily end in the destruction of the dollar (on this cycle). That totally depends on our various government reactions to the coming recession / depression.

Some may not know that monitory inflation is inflation of the money supply, nothing else. General inflation of goods & services is not possible without it. So ask yourself, what controls the money supply?

Since we use fiat paper debt money it is only borrowing that can increase that money supply (M3). The only other option is that in a desperate situation a government directly takes control of the printing press creating and spending cash without borrowing. In countries like America and New Zealand who operate in trade deficit and have done so for many years, our share of the debt burden has grown over time, so what affects the amount of borrowing? Some may say it’s lending for housing or businesses may borrow more to fund new life improving technologies, people may speculate on stocks or borrow to go on holiday. People may feel they can borrow more when they are fully employed, governments may borrow to fund social or capital programs. These things and others added together drives a certain level of monitory inflation right? No not right!
There is an overall driver that controls inflation and drives everything we do, its usury and everything we do in fiat is subservient to it and I can prove it!
I have been meaning to try this out for sometime but did not expect the results to be so conclusive, like anything worth doing it took some work. I went back in time as far as I could and using the monthly mortgage floating rates for the last 47 years I then calculated the compound interest on the money supply from 1960 forward on a monthly basis. The results show that the money supply is controlled by the interest rate and is a function of compound interest. Everything we do with fiat is just supporting the usury!
See below the blue line is actual M3 data straight from the RBNZ starting with 1,633 million in 1960 and going to 206,503 million in December 2007. I used New Zealand in the below example as it is simple to show the truth in this small economy, but I also have shown this with US data further on. The pink line is 1960 M3 (1,633 million) compounded by the actual monthly floating mortgage rate. There are a full 656 variable monthly compounding interest rate calculations that finish in December 2007 at (Some interest rates are higher and some are lower than the floating rate, so I used it as a medium example).
(Click on image to enlarge)
NZ money supply (M3) 1960-2007 vs.Compounded 1960 M3

It is best to view compound growth on a logarithmic scale but I have included the below linear graph also to help convey the message:
(Click on image to enlarge)
NZ money supply (M3) 1960-2007 vs.Compounded 1960 M3 Lin

Now without doubt usury drives our money supply inflation, it would be impossible to have these two numbers the same after 656 variable compounding interest rate calculations how could it not. Only small changes during 47 years would make a huge difference by Dec 2006.
This means that usury is the master of people & corporates in debt and their number one activity when its boiled down is frantically feeding moneys inherent interest payments with their slave like work in their busy lives.

Lets take another example, the US money supply going back to 1959. I have taken the actual monthly interest rates from FED data and compounded this monthly over 48 years. As it is difficult to know the exact rate on average that is charged on money, (30y t-bills to 20%+ credit cards) I have put a few options in so we can see that the relationship is too close to deny:(Click on image to enlarge)
USA M3 1959-2006 vs.Compounded 1959 M3
Note that increased activity or anything we do in the “new economy” has never truly broken away from the usury need of the money supply. During the time span above there have been booms, busts, wars, oil crises etc. … where are the big impacts on the money supply? In the big picture it just keeps going like nothing has happened except acceleration / deceleration due to interest rate changes. This is very fundamental, we drift from wars to booms to busts and it all fits within this compounded usury growth, who is the master? This brings a whole new meaning to the saying: “Money makes the world go round”

High interest rates make the money supply grow faster, so high interest rates actually increase inflation. When interest rates go up people need to work harder to pay the interest. This is the same for the entire country, but as money is only produced when borrowed, getting busy means borrowing more.
It can be seen in the below chart, when interest rates are generally rising so is M3 and gold & silver were peaking about 1980 as interest rates and M3 growth were also peaking. Also gold was bottoming out around 2000:(Click on image to enlarge)




During high inflationary times M3 grows faster while the interest rate is higher, this only makes sense when you realize we are driven by usury. High interest rates do not slow M3 growth they accelerate it! That is why gold & silver go up when interest rates are high. See: http://www.financialsense.com/editorials/casey/2006/0720.html

Fiat dollars can never truly win against gold:

There are two reasons for increasing interest rates, one is the often discussed need to cap increasing price inflation in certain sectors but the other less discussed and most likely reason for increasing interest rates is Risk. Banks and lenders in general charge higher interest on loans with higher risk factors, this is specifically to cover bad loans that never get paid back. Thus the growth of M3 is maintained.

Higher risk in economy > higher interest rate > higher inflation rate > faster growing M3 > fiat devaluing faster = higher gold.

Asset price inflation is not money supply inflation.
(Click on image to enlarge)
Value of NZ housing stock1979-2007 vs. M3 (Total money supply)Housing and the stock market could lose more than 70% in dollar value and the money supply may not be savaged!
Housing stock in NZ alone is worth 600 billion, that’s 3 X more than the money supply alone in unrealized “paper gains” add the stock market and private equity to that and the unrealized paper is far bigger than the fiat paper supply.

During a recession moneys usury will still need feeding and assets can be bled and fall to match the money supply over 10 years or so. Only a fraction of the falling unrealized paper assets will need to be purchased through borrowing to support the fiat money supply. Once assets have deflated as far as they can down closer to the money supply, interest rates will lower leading to a prolonged period of stagnation as the money supply needs very little feeding with low rates. Then over time as confidence returns and interest rates rise more money is needed for usury and the whole process can start again, while all the time fiat loses value and usury just keeps growing. If the actual money supply & major banks start falling over the government will step-in to support them and print money as necessary. Governments are so big now they have many ways to give money away, with “strings attached”

So we can sell down assets into a depression, we can be broke, we can have no jobs, little food, no house but the fiat money supply can still get through this and be growing as it only needs to maintain its own compound interest rate and that is far far less than our paper assets. In the great depression some housing lost 95%! The dollar lost ½ of it’s value against gold overnight yet the dollar survived.

Think about this example, a company has 100 million shares, the shares are trading for 1 dollar so the company is worth 100 million. Then 1,000 shares trade for $2 just before close of trade, now the company is worth 200 million, but the money supply did not increase by 100 million.Another example, one house in a street sells for $100k higher than the others have been selling for, now the rest of the houses in the street all go up 100K so that 100K of fiat debt input has pushed up unrealized paper gains 20x or more as a whole.

Just like Fiat has inflated away from gold, unrealized paper gains have inflated away from fiat, so the paper gains will collapse into fiat and fiat will inflate & lose value while gold will rise.

Derivatives fit into this picture also, they are complexly interlinked insurance policies and worth 10 – 50? times more than the money supply so not worth the paper they are written on. But that does not mean the actual money supply will be destroyed with them, no the companies that own them may be destroyed, their value could be totally wiped out and the actual money supply could survive and even grow!
So asset price inflation does not necessarily mean money supply inflation (True inflation) real inflation comes when governments step-in to help out starving people, pay their bills, print money to support banks. So inflation actually increases during these desperate times.

The more a government tries to help out with money it does not have the more inflation will rise. Fiat will only be destroyed with hyper inflation if the government in question goes totally crazy and tries to maintain the former standard of living that was unsustainable. (Germany only did this to print their way out of the insurmountable debt they were in after WWI). But if governments just prop the banks up, do some public works and fund soup kitchens etc. then there will be high inflation but not fiat money destruction. There may be high interest rates and high standards of lending during this time due to the risks. It totally depends on government reactions but it’s the inflation of the money supply that counts in the end.

Fiat will loss value as it always has and the higher the interest rate the faster it will lose value, during the next recession we will no doubt see currency consolidation (NZ/Australia, Pan American etc.. maybe even one with gold backing).

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